<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PHYSICIAN HEALTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8099 58-2199947
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
PHYSICIAN HEALTH CORPORATION
ONE LAKESIDE COMMONS
990 HAMMOND DRIVE, SUITE 300
ATLANTA, GEORGIA 30328
(770) 673-1964
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SARAH C. GARVIN
ONE LAKESIDE COMMONS
990 HAMMOND DRIVE, SUITE 300
ATLANTA, GEORGIA 30328
(770) 673-1964
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
JAMES S. RYAN, III J. VAUGHAN CURTIS
JACKSON WALKER L.L.P. DOUGLAS B. CHAPPELL
901 MAIN STREET ALSTON & BIRD LLP
SUITE 6000 ONE ATLANTIC CENTER
DALLAS, TEXAS 75287 1201 WEST PEACHTREE
(214) 953-6000 STREET ATLANTA, GEORGIA
30309
(404) 881-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $0.0025 par value........ $69,000,000 $20,910
</TABLE>
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- -------------------------------------------------------------------------------
(1) In accordance with Rule 457(o) under the Securities Act of 1933, as
amended, the number of shares being registered and the proposed maximum
offering price per share are not included in this table.
(2) Estimated solely for purposes of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
PHYSICIAN HEALTH CORPORATION
SHARES
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Physician
Health Corporation (the "Company" or "PHC"). Prior to this offering (the
"Offering"), there has been no public market for the Common Stock. It is
currently estimated that the initial public offering price will be between $
and $ per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied to have the Common Stock approved for quotation on the Nasdaq National
Market under the symbol "PHCO."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............. $ $ $
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Total(2)............... $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) Before deducting expenses payable by the Company estimated at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional shares of Common Stock, solely to cover over-allotments,
if any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ , and $ , respectively.
-----------
The Common Stock is offered by the Underwriters, as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
A.G. EDWARDS & SONS, INC.
THE ROBINSON-HUMPHREY COMPANY
The date of this Prospectus is , 1998
<PAGE>
[MAP AND EXPLANATORY LEGEND SHOWING LOCATIONS OF PHC PRACTICES AND PAYOR
CONTRACTING ACTIVITIES,
AND NUMBERS OF PHYSICIANS, CONTRACTS AND COVERED LIVES]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY,
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Unaudited Pro Forma Combined Financial Statements........................ 18
Selected Consolidated Financial Data..................................... 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 34
Management............................................................... 48
Certain Transactions..................................................... 54
Description of Capital Stock............................................. 57
Principal Stockholders................................................... 61
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 66
Experts.................................................................. 66
Additional Information................................................... 66
Index to Financial Statements............................................ F-1
</TABLE>
----------------
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements examined by its
independent public accountants. The Company also intends to furnish such other
reports as it may determine or as may be required by applicable law.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. See "Risk Factors" for information that should be
carefully considered by prospective investors. Unless otherwise indicated, all
information in this Prospectus assumes: (i) no exercise of the Underwriter's
over-allotment option and (ii) conversion of all of the issued and outstanding
shares of the Company's Class A Stock (Series 1 and Series 2), Series B
Redeemable Convertible Preferred Stock, Series B Non-Voting Redeemable
Convertible Preferred Stock and Prime Common Stock into 10,336,266 shares of
Common Stock and 917,814 shares of Non-Voting Common Stock upon consummation of
the Offering.
THE COMPANY
Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of November 10, 1997, the Company provided services to 23
independent physician networks ("Affiliated Networks") and two Company-
sponsored physician networks ("PHC Networks"). At November 1, 1997, the PHC
Networks and Affiliated Networks included more than 3,000 physicians and had
approximately 2.9 million covered lives under 37 managed care contracts ranging
from specialty capitation contracts to global risk contracts. As of November
10, 1997, the Company also provided practice management services to 19
physician practices ("PHC Practices"), including 62 physicians who have
affiliated with the Company through practice management or employment
agreements ("PHC Physicians"). The Company also has agreements to acquire 15
additional practices including an aggregate of 104 physicians ("Pending
Acquisitions"), subject only to customary closing conditions.
The Company's objective is to continue building comprehensive and integrated
networks of high quality physicians in selected geographic markets in order to:
(i) establish a significant market presence enabling it to negotiate favorable
payor contracts and (ii) provide a broad range of high quality physicians and
ancillary health care services to payors and patients. To achieve these
objectives, the Company seeks to: (a) leverage contracting expertise to enter
strategic markets; (b) selectively acquire key practices to strengthen market
presence; (c) provide management expertise and capital for development of
ancillary health care services; (d) negotiate and administer beneficial payor
contracts; and (e) utilize information technology to improve practice
performance and meet payor needs. The Company believes that its expertise in
network development, payor contracting and ancillary health care services
development differentiates it from traditional physician practice management
companies ("PPMs") and enhances its ability to attract high quality physicians
and negotiate favorable payor contracts.
The Company commenced operations in 1994 as Physician Health Corporation, a
Georgia corporation (the "Predecessor"), and was a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August 1995
and acquired the Predecessor in November 1995. The Company's primary markets
are Atlanta, Georgia; Cincinnati, Ohio; Dallas/Ft. Worth, Texas; Memphis,
Tennessee; Orlando, Florida; and St. Louis, Missouri. The Company also provides
services in Arizona, Illinois, Kentucky, Mississippi and Virginia. The
principal executive offices of the Company are located at One Lakeside Commons,
Suite 300, 990 Hammond Drive, Atlanta, Georgia 30328.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered hereby........................ shares
Common Stock to be outstanding after the Offering.. shares(1)
Use of proceeds.................................... To repay certain
indebtedness and for
working capital and
general corporate
purposes, including future
acquisitions of physician
practices, acquisitions
and development of
ancillary health care
services, and development
of physician networks and
payor contracts. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. PHCO
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------- ----------------------------
PRO FORMA PRO FORMA
1994 1995(2) 1996 1996(3)(4) 1996 1997 1997(3)(4)
---- ------- ------- ---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues............ $812 $2,406 $ 4,036 $83,815 $1,683 $ 5,725 $47,470
Operating expenses:
Salaries and
benefits............. 531 1,895 2,915 36,015 1,350 4,173 21,645
Contract and
professional
services............. 38 194 194 2,777 192 504 2,675
Provision for bad
debts................ -- 40 660 1,106 220 492 677
General and
administrative....... 225 594 2,748 33,341 480 1,972 17,257
Depreciation and
amortization......... 58 120 161 4,025 47 284 2,094
Write down of
assets(5)............ -- -- 195 -- -- 715 --
Purchased research and
development(6)....... -- -- -- -- -- 13,252 --
---- ------ ------- ------- ------ -------- -------
Total operating
expenses............. 851 2,844 6,874 77,264 2,289 21,391 44,348
---- ------ ------- ------- ------ -------- -------
Income (loss) from oper-
ations................. (39) (438) (2,838) 6,551 (606) (15,668) 3,122
Interest expense, net... 24 94 30 2,250 6 173 943
---- ------ ------- ------- ------ -------- -------
Income (loss) before mi-
nority interest and in-
come taxes............. (63) (532) (2,867) 4,301 (612) (15,840) 2,179
Minority interest....... -- (1) -- -- -- (2,081) 569
---- ------ ------- ------- ------ -------- -------
Income (loss) before in-
come taxes............. (63) (531) (2,867) 4,301 (612) (13,759) 1,610
Income tax expense...... -- -- 17 2,817 1 14 1,156
---- ------ ------- ------- ------ -------- -------
Net income (loss)....... $(63) $ (531) $(2,884) $ 1,484 $ (613) $(13,773) $ 454
==== ====== ======= ======= ====== ======== =======
Net income (loss) per
share.................. N/A N/A $ (0.51) $(0.17) $ (1.92)
==== ====== ======= ======= ====== ======== =======
Weighted average out-
standing shares........ N/A N/A 5,601 3,599 7,168
==== ====== ======= ======= ====== ======== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................... $ 3,012 $ 11,325 $
Total assets............................. 32,249 105,906
Long-term debt........................... 13,731 39,157 17,657
Total stockholders' equity (deficit)..... (10,413) 49,634
</TABLE>
See Notes to Summary Consolidated Financial Data.
5
<PAGE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
(1) Excludes: (i) an aggregate of 3,091,270 shares of Common Stock issuable
upon exercise of warrants outstanding at a weighted average exercise price
of $0.74 per share; (ii) an aggregate of 4,983,149 shares of Common Stock
issuable upon exercise of options outstanding at a weighted average
exercise price of $4.47 per share under the Company's Amended and Restated
1995 Stock Option Plan (the "1995 Stock Option Plan"); and (iii) 5,016,851
shares of Common Stock reserved for issuance under the 1995 Stock Option
Plan following consummation of the Offering. See "Management--1995 Stock
Option Plan."
(2) The presentation of the 1995 Statement of Operations Data is not in
accordance with generally accepted accounting principles. The 1995
Statements of Operations Data for the Predecessor and the Company have been
combined to give a complete presentation for the twelve months ended
December 31, 1995.
(3) The pro forma Statements of Operations Data give effect to the asset
acquisitions and the Pending Acquisitions as if they had occurred as of
January 1, 1996. The pro forma Balance Sheet Data give effect to the asset
acquisitions as if each had occurred on June 30, 1997. See "Unaudited Pro
Forma Combined Financial Statements."
(4) Adjusted to reflect the sale of shares of Common Stock offered hereby
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(5) The $195,000 charge in 1996 is related to the write off of operating assets
related to certain terminated physician arrangements. The $715,000 charge
in 1997 is related to the write off of deferred financing fees related to a
credit arrangement with NationsCredit Commercial Corporation that was
terminated and the write-off of operating assets related to terminated
physician arrangements.
(6) The $13.3 million charge in 1997 is related to the write off of certain
deferred research and development acquired in association with the
Arlington Cancer Center acquisition.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing any of the shares of the Common Stock offered
hereby. This Prospectus contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from those discussed
in the forward-looking statements as a result of certain factors, including
those set forth below and elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; LOSSES
The Company's predecessor commenced operations in 1994 and the Company
acquired its first physician practice in November 1996. To date, the Company
has not achieved profitability. For the years ended December 31, 1995 and 1996
and the six months ended June 30, 1997, the Company incurred net losses of
approximately $531,000, $2.9 million and $13.8 million, respectively. There
can be no assurance that the Company will be able to generate sufficient
revenue to achieve profitability on a quarterly or annual basis or to sustain
or increase its revenue growth or profitability in future periods. See
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
RISKS RELATED TO GROWTH STRATEGY; INTEGRATION AND MANAGEMENT OF OPERATIONS
The Company intends to pursue growth primarily through the acquisition of
physician practices, the acquisition and development of ancillary health care
services, and the development of physician networks and managed care
contracts. There can be no assurance that the Company will be able to: (i)
identify appropriate acquisition candidates; (ii) acquire and profitably
provide management services to additional practices; (iii) integrate such
practices successfully; (iv) develop or acquire, and operate profitably,
ancillary health care services; (v) affiliate with or develop physician
networks; and (vi) negotiate and administer additional managed care contracts.
See "Business--Strategy."
A significant part of the Company's growth has been and continues to be
generated by practice acquisitions. As of November 10, 1997, the Company has
acquired 19 practices, with which 62 physicians are affiliated, a sleep center
and a 51% interest in a surgery center, all since November 1996. The Company
also has agreements to acquire 15 additional practices employing an aggregate
of 104 physicians subject only to customary closing conditions. Most of the
practices acquired by the Company were operated by management unaffiliated
with the Company's management or with each other. If PHC is to realize the
anticipated benefits of its acquisitions, the operations of these practices
must be integrated and combined efficiently. The process of integrating
management services, administrative organizations, facilities, management
information systems and other aspects of operations, while managing a larger
and geographically expanded entity, presents a significant management
challenge. In particular, the Company must implement an integrated financial
management system that includes financial controls and the ability to
coordinate disparate financial systems. In addition, the Company must
coordinate geographically separated organizations and integrate personnel with
dissimilar business backgrounds. The dedication of management resources to
such integration efforts may detract management attention from acquisition and
development efforts or from the day-to-day operations of the Company. There
can be no assurance that the integration process will be successful, that
there will not be substantial costs associated with such activities or that
such integration efforts will not have a material adverse effect on the
Company's business, financial condition or results of operations.
DEPENDENCE ON THE PHC PRACTICES
The Company's revenues are dependent on its affiliation with, and the
success of, PHC Practices and PHC Physicians, and on PHC's long-term
management contracts (the "Practice Management Agreements") with the PHC
Practices. Some of the PHC Practices derive a significant portion of their
revenues from a limited
7
<PAGE>
number of physicians. Although the Practice Management Agreements are
generally for terms of 40 years and generally may be terminated only for
cause, any termination or significant deterioration of the Company's
relationship with any of the PHC Practices or PHC Physicians could have a
material adverse effect upon the Company's business, financial condition or
results of operations. There can be no assurance that the Company or the PHC
Practices will maintain cooperative relationships with key physicians. In
addition, such physicians could retire, become disabled or otherwise become
unable or unwilling to continue generating revenues at their current level or
practicing medicine with such PHC Practice. The loss by a PHC Practice of one
or more key physicians could have a material adverse effect on the revenue of
such PHC Practice and on the Company. Additionally, although each PHC Practice
and PHC Physician is subject to a noncompete agreement, there can be no
assurance that the noncompete agreements can be enforced. See "Business--
Contractual Agreements with PHC Practices."
CONCENTRATION OF REVENUE
On a pro forma basis for the year ended December 31, 1996 and for the six
month period ended June 30, 1997, 24% and 20%, respectively, of the Company's
net revenues were derived from the Arlington Cancer Center in Dallas/Fort
Worth, Texas, and 54% and 48%, respectively, of the Company's net revenues
were derived from a total of six PHC Practices including the Arlington Cancer
Center. In addition, most of the PHC Practices operate within a limited
geographic area, and a deterioration of economic or other conditions within
such areas could have a material adverse effect on the PHC Practice and, in
turn, the Company and its business, financial condition or results of
operations.
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS; DIRECT CAPITATION
As an increasing percentage of individuals participate in managed care
plans, the Company believes that its success will be, in part, dependent upon
its ability to compete successfully for, and to negotiate and retain,
favorable contracts with HMOs, employer groups and other private third-party
payors pursuant to which services will be provided on a capitated or financial
risk-sharing basis. There can be no assurance that the Company will be able to
establish and maintain satisfactory relationships with third-party payors on
terms acceptable to the Company and contracted physician providers. In
addition, many managed care contracts are terminable upon short notice, and
many payors already have existing provider structures in place and may not
desire the services of the Company or the PHC Networks. Payors may also elect
to contract directly with physicians on a fee-for-service, capitated or other
basis.
Under some managed care agreements, a health care provider network accepts a
predetermined payment per covered member per month in exchange for providing a
potentially unlimited quantity of specified services to covered members. Such
contracts transfer much of the economic risk of providing care from the payor
to the provider. To the extent that covered members require more frequent or
extensive care than is anticipated, additional costs may be incurred. This
would result in reduced reimbursement to network physicians if financial risk
for care is retained by physician providers, and in reduced profitability or
operating losses to the Company if financial risk for care is retained by the
Company. Any such reductions in reimbursement to providers under such risk-
sharing agreements could have a material adverse effect on the providers'
willingness to provide services to the networks, the networks' relationship
with contracted payors and, due to physician dissatisfaction or defection or
due to payor contract termination, the Company's business, financial condition
or results of operations.
COMPETITION
The Company, PHC Physicians, PHC Networks and Affiliated Networks face
intense competition in all aspects of their businesses. The Company believes
that changes in governmental and private reimbursement policies, among other
factors, have resulted in increased competition among providers of medical
services and among networks for payor contracts. The Company itself faces
intense competition to acquire or provide management services to physician
practices; to acquire or develop and operate ancillary health care services;
and to provide management services, including payor contracting services, to
physician networks. A number of
8
<PAGE>
hospitals, clinics, health care companies, HMOs, insurance companies and
physician practice management companies, both publicly and privately held,
some of which have established operating histories and greater resources than
the Company, engage in activities similar to those of the Company. There can
be no assurance that the Company will be able to compete effectively with its
competitors, that additional competitors will not enter its markets, or that
the Company will be able to acquire or manage physician practices, acquire or
develop ancillary health care services, affiliate with or develop networks, or
negotiate payor contracts on terms beneficial to the Company. Any such failure
could have a material adverse effect on the Company's business, financial
condition or results of operations.
PROFESSIONAL LIABILITY
All of the PHC Physicians, PHC Practices, PHC Networks, Affiliated Networks
and the Company are involved in the delivery of health care services and,
therefore, are exposed to the risk of professional or other liability claims.
Claims of this nature, if successful, could result in substantial damage
awards which may exceed the limits of any applicable insurance coverage.
Insurance against losses related to claims of this type can be expensive and
varies widely in costs and coverage. Liability claims successfully asserted
against a PHC Physician, PHC Practice, PHC Network, Affiliated Network or the
Company could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business--Corporate
Liability and Insurance."
ADDITIONAL FINANCINGS
The Company's plans to acquire practices and to acquire and develop
ancillary health care services require substantial capital resources. The
Company expects that its capital needs over the next several years will exceed
capital generated from operations. The Company plans to incur indebtedness and
to issue, from time to time, additional debt or equity securities in
connection with its acquisition and development activities and to raise
working capital. There can be no assurance that sufficient financing will be
available on terms satisfactory to the Company. The inability to obtain
additional financing could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
MANAGEMENT INFORMATION SYSTEMS; RELIANCE ON THIRD-PARTY VENDOR
The Company's success is dependent in part on its access to sophisticated
information systems and its ability to integrate these systems into the
existing operational, financial and clinical information systems of the PHC
Practices, PHC Networks and Affiliated Networks. Management information
systems are critical to negotiating, pricing and managing payor contracts.
These systems help PHC and the PHC Practices, PHC Networks and Affiliated
Networks realize operating efficiencies and enable them to capture, maintain,
monitor and analyze cost, quality and utilization data. In addition, PHC
Practices utilize different billing and collection systems requiring the
Company to collect manually and assimilate financial and operating data. The
Company will need to continue to invest in and administer sophisticated
management information systems to support these activities. The Company may
experience unanticipated delays, complications and expenses in implementing,
integrating and operating such systems. Furthermore, such systems may require
modifications, improvements or replacements as the Company expands or if new
technologies become available. Such modifications, improvements or
replacements may require substantial expenditures and may require
interruptions in operations during implementation. The failure to implement
successfully and maintain operational, financial and clinical information
systems could have a material adverse effect on the Company's business,
financial condition or results of operations.
PHC's current clinical information system requires software and support from
one third-party vendor to process submitted claims. Termination by such vendor
of its relationship with PHC, or a default in the performance of such vendor's
contractual obligations to PHC, could have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that such vendor's systems or support could be replaced by the
Company in a reasonable time or at a reasonable cost.
9
<PAGE>
GOVERNMENT REGULATION
General
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The Company believes that health care regulations
will continue to change. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment
changes. While the Company believes it will be able to structure its
agreements and operations in accordance with applicable law, there can be no
assurance that its business or such agreements or operations will not be
successfully challenged.
Every state imposes licensing requirements on individual physicians and on
facilities and services operated by physicians. In addition, federal and state
laws regulate HMOs and other managed care organizations ("MCOs") with which
the Company, PHC Physicians, PHC Practices, PHC Networks and Affiliated
Networks may have contracts. Many states require regulatory approval,
including certificates of need, before establishing or expanding certain types
of health care facilities, offering certain services or making expenditures in
excess of statutory thresholds for health care equipment, facilities or
programs. In connection with the expansion of existing operations and the
entry into new markets, the Company, PHC Physicians, PHC Practices, PHC
Networks and Affiliated Networks may become subject to compliance with
additional regulation.
The United States Congress and many state legislatures routinely consider
proposals to reform or modify the health care system, including measures that
would control health care spending, convert all or a portion of government
reimbursement programs to managed care arrangements, and balance the federal
budget by reducing spending for Medicare and state health programs. These
measures can affect a health care company's cost of doing business and
contractual relationships. For example, recent developments that affect the
Company's activities include: (i) federal legislation requiring a health plan
to continue coverage for individuals who are no longer eligible for group
health benefits and prohibiting the use of "pre-existing condition" exclusions
that limit the scope of coverage; (ii) a Health Care Financing Administration
("HCFA") policy prohibiting restrictions in Medicare HMOs or physicians
recommending to patients other health plans and treatment options; and
(iii) regulations imposing restrictions on physician incentive provisions in
physician provider agreements. There can be no assurance that such
legislation, programs and other regulatory changes will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
The Company believes its operations are in material compliance with
applicable law. The ability of the Company to operate profitably will depend
in part upon the ability of the Company, PHC Physicians, PHC Practices, PHC
Networks and Affiliated Networks to obtain and maintain all necessary
licenses, certificates of need and other approvals and to operate in
compliance with applicable health care regulations.
Fee-Splitting; Corporate Practice of Medicine
The laws of many states prohibit physicians from splitting fees with non-
physicians (or other physicians) and prohibit non-physician entities from
practicing medicine. These laws vary from state to state and are enforced by
the courts and by regulatory authorities with broad discretion. The Company's
business operations have not been the subject of judicial or regulatory
interpretation; thus, there can be no assurance that review of the Company's
business by courts or regulatory authorities will not result in determinations
that could adversely affect the operations of the Company or that the health
care regulatory environment will not change so as to restrict the Company's
existing operations or their expansion. In addition, the regulatory framework
of certain jurisdictions may limit the Company's expansion into such
jurisdictions if the Company is unable to modify its operational structure to
conform with such regulatory framework.
Changes in Payment for Medical Services
The Company believes that trends in cost containment in the health care
industry will continue to result in a reduction from historical levels in per-
patient revenue for PHC Practices. The federal government has
10
<PAGE>
implemented, through the Medicare program, the resource-based relative value
scale ("RBRVS") payment methodology for physician services. The RBRVS is a fee
schedule that, except for certain geographical and other adjustments, pays
similarly situated physicians the same amount for the same services. The RBRVS
is adjusted each year and is subject to increases or decreases at the
discretion of Congress. To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically performed by PHC
Physicians. There can be no assurance that any reduced operating margins could
be recouped by the Company through cost reductions, increased volume,
introduction of additional procedures or otherwise.
Rates paid by nongovernmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician,
ambulatory surgery center and hospital charges, and are generally higher than
Medicare payment rates. A change in the makeup of the patient mix of the
medical practices under Company management that results in a decrease in
patients covered by private insurance or a shift by private payors to RBRVS or
similar payment structures could adversely affect the Company's business,
financial condition or results of operations.
Medicare and Medicaid Fraud and Abuse
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce: (i) the referral of
a person; (ii) the furnishing or arranging for the furnishing of items or
services reimbursable under Medicare or Medicaid programs; or (iii) the
purchase, lease or order or arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under Medicare or Medicaid (the
"Anti-Kickback Law"). Pursuant to the Anti-Kickback Law, the federal
government has announced a policy of increased scrutiny of joint ventures and
other transactions among health care providers in an effort to reduce
potential fraud and abuse relating to Medicare costs. The applicability of
these provisions to many business transactions in the health care industry has
not yet been subject to judicial and regulatory interpretation. Noncompliance
with the Anti-Kickback Law can result in exclusion from Medicare and Medicaid
programs and civil and criminal penalties.
Significant prohibitions against physician referrals have been enacted by
Congress. 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. Stark II prohibits a physician from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment
interest, or with which the physician has entered into a compensation
arrangement. The designated health services include, for example, prosthetic
devices, clinical laboratory services, radiology (such as ultrasound, MRI and
CT), home health, physical and occupational therapy, prescription drugs and
inpatient and outpatient hospital services. The penalties for violating Stark
II include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each referral violation and $100,000 for
participation in a "circumvention scheme." To the extent that the Company or
any PHC Practice is deemed to be subject to the prohibitions contained in
Stark II, the Company believes its activities fall within the permissible
activities defined in Stark II, including, but not limited to, the provision
of in-office ancillary services.
The Company believes that although it will receive service fees under its
agreements for management and administrative services, it is not generally in
a position to make or receive referrals of patients for services reimbursed
under the Medicare or Medicaid programs. Such service fees are intended by the
Company to be consistent with fair market value in arm's-length transactions
for the nature and amount of management services rendered and, therefore,
would not constitute unlawful remuneration under Anti-Kickback Law and
regulations. For these reasons, the Company does not believe that fees payable
to it would be viewed as remuneration for referring or influencing referrals
of patients or services covered by such programs as prohibited by statute. If
the Company is deemed to be in a position to make, influence or receive
referrals from or to physicians, the operations of the Company could be
subject to scrutiny under federal and state anti-kickback and anti-referral
laws.
In certain jurisdictions that do not prohibit the corporate practice of
medicine, the Company owns practices and employs physicians. Thus, with
respect to such practices, the Company is a provider of services and would
11
<PAGE>
be capable of receiving referrals from other physicians affiliated with PHC in
those markets. In these circumstances, PHC Practices either will not accept
referrals involving designated health services from other physicians
affiliated with PHC or will form group practices comprised of PHC Practices in
that market.
In addition, the Company also believes that the methods used to acquire the
assets of existing practices do not violate anti-kickback and anti-referral
laws and regulations. Specifically, the Company believes the consideration
paid by the Company to physicians to acquire assets in their practices is
consistent with fair market value in arm's-length transactions and not
intended to induce the referral of patients. Should this or any other Company
practice be deemed to constitute an arrangement designed to induce the
referral of Medicare or Medicaid patients, then such could be viewed as
possibly violating anti-kickback and anti-referral laws and regulations. A
determination of liability under any such laws could have a material adverse
effect on the Company's business, financial condition or results of
operations.
Antitrust Issues
Federal and state antitrust statutes prohibit conduct such as price fixing,
market allocation and other anti-competitive activities by groups of
competitors. The federal and state antitrust enforcement agencies have not
hesitated to bring civil and criminal enforcement actions against the joint
activities of physician organizations that violate the antitrust laws.
Collaboration regarding the pricing of services, market allocation and certain
other types of joint action, however, may be permissible in the context of an
integrated joint venture if those activities are ancillary to otherwise
legitimate purposes of the joint venture. The federal antitrust agencies, the
Federal Trade Commission and the United States Department of Justice, have
established "antitrust safety zones" for physician networks that meet certain
criteria. The antitrust safety zones are for networks in which providers share
substantial financial risk (e.g., capitation or substantial withholding) and
in which the providers constitute less than specified percentages (20% for
exclusive networks and 30% for non-exclusive networks) of total providers in a
specialty or subspecialty in the market. Conduct outside the safety zones is
not necessarily unlawful, but antitrust regulatory authorities will give
greater scrutiny to the potential impact on overall competition. State
antitrust agencies may or may not rely on antitrust analysis similar to that
of the federal agencies.
Insurance Regulatory Risks
An important element of the Company's business and strategy includes acting
as an agent for PHC Physicians, PHC Networks and Affiliated Networks to
negotiate with insurance companies, HMOs, employer self-funded plans, health
plans and other MCOs for the provision of health care services to the
subscribers or beneficiaries of the health plans operated by such parties.
Under some of these contracts, the Company receives capitation payments on
behalf of a network and reimburses participating physicians on a fee-for-
service basis. Under the laws of some states, this contracting arrangement
could be determined to involve an insurance risk. Therefore, to the extent the
Company is deemed to be in the business of insurance in a particular state,
the Company, PHC Physicians and PHC Networks could be subject to insurance
regulatory scrutiny; regulators could require restructuring of a specific
arrangement; and the Company's operations could be restricted, its expansion
limited, or certain of its operations prohibited.
Legislative Developments
The recently adopted Balanced Budget Act of 1997 ("BBA") enacted a Medicare
Plus/Medicare Choice Program for Medicare enrollees. The program would broaden
the coverage options available to Medicare recipients, would authorize broader
use of medical savings accounts, and would allow physicians and patients to
contract for health care services at rates beyond what is paid by Medicare.
Such changes potentially could increase the services utilized by Medicare
recipients. In addition, the BBA allows provider sponsored organizations
("PSOs") to contract directly with Medicare, instead of contracting through an
HMO. If the PHC Practices, PHC Networks and Affiliated Networks participate in
such PSOs, they could increase the percentage of Medicare-related business,
which would also increase the exposure for losses if Medicare revenues fall
short of the cost of services actually utilized by Medicare beneficiaries. If
PHC does not participate in such PSOs,
12
<PAGE>
whether by choice or because it does not obtain a required license to act as a
PSO, PHC's ability to participate in Medicare programs could be limited. The
BBA also amends the fraud and abuse laws to require permanent exclusion from
Medicare of anyone convicted of three Medicare program-related crimes and to
impose new civil monetary penalties to anyone contracting with an excluded
health care provider. These changes increase the regulatory and other risks
encountered by the Company. See "--Risks Associated With Managed Care
Contracts; Direct Capitation."
In addition, proposed legislation regarding health care reform has been
introduced before many state legislatures. Any such reform at the federal or
state level could significantly alter patient-provider relationships. State
and federal agency rule-making addressing these issues is also expected. No
predictions can be made as to whether future health care reform legislation,
similar legislation or rule-making will be enacted or, if enacted, its effect
on the Company. Any federal or state legislation prohibiting investment
interests in, or contracting with, the Company by health care providers for
which there is no statutory exception would have a material adverse effect on
the Company's business, financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL
The development of the Company's business and its operations have been
materially dependent upon the active participation of the Company's executive
officers and key employees. The loss of the services of one or more of these
persons could have a material adverse effect on the business, financial
condition or results of operations of the Company. The Company maintains a key
person life insurance policy in the amount of $1.0 million on the life of its
Chief Executive Officer and President, Sarah C. Garvin. See "Management."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this Offering, the officers and directors of the Company,
together with their affiliates, will own beneficially approximately % of the
outstanding shares of Common Stock ( % if the Underwriters' over-allotment
option is exercised in full). Such persons acting together could have a
significant influence on matters requiring stockholder approval, including the
election of directors, mergers and other extraordinary corporate events. See
"Management" and "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following the Offering. The shares being sold in the Offering will be
freely tradable unless acquired by affiliates of the Company. Certain
stockholders of the Company hold, in the aggregate, 16,409,588 shares of
Common Stock and 917,814 shares of Non-Voting Common Stock, none of which were
acquired in transactions registered under the Securities Act. Accordingly,
such shares may not be sold except in transactions registered under the
Securities Act or pursuant to an exemption from registration. The Company and
its directors, executive officers and current stockholders holding an
aggregate of shares have agreed not to offer or sell any shares of
Common Stock for a period of 180 days (the "180-Day Lockup Period") following
the date of this Prospectus without the prior written consent of BancAmerica
Robertson Stephens, except that the Company may, subject to certain
conditions, issue Common Stock in connection with acquisitions and with awards
under the 1995 Stock Option Plan. After the expiration of the 180-Day Lockup
Period, such shares may be sold in accordance with Rule 144 under the
Securities Act, subject to the applicable volume limitations, holding period
and other requirements of Rule 144.
The Company intends to register an additional 5.0 million shares of its
Common Stock under the Securities Act subsequent to completion of the Offering
for use by the Company as all or a portion of the consideration to be paid in
future acquisitions. Those shares, if issued, will be freely tradable by
nonaffiliates after their issuance, unless the resale thereof is contractually
restricted, and resales of any such shares during the 180-Day Lockup Period
would require the prior written consent of BancAmerica Robertson Stephens.
The Company anticipates that, prior to the consummation of the Offering, the
Company will have outstanding under the 1995 Stock Option Plan options to
purchase approximately 3,909,925 shares of Common Stock. The Company intends
to register the shares issuable upon exercise of options granted under the
1995 Stock Option Plan. See "Management--1995 Stock Option Plan" and "Shares
Eligible for Future Sale."
13
<PAGE>
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or,
if a trading market does develop, that it will continue after the Offering.
The initial public offering price of the Common Stock will be determined
through negotiations between the Company and the Underwriters and may not be
indicative of the price at which the Common Stock will trade after the
Offering. See "Underwriting" for a description of the factors to be considered
in determining the initial public offering price. The securities markets have,
from time to time, experienced significant price and volume fluctuations that
may be unrelated to the operating performance of particular companies. These
fluctuations often substantially affect the market price of a company's stock.
The market prices for securities of health care practice management companies
have been and continue to be particularly volatile. The market price of the
Common Stock could be subject to significant fluctuations in response to
numerous factors, including variations in financial results or announcements
of material events by the Company or its competitors. Regulatory changes,
developments in the health care industry or changes in general conditions in
the economy or the financial markets could also adversely affect the market
price of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company or
limit the price that certain investors may be willing to pay in the future for
shares of the Common Stock. The Certificate of Incorporation also permits the
Board of Directors to determine the rights, preferences and restrictions of
unissued series of the Company's authorized Preferred Stock and to fix the
number of shares and the designation of and to nominate directors, to submit
proposals to be considered at stockholders' meetings and to adopt amendments
to the Bylaws. Such provisions of the Certificate of Incorporation and Bylaws:
(i) divide the Company's Board of Directors into three classes, each of which
will serve for different three-year periods and (ii) restrict the right of
stockholders to call a special meeting of stockholders. The Company also is
subject to Section 203 of the Delaware General Corporation Law ("DGCL"),
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business acquisitions with an "interested
stockholder" for a period of three years following the date such stockholder
became an interested stockholder. See "Description of Capital Stock."
RISKS ASSOCIATED WITH UNSPECIFIED USE OF PROCEEDS
A significant portion of the net proceeds of the Offering will be available
for working capital and general corporate purposes, including the acquisition
of physician practices, the acquisition and development of ancillary health
care services and development of physician networks and payor contracts. The
Company's management, subject to approval by the Board of Directors, will have
broad discretion with respect to the use of such proceeds of the Offering. See
"Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares in the amount of $ per share. In the event the Company issues
additional Common Stock in the future, including shares that may be issued in
connection with future acquisitions, purchasers of Common Stock in the
Offering may experience further dilution in the net tangible book value per
share of Common Stock. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid any cash dividends and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. See "Dividend
Policy."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting the underwriting discounts and commissions and
estimated Offering expenses) are estimated to be approximately $ million
(approximately $ million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $ per share
(the midpoint of the estimated initial public offering price range). Of such
net proceeds: (i) approximately $21.5 million will be used to repay certain of
the Company's indebtedness immediately following the Offering; (ii) $6.2
million will be used to repay certain indebtedness of the Company in April
1998; (iii) $300,000 will be used to pay accrued but unpaid dividends on the
Class A Stock; and (iv) the remainder will be available for working capital
and general corporate purposes, including the acquisition of physician
practices, the acquisition and development of ancillary health care services
and the development of physician networks and payor contracts. The Company has
no present agreements for the acquisition of physician practices or ancillary
health care services except for the Pending Acquisitions. Pending such uses,
the net proceeds will be invested in short-term, interest bearing, investment
grade securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The indebtedness to be retired with the proceeds of the Offering is
comprised of approximately $10.0 million outstanding under the Company's
senior credit facility (the "Senior Debt") and approximately $9.0 million in
senior subordinated debt (the "Subordinated Debt"). The Senior Debt was
incurred in November 1997 to finance acquisitions and pay transaction
expenses, bears interest at a floating rate equal to, at the Company's option,
prime plus approximately 1.8% or LIBOR (the London InterBank Offered Rate)
plus 3.0%, and is payable in quarterly installments until maturity in April
2002. The Subordinated Debt bears interest at the rate of 12.0% per annum and
is payable in full in November 2004. The proceeds of the Subordinated Debt,
which were obtained by the Company in November 1997, were used by the Company
to refinance certain prior acquisitions, finance acquisitions and pay
transaction costs. In April 1998, the Company also will use the proceeds of
the Offering to retire a $6.2 million unsecured non-interest bearing note that
matures at that time and constituted a portion of the consideration paid in
the acquisition of the Arlington Cancer Center.
DIVIDEND POLICY
It is the Company's current intention to retain earnings for the foreseeable
future to support operations and finance expansion. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and
will depend upon, among other things, the Company's earnings, financial
condition, cash flow from operations, capital requirements, expansion plans,
the income tax laws then in effect, the requirements of Delaware law and
restrictions that may be imposed in the Company's future financing
arrangements. In addition, the Company's senior credit facility prohibits the
payment of dividends.
15
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization of
the Company: (i) at June 30, 1997; (ii) on a pro forma basis to reflect the
acquisitions of PHC Practices since June 30, 1997 and the Pending Acquisitions
and the conversion of the Company's Prime Common Stock, Class A Stock (Series
1 and Series 2), Series B Redeemable Convertible Preferred Stock (the "Series
B Voting Preferred Stock") and Series B Non-Voting Redeemable Convertible
Preferred Stock (the "Series B Non-Voting Preferred Stock"); and (iii) on a
pro forma basis as adjusted to give effect to the receipt and application of
the net proceeds of the Offering. See "Use of Proceeds." The Series B Voting
Preferred Stock and the Series B Non-Voting Preferred Stock are collectively
referred to as the "Series B Preferred Stock." This table should be read in
conjunction with "Unaudited Pro Forma Combined Financial Statements,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt(3)....................... $ 7,124 $ 8,281 $ 8,281
======== ======= ========
Long-term debt, net of current portion... 13,731 39,157 17,657
Redeemable Preferred Stock:
Class A Stock, par value $0.01 per share,
500,000 shares authorized; 200,000
shares issued and outstanding (actual);
and no shares issued and outstanding
(pro forma and pro forma as adjusted)... 2,512 -- --
Series B Redeemable Convertible Preferred
Stock, par value $0.01 per share,
15,000,000 shares authorized; 2,447,772
shares issued and outstanding (actual);
and no shares issued and outstanding
(pro forma and pro forma as adjusted)... 15,522 -- --
Stockholders' equity (deficit):
Preferred Stock, par value $0.01 per
share, 3,000,000 shares authorized;
none issued (actual, pro forma and pro
forma as adjusted).................... -- -- --
Common Stock, par value $0.0025 per
share, 140,000,000 shares authorized;
4,193,750 shares issued and
outstanding (actual); and shares
issued and 23,523,057 outstanding (pro
forma) and shares issued and
outstanding (pro forma as
adjusted)(4).......................... 10 59
Prime Common Stock, par value $0.0025
per share, 20,000,000 shares
authorized; 2,853,365 shares issued
and outstanding (actual); and no
shares issued and outstanding (pro
forma and pro forma as adjusted)...... 7 -- --
Additional paid-in capital............... 6,836 66,841
Accumulated deficit...................... (16,824) (16,824)
Notes receivable from stockholder........ (442) (442)
-------- ------- --------
Total stockholders' equity (deficit)..... (10,413) 49,634
-------- ------- --------
Total capitalization..................... $ 21,352 $88,791 $
======== ======= ========
</TABLE>
- --------
(1) Gives effect to acquisitions of PHC Practices since June 30, 1997 and the
Pending Acquisitions and the mandatory conversion of the Prime Common
Stock, the Class A Stock and the Series B Preferred Stock, upon completion
of the Offering.
(2) Gives effect to completion of the Offering and the receipt and application
of the net proceeds therefrom. See "Use of Proceeds."
(3) Short-term debt includes current maturities of long-term debt. See Note 4
to Notes to Consolidated Financial Statements for a description of the
Company's indebtedness.
(4) Excludes: (i) an aggregate of 2,685,370 (actual) and 3,091,270 (pro forma)
shares of Common Stock issuable upon exercise of warrants outstanding at a
weighted average exercise price of $0.20 (actual) and $0.74 (pro forma)
per share; (ii) an aggregate of 3,909,925 (actual) and 4,983,149 (pro
forma) shares of Common Stock issuable upon exercise of stock options
outstanding at a weighted average exercise price of $3.85 (actual) and
$4.47 (pro forma) per share under the Company's Amended and Restated 1995
Stock Option Plan (the "1995 Stock Option"); and (iii) 6,090,075 (actual)
and 5,016,851 (pro forma) shares of Common Stock reserved for issuance
under the 1995 Stock Option Plan following consummation of the Offering.
See "Management--1995 Stock Option Plan."
16
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company as of June 30, 1997 was
approximately $(22.9) million, or approximately $(3.25) per share. The pro
forma net tangible book value of the Company as of June 30, 1997 was
approximately $(14.8) million, or approximately $(0.63) per share. Pro forma
net tangible book value (deficit) per share is determined by dividing the net
tangible book value of the Company (tangible assets less total liabilities) by
the number of shares of Common Stock outstanding, giving pro forma effect to
the conversion of all outstanding shares of Prime Common Stock, Class A Stock,
Series B Preferred Stock into 10,336,266 shares of Common Stock and 917,814
shares of Non-Voting Common Stock. After giving effect to the sale by the
Company of shares of Common Stock offered at a price of $ per
share (the midpoint of the estimated initial public offering price range) and
the application of the estimated net proceeds therefrom as set forth under
"Use of Proceeds," the pro forma net tangible book value of the Company as of
June 30, 1997 would have been $ per share. This represents an immediate
increase in the net tangible book value of approximately $ million, or
approximately $ per share to existing stockholders and an immediate
dilution to new investors purchasing Common Stock in the Offering of
approximately $ per share. The following table illustrates the per share
dilution to new investors purchasing Common Stock in the Offering:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Historical net tangible book value (deficit)............. $(3.25)
Increase per share attributable to the additional asset
acquisitions and conversion of shares into Common
Stock................................................... 2.62
Increase per share attributable to the Offering..........
------
Pro forma net tangible book value per share after the
Offering................................................
-----
Dilution per share to initial public offering investors.... $
=====
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Offering as of June 30, 1997, the number of shares of Common Stock and Non-
Voting Common Stock purchased from the Company, the total consideration to the
Company and the average price per share paid to the Company by existing
stockholders and the new investors purchasing shares from the Company in the
Offering (before deducting underwriting discounts and commissions and
estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 23,523,057 % $59,689,407 % $2.54
New investors..........
---------- ----- ----------- -----
Total................ 100.0% 100.0%
========== ===== =========== =====
</TABLE>
All of the calculations above exclude: (i) an aggregate of shares 3,091,270
of Common Stock issuable upon exercise of warrants outstanding at a weighted
average exercise price of $0.74 per share; (ii) an aggregate of 4,983,149
shares of Common Stock issuable upon exercise of stock options outstanding at
a weighted average exercise price of $4.47 per share under the Company's
Amended and Restated 1995 Stock Option Plan (the "1995 Stock Option"); and
(iii) 4,983,149 shares of Common Stock reserved for future issuance under the
1995 Stock Option Plan following consummation of the Offering. See
"Management--1995 Stock Option Plan."
17
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements include the
unaudited pro forma combined balance sheet of the Company as of June 30, 1997,
and the unaudited pro forma combined statements of operations for the year
ended December 31, 1996 and six months ended June 30, 1997.
The accompanying unaudited pro forma financial statements give effect to the
following pro forma adjustments (collectively, the "Transactions"): (i) the
asset acquisitions of the PHC Practices and the Pending Acquisitions at fair
market value and related purchase accounting adjustments; (ii) the entering
into of a $45.0 million credit agreement with a syndicate of banks led by
Banque Paribas; and (iii) the consummation of the Offering.
The asset acquisitions of physician practices have generally been accounted
for under the purchase method of accounting, and pro forma adjustments
include: (i) the elimination of patient service revenue for all practices in
which the Company does not have an equity ownership interest; (ii) the
addition of management fee revenue for practices in which the Company does not
have an equity ownership interest; (iii) the payment of cash and the issuance
of Common Stock and notes to the former practice owners; and (iv) the
allocation of purchase price in excess of net assets to intangibles.
The accompanying unaudited pro forma combined balance sheet gives effect to
the Transactions occurring after June 30, 1997 as if they had occurred on June
30, 1997. The accompanying unaudited pro forma combined statements of
operations give effect to the Transactions as if they had occurred on January
1, 1996.
The Company has performed a preliminary analysis of the savings that it
expects to realize as a result of: (i) consolidating certain general and
administrative functions; (ii) the reduction in interest payments related to
the repayment of certain outstanding acquisition debt; (iii) its ability to
borrow at lower interest rates than the individual practices; (iv) the
interest earned on the net proceeds of the Offering remaining after
applications of proceeds as described in "Use of Proceeds;" and (v)
efficiencies in other general and administrative areas. The Company has not
and cannot quantify these savings until after completion of the Offering and
acquisitions. It is anticipated that these savings will be partially offset by
the costs of the Company's new senior management and expenses associated with
being a public company. These costs cannot be quantified accurately.
Accordingly, only those anticipated savings and costs that are factually
supportable have been included in the accompanying pro forma financial
information of the Company.
The unaudited pro forma combined financial statements are not necessarily
indicative of the Company's financial condition or results of operations that
would have been achieved if the Transactions had occurred as of June 30, 1997
or January 1, 1996 or of future operations. See "Risk Factors."
The unaudited pro forma combined financial statements should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical financial statements and notes
of the Company; Metroplex Hematology/Oncology Associations, L.L.P. (Arlington
Cancer Center); Greater Cincinnati Gastroenterology Associates, Inc.; Internal
Medicine Specialists, Inc.; Parkcrest Surgical Associates, Inc.; and Southern
Dependacare, Inc., which are included elsewhere in this Prospectus.
18
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(in thousands)
<TABLE>
<CAPTION>
PHYSICIAN INTERNAL SOUTHERN OTHER
HEALTH CINCINNATI MEDICINE PARKCREST DEPENDA- ACQUIRED PRO FORMA PRO FORMA
CORPORATION GI SPECIALISTS SURGICAL CARE ENTITIES(3) COMBINED ADJUSTMENTS (4) COMBINED
----------- ---------- ----------- --------- -------- ----------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 3,706 $ 61 $ 494 $ -- $ 161 $ 2,929 $ 7,351 $18,900 (q) $ 6,394
(17,300)(q)
(2,557)(a)
Accounts
receivable,
net............ 3,348 1,043 659 1,752 955 9,205 16,962 (1,927)(a) 15,035
Inventory....... 367 -- -- -- -- 121 488 75 (a) 563
Prepaid expenses
and other
current
assets......... 6,487 128 148 528 -- 364 7,655 (1,207)(a) 6,448
------- ------ ------ ------ ------ ------- ------- ------- --------
Total current 13,908 1,232 1,301 2,280 1,116 12,619 32,456 (4,016) 28,440
assets.........
Property and
equipment, net.. 5,505 136 231 527 14 2,698 9,111 1,266 (a) 10,377
Intangible 12,508 -- -- -- -- 8,290 20,798 240 (q) 64,451
assets, net.....
(8,290)(b)
51,703 (b)
Other long-term 328 -- -- 10 -- 498 836 (498)(a) 2,638
assets..........
2,300 (q)
------- ------ ------ ------ ------ ------- ------- ------- --------
Total assets.... $32,249 $1,368 $1,532 $2,817 $1,130 $24,105 $63,201 $42,705 $105,906
======= ====== ====== ====== ====== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabili-
ties:
Accounts $ 940 $ 42 $ 52 $ 260 $ 236 $ 2,972 $ 4,502 $ 294 (a) $ 4,796
payable........
Accrued 2,832 240 205 186 802 731 4,996 (958)(a) 4,038
expenses.......
Current portion
of long-term
debt........... 7,124 -- 522 363 28 2,035 10,072 (1,791)(a) 8,281
------- ------ ------ ------ ------ ------- ------- ------- --------
Total current
liabilities.... 10,896 282 779 809 1,066 5,738 19,570 (2,455) 17,115
Long-term debt.. 31,765 -- 30 257 48 4,166 36,266 19,225 (c) 39,157
1,700 (c)
(18,034)(t)
------- ------ ------ ------ ------ ------- ------- ------- --------
Total
liabilities and
redeemable
preferred
stock.......... 42,661 282 809 1,066 1,114 9,904 55,836 436 56,272
Stockholders' eq-
uity:
Preferred
Stock.......... -- -- -- -- -- 2,505 2,505 (2,505)(d) --
Common Stock.... 18 3 3 2 1 113 140 (92)(d) 59
11 (t)
Additional paid-
in-capital..... 6,394 7 (18) 2 15 6,514 12,914 33,022 (d) 66,399
2,200 (b)
240 (g)
18,023 (t)
Retained
earnings
(deficit)...... (16,824) 1,076 738 1,747 -- 5,069 (8,194) (8,630)(d) (16,824)
------- ------ ------ ------ ------ ------- ------- ------- --------
Total
stockholders'
equity
(deficit)...... (10,412) 1,086 723 1,751 16 14,201 7,365 42,269 49,634
------- ------ ------ ------ ------ ------- ------- ------- --------
Total
liabilities and
stockholders'
equity......... $32,249 $1,368 $1,532 $2,817 $1,130 $24,105 $63,201 $42,705 $105,906
======= ====== ====== ====== ====== ======= ======= ======= ========
<CAPTION>
PRO FORMA ADJUSTED
COMBINED PRO FORMA
ADJUSTMENTS(5) COMBINED
-------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ (u) $
Accounts
receivable,
net............
Inventory.......
Prepaid expenses
and other
current
assets.........
-------------- ---------
Total current
assets.........
Property and
equipment, net..
Intangible
assets, net.....
Other long-term
assets..........
-------------- ---------
Total assets.... $ $
============== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabili-
ties:
Accounts $ $
payable........
Accrued
expenses.......
Current portion
of long-term
debt...........
-------------- ---------
Total current
liabilities....
Long-term debt.. (u)
-------------- ---------
Total
liabilities and
redeemable
preferred
stock..........
Stockholders' eq-
uity:
Preferred
Stock..........
Common Stock....
Additional paid-
in-capital..... (u)
Retained
earnings
(deficit)......
-------------- ---------
Total
stockholders'
equity
(deficit)......
-------------- ---------
Total
liabilities and
stockholders'
equity.........
============== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
PHYSICIAN ARLINGTON INTERNAL SOUTHERN OTHER
HEALTH CANCER CINCINNATI MEDICINE PARKCREST DEPENDA- ACQUIRED PRO FORMA
CORPORATION CENTER GI SPECIALISTS SURGICAL CARE ENTITIES(3) COMBINED ADJUSTMENT(4)
----------- --------- ---------- ----------- --------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Patient service
revenues........ $ 5,724 $9,846 $2,966 $3,515 $5,788 $2,311 $28,572 $ 58,722 $(48,418)(e)
Management fees.. -- -- -- -- -- -- -- -- 37,166 (f)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Net revenues.... 5,724 9,846 2,966 3,515 5,788 2,311 28,572 58,722 (11,252)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Operating ex-
penses:
Salaries and
benefits........ 4,173 3,748 2,111 2,310 4,318 1,314 17,204 35,178 5,109 (h)
(18,642)(g)
Contract and
professional
services........ 503 639 -- 12 224 230 1,067 2,675 --
Provision for bad
debts........... 492 -- 25 110 26 25 (1) 677 --
General and
administrative.. 1,972 4,181 647 713 880 736 8,128 17,257 --
Depreciation and
amortization.... 284 316 12 38 28 4 654 1,336 758 (j)
230 (s)
Write down of
assets.......... 715 -- -- -- -- -- -- 715 (715)(k)
Purchased
research &
development..... 13,252 -- -- -- -- -- -- 13,252 (13,252)(k)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Total operating
expenses....... 21,391 8,884 2,795 3,183 5,476 2,309 27,052 71,090 (26,512)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Income (loss)
from
operations...... (15,667) 962 171 332 312 2 1,520 (12,368) 15,260
Interest expense,
net............. 173 64 (7) 20 18 2 292 562 544 (l)
1,003 (r)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Income (loss)
before minority
interest and
income taxes.... (15,840) 898 178 312 294 -- 1,228 (12,930) 13,713
Minority inter-
est............. (2,081) -- -- -- -- -- -- (2,081) 2,650 (m)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Income (loss)
before income
taxes........... (13,759) 898 178 312 294 -- 1,228 (10,849) 11,063
Income tax ex-
pense........... 14 -- 68 119 112 -- -- 313 285 (n)
-------- ------ ------ ------ ------ ------ ------- -------- --------
Net income
(loss).......... $(13,773) $ 898 $ 110 $ 193 $ 182 $ -- $ 1,228 $(11,162) $ 10,778
======== ====== ====== ====== ====== ====== ======= ======== ========
Net income (loss)
per share....... $ (1.92)
========
Weighted average
shares outstand-
ing............. 7,168
========
<CAPTION>
PRO PRO FORMA ADJUSTED
FORMA COMBINED PRO FORMA
COMBINED ADJUSTMENTS(5) COMBINED
--------------- -------------- ---------
<S> <C> <C> <C>
Revenues:
Patient service
revenues........ $10,304 $ -- $10,304
Management fees.. 37,166 -- 37,166
--------------- -------------- ---------
Net revenues.... 47,470 -- 47,470
--------------- -------------- ---------
Operating ex-
penses:
Salaries and
benefits........ 21,645 -- 21,645
Contract and
professional
services........ 2,675 -- 2,675
Provision for bad
debts........... 677 -- 677
General and
administrative.. 17,257 -- 17,257
Depreciation and
amortization.... 2,324 (230)(w) 2,094
Write down of
assets.......... -- -- --
Purchased
research &
development..... -- -- --
--------------- -------------- ---------
Total operating
expenses....... 44,578 (230) 44,348
--------------- -------------- ---------
Income (loss)
from
operations...... 2,892 230 3,122
Interest expense,
net............. 2,109 943
(1,166)(v)
--------------- -------------- ---------
Income (loss)
before minority
interest and
income taxes.... 783 1,396 2,179
Minority inter-
est............. 569 -- 569
--------------- -------------- ---------
Income (loss)
before income
taxes........... 214 1,396 1,610
Income tax ex-
pense........... 598 558 1,156
--------------- -------------- ---------
Net income
(loss).......... $ (384) $ 838 $ 454
=============== ============== =========
Net income (loss)
per share....... $ (0.01)(o)(p) $
=============== =========
Weighted average
shares outstand-
ing............. 28,154
=============== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
PHYSICIAN ARLINGTON INTERNAL SOUTHERN OTHER
HEALTH CANCER CINCINNATI MEDICINE PARKCREST DEPENDA- ACQUIRED PRO FORMA
CORPORATION CENTER GI SPECIALISTS SURGICAL CARE ENTITIES(3) COMBINED ADJUSTMENTS(4)
----------- --------- ---------- ----------- --------- -------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Patient service
revenues........ $ 4,036 $23,297 $6,097 $6,167 $10,515 $3,096 $53,125 $106,333 $(91,952)(e)
Management fees.. -- -- -- -- -- -- -- -- 69,434 (f)
------- ------- ------ ------ ------- ------ ------- -------- --------
Net revenues.... 4,036 23,297 6,097 6,167 10,515 3,096 53,125 106,333 (22,518)
------- ------- ------ ------ ------- ------ ------- -------- --------
Operating ex-
penses:
Salaries and ben-
efits........... 2,915 8,283 4,985 4,531 6,915 1,601 35,217 64,447 9,287 (h)
(37,719)(g)
Contract and pro-
fessional serv-
ices............ 194 627 -- -- -- -- 1,956 2,777 --
Provision for bad
debts........... 660 380 50 126 44 50 176 1,486 (380)(i)
General and
administrative.. 2,748 10,281 1,038 1,312 3,195 1,407 13,360 33,341 --
Depreciation and
amortization.... 161 1,009 25 68 48 20 1,467 2,798 1,227 (j)
460 (s)
Write down of as-
sets............ 195 -- -- -- -- -- -- 195 (195)(k)
------- ------- ------ ------ ------- ------ ------- -------- --------
Total operating
expenses....... 6,873 20,580 6,098 6,037 10,202 3,078 52,176 105,044 (27,320)
------- ------- ------ ------ ------- ------ ------- -------- --------
Income (loss)
from
operations...... (2,837) 2,717 (1) 130 313 18 949 1,289 4,802
Interest expense,
net............. 30 68 (26) 26 (26) 18 579 669 1,906 (l)
2,005 (r)
------- ------- ------ ------ ------- ------ ------- -------- --------
Income before
minority (loss)
interest and
income taxes.... (2,867) 2,649 25 104 339 -- 370 620 891
Minority inter-
est............. -- -- -- -- -- -- -- -- --
------- ------- ------ ------ ------- ------ ------- -------- --------
Income (loss)
before income
taxes........... (2,867) 2,649 25 104 339 -- 370 620 891
Income tax ex-
pense........... 17 -- 10 38 -- -- -- 65 1,635 (n)
------- ------- ------ ------ ------- ------ ------- -------- --------
Net income
(loss).......... $(2,884) $ 2,649 $ 15 $ 66 $ 339 $ -- $ 370 $ 555 $ (744)
======= ======= ====== ====== ======= ====== ======= ======== ========
Net income (loss)
per share....... $ (0.51)
=======
Weighted average
shares
outstanding..... 5,601
=======
<CAPTION>
PRO PRO FORMA ADJUSTED
FORMA COMBINED PRO FORMA
COMBINED ADJUSTMENTS(5) COMBINED
--------------- ------------------ ---------
<S> <C> <C> <C>
Revenues:
Patient service
revenues........ $14,381 $ -- $14,381
Management fees.. 69,434 -- 69,434
--------------- ------------------ ---------
Net revenues.... 83,815 -- 83,815
--------------- ------------------ ---------
Operating ex-
penses:
Salaries and ben-
efits........... 36,015 -- 36,015
Contract and pro-
fessional serv-
ices............ 2,777 -- 2,777
Provision for bad
debts........... 1,106 -- 1,106
General and
administrative.. 33,341 -- 33,341
Depreciation and
amortization.... 4,485 (460)(w) 4,025
Write down of as-
sets............ -- -- --
--------------- ------------------ ---------
Total operating
expenses....... 77,724 (460) 77,264
--------------- ------------------ ---------
Income (loss)
from
operations...... 6,091 460 6,551
Interest expense,
net............. 4,580 (2,330)(u) 2,250
--------------- ------------------ ---------
Income before
minority (loss)
interest and
income taxes.... 1,511 2,790 4,301
Minority inter-
est............. -- --
--------------- ------------------ ---------
Income (loss)
before income
taxes........... 1,511 2,790 4,301
Income tax ex-
pense........... 1,700 1,117 (n) 2,817
--------------- ------------------ ---------
Net income
(loss).......... $ (189) $ 1,673 $ 1,484
=============== ================== =========
Net income (loss)
per share....... $ (0.01)(o)(p) $
=============== =========
Weighted average
shares
outstanding..... 28,154
=============== =========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BACKGROUND
Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of November 10, 1997, the Company provided services to 23
independent physician networks ("Affiliated Networks") and two Company-
sponsored physician networks ("PHC Networks"). At November 1, 1997, the PHC
Networks and Affiliated Networks included more than 3,000 physicians and had
approximately 2.9 million covered lives under 37 managed care contracts
ranging from specialty capitation contracts to global risk contracts. As of
November 10, 1997, the Company also provided practice management services to
19 physician practices ("PHC Practices"), including 62 physicians who have
affiliated with the Company through practice management or employment
agreements ("PHC Physicians"). The Company also has agreements to acquire 15
additional practices including an aggregate of 104 physicians subject only to
customary closing conditions.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial statements represent the financial position and
results of operations of the Company and physician practices and were derived
from the respective financial statements where indicated. All entities
acquired in the asset acquisitions have a December 31 year end, or their
financial results have been recast to a December 31 year end. Quarterly
statements of operations have been included in the pro forma statements of
operations for the six months ended June 30, 1997. The audited historical
financial statements included elsewhere in this Prospectus have been included
in accordance with applicable Securities and Exchange Commission rules and
regulations. The Company will continue to have a December 31 year end.
3. PHYSICIAN PRACTICE ASSET ACQUISITIONS
The Company has acquired substantially all of the net assets of the
physician practices. See "Business-- Operations." These asset acquisitions
will be accounted for using the purchase method of accounting.
The Company had acquired six physician practices through asset acquisitions
as of June 30, 1997. See Note 2 to the Notes to the Consolidated Financial
Statements of the Company.
The following table sets forth the estimated consideration paid and to be
paid to its stockholders for the asset acquisitions occurring after June 30,
1997 (in thousands), subject to certain purchase price adjustments and final
purchase price allocations.
<TABLE>
<CAPTION>
STOCK TOTAL
CASH NOTES VALUE CONSIDERATION
------- ------ ------- -------------
<S> <C> <C> <C> <C>
Atlanta practices......................... $ 4,450 $ 891 $ 4,611 $ 9,952
Cincinnati GI............................. 4,468 -- 5,585 10,053
Louisville................................ 539 -- 3,750 4,289
MidSouth (Memphis)........................ -- -- 4,900 4,900
Internal Medicine Specialists (Orlando)... -- -- 4,500 4,500
Other Orlando practices................... 1,755 -- 4,174 5,929
Parkcrest (St. Louis)..................... -- -- 4,034 4,034
Other St. Louis practices................. 1,678 667 8,247 10,592
Southern DependaCare...................... 3,882 1,800 675 6,357
Other practices........................... 506 30 95 631
------- ------ ------- -------
Total................................... $17,278 $3,388 $40,571 $61,237
======= ====== ======= =======
</TABLE>
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The holders of most shares of PHC stock issued as consideration in the asset
acquisitions since mid-October 1997 have contractually agreed with the Company
not to offer, sell, or otherwise dispose of any of those shares for a holding
period ranging from 14 months to 42 months after the respective asset
acquisitions. The fair value of these shares reflects this restriction.
The estimated total purchase price (based on the fair value of the shares to
be issued) of the asset acquisitions since June 30, 1997 is allocated as
follows (in thousands):
<TABLE>
<S> <C>
Adjusted net assets from the asset acquisitions, at book value..... $11,849
Intangibles........................................................ 49,388
-------
Total purchase price............................................. $61,237
=======
</TABLE>
Based on management's preliminary analysis, it is anticipated that the
historical carrying value of the acquisitions' assets and liabilities will
approximate fair value. Management of the Company has not identified any other
material tangible or identifiable intangible assets of the acquisitions to
which a portion of the purchase price could reasonably be allocated.
The following is a summary of the adjustments reflected in the Unaudited Pro
Forma Financial Statements giving effect to the completion of the asset
acquisitions of the PHC Practices. The Company has not acquired equity
interests in most of the PHC Practices, but has acquired substantially all of
the non-medical assets of the Practices and, in most cases, will have a 40-
year Practice Management Agreement with each practice.
4. PRO FORMA BALANCE SHEET AND OPERATIONS STATEMENT ADJUSTMENTS
(a) Reflects the adjusted net assets acquired, at fair-market value, from
the asset acquisitions since June 30, 1997. See Note 3.
(b) Reflects the adjusted intangible amount associated with the asset
acquisitions since June 30, 1997. The ending intangibles amount of
$64.5 million as of June 30, 1997 also includes estimated capitalized
costs associated with the asset acquisitions of $2.3 million.
(c) Reflects the adjusted long-term debt associated with the asset
acquisitions since June 30, 1997. The ending long-term debt includes
the cash component and the notes payable included in the total
consideration given for the asset acquisitions, as well as long-term
debt assumed as part of the asset acquisitions. See Note 3.
(d) Reflects the adjusted total stockholders' equity associated with the
asset acquisitions since June 30, 1997. See Note 3.
(e) Reflects the elimination of patient service revenue for all physician
practices with which the Company has a Practice Management Agreement,
but will not directly employ the physicians of such practices. See (h).
(f) Reflects the management service revenue received from the Practice
Management Agreements. Pursuant to Practice Management Agreements, the
Company will act as the exclusive manager and administrator of a PHC
Practice. The Practice Management Agreements provide for the PHC
Practice to assign to the Company all or substantially all of its
rights and interests in the proceeds of its non-governmental accounts
receivable (or the revenue it receives) and grants to the Company the
right to collect and retain the proceeds of governmental accounts
receivable (or revenue) for the Company's account to be applied in
accordance with the agreement. Although such proceeds of the accounts
receivable (or revenue) are collected by the Company on behalf of the
practice, the practice grants to the Company the right to grant a
security interest and factor such accounts, and such receivables secure
Company borrowings under its credit facility.
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) Reflects the elimination of physician compensation at the practices in
which the Company does not have an equity ownership interest. After the
Company collects its management fees pursuant to the Practice
Management Agreements, the remaining revenues will be remitted to the
PHC Practice to pay physician compensation and benefits pursuant to
employment agreements between the practice and each individual
physician and to pay physician assistant compensation and benefits.
(h) Reflects the cost of salaries of the physicians employed by the Company
after the asset acquisition of the various practices.
(i) Reflects the elimination of bad debt expense from the Arlington Cancer
Center.
(j) Reflects the adjusted depreciation of the property and equipment
acquired and amortization of the intangibles associated with the asset
acquisitions. The intangibles are being amortized over an average life
of approximately 25 years. See Note 3.
(k) Reflects the reversal of one-time write offs recorded by the Company in
connection with the purchase of research and development acquired in
the Arlington Cancer Center acquisition. See the Consolidated Financial
Statements of the Company and the Notes thereto.
(l) Reflects interest expense on asset acquisition indebtedness based on
the interest rate applicable to each instrument.
(m) Includes the elimination of the minority interest portion of one-time
write offs at the Arlington Cancer Center. See (k). Also includes the
minority interest in the net income of Arlington Cancer Center and
Jones Eyecare Center.
(n) Reflects the establishment of a provision for income taxes. Most of the
practices are S corporations with such corporations owing no federal or
state taxes and the shareholders of each such entity being responsible
for their payment.
(o) The shares used in computing pro forma net income (loss) per common
share includes the following:
<TABLE>
<S> <C>
Outstanding shares of Common Stock............................. 7,047,115
Shares issued in connection with the asset acquisitions........ 10,177,766
Outstanding shares of the Company's Class A Stock and Series B
Preferred Stock to be converted into Common Stock upon comple-
tion of the Offering.......................................... 6,298,176
Common Stock equivalents (stock options and warrants using the
treasury stock method)........................................ 4,506,266
Conversion of minority interest into Common Stock of Company... 550,975
Other.......................................................... 125,000
----------
Pro forma combined shares..................................... 28,154,323
==========
Common Stock offered...........................................
----------
Pro forma combined shares as adjusted.........................
==========
</TABLE>
(p) Certain stock options have been granted by the Company. Stock options
granted at fair market value to employees are accounted for under APB
No. 25 and do not require compensation cost to be recognized. Stock
options granted below fair market value to employees do require
compensation costs to be recognized. Stock options granted to
nonemployees are accounted for under SFAS No. 123. This accounting
pronouncement requires options to be recorded at fair value, which
normally entails compensation expense.
The Company has entered into an agreement with Banque Paribas for an $18.0
million term loan facility, a $20.0 million acquisition line facility, a $7.0
million working capital revolving loan facility, and an approximately $15.0
million subordinated debt loan facility. All the facilities will bear interest
at a floating rate of prime plus approximately 1.8% or, at the Company's
option, LIBOR plus 3.0%, with the exception of the subordinated debt which
bears interest at 12.0%. Additionally, an affiliate of Banque Paribas
purchased approximately 554,000 shares of Series B Voting Preferred Stock of
the Company for approximately $2.2 million.
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In connection with this investment and the subordinated debt, the Company
issued Banque Paribas affiliates 1.2 million warrants to purchase the
Company's Non-Voting Common Stock and approximately 185,000 warrants to
purchase Common Stock, each at a nominal exercise price. If the Company
completes an initial public offering by February 27, 1998 or April 27, 1998,
respectively, the Banque Paribas affiliates will forfeit 720,000 or 600,000
warrants, respectively, and will retain 783,000 or 903,000 warrants,
respectively.
The Company anticipates using the $18.0 million term loan and the $9.0
million of the subordinated debt to pay or refinance the cash component of the
acquisitions consummated since June 30, 1997. See Note 3. The excess amount
and the $2.2 million equity infusion will be used for general working capital
purposes. The Company does not anticipate at this time utilizing the $20.0
million acquisition line facility or the $7.0 million working capital revolver
loan facility.
The following pro forma adjustments are made to reflect properly the Banque
Paribas agreements (in thousands):
(q)
<TABLE>
<S> <C>
Gross proceeds.................................................... $21,200
Less:
Commitment fee.................................................. 1,700
Estimated legal costs........................................... 600
Cash portion of acquisitions.................................... 17,300
-------
Net proceeds...................................................... $ 1,600
=======
</TABLE>
(r) Reflects the interest expense associated with the Banque Paribas
agreement. Amount is calculated as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
$10.0 million term loan at 9.3%...................... $ 925 $ 463
$9.0 million subordinated debt at 12.0%.............. 1,080 540
------ ------
$2,005 $1,003
====== ======
</TABLE>
(s) Reflects the amortization of the debt issuance costs associated with
the Banque Paribas agreement over five years.
(t) Reflects the conversion of Class A Stock, Series B Preferred Stock and
Prime Common Stock into Common Stock.
5. POST COMBINATION ADJUSTMENTS
(u) The proceeds from the issuance of shares of the Company's
Common Stock, net of estimated offering costs (based on the initial
public offering price of $ per share) will be applied as follows
(in thousands).
<TABLE>
<S> <C>
Gross proceeds of the Offering.................................... $
Less:
Underwriting discount...........................................
Estimated expenses.............................................. 1,500
Payment of certain debt obligations............................. 21,500
-------
Net cash received in Offering..................................... $
=======
</TABLE>
Estimated expenses primarily consist of accounting fees, legal fees,
and printing expenses.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(v) Reflects the interest expense savings associated with the payment of
certain debt obligations from the Offering proceeds. Amount is
calculated as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
$10.0 million term loan at 9.3%...................... $ 925 $ 463
$9.0 million subordinated debt at 12.0%.............. 1,080 540
$2.5 million subordinated debt at 13.0%.............. 325 163
------ ------
$2,330 $1,166
====== ======
</TABLE>
(w) Reflects the elimination of the amortization expense for debt issuance
costs associated with Banque Paribas. See (s).
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data for the period from
inception to December 31, 1995, the year ended December 31, 1996 and the six
month period ended June 30, 1997 are derived from the audited consolidated
financial statements of the Company, and the selected consolidated financial
data for the year ended December 31, 1994 and for the period from January 1,
1995 to October 31, 1995 are derived from the audited financial statements of
the Predecessor. The selected consolidated financial data for the six month
period ended June 30, 1996 are derived from the unaudited financial statements
of the Company. As a result of acquisitions occurring in 1997, the Company's
historical financial statements are not representative of the financial
results expected for future periods. This information should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and the Notes thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------ --------------------------------------------
PERIOD FROM
PERIOD FROM INCEPTION
JANUARY 1, (AUGUST 29, SIX MONTHS ENDED
YEAR ENDED 1995 TO 1995) TO YEAR ENDED JUNE 30,
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, ------------------
1994(1) 1995(1) 1995(1) 1996 1996 1997
------------ ----------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues............ $812 $1,949 $ 456 $ 4,036 $ 1,683 $ 5,725
Operating expenses:
Salaries and benefits.. 531 1,533 362 2,915 1,350 4,173
Contract and profes-
sional services....... 38 125 70 194 192 504
Provision for bad
debts................. -- -- 40 660 220 492
General and administra-
tive.................. 225 463 131 2,748 480 1,972
Depreciation and amor-
tization.............. 58 106 14 161 47 284
Write down of as-
sets(2)............... -- -- -- 195 -- 715
Purchased research and
development(3)........ -- -- -- -- -- 13,252
---- ------ ------ ------- ------- ---------
Total operating ex-
penses................ 851 2,227 617 6,873 2,289 21,391
---- ------ ------ ------- ------- ---------
Income (loss) from oper-
ations................. (39) (278) (161) (2,837) (606) (15,668)
Interest expense, net... 24 86 7 30 6 173
---- ------ ------ ------- ------- ---------
Loss before minority
interest and income
taxes.................. (63) (364) (168) (2,867) (612) (15,840)
Minority interest....... -- -- (1) -- -- (2,081)
---- ------ ------ ------- ------- ---------
Loss before income tax-
es..................... (63) (364) (167) (2,867) (612) (13,759)
Income tax expense...... -- -- -- 17 1 14
---- ------ ------ ------- ------- ---------
Net loss................ $(63) $ (364) (167) $(2,884) $ (613) $ (13,773)
==== ====== ====== ======= ======= =========
Net loss per share...... N/A N/A $(0.06) $ (0.51) $ (0.17) $ (1.92)
---- ------ ------ ------- ------- ---------
Weighted average shares
outstanding............ N/A N/A 2,996 5,601 3,599 7,168
==== ====== ====== ======= ======= =========
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
------ ------- ------------------
BALANCE SHEET DATA:
Working capital................................... $2,415 $ 146 $3,012
Total assets...................................... 4,870 4,143 32,249
Long-term debt.................................... 10 500 13,731
Total shareholders' equity (deficit).............. 1,292 (405) (10,413)
</TABLE>
- --------
(1) The Company commenced operations in 1994 as Physician Health Corporation,
a Georgia corporation, and was a wholly-owned subsidiary of Surgical
Health Corporation. PHC was incorporated in Delaware in August 1995 and
acquired the Predecessor in November 1995.
(2) The $195,000 charge in 1996 is related to the write off of operating
assets related to certain terminated physician arrangements. The $715,000
charge in 1997 is related to the write off of deferred financing fees
related to a credit arrangement with NationsCredit Commercial Corporation
that was terminated and the write off of operating assets related to
terminated physician arrangements.
(3) The $13.3 million charge in 1997 is related to the write off of certain
deferred research and development fees acquired in association with the
Arlington Cancer Center acquisition.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain forward-looking
statements relating to future events or the future financial performance of
the Company. Such statements are only predictions and the actual events or
results may differ materially from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors," as well as
those discussed elsewhere in this Prospectus. As a result of the substantial
number of recent acquisitions, the historical results set forth in this
discussion and analysis are not indicative of trends with respect to any
actual or projected future financial performance of the Company. This
discussion and analysis should be read in conjunction with the Unaudited Pro
Forma Combined Financial Statements and the Financial Statements and related
Notes thereto included elsewhere in this Prospectus.
OVERVIEW
Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of November 10, 1997, the Company provided services to 23
Affiliated Networks and two PHC Networks. At November 1, 1997, the PHC
Networks and Affiliated Networks included more than 3,000 physicians and had
approximately 2.9 million covered lives under 37 managed care contracts
ranging from specialty capitation contracts to global risk contracts. As of
November 10, 1997, the Company also provided practice management services to
19 PHC Practices including 62 physicians who have affiliated with the Company
through practice management or employment agreements ("PHC Physicians"). The
Company also has agreements to acquire 15 additional practices including an
aggregate of 104 physicians, subject only to customary closing conditions.
The Company commenced operations in 1994 as Physician Health Corporation, a
Georgia corporation, and was a wholly-owned subsidiary of Surgical Health
Corporation. PHC was incorporated in Delaware in August 1995 and acquired the
Predecessor in November 1995. The Company's primary markets are Atlanta,
Georgia; Cincinnati, Ohio; Dallas/Ft. Worth, Texas; Memphis, Tennessee;
Orlando, Florida; and St. Louis, Missouri. The Company also provides services
in Arizona, Illinois, Kentucky, Mississippi and Virginia.
The Company derives its revenues from four primary sources: (i) management
fees from management of PHC Practices; (ii) reimbursements of operating
expenses paid by PHC on behalf of the PHC Practices; (iii) management fees
from management of PHC Networks and Affiliated Networks, administering managed
care contracts and providing billing and collection services; and (iv)
revenues from the development and operation of ancillary health care services.
The Company also generates patient revenues through employed physicians in two
states. The practice management fees payable to PHC by the PHC Practices vary
based on the nature and amount of services provided. The practice management
fees are payable monthly and generally consist of percentages of revenues or
the income of the PHC Practices. Management fees from management of networks
and managed care contract administration generally equals a percentage of the
payment made by payors, ranging from 4.5% to 10.0% depending on the nature and
amount of services required.
Management fees payable to the Company under the Practice Management
Agreements are determined in arms-length negotiations based on the nature and
amount of services provided. Such fees generally consist of combinations of
the following: (i) percentages (ranging from 10% to 25%) of the earnings of
the PHC Practices; (ii) operating and non-operating expenses of the PHC
Practices paid by the Company pursuant to the Practice Management Agreements;
and (iii) certain negotiated performance and other adjustments. In the case of
the Arlington Cancer Center, the Company's Management fee is 12% of revenues
plus 55% of the practice's income after physician compensation. In certain
states where fees based on percentages of revenues or income are not
permissible, PHC charges a flat fee. In many instances, for the first five
years of the Practice Management Agreement the service fee is the greater of
the fee determined by the applicable formula or a fixed minimum amount.
Payment of this minimum is, in most instances, guaranteed by the physicians
and practice. In addition,
28
<PAGE>
the Company intends to form joint ventures for the provision of ancillary
services. Under this structure, there often is a minority interest, with
respect to which payments and allocations are made.
Operating expenses include the expenses incurred by the Company in
fulfilling its obligations under the Practice Management Agreements. These
expenses are the same as the operating costs and expenses that would have been
incurred by the PHC Practices, including salaries, employee benefits, medical
supplies, building rent, equipment leases, malpractice insurance premiums,
management information systems, and other expenses related to practice
operations. In addition to the practice expenses discussed above, the Company
also incurs personnel and administrative expenses in connection with
maintaining a corporate office that provides management, administrative,
marketing and acquisition services to the PHC Practices, organizes networks
and negotiates and administers payor contracts.
Since November 1996, the Company has acquired or has agreements to acquire,
34 PHC Practices that are affiliated with 166 physicians. Aggregate
consideration paid or payable in connection with these acquisitions is
approximately $88.5 million, consisting of approximately $29.2 million in
cash, approximately $14.8 million in promissory notes approximately $44.6
million in Company stock and 20% interests in three Company subsidiaries that
are convertible into a total of 2.2 million shares of Common Stock. In
connection with these acquisitions, PHC has recognized approximately $64.5
million in intangibles.
RESULTS OF OPERATIONS
As a result of the Company's recent acquisitions and limited period of
affiliation with PHC Practices, the Company believes that the period-to-period
comparisons and percentage relationships within the periods set forth below
are not meaningful. The Company acquired its first PHC Practice in November
1996. The Company acquired five additional PHC Practices during the first six
months of 1997. Changes in results of operations for the year ended December
31, 1996 as compared to the year ended December 31, 1995 and for the six
months ended June 30, 1997 as compared to the six months ended June 30, 1996
were caused primarily by the acquisitions of those PHC Practices.
The following table shows the percentage of net revenue represented by
various expense categories reflected in the Company's Consolidated Statements
of Operations:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
----------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------ -------------
1994 1995 1996 1996 1997
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues........................... 100% 100% 100% 100% 100%
Operating expenses:
Salaries and benefits................ 65 79 72 80 73
Contract and professional services... 5 8 5 11 9
Provision for bad debts.............. -- 2 16 13 9
General and administrative........... 28 25 68 29 34
Depreciation and amortization........ 7 5 4 3 5
Write down of assets................. -- -- 5 -- 12
Purchased research and development... -- -- -- -- 232
--- --- --- ---- -----
Total operating expenses........... 105 119 170 136 374
--- --- --- ---- -----
Loss from operations................... (5%) (19%) (70%) (36%) (274%)
</TABLE>
29
<PAGE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net revenue increased to $5.7 million for the six months ended June 30, 1997
from $1.7 million for the same period in 1996, an increase of $4.0 million or
235%. This increase was primarily due to approximately $2.9 million in
additional revenues from the six PHC Practices acquired since November 1996.
This additional revenue was comprised of approximately $679,000 in management
fee revenue, approximately $588,000 in net patient revenues related to
employed physicians, and approximately $1.6 million in reimbursement of
clinical operating expenses. The remaining increase of approximately $1.1
million was due primarily to the start-up of global risk contracting in
September 1996, increased capitation contract revenues and revenues generated
by four new employee physicians in the Orlando market.
Salaries and benefits increased to $4.2 million for the six months ended
June 30, 1997 from $1.4 million for the same period in 1996, an increase of
$2.8 million or 200%. The addition of staff related to the acquisitions of six
PHC Practices constituted approximately $1.2 million of this increase.
Approximately $372,000 of this increase related to the addition of four
physician employees in the Orlando market. Additional amounts of approximately
$569,000 related to the addition of staff in support of growth in revenues. As
a percentage of net revenues, salaries and benefits expense decreased to 73%
for the six months ended June 30, 1997 from 80% for the same period in 1996.
Contract and professional services expense increased to $504,000 for the six
months ended June 30, 1997 from $192,000 for the same period in 1996, an
increase of $312,000 or 162%. This increase was primarily due to the
acquisitions of six PHC Practices as well as increased legal fees associated
with new capitated contracts. As a percentage of net revenues, contract and
professional services expense decreased to 9% for the six months ended June
30, 1997 from 11% for the same period in 1996.
Provision for bad debts increased to $492,000 for the six months ended June
30, 1997 from $220,000 for the same period in 1996, an increase of $272,000 or
124%. This increase primarily related to reserves established based on
historical collection experience for accounts receivable generated by PHC
Practices. As a percentage of net revenues, provision for bad debts decreased
to 9% for the six months ended June 30, 1997 from 13% for the same period in
1996.
General and administrative expenses increased to $2.0 million for the six
months ended June 30, 1997 from $480,000 for the same period in 1996, an
increase of $1.5 million or 311%. This increase was due to the asset
acquisitions of PHC Practices, the addition of four physician employees in the
Orlando market, as well as other increases in staffing levels. As a percentage
of net revenues, general and administrative expenses increased to 34% for the
six months ended June 30, 1997 from 29% for the same period in 1996.
Depreciation and amortization expense increased to $284,000 for the six
months ended June 30, 1997 from $47,000 for the same period in 1996, an
increase of $237,000 or 504%. This increase was directly related to fixed
assets and goodwill acquired in the acquisitions of six PHC Practices. As a
percentage of net revenues, depreciation and amortization expense increased to
5% for the six months ended June 30, 1997 from 3% for the same period in 1996.
The write down of assets for the six months ended June 30, 1997 relates to
the expense of certain loan issuance costs related to a terminated credit
arrangement.
Purchased research and development expense for the six months ended June 30,
1997 relates to a non-recurring expense of writing off an intangible asset of
a PHC Practice acquired in June 1997 based on management's assessment that
such asset had no future alternative benefit for the Company.
Interest expense increased to $173,000 for the six months ended June 30,
1997 from $6,000 for the same period in 1996 an increase of $167,000 or
2,783%. The increase was due to the debt incurred in connection with asset
acquisitions and working capital borrowings.
30
<PAGE>
As a result of the foregoing, net loss increased to $13.8 million for the
six months ended June 30, 1997 from $613,000 for the same period in 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
On November 3, 1995, the Company acquired the Predecessor by merger. Prior
to such acquisition, the Company did not have significant operations. The
Predecessor commenced operations in 1994. The operations for 1995 for the
Predecessor and the Company have been combined for presentation purposes. The
combined presentation is not in accordance with generally accepted accounting
principles.
Net revenue increased to $4.0 million in 1996 from $2.4 million in 1995, an
increase of $1.6 million or 66%. This increase was due primarily to an
increase in single specialty contracting as well as the commencement of global
risk contracting in September 1996. Additionally, a portion of the increase
relates to the acquisition of Metropolitan Plastic & Reconstructive Surgery,
Ltd. ("Metropolitan Plastic") in November 1996.
Salaries and benefits increased to $2.9 million in 1996 from $1.9 million in
1995, an increase of $1.0 million or 53%. This increase was due to additional
staffing added to support the growth in revenues as well as the hiring of
employees of Metropolitan Plastic in November 1996. As a percentage of net
revenues, salaries and benefits expenses decreased to 72% for 1996 compared to
79% for 1995.
Contract and professional services expense was $194,000 in 1996 compared to
$195,000 in 1995. As a percentage of net revenues, contract and professional
services expense decreased to 5% in 1996 from 8% in 1995.
Provision for bad debts increased to $660,000 in 1996 from $40,000 in 1995,
an increase of $620,000 or 1550%. This amount primarily related to reserves
established based on historical collection experience for accounts receivable
generated by Metropolitan Plastic.
General and administrative expenses increased to $2.7 million in 1996 from
$594,000 in 1995 an increase of $2.1 million or 355%. This increase was
related to increased staffing levels for anticipated growth in 1997 as well as
the acquisition of Metropolitan Plastic. As a percentage of net revenues,
general and administrative expenses increased to 68% for 1996 compared to 25%
for 1995.
Depreciation and amortization expenses increased to $161,000 in 1996 from
$120,000 in 1995, an increase of $41,000 or 34%. This increase was directly
related to fixed assets and goodwill acquired in connection with an
acquisition of Metropolitan Plastic. As a percentage of net revenues,
depreciation and amortization expenses decreased to 4% for 1996 from 5% in
1995.
The write down of assets in 1996 relates to the write off of operating
assets related to certain terminated physician arrangements.
Interest expense decreased to $30,000 in 1996 from $93,000 in 1995, a
decrease of $63,000. The decrease was due to the reduction of certain above-
market rate debt.
As a result of the foregoing, net loss increased to $2.9 million in 1996
from $531,000 in 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenue increased to $2.4 million in 1995 from $812,000 in 1994, an
increase of $1.6 million or 197%. The increase was due to an increase in the
number of payor contracts administered in 1995.
Salaries and benefits increased to $1.9 million in 1995 from $531,000 in
1994, an increase of $1.4 million or 263%. The increase was due to an increase
in the number of employees to administer payor contracts. As a percentage of
revenues, salary and benefits expenses increased to 79% in 1995 from 65% in
1994.
31
<PAGE>
Contract and professional services expense increased to $195,000 in 1995
from $37,000 in 1994, an increase of $158,000 or 427%. As a percentage of
revenues, contract and professional services expense increased to 8% in 1995
from 5% in 1994.
Provision for bad debts increased to $40,000 in 1995 from $0 in 1994.
General and administrative expenses increased to $594,000 in 1995 from
$225,000 in 1994, an increase of $369,000 or 164%. As a percentage of
revenues, general and administrative expenses decreased to 25% in 1995 from
28% in 1994.
Depreciation and amortization expenses increased to $120,000 in 1995 from
$58,000 in 1994, an increase of $62,000 or 107%. As a percentage of revenues,
depreciation and amortization expenses decreased to 5% in 1995 from 7% in
1994.
Interest expense increased to $93,000 in 1995 from $24,000 in 1994, an
increase of $69,000 or 288%. The increase was due to the acquisition debt
incurred to purchase the Predecessor.
As a result of the foregoing, net loss increased to $531,000 in 1995 from
$63,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, working capital was $3.0 million, an increase of $2.9
million during the first six months of 1997, and cash and cash equivalents
were $3.7 million. At June 30, 1997, net accounts receivable of approximately
$3.3 million amounted to approximately 76 days sales outstanding compared to
approximately $500,000 and approximately 43 days at June 30, 1996. The
increase is attributable to growth in revenues due to the acquisition of PHC
Practices.
Capital expenditures during the first six months of 1997 totaled
approximately $223,000. The Company is committed to make specified levels of
capital expenditures under certain of its Practice Management Agreements. The
Company expects to make approximately $500,000 in capital expenditures during
the remainder of 1997.
During June 1997, the Company completed a private placement of its Series B
Preferred Stock (the "Series B Offering"). Pursuant to the Series B Offering,
the Company received net proceeds of approximately $9.8 million at the initial
closing in June 1997 (substantially all of which was used in connection with
the acquisition of an 80% interest in the assets of the Arlington Cancer
Center by the Company). At the second closing in July 1997, approximately $5.5
million was deposited into an escrow account which was accessed by the Company
in connection with its acquisition of practices meeting certain agreed upon
criteria. Although the Company expects to retire approximately $6.2 million in
indebtedness incurred in connection with the Arlington Cancer Center
acquisition with the proceeds of the Offering, the Company has the ability
instead to require the holders of its Series B Preferred Stock to purchase
shares of Common Stock at $4.00 per share sufficient to retire this
indebtedness in April 1998, pursuant to an equity call agreement.
In October 1997, the Company entered into a credit agreement with a group of
banks led by Banque Paribas (the "Bank Group") under which the Bank Group
agreed to provide the Company with up to $45.0 million in senior debt (the
"Senior Facility"). The Senior Facility is comprised of a term loan in an
amount up to $18.0 million (the "Term Loan"), a revolving loan in an amount up
to $7.0 million (the "Revolving Loan") and an acquisition loan in an amount up
to $20.0 million (the "Acquisition Loan"). The Senior Facility is secured by
substantially all of the Company's assets. At November 10, 1997, $10.0 million
was advanced under the Term Loan, approximately $7.0 million was available to
the Company under the Revolving Loan of which approximately none was
outstanding and $20.0 million was available to the Company under the
Acquisition Loan for acquisitions meeting specified criteria, though no
amounts had been advanced under the Acquisition Loan. In connection with the
Senior Facility, the Company sold to Paribas Principal Incorporated ("PPI"),
an affiliate of
32
<PAGE>
Banque Paribas, 553,683 shares of Series B Preferred Stock and warrants for
184,561 shares of Common Stock for approximately $2.2 million. Further, in
October 1997, the Company obtained from Paribas Capital Funding LLC ("PCF"),
an affiliate of Banque Paribas, a senior subordinated loan (the "Subordinated
Loan") in the amount of $15.0 million (of which $9.0 million was advanced),
and sold to PCF warrants for 1.2 million shares of the Company's Non-Voting
Common Stock. If the Company completes an initial public offering by
February 27, 1998 or April 27, 1998, respectively, PCF will forfeit 720,000 or
600,000 warrants, respectively, and affiliates of Banque Paribas will only
retain 783,000 or 903,000 warrants, respectively. The Company is required to
use up to the first $35.0 million of net proceeds and 50% of net proceeds over
$35.0 million of a public offering of the Company to repay indebtedness and
reduce the commitments outstanding under the Senior Facility and Subordinated
Loan. If such proceeds are insufficient to pay off the Senior Facility and
Subordinated Loan, such financing must be paid down with excess cash flow.
Following repayment of the indebtedness, neither the Bank Group nor the
Company's subordinated lenders will have any obligation to advance additional
funds to the Company.
The Company historically has funded its acquisitions and operations through
cash flow from operations, borrowings and sales of equity securities. In
addition to the proceeds from the offering, funds available under its bank
borrowings, cash reserves and cash flow from operations, the Company expects
to incur, from time to time, short-term and long-term bank indebtedness and to
issue equity and debt securities, the availability and terms of which will
depend upon market and other conditions, to meet the Company's current planned
acquisition, capital expenditure and working capital needs for the next 12
months and to provide the funds necessary for the continued pursuit of the
Company's long-term expansion strategy. There can be no assurance that such
additional financing will be available on terms acceptable to the Company.
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 specifies the computation, presentation, and disclosure
requirements of earnings per share and supersedes Accounting Principles Board
Opinion No. 15, "Earnings Per Share." SFAS No. 128 requires a dual
presentation of basic and diluted earnings per share. Basic earnings per
share, which excludes the impact of common stock equivalents, replaces primary
earnings per share. Diluted earnings per share, which utilizes the average
market price per share as opposed to the greater of the average market price
per share or ending market price per share when applying the treasury stock
method in determining common stock equivalents, replaces fully diluted
earnings per share. SFAS No. 128 is effective for both interim and annual
periods ending after December 15, 1997.
The Emerging Issues Task Force of the FASB is currently evaluating certain
matters relating to the physician practice management industry. The Company is
unable to predict the impact, if any, that this review may have on the
Company's financial statement presentation.
33
<PAGE>
BUSINESS
OVERVIEW
Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of November 10, 1997, the Company provided services to 23
Affiliated Networks and two PHC Networks. At November 1, 1997, the PHC
Networks and Affiliated Networks included more than 3,000 physicians and had
approximately 2.9 million covered lives under 37 managed care contracts
ranging from specialty capitation contracts to global risk contracts. As of
November 10, 1997, the Company also provided practice management services to
19 PHC Practices, including 62 PHC Physicians who have affiliated with the
Company through practice management or employment agreements. The Company also
has agreements to acquire 15 additional practices including an aggregate of
104 physicians, subject only to customary closing conditions.
The Company's objective is to continue building comprehensive and integrated
networks of high quality physicians in selected geographic markets in order
to: (i) establish a significant market presence enabling it to negotiate
favorable payor contracts and (ii) provide a broad range of high quality
physicians and ancillary health care services to payors and patients. To
achieve these objectives, the Company seeks to: (a) leverage contracting
expertise to enter strategic markets; (b) selectively acquire key practices to
strengthen market presence; (c) provide management expertise and capital for
development of ancillary health care services; (d) negotiate and administer
beneficial payor contracts; and (e) utilize information technology to improve
practice performance and meet payor needs. The Company believes that its
expertise in network development, payor contracting and ancillary health care
services development differentiates it from traditional physician practice
management companies ("PPMs") and enhances its ability to attract high quality
physicians and negotiate favorable payor contracts.
The Company commenced operations in 1994 as Physician Health Corporation, a
Georgia corporation, and was a wholly-owned subsidiary of Surgical Health
Corporation. PHC was incorporated in Delaware in August 1995 and acquired the
Predecessor in November 1995. The Company's primary markets are Atlanta,
Georgia; Cincinnati, Ohio; Dallas/Ft. Worth, Texas; Memphis, Tennessee;
Orlando, Florida; and St. Louis, Missouri. The Company also provides services
in Arizona, Illinois, Kentucky, Mississippi and Virginia.
INDUSTRY BACKGROUND
The Health Care Financing Administration ("HCFA") has estimated that
national health care spending increased to approximately $1.0 trillion, or
approximately 14% of GDP, in 1995 from $247 billion, or approximately 9% of
GDP, in 1980. HCFA projects that annual health care spending will increase at
a compounded annual growth rate of over 8% to $1.5 trillion and approximately
16% of the GDP by the year 2000. HCFA also has estimated that approximately
$200 billion, or approximately 20%, of total health care expenditures, in 1995
were directly attributable to physician services, and an additional amount of
approximately $515 billion or 52% of such expenditures were under physician
direction.
As a result of escalating health care expenditures, governmental and other
payors have adopted cost containment initiatives in an effort to control
spending. These initiatives have resulted in a shift from traditional fee-for-
service provider reimbursement to an evolving array of managed care
arrangements, varying from discounted fee-for-service to fully capitated plans
in which providers assume the financial risks related to service utilization
for a defined group of covered members and services. The industry has also
experienced a decrease in inpatient occupancies as payors have implemented
incentives for providing care in the most cost-effective setting, which is
often an outpatient surgery center, in-office laboratory or similar outpatient
location.
Cost containment initiatives, including reduced reimbursement, have hindered
physician practice profitability while demands for cost, quality and
utilization data have increased physicians' administrative duties.
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Small and mid-sized practices generally do not have the market presence,
expertise or sophisticated cost accounting and quality management systems
required to evaluate and enter into informed capitated risk-sharing
arrangements or to continue practicing profitably under reduced reimbursement.
In addition, these practices often lack the capital required to purchase new
medical equipment and information systems to enhance the efficiency and
quality of their practices. As a result, individual physicians and small group
practices are increasingly consolidating, either by affiliating with larger
group practices and PPMs or by forming networks or independent practice
associations. By consolidating into larger organizations, physicians can
achieve lower administrative costs, gain leverage in negotiating with managed
care organizations and position themselves to attract needed capital
resources.
Although the larger organizations resulting from these consolidations have
often improved practice profitability through reductions in overhead and
centralization of certain administrative functions, the Company believes that
many such organizations lack the expertise and market presence to negotiate
successful managed care contracts. In addition, the Company believes that many
PPMs do not offer opportunities for practices and physicians to integrate
complimentary ancillary health care services.
THE PHC PHILOSOPHY
The Company seeks to affiliate with physicians who are leaders in the
delivery of medical care and who apply sound business principles to the
operation of their practices. The Company believes that physicians are best
qualified to develop appropriate treatment protocols, and as a result, the
Company provides PHC Physicians, PHC Networks and Affiliated Networks with the
resources necessary to enhance their decision making. PHC aims to integrate
practice management, ancillary health care services, network development and
administration and payor contracting. Through such integration and by
supporting physicians with strong, experienced local management teams, the
Company believes it provides physicians with the tools necessary to compete in
a changing and increasingly competitive health care environment.
STRATEGY
The Company's objective is to continue building comprehensive and integrated
networks of high quality physicians in selected geographic markets in order
to: (i) establish a significant market presence enabling it to negotiate
favorable payor contracts and (ii) provide a broad range of high quality
providers to payors and patients. To achieve its objectives, the Company seeks
to:
Leverage Contracting Expertise to Enter Strategic Markets. The Company
enters markets both by providing network development and contracting services
and, in certain cases, by acquiring practices that the Company believes can
serve as foundations for future networks. As it enters markets, the Company
forms comprehensive provider panels and provides managed care contracting
services to physician practices and networks in order to gain negotiating
leverage with payors and to achieve economies of scale. The Company believes
its network development and contracting services model enables it to establish
a significant market platform with less initial management time and capital
than PPM models based solely on acquisitions. In addition, the Company
believes its network development and contracting expertise enhances its
credibility with market participants and enables it to identify new markets in
which managed care contracting is likely to grow and the key practices in
these markets. Where appropriate, the Company enters a new market through
selective acquisitions of such key practices.
Selectively Acquire Key Practices to Strengthen Market Presence. The Company
selectively acquires key physician practices from its networks and from the
suburban and rural communities surrounding these markets to solidify its
market position, to strengthen its existing networks and to establish,
organize and support new networks. Through network development and contracting
services, the Company establishes relationships with physicians and identifies
leading physicians and practices who apply sound business principles and are
attractive to patients and payors. By acquiring physician practices from
within its networks or existing markets, the
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Company believes it makes informed decisions about practice acquisitions and
the allocation of capital resources. The Company also may acquire non-network
practices that it believes will serve as foundations for building new
networks.
Provide Management Expertise and Capital for Development of Ancillary Health
Care Services. The Company intends to acquire and develop ancillary health
care services in order to improve the revenues and operating margins of the
Company, its networks and the PHC Practices. The Company believes that the
availability of ancillary health care services provides physicians with
scheduling flexibility and greater practice efficiency. Additionally,
ancillary health care services provided in an outpatient setting are
attractive to payors because they generally are less expensive than similar
inpatient services. By providing ancillary health care services, the Company
also increases its flexibility in negotiating global risk contracts. The
Company's management team has experience in the successful development of
outpatient surgery centers and other ancillary health care services.
Negotiate and Administer Beneficial Payor Contracts. The Company focuses on
negotiating and administering payor contracts on behalf of the PHC Practices,
Affiliated Networks and PHC Networks. The Company believes that its
contracting expertise helps it develop and improve relationships with
physicians and payors, and that its contracting services can result in
increased revenues and profits for PHC, the PHC Physicians, PHC Practices, PHC
Networks and Affiliated Networks. The Company believes that its strategy of
providing network development and administration services and specialty and
other contracting services also enables it to establish: (i) a strong market
position; (ii) stable networks of high quality providers; (iii) strong payor
relationships; (iv) integration of ancillary health care services; and (v)
access to cost, quality and utilization data, all of which are essential to
entering into profitable partial and global risk contracts.
Utilize Information Technology to Improve Practice Performance and Meet
Payor Needs. The Company intends to provide its physicians access to
information and technologies that will enhance their ability to deliver care
more efficiently and profitably in a managed care environment. The Company's
clinical information system collects network data that enable it to price and
manage specialty capitation contracts as well as partial and global risk
contracts. The system also provides a broad range of statistical information
to support utilization analysis, to identify physician outliers and to develop
best practice protocols. With the information it collects, the Company can
also meet various requirements of payors, including supplying information to
support accreditation of providers and networks by health care industry
organizations.
OPERATIONS
PHC acquires and manages practices, acquires or develops ancillary health
care services, develops and administers networks, and negotiates and
administers payor contracts in its selected markets. In choosing new markets,
the Company analyzes the population, demographics, market potential,
competitive environment, supply of physicians, needs of managed care plans or
other large payors and general economic conditions. The Company seeks markets
in which it believes it can achieve a significant market share and, in
particular, in which there is evidence of risk shifting from payors to
providers. PHC enters new markets where it has identified an opportunity or
where payors or providers have requested its services.
The following table sets forth certain information on regarding the PHC
Networks, Affiliated Networks, PHC Physicians and the managed care contracts
administered by the Company as of November 10, 1997, giving pro forma effect
to the Pending Acquisitions. Markets identified as integrated markets are
those in which the Company has affiliated with a network or is administering
managed care contracts and has acquired selected PHC Practices affiliated with
the contracting networks. Developing markets are those in which the Company
has PHC Physicians but does not yet administer corresponding managed care
contracts. Additional contracting markets are those in which PHC is
administering active managed care contracts and has not yet determined whether
to seek physician practice acquisitions.
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<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF APPROXIMATE
NUMBER OF NUMBER OF MANAGED NUMBER OF
NETWORK PHC PHC PHYSICIAN CARE COVERED
MARKET PHYSICIANS NETWORK SPECIALTIES PHYSICIANS(1) SPECIALTIES(1) CONTRACTS(2) LIVES(2)(3)
- ------------------------ ----------- ------------------------ ------------- --------------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEGRATED MARKETS
Atlanta, GA............ 1,160 Primary Care/Internal 18 Primary Care/Internal 14 1,350,000
Medicine; OB/GYN; Medicine; OB/GYN
Multi-Specialty;
Neuroscience;
Orthopaedics; Urology
Orlando, FL (and 950 Global 45 Primary Care/Internal 4 78,000
Melbourne)............ Medicine; OB/GYN;
Allergy; Colorectal;
Gastroenterology;
Orthopaedics; Surgery
Dallas/Fort Worth, TX.. 135 Oncology; 11 Oncology 4 550,000
Gastroenterology;
Mental Health;
Urology
St. Louis, MO (and West 260 Primary Care/ 40 Primary Care/ -- --
Plains)............... Internal Medicine; Internal Medicine;
Multi-Specialty Surgery Multi-Specialty
Surgery; Cardiology;
Opthalmology;
Optometry;
Orthopaedics;
Pulmonary
DEVELOPING MARKETS
Cincinnati, OH......... -- -- 9 Gastroenterology -- --
Louisville, KY......... -- -- 3 Cardiology -- --
Memphis, TN............ 32 Family Practice -- --
Tucson/Phoenix, AZ
area.................. 25 Multi-Specialty 3 Primary Care 1 64
Outreach Oncology
Practices
(IL, MS, VA).......... n/a n/a 4 Oncology n/a n/a
ADDITIONAL CONTRACTING MARKETS
Birmingham, AL......... 360 Cardiology; Cardiac -- -- 6 440,000
Surgery;
Gastroenterology;
Opthalmology;
Optometry; Orthopaedics;
Urology
Chattanooga, TN ....... 45 Multi-Specialty Surgery -- -- 1 30,000
----- --- --- ---------
TOTALS: 2,935 165 30 2,448,064
</TABLE>
- --------
(1) Includes all PHC Physicians and all physicians in practices included in
the Pending Acquisitions.
(2) Excludes seven contracts (covering approximately 500,000 lives) expected
to terminate within 120 days.
(3) As of November 1, 1997.
Practice Acquisition and Management
A part of the Company's strategy is to acquire leading medical practices in
markets in which the Company believes it can establish a significant market
presence and in which it provides significant contracting services and has
significant local management relationships. The Company selectively acquires
key physician practices from its networks and from the suburban and rural
communities surrounding these markets in order to solidify its market position
and strengthen its networks. Additionally, in markets where the Company has
identified an attractive opportunity, the Company will acquire selected
physician practices.
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The Company seeks to acquire practices of physicians who: (i) are viewed by
the Company as important to the long-term success of its networks; (ii) apply
sound business principles in the operation of their practices and are high
growth and business oriented; (iii) have reputations in the market as leaders
in the delivery of medical care; and (iv) embrace new medical technologies and
procedures. As part of this process, the Company often targets a particular
type of practice or specialty that the Company believes contains a high number
of physician leaders in the specific market.
The Company believes that the following characteristics differentiate it
from other alternatives available to physicians and physician networks and
position it to succeed in acquiring high quality physicians and practices: (i)
its contracting expertise; (ii) the quality, experience and credibility of its
local management teams and its knowledge of the markets in which it operates;
(iii) its ancillary health care services expertise; and (iv) its governance
structure, which fosters physician autonomy while promoting physician
participation.
Acquisition Process. The Company's business development team identifies,
pursues and negotiates practice acquisitions. After identifying a practice or
physician, the Company meets with the physicians to determine whether they
meet the Company's criteria and have an interest in affiliating with PHC. The
Company's business, financial and legal due diligence includes site visits,
analysis of financial and other data and analysis of the group's operations,
leadership, clinical practices and commitment to long-term growth.
Additionally, the Company reviews the medical professionals' training,
licensure and experience and the practice's Medicare and Medicaid compliance,
billing practices and operating history. Upon successful completion of due
diligence, the Company structures and negotiates the acquisition terms,
including the type and amount of consideration as well as noncompete
agreements. The consideration paid in the Company's acquisitions is designed
to align its interests with those of the physicians and includes a combination
of Company stock, cash and, sometimes, notes. The consideration for each
practice varies on a case by case basis, depending on a variety of factors
including historical operating results, the future prospects of the practice
and the ability of the practice to complement the services offered by other
PHC Practices.
Practice Management Services. Pursuant to its Practice Management
Agreements, the Company provides a range of services including among other
things: (i) acting as manager and administrator of non-medical services
relating to the operation of the PHC Practice; (ii) billing patients,
insurance companies and other third-party payors and collecting the fees for
professional medical services and other services rendered and products sold by
the PHC Practice; (iii) providing, as necessary or requested, clerical,
accounting, purchasing, payroll, legal, bookkeeping and computer services and
personnel, information management, preparation of certain tax returns,
printing, postage and duplication services and medical transcribing services;
(iv) supervising and maintaining custody of substantially all files and
records; (v) providing facilities for the PHC Practice; (vi) preparing, in
consultation with a joint policy board and the PHC Practice, all capital
expenditure and operating budgets; (vii) ordering and purchasing inventory and
supplies as reasonably requested by the PHC Practice; and (viii) providing
financial and business assistance in the negotiation, establishment,
supervision and maintenance of contracts and relationships with managed care
and similar payors. Many of these services are designed to reduce the amount
of time physicians must spend on administrative matters, thereby enabling the
physicians to focus on the delivery of health care. The Company also assists
in the development of ancillary health care services by conducting feasibility
studies and providing project development services and capital resources.
The Company employs most of the PHC Practices' non-physician personnel.
These non-physician personnel, along with additional personnel at the local
management level, manage the day-to-day non-medical operations of each of the
PHC Practices, including, among other things, secretarial, bookkeeping,
scheduling and other business services. In states that permit such structures,
the Company may employ physicians as well as non-physician personnel.
Ancillary Health Care Services
In evaluating a market, the Company analyzes opportunities to develop or
acquire ancillary health care services. Where appropriate, PHC intends to
acquire and to develop ancillary health care services to complement its local
PHC Practices, PHC Networks and Affiliated Networks. Ancillary health care
services include those
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that are: (i) part of a practice such as a single-purpose, office-based
surgery suite; (ii) connected with a group practice, which may consist of
several otherwise independent practices, such as a gastroenterology (GI) lab;
or (iii) affiliated with a coherent specialty network such as a lithotripter
with a urologist network or a sleep lab with a network of otolaryngology (ENT)
physicians. The Company encourages physician participation in these ancillary
health care services, either through an ownership interest in a joint venture
established to own and operate a facility or through clinical participation.
The Company believes that ancillary health care services provide physicians
with scheduling flexibility and greater practice efficiency. Additionally,
ancillary health care services provided in an outpatient setting are
attractive to payors because they generally are less expensive than similar
inpatient services. By providing ancillary health care services, the Company
also increases its flexibility in negotiating global risk contracts. The
Company's management team has experience in the successful development of
outpatient surgery centers and other ancillary health care services.
Network Services
Network Formation and Development. In forming networks, the Company focuses
on developing networks of sufficient size and specialties to respond
successfully to payors' geographic, service and utilization management needs.
The Company contacts physicians that it believes offer the medical expertise
and quality of care that are attractive to payors. In both network formation
and network development, the Company assists physicians in determining the
number and types of specialists, subspecialists and hospitals required for a
network to be attractive to payors and to meet the needs of a particular
payor's contract. The Company then aids in selecting and credentialing the
panel of physicians. After the panel of physicians is selected, the Company
assists in forming protocol, finance, utilization, credentialing and quality
assurance (peer review) committees composed of network physicians. In
addition, the Company assists physicians in developing or revising protocols,
although physicians in each network retain ultimate responsibility for
selecting and adopting appropriate protocols for their market.
Contract Negotiation and Pricing. An integral element of the Company's
network services is its contracting expertise. The Company's contracting team,
on behalf of the network, works closely with physicians to prepare contract
proposals, analyze contract pricing and negotiate with payors. The Company has
developed a database of managed care cost and utilization information
collected from its networks that it can utilize to predict the type and
quantity of services that will be required by many different types of
contracts. Based upon this information, the Company is able to formulate
different service offerings and pricing models for use in contract
negotiations.
Contract Administration. After a network executes a contract, the Company
implements and administers the contract on behalf of the network and serves as
the interface between the network physicians and the payor. The Company's
network operations team administers the contract, develops and maintains the
necessary management information systems, provides utilization management
reporting and, when requested, assists with National Committee for Quality
Assurance ("NCQA") level compliance. The Company believes that managed care
contracts are most successful when the economic interests of the providers and
payors are aligned. Therefore, the Company works with both the network and the
payor to develop payment structures and protocols that encourage optimization
of facility usage through the use of the most appropriate type of facility for
each procedure, often reducing overall facility costs. The Company administers
and distributes contract funds and reports to the network information relating
to the incidence rates, utilization, flow of funds and treatment outcomes.
Such information is used by both the network and the payors in developing or
refining protocols, measuring outcomes, identifying physician outliers,
ensuring that standards of care are met, determining cost-effective treatment
plans and meeting NCQA and Health Employer Data Information System
requirements. The Company is Utilization Review Accreditation Committee
certified, which enables the Company to manage the pre-admission certification
process for major procedures and hospital stays under the supervision of the
network's physician medical director.
The Company is experienced in negotiating and implementing a variety of
managed care contracts, including single- and multi-specialty capitated
contracts, partial risk contracts and global risk contracts. Single-specialty
capitated contracts are contracts that carve out treatment by physicians of a
single medical specialty. Multi-specialty capitated contracts usually involve
different but logically related specialties. The network is usually paid on a
capitated per member per month basis for both single- and multi- specialty
capitated contracts, and in some cases the contracts also
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<PAGE>
have a facility/total cost share component. Partial risk contracts are
contracts for all professional services of most physician specialties to be
rendered to the plan members but do not include the provision of facilities.
If the network lacks specialties it must expand or subcontract with a single-
or multi-specialty network to provide such services. Global risk contracts are
contracts for all professional, technical and facilities services, supporting
a complete spectrum of health care needs for plan members. The network may be
paid on either a capitated per member per month basis or on a percentage of
premium basis for both partial risk and global risk contracts and the
contracts have a facility/total cost share component.
In addition to the types of managed care contracts discussed above, the
Company administered one disease state management contract and two access fee
contracts as of November 10, 1997. Disease state management contracts are
contracts for professional services and facilities necessary to provide the
full spectrum of services required to treat a chronic disease. The network is
paid either on a capitated per member per month basis or on a case rate basis.
Access fee contracts are contracts pursuant to which the Company makes
available physicians in one of its networks to a payor on a fee-for-service
basis. A physician invoices the payor if and when services are provided. The
Company receives a percentage of the physician's reimbursement as an access
fee.
As of November 1, 1997, the Company had 37 managed care contracts with
approximately 2.9 million covered lives.
MANAGEMENT INFORMATION SYSTEMS
Upon the acquisition of a practice, the Company maintains the clinical
medical records and financial systems in place at the PHC Practice. Clinical
and financial data collected at the practice are sent to the Company's
corporate headquarters on a monthly basis through network interfaces, EDI or
manually. The Company intends to maintain local systems in an effort to
minimize the disruption that occurs when local systems are replaced with
corporate-mandated systems. The Company plans to use its management
information systems to generate information that will assist the PHC Practices
in the maintenance and selection of appropriate protocols, and in the
management of quality improvement procedures and utilization. The Company
currently collects cost and utilization data from the PHC Networks and
Affiliated Networks for managed care contract pricing and administration, and
intends to collect such data at the PHC Practices. The Company intends also to
use this information to improve operating efficiency and to encourage the
development and implementation of best clinical practices.
GOVERNANCE AND QUALITY ASSURANCE
The Company's current governance structure promotes physician participation
in the management of the Company. Certain physicians who are or have been
associated with PHC Practices serve on the Board of Directors. Each PHC
Practice has a Joint Policy Board whose membership includes representatives
from the Company and the PHC Practice. The Joint Policy Boards have
responsibilities that include developing long-term strategic objectives,
developing practice expansion and payor contracting guidelines, promoting
practice efficiencies, recommending significant capital expenditures and
facilitating communication and information exchange between the Company and
each of the PHC Practices.
The Company has established a Compliance Committee of the Board of Directors
that consists of physician and management members of the Board. The Compliance
Committee is responsible for approving the Company's health care compliance
objectives and developing and implementing the Company's health care
compliance programs at the practice and Company level. To facilitate this
process, the Company is establishing compliance committees at the PHC
Practices comprised of representatives of the PHC Practice and the Company to
oversee development and implementation of compliance programs at the PHC
Practice level. Through counsel, the Company has retained outside consultants
to assist with practice and Company assessments that will assist the
Compliance Committee of the Board of Directors, the local compliance
committees and management in developing the Company's compliance programs.
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CONTRACTUAL AGREEMENTS WITH PHC PRACTICES
The Company's practice acquisition structure is designed to align the
interests of the Company with those of PHC Physicians. When a physician group
has agreed to enter into a practice management or employment relationship with
the Company, the Company purchases the group's operating assets typically in
exchange for a combination of Company stock, cash and notes. The Company
intends to continue to use Common Stock as a significant portion of its
consideration in future practice acquisitions. Typically, upon the acquisition
of a PHC Practice, the Company enters into a Practice Management Agreement
with a professional corporation or other entity that will employ the
physicians associated with the PHC Practice.
The following summary is intended to be a brief summary of the typical terms
of Practice Management Agreements, Physician Employment Agreements and Direct
Employment Agreements to which the Company or a PHC Practice is a party and
intends to enter in the future. The actual terms of these agreements vary on a
case by case basis, depending on the negotiations with the individual
practices and physicians.
Service Fees. Management fees payable to the Company under the Practice
Management Agreements are determined in arms-length negotiations and based on
the nature and amount of services provided. Such fees generally consist of
combinations of the following: (i) percentages (ranging from 10% to 25%) of
the earnings of the PHC Practices; (ii) operating and non-operating expenses
of the PHC Practices paid by the Company pursuant to the Practice Management
Agreements; and (iii) certain negotiated performance and other adjustments. In
the case of the Arlington Cancer Center, the Company's management fee is 12%
of the practice's revenues plus 55% of the practice's income after physician
compensation. In certain states where fees based on percentages of revenue or
income are not permissible, the Company charges a flat fee. In many instances,
for the first five years of the Practice Management Agreement the service fee
is the greater of the fee determined by the applicable formula or a fixed
minimum amount. Payment of this minimum is, in most instances, guaranteed by
the physicians and the practice for five years.
Services Provided. Pursuant to the various Practice Management Agreements,
the Company provides a range of services in consultation with the PHC Practice
including, among other things: (i) acting as manager and administrator of non-
medical services relating to the operation of the PHC Practice; (ii) billing
patients, insurance companies and other third-party payors and collecting the
fees for professional medical services and other services and products
rendered or sold by the PHC Practice; (iii) providing, as necessary or
requested, clerical, accounting, purchasing, payroll, legal, bookkeeping and
computer services and personnel, information management, preparation of
certain tax returns, printing, postage and duplication services and medical
transcribing services; (iv) supervising and maintaining custody of
substantially all files and records; (v) providing facilities for the PHC
Practice; (vi) preparing, in consultation with the Joint Policy Board and the
PHC Practice, all capital expenditure and operating budgets; (vii) ordering
and purchasing inventory and supplies as reasonably requested by the PHC
Practice; and (viii) providing financial and business assistance in the
negotiation, establishment, supervision and maintenance of contracts and
relationships with managed care and other payors.
PHC Practice Responsibilities. Under the Practice Management Agreements, the
PHC Practices retain the responsibility for, among other things: (i) hiring
and compensating physician employees and other medical professionals; (ii)
ensuring that physicians and other medical professionals have the required
licenses, credentials, approvals and other certifications needed to perform
their duties; and (iii) complying with certain federal and state laws and
regulations applicable to the practice of medicine. In addition, the PHC
Practices retain exclusive control of all aspects of the practice of medicine
and the delivery of medical services.
Term and Termination. The Practice Management Agreements are generally for
initial terms of 40 years. Practice Management Agreements may be terminated by
either party if the other party: (i) files a petition in bankruptcy or other
similar events occur or (ii) defaults in the performance of a material
financial obligation, which default continues for a specified term after
notice. In addition, certain Practice Management Agreements may also be
terminated by the Company if the PHC Practice or a physician employee engages
in conduct or is formally accused of conduct for which the physician
employee's license to practice medicine reasonably would
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be expected to be subject to revocation or suspension or is otherwise
disciplined by any licensing, regulatory or professional entity or
institution, the result of any of which does or reasonably would be expected
to materially adversely affect the PHC Practice. Certain PHC Practices may
terminate their respective Practice Management Agreements, subject to
repurchase of their respective practice assets, after the expiration of 66
months from the dates of such agreements.
Breach. The Company includes in all standard Practice Management Agreements
breach provisions that it believes to be stronger than those used by other
PPMs. The Company believes that these provisions discourage frivolous claims
that the Company has breached its obligations as a means of causing the
Practice Management Agreement to terminate early. In the event of a non-
financial breach by either party to the Practice Management Agreement, the
non-breaching party typically must, prior to termination, submit to an
arbitrator the question of whether: (i) a material breach has occurred and, if
so, (ii) the amount of lost income, exclusive of punitive or consequential
damages (the "Lost Income Amount"), suffered by the non-breaching party as the
result of the breach. Typically, the non-breaching party may terminate the
Practice Management Agreement only if the arbitrator determines a Lost Income
Amount and the breaching party fails to pay the Lost Income Amount within a
specified time following determination of the Lost Income Amount. Generally,
upon termination of the Practice Management Agreement, the PHC Practice is
required to repurchase the assets used in the operation of the PHC Practice,
including assets such as goodwill.
Restrictive Covenants. The Practice Management Agreements require the PHC
Practice to enforce restrictive covenants contained in the employment
agreements (the "Physician Employment Agreements") between the PHC Practice
and the physicians associated with the PHC Practice. Typically, the Physician
Employment Agreements require that the physician not compete with the PHC
Practice or the Company within a specified geographic area during the term of
the Physician Employment Agreement and for a period of up to two years
thereafter. In addition, certain Physician Employment Agreements provide that
if such physician's employment is terminated during the initial five-year term
for any reason other than the physician's death or disability or the
occurrence of certain events outside the physician's control, the physician
will be required to pay liquidated damages to the PHC Practice which the PHC
Practice in turn is obligated to remit to the Company. In most instances, the
Company is named as a third-party beneficiary of the Physician Employment
Agreements, with the right to enforce provisions of the Physician Employment
Agreements.
Direct Employment. In states that permit such structures, the Company may
employ directly physicians associated with the PHC Practice pursuant to
employment agreements (the "Direct Employment Agreements"). Florida and
Missouri are currently the only states in which PHC does business that permit
such employment arrangements. In such instances, each physician's annual
compensation is determined based generally on the net profits generated by the
physician. The physicians continue to control the medical aspects of the
practice and have input with respect to budgeting and strategic planning for
the PHC Practice. Typically, the Company is entitled to terminate the Direct
Employment Agreement for cause as defined in the relevant agreement. In
addition, the Company may terminate the Direct Employment Agreement if the
physician materially breaches the Direct Employment Agreement (as determined
by an arbitrator) and either: (i) fails to pay the Lost Income Amount suffered
by PHC (as determined by an arbitrator) as a result of the breach or (ii)
continues to breach the Direct Employment Agreement, despite having paid the
Lost Income Amount.
Under a Direct Employment Agreement, the physician may voluntarily terminate
the physician's employment thereunder, at any time during the five-year term,
by delivering to the Company written notice of such intention not less than
one year prior to the effective date of termination. However, if the physician
terminates the physician's employment for any reason, other than upon
scheduled retirement, death or disability, or if the Company terminates the
physician's employment for cause within the first five years, then the
physician is required to pay to the Company liquidated damages. The physician
may also terminate the Direct Employment Agreement if: (i) the Company
materially breaches, and does not cure within the specified period, any of its
financial obligations under the Direct Employment Agreement or (ii) upon the
occurrence of an event of bankruptcy by PHC. Additionally, the physician, in
conjunction with the other physicians who sold the practice to PHC, may
terminate the Direct Employment Agreement if the Company materially breaches a
non-financial
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obligation (as determined by an arbitrator) and either: (a) fails to pay the
Lost Income Amount suffered by the physician (as determined by an arbitrator)
as a result of the breach or (b) continues to breach the Direct Employment
Agreement, despite having paid the Lost Income Amount. The Company believes
that these limitations on the physician's ability to terminate his or her
Direct Employment Agreement discourage frivolous claims that the Company has
breached its obligations thereunder as a means of causing the early
termination of a Direct Employment Agreement.
The Direct Employment Agreements include several restrictive covenants,
including a covenant not to compete which prohibits the physician from
practicing the same type of medicine the physician practices for the Company
for two years following the date of cessation of employment by PHC within a
specified radius of the medical offices of the Company in which the physician
practiced. The Direct Employment Agreements also generally include
restrictions on the physician's right to solicit employees or patients of the
Company for a period of two years following the termination of physician's
employment with the Company. Finally, the Direct Employment Agreements
typically prohibit the disclosure of trade secrets and other confidential
information regarding the Company.
COMPETITION
The Company, PHC Physicians, PHC Networks and Affiliated Networks face
intense competition in all aspects of their businesses. The Company believes
that changes in governmental and private reimbursement policies, among other
factors, have resulted in increased competition among providers of medical
services and among networks for managed care contracts. The Company itself
faces intense competition to acquire or provide management services to
physician practices; to acquire or develop and operate ancillary health care
service facilities; and to provide management services, including contracting
services, to physician networks. A number of hospitals, clinics, health care
companies, HMOs, insurance companies and physician practice management
companies, both publicly and privately held, some of which have established
operating histories and greater resources that the Company, engage in
activities similar to those of the Company. There can be no assurance that the
Company will be able to compete effectively with its competitors, that
additional competitors will not enter the market, or that the Company will be
able to acquire or manage physician practices, acquire or develop ancillary
health care services, affiliate with or develop networks, or negotiate payor
contracts on terms beneficial to the Company. Any such failure could have a
material adverse effect on the Company's business, financial condition or
results of operations.
GOVERNMENT REGULATION
General
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The Company believes that health care regulations
will continue to change. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment
changes. While the Company believes it will be able to structure its
agreements and operations in accordance with applicable law, there can be no
assurance that its business or such agreements or operations will not be
successfully challenged.
Every state imposes licensing requirements on individual physicians and on
facilities and services operated by physicians. In addition, federal and state
laws regulate HMOs and other MCOs with which the Company, PHC Physicians, PHC
Practices, PHC Networks and Affiliated Networks may have contracts. Many
states require regulatory approval, including certificates of need, before
establishing or expanding certain types of health care facilities, offering
certain services or making expenditures in excess of statutory thresholds for
health care equipment, facilities or programs. In connection with the
expansion of existing operations and the entry into new markets, the Company,
PHC Physicians, PHC Practices, PHC Networks and Affiliated Networks may become
subject to compliance with additional regulation.
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The United States Congress and many state legislatures routinely consider
proposals to reform or modify the health care system, including measures that
would control health care spending, convert all or a portion of government
reimbursement programs to managed care arrangements, and balance the federal
budget by reducing spending for Medicare and state health programs. These
measures can affect a health care company's cost of doing business and
contractual relationships. For example, recent developments that affect the
Company's activities include: (i) federal legislation requiring a health plan
to continue coverage for individuals who are no longer eligible for group
health benefits and prohibiting the use of "pre-existing condition" exclusions
that limit the scope of coverage; (ii) a HCFA policy prohibiting restrictions
in Medicare HMOs or physicians recommending to patients other health plans and
treatment options; and (iii) regulations imposing restrictions on physician
incentive provisions in physician provider agreements. There can be no
assurance that such legislation, programs and other regulatory changes will
not have a material adverse effect on the Company's business, financial
condition or results of operations.
The Company believes its operations are in material compliance with
applicable law. The ability of the Company to operate profitably will depend
in part upon the ability of the Company, PHC Physicians, PHC Practices, PHC
Networks and Affiliated Networks obtaining and maintaining all necessary
licenses, certificates of need and other approvals and to operate in
compliance with applicable health care regulations.
Fee-Splitting; Corporate Practice of Medicine
The laws of many states prohibit physicians from splitting fees with non-
physicians (or other physicians) and prohibit non-physician entities from
practicing medicine. These laws vary from state to state and are enforced by
the courts and by regulatory authorities with broad discretion. Although the
Company believes its operations are in material compliance with existing
applicable laws, the Company's business operations have not been the subject
of judicial or regulatory interpretation; thus, there can be no assurance that
review of the Company's business by courts or regulatory authorities will not
result in determinations that could adversely affect the operations of the
Company or that the health care regulatory environment will not change so as
to restrict the Company's existing operations or their expansion. In addition,
the regulatory framework of certain jurisdictions may limit the Company's
expansion into such jurisdictions if the Company is unable to modify its
operational structure to conform with such regulatory framework.
Changes in Payment for Medical Services
The Company believes that trends in cost containment in the health care
industry will continue to result in a reduction from historical levels in per-
patient revenue for PHC Practices. The federal government has implemented,
through the Medicare program, the RBRVS payment methodology for physician
services. The RBRVS is a fee schedule that, except for certain geographical
and other adjustments, pays similarly situated physicians the same amount for
the same services. The RBRVS is adjusted each year and is subject to increases
or decreases at the discretion of Congress. To date, the implementation of
RBRVS has reduced payment rates for certain of the procedures historically
performed by PHC Physicians. There can be no assurance that any reduced
operating margins could be recouped by the Company through cost reductions,
increased volume, introduction of additional procedures or otherwise.
Rates paid by nongovernmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician,
ambulatory surgery center and hospital charges, and are generally higher than
Medicare payment rates. A change in the makeup of the patient mix of the
medical practices under Company management that results in a decrease in
patients covered by private insurance or a shift by private payors to RBRVS or
similar payment structures could adversely affect the Company's business,
financial condition or results of operations.
Medicare and Medicaid Fraud and Abuse
The Anti-Kickback Law prohibits the offer, payment, solicitation or receipt
of any form of remuneration in return for, or in order to induce: (i) the
referral of a person; (ii) the furnishing or arranging for the furnishing of
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items or services reimbursable under Medicare or Medicaid programs; or (iii)
the purchase, lease or order or arranging or recommending purchasing, leasing
or ordering of any item or service reimbursable under Medicare or Medicaid.
Pursuant to the Anti-Kickback Law, the federal government has announced a
policy of increased scrutiny of joint ventures and other transactions among
health care providers in an effort to reduce potential fraud and abuse
relating to Medicare costs. The applicability of these provisions to many
business transactions in the health care industry has not yet been subject to
judicial and regulatory interpretation. Noncompliance with the Anti-Kickback
Law can result in exclusion from Medicare and Medicaid programs and civil and
criminal penalties.
Significant prohibitions against physician referrals have been enacted by
Congress. 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. Stark II prohibits a physician from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment
interest, or with which the physician has entered into a compensation
arrangement. The designated health services include, for example, prosthetic
devices, clinical laboratory services, radiology (such as ultrasound, MRI and
CT), home health, physical and occupational therapy, prescription drugs and
inpatient and outpatient hospital services. The penalties for violating Stark
II include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each referral violation and $100,000 for
participation in a "circumvention scheme." To the extent that the Company or
any PHC Practice is deemed to be subject to the prohibitions contained in
Stark II, the Company believes its activities fall within the permissible
activities defined in Stark II, including, but not limited to, the provision
of in-office ancillary services.
The Company believes that although it will receive service fees under its
agreements for management and administrative services, it is not generally in
a position to make or receive referrals of patients or services reimbursed
under the Medicare or Medicaid programs. Such service fees are intended by the
Company to be consistent with fair market value in arm's-length transactions
for the nature and amount of management services rendered and, therefore,
would not constitute unlawful remuneration under Anti-Kickback Law and
regulations. For these reasons, the Company does not believe that fees payable
to it would be viewed as remuneration for referring or influencing referrals
of patients or services covered by such programs as prohibited by statute. If
the Company is deemed to be in a position to make, influence or receive
referrals from or to physicians, the operations of the Company could be
subject to scrutiny under federal and state anti-kickback and anti-referral
laws.
In some jurisdictions that do not prohibit the corporate practice of
medicine, the Company owns practices and employs physicians. Thus, with
respect to such practices, the Company is a provider of services and would be
capable of receiving referrals from other physicians affiliated with PHC in
those markets. In these circumstances, PHC Practices either will not accept
referrals involving designated health services from other physicians
affiliated with PHC or will form group practices comprised of PHC Practices in
that market.
In addition, the Company also believes that the methods used to acquire the
assets of existing practices do not violate anti-kickback and anti-referral
laws and regulations. Specifically, the Company believes the consideration
paid by the Company to physicians to acquire assets in their practices is
consistent with fair market value in arm's-length transactions and not
intended to induce the referral of patients. Should this or any other Company
practice be deemed to constitute an arrangement designed to induce the
referral of Medicare or Medicaid patients, then such could be viewed as
possibly violating anti-kickback and anti-referral laws and regulations. A
determination of liability under any such laws could have a material adverse
effect on the Company's business, financial condition or results of
operations.
Antitrust Issues
Federal and state antitrust statutes prohibit conduct such as price fixing,
market allocation and other anti- competitive activities by groups of
competitors. The federal and state antitrust enforcement agencies have not
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hesitated to bring civil and criminal enforcement actions against the joint
activities of physician organizations that allegedly violate the antitrust
laws. Collaboration regarding the pricing of services, market allocation and
certain other types of joint action, however, may be permissible in the
context of an integrated joint venture if those activities are ancillary to
the otherwise legitimate purposes of the joint venture. The federal antitrust
enforcement agencies, the FTC and the DOJ, have established "antitrust safety
zones" for physician networks that meet certain criteria. To the extent
physician providers in a network constitute less than 20% of the total
physicians in a specialty or sub-specialty which compete in the market and
such providers are integrated in terms of sharing substantial financial risk
in their joint activities, the network should fall within one of the DOJ/FTC
antitrust safety zones. To the extent that the physician network is non-
exclusive, i. e., physicians may provide services outside the confines of the
network, individually or as part of other groups or networks, the federal
antitrust enforcement authorities have indicated that they will not challenge
joint pricing or market allocation actions of an integrated network of up to
30% of the physicians in a particular specialty or sub-specialty. Conduct
outside the antitrust safety zones is not necessarily unlawful, but greater
scrutiny will be given to the potential impact on overall competition by
regulatory authorities. State antitrust agencies may or may not rely on
antitrust analysis similar to that of the federal agencies.
While the federal antitrust enforcement authorities generally view
"substantial risk" as capitation or substantial withholding with respect to
the specific contracts or negotiations by the physician network, the antitrust
enforcement agencies have indicated that networks engaging in other forms of
financial risk-sharing may also be considered "integrated joint ventures" for
purposes of antitrust analysis. As yet, it is unclear whether the agencies or
the courts will consider arrangements in which providers have an investment
risk with actual capital contributed to the entity to be sufficient financial
integration. Nevertheless, to the extent that the physician members will be at
financial risk in terms of compensation under proposed joint contracting under
capitation or substantial withhold arrangements, the agencies have indicated
that these forms of risk-sharing are sufficient to show the existence of an
integrated joint venture. In addition, demonstration of actual "clinical
integration" by a physician network is sufficient to avoid per se violations,
according to the FTC and the DOJ.
Insurance Regulatory Risks
An important element of the Company's business and strategy includes acting
as an agent for PHC Physicians, PHC Networks and Affiliated Networks to
negotiate with insurance companies, HMOs, employer self-funded plans, health
plans and other MCOs for the provision of health care services to the
subscribers or beneficiaries of the health plans operated by such parties.
Under some of these contracts, the Company receives capitation payments on
behalf of a network and reimburses participating physicians on a fee-for-
service basis. Under the laws of some states, this contracting arrangement
could be determined to involve an insurance risk. Therefore, to the extent the
Company is deemed to be in the business of insurance in a particular state,
the Company, PHC Physicians and PHC Networks could be subject to insurance
regulatory scrutiny; regulators could require restructuring of a specific
arrangement; and the Company's operations could be restricted, its expansion
limited, or certain of its operations prohibited.
Legislative Developments
The recently adopted Balanced Budget Act of 1997 (the "BBA") enacted a
Medicare Plus/Medicare Choice Program for Medicare enrollees. The program
would broaden the coverage options available to Medicare recipients, would
authorize broader use of medical savings accounts, and would allow physicians
and patients to contract for health care services at rates beyond what is paid
by Medicare. Such changes potentially could increase the services utilized by
Medicare recipients. In addition, the BBA allows provider sponsored
organizations ("PSOs") to contract directly with Medicare, instead of
contracting through an HMO. If the PHC Practices, PHC Networks and Affiliated
Networks participate in such PSOs, they could increase the percentage of
Medicare-related business, which would also increase the exposure for losses
if Medicare revenues fall short of the cost of services actually utilized by
Medicare beneficiaries. If PHC does not participate in such PSOs, whether by
choice or because it does not obtain a required license to act as a PSO, PHC's
ability to participate in Medicare programs could be limited. The BBA also
amends the fraud and abuse laws to require permanent
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exclusion from Medicare of anyone convicted of three Medicare program-related
crimes and to impose new civil monetary penalties to anyone contracting with
an excluded health care provider. These changes increase the regulatory and
other risks encountered by the Company. See "Risk Factors--Risks Associated
With Managed Care Contracts; Direct Capitation."
In addition, proposed legislation regarding health care reform has been
introduced before many state legislatures. Any such reform at the federal or
state level could significantly alter patient-provider relationships. State
and federal agency rule-making addressing these issues is also expected. No
predictions can be made as to whether future health care reform legislation,
similar legislation or rule-making will be enacted or, if enacted, its effect
on the Company. Any federal or state legislation prohibiting investment
interests in, or contracting with, the Company by health care providers for
which there is no statutory exception would have a material adverse effect on
the Company's business, financial condition or results of operations.
EMPLOYEES
As of November 10, 1997 giving pro forma effect to the Pending Acquisitions,
the Company had approximately 477 employees, of which approximately 52 were
employed at the corporate or regional administrative offices and 425 were
employed at the PHC Practices.
LEGAL PROCEEDINGS
Certain PHC Physicians and PHC Practices are named defendants in malpractice
cases. By virtue of acquisition of certain of these practices by merger or
stock purchase transactions, certain Company subsidiaries are or are expected
to be defendants in these cases. Although there can be no assurance regarding
the eventual outcome of any particular malpractice case, the Company believes
that it has commercially reasonable malpractice insurance and limits in place
with respect to these subsidiaries. PHC, the parent company, is not a party to
any claims, suits or complaints relating to services and products provided by
the Company, the PHC Physicians or PHC Practices or the networks. There can be
no assurance, however, that such claims will not be asserted against the
Company in the future or that the Company will not become subject to certain
claims as the result of successor liability in connection with the acquisition
of any practice or network.
CORPORATE LIABILITY AND INSURANCE
The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. The Company does not influence or
control the practice of medicine by physicians or the compliance with certain
regulatory and other requirements directly applicable to physicians and
physician groups. There can be no assurance that claims, suits or complaints
relating to services and products provided by physicians or networks will not
be asserted against the Company in the future. The Company currently maintains
insurance coverage that it believes will be adequate both as to risks and
amounts. Such insurance currently extends to professional liability claims
that may be asserted against PHC Physicians or against employees of the
Company that work locally at the PHC Practices or at the networks. In
addition, pursuant to the network service agreements and Practice Management
Agreements, the physicians and networks are required to maintain comprehensive
professional liability insurance. The availability and cost of such insurance
has been affected by various factors, many of which are beyond the control of
the Company, the physicians and the networks. The cost of such insurance to
the Company, PHC Physicians and PHC Networks may have a material adverse
effect on the Company's business, financial condition or results of
operations. In addition, successful malpractice or other claims asserted
against PHC Physicians, PHC Networks or the Company that exceed applicable
policy limits could have a material adverse effect on the Company's business,
financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, FOUNDERS AND KEY EMPLOYEES OF THE COMPANY
The following table sets forth certain information concerning the executive
officers, directors, founders and key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -----------------------------------------------------
<S> <C> <C>
Sarah C.
Garvin(1)(2)(3)........ 51 Founder, Chairman of the Board, President and Chief
Executive Officer
Thomas M.
Rodgers(1)(2)(3)....... 54 Director, Chief Financial Officer, and Treasurer
J. Michael Ribaudo,
M.D.(1)................ 55 Director, President of Ancillary Division
Richard Sanchez, M.D.,
M.P.H.................. 50 Executive Vice President/Network Development and
Contracting
James G. Burkhart,
C.P.A.................. 33 Senior Vice President/Operations and Finance
Josh J. Coughlin........ 34 Senior Vice President/Corporate Development
Howard E. Fagin, Ph.D... 54 Founder, Senior Vice President/Specialty Contracting
Shamus M. Holt.......... 44 Founder, Chief Operating Officer/Orlando Operations
Lane Hooten............. 48 President/Arlington Cancer Center Operations
Julie Rawls Moore,
M.S.N.................. 46 Founder, Senior Vice President/Strategic Planning
H. Thomas Scott,
C.P.A.................. 37 Founder, Senior Vice President /Atlanta Operations
Murali
Anantharaman(1)(4)..... 40 Director
Michael F.
Cronin(1)(2)(4)........ 43 Director
Alfred DiStefano,
M.D.(3)................ 49 Director, Chief Executive Officer of Arlington Cancer
Center Division
Carl J. Schramm, Ph.D.,
J.D.................... 51 Director
William C. Stewart,
M.D.................... 36 Director Nominee
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Compliance Committee.
(4) Member of the Audit Committee.
Sarah C. Garvin is a founder of the Company and has served as President,
Chief Executive Officer and Chairman of the Board since its inception in
October 1995. She also served as President and a Director of the Company's
predecessor, a subsidiary of Surgical Health Corporation, from 1993 until its
purchase in a management buyout by Ms. Garvin and others (the "Founders") in
1995. Ms. Garvin was a co-founder and served as Senior Vice
President/Corporate Development of Surgical Health Corporation from 1991 to
1993. Prior to joining Surgical Health Corporation, Ms. Garvin served in
executive positions with HEALTHSOUTH Corporation and Medical Care
International.
Thomas M. Rodgers has been the Company's Chief Financial Officer since
November 1996 and has served as a Director of the Company since June 1997.
From August 1995 until he became a Company employee in January 1997, Mr.
Rodgers provided financial consulting services to the Company. He has provided
financial consulting services in connection with raising over $80 million in
capital for health care companies, including Brookwood Health Services and
Healthcare Services of America. Mr. Rodgers has served since 1980 as Chairman
of Continental Film Laboratories, Inc., a privately-held movie film processing
company with approximately 30 employees.
J. Michael Ribaudo, M.D., has served as a Director and executive officer of
the Company since December 1996. He is currently President of the Company's
Ancillary Division. Dr. Ribaudo has served as President of Metropolitan
Plastic & Reconstructive Surgery, Ltd. ("Metropolitan Plastic") since 1980 and
is a board certified, practicing plastic and reconstructive surgeon. He
founded Ballas Outpatient Surgery Center in St. Louis, Missouri and was its
Chairman of the Board and Chief Executive Officer when it merged with Surgical
Health Corporation
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in 1992. He was President of SHC Midwest and Senior Vice President of Surgical
Health Corporation when it was acquired by HEALTHSOUTH Corporation in 1995.
Dr. Ribaudo served as Executive Vice President of HEALTHSOUTH Surgery Centers
from 1995 to 1996 and currently provides consulting services to that company.
He is also a Director of Flow International, Inc. a publicly-traded machine
tool technology company.
Richard Sanchez, M.D., M.P.H. joined the Company in August 1997 as its
Executive Vice President/Network Development and Contracting. From December
1996 until August 1997, Dr. Sanchez served as Chief Executive Officer of New
York Doctors MSO, Inc., a medical services organization. He was a Senior Vice
President at Blue Cross of New York from 1995 until 1996, where he developed
and filed its first Medicare risk product. From 1992 to 1995, he was a Vice
President at FHP California Inc., a HMO with over two million members, where
he was responsible for network development, quality assurance and other
aspects of health care contracting. Dr. Sanchez was the Health Commissioner of
San Francisco from 1985 until 1991. He is a board certified pediatrician and a
fellow of the American Academy of Pediatrics. Dr. Sanchez earned an M.P.H. at
the University of California at Berkeley.
James G. Burkhart, C.P.A. joined the Company as its Senior Vice
President/Operations and Finance in October 1997. From June 1996 to September
1997, he served as Vice President of Operations/Finance of GranCare, Inc., a
health care company with over $1 billion in annual revenue. Mr. Burkhart was
the Senior Vice President of Finance of Community Care of America from 1995 to
1996 and the Executive Vice President and Chief Financial Officer of
Nationwide Care, Inc. from 1993 to 1995, which are long-term health care
companies with annual revenues exceeding $150 million and $125 million,
respectively. Mr. Burkhart served as a manager at Ernst & Young LLP from 1987
to 1993.
Josh J. Coughlin joined the Company in September 1997 as its Senior Vice
President/Corporate Development. Prior to joining the Company, Mr. Coughlin
was an officer of Preferred Oncology Networks of America, Inc., serving as
Vice President/Corporate Development from January 1996 and Chief Financial
Officer from July 1996. He served as Senior Executive Director of Planning and
Development for Magellan Health Services, Inc. from 1993 to 1995. Mr. Coughlin
was a consultant with Towers Perrin from 1990 to 1993 specializing in health
care delivery systems and managed care companies. Mr. Coughlin received his
M.B.A. from the University of Chicago.
Howard E. Fagin, Ph.D. is a Founder and currently serves as Senior Vice
President/Specialty Contracting. Dr. Fagin has been President of Fagin
Advisory Services, Inc. since 1972, providing consulting services to physician
practices and other health care organizations. Dr. Fagin holds an M.S. in
Public Health, an M.S. in Industrial and Systems Engineering and a Ph.D. in
Health Economics from the University of Oklahoma.
Shamus M. Holt is a Founder and has served the Company since 1995 as Chief
Operating Officer of the Company's Orlando operations. Mr. Holt served as
Administrator of Primary Care Specialists ("PCS") from 1988 until 1995 and has
served as Administrator of Internal Medicine Specialists ("IMS") since 1988.
PCS and IMS are included in the Pending Acquisitions. Mr. Holt received his
M.B.A. from the University of Central Florida.
Lane Hooten became President of the Arlington Cancer Center operations in
June 1997 when the Company purchased an 80% interest in the Arlington Cancer
Center assets. Mr. Hooten has served as the Chief Executive Officer of the
Arlington Cancer Center since 1994. He was a Regional Sales Manager for
Signature Health Care, a home health care organization, from 1993 to 1994.
From 1991 to 1993, Mr. Hooten served as Vice President of Alternate Sites of
Curaflex Infusion Services, where he was responsible for the operation and
development of clinics, infusion suites and ambulatory care centers. Mr.
Hooten is a pharmacist.
Julie Rawls Moore, M.S.N. is a Founder and has served the Company in a
variety of roles since 1994, most recently as Senior Vice President/Strategic
Planning. Ms. Moore was Vice President of Development of Surgical Health
Corporation from 1993 to 1994, focusing on the development of surgery centers.
Ms. Moore was with Ernst & Young LLP from 1987 to 1993, most recently as
Senior Manager for Physician Services. Before joining
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Ernst & Young LLP, she spent three years as a Regional Vice President in
Marketing and Physician Services developing related physician services and
facilities for American Medical International, Inc., a company that owned and
operated for-profit hospitals.
H. Thomas Scott, C.P.A. is a Founder and has served the Company and its
predecessor in a variety of roles since 1994, including as a Director,
Controller, Vice President/Finance and most recently as Senior Vice President
of its Atlanta operations. From 1991 to 1994, Mr. Scott served as Controller
for Heritage Surgical Corporation, an ambulatory surgery center company.
Murali Anantharaman has been a Director of the Company since December 1995.
He has been a partner in EGL Holdings, Inc., an Atlanta-based venture capital
and investment banking firm ("EGL Holdings"), since May 1987. Mr. Anantharaman
also serves as a Director of Simione Central Holdings, Inc., a publicly-held
health care information services company. Mr. Anantharaman received his M.B.A.
from Harvard University.
Michael F. Cronin has served as a Director of the Company since June 1997.
He has been a general partner of Weston Presidio Capital, a venture capital
company with over $300 million under management, since 1991. Mr. Cronin
received his M.B.A. from Harvard University.
Alfred DiStefano, M.D. has been a Director of the Company and Chief
Executive Officer of the Arlington Cancer Center Division since June 1997. He
has been a practicing medical oncologist with the Arlington Cancer Center
since 1980 and is its Managing Partner.
Carl J. Schramm, Ph.D., J.D. has served as a Director of the Company since
March 1996 and served as its Executive Vice President/Global Contracting from
1996 until February 1997, and continues to serve as an employee of the
Company's contracting division. Since 1995, Dr. Schramm has served as the
President of Greenspring Advisors, Inc. a health care information systems
consulting company. From 1993 to 1995 he was an Executive Vice President of
Fortis, Inc. and President of its subsidiary, Time Insurance Co. Dr. Schramm
served as President and Chief Executive Officer of Health Insurance
Association of America from 1987 to 1992. He currently serves on the board of
HCIA, Inc., a publicly-held health care data services company of which he was
a founder, and LifeRate Systems Corp., a publicly-held health care information
systems company.
William C. Stewart, M.D. is a Director nominee of the Company. Dr. Stewart
is a founder and Director of MidSouth Practice Management, Inc., which was
acquired by the Company in November 1997. Since 1995, Dr. Stewart has been the
Chairman, Chief Executive Officer and Medical Director of MidSouth Health
Plan, Inc., the first physician-owned HMO in Tennessee. He also currently
serves as Chief of Staff of Baptist Memorial Hospital in Memphis and was the
Deputy Chief of Staff during 1996. Dr. Stewart was President of Baptist
Rehabilitation Hospital during the 1994 and 1995 calendar years and from 1993
through 1995 he served as Assistant Medical Director. Dr. Stewart is board
certified in internal medicine. He was a founder of Internal Medicine
Associates of Cordova, P.C., and continues to practice part-time in Memphis
with Foundation Medical Group, PLLC, a practice of ten board certified
internists.
BOARD OF DIRECTORS
Upon consummation of the Offering, the Board of Directors of the Company
shall consist of seven members divided into three classes with two directors
in two classes and three directors in one class. Each class shall serve for a
term of three years. At each annual meeting of stockholders, directors will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring that year.
After completion of the Offering, Mr. Anantharaman may resign from the Board
of Directors. In connection with its acquisition of MidSouth Practice
Management, Inc., the Company has agreed to use its best efforts to cause Dr.
Stewart to be elected to the Board of Directors. In addition, the Company has
agreed that at such time as annual revenues generated by PHC Practices in the
Cincinnati market equal or exceed $75 million and there are more than 100 PHC
Physicians practicing with the PHC Practices in Cincinnati, it will use its
best efforts to nominate and to cause a PHC Physician from Cincinnati to be
elected to the Board of Directors.
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BOARD COMMITTEES
The Company maintains an Executive Committee, a Compensation Committee, an
Audit Committee and a Compliance Committee. These committees have the
following functions:
The Executive Committee has broad authority to take certain actions on
behalf of the Board of Directors between meetings of the Board of Directors.
This committee currently consists of Ms. Garvin, Mr. Rodgers, Dr. Ribaudo, Mr.
Anantharaman and Mr. Cronin.
The Compensation Committee reviews and approves the salaries, bonuses and
other compensation and benefits of executive officers and advises management
regarding benefits and other terms and conditions of compensation. Ms. Garvin,
Mr. Rodgers and Mr. Cronin currently serve on this committee.
The Audit Committee makes recommendations to the Board of Directors with
respect to the appointment of independent auditors, reviews significant audit
and accounting policies and practices, meets with the Company's independent
public accountants concerning, among other things, the scope of audits and
reports, and reviews the performance of the overall accounting and financial
controls of the Company. This committee currently consists of Mr. Anantharaman
and Mr. Cronin.
The Compliance Committee establishes and communicates to the Company's
officers, employees and agents certain guidelines with regard to compliance
with the Company's mission, legal and regulatory matters and other Company
policies. The Compliance Committee consults with and advises the Board of
Directors and the executive officers in charge of compliance, as appropriate,
regarding operational compliance with the established guidelines and
procedures for reporting and investigating instances of noncompliance. This
committee has three voting members, Ms. Garvin, Mr. Rodgers and Dr. DiStefano.
The Company intends to establish a committee of non-employee directors to
administer the Company's stock option plans on consummation of the Offering.
BOARD OF DIRECTOR COMPENSATION
The Company's Bylaws provide that Directors of the Company may be paid their
expenses of attending Board of Director and Committee meetings and may also be
paid a fixed sum for attendance at such meetings or a retainer for service as
a director. Currently, directors are only reimbursed for expenses and do not
receive any compensation for serving as a director or attending meetings.
Directors are also eligible for discretionary option grants under the 1995
Stock Option Plan. On March 7, 1996, Carl Schramm and Jack Keane (who served
on the Board of Directors from March 1996 to June 1997) were granted options
to purchase 300,000 shares of the Common Stock, at an exercise price of $1.00
per share, for services rendered and to be rendered to the Company. Of each of
their grants, 75,000 options vested immediately, 56,250 vested on March 7,
1997 and 56,250 will vest on each of March 7, 1998, March 7, 1999 and March 7,
2000. No other compensation was received by any director in 1996 for his or
her service as a director.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. Delaware law
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Certificate of Incorporation limits the
liability of directors of the Company to the Company or its stockholders to
the fullest extent permitted by Delaware law. Specifically, directors of the
Company will not personally be liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in the DGCL.
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The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters.
1995 STOCK OPTION PLAN
In October, 1995, the Board of Directors adopted, and the stockholders of
the Company approved, the 1995 Stock Option Plan. The purpose of the 1995
Stock Option Plan is to provide directors, key employees and certain advisors
with additional incentives by increasing their proprietary interest in the
Company. The aggregate amount of Common Stock with respect to which options
may be granted may not exceed 7,000,000 shares prior to consummation of the
Offering and 10,000,000 shares thereafter.
The 1995 Stock Option Plan provides for the grant of incentive stock options
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonqualified stock options (collectively "Awards").
The 1995 Stock Option Plan will be administered by a committee of non-employee
director upon consummation of the Offering. The committee will have, subject
to the terms of the 1995 Stock Option Plan, the sole authority to grant Awards
under the 1995 Stock Option Plan, to construe and interpret the 1995 Stock
Option Plan, and to make all other determinations and take any and all actions
necessary or advisable for the administration of the 1995 Stock Option Plan.
All of the Company's key employees, non-employee directors and advisors are
eligible to receive Awards under the 1995 Stock Option Plan, but only
employees of the Company are eligible to receive ISOs. Options will be
exercisable during the period specified in each option agreement and will
generally become exercisable in installments pursuant to a vesting schedule
designated by the Committee. In the discretion of the Committee, option
agreements may provide that options will become immediately exercisable in the
event of a "change in control" (as defined in the 1995 Stock Option Plan) of
the Company. A "change of control" is deemed to have occurred if the Company
is a party to merger, share exchange or other business combination pursuant to
which the Company does not remain independent or if substantially all of the
assets of the Company are sold or otherwise transferred. No option will remain
exercisable later than ten years after the date of grant (or five years from
the date of grant in the case of ISOs granted to holders of more than 10% of
the voting capital stock of the Company).
The exercise price for ISOs granted under the 1995 Stock Option Plan may be
no less than the fair market value of the Common Stock on the date of grant
(or 110% in the case of ISOs granted to employees owning more than 10% of the
voting capital stock).
401(K) PLAN
Effective January 1996, the Company adopted the Physician Health Corporation
401(k) Plan (the "Savings Plan"). The Savings Plan is intended to provide PHC
employees with retirement benefits. The Savings Plan is intended to constitute
a qualified cash or deferred profit sharing plan within the meaning of
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986.
All employees of the Company are eligible to participate in the Savings Plan
who have reached the age of 21 years and have completed six months of service
with the Company as of any January 1 or July 1. The Savings Plan is
administered by the Board of Directors, which has full power to administer and
interpret the Savings Plan. The assets of the Savings Plan are held by a trust
administered by a trustee pursuant to a trust agreement.
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Eligible employees may contribute a portion of their annual compensation, in
the form of payroll deductions, up to the legal maximum established by the
Internal Revenue Service for each plan year. The Company may make profit
sharing contributions, employee matching contributions and other additional
employer contributions of any amount at the Company's sole discretion.
Employee contributions are fully vested immediately. Company contributions are
vested over the first five years of employment. No Company contributions have
been made.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid by PHC for
services rendered in all capacities to PHC during 1996 to the President and
Chief Executive Officer, who was the only executive officer whose total annual
salary and bonus exceeded $100,000 in 1996 (the "Named Executive Officer").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------- ----------------------- -------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION RESTRICTED OPTIONS LTIP COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) STOCK AWARDS (#) PAYOUTS ($)
- --------------------------- -------- ----- ------------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sarah C. Garvin......... $100,000 -- -- -- -- -- --
Chairman of the Board,
Chief Executive Officer
and President
</TABLE>
Ms. Garvin currently is receiving an annual salary of $210,000 (to be
increased to $270,000 upon consummation of the Offering). Mr. Rodgers, who
became an employee of the Company in January 1997, Dr. J. Michael Ribaudo, who
became an employee of the Company in November 1996, and Dr. Richard Sanchez,
who became an employee of the Company in August 1997, currently are receiving
annual salaries of $205,000 (to be increased to $260,000 upon consummation of
the Offering), $100,000 (to be increased to $250,000 upon consummation of the
Offering), and $200,000, respectively. Certain other arrangements with Ms.
Garvin, Mr. Rodgers and Dr. Ribaudo are described in "Certain Transactions."
OPTION GRANTS DURING 1996
There were no options granted to the Named Executive Officer during the
fiscal year ended December 31, 1996. Mr. Rodgers and Dr. Ribaudo have each
been granted options as described in "Certain Transactions." Dr. Sanchez was
granted an option in October 1997 to purchase 100,000 shares of Common Stock
pursuant to the 1995 Stock Option Plan at an exercise price of $5.00 per share
and vesting over four years.
AGGREGATE OPTION EXERCISES DURING 1996 AND YEAR-END OPTION VALUES
No options were exercised in 1996 by the Named Executive Officer and there
were no options granted to the Named Executive Officer outstanding at December
31, 1996.
EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company is party to Employment Agreements (collectively, the "Employment
Agreements") with each of Ms. Garvin and Mr. Rodgers. Both of the Employment
Agreements provides for a specified base salary subject to annual adjustment
by the Board of Directors or the Compensation Committee of the Board of
Directors. Currently, the salaries payable under the Employment Agreements are
$210,000 for Ms. Garvin (subject to increase to $270,000 upon consummation of
the Offering) and $205,000 for Mr. Rodgers (subject to increase to $260,000
upon consummation of the Offering). In the event that the Employment
Agreements are terminated by the Company for cause (as defined in the
Employment Agreements) or by the employee without cause, the employee is not
entitled to severance pay. In the event that the Company terminates the
employee's employment by the Company without cause, the employee is entitled
to severance pay equal to 12 months' salary.
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If the employee's employment with the Company is terminated following a
change in control of the Company (as defined in the Employment Agreement): (i)
by the Company without cause or (ii) by the employee because she or he is
required to relocate, her or his salary is reduced from the amount in effect
immediately prior to the change in control, her or his title is reduced or her
or his duties and responsibilities are substantially diminished, then the
employee is entitled to severance pay equal to 36 months' salary.
The Company and its Founders are parties to a Restated and Amended
Stockholder Agreement dated November 1, 1996, as amended in February 1997 (the
"Stockholder Agreement"). For each Founder 300,000 shares of Common Stock
("Founder Stock") are subject to the Stockholder Agreement. Pursuant to the
Stockholder Agreement, 131,250 shares of Founder Stock have vested, and 56,250
shares of the remaining shares will vest on each of January 1, 1998, January
1, 1999 and January 1, 2000 if the Founder remains a full-time employee of the
Company until the applicable vesting date; provided, however, that, with
respect to 37,500 shares that would otherwise vest on January 1, 2000, the
Company shall have met certain performance criteria by December 31, 1998. The
Stockholder Agreement provides that all shares of Founder Stock will vest
immediately upon the merger, consolidation or sale of the Company with or to
any other entity if the Company is not the surviving entity, or upon the sale
of substantially all of the Company's assets.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, the Board of Directors established a compensation committee
composed of Ms. Garvin and Messrs. Cronin and Rodgers. Prior to establishment
of the Compensation Committee, compensation for the Company's executive
officers was determined by the entire Board of Directors. Mr. Rodgers
participated in deliberations of the Board of Directors concerning executive
officer compensation prior to his election to the Board of Directors in June
1997. See "Certain Transactions."
CERTAIN TRANSACTIONS
On May 1, 1997, Ms. Garvin loaned the principal amount of $250,000 plus a
$2,500 origination fee to the Company. On the same date, the Thomas M.
Rodgers, Jr. Defined Benefit Keogh Plan 11/15/82 loaned the principal amount
of $50,000 plus a $500 origination fee to the Company. Both of these notes
bear simple interest on principal only at 12.0% per year. Each of the notes
provides for payment on demand after the earlier of closing of a venture
capital investment by Weston Presidio Capital and May 1, 1998. Such venture
capital investment closed on June 16, 1997, but neither Ms. Garvin nor Mr.
Rodgers has demanded payment of these notes.
Prior to becoming an employee in January 1997, Mr. Rodgers provided
financial consulting services to the Company. His compensation for these
services was to be primarily based on the Company's successful capital-raising
activities. In June 1997, Mr. Rodgers and the Company agreed to terminate this
compensation arrangement and to settle all fees earned and expected to be
earned for his financial consulting services. Accordingly, Mr. Rodgers was
granted an option to purchase 7,648 shares of Prime Common Stock at $0.011 per
share, an option to purchase 37,500 shares of Prime Common Stock at an
exercise price of $1.10 per share and an option to purchase 243,000 shares of
Common Stock (vesting over four years) at $4.00 per share. In addition, the
settlement provided for the full vesting of previously granted options to
purchase 350,000 shares of Prime Common Stock at $1.15 per share. Mr. Rodgers
was also granted piggyback registration rights with respect to the 350,000
shares and 243,000 shares. As cash consideration, Mr. Rodgers has received
$810,000. This entire amount has been expensed as of September 30, 1997.
Also as part of this settlement, the Company loaned Mr. Rodgers
approximately $442,000 to exercise his options for 37,500 and 350,000 shares
of Prime Common Stock. The loans are non-recourse but are secured by the stock
purchased with the proceeds of the loan. The notes are payable at the earlier
of sale of the stock or the date on which the option would have otherwise
expired. Interest on these notes will be reimbursed to Mr. Rodgers by the
Company (and grossed up based on applicable tax rates to Mr. Rodgers).
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Mr. Anantharaman is an executive officer and an owner of EGL Holdings. EGL
Holdings from time to time represents two Company stockholders, Mercury Asset
Management Ltd. on behalf of Rowan Nominees, Ltd. ("Mercury") and NatWest
Ventures Investments Ltd. ("NatWest"), in venture capital investments.
Pursuant to a Stock and Warrant Purchase Agreement dated December 29, 1995, in
which a group of investors led by EGL Holdings, including Mercury and NatWest,
made their initial $3.0 million investment in the Company through the Class A
Stock, the Company also agreed to engage EGL Holdings to act as an advisor to
the Company, at a fee of $6,000 per month plus reimbursement of reasonable
expenses, from January 1, 1996 until such time as there are no longer any
shares of the Company's Class A Stock outstanding. Mercury and NatWest are
also participants in the venture capital investment described in the following
paragraph.
Mr. Cronin is a General Partner of Weston Presidio Capital, which manages
venture capital funds including Weston Presidio Capital II, L.P. ("Weston
II"). On June 16, 1997, the Company entered into a Series B Securities
Purchase Agreement among the Company, Weston II, Mercury, NatWest and certain
other investors. Pursuant to the Series B Securities Purchase Agreement, in
June 1997 the Company sold 1,529,958 shares of Series B Voting Preferred Stock
to Weston II, 305,938 shares of Series B Voting Preferred Stock to Mercury and
152,969 shares of Series B Voting Preferred Stock to NatWest. As part of that
transaction, Weston II was granted a warrant to purchase 509,986 shares of
Common Stock, Mercury was granted a warrant to purchase 101,979 shares of
Common Stock and NatWest was granted a warrant to purchase 50,990 shares of
Common Stock, each at an exercise price of $0.01 per share. Each of Weston II,
Mercury and NatWest also agreed to purchase at the Company's request an
additional 542,473, 108,495 and 54,247 shares of Series B Preferred Stock,
respectively, in April 1998 pursuant to an equity call agreement. Upon such
further investment, Weston II, Mercury and NatWest would receive additional
warrants to purchase 54,247, 10,849 and 5,425 shares of Common Stock,
respectively, at an exercise price of $0.01 per share.
Dr. DiStefano is the managing partner of the Arlington Cancer Center.
Pursuant to the Asset Purchase and Contribution Agreement dated June 16, 1997,
among the Company, the Arlington Cancer Center, the individual physicians
named therein (the "Arlington Physicians"), each of the Arlington Physicians
wholly-owned professional associations (the "Physician Professional
Associations") and MHOA Texas I, L.L.C., a subsidiary of the Company ("MHOA
Texas"), (the "Arlington Purchase Agreement"), the Arlington Cancer Center
sold substantially all of its assets to MHOA Texas for an aggregate purchase
price of $24.5 million, of which $11.8 million was paid in cash, $6.2 million
was paid in the form of a promissory note and $6.5 million was paid in the
form of a subordinated promissory note. In addition to the cash consideration,
the Arlington Cancer Center retained a 20.0% interest in MHOA Texas. The $6.2
million promissory note is non-interest bearing and the entire principal
balance is due on April 1, 1998. The subordinated promissory note is non-
interest bearing and is payable in four annual installments beginning on April
1, 1999. The 20.0% interest in MHOA Texas held by the Arlington Cancer Center
may be exchanged for a total of 1,530,000 shares of Common Stock under certain
circumstances pursuant to an exchange rights agreement. Through his interest
in the Arlington Cancer Center, Dr. DiStefano has a 4.6% interest in MHOA
Texas. Pursuant to the Asset Purchase and Contribution Agreement, the Company
also agreed to appoint Dr. DiStefano to the Board of Directors of the Company.
The Company, MHOA Texas and the Arlington Cancer Center have entered into a
management services agreement whereby MHOA Texas provides physician practice
management services to the Arlington Cancer Center for an annual fee equal
12.0% of the Arlington Cancer Center's net practice revenue, an additional
55.0% of the practice pre-tax income and the reimbursement of certain interest
and depreciation expenses. Physicians salaries and operating expenses,
including the reimbursable interest and depreciation expenses, are paid before
PHC's management fees are paid. However, the practice is required to pay the
management fee whether or not there are sufficient practice revenues remaining
after payment of physician salaries and operational expenses.
In November, 1996, Dr. Ribaudo, the sole shareholder of Metropolitan
Plastic, sold substantially all of the assets of Metropolitan Plastic to the
Company in exchange for: (i) $500,000 payable in the form of a convertible
promissory note; (ii) 125,000 shares of Prime Common Stock; and (iii) the
assumption of certain liabilities in the amount of $20,718. The promissory
note bears interest at a rate of 5.0% per annum and will mature on November
26, 1999. Prior to maturity but after an initial public offering by the
Company, the promissory note is convertible in $100,000 increments by the
holder into Common Stock at a price of $4.00 per share.
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Contemporaneously with the purchase of substantially all of the assets of
Metropolitan Plastic: (a) the Company entered into an Undertaking Agreement
with Dr. Ribaudo and Metropolitan Plastic (the "Ribaudo Undertaking
Agreement"); and (b) Metropolitan Plastic entered into a Practice Management
Agreement with the Company. Pursuant to the Practice Management Agreement, the
Company agreed to provide practice management and development services to
Metropolitan Plastic for an annual base fee of $100,000 plus 20.0% of the net
practice revenue of the practice less its operating expenses in excess of
$550,000 per year during the first five years of the agreement, and 20.0% of
the net practice revenue of the practice less operational expenses during the
remainder of the agreement. In addition, Metropolitan Plastic agreed to pay to
the Company a development fee equal to 7.0% of the revenues generated by new
practice physicians recruited by the Company.
Pursuant to the Ribaudo Undertaking Agreement the Company agreed to: (i)
employ Dr. Ribaudo on an at-will basis at an annual salary of $100,000 and to
increase his salary to $250,000 after the completion of an initial public
offering of Common Stock; (ii) appoint Dr. Ribaudo to the Board of Directors
of the Company; (iii) sell to him 100,000 shares of Common Stock at $4.00 per
share (which he has purchased); and (iv) provide him with a quarterly "draw"
as described below. The Ribaudo Undertaking Agreement also granted Dr.
Ribaudo: (a) an option to purchase 300,000 shares of Common Stock at $4.00 per
share, vesting over a period of four years (with accelerated vesting if PHC
completes a single sale of securities resulting in a change of control of the
Company) (the "Ribaudo 300,000 Options"); and (b) options to purchase 150,000
shares of Common Stock at $4.00 per share, 100,000 of which are vested with
options to purchase 25,000 shares of Common Stock vesting on each of December
31, 1998 and 1999. In addition, the Company paid Dr. Ribaudo $600,000 after
meeting certain performance targets. Pursuant to the Ribaudo Undertaking
Agreement, Dr. Ribaudo is entitled to make certain draws based upon his
assistance in certain acquisition-related activities of the Company. Dr.
Ribaudo was paid $70,000 in the six-months ended June 30, 1997. This draw
arrangement will terminate upon the consummation of the Offering, and Dr.
Ribaudo will be required to pay the Company the excess, if any, of the amount
drawn over the amount actually earned.
The Company and Dr. Ribaudo are also parties to an agreement that if the
Company is sold (through merger, sale of assets or otherwise) at an effective
price of less that $4.00 per share of Common Stock, then Dr. Ribaudo may elect
to receive a cash payment equal to the product of: (i) $0.80 multiplied by
(ii) the number of the Ribaudo 300,000 Options remaining unexercised at the
time of such change of control multiplied by (iii) the effective price per
share of Common Stock received by the holders of the Common Stock in the sale
transaction, provided that Dr. Ribaudo remains an employee of the Company and
surrenders that portion of such options that remain unexercised.
In September 1997, the Company borrowed $3.0 million from Southwest Bank
(the "Southwest Loan") to help finance the acquisition of Southern
Dependacare. The Company executed a demand note in connection with this loan,
payment of which was guaranteed by certain holders of the Series B Preferred
Stock (including without limitation Weston II, Mercury and NatWest). In
exchange for the guaranty, the Company issued to the guarantors warrants to
purchase a total of 86,774 shares of Common Stock at an exercise price of
$4.00 per share. The Southwest Loan was paid in full in November 1997 using
proceeds from the Banque Paribas financing.
COMPANY POLICY
It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members
of the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company
does not intend to incur any further indebtedness to, or make any loans to,
any of its executive officers, directors or other affiliates.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Upon completion of the Offering, the Company's authorized capital stock will
consist of 100,000,000 shares of Voting Common Stock, par value $0.0025 per
share (the "Common Stock"), 40,000,000 shares of Non-Voting Common Stock, par
value $0.0025 per share (the "Non-Voting Common Stock") and 18,000,000 shares
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"). At
November 10, 1997 there were: (i) 500,000 shares of Class A Stock authorized
and 200,000 shares of Class A Stock outstanding; (ii) 9,000,000 shares of
Series B Voting Preferred Stock authorized and 3,460,362 shares of Series B
Voting Preferred Stock outstanding; (iii) 6,000,000 shares of Series B Non-
Voting Preferred Stock authorized and 917,814 shares of Series B Non-Voting
Preferred Stock outstanding; (iv) 20,000,000 shares of Prime Common Stock
authorized and 4,955,904 shares of Prime Common Stock outstanding; (v)
40,000,000 shares of Non-Voting Common Stock authorized none of which are
outstanding; and (vi) 100,000,000 shares of Common Stock authorized and
6,073,322 shares of Common Stock outstanding. Upon completion of the Offering,
all of the outstanding shares of Class A Stock, Series B Voting Preferred
Stock, Series B Non-Voting Preferred Stock and Prime Common Stock will be
converted into shares of Common Stock and will no longer be included in the
authorized capital stock of the Company. All of the currently outstanding
shares of Common Stock, Non-Voting Common Stock, Prime Common Stock, Class A
Stock, Series B Voting Preferred Stock and Series B Non-Voting Preferred Stock
are validly issued, fully paid and nonassessable under the Delaware General
Corporation Law (the "DGCL").
Upon the consummation of the Offering, all shares of Class A Stock, Series B
Preferred Stock and Prime Common Stock will be converted into Common Stock in
accordance with their respective terms. If the initial public offering price
is less than $7.00 per share, the Company will be required to accrue an
extraordinary dividend payable with respect to each share of Series B
Preferred Stock equal to $7.00 per share less the initial public offering
price. This extraordinary dividend would be payable one year after the
consummation of the Offering and could be paid either in cash or in Common
Stock. The requirement to pay such dividend will be terminated if, at any time
during the one-year period after consummation of the Offering, the average
price of the Common Stock on the Nasdaq National Market is greater than $7.00
per share for any 20 consecutive trading days.
The following summary describes the capital stock of the Company to be
authorized on completion of the Offering. This summary describes the material
elements of the Company's Fourth Amended and Restated Certificate of
Incorporation (the "Certificate") as it relates to the Company's capital stock
but does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Certificate and by the provisions of
applicable law, including the DGCL.
COMMON STOCK AND NON-VOTING COMMON STOCK
Voting Rights
Each holder of Common Stock is entitled to one vote per share in the
election of directors and for all other purposes. The holders of Non-Voting
Common Stock do not have voting rights unless otherwise required by law or by
the Certificate. Except as otherwise provided, there are no cumulative voting
or preemptive rights applicable to any shares of the Company's stock.
Dividends and Other Distributions
All shares of Common Stock and Non-Voting Common Stock are entitled to
participate pro rata in distributions and in such dividends as may be declared
by the Board of Directors of the Company out of funds legally available
therefor, subject to any preferential dividend rights of outstanding shares of
Preferred Stock.
Subject to the prior rights of creditors, all shares of Common Stock and
Non-Voting Common Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, or upon the
sale of substantially all of the assets of the Company or upon a merger of the
Company in which the Company is not the surviving entity (each a "Distribution
Event") to participate ratably, share and share alike, in the distribution of
all the remaining assets of the Company after distribution in full of
preferential amounts, if any, to be distributed to holders of Preferred Stock.
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Conversion Rights
Each share of Common Stock and Non-Voting Common Stock is convertible into
one share of Non-Voting Common Stock or Common Stock, as the case may be, at
any time and from time to time, upon delivery to the Company of a certificate
signed on behalf of the holder seeking such conversion. The Company will not
convert, redeem, purchase, acquire or take any other action affecting the
outstanding shares of Common Stock or Non-Voting Common Stock if such action
would, with respect to: (i) any legal entity that is subject to Regulation Y
of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 225)
(a "Regulated Stockholder") or (ii) any affiliate of any such Regulated
Stockholder, increase the percentage of outstanding voting securities owned or
controlled by such Regulated Stockholder to more than 4.9% or increase the
percentage of the total equity or the value of all of the capital stock of the
Company owned or controlled by such Regulated Stockholder to more than 24.9%
unless the Company gives written notice of such action to each Regulated
Stockholder or affiliate. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of
any shares of Preferred Stock that may be issued by the Company from time to
time.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. Subject to the provisions of the
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations,
preferences and relative, participating, optional, exchange or other special
rights, qualifications, limitations or restrictions thereof, including
dividend rights (including whether dividends are cumulative), dividend rates,
terms of redemption (including sinking fund provisions), redemption prices,
conversion rights and liquidation preferences of the shares constituting any
class or series of the Preferred Stock, in each case without any further
action or vote by the holders of Common Stock.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might
impede a business combination by including class voting rights that would
enable the holders to block such a transaction; or such issuance might
facilitate a business combination by including voting rights that would
provide a required percentage vote of the stockholders. In addition, under
certain circumstances, the issuance of Preferred Stock could adversely affect
the voting power of the holders of the Common Stock. Although the Board of
Directors is required to make any determination to issue such stock based on
its judgment as to the best interests of the stockholders of the Company, the
Board of Directors could act in a manner that would discourage an acquisition
attempt or other transaction that some or a majority of the stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then-market price of such stock. The Board of
Directors does not at present intend to seek stockholder approval prior to any
issuance of currently authorized stock, unless otherwise required by law or
the rules of any market on which the Company's securities are traded.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an
interested stockholder unless: (i) before such person became an interested
stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (ii) upon consummation of
the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by
58
<PAGE>
employee stock plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which such
person became an interested stockholder, the business combination was approved
by the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of 66 2/3% of the
outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
OTHER MATTERS
Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
of Incorporation limits the liability of directors of the Company to the
Company or its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL.
The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters.
The Bylaws provide that stockholders may act only at an annual or special
meeting of stockholders and may not act by written consent. The Bylaws provide
that special meetings of the stockholders can be called only by the Chairman
of the Board, the Chief Executive Officer, the President or the Board of
Directors.
The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a
result, it is currently contemplated that approximately one-third of the
Company's Board of Directors will be elected each year. The classified board
provision could prevent a party who acquires control of a majority of the
outstanding voting stock of the Company from obtaining control of the Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling interest. See "Management--Directors and
Executive Officers."
The Certificate of Incorporation provides that the number of directors shall
be as determined by the Board of Directors from time to time, but shall be at
least one and not more than nineteen. It also provides that directors may be
removed only for cause, and then only by the affirmative vote of the holders
of at least a majority of all outstanding voting stock entitled to vote. This
provision, in conjunction with the provision of the Bylaws authorizing the
Board of Directors to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.
59
<PAGE>
STOCKHOLDER PROPOSALS
The Company's Bylaws contain provisions: (i) requiring that advance notice
be delivered to the Company of any business to be brought by a stockholder
before an annual meeting of stockholders and (ii) establishing certain
procedures to be followed by stockholders in nominating persons for election
to the Board of Directors. Generally, such advance notice provisions provide
that written notice must be given to the Secretary of the Company by a
stockholder: (a) in the event of business to be brought by a stockholder
before an annual meeting, not less than 90 days prior to the anniversary date
of the immediately preceding annual meeting of stockholders (with certain
exceptions if the date of the annual meeting is different by more than
specified amounts from the anniversary date), and (b) in the event of
nominations of persons for election to the Board of Directors by any
stockholder, (i) with respect to an election to be held at the annual meeting
of stockholders, not less than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders (with certain exceptions
if the date of the annual meeting is different by more than specified amounts
from the anniversary date), and (ii) with respect to an election to be held at
a special meeting of stockholders for the election of directors, not later
than the close of business on the 10th day following the day on which notice
of the date of the special meeting was mailed to stockholders or public
disclosure of the date of the special meeting was made, whichever first
occurs. Such notice must set forth specific information regarding such
stockholder and such business or director nominee, as described in the
Company's Bylaws. The foregoing summary is qualified in its entirety by
reference to the Company's Bylaws, which are included as an exhibit to the
Registration Statement of which this Prospectus is a part.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta, Georgia.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, on a pro forma basis as
of November 10, 1997 to reflect the mandatory conversion to Common Stock of
certain classes of the Company's capital stock and other convertible
securities upon completion of the Offering, and after giving effect to the
completion of the Offering and such mandatory conversion, with respect to the
beneficial ownership of the Company's voting capital stock of: (i) each person
known by the Company to be a beneficial owner of more than 50% of any class of
the Company's voting capital stock; (ii) each executive officer and director
or director nominee of the Company; and (iii) all directors, director nominees
and executive officers of the Company as a group. Except as otherwise
indicated below, the persons named in the table have advised the Company that
they have sole voting and investment power with respect to the shares of
capital stock shown as beneficially owned by them. Unless otherwise indicated,
each person or group has sole voting and investment power with respect to all
such shares. Unless otherwise indicated, the number of shares and percentage
of ownership of Common Stock for each of the named stockholders, directors,
director nominee and executive officers assumes that shares of Common Stock
that the stockholders, directors, director nominee and executive officers may
acquire within 60 days are outstanding.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
-----------------------
SHARES PRO FORMA
BENEFICIALLY PRIOR TO AFTER
NAME OWNED(1) OFFERING(1) OFFERING(2)
- ---- ------------ ----------- -----------
<S> <C> <C> <C>
Murali Anantharaman(3)................... 2,841,109 16.9%
EGL Holdings, Inc.(4).................... 2,741,109 16.3
Weston Presidio Capital II, L.P.(5)...... 2,070,058 12.2
Michael F. Cronin(6)..................... 2,070,058 12.2
Mercury Asset Management plc, on behalf
of Rowan Nominees Limited(7)............ 1,345,870 8.1
Sarah C. Garvin.......................... 1,300,000 7.9
Banque Paribas(8)........................ 1,218,244 7.1
NatWest Ventures Investments Ltd.(9)..... 1,122,679 6.8
Thomas M. Rodgers, Jr.(10)............... 655,148 4.0
J. Michael Ribaudo, M.D.(11)............. 325,000 1.97
James G. Burkhart........................ -- *
Josh J. Coughlin......................... 4,000 *
Alfred DiStefano, M.D.................... -- *
Richard Sanchez, M.D..................... -- *
Carl J. Schramm, Ph.D.(12)............... 181,250 1.1
William C. Stewart, M.D.(13)............. 26,400 *
All directors, director nominees and
executive officers as a group
(11 persons)(14)........................ 7,406,965 42.2
</TABLE>
- --------
* Less than 1%.
(1) Calculated on a pro forma basis to show the effect of mandatory
conversion to Common Stock of certain classes of the Company's capital
stock and other securities upon completion of the Offering, for a total
of 16,409,588 shares of Common Stock outstanding.
(2) Gives effect to the issuance of shares of Common Stock offered hereby.
(3) Includes: (i) 190,000 shares of Common Stock into which a warrant held by
EGL Holdings is currently exercisable; (ii) 1,224,658 shares of Common
Stock held by Mercury; (iii) 121,212 shares of Common Stock into which
warrants held by Mercury are currently exercisable; (iv) 1,071,689 shares
of Common Stock held by NatWest; (v) 50,990 shares of Common Stock into
which warrants held by NatWest are currently exercisable; (vi) 82,560
shares of Common Stock held by certain individual investors; and
(vii) 100,000 shares held by David Ellis, a colleague of Mr.
Anantharaman. Mercury, NatWest and the certain individual investors have
granted EGL Holdings full power to vote and exercise all owner rights,
powers and privileges with respect to their shares. Although as a Partner
of EGL Holdings and otherwise,
61
<PAGE>
Mr. Anantharaman is likely to exercise voting rights with respect to all
of the forgoing shares, he denies all but an insignificant, economic
interest in these shares except to the extent of his interest in the
190,000 shares issuable to EGL Holdings proportionate to his ownership
interest in EGL Holdings. Beneficial ownership of these shares, except
those held by Mr. Ellis, are also attributed to EGL Holdings and, as
applicable, to Mercury or NatWest. Mr. Anantharaman's business address is
6600 Peachtree Dunwoody Road, 300 Embassy Row, Suite 300, Atlanta, Georgia
30328.
(4) Includes: (i) 190,000 shares of Common Stock into which a warrant held by
EGL Holdings is currently exercisable; (ii) 1,224,658 shares of Common
Stock held by Mercury; (iii) 121,212 shares of Common Stock into which
warrants held by Mercury are currently exercisable; (iv) 1,071,689 shares
of Common Stock held by NatWest; (v) 50,990 shares of Common Stock into
which warrants held by NatWest are currently exercisable; and (vi) 82,560
shares of Common Stock held by certain individual investors. Other than
the 190,000 shares into which its warrant is currently exercisable, EGL
Holdings denies any economic interest in these shares. Beneficial
ownership of these shares is also attributed to Mr. Anantharaman and, as
appropriate, to Mercury or NatWest. EGL Holding's business address is
6600 Peachtree Dunwoody Road, 300 Embassy Row, Suite 630, Atlanta,
Georgia 30328.
(5) Includes 540,100 shares of Common Stock into which warrants held by
Weston II are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Cronin. The business address of Weston II is
One Federal Street, 21st Floor, Boston Massachusetts 02110.
(6) Includes: (i) 1,529,958 shares of Common Stock held by Weston II and (ii)
540,100 shares of Common Stock into which warrants held by Weston II are
currently exercisable. Beneficial ownership of these shares is also
attributed to Weston II. Mr. Cronin's address is One Federal Street, 21st
Floor, Boston, Massachusetts 02110.
(7) Includes 121,212 shares of Common Stock into which warrants held by
Mercury are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Anantharaman and to EGL Holdings.
(8) Includes: (i) 553,683 shares of Common Stock held by Paribas Principal,
Inc. ("PPI"); (ii) 184,561 shares of Common Stock into which a warrant
held by PPI is currently exercisable; and (iii) 480,000 shares of Common
Stock into which a warrant held by Paribas Capital Funding, Inc. ("PCF")
is currently indirectly exercisable. PPI and PCF are affiliates of Banque
Paribas.
(9) Includes 50,990 shares of Common Stock into which warrants held by
NatWest are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Anantharaman and to EGL Holdings.
(10) Includes 130,000 shares of Common Stock held in a Keogh account for Mr.
Rodger's benefit. Mr. Rodgers denies the right to vote these shares.
(11) Includes: (i) 25,000 shares of Common Stock that may be acquired on the
exercise of vested options and (ii) 125,000 shares of Common Stock into
which a note payable to Metropolitan Plastic is convertible. The "After
Offering" figure also includes 125,000 shares of Common Stock that may be
acquired upon exercise of 125,000 options that will vest upon
consummation of the Offering.
(12) Includes 131,250 shares of Common Stock that may be acquired upon the
exercise of vested options.
(13) Includes 2,640 shares that were issued in escrow for a period of one year
to be available to satisfy any indemnification claims by the Company in
connection with the MidSouth Practice Management acquisition. Unless and
until these shares are released from escrow, Dr. Stewart disclaims any
economic interest in the shares.
(14) See Notes 3 (Mr. Anantharaman), 6 (Mr. Cronin), 10 (Mr. Rodgers), 11 (Dr.
Ribaudo), 12 (Dr. Schramm) and 13 (Dr. Stewart).
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have shares of
Common Stock outstanding ( if the Underwriters' over-allotment option is
exercised in full) of which shares sold in the Offering ( if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act
unless purchased by "affiliates" of the Company (as defined in the Securities
Act). The remaining 16,409,588 shares of Common Stock and 917,814 shares of
Non- Voting Common Stock are deemed "restricted securities" under Rule 144 in
that they were originally issued and sold by the Company in private
transactions in reliance upon exemptions under the Securities Act, and may be
publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as those
provided by Rule 144 promulgated under the Securities Act as described below.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from an affiliate of the issuer, the acquiror or
subsequent holder would be entitled to sell within any three-month period a
number of those shares that does not exceed the greater of one percent of the
number of shares of such class of stock then outstanding or the average weekly
trading volume of the shares of such class of stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the issuer. In addition, if a period of at least two years has elapsed
since the later of the date of acquisition of restricted securities from the
issuer or from any affiliate of the issuer, and the acquiror or subsequent
holder thereof has not been an affiliate of the issuer at any time during the
90 days preceding a sale, such person would be entitled to sell such
restricted securities under Rule 144(k) without regard to the volume
limitations and manner of sale and notice requirements described above. Rule
144 does not require the same person to have held the securities for the
applicable periods. The foregoing summary of Rule 144 is not intended to be a
complete description thereof. The Commission has proposed certain amendments
to Rule 144 that would, among other things, eliminate the manner of sale
requirements and revise the notice provisions of that rule. The SEC has also
solicited comments on other possible changes to Rule 144, including possible
revisions to the one- and two-year holding periods and the volume limitations
referred to above.
As of November 10, 1997, options to purchase an aggregate of 3,909,925
shares of Common Stock were outstanding under the 1995 Stock Option Plan. See
"Management--1995 Stock Option Plan." In general, pursuant to Rule 701 under
the Securities Act, any employee, officer or director of, or consultant to,
the Company who purchased his or her shares pursuant to a written compensatory
plan or contract is entitled to rely on the resale provisions of Rule 701,
which permit non-affiliates to sell such shares without compliance with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permit affiliates to sell such shares without compliance with
the holding period provisions of Rule 144, in each case commencing 90 days
after the date of this Prospectus. In addition, the Company intends to file a
registration statement covering the 6,090,075 shares issuable upon exercise of
stock options that may be granted in the future under the 1995 Stock Option
Plan, in which case such shares of Common Stock generally will be freely
tradable by non-affiliates in the public market without restriction under the
Securities Act.
The Company, its executive officers, directors, and current stockholders
have agreed not to offer, sell, contract to sell, grant any option or other
right for the sale of, or otherwise dispose of any shares of Common Stock or
any securities, indebtedness or other rights exercisable for or convertible or
exchangeable into Common Stock owned or acquired in the future in any manner
prior to the expiration (the "180-Day Lockup Period") without the prior
written consent of BancAmerica Robertson Stephens, except that the Company
may, subject to certain conditions, issue Common Stock in connection with
acquisitions and may grant Awards (or Common Stock upon exercise of Awards)
under the 1995 Stock Option Plan. These restrictions will be applicable to any
shares acquired by any of those persons in the Offering or otherwise during
the 180-Day Lockup Period. Approximately shares of Common Stock issued by
the Company in October and November, 1997 were
63
<PAGE>
issued subject to agreements in which the persons who received the shares of
Common Stock in connection with acquisitions agreed not to transfer the shares
for periods ranging from 14 to 42 months following consummation of the
Offering.
Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time
after the Offering. The Company is unable to estimate the number of shares
that may be sold in the public market under Rule 144, or otherwise, because
such amount will depend on the trading volume in, and market price for, the
Common Stock and other factors. Nevertheless, sales of substantial amounts of
shares in the public market, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock of the Company.
See "Underwriting."
64
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"),
the underwriters named below (the "Underwriters"), for whom BancAmerica
Robertson Stephens, NationsBanc Montgomery Securities, Inc., A.G. Edwards &
Sons, Inc., and The Robinson-Humphrey Company, LLC are acting as
representatives (the "Representatives"), have severally agreed to purchase,
and the Company has agreed to sell, the respective number of shares of Common
Stock set forth opposite the name of each such Underwriter below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
BancAmerica Robertson Stephens.....................................
NationsBanc Montgomery Securities, Inc. ...........................
A.G. Edwards & Sons, Inc. .........................................
The Robinson-Humphrey Company, LLC.................................
----
Total............................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock are subject to certain conditions, and
that, if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, then all the shares of
Common Stock agreed to be purchased by the Underwriters pursuant to the
Underwriting Agreement must be so purchased.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock in part directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such public offering price less a selling concession not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the consummation of this Offering, the public offering price, the
concession to selected dealers and the reallowance may be changed by the
Underwriters. No such reductions shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted the Underwriters an option to purchase up to
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the option is exercised, each Underwriter will
be committed, subject to certain conditions, to purchase a number of
additional shares of Common Stock proportionate to such Underwriter's initial
commitment as indicated in the preceding table.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The Company, its executive officers, directors and current stockholders have
agreed not to, directly or indirectly, offer for sale, sell, contract to sell,
grant any option or other right for the sale of, or otherwise dispose of (or
enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Common Stock or any securities, indebtedness or other rights
exercisable for or convertible or exchangeable into shares of Common Stock
prior to the expiration of 180 days after the date of this Prospectus, without
the prior written consent of BancAmerica Robertson Stephens, except that the
Company may, subject to certain conditions, issue shares of Common Stock in
connection with acquisitions and grant Awards (or issue shares of Common Stock
upon exercise of Awards) under the 1995 Stock Option Plan. For information
respecting additional restrictions on sales by the Company's executive
officers, directors and current stockholders, see "Shares Eligible for Future
Sale."
65
<PAGE>
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with the Offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with the Offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has, therefore, not been effectively placed
by such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
Prior to the Offering, there has been no public market for the Company's
securities. The initial public offering price of the Common Stock will be
determined by negotiation among the Company and the Representatives. Among the
factors to be considered in such negotiations will be prevailing market
conditions, the results of operations of the Company in recent periods, market
valuations of publicly traded companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the current state of the industry and the economy as a whole, and
other factors deemed relevant.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of shares of Common Stock offered hereby to accounts
over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jackson Walker L.L.P., Dallas, Texas. Certain legal
matters in connection with the sale of the Common Stock offered hereby will be
passed upon for the Underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The audited financial statements of the Company, Southern Dependacare, Inc.,
Internal Medicine Specialists, Inc., Greater Cincinnati Gastroenterology
Associates, Inc., and Parkcrest Surgical Associates, Inc. included in this
Prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Metroplex Hematology/Oncology Associates, L.L.P.
at December 31, 1996 and 1995, and for each of the two years in the period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto,
the "Registration Statement") with respect to the Common
66
<PAGE>
Stock offered hereby. This Prospectus, filed as part of the Registration
Statement, does not contain all the information contained in the Registration
Statement, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement accurately
describes the material provisions of such document and are qualified in their
entirety by reference to such exhibits for complete statements of their
provisions. All of these documents may be inspected without charge at the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional
offices of the Commission: Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies can also be obtained from the Commission at prescribed
rates. The Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
67
<PAGE>
INDEX TO HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Physician Health Corporation ("PHC" or the "Company")
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-5
Consolidated Statements of Stockholders' Equity.......................... F-7
Consolidated Statements of Cash Flows.................................... F-9
Notes to Consolidated Financial Statements............................... F-11
Metroplex Hematology / Oncology Associates, L.L.P.
Arlington Cancer Center
Report of Independent Auditors........................................... F-23
Balance Sheets........................................................... F-24
Statements of Income and Changes in Partners' Capital.................... F-25
Statements of Cash Flows................................................. F-26
Notes to Financial Statements............................................ F-27
Greater Cincinnati Gastroenterology Associates, Inc.
Report of Independent Public Accountants................................. F-32
Balance Sheets........................................................... F-33
Statements of Operations................................................. F-34
Statements of Owners' Equity............................................. F-35
Statements of Cash Flows................................................. F-36
Notes to Financial Statements............................................ F-37
Internal Medicine Specialists, Inc.
Report of Independent Public Accountants................................. F-41
Balance Sheets........................................................... F-42
Statements of Operations................................................. F-43
Statements of Owners' Equity............................................. F-44
Statements of Cash Flows................................................. F-45
Notes to Financial Statements............................................ F-46
Parkcrest Surgical Associates, Inc.
Report of Independent Public Accountants................................. F-50
Balance Sheets........................................................... F-51
Statements of Operations................................................. F-52
Statements of Owners' Equity............................................. F-53
Statements of Cash Flows................................................. F-54
Notes to Financial Statements............................................ F-55
Southern DependaCare, Inc.
Report of Independent Public Accountants................................. F-60
Balance Sheets........................................................... F-61
Statements of Operations................................................. F-62
Statements of Owners' Equity............................................. F-63
Statements of Cash Flows................................................. F-64
Notes to Financial Statements............................................ F-65
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Physician Health Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of PHYSICIAN
HEALTH CORPORATION (a Delaware corporation) AND SUBSIDIARIES (Successor
Company) as of December 31, 1995 and 1996 and June 30, 1997, and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for the period from inception (August 29, 1995) through December
31, 1995, the year ended December 31, 1996, and the six months ended June 30,
1997. We have also audited for Physician Health Corporation and Subsidiaries
(Predecessor Company) the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows for the year ended December 31,
1994 and the period from January 1, 1995 to October 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Physician Health
Corporation and Subsidiaries (Successor Company) as of December 31, 1995 and
1996 and June 30, 1997, and the results of their operations and their cash
flows for the period from inception (August 29, 1995) through December 31,
1995, the year ended December 31, 1996, and the six months ended June 30, 1997
and for the Predecessor Company for year ended December 31, 1994 and the
period from January 1, 1995 to October 31, 1995 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 29, 1997
F-2
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $3,011,757 $1,160,910 $ 3,705,467
Accounts receivable, less allowance for bad
debts of $55,170, $463,970, and $372,497
at December 31, 1995 and 1996 and June 30,
1997, respectively........................ 400,479 465,089 3,348,496
Inventory.................................. 0 0 367,197
Prepaid expenses and other current assets.. 121,463 124,800 6,486,782
---------- ---------- -----------
Total current assets..................... 3,533,699 1,750,799 13,907,942
PROPERTY AND EQUIPMENT, net.................. 149,820 867,260 5,504,843
INTANGIBLE ASSETS, net of accumulated
amortization of $7,936, $54,142, and
$133,615 at December 31, 1995 and 1996 and
June 30, 1997, respectively................. 1,054,567 1,524,604 12,508,293
OTHER LONG-TERM ASSETS....................... 131,455 0 327,803
---------- ---------- -----------
Total assets............................. $4,869,541 $4,142,663 $32,248,881
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................ $ 77,131 $ 606,531 $ 940,045
Accrued expenses............................ 673,735 922,353 2,831,710
Current portion of long-term debt........... 368,237 75,808 7,124,360
---------- ---------- -----------
Total current liabilities................. 1,119,103 1,604,692 10,896,115
---------- ---------- -----------
LONG-TERM DEBT................................ 10,358 500,000 13,731,164
---------- ---------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 9)
CLASS A REDEEMABLE PREFERRED STOCK, $.01 par
value; 500,000 shares authorized, 200,000
issued, and outstanding (redemption or
liquidation preference aggregating
$3,000,000, plus accrued dividends or
guaranteed return)........................... 2,447,836 2,442,712 2,512,373
---------- ---------- -----------
SERIES B REDEEMABLE CONVERTIBLE PREFERRED
STOCK, $.01 par value; 12,000,000 shares
authorized, 2,447,772 issued and outstanding
and 1,552,501 in escrow pending subscription
payment at June 30, 1997..................... 0 0 15,521,849
---------- ---------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $0.0025 par value; 20,000,000
shares authorized, $3,350,000, 3,810,000,
and 4,193,750 shares issued and outstanding
at December 31, 1995 and 1996 and June 30,
1997, respectively......................... 8,375 9,525 10,485
Prime common stock, $0.0025 par value;
20,000,000 shares authorized, 125,000 and
2,853,365 shares issued and outstanding at
December 31, 1996 and June 30, 1997,
respectively............................... 0 313 7,134
Additional paid-in capital.................. 1,450,817 2,635,995 6,836,227
Accumulated deficit......................... (166,948) (3,050,574) (16,823,685)
Notes receivable (Notes 5 and 6)............ 0 0 (442,781)
---------- ---------- -----------
Total stockholders' equity (deficit)...... 1,292,244 (404,741) (10,412,620)
---------- ---------- -----------
Total liabilities and stockholders' equity
(deficit)................................ $4,869,541 $4,142,663 $32,248,881
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(AUGUST 29, 1995) YEAR ENDED SIX MONTHS SIX MONTHS
THROUGH DECEMBER 31, ENDED ENDED
DECEMBER 31, 1995 1996 JUNE 30, 1996 JUNE 30, 1997
----------------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUE............. $ 456,306 $ 4,035,964 $1,682,994 $ 5,723,529
---------- ----------- ---------- ------------
OPERATING EXPENSES:
Salaries and
benefits............. 362,287 2,915,041 1,349,567 4,173,163
Contract and
professional
services............. 69,830 193,561 191,973 503,501
Provision for bad
debts................ 40,170 660,159 220,053 492,224
General and
administrative....... 131,009 2,748,330 480,100 1,971,805
Depreciation and
amortization......... 13,577 161,236 47,245 283,973
Write down of assets.. 0 195,236 0 714,665
Purchased research and
development.......... 0 0 0 13,251,860
---------- ----------- ---------- ------------
Total operating
expenses........... 616,873 6,873,563 2,288,938 21,391,191
---------- ----------- ---------- ------------
LOSS FROM OPERATIONS.... (160,567) (2,837,599) (605,944) (15,667,662)
INTEREST EXPENSE, net... 7,178 29,527 6,412 172,704
---------- ----------- ---------- ------------
LOSS BEFORE MINORITY
INTEREST AND INCOME
TAXES.................. (167,745) (2,867,126) (612,356) (15,840,366)
MINORITY INTEREST IN NET
LOSS OF SUBSIDIARY..... (797) 0 0 (2,080,975)
---------- ----------- ---------- ------------
LOSS BEFORE INCOME
TAXES.................. (166,948) (2,867,126) (612,356) (13,759,391)
INCOME TAX EXPENSE...... 0 16,500 1,000 13,720
---------- ----------- ---------- ------------
NET LOSS................ $ (166,948) $(2,883,626) $ (613,356) $(13,773,111)
========== =========== ========== ============
LOSS PER SHARE.......... $ (.06) $ (.51) $ (.17) $ (1.92)
========== =========== ========== ============
WEIGHTED AVERAGE SHARES
OUTSTANDING............ 2,995,977 5,600,555 3,598,619 7,168,496
========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995 TO
1994 OCTOBER 31, 1995
------------ ------------------
<S> <C> <C>
NET REVENUE..................................... $ 812,144 $1,949,421
--------- ----------
OPERATING EXPENSES:
Salaries and benefits......................... 530,952 1,532,624
Contract and professional services............ 37,514 124,524
General and administrative.................... 224,673 463,478
Depreciation and amortization................. 58,266 106,584
--------- ----------
Total operating expenses.................... 851,405 2,227,210
--------- ----------
LOSS FROM OPERATIONS............................ (39,261) (277,789)
INTEREST EXPENSE, net........................... 24,033 86,487
--------- ----------
LOSS BEFORE INCOME TAXES........................ (63,294) (364,276)
INCOME TAX EXPENSE.............................. 0 0
--------- ----------
NET LOSS........................................ $ (63,294) $ (364,276)
========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK PRIME COMMON STOCK
---------------------------- ---------------------------
ADDITIONAL ADDITIONAL STOCKHOLDERS'
PAID-IN PAID-IN ACCUMULATED NOTES EQUITY
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE (DEFICIT)
--------- ------- ---------- --------- ------ ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, August
29, 1995 (period
of inception).... 0 $ 0 $ 0 0 $ 0 $ 0 $ 0 $ 0 $ 0
Issuance of
common stock,
net of issuance
costs of
$38,453......... 3,350,000 8,375 1,058,797 0 0 0 0 0 1,067,172
Issuance of
options and
warrants to
purchase common
stock........... 0 0 392,020 0 0 0 0 0 392,020
Issuance of
preferred stock,
net of issuance
costs of
$267,472........ 0 0 0 0 0 0 0 0 0
Accretion of
preferred
stock........... 0 0 0 0 0 0 0 0 0
Net loss........ 0 0 0 0 0 0 (166,948) 0 (166,948)
--------- ------- ---------- --------- ------ ---------- ------------ --------- ------------
BALANCE, December
31, 1995......... 3,350,000 8,375 1,450,817 0 0 0 (166,948) 0 1,292,244
Issuance of
common stock,
net of issuance
costs of
$43,065......... 460,000 1,150 1,075,785 0 0 0 0 0 1,076,935
Issuance of
prime common
stock, net of
issuance costs
of $15,294...... 0 0 0 125,000 313 109,393 0 0 109,706
Issuance cost
adjustment...... 0 0 0 0 0 0 0 0 0
Net loss........ 0 0 0 0 0 0 (2,883,626) 0 (2,883,626)
--------- ------- ---------- --------- ------ ---------- ------------ --------- ------------
BALANCE, December
31, 1996......... 3,810,000 9,525 2,526,602 125,000 313 109,393 (3,050,574) 0 (404,741)
Issuance of
common stock,
net of issuance
costs of
$5,836.......... 383,750 960 1,529,638 0 0 0 0 0 1,530,598
Issuance of
prime common
stock........... 0 0 0 2,728,365 6,821 2,670,594 0 (442,781) 2,234,634
Issuance of
preferred stock,
net of issuance
costs of
$479,239........ 0 0 0 0 0 0 0 0 0
Accretion of
preferred
stock........... 0 0 0 0 0 0 0 0 0
Net loss........ 0 0 0 0 0 0 (13,773,111) 0 (13,773,111)
--------- ------- ---------- --------- ------ ---------- ------------ --------- ------------
BALANCE, June 30,
1997............. 4,193,750 $10,485 $4,056,240 2,853,365 $7,134 $2,779,987 $(16,823,685) $(442,781) $(10,412,620)
========= ======= ========== ========= ====== ========== ============ ========= ============
<CAPTION>
REDEEMABLE PREFERRED STOCK
-----------------------------------------
CLASS A SERIES B
------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- --------- -----------
<S> <C> <C> <C> <C>
BALANCE, August
29, 1995 (period
of inception).... 0 $ 0 0 $ 0
Issuance of
common stock,
net of issuance
costs of
$38,453......... 0 0 0 0
Issuance of
options and
warrants to
purchase common
stock........... 0 0 0 0
Issuance of
preferred stock,
net of issuance
costs of
$267,472........ 200,000 2,447,528 0 0
Accretion of
preferred
stock........... 0 308 0 0
Net loss........ 0 0 0 0
------- ----------- --------- -----------
BALANCE, December
31, 1995......... 200,000 2,447,836 0 0
Issuance of
common stock,
net of issuance
costs of
$43,065......... 0 0 0 0
Issuance of
prime common
stock, net of
issuance costs
of $15,294...... 0 0 0 0
Issuance cost
adjustment...... 0 (5,124) 0 0
Net loss........ 0 0 0 0
------- ----------- --------- -----------
BALANCE, December
31, 1996......... 200,000 2,442,712 0 0
Issuance of
common stock,
net of issuance
costs of
$5,836.......... 0 0 0 0
Issuance of
prime common
stock........... 0 0 0 0
Issuance of
preferred stock,
net of issuance
costs of
$479,239........ 0 0 4,000,273 15,521,849
Accretion of
preferred
stock........... 0 69,661 0 0
Net loss........ 0 0 0 0
------- ----------- --------- -----------
BALANCE, June 30,
1997............. 200,000 $2,512,373 4,000,273 $15,521,849
======= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
ADDITIONAL STOCKHOLDER'S
PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, Period of
inception................. 0 $ 0 $ 0 $ 0 $ 0
Issuance of common
stock................... 1,000 10 490 0 500
Net loss................. 0 0 0 (63,294) (63,294)
----- --- ---- --------- ---------
BALANCE, December 31,
1994...................... 1,000 10 490 (63,294) (62,794)
Net loss................. 0 0 0 (364,276) (364,276)
----- --- ---- --------- ---------
BALANCE, October 31, 1995.. 1,000 $10 $490 $(427,570) $(427,070)
===== === ==== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED SIX MONTHS SIX MONTHS
(AUGUST 29, 1995 DECEMBER 31, ENDED ENDED
TO DECEMBER 31, 1995) 1996 JUNE 30, 1996 JUNE 30, 1997
--------------------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.............. $ (166,948) $(2,883,626) $ (613,356) $(13,773,111)
Adjustments to recon-
cile net loss to net
cash provided by
(used in) operating
activities:
Depreciation,
amortization, and
accretion............ 13,577 161,236 47,245 353,634
Write-down of assets.. 0 195,236 0 714,665
Purchased research and
development.......... 0 0 0 13,251,860
Loss on disposal of
fixed assets......... 0 0 0 17,645
Minority interest in
net loss of
subsidiary........... (797) 0 0 (2,080,975)
Changes in operating
assets and
liabilities:
Accounts receivable,
net................. 38,182 (64,611) (83,672) (2,303,374)
Due from related
physicians and
physician
organizations....... (221,800) 221,800 0 0
Prepaid expenses and
other assets........ 180,104 (93,682) (44,097) (846,982)
Accounts payable and
accrued expenses.... 219,745 660,986 (340,135) 493,319
----------- ----------- ----------- ------------
Net cash provided by
(used in) operating
activities......... 62,063 (1,802,661) (1,034,015) (4,173,319)
=========== =========== =========== ============
INVESTING ACTIVITIES:
Purchases of busi-
nesses and related
intangibles.......... (1,325,787) (127,345) 0 (12,811,432)
Purchases of property
and equipment........ (9,834) (342,008) (203,555) (223,129)
----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (1,335,621) (469,353) (203,555) (13,034,561)
----------- ----------- ----------- ------------
FINANCING ACTIVITIES:
Proceeds from issuance
of redeemable
preferred stock, net
of issuance costs.... 2,554,528 0 0 9,311,849
Proceeds from issuance
of common stock, net
of issuance costs.... 1,067,172 1,061,641 681,385 1,398,451
Proceeds from issuance
of stock purchase
warrants............. 285,020 0 0 0
Payments for loan
issuance costs for
credit facility...... 0 (277,099) 0 0
Proceeds from issuance
of long-term debt.... 378,595 0 0 9,057,457
Repayment of notes
payable.............. 0 (363,375) (363,375) (15,320)
----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 4,285,315 421,167 318,010 19,752,437
----------- ----------- ----------- ------------
NET CHANGE IN CASH AND
CASH EQUIVALENTS...... 3,011,757 (1,850,847) (919,560) 2,544,557
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD... 0 3,011,757 3,011,757 1,160,910
----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................ $ 3,011,757 $ 1,160,910 $ 2,092,197 $ 3,705,467
=========== =========== =========== ============
SUPPLEMENTAL
DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for
interest............. $ 6,870 $ 15,872 $ 6,412 $ 3,029
=========== =========== =========== ============
Cash paid for income
taxes................ $ 0 $ 16,500 $ 0 $ 13,720
=========== =========== =========== ============
SUPPLEMENTAL
DISCLOSURES OF NONCASH
FINANCING AND
INVESTING ACTIVITY:
Carrying value of debt
issued in connection
with purchases of
businesses (Note 2).. $ 0 $ 0 $ 0 $ 10,952,494
=========== =========== =========== ============
Common stock issued in
connection with
purchases of
businesses (Note 2).. $ 0 $ 0 $ 0 $ 4,280,192
----------- ----------- ----------- ------------
Preferred stock
subscriptions issued
(Note 6)............. $ 0 $ 0 $ 0 $ 6,210,000
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-9
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1995
DECEMBER 31, TO
1994 OCTOBER 31, 1995
------------ ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss....................................... $ (63,294) $(364,276)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 58,266 106,584
Changes in operating assets and liabilities:
Accounts receivable, net................... (160,949) (310,138)
Prepaid expenses and other assets.......... (657,683) (133,495)
Accounts payable and accrued expenses...... 208,281 175,943
--------- ---------
Net cash used in operating activities.... (615,379) (525,382)
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment............ (77,589) (104,841)
--------- ---------
Net cash used in investing activities.... (77,589) (104,841)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock......... 500 0
Borrowings under line of credit--parent compa-
ny............................................ 756,756 565,935
--------- ---------
Net cash provided by financing activi-
ties.................................... 757,256 565,935
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......... 64,288 (64,288)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERI-
OD.............................................. 0 64,288
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $ 64,288 $ 0
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMA-
TION:
Cash paid for interest......................... $ 24,033 $ 86,487
========= =========
Cash paid for income taxes..................... $ 0 $ 0
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-10
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND DECEMBER 31, 1996 AND JUNE 30, 1997
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
PHC Merger Corporation (the "Company") was incorporated on August 29, 1995
as a Delaware corporation. On November 3, 1995, the Company acquired, in a
transaction accounted for as a purchase, all of the outstanding common stock
of Physician Health Corporation (the "Predecessor Company"), a wholly owned
subsidiary of Surgical Health Corporation, which was a wholly owned subsidiary
of HealthSouth Corporation. The Predecessor Company commenced operations
during 1994. Upon completion of the merger, the Company changed its name to
Physician Health Corporation (the "Successor Company"). The Company is a
physician management company focusing on the integration of managed care
contracting, network development and administration, physician practice
management and ancillary health care services development in selected markets.
The Company provides these services to independent physician networks and
Company sponsored physician networks and to physicians who affiliate with the
Company through practice management or employment agreements. The Company
currently provides services described above in the following geographical
markets: Virginia, Georgia, Texas, Alabama, Tennessee, Florida, Missouri, and
Arizona.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned and greater than 50%-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Minority Interests
Minority interests represents the minority shareholders' proportionate share
of the equity of two of the Company's subsidiaries purchased during the six
months ended June 30, 1997. The Company owns 80% of the capital stock of these
subsidiaries, and 20% is owned by minority interests.
As of December 31, 1995 and 1996 and June 30, 1997, the minority interests
are recorded at zero as cumulative losses applicable to minority interests
exceeded the minority interests in the subsidiaries' capital. For the six
months ended June 30, 1997, the minority interests' net loss was recorded at
$2,080,975 and $497,608 of the net loss was absorbed by the Company.
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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Net Loss Per Common and Common Equivalent Share
Net loss per common and common equivalent share is computed using the
weighted average number of shares of common stock and dilutive common stock
equivalent shares ("CSEs") from stock options using the treasury stock method.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common stock and CSEs issued at prices below the expected public offering
price during the 12-month period prior to filing of the registration statement
in connection with the Company's planned Offering have been included in the
calculation as if they were outstanding for all periods presented prior to the
Offering, regardless of whether they are dilutive.
F-11
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." SFAS No. 128 is designed to improve the
earnings per share information provided in the financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of earnings per share data.
SFAS No. 128 is effective for periods ending after December 15, 1997,
including interim periods. The Company will adopt SFAS No. 128 for the fiscal
and interim periods ending December 31, 1997. As of June 30, 1997, the
disclosure requirements of SFAS No. 128 would not require a different
presentation of earnings per share than currently presented due to the
antidilutive effect of all common stock equivalents.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information About Capital Structure." SFAS No. 129
requires companies to disclose descriptive information about an entity's
capital structure. It also requires disclosure of information about the
liquidation preference of preferred stock and redeemable stock. SFAS No. 129
is effective for the Company's fiscal year ending December 31, 1998. The
Company does not expect that SFAS No. 129 will require significant revision of
prior disclosures.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income." SFAS No. 130 is designed to improve the
reporting of changes in equity from period to period. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. The Company will
adopt SFAS No. 130 for fiscal 1998. Management does not expect SFAS No. 130 to
have a significant impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires that an enterprise disclose certain information about
operating segments. SFAS No. 131 is effective for financial statements for the
Company's fiscal year ending December 31, 1998. The Company does not expect
that SFAS No. 131 will require significant revision of prior disclosures.
Interim Unaudited Financial Information
The financial statements for the six months ended June 30, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.
Prior Year Reclassifications
Certain prior year and period amounts have been reclassified to conform with
the current year presentation.
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 equivalents.
Revenue
The Company primarily generates management fee revenues from contracts for
providing management services to physician practices, for organizing and
managing capitated network contracts, and for providing administrative
services such as accounting, billing, and collections. The Company also
generates patient revenues through employed physicians.
Revenue is recognized as services are performed. The Company had two
practices that represented 35% of total revenues for the year ended December
31, 1996 and three practices that represented 63% of total revenues for the
six months ended June 30, 1997.
F-12
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Accounts Receivable and Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the
estimated losses expected to be incurred in the collection of accounts
receivable.
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, changes in stockholders' equity,
and cash flows.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets, which are
as follows:
<TABLE>
<S> <C>
Equipment............................................... Five years
Furniture and fixtures.................................. Five to seven years
Leasehold improvements.................................. Ten years
</TABLE>
Additions that extend the lives of the assets are capitalized, while repairs
and maintenance costs are expensed as incurred. When property and equipment is
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resulting gain or loss is recorded.
Intangible Assets
The Company's acquisitions involve the purchase of tangible and intangible
assets and the assumption of certain liabilities of the affiliated physician
groups. The Company allocates the purchase price to the tangible assets
acquired and liabilities assumed based on estimated fair market values. In
connection with each acquisition, the Company enters into long-term service
agreements with the affiliated physician groups. The service agreements are
for terms of 40 years and cannot be terminated by either party without cause,
primarily bankruptcy or material default. The service agreement intangible is
being amortized using a straight-line method over an average life of 25 years.
In connection with the allocation of the purchase price to identifiable
intangible assets, the Company analyzes the nature of each group with which a
service agreement is entered into, including the number of physicians in each
group, number of service sites, ability to recruit additional physicians, the
group's relative market position, the length of time the group has been in
existence, and the term and enforceability of the service agreement.
The physician groups continually recruit physicians and, as appropriate and
necessary, add qualified physicians to the group. This manner of operations
allows the physician group to perpetuate itself as individual physicians
retire or are otherwise replaced. Therefore, the Company believes that the
physician groups with which it has service agreements are entities with
indeterminable life.
F-13
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Emerging Issues Task Force ("EITF") of the Financial Accounting
Standards Board is evaluating certain matters relating to the physician
practice management industry, including a review of accounting for businesses
combinations. The Company is unable to predict the impact, if any, that the
EITF conclusion may have on the Company's acquisition strategy, allocation of
purchase price related to acquisitions, and amortization lives assigned to
intangible assets.
Income Taxes
The Company is a corporation subject to federal and state income taxes.
Income taxes have been provided using the liability method in accordance with
the Statement of financial accounting standards ("SFAS") No. 109, "Accounting
for Income Taxes."
Impairment of Long-Lived Assets
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Under SFAS No. 121, intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. If this review indicates that the carrying amount of the
asset may not be recoverable, as determined based on the undiscounted cash
flows of the operations acquired over the remaining amortization period, the
carrying value of the asset is reduced to fair value. Among the factors that
the Company will continually evaluate are unfavorable changes in each
physician group's relative market share and local market competitive
environment, current period and forecasted operations, cash flow levels of the
physician group, and its impact on the management fee earned by the Company,
and legal factors governing the practice of medicine. In 1996, the Company
wrote off certain fixed assets for $195,236. In 1997, the Company wrote off
certain fixed assets and intangible assets for $714,665.
2. ACQUISITIONS
During the year ended December 31, 1996, the Company purchased the assets of
one physician practice. During the six months ended June 30, 1997, the Company
acquired certain assets and assumed certain liabilities of five physician
practices located in Texas and Missouri. Total tangible assets acquired were
$5,224,350 and total liabilities assumed were $1,990,493. To consummate these
five 1997 acquisitions, the Company paid $11,810,000 in cash, issued debt in
the aggregate amount of $10,952,494, and issued 2,199,217 shares of the
Company's prime common stock. In addition, consideration was given in the form
of a 20% interest in two newly formed subsidiaries. This 20% minority interest
in the subsidiaries are convertible into 2,080,975 shares of common stock in
the Company. The aggregate value of common and prime stock issued was
$4,280,192. As a result of these acquisitions, the Company recorded goodwill
of $10.5 million (after purchase of research and development), which is being
amortized over 25 years. These acquisitions were accounted for as purchase
transactions, and the acquired net assets and post acquisition operating
results are included in the June 30, 1997 consolidated financial statements.
In connection with the acquisition of a physician practice during the six
months ended June 30, 1997, the Company allocated $13,251,860 to purchased
research and development. Based on management's assessment of no alternative
future benefit to the Company, this amount was charged against operations on
the date of the acquisition.
The following table presents unaudited consolidated selected financial data
on a pro forma basis, assuming the purchase of one physician practice during
the year ended December 31, 1996 and the purchases on the five physician
practices during the six months ended June 30, 1997 occurred as of January 1,
1996 and January 1, 1997, excluding the effect of the write-down of assets
(including purchased research and development) of $195,236 in 1996 and
$13,966,525 in 1997. The unaudited consolidated pro forma results reflect
certain
F-14
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assumptions which are based on estimates. The unaudited consolidated pro forma
results presented have been prepared for comparative purposes only and are not
necessarily indicative of actual results that would have been achieved had the
acquisitions occurred at the beginning of the periods presented or of future
results.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
1996 JUNE 30, 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
Operating revenues................................ $30,465,026 $16,410,496
Net income........................................ 447,609 934,496
Earnings per share................................ .06 .11
</TABLE>
3. PROPERTY AND EQUIPMENT
As of December 31, 1995 and 1996 and June 30, 1997 property and equipment
are comprised of the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
Equipment................................... $115,934 $362,824 $3,512,587
Furniture................................... 27,795 134,391 461,434
Leasehold improvements...................... 11,732 471,885 1,728,849
Construction in progress.................... 0 0 91,325
-------- --------- ----------
155,461 969,100 5,794,195
Less accumulated depreciation............... (5,641) (101,840) (289,352)
-------- --------- ----------
Net property and equipment.................. $149,820 $867,260 $5,504,843
======== ========= ==========
</TABLE>
During the period of inception (August 29, 1995) to December 31, 1995, the
year ended December 31, 1996, and the six months ended June 30, 1997, the
Company recorded $5,641, $106,796, and $204,497 in depreciation expense,
respectively.
F-15
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LONG-TERM DEBT
At December 31, 1995 and 1996 and June 30, 1997, long-term debt consisted of
the following:
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- -----------
<S> <C> <C> <C>
Convertible subordinated note to
Metropolitan Plastic and Reconstructive
Surgery, Ltd.; principal and interest at
5% per annum due on demand or on
November 26, 1999; note is convertible
into common stock 90 days immediately
following the effective date of a
registration statement under the
Securities Act of 1933.................. $ 0 $500,000 $ 500,000
Equipment note........................... 0 75,808 75,808
Note payable to Boatmen's First National
Bank; note assumed in connection with
the purchase of a physician practice.... 0 0 164,763
Promissory notes payable to shareholders
of the Company; interest and principal
due on demand........................... 0 0 300,000
Promissory notes payable to officers and
shareholders; bearing interest at 10%... 363,375 0 0
Secured promissory note to DVI Business
Credit Corporation; interest on unpaid
principal balance due monthly at the
publicly announced rate by Bank of
America plus 2 1/2% per annum; all
unpaid principal and interest due on
July 1, 1999; secured by eligible
accounts receivable of the Company...... 0 0 862,459
Noninterest-bearing promissory note for
$6,210,000 to Metroplex
Hematology/Oncology Associates, LLP; im-
puted semiannual interest rate of 6.75%;
principal and interest due on April 1,
1998; .................................. 0 0 5,882,480
Noninterest-bearing promissory note for
$6,460,000 to Metroplex
Hematology/Oncology Associates, LLP; im-
puted semiannual interest rate of 7.36%
principal and interest due in four an-
nual installments, with final payment on
April 1, 2002........................... 0 0 5,070,014
Secured promissory notes to DVI Financial
Services, Inc.; interest payable monthly
at 12.25% per annum; principal and
interest due on July 1, 2003; secured by
certain equipment of the Company........ 0 0 8,000,000
Other.................................... 15,220 0 0
--------- -------- -----------
Total Debt............................... 378,595 575,808 20,855,524
Less current maturities.................. (368,237) (75,808) (7,124,360)
--------- -------- -----------
Long-term debt........................... $ 10,358 $500,000 $13,731,164
========= ======== ===========
</TABLE>
On December 31, 1996, the Company entered into a credit agreement with
Nations Credit for working capital and acquisition financing. No draws were
made on the credit arrangement during the six months ended June 30, 1997, and
the credit arrangement was terminated. In connection with the termination of
the credit agreement, the Company wrote off $691,191 of the remaining
unamortized loan issuance costs during the six months ended June 30, 1997.
F-16
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Repayment of long-term debt as of June 30, 1997 is as follows:
<TABLE>
<S> <C>
December 31:
Six-months ended 1997.......................................... $ 417,150
Year ended 1998................................................ 7,231,874
Year ended 1999................................................ 3,433,347
Year ended 2000................................................ 2,620,261
Year ended 2001................................................ 2,888,438
Thereafter..................................................... 4,262,454
-----------
Total $20,855,524
===========
</TABLE>
5. RELATED-PARTY TRANSACTIONS
At December 31, 1995, the Company had outstanding notes payable to officers
and shareholders totaling $363,375. The notes bear interest at 10%. The
proceeds from these notes were used to repay a portion of the line of credit
to Surgical Health Corporation. The notes payable were paid in full in January
1996. Interest paid to related parties was $5,874.
The Company had an intercompany line of credit with Surgical Health
Corporation prior to November 3, 1995 totaling $1,342,893. This line of credit
was paid in full on November 3, 1995, with the proceeds from the issuance of
shares of common stock and related party loans.
The Company maintains management services agreements to provide services to
and receive compensation from physicians that own stock in the Company or the
Company's subsidiaries and physicians that are on the Company's board of
directors. At June 30, 1997, the Company maintains four management service
contracts that were initiated in connection with asset purchases in which the
Company issued common stock as consideration (Note 2). For the year ended
December 31, 1996 and the six months ended June 30, 1997, the Company
recognized total management service fees from the contracts of approximately
$62,000 and $2,200,000, respectively. The Company also recorded capitated
contract fees of $80,000 between two of its subsidiaries, however, amounts
eliminate in consolidation.
The Company pays monthly consulting fees to affiliated investors and members
of the board for consulting services received. For the six months ended June
30, 1997, the Company paid approximately $40,000 in consulting fees to
affiliates.
At June 30, 1997, the Company has two promissory notes due to shareholders
of the Company. The total amount due to shareholders is $300,000.
In connection with the exercise of stock options during 1997, the Company
received a note in the amount of $442,781 from a stockholder of the Company.
6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Class A Redeemable Convertible Preferred Stock
During 1995, 200,000 shares of class A redeemable convertible preferred
stock were issued to certain investors of the Company. At any time prior to
December 29, 2005, each share of preferred stock is convertible into 9.6
common shares.
The conversion rate of the Class A stock shall be adjusted in the event that
the Company: (1) is liquidated on or prior to December 31, 1997, (2) attains
certain levels of profitability, (3) issues common stock at a price
F-17
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
less than the conversion rate then in effect, (4) declares a stock dividend,
(5) declares a stock split, or (6) is recapitalized.
The holders of Class A stock are entitled to dividends, if declared by the
Company's board of directors, at a per share amount, if any, of any dividend
declared for the common stock during the period. In addition, the stockholders
are entitled to receive cumulative dividends of $1.50 per share (subject to
adjustment for any stock splits) per annum. Such dividends begin accruing on
December 31, 1996 and are payable annually thereafter beginning on December
31, 1997. No dividends have been declared or paid by the Company as of
December 31, 1995 and 1996 and June 30, 1997. The Class A holders have a
liquidation preference of $15 per share plus 12% per annum from the date of
purchase.
The 12% compounded annual rate of return shall be in lieu of, not in
addition to, the dividends paid or payable by the Company. The Class A stock
is senior to the common stock with respect to liquidation and dividends.
After December 31, 2000, each share of Class A stock is redeemable at the
request of the holders. The redemption price is equal to the greater of the
$15 per share plus any declared and unpaid dividends or the fair market value
of the Class A stock at the time of redemption. The Class A stock is required
to be redeemed at this price if the Company sells 20% or more of the
outstanding shares of capital stock of the Company, becomes insolvent, has a
breach of warranty, or has an acceleration of debt in excess of $500,000. No
shares have been redeemed as of December 31, 1995 and 1996 and June 30, 1997.
At June 30, 1997, the Company recorded accretion of preferred stock of
$69,661.
Series B Redeemable Convertible Preferred Stock
On June 16, 1997, the Company was authorized to issue 6,000,000 shares of
Series B redeemable convertible preferred stock at $.01 par value in one or
more series. This type of stock has been issued pursuant to a securities
purchase agreement between the Company, Western Presidio Capital II, L.P., and
certain other investors. Holders of Series B preferred stock are entitled to
(1) accrue a dividend in an amount equal to 20% per annum, compounded
annually, on $4, beginning on the later of the original issue date or the date
on which the purchase price for such shares was first released from the
applicable purchase price escrow (holders will also receive a special
contingent dividend upon the consummation of a liquidation event), (2)
liquidation preference over holders of common and prime stock in the amount of
$4 per share plus accrued and unpaid dividends, and (3) vote as a single class
with the holders of common stock based on the number of shares of common stock
into which the Series B preferred stock may be converted.
Under mandatory redemption, Series B redeemable convertible preferred stock
is redeemable at a price equal to $4 per share, plus accrued and unpaid
dividends. Mandatory redemption will commence in March 2003.
Each share of Series B convertible preferred stock is convertible at the
option of the holder at any time into the number of shares of the common stock
of the Company obtained by dividing $4 by the then effective conversion price
of the Series B preferred stock. Provided that a liquidity event has not
occurred prior to May 1, 2002, the conversion price will be $4 per share, and
after May 1, 2002, the conversion price will be $3 per share. Automatic
conversion will occur upon the closing of a liquidity event (including an
initial public offering).
The conversion rate of the Series B stock shall be adjusted in the event (1)
the Company issues additional shares of common stock at a price that is less
than the applicable conversion price in effect on the date of, and immediately
prior to, such issue, (2) stock is issued as a dividend, (3) stock is
subdivided, or (4) the outstanding shares of common stock are combined or
consolidated into a lesser number of shares of common stock.
F-18
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the six-month period ended June 30, 1997, the Company issued
2,447,772 shares of Series B redeemable convertible preferred stock to venture
capitalists in order to receive funding for current and future acquisitions.
The Company has recorded subscription receivables of $6,210,000 in relation to
the issuance of an additional 1,552,501 shares that will be released to the
venture capitalists upon payment of the subscription receivable.
Common Stock
On October 6, 1995, 2,250,000 shares of common stock were issued to certain
employees at a price of $.0025 per share of which 1,125,000 shares were vested
immediately. Subject to each stockholder maintaining full-time employment, the
unvested shares of common stock shall vest ratably over future periods. The
shares of the unvested stock have been placed in escrow. The holders of these
unvested shares have full voting rights through the escrow agent. All of the
common stock shall vest immediately in the event the Company: (1) achieves a
certain minimum market value and is merged with another company; (2)
consummates an initial public offering with a certain minimum level of
proceeds; or (3) is merged, consolidated, or reorganized resulting in a change
of control of the Company. These shares are subject to certain transfer
restrictions and may be forfeited if an employee leaves the Company for
reasons other than retirement, disability or death, absent a change in control
of the Company.
Through a private placement offering which closed on November 3, 1995, an
additional 1,100,000 shares of common stock were issued at a price of $1.00
per share.
On February 26, 1996, the Company sold 360,000 shares of common stock at $2
per share and issued a warrant to acquire an additional 266,000 shares at
$.0025 per share on or before January 31, 2001. On November 26, 1996, the
Company sold 100,000 shares at $4 per share to a related party with whom the
Company has a management agreement.
During the six-month period ending June 30, 1997, the Company issued 383,750
shares to various shareholders for cash of $1,370,598 and for the final
settlement to Nations Credit in the amount of $160,000 in connection with the
termination of the credit agreement.
Prime Common Stock
The Company has been authorized to issue 20 million shares of prime common
stock with a par value of $.0025 per share. Holders of prime common stock are
entitled to the following: (1) the right to receive one-tenth of one vote with
respect to any matters voted upon by the stockholders of the Company, (2) the
right to receive dividends when declared by the Board of Directors of the
Company, provided that the per share amount is at least equal to the per share
amount declared for common stockholders, and (3) the right to receive a pro
rata share of distributions upon a "distribution event" by the Company after
payment of outstanding debt and other obligations. The fair market value of
prime common stock is determined quarterly by outside appraisers. Outstanding
shares of prime common stock will convert to common stock upon the Company's
completion of a public offering in which the sale of common stock results in
net proceeds of $20 million or more.
On November 26, 1996, the Company issued 125,000 shares of prime common
stock at $1 per share in connection with the acquisition of the assets of
Metropolitan Plastic and Reconstructive Surgery, Ltd.
During the six months ended June 30, 1997, the Company issued 2,199,217
shares of prime common stock in connection with the purchase of three
physician practices (Note 2). The Company also issued 529,148 shares related
to exercisement of stock options. The consideration for this exercisement was
in the form of cash and issuance of notes receivable.
F-19
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Employee Stock Option Plans and Investor Warrants
The Company has nonqualified and incentive stock option plans to provide key
employees and directors and consultants of the Company with an increased
incentive to work for the success of the Company. The Company also issues
investor warrants to investors of the Company. The option price for all stock
options and warrants is usually the market value at the date of grants and
thus, the plans are generally noncompensatory. The options and warrants expire
ten years after the dates of their respective grants.
The Company accounts for the stock options and warrants under APB Opinion
No. 25, which requires compensation costs to be recognized only when the
option price differs from the market price at the grant date. FASB Statement
No. 123 allows a company to follow APB Opinion No. 25 with an additional
disclosure that shows what the Company's pro forma net loss would have been
using the compensation model under FASB Statement No. 23. The pro forma loss
for the year ended December 31, 1996 and the six-month period ended June 30,
1997 was $3,605,446 and $14,964,931, respectively. The Company used the
minimum value method to estimate the fair values of options and warrants for
the pro forma determination. For purposes of the minimum value method, the
Company used U.S. Treasury strip rates for its risk-free rates, assumed no
volatility or future dividends, and assumed the expected lives of the options
and warrants through the applicable expiration dates.
The Company reserved a total of 12,813,623 shares of common stock for
issuance to holders of employee stock options and investor warrants.
Stock option activity from inception date, August 29, 1995 to June 30, 1997
is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OPTION
OF SHARES PRICE
--------- -----------
<S> <C> <C>
Outstanding at August 29, 1995........................ 0 $0
Granted............................................. 185,000 $0.20-$1.00
--------- -----------
Outstanding at December 31, 1995...................... 185,000 $0.20-$1.00
Granted............................................. 1,830,500 $1.00-$4.00
--------- -----------
Outstanding at December 31, 1996...................... 2,015,500 $0.20-$4.00
Granted............................................. 1,300,197 $1.10-$5.25
Exercised .......................................... (529,148) $1.15
Canceled............................................ (100,000) $4.00
---------
Outstanding at June 30, 1997.......................... 2,686,549 $0.50-$5.25
=========
Exercisable at June 30, 1997.......................... 224,000 $0.50-$4.00
=========
</TABLE>
During the six months ended June 30, 1997, the Company issued 865,924
warrants to investors of the Company and 566,000 warrants were canceled. Total
outstanding warrants at December 31, 1996 and June 30, 1997 is 756,000 and
1,055,924, respectively. An additional 155,249 warrants will be released to
the venture capitalists upon payment of the $6,210,000 subscription receivable
(Note 6).
7. INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and unused tax operating loss carryforwards.
F-20
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows at December
31, 1995 and 1996 and June 30, 1997:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating losses................... $ 20,418 $ 1,196,565 $ 6,840,254
Other, net............................. 38,535 (50,069) (463,112)
-------- ----------- -----------
Total net deferred tax assets........ 58,953 1,146,496 6,377,142
Valuation allowance...................... (58,953) (1,146,496) (6,377,142)
-------- ----------- -----------
Net deferred tax assets.................. $ 0 $ 0 $ 0
======== =========== ===========
</TABLE>
Based on uncertainties associated with the future realization of the
deferred tax assets, the Company established a valuation allowance of $58,953
and $1,146,496, at December 31, 1995 and 1996 and $6,377,142 at June 30, 1997,
respectively.
A reconciliation from the statutory federal income tax rate to the income
tax expense is as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------ ----------------------------------------
JANUARY 1, AUGUST 29, 1995
YEAR ENDED 1995 TO TO YEAR ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, SIX MONTHS
1994 1995 1995 1996 ENDED 1997
------------ ----------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Federal tax at statutory
rate................... $(21,520) $(123,854) $(56,762) $(974,823) $(4,682,858)
State income taxes, net
of federal tax
benefit................ (2,532) (14,571) (6,678) (114,685) (550,923)
Other................... 0 0 4,487 18,415 16,855
Change in valuation
allowance.............. 24,052 138,425 58,953 1,087,593 5,230,646
-------- --------- -------- --------- -----------
Income tax expense...... $ 0 $ 0 $ 0 $ 16,500 $ 13,720
======== ========= ======== ========= ===========
</TABLE>
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $18 million which will begin to expire in the year 2010.
8. CONTINGENCIES
The Company and its affiliated physician groups are insured with respect to
medical malpractice risks on a claims-made basis. Management is not aware of
any claims against the Company or its affiliated physician groups which might
have a material impact on the Company's consolidated financial position.
Under the terms of a management service agreement to provide medical service
to a managed care organization in Central Florida, the Company, through a 51%-
owned subsidiary, is required to place $250,000 in escrow after a minimum
number of members are assigned to the Company for medical care. The escrow
fund is to be used to fund quarterly losses, if any, for the provision of
medical care. The Company currently has $50,000 in escrow, as the minimum
number of participants has not been obtained. Losses beyond the amount placed
in escrow are the responsibility of the managed care organization. If a
quarterly profit exists for two consecutive quarterly periods, any amounts
remaining in escrow are paid to the Company. The agreement does not require
amounts withdrawn from escrow to be replenished.
F-21
<PAGE>
PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. COMMITMENTS
The Company leases office space and certain equipment under operating lease
agreements which expire at various years through 2002. Operating leases may be
renewed for periods ranging from three to five years. At June 30, 1997,
minimum annual rental commitments under capital leases and noncancellable
operating leases with terms in excess of one year are as follows:
<TABLE>
<S> <C>
December 31:
1997............................................................ $1,024,881
1998............................................................ 1,931,411
1999............................................................ 1,507,731
2000............................................................ 1,315,249
2001 and thereafter............................................. 4,141,817
----------
Total......................................................... $9,921,089
==========
</TABLE>
Rent expense related to operating leases amounted to $43,490, $192,676,
$37,662, $447,794, and $347,844 for the year ended December 31, 1994, for the
period from January 1, 1995 to October 31, 1995, the period from inception
(August 29, 1995) to December 31, 1995, the year ended December 31, 1996, and
the six months ended June 30, 1997, respectively.
10. SUBSEQUENT EVENTS
Since June 30, 1997, the Company purchased five physician practices located
in Missouri, Arizona, and Georgia. The total purchase price for the
acquisitions was approximately $43.8 million, which was paid for through the
issuance of common stock, debt, and payment of cash.
F-22
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
Metroplex Hematology/Oncology Associates, L.L.P.
We have audited the accompanying balance sheets of Metroplex
Hematology/Oncology Associates, L.L.P. (the Partnership) as of December 31,
1995 and 1996, and the related statements of income and changes in partners'
capital and cash flows for each of the two years in the period ended December
31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metroplex
Hematology/Oncology Associates, L.L.P. at December 31, 1995 and 1996, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
April 9, 1997
F-23
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 159,468 $ 32,721
Accounts receivable, net of allowance for doubtful
accounts and contractual adjustments of $1,602,512
in 1995 and $2,242,429 in 1996...................... 3,446,421 5,205,867
Due from related party............................... 79,855 101,574
Prepaid expenses and other........................... 359,207 592,814
----------- -----------
Total current assets............................... 4,044,951 5,932,976
PROPERTY AND EQUIPMENT, NET............................ 4,266,967 3,449,698
OTHER ASSETS........................................... 218,875 10,000
----------- -----------
Total assets....................................... $ 8,530,793 $ 9,392,674
=========== ===========
LIABILITIES AND PARTNER'S CAPITAL
CURRENT LIABILITIES:
Accounts payable..................................... $ 640,987 $ 1,206,294
Accrued expenses:
Professional liability............................. 469,470 344,250
Group health....................................... 226,529 225,729
Other.............................................. 290,204 486,605
Patient refunds payable.............................. 401,674 628,289
Current portion of obligation to former partner...... 110,916 110,916
Current portion of long-term debt.................... 1,088,546 1,007,366
----------- -----------
Total current liabilities.......................... 3,228,326 4,009,449
LONG-TERM DEBT, LESS CURRENT PORTION................... 1,972,896 966,063
LONG-TERM OBLIGATION TO FORMER PARTNER, LESS CURRENT
PORTION............................................... 250,691 139,764
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL...................................... 3,078,880 4,277,398
----------- -----------
Total liabilities and partners' capital............ $ 8,530,793 $ 9,392,674
=========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
STATEMENTS OF INCOME AND CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1996
----------- -----------
<S> <C> <C>
REVENUES:
Medical fees........................................ $21,100,040 $23,296,897
Interest income and other........................... 184,698 141,858
----------- -----------
Total revenues.................................... 21,284,738 23,438,755
EXPENSES:
Salaries and benefits............................... 7,883,595 8,283,100
Medical supplies and drugs.......................... 5,114,932 5,905,328
Rent................................................ 1,305,057 1,361,150
Occupancy........................................... 1,082,205 1,203,625
Provision for doubtful accounts..................... 225,070 380,030
Purchased services.................................. 401,482 627,406
Depreciation and amortization....................... 1,096,267 1,008,758
Interest............................................ 276,977 209,914
Other............................................... 2,097,854 1,810,926
----------- -----------
Total expenses.................................... 19,483,439 20,790,237
----------- -----------
NET INCOME............................................ 1,801,299 2,648,518
PARTNERS' CAPITAL AT BEGINNING OF YEAR................ 2,727,581 3,078,880
DISTRIBUTIONS TO PARTNERS............................. (1,450,000) (1,450,000)
----------- -----------
PARTNERS' CAPITAL AT END OF YEAR...................... $ 3,078,880 $ 4,277,398
=========== ===========
</TABLE>
See accompanying notes.
F-25
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 1,801,299 $ 2,648,518
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,096,267 1,008,758
Changes in operating assets and liabilities:
Accounts receivable, net....................... (715,196) (1,759,446)
Prepaid expenses, due from related party, and
other assets.................................. 149,331 (46,451)
Accounts payable, accrued liabilities and
patient refunds payable....................... 302,917 862,303
----------- -----------
Net cash provided by operating activities.... 2,634,618 2,713,682
INVESTING ACTIVITIES
Capital expenditures............................... (1,050,346) (191,489)
----------- -----------
Net cash used in investing activities........ (1,050,346) (191,489)
FINANCING ACTIVITIES
Proceeds from notes payable........................ 660,353 --
Payments on notes payable.......................... (990,315) (1,088,013)
Distributions to partners.......................... (1,450,000) (1,450,000)
Payments on obligation to former partner........... (110,393) (110,927)
----------- -----------
Net cash used in financing activities........ (1,890,355) (2,648,940)
----------- -----------
Net decrease in cash and cash equivalents.......... (306,083) (126,747)
Cash and cash equivalents at beginning of year..... 465,551 159,468
----------- -----------
Cash and cash equivalents at end of year........... $ 159,468 $ 32,721
=========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES L.L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. ORGANIZATION
Metroplex Hematology/Oncology Associates, L.L.P. (the Partnership) is a
Texas limited liability partnership formed in January 1980. The Partnership
operates and manages a medical practice in Arlington, Texas, specializing in
internal medicine, hematology, oncology, diagnostic radiology and
radiotherapy, and provides related laboratory and clinical services.
The Partnership has a term until December 31, 2050 or until a terminating
event (as defined) occurs. The formation as a limited liability partnership
during 1994 allows for a limitation to the partners on their exposure to
professional liability claims.
2. ACCOUNTING POLICIES
Partnership Basis of Presentation
The financial statements include only those assets, liabilities and results
of operations that relate to the business of the Partnership. The statements
do not include assets, liabilities or results of operations attributable to
the partners' individual activities.
Income Taxes
Income taxes are an obligation of the partners and, accordingly, are not
provided for in the financial statements. The partners include their
proportionate shares of Partnership net income or loss in their individual
income tax returns.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
of assets owned or under capital leases are computed using straight-line and
accelerated methods over estimated useful lives ranging from 5 to 31 years.
Cash and Cash Equivalents
Cash equivalents are highly liquid money market instruments with original
maturities of less than 90 days.
Concentration of Credit Risk
Cash and cash equivalents used in operations consist primarily of cash in
financial institutions in checking and money market accounts and investments
in short-term money market mutual funds.
Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors. The
Partnership performs ongoing credit evaluations of its payors and maintains
allowances for potential credit losses.
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 amounts reported in the financial statements and
related notes. Actual results could differ from these estimates and
assumptions. The primary areas of estimation affecting the accompanying
financial statements include the determination of the allowance for doubtful
accounts, contractual adjustments and the liability for medical malpractice
risks.
F-27
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Health Insurance Program Reimbursement
The Partnership operates and manages a medical practice in Arlington, Texas.
Revenues from the Medicare and Medicaid programs combined accounted for
approximately 22% of the Partnership's net medical fees for the years ended
December 31, 1995 and 1996. Laws and regulations governing the Medicare and
Medicaid programs are complex and subject to interpretation. The Partnership
believes that it is in compliance with all applicable laws and regulations and
is not aware of any pending or threatened investigations involving allegations
of potential wrongdoing. While no such regulatory inquires have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare and Medicaid programs.
Revenue Recognition
Patient revenues are recognized net of contractual adjustments related to
third-party payors and the Medicare and Medicaid programs. The amount paid by
the third-party payors is dependent upon the benefit included in the patient's
policy or amounts contractually established between the Partnership and the
third-party payors.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Furniture and fixtures.............................. $ 1,298,966 $ 1,314,003
Leasehold improvements.............................. 1,328,889 1,356,895
Computer equipment.................................. 910,757 965,988
Medical equipment................................... 9,757,840 9,812,402
Automobiles......................................... 145,908 184,561
----------- -----------
13,442,360 13,633,849
Less accumulated depreciation and amortization...... 9,175,393 10,184,151
----------- -----------
$ 4,266,967 $ 3,449,698
=========== ===========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Note payable to a financial institution, secured by
medical equipment, bearing interest at 2.5% over the
U.S. Treasury rate (7.97% at December 31, 1996),
payable in monthly installments to November 1999..... $ 755,534 $ 583,937
Notes payable to a bank secured by accounts receivable
and medical equipment, bearing interest at prime
(8.25% at December 31, 1996), payable in monthly in-
stallments of $48,000 plus interest to December
1998................................................. 1,664,609 1,078,109
</TABLE>
F-28
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Note payable to a bank, secured by medical equipment,
bearing interest at prime (8.25% at December 31,
1996), payable in monthly installments of $15,000
plus interest to January 1998........................ $ 360,000 $ 195,000
Note payable to a bank, secured by medical equipment,
bearing interest at prime (8.25% at December 31,
1996), payable in monthly installments of $5,516 plus
interest to September 1998........................... 189,583 116,383
Notes payable to partners, unsecured.................. 91,716 --
---------- ----------
3,061,442 1,973,429
Less current portion of long-term debt................ 1,088,546 1,007,366
---------- ----------
$1,972,896 $ 966,063
========== ==========
</TABLE>
The Partnership maintains a $250,000 revolving line of credit. There were no
borrowings outstanding at December 31, 1995 or 1996. Additionally, the note
agreements contain certain restrictive covenants that require the Partnership
to maintain minimum net worth, as defined in the note agreements, of
$1,500,000.
The Partnership's debt approximates fair value based on current incremental
borrowing rates for similar types of borrowing arrangements.
Maturities of long-term debt for the three years succeeding December 31,
1996, are as follows:
<TABLE>
<S> <C>
1997.............................................................. $1,007,366
1998.............................................................. 767,767
1999.............................................................. 198,296
Thereafter........................................................ --
----------
$1,973,429
==========
</TABLE>
All property and equipment and accounts receivable at December 31, 1995 and
1996 have been pledged as security under long-term debt and capital lease
obligations.
The Partnership is contingently liable for certain debt of a related
partnership (see Note 7).
Cash paid for interest was approximately $276,000 in 1995 and $214,000 in
1996.
5. OPERATING LEASES
The Partnership leases office space and equipment under operating leases
expiring at various dates through 2004. Some of the office space lease
agreements include an escalation clause based on increases in the U.S.
Consumer Price Index (CPI). Such possible increases are not considered in
computing future minimum lease payments.
Future minimum annual rental payments under noncancelable operating leases
are as follows at December 31, 1996:
<TABLE>
<S> <C>
1997.............................................................. $1,357,624
1998.............................................................. 1,283,955
1999.............................................................. 1,124,959
2000.............................................................. 1,085,436
2001.............................................................. 1,056,000
Thereafter........................................................ 3,168,000
----------
$9,075,974
==========
</TABLE>
F-29
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. RELATED PARTY TRANSACTIONS
The partners, individually, have invested in certain ventures outside of the
Partnership and are guarantors of the debt of such ventures.
The partners are also partners of R-M Medical Plaza I, L.P. (RM-I) and
certain partners are partners of R-M Medical Plaza II, L.P. (RM-II), which are
real estate partnerships whose sole purpose is to purchase and operate medical
office buildings. Included in rent expense is rent of $1,056,000 for 1995 and
1996 related to RM-I and $185,000 for 1995 and $202,000 for 1996 relating to
RM-II.
During the year, the Partnership advanced funds on behalf of RM-II. Amounts
owed the Partnership by RM-II were approximately $80,000 as of December 31,
1995 and $102,000 as of December 31, 1996.
7. COMMITMENTS AND CONTINGENCIES
The partnership agreement provides that partners terminating after December
31, 1995 with ten or more years of service to the Partnership will receive an
additional payment. The additional payment is determined by multiplying the
partner's interest in the Partnership by the profits of the Partnership for
the fiscal year preceding the terminating event and this amount is payable
over 60 months. At December 31, 1996, two of the seven partners were eligible
for this additional payment in the amount of $1,447,887. This amount is not
accrued in the financial statements and is unfunded.
During 1994, a partner retired from the practice and the Partnership
obligated itself to pay him $555,000 for consulting services to be performed.
The obligation bears no interest and is payable ratably over the next five
years regardless of when consulting services are requested by the Partnership.
Of the obligation, $304,000 has been paid through December 31, 1996. The
related asset has been amortized in full as of December 31, 1996.
An RM-II loan from a bank is secured by guarantees of certain partners and
of the Partnership who are each jointly and severally liable for the balance
of the loan ($1,791,410 at December 31, 1996). Additionally, the Partnership
has agreed to certain covenants in the loan agreement that, among other
things, require the maintenance of certain financial ratios, restrict the
issuance of new debt, limit the amount of future investments, and restrict the
amount of distributions to the partners.
8. EMPLOYEE BENEFIT PLAN
The Partnership participates in a defined contribution plan, established in
May 1989. Employees who have completed one year of service and attained the
age of 21 are eligible to participate. Participants contribute a voluntary
amount that is matched by the Partnership at 50% of the employee's
contribution, up to 5% of the employee's salary. Participants are fully vested
in their voluntary contributions. Participants vest in the Partnership's
contributions 20% upon completion of two years of vesting service and 20% for
each of the next four years. The Partnership contributed to the plan
approximately $91,000 in 1995 and $98,000 in 1996, which amounts are included
in salaries and benefits in the accompanying statements of income.
9. LITIGATION
In the ordinary course of business, the partners and or the Partnership are
sometimes named as defendants in various legal proceedings although there are
no current matters pending. The results of litigation cannot be predicted with
certainty; however, the Partnership maintains claims-made insurance coverage
and historically litigation, when it arises, will be adequately covered by
insurance and will not have a material adverse effect on the Partnership's
financial statements.
F-30
<PAGE>
METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. AGREEMENT TO SELL CERTAIN ASSETS
Subsequent to December 31, 1996, the Partnership formally entered into an
agreement to sell certain assets of the Partnership, as well as, an agreement
whereby an independent company will manage the physicians' medical practice.
The agreements are contingent upon the closing of the transaction, which is
expected to include cash, notes and stock in the newly created company. The
Partnership is expected to continue operations after the transaction.
F-31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Greater Cincinnati Gastroenterology Associates, Inc.:
We have audited the accompanying balance sheet of GREATER CINCINNATI
GASTROENTEROLOGY ASSOCIATES, INC. (an Ohio corporation) as of December 31,
1996 and the related statements of operations, owners' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audit provides 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 Greater Cincinnati
Gastroenterology Associates, Inc. as of December 31, 1996 and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
October 13, 1997
F-32
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents........................... $ 9,901 $ 60,937
Accounts receivable, less allowance for
uncollectible accounts of $100,000 and $95,000 at
December 31, 1996 and June 30, 1997, respectively.. 986,258 1,043,545
Prepaid expenses and other.......................... 2,546 127,670
---------- ----------
Total current assets.............................. 998,705 1,232,152
DEFERRED TAXES........................................ 6,724 0
PROPERTY AND EQUIPMENT, net (Note 3).................. 138,010 135,904
---------- ----------
Total assets...................................... $1,143,439 $1,368,056
========== ==========
LIABILITIES AND OWNERS' EQUITY
------------------------------
CURRENT LIABILITIES:
Accounts payable.................................... $ 83,220 $ 41,974
Accrued compensation................................ 66,834 47,623
Other accrued liabilities........................... 78,476 192,152
Deferred taxes...................................... 317,671 378,633
---------- ----------
Total current liabilities......................... 546,201 660,382
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
OWNERS' EQUITY (Note 2):
Common stock, no par value; 500 shares authorized,
430 shares issued and outstanding at December 31,
1996 and June 30, 1997............................. 3,225 3,225
Additional paid in capital.......................... 7,203 7,203
Retained earnings................................... 586,810 697,246
---------- ----------
Total owners' equity.............................. 597,238 707,674
---------- ----------
Total liabilities and owners' equity.............. $1,143,439 $1,368,056
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-33
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET PATIENT SERVICE REVENUES............... $6,097,350 $3,255,934 $2,966,074
---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages, and benefits............ 754,139 357,225 361,576
Compensation to owner physicians......... 4,230,815 1,749,975 1,749,271
General and administrative expenses...... 1,038,713 596,232 646,662
Bad debt expense......................... 50,055 25,300 25,500
Depreciation............................. 24,749 12,391 12,127
---------- ---------- ----------
6,098,471 2,741,123 2,795,136
---------- ---------- ----------
(LOSS) INCOME FROM OPERATIONS.............. (1,121) 514,811 170,938
OTHER INCOME, net.......................... 26,055 11,576 7,184
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................. 24,934 526,387 178,122
PROVISION FOR INCOME TAXES................. 9,475 200,027 67,686
---------- ---------- ----------
NET INCOME................................. $ 15,459 $ 326,360 $ 110,436
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
STATEMENTS OF OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------- ADDITIONALPAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ----------------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995..................... 430 $3,225 $7,203 $577,351 $587,779
Net income.............. 0 0 0 15,459 15,459
Dividends............... 0 0 0 (6,000) (6,000)
--- ------ ------ -------- --------
BALANCE, December 31,
1996..................... 430 3,225 7,203 586,810 597,238
Net income (unaudited).. 0 0 0 110,436 110,436
--- ------ ------ -------- --------
BALANCE, June 30, 1997
(unaudited).............. 430 $3,225 $7,203 $697,246 $707,674
=== ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY
ASSOCIATES, INC,
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997
<TABLE>
<CAPTION>
DECEMBER 31,
1996 JUNE 30,1996 JUNE 30,1997
------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 15,459 $ 326,360 $ 110,436
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation........................ 24,749 12,391 12,127
Bad debt expense.................... 50,055 25,300 25,500
Changes in assets and liabilities:
Accounts receivable............... (142,467) (129,049) (82,787)
Prepaid expenses and other........ 9,348 (105,514) (125,124)
Accounts payable.................. (227) (52,768) (41,246)
Accrued liabilities............... 9,807 (62,100) 94,465
Deferred taxes.................... 9,475 200,027 67,686
--------- --------- ---------
Total adjustments............... (39,260) (111,713) (49,379)
--------- --------- ---------
Net cash (used in) provided by
operating activities........... (23,801) 214,647 61,057
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment,
net.................................. (50,127) (20,305) (10,021)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid........................ (6,000) 0 0
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ (79,928) 194,342 51,036
CASH AND CASH EQUIVALENTS, beginning of
period................................. 89,829 89,829 9,901
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period................................. $ 9,901 $ 284,171 $ 60,937
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest............................. $ 79 $ 0 $ 0
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS
Greater Cincinnati Gastroenterology Associates, Inc., an Ohio corporation,
(the "Company") was incorporated in 1968. The Company currently employs nine
physicians and over 30 employees. The physicians specialize in the diagnosis
and treatment of diseases of the digestive system. There are currently twelve
office locations throughout the Greater Cincinnati area.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1997 and 1996 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these
interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
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 of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Accounts Receivable
Accounts receivable principally represents receivable from patients and
third-party payers for medical services provided by physician-owners and
employees. Such amounts are recorded net of estimated contractual allowances.
Contractual adjustments result from the differences between the rates charged
by the physicians for services performed and the amounts allowed by the
Medicare and Medicaid programs and other public and private insurers.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method for financial reporting purposes and accelerated
methods for tax purposes.
The useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Equipment................................................. Five years
Furniture and fixtures.................................... Seven years
Leasehold improvements.................................... Life of the lease
</TABLE>
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.
F-37
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Owners' Equity
Owners' equity includes the respective capital stock owned by physician-
owners, additional paid-in capital, and retained earnings of the Company.
Various types of agreements exist among the owners which call for the transfer
of a physician's ownership interest to the continuing owners in the case of
certain events such as the owner's retirement or death.
Net Patient Service Revenues
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and
others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates.
Concentration of Credit Risk
The Company extends credit to patients covered by governmental programs such
as Medicare and Medicaid and by private insurers. The Company manages credit
risks with the various public and private insurance providers as appropriate.
Allowances for doubtful accounts have been made for potential losses where
appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Leasehold improvements............................................. $ 17,345
Equipment.......................................................... 13,529
Furniture and fixtures............................................. 174,386
--------
205,260
Less accumulated depreciation...................................... (67,250)
--------
$138,010
========
</TABLE>
4. INCOME TAXES
The provision for income taxes are based on net income reported for
financial reporting purposes. Deferred income taxes arise from temporary
differences between financial and income tax reporting of various items
(principally revenue recognition).
The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at December 31, 1996:
<TABLE>
<S> <C>
Accounts receivable, net......................................... $(374,778)
Depreciation..................................................... (16,040)
Accounts payable................................................. 31,710
Other accrued liabilities........................................ 25,397
Net operating loss carryforwards................................. 22,764
---------
Net deferred tax liability....................................... $(310,947)
=========
</TABLE>
F-38
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
As reported on the balance sheet as of December 31, 1996:
<TABLE>
<S> <C>
Current deferred tax liability................................... $(317,671)
Noncurrent deferred tax asset.................................... 6,724
---------
$(310,947)
=========
</TABLE>
A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate for the year ended December 31, 1996
is as follows:
<TABLE>
<S> <C>
Provision at statuatory rate..................................... $ 8,478
State income taxes, net of federal benefit....................... 997
---------
Provision for income taxes....................................... $ 9,475
=========
</TABLE>
5. EMPLOYEE BENEFIT PLAN
The Company sponsors a qualified profit-sharing plan for eligible employees.
Contributions to the plan, which are made at the discretion of the board of
directors, aggregated approximately $248,000 for the year ended December 31,
1996.
6. COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company leases facilities under operating leases which expire at various
dates through 2006. Future minimum lease payments under these operating leases
are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 143,316
1998............................................................. 131,856
1999............................................................. 131,856
2000............................................................. 131,856
2001............................................................. 117,856
Thereafter....................................................... 494,340
</TABLE>
Lease expense for the year ended December 31, 1996 totaled approximately
$152,000.
Insurance
The Company is insured with respect to medical malpractice risks on a
claims-made basis. Accordingly, coverage relates only to claims made during
the policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
Employment Agreements
Certain management personnel and physician employees are covered by
employment agreements that may be terminated at any time in accordance with
the terms of the agreement. The agreement also includes terms for professional
conduct, salary, and benefits provisions.
F-39
<PAGE>
GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and third-party claims which
arise in the ordinary course of business. In the opinion of management, the
amount of potential liability with respect to these actions will not
materially affect the Company's financial position or results of operations.
8. RELATED-PARTY TRANSACTIONS
For the year ended December 31, 1996, the Company expensed approximately
$150,500 in rent and maintenance for one of its locations in Cincinnati which
is owned by certain physician-owners.
The Company provides medical treatment of endoscopic patients for a clinical
research company owned by certain physician-owners. For the year ended
December 31, 1996, the Company recognized approximately $64,000 in fee income
and was reimbursed for approximately $208,000 in shared expenses.
The Company shares certain operating costs with a surgical center owned by
various physician-owners. During 1996, the Company was reimbursed
approximately $31,000 for such costs. In addition, certain patients received a
global charge for services performed by the Company and the surgical center.
The global fee is then paid to the Company. In 1996, the Company paid $27,000
to the surgical center for its share of global fees received by the Company.
During the first five months of 1996, the Company leased office space from a
partnership owned by certain physician-owners. The Company expensed
approximately $16,000 in rent for this location for the year ended December
31, 1996.
F-40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Internal Medicine Specialists, Inc.:
We have audited the accompanying balance sheet of INTERNAL MEDICINE
SPECIALISTS, INC., (a Florida corporation), as of December 31, 1996 and the
related statements of operations, owners' equity, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audit provides 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 Internal Medicine
Specialists, Inc. as of December 31, 1996 and the results of its operations
and its cash flows for the year then ended in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
October 10, 1997
F-41
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
BALANCE SHEETS
DECEMBER 31, 1996, AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 28,836 $ 493,426
Accounts receivable, less estimated allowances for
uncollectible accounts of $137,920 and $131,877 at
December 31, 1996 and June 30, 1997, respectively.. 679,160 659,386
Prepayments and other............................... 34,842 148,327
---------- ----------
Total current assets.............................. 742,838 1,301,139
PROPERTY AND EQUIPMENT, net........................... 248,302 230,962
DEFERRED TAXES........................................ 94,831 23,599
---------- ----------
Total assets...................................... $1,085,971 $1,555,700
========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 85,037 $ 52,495
Accrued expenses.................................... 84,552 205,202
Notes payable line of credit........................ 292,646 517,617
Current portion of long term debt................... 19,362 3,882
Deferred taxes...................................... 251,412 260,942
---------- ----------
Total current liabilities......................... 733,009 1,040,138
---------- ----------
LONG TERM DEBT........................................ 60,932 30,438
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
OWNERS' EQUITY:
Common stock, $10 par value, 500 shares authorized,
280 shares issued, and 40 shares held in treasury
at December 31, 1996 and June 30, 1997............. 2,800 2,800
Additional paid in capital.......................... 3,767 3,767
Retained earnings................................... 307,149 500,243
Treasury stock...................................... (21,686) (21,686)
---------- ----------
Total owners' equity.............................. 292,030 485,124
---------- ----------
Total liabilities and owners' equity.............. $1,085,971 $1,555,700
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-42
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET PATIENT REVENUES....................... $6,166,927 $2,826,946 $3,515,426
---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages, and benefits............ 1,901,646 975,088 1,073,360
Compensation to owner physicians......... 2,628,951 1,093,865 1,236,473
General and administrative expenses...... 1,312,409 564,353 725,314
Bad debt expense......................... 125,754 75,250 109,897
Depreciation............................. 68,030 34,015 38,215
---------- ---------- ----------
6,036,790 2,742,571 3,183,259
---------- ---------- ----------
INCOME FROM OPERATIONS..................... 130,137 84,375 332,167
INTEREST AND OTHER EXPENSE, net............ 25,953 12,596 20,191
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................. 104,184 71,779 311,976
PROVISION FOR INCOME TAXES................. 38,120 26,989 118,882
---------- ---------- ----------
NET INCOME................................. $ 66,064 $ 44,790 $ 193,094
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
STATEMENTS OF OWNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID IN --------------- RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1995................... 280 $2,800 $3,767 (40) $(21,686) $241,085 $225,966
Net income............ 0 0 0 0 0 66,064 66,064
--- ------ ------ --- -------- -------- --------
BALANCE AT DECEMBER 31,
1996................... 280 2,800 3,767 (40) (21,686) 307,149 292,030
Net income
(unaudited).......... 0 0 0 0 0 193,094 193,094
--- ------ ------ --- -------- -------- --------
BALANCE AT JUNE 30, 1997
(unaudited)............ 280 $2,800 $3,767 (40) $(21,686) $500,243 $485,124
=== ====== ====== === ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 66,064 $ 44,790 $ 193,094
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation.......................... 68,030 34,015 38,215
Bad debt expense...................... 125,754 75,250 109,897
Change in assets and liabilities:
Accounts receivable................. (248,822) (22,882) (90,123)
Prepayments and other............... (8,543) 34,185 (113,485)
Accounts payable and accrued liabil-
ities.............................. 42,263 135,020 88,108
Deferred taxes, net................. 38,120 26,989 80,762
--------- -------- ---------
Total adjustments................. 16,802 282,577 113,374
--------- -------- ---------
Net cash provided by operating ac-
tivities......................... 82,866 327,367 306,468
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equip-
ment................................... (124,061) (52,730) (20,875)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of debt.............. (165,773) (63,594) (45,974)
Proceeds from line of credit............ 232,434 107,798 224,971
--------- -------- ---------
Net cash provided by financing ac-
tivities......................... 66,661 44,204 178,997
--------- -------- ---------
NET INCREASE IN CASH AND CASH EQUIVA-
LENTS.................................... 25,466 318,841 464,590
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................... 3,370 3,370 28,836
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERI-
OD....................................... $ 28,836 $322,211 $ 493,426
========= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest.............................. $ 25,953 $ 12,977 $ 12,977
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS
Internal Medicine Specialists, Inc. (the "Company") was incorporated in the
state of Florida on October 27, 1971. The Company currently has 14 physicians,
7 nephrologists, and 7 gastroenterologists. The physicians within the group
primarily focus on kidney and stomach surgery. There are currently three
office locations in Orlando and Ocoee, Florida.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these
interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
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 of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
Accounts Receivable
Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances
and bad debts. Contractual adjustments result from the differences between the
rates charged by the physicians for services performed and the amounts allowed
by the Medicare and Medicaid programs and other public and private insurers.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated service lives of depreciable
assets (five years for equipment, five to seven years for furniture and
fixtures, and ten years for leasehold improvements). 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.
Owners' Equity
Owners' equity includes the respective capital stock owned by 12 physician-
owners and treasury stock repurchased by the Company from two terminated
physician-owners, recorded at cost. Various types of
F-46
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
agreements exist among the owners which call for the repurchase of a
physician's ownership interest by the Company in the case of certain events,
such as the owner's termination, retirement, or death.
Net Patient Service Revenues
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and
others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates or for capitated payments.
Concentration of Credit Risk
The Company extends credit to patients covered by insurance programs,
including governmental programs, such as Medicare and Medicaid, and private
insurers. The Company manages credit risk with the various public and private
insurance providers, as appropriate. Allowances for doubtful accounts have
been made for potential losses, where appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Leasehold improvements........................................... $ 111,517
Equipment........................................................ 473,837
Furniture and fixtures........................................... 439,793
----------
1,025,147
Less accumulated depreciation.................................... (776,845)
----------
$ 248,302
==========
</TABLE>
4. NOTES PAYABLE--LINES OF CREDIT
The notes payable consist of two lines of credit with a bank. One of the
lines of credit allows total borrowings of up to $200,000 with principal and
interest due monthly at a rate of 8.5%, due on demand or January 3, 1997. The
Company has another line of credit with the same bank that allows maximum
borrowing of up to $300,000 with principal and interest due monthly at a rate
of 8.25%, due on demand or October 4, 1997. Both lines of credit are secured
by certain assets of the Company. During the six month period ended June 30,
1997, the aggregate maximum borrowings under these lines of credit increased
to $700,000. As of December 31, 1996 and June 30, 1997, the outstanding
balance on the lines of credit was $292,646 and $517,617, respectively.
F-47
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
The Company's long-term debt at December 31, 1996 is as follows:
<TABLE>
<S> <C>
Note payable to a terminated physician-owner of the Company for
stock repurchased by the Company; principal and interest of 9%
per annum due in 84 monthly installments beginning March 1,
1993............................................................. $ 9,562
Note payable to a terminated physician-owner of the Company as
compensation for past services; principal and imputed interest of
8.5% payable in 84 monthly installments beginning March 1, 1993.. 40,116
Note payable to a terminated physician-owner of the Company as
compensation for past services; principal and 30,616imputed
interest of 8.5% payable in 84 monthly installments beginning
August 1, 1994................................................... 30,616
--------
Total 80,294
Less current portion.............................................. (19,362)
--------
Long-term debt.................................................... $ 60,932
========
</TABLE>
The aggregate maturities of long-term debt at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997................................................................. $19,362
1998................................................................. 20,789
1999................................................................. 22,337
2000................................................................. 12,834
2001 and thereafter.................................................. 4,972
-------
$80,294
=======
</TABLE>
6. INCOME TAXES
The provision for income taxes is based on net income reported for financial
reporting purposes. Deferred income taxes arise from temporary differences
between financial and income tax reporting of various items (principally
revenue recognition).
The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at December 31, 1996:
<TABLE>
<S> <C>
Accounts receivable, net......................................... $(258,321)
Depreciation..................................................... (4,533)
Accounts payable................................................. 20,006
Other accrued liabilities........................................ 26,595
Net operating loss carryforwards................................. 72,769
Other............................................................ (13,097)
---------
Net deferred tax liability....................................... $(156,581)
=========
</TABLE>
As reported on the balance sheet as of December 31, 1996:
<TABLE>
<S> <C>
Current deferred tax liability................................... $(251,412)
Noncurrent deferred tax asset.................................... 94,831
---------
$(156,581)
=========
</TABLE>
F-48
<PAGE>
INTERNAL MEDICINE SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate for the year ended December 31, 1996
is as follows:
<TABLE>
<S> <C>
Provision at statutory rate......................................... $35,423
State income taxes, net of federal benefit.......................... 2,697
-------
Provision for income taxes.......................................... $38,120
=======
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan under Section 401(k) of the
Internal Revenue Code that covers substantially all employees. The plan is
contributory with respect to employees only. The Company does not contribute
to the plan.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases facilities under operating leases which expire at various
dates through December 1998. Future minimum lease payments under these leases
as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................ $237,600
1998................................................................ 136,800
</TABLE>
Rent expense for the year ended December 31, 1996 was $273,600.
Insurance
The Company is insured with respect to medical malpractice risks on a
claims-made basis. Accordingly, coverage relates only to claims made during
the policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
Employment Agreements
Physician-owners of the Company are covered by employment agreements that
may be terminated at any time in accordance with terms of the agreement. The
agreement also includes terms for professional conduct, salary, and benefits
provisions.
9. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect
the Company's financial position or results of operations.
10. RELATED-PARTY TRANSACTIONS
For the year ended December 31, 1996, the Company has outstanding
receivables in the amount of $8,423 from two physicians of the Company and an
outstanding receivable of $2,319 from a corporation that is owned by
physician-owners of the Company.
The Company has outstanding notes payable to two terminated physicians of
the Company for consideration of deferred compensation and the repurchase of
common stock. The total outstanding notes payable to these physicians is
$80,294 at December 31, 1996.
F-49
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Parkcrest Surgical Associates, Inc.:
We have audited the accompanying balance sheet of PARKCREST SURGICAL
ASSOCIATES, INC. (a Missouri corporation) as of March 31, 1997 and the related
statements of operations, owners' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audit provides 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 Parkcrest Surgical
Associates, Inc. as of March 31, 1997 and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
October 10, 1997
F-50
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
BALANCE SHEETS
MARCH 31, 1997 AND JUNE 30, 1997
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents............................ $ 76,263 $ 0
Accounts receivable, less estimated allowances for
uncollectible accounts of $299,077 and $315,421 as
of March 31, 1997 and June 30, 1997, respectively... 1,644,928 1,752,339
Receivable from physicians........................... 53,394 0
Prepaid expenses and other........................... 264,228 527,195
---------- ----------
Total current assets............................... 2,038,813 2,279,534
PROPERTY AND EQUIPMENT, net (Note 3)................... 521,470 526,716
DEFERRED TAXES......................................... 48,115 0
OTHER NONCURRENT ASSETS................................ 15,518 10,351
---------- ----------
Total assets....................................... $2,623,916 $2,816,601
========== ==========
LIABILITIES AND OWNERS' EQUITY
------------------------------
CURRENT LIABILITIES:
Note payable line of credit (Note 4)................. $ 200,000 $ 300,000
Current maturities of long term debt (Note 5)........ 153,842 62,455
Accounts payable..................................... 232,677 260,281
Accrued liabilities.................................. 168,207 186,056
Deferred taxes....................................... 602,419 609,941
---------- ----------
Total current liabilities.......................... 1,357,145 1,418,733
---------- ----------
LONG TERM DEBT (Note 5)................................ 52,992 93,311
---------- ----------
OTHER LONG TERM LIABILITIES............................ 164,000 164,000
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
OWNERS' EQUITY:
Common stock, $1 par value; 3,000 shares authorized,
1,300 shares issued (1,040 shares outstanding and
260 shares held in treasury)........................ 1,300 1,300
Additional paid in capital........................... 67,210 67,210
Retained earnings.................................... 994,971 1,085,749
Treasury stock, at cost.............................. (13,702) (13,702)
---------- ----------
Total owners' equity............................... 1,049,779 1,140,557
---------- ----------
Total liabilities and owners' equity............... $2,623,916 $2,816,601
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-51
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997 AND THE THREE MONTHS ENDED JUNE 30, 1996 AND
1997
<TABLE>
<CAPTION>
JUNE 30
MARCH 31, ------------------------
1997 1996 1997
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET PATIENT SERVICE REVENUES............... $10,515,243 $2,551,614 $2,893,463
----------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages, and benefits............ 2,222,021 433,923 681,198
Compensation to owner physicians......... 4,693,182 1,516,539 1,477,682
Bad debt expense......................... 43,887 10,500 12,500
General and administrative expenses...... 3,195,313 570,673 552,013
Depreciation and amortization............ 48,201 12,110 14,245
----------- ---------- ----------
10,202,604 2,543,745 2,737,638
----------- ---------- ----------
INCOME FROM OPERATIONS..................... 312,639 7,869 155,825
OTHER INCOME (EXPENSE), net................ 26,776 (10,412) (9,411)
----------- ---------- ----------
INCOME (LOSS) BEFORE TAXES................. 339,415 (2,543) 146,414
PROVISION FOR INCOME TAXES (Note 7)........ 128,978 0 55,636
----------- ---------- ----------
NET INCOME (LOSS).......................... $ 210,437 $ (2,543) $ 90,778
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-52
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
STATEMENTS OF OWNERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1997
AND THE THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID IN RETAINED ---------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- ---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, March 31,
1996................... 1,300 $1,300 $67,210 $ 784,534 0 $ 0 $ 853,044
Purchase of treasury
stock................ 0 0 0 0 (260) (13,702) (13,702)
Net income............ 0 0 0 210,437 0 0 210,437
----- ------ ------- ---------- ---- -------- ----------
BALANCE, March 31,
1997................... 1,300 1,300 67,210 994,971 (260) (13,702) 1,049,779
Net income
(unaudited).......... 0 0 0 90,778 0 0 90,778
----- ------ ------- ---------- ---- -------- ----------
BALANCE, June 30, 1997
(unaudited)............ 1,300 $1,300 $67,210 $1,085,749 (260) $(13,702) $1,140,557
===== ====== ======= ========== ==== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-53
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1997
AND THE THREE MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
JUNE 30
MARCH 31, -----------------------
1997 1996 1997
--------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ 210,437 $ (2,543) $ 90,778
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by (used for) operating ac-
tivities:
Loss on disposal of fixed assets........ 75,979 0 0
Depreciation and amortization........... 48,201 12,110 14,245
Bad debt expense........................ 43,887 10,500 12,500
(Increase) in accounts receivable....... (285,272) (38,803) (119,911)
(Increase) decrease in receivable from
physicians............................. (53,394) 0 53,394
Decrease (increase) in prepaid expenses
and other.............................. 88,164 175,420 (262,967)
(Increase) decrease in other noncurrent
assets................................. (1,757) (2,841) 5,167
Increase in accounts payable............ 169,488 0 27,604
(Decrease) increase in accrued liabili-
ties................................... (41,239) 229,116 17,849
Increase in net deferred tax liabili-
ties................................... 128,978 0 55,637
--------- --------- ---------
Total adjustments..................... 173,035 385,502 (196,482)
--------- --------- ---------
Net cash provided by (used for) oper-
ating activities..................... 383,472 382,959 (105,704)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....... (259,807) (110,314) (19,474)
Proceeds from sale of fixed assets........ 37,400 0 0
--------- --------- ---------
Net cash used in investing activi-
ties................................. (222,407) (110,314) (19,474)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt................ (134,402) (45,413) (51,085)
Purchase of treasury stock................ (13,702) 0 0
Proceeds under line of credit............. 0 0 100,000
--------- --------- ---------
Net cash provided by (used in) financ-
ing activities....................... (148,104) (45,413) 48,915
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................ 12,961 227,232 (76,263)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD..................................... 63,302 63,302 76,263
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.. $ 76,263 $ 290,534 $ 0
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the period for interest.. $ 43,038 $ 10,412 $ 9,411
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-54
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. ORGANIZATION AND OPERATIONS
Parkcrest Surgical Associates, Inc. (the "Company") was incorporated in
1969. The Company operates a medical practice at various locations and
provides surgical and other healthcare services to individuals in the St.
Louis Metropolitan Area. The physicians within the group specialize in general
surgery, spinal surgery, colo-rectal surgery, vascular surgery, sports
medicine, orthopedic surgery, surgical oncology, plastic and reconstructive
surgery, hand surgery, podiatric surgery, and physical medicine and
rehabilitation. There are currently 17 physicians and 5 physician assistants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The financial statements as of June 30, 1997 and for the three months ended
June 30, 1996 and 1997 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these
interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
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 of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
Property and Equipment
Equipment and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed using straight-line and accelerated
methods. Equipment and furniture and fixtures are depreciated over periods
ranging from 3 to 5 years. Leasehold improvements are amortized over periods
ranging from 3 to 40 years.
Accounts Receivable
Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances.
Contractual adjustments result from the differences between the rates charged
by the physicians for services performed and the amounts allowed by the
Medicare and Medicaid programs and other public and private insurers.
Net Patient Service Revenues
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations),
F-55
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates.
Owners' Equity
Owners' equity includes the respective capital stock owned by various
physician-owners and treasury stock repurchased by the Company from terminated
physician-owners, recorded at cost. Various types of agreements exist among
the owners which call for the repurchase of a physician's ownership interest
by the Company in the case of certain events, such as the owner's termination,
retirement, or death.
Concentration of Credit Risk
The Company extends credit to patients covered by insurance programs such as
governmental programs like Medicare and Medicaid and private insurers. The
Company manages credit risk with the various public and private insurance
providers, as appropriate. Allowances for doubtful accounts have been made for
potential losses, where appropriate.
3. PROPERTY AND EQUIPMENT
Equipment and leasehold improvements as of March 31, 1997 consist of the
following:
<TABLE>
<S> <C>
Medical and laboratory equipment................................. $ 338,324
Furniture and fixtures........................................... 351,737
Leasehold improvements........................................... 367,150
----------
1,057,211
Less accumulated depreciation and amortization................... (535,741)
----------
$ 521,470
==========
</TABLE>
Certain leases in which the Company is lessee are considered to be
equivalent to installment purchases for purposes of accounting presentation.
Equipment under capital leases in the amount of $12,805 at March 31, 1997 is
capitalized using interest rates appropriate at the inception of the related
leases.
Depreciation and amortization expense was $48,201 in 1997.
4. NOTE PAYABLE -- LINE OF CREDIT
The note payable consists of a line of credit with a bank that allows for
borrowings of up to $250,000 at March 31, 1997 and $300,000 at June 30, 1997.
The borrowings are secured by accounts receivable, furniture and equipment and
are due on demand or September 30, 1997. Interest on the borrowings is payable
monthly at the prime rate. As of March 31, 1997 and June 30, 1997, outstanding
borrowings were $200,000 and $300,000, respectively.
F-56
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT
Long-term debt at March 31, 1997 consists of the following:
<TABLE>
<S> <C>
Note payable-bank secured by equipment and personal guarantees of
stockholders and employees, payable in monthly installments of
$16,834 including principal and interest of 7.5%, with the final
installment due December 1997.................................... $141,409
Capitalized lease obligations, secured by equipment, payable in
monthly installments of $1,527 including principal and interest
at 9.858%, with final installment due October 2001............... 65,425
--------
206,834
Less current maturities........................................... 153,842
--------
$ 52,992
========
</TABLE>
The scheduled maturities of long-term debt as of March 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................... $158,212
1999............................................................... 18,331
2000............................................................... 18,331
2001............................................................... 18,331
2002............................................................... 9,166
--------
222,371
Less amounts representing interest................................. 15,537
--------
$206,834
========
Interest paid amounted to $43,038 for the year ended March 31, 1997.
6. DEFERRED COMPENSATION PLANS
The Company has a qualified, noncontributory, trusteed pension plan covering
eligible full-time employees. The Company's policy is to contribute into the
Plan at a fixed percentage of salaries.
The Company also has a qualified, noncontributory, trusteed profit sharing
plan covering eligible full-time employees. The plan provides for
contributions by the Company in such amounts as the board of directors may
annually determine.
Contributions to the plans for the year ended March 31, 1997 are as follows:
Pension plan....................................................... $366,815
Profit sharing plan................................................ 283,182
--------
$649,997
========
</TABLE>
F-57
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The provision for income taxes is based on net income reported for financial
reporting purposes. Deferred income taxes arise from temporary differences
between financial and income tax reporting of various items (principally
revenue recognition).
The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at March 31, 1997:
<TABLE>
<S> <C>
Accounts receivable, net......................................... $(625,072)
Depreciation..................................................... (22,585)
Accounts payable................................................. 38,989
Other accrued liabilities........................................ 117,084
Net operating loss carryforwards................................. 8,380
Other............................................................ (71,100)
---------
Net deferred tax liability....................................... $(554,304)
=========
As reported on balance sheet as of March 31, 1997:
Current deferred tax liability................................. $(602,419)
Noncurrent deferred tax asset.................................. 48,115
---------
$(554,304)
=========
</TABLE>
A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate for the year ended March 31, 1997 is
as follows:
<TABLE>
<S> <C>
Provision at statutory rate........................................ $115,401
State income taxes, net of federal benefit......................... 13,577
--------
Provision for income taxes......................................... $128,978
========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under a long-term lease expiring December 31, 1999
for one office at an annual rental of $280,911. The Company is obligated under
a lease expiring September 30, 2000 for a second office at a base annual
rental of $25,024 to be adjusted each October 1 based on the Consumer Price
Index. The Company rents additional office space at five locations on a month-
to-month basis.
Rent expense for all leases amounted to $375,546 for the year ended March
31, 1997.
The approximate future minimum rental commitments required under the
noncancellable operating leases are as follows:
<TABLE>
<S> <C>
1998................................................................ $305,935
1999................................................................ 305,935
2000................................................................ 235,707
2001................................................................ 12,512
</TABLE>
F-58
<PAGE>
PARKCREST SURGICAL ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Insurance
The Company is insured with respect to medical malpractice risks on a claims
made basis. Accordingly, coverage relates only to claims made during the
policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
Employment Agreements
Certain management personnel and physician employees are covered by
employment agreements that may be terminated at any time in accordance with
the terms of the agreement. The agreement also includes terms for professional
conduct, salary, and benefits provisions.
9. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and third party claims which
arise in the ordinary course of business. In the opinion of management, the
amount of potential liability with respect to these actions will not
materially affect the Company's financial position or results of operations.
10. RELATED PARTY TRANSACTIONS
The Company has a receivable due from four physicians totaling $53,394 which
will be repaid over the next year.
F-59
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Southern Dependacare, Inc.:
We have audited the accompanying balance sheet of SOUTHERN DEPENDACARE, INC.
(an Alabama corporation) as of December 31, 1996 and the related statements of
operations, owner's equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audit provides 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 Southern Dependacare, Inc.
as of December 31, 1996 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
October 6, 1997
F-60
<PAGE>
SOUTHERN DEPENDACARE, INC.
BALANCE SHEETS
DECEMBER 31, 1996, AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents........................... $107,594 $ 161,223
Accounts receivable, less estimated allowances for
uncollectible accounts of $200,000................. 665,915 954,880
-------- ----------
773,509 1,116,103
-------- ----------
PROPERTY AND EQUIPMENT, net (Note 3).................. 17,458 13,476
-------- ----------
Total assets...................................... $790,967 $1,129,579
======== ==========
LIABILITIES AND OWNER'S EQUITY
------------------------------
CURRENT LIABILITIES:
Current portion of notes payable (Note 4)........... $ 33,854 $ 28,129
Accounts payable.................................... 103,162 235,829
Accrued compensation to owner....................... 265,759 785,117
Other accrued liabilities........................... 303,067 16,680
-------- ----------
705,842 1,065,755
-------- ----------
NOTES PAYABLE, long-term (Note 4)..................... 69,157 47,856
-------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
OWNERS' EQUITY:
Common stock, $1 par value; 10,000 shares autho-
rized; 1,000 shares issued and outstanding......... 1,000 1,000
Additional paid-in capital.......................... 14,968 14,968
Retained earnings................................... 0 0
-------- ----------
Total owner's equity.............................. 15,968 15,968
-------- ----------
Total liabilities and owner's equity.............. $790,967 $1,129,579
======== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-61
<PAGE>
SOUTHERN DEPENDACARE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET PATIENT SERVICE REVENUES............... $3,096,194 $1,335,427 $2,311,031
---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages, and benefits............ 1,026,917 326,589 850,453
Compensation to owner physician.......... 574,042 549,475 693,312
General and administrative expenses...... 1,406,767 413,318 735,443
Bad debt expense......................... 50,000 25,000 25,000
Depreciation and amortization............ 20,091 10,045 4,432
---------- ---------- ----------
3,077,817 1,324,427 2,308,640
---------- ---------- ----------
INCOME FROM OPERATIONS..................... 18,377 11,000 2,391
INTEREST EXPENSE........................... 18,377 11,000 2,391
---------- ---------- ----------
NET INCOME................................. $ 0 $ 0 $ 0
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-62
<PAGE>
SOUTHERN DEPENDACARE, INC.
STATEMENTS OF OWNER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995........... 1,000 $1,000 $14,968 $ 0 $15,968
Net income......................... 0 0 0 0 0
----- ------ ------- --- -------
BALANCE, December 31, 1996........... 1,000 1,000 14,968 0 15,968
Net income (unaudited)............. 0 0 0 0 0
----- ------ ------- --- -------
BALANCE, June 30, 1997 (unaudited)... 1,000 $1,000 $14,968 $ 0 $15,968
===== ====== ======= === =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-63
<PAGE>
SOUTHERN DEPENDACARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1996 AND
1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 0 $ 0 $ 0
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 20,091 10,045 4,432
Bad debt expense...................... 50,000 25,000 25,000
Change in assets and liabilities:
Accounts receivable................. 170,144 342,624 (313,865)
Accounts payable.................... 7,483 44,167 132,667
Accrued liabilities................. (3,771) (55,493) 232,971
-------- -------- --------
Total adjustments................. 243,947 366,343 81,205
-------- -------- --------
Net cash provided by operating
activities....................... 243,947 366,343 81,205
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..... (9,815) (3,815) (450)
Proceeds from disposals of fixed
assets................................. 109,807 95,707 0
-------- -------- --------
Net cash provided by (used in)
investing activities............. 99,992 91,892 (450)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on line of credit.... (50,000) (50,000) 0
Principal payments on notes payable..... (318,187) (294,060) (27,126)
Borrowings under notes payable.......... 115,050 115,050 0
-------- -------- --------
Net cash used in financing
activities....................... (253,137) (229,010) (27,126)
-------- -------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.............................. 90,802 229,225 53,629
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................... 16,792 16,792 107,594
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................... $107,594 $246,017 $161,223
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest............................... $ 18,377 $ 11,000 $ 2,391
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-64
<PAGE>
SOUTHERN DEPENDACARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
1. THE ORGANIZATION AND OPERATIONS
Southern Dependacare, Inc., an Alabama corporation, (the "Company") was
organized in 1990. The Company currently has 4 physicians, specializing in
oncology and cancer care. There are 3 rural networks of clinics located in
Carbondale, Illinois; Natchez, Mississippi; and Abbington, Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Unaudited Financial Information
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these
interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.
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 of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in checking and money
market accounts.
Accounts Receivable
Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances
and bad debts. Contractual adjustments result from the differences between the
rates charged by the physicians for services performed and the amounts allowed
by the Medicare and Medicaid programs and other public and private insurers.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on the
straight-line method over the estimated service lives of depreciable assets
(five to seven years for equipment, and seven years for furniture and
fixtures). 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.
Owner's Equity
Owner's equity includes the respective capital stock, partnership capital
and retained earnings of the Company. The capital stock of the Company is
wholly-owned by one physician.
F-65
<PAGE>
SOUTHERN DEPENDACARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net Patient Service Revenues
Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and
others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates or for capitated payments.
Concentration of Credit Risk
The Company extends credit to patients covered by insurance programs such as
governmental programs like Medicare and Medicaid and private insurers. The
Company manages credit risk with the various public and private insurance
providers, as appropriate. Allowances for doubtful accounts have been made for
potential losses, where appropriate.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Equipment......................................................... $ 253,023
Furniture and fixtures............................................ 20,557
---------
273,580
Less accumulated depreciation..................................... (256,122)
---------
$ 17,458
=========
</TABLE>
4. NOTES PAYABLE
The Company's notes payable at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Note payable to bank, due February 28, 2000, payable in equal
monthly installments at a fixed rate of 8%, secured by checking
account at the bank.............................................. $ 96,188
Note payable to bank dated February 4, 1997, payable in equal
monthly installments at a fixed rate of 9%, secured by property
and equipment.................................................... 6,823
--------
103,011
Less current portion.............................................. 33,854
--------
Notes payable due after one year.................................. $ 69,157
========
</TABLE>
The aggregate maturities of notes payable at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997................................................................ $ 33,854
1998................................................................ 29,228
1999................................................................ 31,654
2000................................................................ 8,275
--------
$103,011
========
</TABLE>
During 1996, the Company entered into a line of credit agreement with a
maximum borrowing amount of $500,000 with a local bank. Interest is charged at
a fixed rate of 8.25% based on outstanding borrowings. As of December 31, 1996
and June 30, 1997, there were no borrowings outstanding under this financing
agreement.
F-66
<PAGE>
SOUTHERN DEPENDACARE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
The Company has elected to be taxed as an S corporation as permitted by the
Internal Revenue Code. As an S corporation, the Company is not a taxable
entity, and separately stated items of income, loss, deduction, and credit are
passed through to and taken into account by the individual stockholder in
computing the federal and state individual income tax liabilities.
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases facilities under operating leases which expire at various
dates through February 2000. Future minimum lease payments under these leases
as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................................. $98,743
1998................................................................. 75,526
1999................................................................. 45,420
2000................................................................. 7,570
</TABLE>
Insurance
The Company is insured with respect to medical malpractice risks on claims
made basis. Accordingly, coverage relates only to claims made during the
policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.
Employment Agreements
Certain physician employees are covered by employment agreements that vary
in length from two to five years, which include, among other terms, salary and
benefits provisions. Future minimum payments under these agreements as of
December 31, 1996 are approximately:
<TABLE>
<S> <C>
1997................................................................ $387,500
1998................................................................ 225,000
1999................................................................ 250,000
2000................................................................ 275,000
2001 and thereafter................................................. 100,000
</TABLE>
7. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect
the Company's financial position or results of operations.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be paid by the Company (other
than underwriting compensation expected to be incurred) in connection with the
offering described in this Registration Statement. All amounts are estimates,
except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $20,910
NASD Filing Fee..................................................... 7,400
Nasdaq National Market Listing Fee.................................. *
Blue Sky Fees and Expenses.......................................... *
Printing Costs...................................................... *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Transfer Agent and Registrar Fees and Expenses...................... *
Premiums for D&O Insurance.......................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law
Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in
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<PAGE>
which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in Section
145. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Certificate of Incorporation
The Certificate of Incorporation provides that a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided for in Section 174 of the DGCL. If the DGCL is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any
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<PAGE>
repeal or modification of such provision of the Certificate of Incorporation
by the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.
Bylaws
The Bylaws of the Company provide that the Company will indemnify and hold
harmless any director or officer of the Company to the fullest extent
permitted by applicable law, as in effect as of the date of the adoption of
the Bylaws or to such greater extent as applicable law may thereafter permit,
from and against all losses, liabilities, claims, damages, judgments,
penalties, fines, amounts paid in settlement and expenses (including
attorneys' fees) whatsoever arising out of any event or occurrence related to
the fact that such person is or was a director or officer of the Company and
further provide that the Company may, but is not required to, indemnify and
hold harmless any employee or agent of the Company or a director, officer,
employee or agent of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise who is or was serving in such
capacity at the written request of the Company; provided, however, that the
Company is only required to indemnify persons serving as directors, officers,
employees or agents of the Company for the expenses incurred in a proceeding
if such person has met the standards of conduct that make it permissible under
the laws of the State of Delaware for the Company to indemnify the claimant
for the amount claimed, but the burden of proving such defense will be on the
Company. The Bylaws further provide that, in the event of any threatened, or
pending action, suit or proceeding in which any of the persons referred to
above is a party or is involved and that may give rise to a right of
indemnification under the Bylaws, following written request by such person,
the Company will promptly pay to such person amounts to cover expenses
reasonably incurred by such person in such proceeding in advance of its final
disposition upon the receipt by the Company of (i) a written undertaking
executed by or on behalf of such person providing that such person will repay
the advance if it is ultimately determined that such person is not entitled to
be indemnified by the Company as provided in the Bylaws and (ii) satisfactory
evidence as to the amount of such expenses.
Underwriting Agreement
The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.
Insurance
The Company intends to maintain liability insurance for the benefit of its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued its first securities on October 5, 1995 and has issued
unregistered securities to (a) founders, investors and employees and (b) to
physicians and others in connection with the affiliation transactions with the
medical practices (the "Affiliation Transactions"). Each such issuance was
made in reliance upon the exemption from the registration requirements of the
Securities Act of 1933, as amended, contained in Section 4(2) or Rule 701
promulgated under the Securities Act on the basis that such transactions did
not involve a public offering.
1. On October 5, 1995, the Company issued an aggregate of 2,250,000 shares
of Common Stock, par value $.0025 per share (the "Common Stock"), to the
following individuals in connection with the organization of the Company for
an aggregate purchase price of $5,625: Sarah C. Garvin, H. Thomas Scott, Julie
Rawls Moore, Howard E. Fagin and Shamus M. Holt.
2. Since October 26, 1995, pursuant to the Company's 1995 Amended and
Restated Stock Option Plan, the Company has granted options to purchase up to
an aggregate of 4,983,149 shares of Common Stock to certain Company employees,
physicians and consultants with an exercise prices varying between $.50 and
$6.50.
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<PAGE>
3. On November 3, 1995, the Company issued an aggregate of 1,110,000 shares
of Common Stock to the following individuals for an aggregate purchase price
of $1,100,000: Dean G. Anderson, Don Buswell Charkow, Stephen & Susan Cooper,
David Ellis, Howard E. Fagin, Sarah C. Garvin, Shamus M. Holt, Jack C. Keane,
Julie Rawls Moore, NationsBank of Georgia, Trustee U/A Howard & Mary Morrison
for Howard J. Morrison, Paine Webber FBO Thomas M. Rodgers, Jr., Carl J.
Schramm, H. Thomas Scott, Laura Scott, Larry B. Stanely, sep, City Bank &
Trust Company custodian, Robert F. Stonerock, Jr. and Ira L. Snider.
4. On December 12, 1995, pursuant to a Securities Purchase Agreement, the
Company issued an aggregate of 104,300 shares of Series 1 Class A Stock, par
value $.01 per share (the "Series 1 Class A Stock"), and 95,700 shares of
Series 2 Class A Stock, par value $.01 per share (the "Series 2 Class A
Stock"), to the following investors for an aggregate purchase price of
$3,000,000: Larry Gerdes, William Eason, Edward H. Bowman, Jr., Martin
Lamaison, Orville R. Gordon, Howard F. Elkins, Richard V. Lawry, Guaranty &
Trust Co. c/o David O. Ellis, Kathleen E. J. Ellis, Jeremy Ellis, Karen Ellis,
Gemma Ellis, Rowan Nominees c/o Mercury Asset Management Ltd., and NatWest
Ventures Investments, Ltd. The same investors were also granted contingent
warrants to purchase up to an 200,000 shares of Class A Stock, in the event of
a redemption of the outstanding shares of Class A Stock, at an exercise price
of $15.00 per share: In connection with the Securities Purchase Agreement, the
Company also issued to EGL Holdings, Inc. a warrant to purchase up to 190,000
shares of Common Stock with an exercise price of $.01 per share, for an
aggregate purchase price of $1,900.
5. On December 12, 1995, pursuant to a consulting agreement, the Company
issued to Thomas M. Rodgers an option to purchase 134,000 shares of Prime
Common Stock at an exercise price of 0.20 per share.
6. On February 26, 1996, the Company issued 360,000 shares of Common Stock
and a warrant to purchase 266,000 shares of Common Stock to Healthmark
Partners, LLC for an aggregate purchase price of $720,000.
7. On November 25, 1996, the Company issued 100,000 shares of Common Stock
to J. Michael Ribaudo for an aggregate purchase price of $400,000.
8. On November 26, 1996, pursuant to an Asset Purchase Agreement, the
Company issued 125,000 shares of Prime Common Stock, par value $.0025 per
share (the "Prime Common Stock") and a $500,000 note that is convertible into
125,000 shares of Common Stock, to Metropolitan Plastic and Reconstructive
Surgery, Ltd. in exchange for its interest in Metropolitan Plastic and
Reconstructive Surgery, Ltd.
9. On January 27, 1997, the Company issued 50,000 shares of Common Stock to
Sarah C. Garvin for an aggregate purchase price of $200,000.
10. On January 27, 1997, the Company issued an aggregate of 163,750 shares
of Common Stock to following individuals for an aggregate purchase price of
$655,000: Julie Rawls Moore, Peggy S. Block, Doris B. Mintz, Peter Charman,
Dan Epstein, Henry Harrison Culver Trust, Elizabeth Jenny Culver Trust, Martha
C. Mathews, Churchill Matthews, Jr. and Elizabeth Culver.
11. On January 31, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued an aggregate of 151,905 shares of Prime Common Stock to the
following individuals in exchange for each of their interests in John W.
Daake, Inc.: John W. Daake, M.D., Robert F. Beckman, M.D. and Kent L. Kossoy,
M.D.
12. On February 26, 1997, pursuant to an Amended and Restated Letter
Agreement, the Company issued an aggregate of 400,000 shares of Prime Common
Stock to the following individuals at the request of Ira L. Snider in
consideration for Dr. Snider's provision of development services for the
Company: Ira L. Snider, Joan M. Snider Custodian for Elise P. Snider, Joan M.
Snider Custodian for Julie A. Snider and Barry Dewar.
13. On March 5, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 598,500 shares of Prime Common Stock to Sidney Hanish, M.D. in
exchange for his interest in Eye Medical Surgical Associates, Inc.
14. On March 26, 1997, the Company issued an aggregate of 88,000 shares of
Common Stock to the following individuals for an aggregate purchase price of
$152,000: Health Solutions, Inc. Profit Sharing Plan, Howard Fagin, Trustee
Fagin Advisory Services, Inc. Profit Sharing Plan, Harold A. Fuselier, Jr.,
John Daake, Shamus Holt, Galtney Group, Inc. and Elliot Baker.
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<PAGE>
15. On April 11, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued an aggregate of 1,048,812 shares of Prime Common Stock to the
following individuals in exchange for each of their interests in The Heart
Health Center, P.C.: Allen D. Soffer, M.D., Robert G. Kopitsky, M.D., Steven
J. Pieper, M.D. and Patricia L. Cole, M.D.
16. On May 7, 1997, pursuant to a consulting agreement, the Company issued
to Thomas M. Rodgers an option to purchase 350,000 shares of Prime Common
Stock at an exercise price of $1.15 per share.
17. On May 14, 1997, the Company issued an aggregate of 18,750 shares of
Common Stock to the following individuals for an aggregate purchase price of
$75,000: Garth F. Fort and Christopher Gilson.
18. On May 20,1997 pursuant to a Contribution Agreement, Robert Jones, M.D.
received 200 shares of prime common stock, par value $0.01 per share, in a
subsidiary of the Company which are convertible into 550,975 shares of Common
Stock.
19. On May 28, 1997, the Company issued 6,250 shares of Common Stock to
Thomas E. Douglas for an aggregate purchase price of $25,000.
20. On June 16, 1997, pursuant to a Loan Agreement, the Company issued to
DVI Financial Services, Inc. a warrant to purchase up to 50,000 shares of
Common Stock with an exercise price of $5.00 per share, for an aggregate
purchase price of $500.
21. On June 16, 1997 and July 31, 1997, pursuant to a Securities Purchase
Agreement, the Company issued an aggregate of 2,097,714 shares of Series B
Redeemable Convertible Preferred Stock, par value $.01 per share (the "Series
B Preferred Stock") and 1,290,414 shares of Series B Non-Voting Redeemable
Convertible Preferred Stock, par value $.01 per share (the "Series B Non-
Voting Preferred Stock"), to the following investors for an aggregate purchase
price of $13,552,512: Weston Presidio Capital II, L.P., NatWest Ventures
Investments, Ltd., St. Paul Venture Capital IV, LLC, Mercury Asset Management,
plc on behalf of Rowan Nominees, Ltd., Partech U.S. Partners III C.V., U.S.
Growth Fund Partners C.V., Axa U.S. Growth Fund LLC, Double Black Diamond II,
LLC, Almanori Limited, Multinvest Limited, BancBoston Investments, Inc. and
National City Venture Corporation. In connection with the Securities Purchase
Agreement, the Company also issued options to the same investors to purchase
up to 968,629 shares of Common Stock and up to 305,938 shares of Non-Voting
Common Stock, par value $.025 per share (the "Non-Voting Common Stock"), with
an exercise price of $.01 per share, for an aggregate purchase price of
$1,269.
22. On June 16, 1997, pursuant to a letter agreement, the Company issued to
Thomas M. Rodgers an option to purchase 7,648 shares of Prime Common Stock at
an exercise price of $0.011 per share and an option to purchase 37,500 shares
of Prime Common Stock at an exercise price of $1.10 per share.
23. On June 16, 1997, pursuant to an Asset Purchase and Contribution
Agreement, Metroplex Hematology/Oncology LLPC (the Arlington Cancer Center)
received a 20% interest in a Company subsidiary that is convertible into
1,530,000 shares of Common Stock.
24. On June 16, 1997, the Company issued an aggregate of 529,148 shares of
Prime Common Stock to Thomas M. Rodgers upon exercise of stock options in
exchange for $27,852.75 in cash and $442,781.25 in notes.
25. On July 31, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued an aggregate of 206,773 shares of Prime Common Stock to the
following individuals in exchange for each of their interests in Ream
Optometry, Ltd.: Ann C. Ream and Scott R. Ream.
26. On August 8, 1997, the Company issued 67,000 shares of Common Stock to
Karel A. Dicke for an aggregate purchase price of $268,000.
27. On August 8, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 310,214 shares of Common Stock to Howard N. Short in exchange
for his interest in Tri-County Eye Care Center.
28. On August 13, 1997, pursuant to an Amended and Restated Stock Purchase
Agreement, the Company issued an aggregate of 95,250 shares of Prime Common
Stock to the following individuals in exchange for each of their interests in
Payson Family Care Associates, Inc.: Timothy A. Shaw, Mark Ivey, Jr. and Jim
L. Burke.
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<PAGE>
29. On August 29, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 200,000 shares of Prime Common Stock to Michael Vranich in
exchange for his interest in Surgical Associates, Inc.
30. On September 2, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 144,251 shares of Prime Common Stock to the following
individuals in exchange for each of their interests in Atlanta Center for
Medicine, Inc.: Revati Alturi, M.D., D.Timothy Daughterty, M.D., Shelly Carter
Davis, M.D., Alan O. Feingold, M.D., Robert A. Kirkland, M.D. and Paul H.
Krissman, M.D.
31. On September 12, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 432,000 shares of Prime Common Stock to Southern Dependacare,
Inc. for the acquisition of Southern Dependacare, Inc. and issued 108,000
shares of Prime Common Stock to Donald E. McDaniel in connection therewith.
32. On September 12, 1997, October 12, 1997 and November 5, 1997, pursuant
to a Warrant and Stock Purchase Commitment the Company issued to the following
investors warrants to purchase up to 85,480 shares of Common Stock with an
exercise price of $.01 per share, in exchange for their Agreement to guaranty
a loan to the Company from Southwest Bank: Weston Presidio Capital II, L.P.,
Mercury Asset Management, plc on behalf of Rowan Nominees, Ltd., St. Paul
Venture Capital IV, LLC, Banc Boston Investments, Inc., Partech U.S. Partners
III C.V., National City Venture Corporation.
33. On September 19, 1997, the Company issued 40,000 shares of Common Stock
to NationsCredit Commercial Corporation in exchange for the termination of a
Loan Agreement.
34. On September 30, 1997, pursuant to an Employment Agreement, the Company
issued an aggregate of 45,000 shares of Prime Common Stock to William W.
Benedict.
35. On October 3, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 540,000 shares of Prime Common Stock to the following
individuals in exchange for each of their interest in Louisville Cardiology,
Inc.: Rudolph Licandro, M.D. and Michael J. Imburgia, M.D.
36. On October 14, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 121,238 shares of Prime Common Stock to George M. Bohigan, M.D.
in exchange for his interest in George M. Bohigan, Ltd.
37. On October 17, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 165,108 shares of Common Stock to G.H. Kursar in exchange for
his interest in G.H. Kursar, M.D., Inc.
38. On October 21, 1997, the Company issued 1,000 shares of Common Stock to
Christie Bohigan for an aggregate purchase price of $5,000.
39. On October 27, pursuant to a Credit Agreement and Loan Agreement, the
Company issued 553,683 shares of Common Stock to Paribas Principal
Incorporated, Inc. for an aggregate purchase price of $2,214,732.
40. On October 27, 1997, pursuant to a Credit Agreement and Loan Agreement,
the Company issued warrants to purchase up to 1,384,561 shares of Common Stock
with an exercise price of $.01 per share, for an aggregate purchase price of
$13,845.61 to Paribas Capital Funding, LLC and Paribas Principal Incorporated.
41. On October 29, 1997, the Company issued 266,000 shares of Common Stock
to Healthmark Partners, LLC for an aggregate purchase price of $655 upon the
exercise of warrants at an exercise price of $.0025 per share.
42. On November 12, 1997, the Company granted to Bi-State Network options to
purchase up to an aggregate of 100,000 shares of Common Stock with an exercise
price of $4.00 per share in exchange for entering into a contract
administration agreement with the Company.
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<PAGE>
43. On November 7, 1997, pursuant to an Agreement and Plan of
Reorganization, the Company issued an aggregate of 437,500 shares of Common
Stock to W. Darrel Martin, M.D. and Elizabeth W. Killebrew, M.D. in exchange
for each of their interests in Southern Crescent Women's Healthcare, Inc.
44. On November 7, 1997, pursuant to an Agreement and Plan of
Reorganization, the Company issued an aggregate of 310,000 shares of Common
Stock to the following individuals in exchange for each of their interests in
Eagles Landing OB-GYN Associates, P.C.: John P. Schilling, M.D., Shoba C. Rao,
M.D. and Jeffrey D. Lovinger.
45. On November 7, 1997, pursuant to an Agreement and Plan of
Reorganization, the Company issued an aggregate of 81,250 shares of Common
Stock to Alan Joffe, M.D. in exchange for his interest in Northside OB-GYN,
Inc.
46. On November 12, 1997, pursuant to an Agreement and Plan of
Reorganization, the Company issued an aggregate of 1,305,159 shares of Common
Stock to the following individuals in exchange for each of their interests in
Greater Cincinnati Gastroenterology, Inc.: George D. Waissbluth, Ronald C.
Schnieder, Michael A. Safdi, Alan V. Safdi, Michael D. Kreines, Kris
Ramprasad, Kim R. Jurell, David G. Magels, Pradeep K. Bekal and Daniel G.
Walker Trust, u/a/d July 1, 1997 Alan V. Safdi, Trustee.
47. On November 12, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued an aggregate of 1,048,596 shares of Common Stock to the
following individuals in exchange for each of their interests in Internal
Medicine Specialists, Inc.: Alex Menendez, C. Raymond Cottrell, Antonio Caos,
Kenneth R. Feuer, Robert T. Baker, Robert F. Stonerock, Thomas C. Marbury,
Timothy L. Prance, Lionel C. Abbott, Mark Williams, Jeffrey M. Cohen. In
connection with the Agreement and Plan of Merger, the Company issued an
aggregate of 72,000 shares of Common Stock to Avanish Aggarwal in
consideration for his execution of an employment agreement with Internal
Medicine Specialists, Inc.
48. On November 12, 1997, pursuant to a Stock Purchase Agreement, the
Company issued an aggregate of 273,498 shares of Common Stock to the following
individuals in exchange for each of their interests in Primary Care
Specialists, Inc.: Thomas Wentzell, John M. Kappleman, Christopher Edwards,
Allen Castello.
49. On November 12, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued an aggregate of 393,176 shares of Common Stock to the following
individuals in exchange for each of their interests in LaRach & Williamson,
M.D., P.A.: Sergio W. LaRach, Paul R. Williamson and Andrea Ferrara. In
connection with the Agreement and Plan of Merger, the Company issued an
aggregate of 54,750 shares of Common Stock to Michael F. Trevisani in
consideration for his execution of an employment agreement with LaRach &
Williamson, Inc.
50. On November 12, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued an aggregate of 867,903 shares of Common Stock to the following
individuals in exchange for each of their interests in MidSouth Practice
Management, Inc. MidSouth: A. Cary Cox, Robert A. Frist, Jack D. Furst, R.
Ellis Godshall, Sr., Robert Ellis Godshall, Jr., Douglas J. Marchant, Dale
Menard, C. Michael Spruell, Herbert L. Thomas, Jr., Robert Bruce Thompson,
Dean Witter Custodian FBO R. Bruce Thompson, Memphis Children's Clinic, PLLC,
William C. Stewart, Jr., M.D., Beau B. Pittman, M.D., David B. Wright, M.D.,
Michael Steffan, M.D., Lyland Freeland, M.D., Martha N. Taylor, M.D., Ann D.
Brown, M.D., Mark Vlasak, M.D. and James W. Bryant. In addition, the Company
granted to Petra Capital warrants to purchase up to an aggregate of 112,200
shares of Common Stock with an exercise price of $.01 per share in exchange
for warrants it held to purchase MidSouth stock and granted to MidSouth Health
Plan options to purchase up to an aggregate of 181,500 shares of Common Stock
with an exercise price of $6.25 per share.
51. On November 12, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued an aggregate of 283,000 shares of Common Stock to the following
individuals in exchange for each of their interest in Physician Strategic
Alliance, Inc.: Calver Fund, Inc., Jack R. Anderson, Rose Marie Garcia
Anderson, Leslie B. Daniels, The Daniels Family Trust and Gastroenterology
Associates Osceola, P.A. In connection with the Agreement and Plan of Merger,
the Company issued to the same individuals warrants to purchase up to an
aggregate of 50,000 shares of Common Stock at an exercise price of the greater
of $10.00 a share or 125% of any initial public offering price, for an
aggregate purchase price of $250,000.
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52. On November 12, 1995, pursuant to an Interest Purchase Agreement, the
Company issued 250,000 shares of Common Stock to each of the following
individuals in exchange for each of their interests in Persch Family Practice,
L.P.: Hirsch Family, L.P., Michael A. Noble, Ben Tischler, Mark Goran, Monte
Sandler and Michael Gerling.
53. On November 12, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 300,087 shares of Prime Common Stock to Myron Jacobs, M.D. in
exchange for his interest in Pulmonary Sleep Consultants, Inc.
54. On November 12, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 108,000 shares of Prime Common Stock to the following
individuals in exchange for each of their interests in Diagnostic Internists,
Inc.: James A. Reynolds, M.D., Mark A. Novack, M.D. and Jeffrey Zohner, M.D.
55. On November 12, 1997, pursuant to an Agreement and Plan of Merger, the
Company issued 1,294,236 shares of Common Stock to the following individuals
in exchange for each of their interests in Parkcrest Surgical Associates,
Inc.: Donald R. Bassman, M.D., David A. Caplin, M.D., Patricia A. McGuire,
M.D., Alan M. Londe, M.D., Charles R. Nathan, M.D., Marlys E. Schub, M.D.,
Stanley L. London, M.D., Kenneth J. Bennett, M.D., James P. Emanuel, M.D.,
Kurt W. Kaufman, D.P.M., Mark A. Ludwig, M.D., Glen E. Johnson, M.D., Cesal A.
Gomez, M.D., Sondra L. Tate, M.D. and Diane M. Radford, M.D.
56. On November 12, 1997, pursuant to an Asset Purchase Agreement, Richard
Ramos, M.D. received 200,000 shares of prime common stock, par value $.01 per
share, in a subsidiary of the Company which are convertible into 127,968
shares of Common Stock of the Company.
57. On November 12, 1997, the Company issued an aggregate of 184,000 shares
of Common Stock to the following individuals for an aggregate purchase price
of $920,000: R.L. Wolfson, Andrew S. Wolfson, Erwin Barry Hyman, Stephen A.
Hyman, Martin Isenberg, Josh Coughlin, and Stephen M. Mintz and Doris Boyd
Mintz.
II-8
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fourth Amended and Restated Certificate of Incorporation of Physician
Health Corporation.
3.2 Second Amended and Restated Certificate of Designation, Preferences
and Rights of the Series B Redeemable Convertible Preferred Stock of
Physician Health Corporation.
3.3 Amended and Restated Bylaws of Physician Health Corporation.
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Jackson Walker, L.L.P.*
9.1 Second Amended and Restated Stockholders' Agreement, dated as of June
16, 1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., the Weston Investors, the EGL Investors and other
shareholders added from time to time.
9.2 Amendment No. 1 to Second Amended and Restated Stockholders'
Agreement, dated as of June 16, 1997, among Physician Health
Corporation, Weston Presidio Capital II, L.P., the Weston Investors,
the EGL Investors and other shareholders added from time to time and
Paribas Principal, Inc.*
10.1 Asset Purchase and Contribution Agreement dated June 16, 1997, by and
among Metroplex Hematology/Oncology Associates, L.L.P., the
Shareholders of Metroplex Hematology/Oncology Associates, L.L.P., each
Physician's wholly owned professional association and Physician Health
Corporation.
10.2 Management Services Agreement, by and among Metroplex Hematology/
Oncology Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health
Corporation and the Metroplex Providers.
10.3 Supplemental Agreement by and among Metroplex Hematology/Oncology
Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health Corporation
and the Metroplex Providers.
10.4 Agreement and Plan of Reorganization by and among Physician Health
Corporation, Greater Cincinnati Gastroenterology Associates, Inc. and
the Shareholders of Greater Cincinnati Gastroenterology Associates,
Inc.
10.5 Practice Management Agreement by and among PHC Ohio, Inc. and GCGA
Physicians, Inc.
10.6 Agreement and Plan of Merger by and among Physician Health
Corporation, PHC-Orlando Acquisition Subsidiary II, Inc., Internal
Medicine Specialists, Inc. and the Shareholders of Internal Medicine
Specialists, Inc.*
10.7 Form of Employment Agreement by and among Internal Medicine
Specialists, Inc. and each of the Shareholders of Internal Medicine
Specialist, Inc.
10.8 Option Agreement by and among Central Florida Surgical Centers, Inc.,
C. Raymond Cottrell, M.D., Antonio Caos, M.D., Kenneth R. Feuer, M.D.,
Robert T. Baker, M.D. and PHC Holding Corporation.
10.9 Option Agreement by and among Oakwater Surgical Center, Inc., C.
Raymond Cottrell, M.D., Antonio Caos, M.D., Alex Menendez, M.D.,
Kenneth R. Feuer, M.D., Robert T. Baker, M.D. and PHC Holding
Corporation.
10.10 Agreement and Plan of Merger, dated as of September 4, 1997, among
Physician Health Corporation, PHC-Midwest, Inc. and the Shareholders
of Parkcrest Surgical Associates, Inc.*
10.11 Practice Management Agreement among Physician Health Corporation, PHC-
Midwest, Inc. and P.S.A. Medical Group, Inc.*
10.12 Asset Purchase Agreement by and among Physician Health Corporation,
PHC Regional Oncology Care, Inc., Southern Dependacare, Inc. and Jack
G. Hilton, M.D.*
10.13 Practice Management Agreement, by and among Physician Health
Corporation, PHC Regional Oncology Care, Inc., PHC Illinois 1, S.C.
and PHC-Mississippi, P.L.L.C.
10.14 Agreement and Plan of Merger by and among Physician Health
Corporation, MidSouth Practice Management, Inc. and PHC Tennessee
Acquisition Subsidiary I, Inc.*
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.15 Management Services Agreement, dated as of September 22, 1997, by and
among MidSouth Practice Management, Inc., Foundation Medical Group,
PLLC and the Physicians named therein.*
10.16 Management Services Agreement, dated as of September 22, 1997, by and
between Memphis Children's Clinic and the Physicians named therein.*
10.17 Management Services Agreement, dated as of November 10, 1997, by and
between MidSouth Management Inc. and Bryant Medical Services, P.C.*
10.18 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Foundation
Medical Group, PLLC and the Physicians named therein.
10.19 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Memphis
Children's Clinic, PLLC and the Physicians named therein.
10.20 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Bryant
Medical Services, P.C. and James W. Bryant, M.D.
10.21 Physician Health Corporation Amended and Restated 1995 Stock Option
Plan.
10.22 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and Sarah C. Garvin.*
10.23 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and Tom Rodgers.*
10.24 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and J. Michael Ribouds, M.D.*
10.25 Letter Agreement, dated November , 1997, by and between Thomas
Rodgers and Physician Health Corporation.*
10.26 General Undertakings Agreement, dated as of October 1996, by and among
Physician Health Corporation, PHC St. Louis Acquisition Subsidiary I,
Inc., Metropolitan Plastic and Reconstructive Surgery, Ltd. and J.
Michael Ribaudo, M.D.*
10.27 Amendment to General Undertakings Agreement.*
10.28 Employment Agreement by and between Physician Health Corporation and
William Stewart, M.D.*
10.29 Stock and Warrant Purchase Agreement, dated December 29, 1995, among
Physician Health Corporation, Sarah C. Garvin, Howard E. Fagin, Ph.D.,
H. Thomas Scott, Julie Rawls Moore, Shamus Holt, EGL Holdings, Inc.,
Mercury Asset Management, Plc, NatWest Ventures Investments Limited
and certain individuals and custodians.
10.30 Form of Contingent Share Warrant to Purchase Shares of Class A
Preferred Stock pursuant to the EGL Stock and Warrant Purchase
Agreement.
10.31 Warrant, dated December 29, 1995, issued to EGL Holdings, Inc. to
purchase 190,000 shares of Common Stock.
10.32 Securities Purchase Agreement, dated as of June 16, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited and NatWest Ventures Investments Limited.
10.33 Amendment No. 1 to Securities Purchase Agreement, dated as of July 31,
1997, among Physician Health Corporation, Weston Presidio Capital II,
L.P., Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.34 Amendment No. 2 to Securities Purchase Agreement, dated as of October
27,1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., BancBoston Investments, Inc., Mercury Asset Management, plc,
on behalf of Rowan Nominees Limited, NatWest Ventures Investments
Limited, St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III,
C.V., U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double
Black Diamond II LLC, Almanori Limited, Multinvest Limited, National
City Venture Corporation and Paribas Principal Incorporated.
10.35 Equity Call Agreement, dated as of June 16, 1997, among Physician
Health Corporation, Weston Presidio Capital II, L.P., Metroplex
Hematology/Oncology Associates, L.L.P, BancBoston Investments, Inc.,
Mercury Asset Management, plc, on behalf of Rowan Nominees Limited,
NatWest Ventures Investments Limited.
10.36 Amendment No. 1 to Equity Call Agreement, dated as of July 31, 1997,
among Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology, Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.
10.37 Joinder to Equity Call Agreement, dated as of October 27, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited, National City Venture
Corporation and Paribas Principal Incorporated.
10.38 Escrow Agreement, dated as of June 16, 1997, among Physician Health
Corporation, Weston Presidio Capital II, L.P., BancBoston Ventures,
Inc., Mercury Asset Management, plc, on behalf of Rowan Nominees
Limited and NatWest Ventures Investments, Limited.*
10.39 Amendment No. 1 to Escrow Agreement, dated as of July 31, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited and National City
Venture Corporation.
10.40 Amendment No. 2 to Escrow Agreement, dated as of October 27, 1997,
among Physician Health Corporation, Weston Presidio Capital III, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners 111, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited, National City
Venture Corporation and Paribas Principal Incorporated.
10.41 Weston Presidio--Form of Common Stock Warrant.
10.42 Credit Agreement, dated as of October 27, 1997, among Physician Health
Corporation, PHC Holding Company, Various Banks and Banque Paribas, as
Agent.*
10.43 Securities Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Principal
Incorporated.
10.44 Warrant, dated October 12, 1997, issued by Physician Health
Corporation to Paribas Principal Incorporated.
10.45 Senior Subordinated Loan Agreement, dated as of October 27, 1997,
among Physician Health Corporation, PHC Holding Corporation, the
financial institutions from time to time party thereto and Paribas
Capital Funding, LLC, as Agent.*
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.46 Warrant Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Capital Funding, LLC.
10.47 Warrant Certificate, dated as of October 27, 1997, issued by Physician
Health Corporation to Paribas Capital Funding, LLC.
10.48 Warrant Agreement, dated as of October 27, 1997, by and between
Physical Health Corporation and Paribas Capital Funding, L.L.C.
10.49 Restated and Amended Stockholder Agreement, dated November 1, 1997, by
and among Physician Health Corporation, Sarah, C. Garvin, Howard E.
Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore, and Shamus Holt.*
10.50 Amendment to Restated and Amended Stockholder Agreement, dated
February 1997, by and among Physician Health Corporation, Sarah, C.
Garvin, Howard E. Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore,
and Shamus Holt.*
10.51 Non-Competition and Non-Disclosure Form of Agreement executed by each
Founder of Physician Health Corporation.*
10.52 Amended and Restated Registration Rights Agreement by and among
Physician Health Corporation and the stockholders named therein.
10.53 Joinder to Amended and Restated Registration Rights Agreement, dated
October 1997, by Thomas M. Rodgers.
10.54 Letter Agreement, dated September 16, 1997, by and between
NationsCredit Settlement Agreement and Physician Health Corporation.
10.55 Warrant, dated June 16, 1997, issued by Physician Health Corporation
to DVI Financial Services, Inc.
10.56 Loan and Security Agreement No. 1 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.57 Loan and Security Agreement No. 2 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.58 Loan and Security Agreement No. 3 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.59 Loan and Security Agreement No. 4 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.60 Loan and Security Agreement No. 5 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.61 Loan and Security Agreement No. 6 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.62 Loan and Security Agreement, dated as of June 16, 1997, among MHOA
Texas I, L.L.C. and DVI Business Credit Corporation.
10.63 Warrant and Preferred Stock Commitment, dated September 12, 1997, by
and among Physician Health Corporation, Weston Presidio Capital II,
L.P. and the holders of Series B Preferred Stock or Common Stock named
therein.
10.64 Warrant, dated September 12, 1997, issued by Physician Health
Corporation to Weston Presidio Capital II, L.P.
11.1 Statement regarding computation of per share earnings.*
12.1 Statement regarding computation of ratios.*
21.1 Subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (contained on the signature page of this
Registration Statement).
27 Financial Data Schedule
</TABLE>
II-12
<PAGE>
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payments
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(3) That, for the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Physician Health
Corporation has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on November 12, 1997.
Physician Health Corporation
By: /s/ Sarah C. Garvin
----------------------------------
SARAH C. GARVIN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Each person whose signature appears below hereby appoints Sarah G. Garvin
and Thomas M. Rodgers and each of them, each of whom may act without joinder
of the other, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to execute in the name of each such person
who is then an officer or director of the Registrant, and to file, any
amendments (including post-effective amendments) to this Registration
Statement and any registration statement for the same offering filed pursuant
to Rule 462 under the Securities Act and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing appropriate or necessary to be done,
as fully and for all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated and on November 12, 1997.
SIGNATURE TITLE
--------- -----
/s/ Sarah C. Garvin Chairman of the Board, President
- ------------------------------------- and Chief Executive Officer
SARAH C. GARVIN (Principal Executive Officer)
/s/ Thomas M. Rodgers Director, Executive Vice
- ------------------------------------- President, Chief Financial
THOMAS M. RODGERS Officer and Treasurer (Principal
Financial and Accounting Officer)
/s/ Murali Anantharaman Director
- -------------------------------------
MURALI ANANTHARAMAN
/s/ Michael F. Cronin Director
- -------------------------------------
MICHAEL F. CRONIN
/s/ Alfred DiStefano, M.D. Director
- -------------------------------------
ALFRED DISTEFANO, M.D.
/s/ Carl J. Schramm Director
- -------------------------------------
CARL J. SCHRAMM, PH.D., J.D.
/s/ J. Michael Ribaudo Director
- -------------------------------------
J. MICHAEL RIBAUDO, M.D.
II-14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fourth Amended and Restated Certificate of Incorporation of Physician
Health Corporation.
3.2 Second Amended and Restated Certificate of Designation, Preferences
and Rights of the Series B Redeemable Convertible Preferred Stock of
Physician Health Corporation.
3.3 Amended and Restated Bylaws of Physician Health Corporation.
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Jackson Walker, L.L.P.*
9.1 Second Amended and Restated Stockholders' Agreement, dated as of June
16, 1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., the Weston Investors, the EGL Investors and other
shareholders added from time to time.
9.2 Amendment No. 1 to Second Amended and Restated Stockholders'
Agreement, dated as of June 16, 1997, among Physician Health
Corporation, Weston Presidio Capital II, L.P., the Weston Investors,
the EGL Investors and other shareholders added from time to time and
Paribas Principal, Inc.*
10.1 Asset Purchase and Contribution Agreement dated June 16, 1997, by and
among Metroplex Hematology/Oncology Associates, L.L.P., the
Shareholders of Metroplex Hematology/Oncology Associates, L.L.P., each
Physician's wholly owned professional association and Physician Health
Corporation.
10.2 Management Services Agreement, by and among Metroplex Hematology/
Oncology Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health
Corporation and the Metroplex Providers.
10.3 Supplemental Agreement by and among Metroplex Hematology/Oncology
Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health Corporation
and the Metroplex Providers.
10.4 Agreement and Plan of Reorganization by and among Physician Health
Corporation, Greater Cincinnati Gastroenterology Associates, Inc. and
the Shareholders of Greater Cincinnati Gastroenterology Associates,
Inc.
10.5 Practice Management Agreement by and among PHC Ohio, Inc. and GCGA
Physicians, Inc.
10.6 Agreement and Plan of Merger by and among Physician Health
Corporation, PHC-Orlando Acquisition Subsidiary II, Inc., Internal
Medicine Specialists, Inc. and the Shareholders of Internal Medicine
Specialists, Inc.*
10.7 Form of Employment Agreement by and among Internal Medicine
Specialists, Inc. and each of the Shareholders of Internal Medicine
Specialist, Inc.
10.8 Option Agreement by and among Central Florida Surgical Centers, Inc.,
C. Raymond Cottrell, M.D., Antonio Caos, M.D., Kenneth R. Feuer, M.D.,
Robert T. Baker, M.D. and PHC Holding Corporation.
10.9 Option Agreement by and among Oakwater Surgical Center, Inc., C.
Raymond Cottrell, M.D., Antonio Caos, M.D., Alex Menendez, M.D.,
Kenneth R. Feuer, M.D., Robert T. Baker, M.D. and PHC Holding
Corporation.
10.10 Agreement and Plan of Merger, dated as of September 4, 1997, among
Physician Health Corporation, PHC-Midwest, Inc. and Parkcrest Surgical
Associates, Inc. and the Shareholders of Parkcrest Surgical
Associates, Inc.*
10.11 Practice Management Agreement among Physician Health Corporation, PHC-
Midwest, Inc. and P.S.A. Medical Group, Inc.*
10.12 Asset Purchase Agreement by and among Physician Health Corporation,
PHC Regional Oncology Care, Inc., Southern Dependacare, Inc. and Jack
G. Hilton, M.D.*
10.13 Practice Management Agreement, by and among Physician Health
Corporation, PHC Regional Oncology Care, Inc., PHC Illinois 1, S.C.
and PHC-Mississippi, P.L.L.C.
10.14 Agreement and Plan of Merger by and among Physician Health
Corporation, MidSouth Practice Management, Inc. and PHC Tennessee
Acquisition Subsidiary I, Inc.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.15 Management Services Agreement, dated as of September 22, 1997, by and
among MidSouth Practice Management, Inc., Foundation Medical Group,
PLLC and the Physicians named therein.*
10.16 Management Services Agreement, dated as of September 22, 1997, by and
between Memphis Children's Clinic and the Physicians named therein.*
10.17 Management Services Agreement, dated as of November 10, 1997, by and
between MidSouth Management Inc. and Bryant Medical Services, P.C.*
10.18 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Foundation
Medical Group, PLLC and the Physicians named therein.
10.19 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Memphis
Children's Clinic, PLLC and the Physicians named therein.
10.20 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Bryant
Medical Services, P.C. and James W. Bryant, M.D.
10.21 Physician Health Corporation Amended and Restated 1995 Stock Option
Plan.
10.22 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and Sarah C. Garvin.*
10.23 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and Tom Rodgers.*
10.24 Employment Agreement, dated November , 1997, by and between Physician
Health Corporation and J. Michael Ribouds, M.D.*
10.25 Letter Agreement, dated November , 1997, by and between Thomas
Rodgers and Physician Health Corporation.*
10.26 General Undertakings Agreement, dated as of October 1996, by and among
Physician Health Corporation, PHC St. Louis Acquisition Subsidiary I,
Inc., Metropolitan Plastic and Reconstructive Surgery, Ltd. and J.
Michael Ribaudo, M.D.*
10.27 Amendment to General Undertakings Agreement.*
10.28 Employment Agreement by and between Physician Health Corporation and
William Stewart, M.D.*
10.29 Stock and Warrant Purchase Agreement, dated December 29, 1995, among
Physician Health Corporation, Sarah C. Garvin, Howard E. Fagin, Ph.D.,
H. Thomas Scott, Julie Rawls Moore, Shamus Holt, EGL Holdings, Inc.,
Mercury Asset Management, Plc, NatWest Ventures Investments Limited
and certain individuals and custodians.
10.30 Form of Contingent Share Warrant to Purchase Shares of Class A
Preferred Stock pursuant to the EGL Stock and Warrant Purchase
Agreement.
10.31 Warrant, dated December 29, 1995, issued to EGL Holdings, Inc. to
purchase 190,000 shares of Common Stock.
10.32 Securities Purchase Agreement, dated as of June 16, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited and NatWest Ventures Investments Limited.
10.33 Amendment No. 1 to Securities Purchase Agreement, dated as of July 31,
1997, among Physician Health Corporation, Weston Presidio Capital II,
L.P., Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.34 Amendment No. 2 to Securities Purchase Agreement, dated as of October
27,1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., BancBoston Investments, Inc., Mercury Asset Management, plc,
on behalf of Rowan Nominees Limited, NatWest Ventures Investments
Limited, St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III,
C.V., U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double
Black Diamond II LLC, Almanori Limited, Multinvest Limited, National
City Venture Corporation and Paribas Principal Incorporated.
10.35 Equity Call Agreement, dated as of June 16, 1997, among Physician
Health Corporation, Weston Presidio Capital II, L.P., Metroplex
Hematology/Oncology Associates, L.L.P, BancBoston Investments, Inc.,
Mercury Asset Management, plc, on behalf of Rowan Nominees Limited,
NatWest Ventures Investments Limited.
10.36 Amendment No. 1 to Equity Call Agreement, dated as of July 31, 1997,
among Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology, Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.
10.37 Joinder to Equity Call Agreement, dated as of October 27, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited, National City Venture
Corporation and Paribas Principal Incorporated.
10.38 Escrow Agreement, dated as of June 16, 1997, among Physician Health
Corporation, Weston Presidio Capital II, L.P., BancBoston Ventures,
Inc., Mercury Asset Management, plc, on behalf of Rowan Nominees
Limited and NatWest Ventures Investments, Limited.*
10.39 Amendment No. 1 to Escrow Agreement, dated as of July 31, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited and National City
Venture Corporation.
10.40 Amendment No. 2 to Escrow Agreement, dated as of October 27, 1997,
among Physician Health Corporation, Weston Presidio Capital III, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners 111, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited, National City
Venture Corporation and Paribas Principal Incorporated.
10.41 Weston Presidio--Form of Common Stock Warrant.
10.42 Credit Agreement, dated as of October 27, 1997, among Physician Health
Corporation, PHC Holding Company, Various Banks and Banque Paribas, as
Agent.*
10.43 Securities Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Principal
Incorporated.
10.44 Warrant, dated October 12, 1997, issued by Physician Health
Corporation to Paribas Principal Incorporated.
10.45 Senior Subordinated Loan Agreement, dated as of October 27, 1997,
among Physician Health Corporation, PHC Holding Corporation, the
financial institutions from time to time party thereto and Paribas
Capital Funding, LLC, as Agent.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.46 Warrant Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Capital Funding, LLC.
10.47 Warrant Certificate, dated as of October 27, 1997, issued by Physician
Health Corporation to Paribas Capital Funding, LLC.
10.48 Warrant Agreement, dated as of October 27, 1997, by and between
Physical Health Corporation and Paribas Capital Funding, L.L.C.
10.49 Restated and Amended Stockholder Agreement, dated November 1, 1997, by
and among Physician Health Corporation, Sarah, C. Garvin, Howard E.
Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore, and Shamus Holt.*
10.50 Amendment to Restated and Amended Stockholder Agreement, dated
February 1997, by and among Physician Health Corporation, Sarah, C.
Garvin, Howard E. Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore,
and Shamus Holt.*
10.51 Non-Competition and Non-Disclosure Form of Agreement executed by each
Founder of Physician Health Corporation.*
10.52 Amended and Restated Registration Rights Agreement by and among
Physician Health Corporation and the stockholders named therein.
10.53 Joinder to Amended and Restated Registration Rights Agreement, dated
October 1997, by Thomas M. Rodgers.
10.54 Letter Agreement, dated September 16, 1997, by and between
NationsCredit Settlement Agreement and Physician Health Corporation.
10.55 Warrant, dated June 16, 1997, issued by Physician Health Corporation
to DVI Financial Services, Inc.
10.56 Loan and Security Agreement No. 1 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.57 Loan and Security Agreement No. 2 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.58 Loan and Security Agreement No. 3 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.59 Loan and Security Agreement No. 4 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.60 Loan and Security Agreement No. 5 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.61 Loan and Security Agreement No. 6 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.
10.62 Loan and Security Agreement, dated as of June 16, 1997, among MHOA
Texas I, L.L.C. and DVI Business Credit Corporation.
10.63 Warrant and Preferred Stock Commitment, dated September 12, 1997, by
and among Physician Health Corporation, Weston Presidio Capital II,
L.P. and the holders of Series B Preferred Stock or Common Stock named
therein.
10.64 Warrant, dated September 12, 1997, issued by Physician Health
Corporation to Weston Presidio Capital II, L.P.
11.1 Statement regarding computation of per share earnings.*
12.1 Statement regarding computation of ratios.*
21.1 Subsidiaries.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
24.1 Power of Attorney (contained on the signature page of this
Registration Statement).
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 3.1
FOURTH RESTATED CERTIFICATE OF INCORPORATION
OF
PHYSICIAN HEALTH CORPORATION
It is hereby certified that:
First: The name of the corporation is "Physician Health Corporation" (the
"Corporation"). The name under which the Corporation was originally incorporated
was "PHC Merger Corporation."
Second: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware, on the 29th day of
August, 1995.
Third: The Amendments to the Third Restated Certificate of
Incorporation of the Corporation effected by this Fourth Restated Certificate of
Incorporation (the "Amendments") are as follows: (i) the increase of the
Corporation's authorized shares of its Voting Common Stock and Preferred Stock;
(ii) the imposition of certain restrictions on the Corporation's ability to
redeem and/or pay dividends with respect to the Class A Stock except under
certain circumstances; (iii) the imposition of restrictions upon the ability of
the Corporation's stockholders to take action through a written consent
following such time as any class of the Corporation's equity securities is
traded on a national securities exchange or through the Nasdaq Stock Market's
automated quotation system; (iv) the denial of cumulative voting and preemptive
or preferential rights of stockholders except to the extent specifically set
forth in this Certificate or in any Certificate of Designation, Rights and
Preferences relating to the Corporation's capital stock as may be in effect from
time to time; and (v) the classification of the Corporation's Board of Directors
into three classes generally having terms of three years each following such
time as any class of the Corporation's equity securities is traded on a national
securities exchange or through the Nasdaq Stock Market's automated quotation
system.
Fourth: The Amendments and the Fourth Restatement of the Certificate of
Incorporation herein certified (the "Certificate") have been duly adopted by the
stockholders in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware. Prompt written notice of the adoption
of the Amendments and of the Certificate shall be given to those stockholders
who have not consented in writing thereto, as provided in Section 228 of the
General Corporation Law of the State of Delaware.
Fifth: That the text of the Certificate of Incorporation of Physician
Health Corporation, as amended, is hereby restated and further amended as of the
date this Certificate is filed with the Secretary of State of the State of
Delaware, to read in full, as follows:
FOURTH RESTATED CERTIFICATE OF INCORPORATION
OF
PHYSICIAN HEALTH CORPORATION
ARTICLE I
Name
The name of the corporation is Physician Health Corporation (the
(the Corporation")
ARTICLE II
Address of Registered Office;
Name of Registered Agent
<PAGE>
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The name of its registered agent at
that address is The Corporation Trust Company.
ARTICLE III
Purpose and Powers
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may now or hereunder be organized under the
General Corporation Law of the State of Delaware. It shall have all powers that
may now or hereafter be lawful for a corporation to exercise under the General
Corporation Law of the State of Delaware.
ARTICLE IV
Capital Stock
The Corporation shall have five classes of stock: Voting Common Stock,
Non-Voting Common Stock, Prime Common Stock, Class A Stock and Preferred Stock.
References herein to "Common Stock" shall mean only Voting Common Stock and Non-
Voting Common Stock.
The Corporation shall have the authority to issue 100,000,000 shares of
Voting Common Stock, 40,000,000 shares of Non-Voting Common Stock, and
20,000,000 shares of Prime Common Stock. All of such shares shall have a par
value of $.0025 each.
The number of authorized shares of Voting Common Stock, Non-Voting
Common Stock, or Prime Common Stock may be increased or decreased (but not below
the number then outstanding) by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote without the consent of
the holders of the class of shares which is being increased or decreased.
The Corporation shall also have the authority to issue (a) 500,000
shares of Class A Stock, $0.01 par value, in two series, as set forth more fully
below, and (b) 18,000,000 shares of Preferred Stock, $0.01 par value, in series
as set forth more fully below.
Section A. Voting and Non-Voting Common Stock
----------------------------------
The designations and the powers, preferences and rights of the Voting
Common Stock and the Non-Voting Common Stock (collectively referred to as
"Common Stock") are as follows:
1. Voting Rights.
-------------
(a) Voting Common Stock. Except as set forth herein or as
-------------------
otherwise required by law, each outstanding share of Voting Common Stock shall
be entitled to vote on each matter on which the stockholders of the Corporation
shall be entitled to vote, and each holder of Voting Common Stock shall be
entitled to one vote for each share of such stock held by such holder.
(b) Non-Voting Common Stock. Except as set forth herein or as
-----------------------
otherwise required by law, each outstanding share of Non-Voting Common Stock
shall not be entitled to vote on any matter on which the stockholders of the
Corporation shall be entitled to vote, and shares of Non-Voting Common Stock
shall not be included in determining the number of shares voting or entitled to
vote on any such matters; provided that the holders of Non-Voting Common Stock
shall have the right to vote as a separate class on any merger or consolidation
of the Corporation with or into another entity or entities, or any
recapitalization or reorganization, in which shares of Non-Voting Common Stock
would receive or be exchanged for consideration different on a per share basis
from consideration received with
2
<PAGE>
respect to or in exchange for the shares of Voting Common Stock or would
otherwise be treated differently from shares of Voting Common Stock in
connection with such transaction, except that shares of Non-Voting Common Stock
may, without such a separate class vote, receive or be exchanged for non-voting
securities which are otherwise identical on a per share basis in amount and form
to the voting securities received with respect to or exchanged for the Voting
Common Stock so long as (i) such non-voting securities are convertible into such
voting securities on the same terms as the Non-Voting Common Stock is
convertible into Voting Common Stock and (ii) all other consideration is equal
on a per share basis. Notwithstanding the foregoing, holders of the shares of
the Non-Voting Common Stock shall be entitled to vote as a separate class on any
amendment to this paragraph (b) of this Section 1 and any amendment, repeal or
modification of any provision of this Certificate of Incorporation that
adversely affects the powers, preferences or special rights of holders of the
Non-Voting Common Stock in a manner differently from the way in which the
powers, preferences or special rights of the holders of the Voting Common Stock
are affected.
2. Dividends. Any dividend or distribution on the Common Stock
---------
shall be payable on shares of Voting Common Stock and Non-Voting Common Stock,
share and share alike; provided, that (i) in the case of dividends payable in
shares of Common Stock of the Corporation, or options, warrants or rights to
acquire shares of such Common Stock, or securities convertible into or
exchangeable for shares of such Common Stock, the shares, options, warrants,
rights or securities so payable shall be payable in shares of, or options,
warrants or rights to acquire, or securities convertible into or exchangeable
for, Common Stock of the same class upon which the dividend or distribution is
being paid and (ii) if the dividends consist of other voting securities of the
Corporation, the Corporation shall make available to each holder of Non-Voting
Common Stock, at such holder's request, dividends consisting of non-voting
securities of the Corporation which are otherwise identical to the voting
securities and which are convertible into or exchangeable for such voting
securities on the same terms as the Non-Voting Common Stock is convertible into
the Voting Common Stock.
3. Liquidation. In the event of any voluntary or involuntary
-----------
liquidation, dissolution or winding up of the Corporation, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of shares of Voting Common Stock and Non-Voting Common Stock shall be
entitled to share ratably, share and share alike, in the remaining net assets of
the Corporation.
4. Conversion.
----------
(a) Conversion of Voting Common Stock. Subject to and upon
---------------------------------
compliance with the provisions of this Section 4, any Regulated Stockholder
(defined below) shall be entitled to convert at any time and from time to time,
any and all of the shares of Voting Common stock held by such stockholder into
the same number of shares of Non-Voting Common Stock.
(b) Conversion of Non-Voting Common Stock. Subject to and upon
-------------------------------------
compliance with the provisions of this Section 4, each holder of Non-Voting
Common Stock shall be entitled at any time and from time to time in such
holder's sole discretion and at such holder's option, to convert any or all of
the shares of such holder's NonVoting Common Stock into the same number of
shares of Voting Common Stock; provided, however, that Non-Voting Common Stock
-------- -------
constituting Restricted Stock (defined below), with respect to a Regulated
Stockholder, may not be converted into Voting Common Stock to the extent that
immediately prior thereto, or as a result of such conversion, the number of
shares of Voting Common Stock which constitute such Restricted Stock held by all
holders thereof would exceed the number of shares of Voting Common Stock which
such Regulated Stockholder reasonably determines it and its Affiliates (defined
below) may own, control or have the power or vote under any law, regulation,
rule or other requirement of any governmental authority at the time applicable
to such Regulated Stockholder or its Affiliates; and, provided, further, that
-------- -------
each holder of Non-Voting Common Stock may convert such shares into Voting
Common Stock if such holder reasonably believes that such converted shares will
be transferred within fifteen (15) days or already have been transferred
pursuant to a Conversion Event (defined below) and such holder agrees not to
vote any such shares of Voting Common Stock prior to such Conversion Event and
undertakes to promptly reconvert such shares into NonVoting Common Stock if such
shares are not transferred pursuant to a Conversion Event within such fifteen
(15) days. Each Regulated Stockholder may provide for further restrictions upon
the conversion of any shares of Restricted Stock
3
<PAGE>
by providing the Corporation with signed, written instructions specifying such
additional restrictions and legending such shares as to the existence of such
restrictions.
(c) Conversion Procedure. Each conversion of shares of Common
--------------------
Stock of the Corporation into shares of another class of Common Stock of the
Corporation shall be effected by the surrender of the certificate or
certificates representing the shares to be converted (the "Converting Shares")
at the principal office of the Corporation (or such other office or agency of
the Corporation as the Corporation may designate from time to time by written
notice to the holders of Common Stock) at any time during its usual business
hours, together with written notice by the holder of such Converting Shares,
stating that such holder desires to convert the Converting Shares, or a stated
number of the shares represented by such certificate or certificates, into an
equal number of shares of the other class of Common Stock (the "Converted
Shares"). Such notice shall also state the name or names (with addresses) and
denominations in which the certificate or certificates for Converted Shares are
to be issued and shall include instructions for the delivery thereof. The
Corporation shall promptly notify each Regulated Stockholder of its receipt of
such notice. Promptly after such surrender and the receipt of such written
notice, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions the certificate or certificates evidencing
the Converted Shares issuable upon such conversion, and the Corporation will
deliver to the converting holder a certificate (which shall contain such legends
as were set forth on the surrendered certificate or certificates) representing
any shares which were represented by the certificate or certificates that were
delivered to the Corporation in connection with such conversion, but which were
not converted; provided, however, that if, to the Corporation's knowledge after
-------- -------
reasonable inquiry, such conversion is subject to Section 6, the Corporation
shall not issue such certificate or certificates until the expiration of the
Deferral Period referred to therein. Such conversion, to the extent permitted by
law, shall be deemed to have been effected as of the close of business on the
date on which such certificate or certificates shall have been surrendered and
such notice shall have been received by the Corporation, and at such time the
rights of the holder of the Converting Shares as such holder shall cease (except
that, in the case of a conversion subject to this Section 6 below, the
conversion shall be deemed to be effective upon the expiration of the Deferral
Period referred to therein) and the person or persons in whose name or names the
certificate or certificates for the Converted Shares are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of the
Converted Shares. Upon issuance of shares in accordance with this Section 4,
such Converted Shares shall be duly authorized, validly issued, fully paid and
non-assessable. The Corporation shall take all such actions it deems to be
reasonably necessary to assure that all such shares of Common Stock may be so
issued without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which will be
immediately transmitted by the Corporation upon issuance). The Corporation shall
not close its books against the transfer of shares of Common Stock in any manner
which would interfere with the timely conversion of any shares of Common Stock.
Notwithstanding any provision of this Section 4 to the
contrary, each holder of Non-Voting Common Stock shall be entitled to convert
shares of Non-Voting Common Stock in connection with any Conversion Event if
such holder reasonably believes that such Conversion Event will be consummated,
and a written request for conversion from any holder of Non-Voting Common Stock
to the Corporation stating such holder's reasonable belief that a Conversion
Event shall occur shall be conclusive and shall obligate the Corporation to
effect such conversion in a reasonably timely manner so as to enable each such
holder to participate in such Conversion Event. The Corporation will not cancel
the shares of Non-Voting Common Stock so converted before the 15th day following
such Conversion Event and will reserve such shares until such 15th day for
reissuance in compliance with the next sentence. If any shares of NonVoting
Common Stock are converted into shares of Voting Common Stock in connection with
a Conversion Event and such shares of Voting Common Stock are not actually
distributed, disposed of or sold pursuant to such Conversion Event, such shares
of Voting Common Stock shall be promptly converted back into the same number of
shares of NonVoting Common Stock.
5. Miscellaneous
-------------
(a) Restrictions on Redemptions, Etc. The Corporation shall
--------------------------------
not redeem, purchase, acquire or take any other action affecting outstanding
shares of Common Stock if, after giving effect to such redemption, purchase,
4
<PAGE>
acquisition or other action, a Regulated Stockholder would own more than 4.9% of
any class of voting securities of the Corporation (other than any class of
voting securities which is (or is made prior to any such redemption, purchase,
acquisition or other action) convertible into a class of non-voting securities
which are otherwise identical to the voting securities and convertible into such
voting securities on terms reasonably acceptable to such Regulated Stockholder)
or more than 24.9% of the total equity of the Corporation or more than 24.9% of
the total value of all capital stock of the Corporation (in each case,
determined by assuming such Regulated Holder (but no other holder) has
exercised, converted or exchanged all of its options, warrants and other
convertible or exchangeable securities).
(b) Stock Splits; Adjustments. If the Corporation shall in any
-------------------------
manner subdivide (by stock split, stock dividend or otherwise) or combine (by
reverse stock split or otherwise) the outstanding shares of the Voting Common
Stock or the Non-Voting Common Stock, then the outstanding shares of each other
class of Common Stock shall be subdivided or combined, as the case may be, to
the same extent, share and share alike, and effective provision shall be made
for the protection of the conversion rights hereunder.
In case of any reorganization, reclassification or change of
shares of the Voting Common Stock or Non-Voting Common Stock (other than a
change in par value or from par to no par value or as a result of subdivision or
combination), or in case of any consolidation of the Corporation with one or
more corporations or a merger of the Corporation with another corporation (other
than a consolidation or merger in which the Corporation is the resulting or
surviving corporation and which does not result in any reclassification or
change of outstanding shares of Voting Common Stock or Non-Voting Common Stock),
each holder of a share of Voting Common Stock or Non-Voting Common Stock shall
have the right at any time thereafter, so long as the conversion right hereunder
with respect to such share would exist had such event not occurred, to convert
such share into the kind and amount of shares of stock and other securities and
properties (including cash) receivable upon such reorganization,
reclassification, change, consolidation or merger by a holder of the number of
shares of Voting Common Stock or Non-Voting Common Stock into which such shares
of Voting Common Stock or Non-Voting Common Stock, as the case may be, might
have been converted immediately prior to such reorganization, reclassification,
change, consolidation or merger. In the event of such reorganization,
reclassification, change, consolidation or merger, effective provision shall be
made in the certificate of incorporation of the resulting or surviving
corporation or otherwise which shall entitle holders of such other shares of
stock and other securities and property deliverable to holders of Voting Common
Stock or Non-Voting Common Stock to the conversion rights of the Voting Common
Stock and Non-Voting Common Stock, as near as reasonably practicable.
(c) Reservation of Shares. The Corporation shall at all times
---------------------
reserve and keep available out of its authorized but unissued shares of Voting
Common Stock and Non-Voting Common Stock or its treasury shares, solely for the
purpose of issuance upon the conversion of shares of Voting Common Stock and
Non-Voting Common Stock, such number of shares of such class as are then
issuable upon the conversion of all outstanding shares of Voting Common Stock
and Non-Voting Common Stock which may be converted.
(d) No Charge. The issuance of certificates for shares of any
---------
class of Common Stock (upon conversion of shares of any other class of Common
Stock or otherwise) shall be made without charge to the holders of such shares
for any issuance tax in respect thereof or other cost incurred by the
Corporation in connection with such conversion and/or the issuance of shares of
Common Stock; provided, however, that the Corporation shall not be required to
-------- -------
pay any income or other tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the holder of the Common Stock converted.
(e) Registration of Transfer. The Corporation shall keep at
------------------------
its principal office (or such other place as the Corporation reasonable
designates) a register for the registration of shares of Common Stock. Upon the
surrender of any certificate representing shares of any class of Common Stock at
such place, the Corporation shall, at the request of the registered holder of
such certificate, execute and deliver a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of such
class represented by the surrendered certificate, and the Corporation forthwith
shall cancel such surrendered certificate. Each such new certificate will
represent such number of shares of such class as is requested by the holder of
the surrendered certificate and will be substantially
5
<PAGE>
identical in form to the surrendered certificate. Subject to any other
restrictions on transfer to which such holder or such shares may be bound, the
Corporation will also register such new certificate in such name as requested by
the holder of the surrendered certificate.
6. Regulated Stockholders.
----------------------
The Corporation will not convert or directly or indirectly
redeem, purchase, acquire or take any other action affecting outstanding shares
of capital stock of the Corporation if such action will increase the percentage
of outstanding voting securities owned or controlled by any Regulated
Stockholder and its Affiliates (other than a Regulated Stockholder which waives
in writing its rights under this Section A), unless the Corporation gives
written notice (the "Deferral Notice") of such action to each Regulated
Stockholder.
The Corporation will defer making any such conversion,
redemption, purchase or other acquisition, or taking any such other action, for
a period of 20 days (the "Deferral Period") after giving the Deferral Notice in
order to allow each Regulated Stockholder to determine whether it wishes to
convert or take any other action with respect to the Common Stock it owns,
controls or has the power to vote. If any Regulated Stockholder then elects to
convert any shares of Voting Common Stock, it shall notify the Corporation in
writing within 10 days of the issuance of the Deferral Notice, in which case the
Corporation shall promptly notify from time to time prior to the end of such
20-day period each other Regulated Stockholder of each proposed conversion and
effect the conversions requested by all Regulated Stockholders at the end of the
Deferral Period.
7. Defined Terms.
-------------
(a) "Affiliate" shall mean, with respect to any legal entity
(a "Person") any other Person directly or indirectly controlling, controlled by
or under common control with such Person. For the purpose of the above
definition, the term "control" (including, with correlative meaning, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of any
such Person, whether through the ownership of voting securities or by contract
or otherwise.
(b) "Conversion Event" shall mean (a) any public offering or
----------------
public sale of securities of the Corporation (including a public offering
registered under the Securities Act of 1933 and a public sale pursuant to Rule
144 of the Securities and Exchange Commission or any similar rule then in
force), (b) any sale of securities of the Corporation to a person or group of
persons (within the meaning of the Securities Exchange Act of 1934, as amended
(the "1934 Act")) if, after such sale, such person or group of persons in the
aggregate would own or control securities which possess in the aggregate the
ordinary voting power to elect a majority of the Corporation's directors
(provided that such sale has been approved by the Corporation's Board of
Directors or a committee thereof), (c) any sale of securities of the Corporation
to a person or group of persons (within the meaning of the 1934 Act) if, after
such sale, such person or group of persons in the aggregate would own or control
securities of the Corporation (excluding any Non-Voting Common being converted
and disposed of in connection with such Conversion Event) which possess in the
aggregate the ordinary voting power to elect a majority of the Corporation's
directors, (d) any sale of securities of the Corporation to a person or group of
persons (within the meaning of the 1934 Act) if, after such sale, such person or
group of persons would not, in the aggregate, own, control or have the right to
acquire more than two percent (2%) of the outstanding securities of any class of
voting securities of the Corporation and (e) a merger, consolidation or similar
transaction involving the Corporation if, after such transaction, a person or
group of persons (within the meaning of the 1934 Act) in the aggregate would own
or control securities which possess in the aggregate the ordinary voting power
to elect a majority of the surviving corporation's directors (provided that the
transaction has been approved by the Corporation's Board of Directors or a
committee thereof).
(c) "Regulated Stockholder" shall mean any stockholder (i)
---------------------
that is subject to the provisions of Regulation Y of the Board of Governors of
the Federal Reserve System, 12 C.F.R. Part 225 (or any successor to such
Regulation) ("Regulation Y") and (ii) that holds shares of Common Stock of the
Corporation.
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(d) "Restricted Stock" means, with respect to any Regulated
----------------
Stockholder, any outstanding shares of Voting Common Stock and/or Non-Voting
Common Stock ever held of record by such Regulated Stockholder or its
Affiliates, excluding treasury shares; provided, however, that any such shares
-------- -------
shall cease to be Restricted Stock when such shares are transferred in a
transaction which is a Conversion Event or are acquired by the Corporation or
any subsidiary of the Corporation; and provided, further, that the Corporation
-------- -------
shall have no responsibility for determining whether any outstanding shares of
Voting Common Stock and/or Non-Voting Common Stock constitute Restricted Stock
with respect to any particular Regulated Stockholder, but shall instead be
entitled to receive, and rely exclusively upon, a written notice provided by
such Regulated Stockholder designating such shares as Restricted Stock.
Section B. Prime Common Stock. The Prime Common Stock shall have the
------------------
following designations, preferences, relative, participating, optional or other
rights, qualifications, limitations and restrictions.
1. Voting Rights.
-------------
The holders of Prime Common Stock shall be entitled to vote on
each matter in which the stockholders of the Corporation shall be entitled to
vote and each holder of Prime Common Stock shall be entitled to one-tenth
(1/10th) of one vote for each share of such stock held by such holder. The
holders of Prime Common Stock shall not vote as a class except as otherwise
required by law.
2. Dividends.
---------
The holder of each share of Prime common Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, out of funds legally available for that purpose, dividends in cash,
stock or otherwise; provided, however, that the per share amount of any dividend
-------- -------
for the Prime Common Stock in any fiscal year of the Corporation shall be at
least equal to the per share amount, if any, of any dividend declared for the
Common Stock during such fiscal year.
If dividends are paid on the Common Stock in shares of Voting
or Non-Voting Common Stock or both, then each holder of the Prime Common Stock
entitled to receive a corresponding dividend on shares of Prime Common Stock
shall receive only shares of Prime Common Stock in payment of that dividend.
3. Rights Upon Liquidation Dissolution or Winding Up.
-------------------------------------------------
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or upon the sale of substantially
all of the assets of the Corporation or upon a merger of the Corporation in
which the Corporation is not the surviving entity (collectively, a "Distribution
Event"), after:
(i) payment or provision for payments of debts and any
payment or declaration and setting aside for payments of any amounts owing on
the Class A Stock and Preferred Stock with respect to a Distribution Event; and
(ii) payment or provision for payment and any payment or
declaration and setting aside for payment of a distribution in an amount equal
to Fifteen Million Dollars ($15,000,000) to holders of the Common Stock with
respect to a Distribution Event;
the holders of the Prime Common Stock then outstanding shall be entitled to
receive all further distributions pro rata with the holders of the Common Stock,
in the proportion that the outstanding Common Stock and Prime Common Stock held
by each of them bears to the outstanding Common Stock and Prime Common Stock
held by all of them.
4. Conversion.
----------
In the event that at any time while any of the Prime Common
Stock shall be outstanding, the Corporation shall complete a firm commitment
underwritten public offering involving the sale by the Corporation of
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<PAGE>
shares of Common Stock with minimum net proceeds to the Corporation (after
deducting underwriting discount and offering expenses) of at least $20 million,
then all outstanding shares of Prime Common Stock shall, automatically and
without further action on the part of the holders of the Prime Common Stock, be
converted into shares of Voting Common Stock in accordance with the terms of
this subsection 4 with the same effect as if the certificates evidencing such
shares had been surrendered for conversion, such conversion to be effected
simultaneously with the closing under such offering, provided, however, that
certificates evidencing the shares of Voting Common Stock issuable upon such
conversion shall not be issued except on surrender of the certificates for the
shares of Prime Common Stock converted.
Section C. Class A Stock. The Corporation shall have the authority to
-------------
issue 500,000 shares of Class A Stock, $.01 par value (the "Class A Stock"), in
two series with the Series 1 Class A Stock having all of the following
designations, preferences, relative, participating, optional or other rights,
qualifications, limitations and restrictions and Series 2 Class A Stock having
all of the following designations, preferences, relative, participating,
optional or other rights, qualifications, limitations and restrictions except
that the Series 2 Class A Stock shall not have any of the rights to vote or
elect directors which are provided to holders of Series 1 Class A Stock in
Sections 4 and 5 thereof except to the extent required by law.
1. Dividends.
---------
(a) The holder of each share of Class A Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, out of funds legally available for that purpose, dividends in cash
or stock or otherwise; provided, however, that the per share amount of any
-------- -------
dividend for the Class A Stock in any fiscal year of the Corporation shall be at
least equal to the per share amount, if any, of any dividend declared for the
Common Stock during such fiscal year. In connection with any dividend declared
for the Common Stock, each share of Class A Stock shall be deemed to be
converted into shares of Common Stock as provided in subsection 5 hereof. All
dividends declared upon the Class A Stock shall be declared pro rata per share.
--- ----
(b) In addition to any dividends received pursuant to
subsection (a) above, the holder of each share of Class A Stock shall also be
entitled to receive out of funds legally available for that purpose, dividends
equal to 10.0% per annum of the consideration received by the Corporation for
the issuance of the Class A Stock by the Corporation (the "Original Issuance
Price").
The dividend shall begin accruing on December 31, 1996, with
respect to each share of Class A Stock issued prior to that date. Shares issued
after that date will accrue dividends from the purchase date. Until the later to
occur (the "Cash Payment Date") of (i) January 1, 2003 and (ii) the date on
which no Senior Debt (defined below) and no Subordinated Debt (defined below)
remains outstanding, dividends will be payable at the option of the Corporation
either in cash or by the issuance of additional shares of Class A Stock. For
this purpose, Class A Stock shall be valued at $15.00 per share and whole and
fractional shares may be issued to make such payments. After the Cash Payment
Date, all dividends due on the Class A Stock must be paid in cash.
For purposes of determining the amounts due to holders of
Class A Stock issued in payment of any dividend due on Class A Stock, the
Original Issue Price of Class A Stock issued in payment of any such dividend
shall be $15 per share. The date of purchase of such stock shall be deemed to be
the date to which the dividend obligation paid with the issuance of such stock
had accrued.
(c) Payments of dividends shall be made annually beginning in
1998 for the year 1997. Payments shall be made on any date but in no event later
than June 30th in any year following the year for which dividends are due.
(d) If the Corporation is prevented by law from paying any
accrued dividend when required by this subsection 1, the Corporation shall make
payment of the dividend as soon as such legal prohibition is removed.
Accrued but unpaid dividends will not bear interest.
8
<PAGE>
(e) Dividends to holders of Class A Stock which are paid by
the issuance of shares of Class A Stock shall be paid to the holders of Series 1
shares only in Series 1 shares and to the holders of Series 2 shares only in
Series 2 shares.
2. Rights Upon Liquidation Dissolution or Winding Up.
-------------------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, or upon the sale of substantially
all of the assets of the Corporation or upon a merger of the Corporation in
which the Corporation is not the surviving entity (collectively, a "Distribution
Event"), the assets of the Corporation available for distribution to its
shareholders, shall be distributed in the following order of priority:
(i) The holders of Class A Stock shall be entitled to
receive, prior and in preference to any distribution to the holders of Common
Stock and Prime Common Stock, but pari passu with the holders of Preferred Stock
in accordance with the relative liquidation preferences of Class A Stock and
Preferred Stock, an amount equal to the Original Issuance Price computed on a
per share basis compounded at rate of 12% per annum from December 31, 1996, for
all shares issued prior to that date and from the date of purchase for all
shares issued after that date, multiplied by the number of shares of Class A
Stock then outstanding.
(ii) The 12% compounded annual rate of return shall be in
lieu of, and not in addition to, the dividends paid or payable by the
Corporation as set forth in subsection 1 hereof. In the event the Corporation
has paid dividends on the Class A Stock prior to the Distribution Event, all
such dividends previously paid shall be deemed a partial prepayment of the 12%
annual return contemplated in this subsection 2(a), whether paid in cash or in
Series A Stock.
(iii) In lieu of the distribution set forth in
subparagraph (i) the holders of Class A Stock shall receive, if greater than the
distribution set forth in subparagraph (i), prior and in preference to any
distribution to the holders of the Common Stock and Prime Common Stock, but pari
passu with the holders of Preferred Stock in accordance with the relative
liquidation preferences of Class A Stock and Preferred Stock, an amount equal to
the sum of: (A) any dividends declared or accrued but unpaid on the Class A
Stock, plus (B) the distribution they would be entitled to receive if the Class
A Stock had been converted into Common Stock pursuant to the terms hereof
immediately prior to the Distribution Event.
(b) If the assets and funds of the Corporation available for
distribution to the holders of Class A Stock shall be insufficient to permit the
payment of the full preferential amounts set forth in subsection 2(a) hereof,
then all of the assets of the Corporation available for distribution shall be
distributed to holders of Class A Stock pro rata, in the proportion that the
aggregate amount due each of them bears to the aggregate amount due all of the
them, but pari passu with the holders of Preferred Stock in accordance with the
relative liquidation preferences of Class A Stock and Preferred Stock.
3. Redemption.
----------
(a)(i) At any time on or after the Cash Payment Date (as
defined in subsection 1(b) above), the Corporation shall (unless otherwise
prevented by law) at the written request of any of the holder(s) redeem the
shares of Class A Stock then owned by such holder(s) of Class A Stock and
submitted for redemption.
The amount per share of Class A Stock at which the shares of
Class A Stock are to be redeemed pursuant to this subsection 3(a)(i) shall be an
amount equal to the greater of (i) the Original Issuance Price plus any declared
------- --
or accrued but unpaid dividends on the Class A Stock which is so redeemed; or
(ii) the Fair Market Value of the Class A Stock which is so redeemed (the
"Redemption Price").
The Redemption Price of the Class A Stock which is redeemed
shall be paid in eight equal quarterly installments beginning on the first March
31, June 30, September 30 or December 31 to occur after the Corporation
9
<PAGE>
receives written notice from a holder electing to redeem any or all of the Class
A Stock then owned by such holder (the "Redemption Date"); provided, however,
that if the Redemption Price is determined pursuant to subpart (i) of the
preceding sentence, the accrued but unpaid dividends on the Class A Stock which
is so redeemed shall be paid in full with the first installment payment of the
Redemption Price.
For this purpose, "Fair Market Value" shall mean an amount
agreed to by the Corporation and the holder(s) of the Class A Stock being
redeemed, or in the event that the Corporation and the holder(s) of the Class A
Stock being redeemed cannot agree upon an amount, an amount equal to the Fair
Market Value of the Class A Stock, without any discount for minority position,
as determined by an appraiser who shall be associated with a
nationally-recognized accounting or investment banking firm, or who shall have
no less than five (5) years of experience in the appraisal of businesses such as
the Corporation's business, who shall be selected by the independent certified
public accountants that are regularly employed by the Corporation to audit its
books and records.
(ii) At any time on or after the Cash Payment Date (as defined
in subsection 1(b) above) and either (A) the sale of 20% or more of the
outstanding shares of capital stock of the Corporation by the Principals
(identified below in subsection 3(a)(iii) or (B) the occurrence of an Event of
Default (defined in subsection 3(a)(iii) below), the Corporation shall (unless
otherwise prevented by law) at the written request of any of the holder(s)
thereof, redeem the shares of Class A Stock then owned by such holders of Class
A Stock and submitted for redemption for an amount per share of Class A Stock
determined in the manner provided in subsection 2(a)(i) above. The redemption
price so determined shall be paid in full upon submission by the holder of
written notice of election to redeem and delivery of the certificate for the
shares of Class A Stock to be so redeemed.
(iii) An Event of Default for purposes of subsection 3(a)(ii)
shall be and include:
(A) the occurrence of any "materially adverse"
misrepresentation or default or breach of warranty or covenant by the
Corporation or the Principals under the Stock and Warrant Purchase Agreement
(the "Stock and Warrant Purchase Agreement") dated December 29, 1995 between the
Corporation, the Class A stockholders and certain management level employees of
the Corporation identified therein as the "Principals";
(B) the acceleration of any indebtedness of the
Corporation which exceeds, in the aggregate, Five Hundred Thousand Dollars
($500,000); or
(C) (1) the filing of any petition, whether voluntary or
involuntary, seeking the reorganization or liquidation of the Corporation under
any provision of the Federal Bankruptcy Code or any other federal or state
reorganization, insolvency or debtor relief law, (2) the appointment of any
receiver, liquidator or trustee for the Corporation or any of its properties by
a court order and which appointment is not vacated within 30 days, or (3) the
Corporation is adjudicated insolvent, or the Corporation shall make an
assignment for the benefit of any of its creditors, admit in writing an
inability to pay debts when they become due in the ordinary course of its
business, or consent to the appointment of a receiver, trustee or liquidator for
the Corporation or all or any part of the property of the Corporation; or
(D) the occurrence of any "Remedy Event" as defined in
the Certificate of Designation, Preferences and Rights to the Corporation's
Series B Redeemable Convertible Preferred Stock.
Notwithstanding the foregoing, an Event of Default shall
not include the failure of any Principal to fulfill his or her obligations under
Section 4.1 of the Stock and Warrant Purchase Agreement except for any violation
by Sarah C. Garvin of the noncompete covenant contained in Section 4.1 of the
Stock and Warrant Purchase Agreement which expressly shall be considered an
Event of Default.
As used in this subsection 3(a)(iii), "materially
adverse" shall mean a single or combination of misrepresentations or defaults or
breaches of warranty or covenant that result in a loss or damage to the
Corporation
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<PAGE>
or the holders of the Class A Stock, and which is or are not cured within 30
days after notice and opportunity to cure, equal to or in excess of $700,000.
(b) Until the entire redemption price for the shares of Class
A Stock, which have been submitted for redemption has been paid in full pursuant
to this subsection 3, the holder of the Class A Stock which has been submitted
for redemption shall retain possession of and all rights attendant to the shares
of Class A Stock including the right to vote submitted shares on all matters.
Shares submitted for redemption shall be deemed redeemed only after payment of
the full redemption price. Shares converted pursuant to subsection 5 prior to
payment of the full redemption price may be converted only after repayment to
the Corporation of the amount of the Original Issuance Price paid by the
Corporation to the holder pursuant to subsection 3(a) above prior to conversion.
(c) If the Corporation is prevented by law from redeeming any
Class A Stock when required by this subsection 3, the Corporation shall offer to
redeem so many of the shares of the Class A Stock pro rata among its holders as
--- ----
it is able and shall notify the holders of the Class A Stock when and as such
legal prohibition is removed.
4. Voting.
------
(a) In addition to the rights specified in subsection 4(b) and
5(f) below and any other rights provided in the Corporation's By-laws or by law,
each share of Series 1 Class Stock shall entitle the holder thereof to a number
of votes equal to the number of shares of Voting Common Stock into which such
share is then convertible, and such holders shall be entitled to vote with the
holders of Voting Common Stock on all matters as to which holders of Voting
Common Stock shall be entitled to vote.
(b) In addition to the rights specified above, the holders of
the Series 1 Class A Stock then outstanding shall, as a class, have the right to
elect two directors to the Corporation's Board of Directors and from time to
time to remove, replace and re-elect such directors.
5. Conversions.
-----------
Subject to the terms and conditions of this subsection 5, the
holder of any share of shares of Class A Stock shall have the right, at its
option at any time prior to December 29, 2005 to convert any of such share or
shares of Class A Stock (except that upon any liquidation of the Corporation the
right of conversion shall terminate at the close of business on the last full
business day next preceding the date fixed for payment of the liquidation
payments) into such number of fully paid and nonassessable whole shares of
Voting Common Stock or Non-Voting Common Stock or both, as the holder may elect,
as is obtained by multiplying the number of shares of Class A Stock to be
converted by $15 and dividing the result by the Class A Conversion Price.
The Class A Conversion Price for Class A Stock (the "Class A
Conversion Price") shall mean $1.5625 (the "Undiluted Conversion Price Number")
or such other Class A Conversion Price as shall be determined pursuant to the
last adjustment made pursuant to subsection 5(d) below (as if such Class A
Conversion Price had been in effect at the date of issuance of the Class A
Stock) and in effect at the date any share or shares of Class A Stock are
surrendered for conversion; provided, however, that the Undiluted Conversion
Price Number shall increase to:
(i) $2.2058823 in the event a Liquidity Event (as defined
in subsection 5(p)) occurs on or before December 31, 1997;
(ii) $2.500000 in the event a Liquidity Event does not
occur on or before December 31, 1997, but the Corporation achieves net after-tax
income, as determined by the Corporation's independent outside accountants in
accordance with generally accepted accounting principles consistently applied
("Net After-Tax Income"), of at least $6.0 million in its fiscal year ending
December 31, 1998 or any fiscal year ending before December 31, 1998;
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<PAGE>
(iii) $2.6086956 in the event a Liquidity Event does not occur on or before
December 31, 1997 but the Corporation achieves Net After-Tax Income of at least
$70 million in its fiscal year ending December 31, 1998 or any fiscal year
ending before December 31, 1998; or
(iv) $2.7272727 in the event a Liquidity Event does not occur on or before
December 31, 1997 but the Corporation achieves Net After-Tax Income of at least
$80 million in its fiscal year ending December 31, 1998 or any fiscal year
ending before December 31, 1998.
(a) Exercise of Conversion Rights. The rights of conversion herein
-----------------------------
provided shall be exercised by any holder of shares of Class A Stock by giving
written notice that such holder elects to convert a stated number of shares of
Class A Stock into Voting or Non-Voting Common Stock or both as shall be stated
in the notice and by surrender of a certificate or certificates for the shares
to be so converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by notice
in writing to the holder or holders of the Class A Stock) at any time during its
usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.
(b) Issuance of Certificates; Time Conversion Effected. Promptly after
--------------------------------------------------
the receipt of the written notice referred to in subsection 5(a) and surrender
of the certificate or certificates for the share or shares of the Class A Stock
to be converted, the Corporation shall issue and deliver, or cause to be issued
and delivered, to such holder, registered in such name or names as such holder
may direct, subject to compliance with applicable laws (as evidenced by an
opinion of counsel acceptable to the Corporation, if the Corporation so
requests) to the extent such designation shall involve a transfer, a certificate
or certificates for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares of Class A Stock.
To the extent permitted by law, such conversion shall be
deemed to have been effected and the Class A Conversion Price shall be
determined as of the close of business on the date on which such written notice
shall have been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid (the
"Conversion Effective Date"), and at such time the rights of the holder of such
share or shares of Class A Stock shall cease, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock that
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby.
(c) Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of the Class A Stock into Common Stock
and no payment or adjustment shall be made upon any conversion on account of any
cash dividends on the Common Stock issued upon such conversion.
At the time of each conversion, to the extent permitted by
law, the Senior Debt Documents and the Subordinated Debt Documents (as such
terms are defined below), the Corporation shall pay in cash an amount equal to
all unpaid dividends declared or accrued on the shares surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subsection 5(b).
To the extent that the Corporation is either not permitted by
law, the Senior Debt Documents or the Subordinated Debt Documents to pay all or
any portion of such amount at the time of each conversion, it shall pay such
unpaid amount as soon as it may legally do so to the person who was entitled to
receive such amount at the time of such conversion. Accrued but unpaid dividends
shall be prorated and paid through the Conversion Effective Date.
In case the number of shares of Class A Stock represented by
the certificate or certificates surrendered pursuant to subsection 5(a) exceeds
the number of shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder thereof, at the expense of the Corporation, a
new certificate or certificates for the number of shares of Class A Stock of the
same series represented by the certificate or certificates surrendered that are
not to converted.
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If any fractional interest in a share of Common Stock would,
except for the provisions of the first sentence of this subsection 5(c), be
deliverable upon any such conversion, the Corporation, in lieu of delivering the
fractional share thereof, may pay to the holder surrendering the Class A Stock
for conversion an amount in cash equal to the current market price of such
fractional interest as determined in good faith by the Board of Directors of the
Corporation if such payment is permitted by the Senior Debt Documents and the
Subordinated Debt Documents.
(d) Adjustment of Price Upon Issuance of Common Shares. Except as
--------------------------------------------------
provided in subsection 5(g) hereof, if and whenever the Corporation shall issue
or sell, or is, in accordance with subsections 5(d)(1) through 5(d)(7), deemed
to have issued or sold any shares of its Common Stock for a consideration per
share less than the Class A Conversion Price in effect immediately prior to the
time of such issue or sale, then, forthwith upon such issue or sale, the Class A
Conversion Price shall be reduced to the price determined by dividing:
(i) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding immediately prior
to such issue or sale (including as outstanding all
shares of Common Stock issuable upon conversion of
outstanding Class A Stock) multiplied by the then
existing Class A Conversion Price, and (b) the
consideration, if any, received, or deemed to have
been received pursuant to such subsection 5(d)(1)
through 5(d)(7), by the Corporation upon such issue
or sale; by
(ii) the total number of shares of Common Stock
outstanding, or deemed to be outstanding, immediately
after such issue or sale (including as outstanding
all shares of Common Stock issuable upon conversion
of outstanding Class A Stock).
No adjustment of the Class A Conversion Price,
however, shall be made in an amount less than $0.001 per share, and any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which together with any adjustments
so carried forward shall amount to $0.001 per share or more.
For purposes of this subsection 5(d) the following
subsections 5(d)(1) to 5(d)(7) shall also be applicable except to the extent the
securities described in subsections 5(d)(1) to 5(d)(7) are issued to holders of
Class A Stock as part of any redemption or conversion of Class A Stock:
(d)(1) Issuance of Rights or Options. In case at any time
-----------------------------
the Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or securities convertible
into or exchangeable for Common Stock (such rights or options being herein
called "Options" and such convertible or exchangeable stock or securities being
herein called "Convertible Securities") whether or not such Options or the right
to convert or exchange such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the Class A
Conversion Price in effect immediately prior to the time of the granting of such
Options, then the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per share as of the date of
granting of such Options and thereafter shall be deemed to be outstanding.
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Except as otherwise provided in subsection 5(d)(3), no
adjustment of the Class A Conversion Price shall be made upon the actual issue
of such Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(d)(2) Issuance of Convertible Securities. In case the
----------------------------------
Corporation shall in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the Class A
Conversion Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that:
(i) except as otherwise provided in subsection 5(d)(3) below, no
adjustment of the Class A Convertible Price shall be made upon
the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities, and
(ii) if any such issue or sale of such Convertible Securities is
made upon exercise of any Option to purchase any such
Convertible Securities for which adjustments of the Class A
Conversion Price have been or are to be made pursuant to other
provisions of this subsection 5(d), no further adjustment of
the Class A Conversion Price shall be made by reason of such
issue or sale.
For the purposes of this Section 5, the Prime Common Stock is a
Convertible Security.
(d)(3)Change in Option Price or Conversion Rate. Upon the happening
-----------------------------------------
of any of the following events, namely if the purchase price provided for in any
Option referred to in subsection 5(d)(1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in subsection 5(d)(1) or 5(d)(2), or the rate at which any Convertible
Securities referred to in subsection 5(d)(1) or 5(d)(2) are convertible into or
exchangeable for Common Stock shall change at any time (in each case other than
under or by reason of provisions designed to protect against dilution), the
Class A Conversion Price in effect at the time of such event shall forthwith be
readjusted to the Class A Conversion Price which would have been in effect at
such time had such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold.
On the expiration of any such Option or the termination of any
such right to convert or exchange such Convertible Securities (without exercise,
conversion, or exchange), the Class A Conversion Price then in effect hereunder
shall forthwith be increased to the Class A Conversion Price which would have
been in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding.
If the purchase price provided for in any such Option referred
to insubsection 5(d)(1) or the rate at which any Convertible Securities referred
to in subsection 5(d)(1) or 5(d)(2) are convertible into or exchangeable for
Common Stock shall be reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then, in case of the
delivery of Common Stock upon the exercise of any such Option or upon conversion
or exchange of any such Convertible Securities, the Class A Conversion Price
then in effect hereunder shall forthwith be adjusted to such respective amount
as would have been obtained had such Option or Convertible Securities never been
issued as to such Common Stock and had adjustments been made upon the issuance
of the shares of Common
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Stock delivered as aforesaid, but only if as a result of such adjustment the
Class A Conversion Price then in effect hereunder is thereby reduced.
(d)(4) Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock, Options for Convertible Securities, any Common Stock,
Options or Convertible Securities, as the case may be, issuable in payment of
such dividend or distribution shall be deemed to have been issued or sold
without consideration except that a dividend or distribution of Class A Stock to
holders of Class A Stock shall be deemed to be an issuance or sale for
consideration equal to the number of shares of Class A Stock paid as a dividend
or distributed times $15 per share.
(d)(5) Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith.
In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Corporation shall be
deemed to be the fair value of such consideration as determined in good faith by
the Board of Directors of the Corporation, without deduction therefrom of any
expenses incurred or any underwriting commissions or concessions paid or allowed
by the Corporation in connection therewith.
The amount of consideration deemed to be received by the
Corporation pursuant to the foregoing provisions of this subsection 5(d)(5) upon
any issuance and/or sale of shares of Common Stock, Options or Convertible
Securities, pursuant to an established compensation plan of the Corporation, to
directors, officers or employees of the Corporation in connection with their
employment shall be increased by the amount of any tax benefit realized by the
Corporation as a result of such issuance and/or sale, the amount of such tax
benefit being the amount by which the federal and/or state income or other tax
liability of the Corporation shall be reduced by reason of any deduction or
credit in respect of such issuance and/or sale in the fiscal year of such
issuance and/or sale.
In case any Options shall be issued in connection with the
issue and sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration.
(d)(6) Record Date. In case the Corporation shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (i) to receive
a dividend or other distribution payable in Common Stock, Options or Convertible
Securities, or (ii) to subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(d)(7) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purpose of this subsection
5(d).
(e) Subdivision or Combination of Stock. In case the Corporation shall
-----------------------------------
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Class A Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Corporation shall be combined into a
smaller number of shares, the Class A Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
(f) Reorganization, Reclassification, Consolidation, Merger or Sale. If
---------------------------------------------------------------
any capital reorganization or reclassification of the capital stock of the
Corporation or any consolidation or merger of the Corporation with another
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Corporation or the sale of all or substantially all of its assets to another
Corporation shall be effected in such a way (including, without limitation, by
way of consolidation or merger) that holders of Common Stock shall be entitled
to receive stock securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions (in form reasonably satisfactory to the holders of at
least 66-2/3% of the outstanding shares of Class A Stock) shall be made whereby
each holder of a share or shares of Class A Stock shall thereafter have the
right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock of the Corporation immediately
theretofore receivable upon the conversion of such share or shares of the Class
A Stock such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore so
receivable had such reorganization or reclassification not taken place.
In such case appropriate provision shall be made with respect
to the rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustment of the Class A
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights (including, if necessary to effect
the adjustments contemplated herein, an immediate adjustment, by reason of such
reorganization reclassification, of the Class A Conversion Price to the value
for the Common Stock reflected by the terms of such reorganization or
reclassification if the value so reflected is less than the respective Class A
Conversion Price or Prices in effect immediately prior to such reorganization or
reclassification).
In the event of a merger or consolidation of the Corporation
as a result of which a greater or lesser number of shares of Common Stock of the
surviving corporation are issuable to holders of Common Stock of the Corporation
outstanding immediately prior to such merger or consideration, the Class A
Conversion Price in effect immediately prior to such merger or consolidation
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the Corporation.
The Corporation will not effect any such consolidation or
merger, or any sale of all or substantially all of its assets and properties,
unless prior to the consummation thereof the successor corporation (if other
than the Corporation) resulting from such consolidation or merger or if the
Corporation purchasing such assets shall assume by written instrument (in form
reasonably satisfactory to the holders of at least 66-2/3% of the shares of
Class A Stock at the time outstanding) executed and mailed or delivered to each
holder of shares of Class A Stock at the last address of such holder appearing
on the book of the Corporation, the obligation to deliver to such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to receive.
(g) Treatment of Certain Issues of Common Stock. Anything herein to the
-------------------------------------------
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Class A Conversion Price by reason of (i) any Common Stock
issued or sold (or deemed to have been issued or sold in accordance with
subsections 5(d)(1) through 5(d)(7) hereof) prior to December 29, 1995; (ii) any
Common Stock issued or sold after such date as the result of the exercise of any
Option or the conversion of any Convertible Security (including Class A Stock)
issued prior to such date; (iii) any warrants granted in connection with the
Stock and Warrant Purchase Agreement; (iv) the issuance or exercise of incentive
stock options or other stock options covering Common Stock of the Corporation
pursuant to a plan adopted by the Board of Directors of the Corporation on or
before December 29, 1995, which provides for the issuance of options to
employees and consultants of the Corporation only, and which allows for the
issuance of options covering not more than 1,414,000 shares of Common Stock; (v)
the issuance of any shares of Common Stock upon exercise of the options
described in subparagraph (iv) above; (vi) any issuance of Options, Convertible
Securities, Common Stock or other securities of the Corporation which have, in
advance of grant or issuance, been approved by the Board of Directors of the
Corporation and consented to in writing by EGL Holdings, Inc., or the successor
in interest of EGL Holdings, Inc. ("EGL"), (vii) the issuance of 626,000 shares
of Common Stock (or a lesser number of shares of Common Stock, coupled with
Common Stock warrants, which, when exercised, will total 626,000 shares of the
Corporation's Common Stock, when added to the Common Stock originally issued),
to be issued to Mr. Woody Miller or an entity controlled by Mr. Woody Miller,
for cash consideration of not less than $720,000; or (viii) the conversion
16
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of any Voting Common Stock into Non-Voting Common Stock or the conversion of any
Non-Voting Common Stock into Voting Common Stock.
Consent or a vote of approval as a director by any member of
the Board of Directors nominated or elected by EGL or the holders of the Class A
Stock Series 1 shall not constitute the consent required in subsection (vi)
above.
(h) Automatic Conversion. In the event that at any time while any of
--------------------
the Class A Stock shall be outstanding, the Corporation shall complete a firm
commitment underwritten public offering involving the sale by the Corporation of
shares of Common Stock with minimum net proceeds to the Corporation (after
deducting underwriting discount and offering expenses) of $20,000,000, then all
outstanding shares of the Class A Stock shall, automatically and without further
action on the part of the holders of the Class A Stock, be converted into shares
of Common Stock in accordance with the terms of this subsection 5 with the same
effect as if the certificates evidencing such shares had been surrendered for
conversion, such conversion to be effected simultaneously with the closing of
such underwritten public offering, provided, however, that certificates
evidencing the shares of Common Stock issuable upon such conversion shall not be
issued except on surrender of the certificates for the shares of Class A Stock
so converted.
(i) Notice of Adjustment. Upon any adjustment of the Class A Conversion
--------------------
Price, the Corporation shall give written notice thereof, by first class mail,
postage prepaid, addressed to each holder of shares of Class A Stock at the
address of such holder as shown on the books of the Corporation, which notice
shall state the Class A Conversion Price resulting from such adjustment, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based.
(j) Notices. In case at any time
-------
(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(2) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or consolidation or
merger of the Corporation with, or a sale of all or substantially all its assets
to another Corporation.
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
(5) the Corporation shall take any action or there shall be
any event which would result in an automatic conversion of the Class A Stock
pursuant to subsection 5(h);
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, return receipt requested, addressed to each holder
of any shares of Class A Stock at the address of such holder as shown on the
books of the Corporation:
(a) at least 20 days' prior written notice of the date on
which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up;
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(b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place; and
(c) in the case of any event which would result in an
automatic conversion of the Class A Stock pursuant to subsection 5(h), at least
20 days' prior written notice of the date on which the same is expected to be
completed.
Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto, and
such notice in accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
(k) Stock to be Reserved. The Corporation will at all times reserve and
--------------------
keep available out of its authorized Common Stock, solely for the purpose of
issue upon the conversion of the Class A Stock as herein provided, such number
of shares of Common Stock as shall be issuable upon the conversion of all
outstanding shares of Class A Stock.
The Corporation covenants that all shares of Common Stock
which shall be so issued upon any such conversion shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges arising out of or by reason of the issue thereof. The Corporation will
take all such action as may be necessary on its part to assure that all such
shares of Common Stock may be so issued without violation of any applicable law
or regulation, or of any requirements of any national securities exchange upon
which the Common Stock of the Corporation may be listed.
The Corporation will not take any action which would cause the
total number of shares of Common Stock issued and issuable after such action
upon conversion of the Class A Stock to exceed the total number of shares of
Common Stock then authorized by the Corporation's Certificate of Incorporation.
(l) No Reissuance of Class A Stock. Shares of Class A Stock which are
------------------------------
converted into shares of Common Stock as provided herein shall not be reissued.
(m) Issue Tax. The issuance of certificates for shares of Common Stock
---------
upon conversion of the Class A Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than of the holder of the Class A Stock which is being converted.
(n) Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Class A Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Class A
Stock in any manner which interferes with the timely conversion of such Class A
Stock.
(o) Definition of Common Stock. As used in this Section 5, the term
--------------------------
"Common Stock" shall mean and include the Corporation's authorized Voting and
Non-Voting Common Stock, $.0025 par value per share, as constituted on the
effective date of this Restated Certificate of Incorporation, and shall also
include any capital stock or any class of the Corporation thereafter authorized
which shall not be limited to a fixed sum or percentage of par value in respect
of the rights of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
--------
Stock receivable upon conversion of shares of the Class A Stock of the
Corporation, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subsection 5(f) shall include only shares designated as Common Stock of the
Corporation on the effective date of this Restated Certificate
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of Incorporation, and provided further, that neither Class A Stock nor Price
----------------
Common Stock shall be deemed to be "Common Stock" for the purposes of this
Section 5(o).
(p) Definition of Liquidity Event. As used in this Section 5, the term
-----------------------------
"Liquidity Event" shall mean either (i) the sale or merger of substantially all
of the assets or equity securities of the Corporation at a valuation for the
Corporation of at least $40,000,000 net of assumed and retained liabilities, or
(ii) the completion of a firm commitment underwritten public offering involving
the sale by the Corporation of shares of Common Stock (i) with minimum gross
proceeds to the Corporation of at least $20 million, and (ii) with a Corporation
pre-offering valuation of at least $40 million. As used herein, tradable
securities shall mean registered securities which become freely tradable no
later than 180 days after closing of the sale or merger.
6. Defined Terms. In addition to the other terms defined in this
-------------
Certificate, as used herein, the following capitalized terms have the respective
meanings set forth below:
(a) "Senior Debt Documents" means (i) the Credit Agreement and
the other Credit Documents, in each case as amended (including by any amendment
and restatement), supplemented, modified or extended from time to time,
including each loan or credit agreement and other related agreements extending
the maturity of, replacing, refinancing, refunding, or otherwise restructuring
(including without limitation, increasing the amount of the available borrowings
thereunder), in whole or in part, the debt under the Credit Agreement, whether
by the same or any other agent, lender or group of lenders, and (ii) any other
loan or credit agreement, promissory note or other related credit document which
by its terms states that it is "Senior Debt" of the Corporation for purposes of
this Certificate and, so long as the Agent under Senior Debt Documents (without
giving effect to this clause (ii)) consents to such other loan, credit
agreement, promissory note or other related credit document being treated as
"Senior Debt Documents" for purposes of this Certificate.
(b) "Credit Agreement" means the Credit Agreement dated on or
about October 27, 1997, among the Corporation, the Banks party thereto and
Banque Paribas, as Agent.
(c) "Credit Documents" shall have the meaning provided in the
Credit Agreement.
(d) "Senior Debt" means and includes all obligations, liabilities
and indebtedness of the Corporation now or hereafter existing, whether fixed or
contingent, and whether for principal, premium, interest (including, without
limitation, interest accruing after the filing of a bankruptcy petition), fees,
expenses, indemnification, reimbursement obligations or otherwise, under the
Senior Debt Documents.
(e) "Subordinated Debt" means and includes all obligations,
liabilities and indebtedness of the Corporation now or hereafter existing,
whether fixed or contingent, and whether for principal, premium, interest
(including, without limitation, interest accruing after the filing of a
bankruptcy petition), fees, expenses, indemnification, reimbursement obligations
or otherwise, under the Senior Subordinated Loan Agreement (herein so called)
dated on or about October 27, 1997, among the Corporation, Paribas Capital
Funding LLC and the lenders party thereto and otherwise under the Subordinated
Debt Documents.
(f) "Subordinated Debt Documents" means (i) the Senior Subordinated
Loan Agreement as amended (including by any amendment and restatement),
supplemented, modified or extended from time to time, including each loan or
credit agreement and other related agreements extending the maturity of,
replacing, refinancing, refunding, or otherwise restructuring (including without
limitation, increasing the amount of the available borrowings thereunder), in
whole or in part, the debt under the Senior Subordinated Loan Agreement, whether
by the same or any other agent, lender or group of lenders, and (ii) any other
loan or credit agreement, promissory note or other related credit document which
by its terms states that it is "Subordinated Debt" of the Corporation for
purposes of this Certificate and, so long as the Agent under the Subordinated
Debt Documents (without giving effect to this clause (ii)) consents to such
other loan, credit agreement, promissory note or other related credit document
being treated as "Subordinated Debt Documents" for purposes of this Certificate.
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Section D. Preferred Stock. Subject to the limitations prescribed by
---------------
law and the provisions of this certificate of incorporation, the board of
directors of the Corporation is authorized to issue the Preferred Stock from
time to time in one or more series, each of such series to have such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights, and such
qualifications, limitations or restrictions thereof, as shall be determined by
the board of directors in a resolution or resolutions providing for the issue of
such Preferred Stock.
ARTICLE V
Indemnification
Section A. Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact:
(1) that he or she is or was a director or officer of the
Corporation, or
(2) that he or she, being at the time a director or officer of
the Corporation, is or was serving at the request of the Corporation as a
director, trustee, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (collectively, "another enterprise" or
"other enterprise"), whether either in case (1) or in case (2) the basis of such
proceeding is alleged action or inaction (x) in an official capacity as a
director or office of the Corporation, or as a director, trustee, officer
employee or agent of such other enterprise, or (y) in any other capacity related
to the Corporation or such other enterprise while so serving as a director,
trustee, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent not prohibited by Section 145 of the
General Corporation Law of the State of Delaware (or any successor provision or
provisions) as the same exists or may hereafter be amended (but, in the case of
any such amendment, with respect to alleged action or inaction occurring prior
to such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including without limitation
attorneys' fee and expenses, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such person
in connection therewith. The persons indemnified by this Article are hereinafter
referred to as "indemnitees." Such indemnification as to such alleged action or
inaction shall continue as to an indemnitee who has after such alleged action or
inaction ceased to be a director or officer of the Corporation, or director,
trustee, officer, employee or agent of such other enterprise; and shall inure to
the benefit of the indemnitee's heirs, executors and administrators.
Notwithstanding the foregoing, except as may be provided in the Bylaws or by the
board of directors, the Corporation shall not indemnify any such indemnitee in
connection with a proceeding (or portion thereof) initiated by such indemnitee
(but this prohibition shall not apply to a counterclaim, cross-claim or third
party claim brought by the indemnitee in any proceeding) unless such proceeding
(or portion thereof) was authorized by the Board of Directors. The right to
indemnification conferred in this Article: (i) shall be a contract right; (ii)
shall not be affected adversely to any indemnitee by any amendment of this
Certificate of Incorporation with respect to any alleged action or inaction
occurring prior to such amendment; and (iii) shall, subject to any requirements
imposed by law and the Bylaws, include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition.
Section B. Relationship to Other Rights and Provisions Concerning
------------------------------------------------------
Indemnification. The rights to indemnification and to the advancement of
- ---------------
expenses conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under this Certificate of
Incorporation, any statute, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise. The Bylaws may contain such other
provisions concerning indemnification, including provisions specifying
reasonable procedures relating to and conditions to the receipt by indemnitees
of indemnification, provided that such provisions are not inconsistent with the
provisions of this Article.
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Section C. Agents and Employees. The Corporation may, to the extent
--------------------
authorized from time to time by the Board of Directors, grant rights to
indemnification, and to the advancement of expenses, to any employee or agent of
the Corporation (or any person serving at the Corporation's request as a
director, trustee, officer, employee or agent of another enterprise) or to any
person who is or was a director, officer, employee or agent of any of the
Corporation's affiliates, predecessor or subsidiary corporations or of a
constituent corporation absorbed by the Corporation in a consolidation or merger
or who is or was serving at the request of such affiliate, predecessor or
subsidiary corporation or of such constituent corporation as a director,
trustee, officer, employee or agent of another enterprise, in each case as
determined by the Board of Directors to the fullest extent of the provisions of
this Article in cases of the indemnification and advancement of expenses of
directors and officers of the Corporation, or to any lesser extent (or greater
extent, if permitted by law) determined by the Board of Directors.
ARTICLE VI
Limitation on Liability of Directors
No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided, however, that the foregoing shall not eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware is amended hereafter to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended. Any amendment, repeal
or modification of this Article shall not adversely affect any right or
protection of a director of the Corporation existing hereunder with respect to
any act or omission occurring prior to such amendment, repeal or modification.
ARTICLE VII
Compromise
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of these, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such a manner as the said court directs. If a majority in
number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also of this Corporation.
ARTICLE VIII
Meetings of Stockholders
At all meetings of stockholders, a quorum will be present if the
holders of a majority of the shares entitled to vote at the meeting are
represented at the meeting in person or by proxy. From and after the first date
as of which
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any class of the Corporation's equity securities is traded on a national
securities exchange or through the Nasdaq Stock Market's automated quotation
system, any action required or permitted to be taken by the stockholders of the
Corporation must be effected at an annual or special meeting of stockholders of
the Corporation and may not be effected by any consent in writing by such
stockholders.
ARTICLE IX
Denial of Cumulative Voting and Preemptive Rights
Stockholders of the Corporation will not have the right of cumulative
voting for the election of directors or for any other purpose. Except as
otherwise set forth in this Certificate or in any Certificate of Designation,
Rights and Preferences relating to the Corporation's capital stock as may be in
effect from time to time, no stockholder of the Corporation will, solely by
reason of holding shares of any class, have any preemptive or preferential right
to purchase or subscribe for any shares of the Corporation, now or hereafter to
be authorized, or any notes, debentures, bonds or other securities convertible
into or carrying warrants, rights or options to purchase shares of any class,
now or hereafter to be authorized, whether or not the issuance of any such
shares or such notes, debentures, bonds or other securities would adversely
affect the dividend, voting or any other rights of such stockholder. The Board
of Directors may authorize the issuance of, and the Corporation may issue,
shares of any class of the Corporation, or any notes, debentures, bonds or other
securities convertible into or carrying warrants, rights or options to purchase
any such shares, without offering any shares of any class to the existing
holders of any class of stock of the Corporation.
ARTICLE X
Classified Board of Directors
From and after the first date as of which any class of the
Corporation's equity securities is traded on a national securities exchange or
through the Nasdaq Stock Market's automated quotation system, the directors
shall be classified, with respect to the time for which they severally hold
office, into three classes (Class A, Class B and Class C), as nearly equal in
number as possible, as determined by the Board of Directors, one class to hold
office initially for a term expiring at the annual meeting of stockholders to be
held in 1998, another class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1999 and another class to hold
office for a term expiring at the annual meeting of stockholders to be held in
2000, with members of each class to hold office until whichever of the following
occurs first: his or her successor is elected and qualified, his or her
resignation, his or her removal from office by the stockholders or his or her
death. At each annual meeting of stockholders of the Corporation, the successors
to the class of directors whose term expires at the meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.
ARTICLE XI
Amendment of Bylaws
The Board of Directors shall have the power to adopt, amend, alter,
change or repeal any Bylaws of the Corporation to the fullest extent permitted
by the General Corporation Law of the State of Delaware.
ARTICLE XII
Amendment of Certificate of Incorporation
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The Corporation hereby reserves the right to amend, alter, change or
repeal any provision contained in this 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.
ARTICLE XIII
Severability
In the event that any of the provisions of this Restated Certificate of
Incorporation (including any provision within a single Section, paragraph or
sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
IN WITNESS WHEREOF, the undersigned does make this Certificate, hereby
declaring and certifying that this is the act and deed of the Corporation, and
the facts herein stated are true, and accordingly, have hereunto set my hand and
caused the Corporate Seal of the Corporation to be hereunto affixed this 31st
day of October, 1997.
/s/ Sarah C. Garvin
--------------------------
Sarah C. Garvin
President
23
<PAGE>
EXHIBIT 3.2
SECOND AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
of the
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
and
SERIES B NON-VOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
PHYSICIAN HEALTH CORPORATION
<PAGE>
SECOND AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
of the
SERIES B REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
PHYSICIAN HEALTH CORPORATION
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
We, Sarah Garvin, President, and James Ryan, Secretary, of PHYSICIAN
HEALTH CORPORATION, a corporation organized and existing under the laws of the
State of Delaware (the "Company"), in accordance with Section 151 of the
-------
Delaware General Corporation Law, certify:
FIRST: The Board of Directors of the Company, by unanimous written
consent dated June 12, 1997, and the stockholders of the Company, by unanimous
written consent dated as of June 13, 1997, duly adopted a resolution authorizing
the issuance of up to 6,000,000 shares of preferred stock, $0.01 par value, in
one or more series, with such voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as may be stated and expressed in a
resolution or resolutions providing for the creation and issuance of any such
series adopted by the Board of Directors of the Company prior to the issuance of
any shares of such series, pursuant to authority expressly vested in the Board
of Directors by the Certificate of Incorporation of the Company.
SECOND: The Board of Directors of the Company, by unanimous written
consent dated June 12, 1997 duly adopted a resolution authorizing the creation
of a new voting series of such preferred stock, to be known as "Series B
Redeemable Convertible Preferred Stock", stating that 6,000,000 shares of the
authorized and unissued preferred stock shall constitute such series, and
setting forth a statement of the voting powers, designation, preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations and restrictions thereof.
THIRD: The Board of Directors of the Company, by unanimous written
consent dated July ___, 1997, and the stockholders of the Company, by written
consent dated July ___, 1997, duly adopted resolutions to increase the number
of shares of preferred stock from 6,000,000 shares to 15,000,000 shares, $0.01
par value, in one or more series, with such voting powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or
<PAGE>
restrictions thereof, as may be stated and expressed in a resolution or
resolutions providing for the creation and issuance of any such series adopted
by the Board of Directors of the Company prior to the issuance of any shares of
such series, pursuant to authority expressly vested in the Board of Directors by
the Certificate of Incorporation of the Company.
FOURTH: The Board of Directors of the Company, by unanimous written
consent dated July ___, 1997, and the holders of Series B Redeemable Convertible
Preferred Stock by written consent dated July ___, 1997, duly adopted
resolutions to authorize the creation of a new non-voting series of such
preferred stock to be known as "Series B Non-Voting Redeemable Convertible
Preferred Stock", stating that 6,000,000 shares of the authorized and unissued
preferred stock shall constitute such series, and to adopt a resolution amending
and restating in its entirety the Certificate of Designation, Preferences and
Rights of the Series B Redeemable Convertible Preferred Stock dated June 13,
1997.
FIFTH: The Board of Directors of the Company, by unanimous written
consent dated October __, 1997, and the holders of Series B Redeemable
Convertible Preferred Stock by written consent dated October __, 1997, duly
adopted resolutions amending and restating in its entirety the Amended and
Restated Certificate of Designation, Preferences and Rights of the Series B
Redeemable Convertible Preferred Stock dated July __, 1997 as follows:
* * * *
RESOLVED, that the terms of the Series B Redeemable Convertible
Preferred Stock and the Series B Non-Voting Redeemable Convertible Preferred
Stock shall be as follows:
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DESIGNATION AND AMOUNT.................................................................................. 1
----------------------
2. DEFINITIONS............................................................................................. 1
-----------
3. DIVIDENDS............................................................................................... 5
---------
3.1. Common Stock Dividends......................................................................... 5
----------------------
3.2. Preferred Dividends............................................................................ 5
-------------------
3.2.1. SBA Holders Dividends................................................................. 5
---------------------
3.2.2. Series B Preferred Stock.............................................................. 5
------------------------
3.3. Special Contingent Dividends................................................................... 6
----------------------------
3.4. General........................................................................................ 7
-------
4. LIQUIDATION PREFERENCE.................................................................................. 7
----------------------
5. VOTING RIGHTS; REPRESENTATIVE DIRECTORS; ETC............................................................ 8
--------------------------------------------
5.1. Series B Preferred Stock Votes Per Share; Notices.............................................. 8
-------------------------------------------------
5.2. Preferred Directors............................................................................ 8
-------------------
5.2.1. Representative Director............................................................... 8
-----------------------
5.2.2. Majority Directors.................................................................... 8
------------------
5.3. Tenure......................................................................................... 9
------
6. REDEMPTION.............................................................................................. 9
----------
6.1. Mandatory Redemption........................................................................... 9
--------------------
6.2. Mandatory Contingent Redemption................................................................ 9
-------------------------------
6.3. Notice of Redemption; Pro Rata Treatment...................................................... 10
----------------------------------------
6.4. Specific Performance.......................................................................... 10
--------------------
7. REMEDY EVENT........................................................................................... 10
------------
8. CONVERSION............................................................................................. 13
----------
8.1. Right of Conversion........................................................................... 13
-------------------
8.2. Automatic Conversion of Series B Preferred Stock into Common Stock............................ 13
------------------------------------------------------------------
8.3. Mechanics of Conversion Under Sections 8.1 and 8.2............................................ 13
--------------------------------------------------
8.4. Automatic Conversion between Series B Non-Voting Preferred Stock and Series B
-----------------------------------------------------------------------------
Voting Preferred Stock................................................................................. 14
----------------------
8.4.1. Series B Non-Voting Preferred Stock into Series B Voting Preferred Stock............. 14
------------------------------------------------------------------------
8.4.2. Series B Voting Preferred Stock into Series B Non-Voting Preferred Stock............. 14
------------------------------------------------------------------------
8.5. Adjustment of Conversion Price Due to Issuance of Additional Shares........................... 15
-------------------------------------------------------------------
8.5.1. Special Definitions.................................................................. 15
-------------------
8.5.2. No Adjustment of Conversion Price.................................................... 16
---------------------------------
8.5.3. Adjustment of Conversion Price Upon Issuance of Additional Shares of
--------------------------------------------------------------------
Common Stock........................................................................................... 16
------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
8.5.4. Adjustments for Subdivisions, Stock Dividends, Combinations or
--------------------------------------------------------------
Consolidation of Common Stock.......................................................................... 17
-----------------------------
8.5.5. Deemed Issue of Additional Shares of Common Stock - Options and
---------------------------------------------------------------
Convertible Securities................................................................................. 17
----------------------
8.5.6. Determination of Consideration....................................................... 18
------------------------------
8.5.7. Other Dilutive Events................................................................ 19
---------------------
8.6. Other Distributions........................................................................... 19
-------------------
8.7. Subsequent Events............................................................................. 20
-----------------
9. CERTAIN COVENANTS...................................................................................... 21
-----------------
9.1. Special Restrictions.......................................................................... 21
--------------------
9.2. No Impairment................................................................................. 22
-------------
9.3. Reservation of Shares......................................................................... 22
---------------------
9.4. Validity of Shares............................................................................ 22
------------------
9.5. Notice of Certain Events...................................................................... 23
------------------------
9.6. No Reissuance of Preferred Stock.............................................................. 23
--------------------------------
10. PREEMPTIVE RIGHTS...................................................................................... 24
-----------------
10.1. Right of First Offer.......................................................................... 24
--------------------
10.2. Notice........................................................................................ 24
------
10.3. Full Acceptance............................................................................... 24
---------------
10.4. Partial Acceptance............................................................................ 24
------------------
10.5. No Fractional Shares.......................................................................... 25
--------------------
10.6. Sale of Shares................................................................................ 25
--------------
10.7. Exclusion of Certain Shares................................................................... 25
---------------------------
11. AMENDMENTS............................................................................................. 25
----------
</TABLE>
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<PAGE>
SERIES B VOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK
SERIES B NON-VOTING REDEEMABLE CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT. The designation of the first series of the
----------------------
authorized preferred stock, $0.01 par value, of the Company (the "Preferred
---------
Stock") shall be Series B Redeemable Convertible Preferred Stock (the "Series B
- ----- --------
Voting Preferred Stock") and Series B Non-Voting Redeemable Convertible
- ----------------------
Preferred Stock (the "Series B Non-Voting Preferred Stock" and, collectively
-----------------------------------
with the Series B Voting Preferred Stock, the "Series B Preferred Stock"). The
------------------------
number of shares of Series B Voting Preferred Stock shall initially be 9,000,000
and and the number of shares of Series B Non-Voting Preferred Stock shall
initially be 6,000,000, each subject to increase (but only as to shares of
Preferred Stock authorized by the Certificate of Incorporation with respect to
which the powers, designations, preferences and rights shall not then have been
previously designated) or decrease (but not below the number of shares thereof
then outstanding) from time to time by action of the Board of Directors.
The Series B Preferred Stock has been issued pursuant to a Securities
Purchase Agreement dated as of June 16, 1997 among the Company, Weston Presidio
Capital II, L.P. and certain other investors (as in effect from time to time,
the "Weston Presidio Purchase Agreement"), as well as a Securities Purchase
----------------------------------
Agreement dated as of October __, 1997, between the Company and Paribas
Principal Incorporated (as in effect from time to time, the "Paribas Purchase
----------------
Agreement," and, together with the Weston Presidio Purchase Agreement, the
- ----------
"Purchase Agreements"). A copy of the Purchase Agreements will be provided to
- --------------------
any registered holder of shares of capital stock of the Company following
written request directed to the Secretary of the Company at its registered
address.
The relative powers, preferences and rights, and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, granted to or imposed on the Series B Preferred Stock are
set forth below:
2. DEFINITIONS. Certain capitalized terms are used in this Certificate of
-----------
Designation as specifically defined below in this Section 1. Except as the
context otherwise explicitly requires, (a) the capitalized term "Section" refers
to sections of this Certificate of Designation, (b) references to a particular
Section include all subsections thereof, (c) the word "including" shall be
construed as "including without limitation", (d) accounting terms not otherwise
defined herein have the meaning provided under generally accepted accounting
principles, (e) references to a particular statute or regulation include all
rules and regulations thereunder and any successor statute, regulation or rules,
in each case as from time to time in effect and (f) references to a particular
Person include such Person's successors and assigns to the extent not prohibited
by this Certificate of Designation and the Purchase Agreements. References to
"the date hereof" mean the effective date of this Certificate of Designation.
2.1 "Accepted Shares" is defined in Section 10.2.
---------------
2.2 "Accrual Year" means the 12-month period commencing on the Original
------------
Issue Date and each 12-month period thereafter.
<PAGE>
2.3 "Additional Shares of Common Stock" is defined in Section 8.5.1(d).
---------------------------------
2.4 "Affiliate" is defined in Section 8.4.1.
---------
2.5 "By-laws" means all written rules, regulations, procedures, by-laws
-------
and all other similar documents relating to the management, governance or
internal regulation of a Person other than an individual, or interpretive of the
Certificate of Incorporation or other charter documents of such Person, each as
from time to time amended or modified.
2.6 "Cash Payment Date" is defined in Section 3.3.
-----------------
2.7 "Class A Stock" means the Class A Stock, $0.01 par value, of the
-------------
Company.
2.8 "Common Stock" means the Voting Common Stock and the Non-Voting Common
------------
Stock, collectively.
2.9 "Company" means Physician Health Corporation, a Delaware corporation.
-------
2.10 "Conversion Price" is defined in Section 8.1.
----------------
2.11 "Conversion Warrants" is defined in Section 6.2.
-------------------
2.12 "Convertible Securities" is defined in Section 8.5.1(c).
----------------------
2.13 "Distribution Event" is defined in Section 4.
------------------
2.14 "Future Shares" is defined in Section 10.1.
-------------
2.15 "Future Shares Exercise Period" is defined in Section 10.1.
-----------------------------
2.16 "Indebtedness" means (a) all debt for borrowed money and similar
------------
monetary obligations evidenced by bonds, notes, debentures, capitalized lease
obligations, deferred purchase price of property (other than ordinary trade
payables) or otherwise, whether direct or indirect; and (b) all liabilities
secured by any Liens existing on property owned or acquired, whether or not the
liability secured thereby shall have been assumed.
2.17 "Investor Agreements" is defined in the Purchase Agreements,
-------------------
respectively.
2.18 "Liquidity Event" means any of the following transactions so long as
---------------
the aggregate net cash proceeds (or market value of freely tradable marketable
securities with a market float reasonably satisfactory to the Required Holders)
to the Company and its stockholders as a result of such transaction are at least
$20,000,000:
(a) an underwritten public offering of Common Stock registered
under the federal Securities Act of 1933; or
-2-
<PAGE>
(b) the sale of all or substantially all the assets or stock of
the Company; or
(c) a merger or consolidation of the Company described in Section
6.2(b).
2.19 "Liquidity Share Price" means, with respect to any Liquidity Event,
---------------------
the weighted average price per share paid for (or properly allocable to) Common
Stock and the Company's Non-Voting Common Stock, $0.0025 par value, on a fully
diluted basis (giving effect to the exercise of all outstanding options,
warrants, conversion rights and rights to acquire shares). For purposes of
these calculations, shares of Class A Stock and Series B Preferred Stock (and
any other shares of the Company's stock having a liquidation preference over
the Common Stock) shall be deemed to have been converted into Common Stock or
such Non-Voting Common Stock immediately prior to such Liquidity Event.
2.20 "Non-Voting Common Stock" means the Non-Voting Common Stock, $0.0025
-----------------------
par value, of the Company.
2.21 "Notice of Purchase" is defined in Section 10.2.
------------------
2.22 "Offeree" is defined in Section 10.1.
-------
2.23 "Options" is defined in Section 8.5.1(a).
-------
2.24 "Organic Change" is defined in Section 6.2.
--------------
2.25 "Original Issue Date" is defined in Section 8.5.1(b).
-------------------
2.26 "Paribas Purchase Agreement" is defined in Section 1.
--------------------------
2.27 "PCF Warrant Agreement" means the Warrant Agreement dated as of
---------------------
October __, 1997 between the Company and Paribas Capital Funding LLC.
2.28 "Person" means an individual, partnership, corporation, company,
------
association, trust, joint venture, unincorporated organization, business trust,
limited liability company and any governmental department or agency or political
subdivision.
2.29 "Preferential Amount" is defined in Section 4.
-------------------
2.30 "Preferred Director" is defined in Section 5.3.
------------------
2.31 "Preferred Stock" is defined in Section 1.
---------------
2.32 "Proportionate Percentage" is defined in Section 10.1.
------------------------
2.33 "Proportionate Voting Share" means, with respect to a particular class
--------------------------
of stock, a fraction (a) the numerator of which is the number of shares of
Common Stock into which such class of stock may be converted and (b) the
denominator of which is the aggregate number of shares of
-3-
<PAGE>
Common Stock on a fully diluted basis (giving effect to the exercise of all then
exercisable conversion, purchase or exercise rights).
2.34 "Proposal" is defined in Section 10.1.
--------
2.35 "Purchase Agreements" is defined in Section 1.
-------------------
2.36 "Regulation Y Investor" is defined in Section 8.4.1.
---------------------
2.37 "Remedy Event" is defined in Section 7.
------------
2.38 "Remedy Notice" is defined in Section 5.2.2.
-------------
2.39 "Required Holders" means the holders of two-thirds of the outstanding
----------------
Series B Voting Preferred Stock.
2.40 "SBA Holder" means any holder of Series B Preferred Stock that is
----------
subject to the Small Business Investment Act of 1958, as amended, and the rules
and regulations thereunder.
2.41 "SBA Dividend" is defined in Section 3.2.1.
------------
2.42 "SBA Dividend Payment Date" is defined in Section 3.2.1.
-------------------------
2.43 "Section 3.2.2 Dividend" is defined in Section 3.2.1.
----------------------
2.44 "Senior Debt Documents" means the Credit Agreement dated as of
---------------------
October __, 1997 among the Company, the financial institutions party thereto
from time to time and Banque Paribas, as Agent, as well as the other Credit
Documents, as defined therein, in each case as amended (including by any
amendment or restatement), supplemented, modified or extended from time to time
including each loan or credit agreement and other related agreements extending
the maturity of, replacing, refinancing, refunding, or otherwise restructuring
(including, without limitation, increasing the amount of the available
borrowings thereunder), in whole or in part, the debt under the Credit
Agreement, whether by the same or any other agent, lender or group of lenders.
2.45 "Series B Preferred Stock" is defined in Section 1.
------------------------
2.46 "Series B Non-Voting Preferred Stock" is defined in Section 1.
-----------------------------------
2.47 "Series B Voting Preferred Stock" is defined in Section 1.
-------------------------------
2.48 "Subordinated Debt Documents" means the Subordinated Loan Agreement,
---------------------------
as well as the other Loan Documents, as defined therein, in each case as amended
(including by any amendment or restatement), supplemented, modified or extended
from time to time including each loan or credit agreement and other related
agreements extending the maturity of, replacing, refinancing, refunding or
otherwise restructuring (including, without limitation, increasing the available
borrowings thereunder), in whole or in part, the debt under the Senior
Subordinated Loan Agreement, whether by the same or any other lender or group of
lenders.
-4-
<PAGE>
2.49 "Subordinated Loan Agreement" means the Senior Subordinated Loan
---------------------------
Agreement dated as of October __, 1997, among the Company, PHC Holding
Corporation, the lenders party thereto and Paribas Capital Funding LLC, as
amended, supplemented or refinanced from time to time..
2.50 "Voting Common Stock" means the Voting Common Stock, $0.0025 par
-------------------
value, of the Company.
2.51 "Weston Presidio Purchase Agreement" is defined in Section 1.
----------------------------------
3. DIVIDENDS
---------
3.1 Common Stock Dividends. No dividends of cash or other property (other
----------------------
than additional shares of Common Stock) shall be paid on the Common Stock unless
the shares of Series B Preferred Stock which are not subject to a Securities
Escrow (as defined in the respective Purchase Agreements) at the time of payment
of such dividend receive the same dividends that such shares would have received
had they been converted into Voting Common Stock or Non-Voting Common Stock, as
applicable, immediately prior to the record date for such dividend.
3.2 Preferred Dividends.
-------------------
3.2.1 SBA Holders Dividends. In addition to the dividends contemplated
---------------------
by Section 3.1, each SBA Holder holding shares of Series B Preferred Stock shall
be entitled to receive cash dividends on each share of Series B Preferred Stock
held by such SBA Holder, which dividends shall accrue daily and compound
quarterly at a rate of 14% per annum on a deemed value of $4.00 per share of
Series B Preferred Stock (the "SBA Dividend"). The Company shall declare and pay
------------
the SBA Dividend on the last day of December, March, June and September of each
year (each a "SBA Dividend Payment Date"); provided, however, that in the event
------------------------- -------- -------
the Company shall not declare and pay the SBA Dividend on any SBA Dividend
Payment Date, each SBA Holder shall be entitled to receive the dividend set
forth in Section 3.2.2 (the "Section 3.2.2 Dividend") on the terms and
----------------------
conditions set forth in Section 3.2.2, as if the Section 3.2.2 Dividend had
accrued, with respect to the shares of Series B Preferred Stock held by each SBA
Holder, for the entire quarterly period ending on such SBA Dividend Payment
Date, and each SBA Holder shall continue to be entitled to receive the Section
3.2.2 Dividend until the Section 3.2.2 Dividend has been paid in accordance with
Section 3.2.2. The rights to receive the Section 3.2.2 Dividend as stated in the
immediately preceding sentence shall be the sole and exclusive remedy of each
SBA Holder with respect to the failure of the Company to pay any SBA Dividend on
any SBA Dividend Payment Date.
3.2.2 Series B Preferred Stock. In addition to the dividends
------------------------
contemplated by Section 3.1, during each Accrual Year, each holder of Series B
Preferred Stock (other than those shares of Series B Preferred Stock held by SBA
Holders, except in the circumstances set forth in Section 3.2.1) shall be
entitled to receive, when and as declared by the Board of Directors of the
Company out of funds legally available therefor, an annual dividend payable on
the last day of such Accrual Year with respect to each share of Series B
Preferred Stock held by such holder in an amount equal to 20% of the sum of (a)
$4 plus (b) the amount of all cumulated
----
-5-
<PAGE>
and unpaid dividends (if any) in respect of such share of Series B Preferred
Stock, which dividend (i) shall be payable in preference and priority to any
payment of any dividend with respect to the Common Stock, (ii) shall accrue
daily (whether or not declared or funds are legally available therefor), and
(iii) to the extent not paid, shall cumulate (and thereby compound) annually on
the last day of each Accrual Year. If the purchase price for a share of Series B
Preferred Stock is released from a Purchase Price Escrow (as defined in the
respective Purchase Agreements), or a share of Series B Preferred Stock is
purchased pursuant to the Paribas Purchase Agreement, on a date after the
Original Issue Date, then the annual dividend payable pursuant to this Section
3.2.2 in respect of such share for the Accrual Year in which such share is
released or purchased, as the case may be, shall be prorated accordingly (on the
basis of a 365 day year). Accrued and unpaid dividends (if any) payable under
this Section 3.2.2 shall terminate and be canceled, forgiven and extinguished in
the event a Liquidity Event is consummated on the following terms:
(A) prior to May 1, 1998 at a Liquidity Share Price exceeding
$7.00; or
(B) after April 30, 1998 and prior to May 1, 2000 at a Liquidity
Share Price exceeding $8.00; or
(C) after April 30, 2000 and prior to May 1, 2001 at a Liquidity
Share Price exceeding $10.00; or
(D) after April 30, 2001 and prior to May 1, 2002 at a Liquidity
Share Price exceeding $12.50.
All amounts in Section 3.2 shall be appropriately adjusted for any stock
dividends, stock splits, recapitalizations or other similar changes in the
outstanding shares of Common Stock after the Original Issue Date.
3.3 Special Contingent Dividends. In addition to the dividend
----------------------------
contemplated by Sections 3.1 and in lieu of the dividends contemplated in
Section 3.2, upon the consummation of any Liquidity Event described below, the
Company shall, after all Indebtedness under the Senior Debt Documents and the
Subordinated Debt Documents has been repaid in full in cash or at any time when
such payment is otherwise permitted by the Senior Debt Documents and the
Subordinated Debt Documents (the "Cash Payment Date"), pay dividends on each
-----------------
share of Series B Preferred Stock as follows (except with respect to any share
of Series B Preferred Stock for which the holder has elected mandatory
redemption under Section 6.2):
(a) If the Liquidity Event occurs prior to May 1, 1998 at a
Liquidity Share Price less than $7.00, upon consummation of such
Liquidity Event the Company shall pay a dividend on each share of
Series B Preferred Stock outstanding immediately prior to such
Liquidity Event in an amount equal to the product of (i) the number of
shares of Common Stock into which such share of Series B Preferred
Stock would then be convertible multiplied by (ii) the excess of $7.00
-------------
over such Liquidity Share Price.
(b) If the Liquidity Event occurs after April 30, 1998 and prior
to May 1, 2000 at a Liquidity Share Price less than $8.00, upon
consummation of such Liquidity
-6-
<PAGE>
Event the Company shall pay a dividend on each share of Series B
Preferred Stock outstanding immediately prior to such Liquidity Event
in an amount equal to the product of (i) the number of shares of
Common Stock into which such share of Series B Preferred Stock would
then be convertible multiplied by (ii) the excess of $8.00 over such
-------------
Liquidity Share Price.
(c) If the Liquidity Event occurs after April 30, 2000 and prior
to May 1, 2001 at a Liquidity Share Price less than $10.00, upon
consummation of such Liquidity Event the Company shall pay a dividend
on each share of Series B Preferred Stock outstanding immediately
prior to such Liquidity Event in an amount equal to the product of (i)
the number of shares of Common Stock into which such share of Series B
Preferred Stock would then be convertible multiplied by (ii) the
-------------
excess of $10.00 over such Liquidity Share Price.
(d) If the Liquidity Event occurs after April 30, 2001 and prior
to May 1, 2002 at a Liquidity Share Price less than $12.50, upon
consummation of such Liquidity Event the Company shall pay a dividend
on each share of Series B Preferred Stock outstanding immediately
prior to such Liquidity Event in an amount equal to the product of (i)
the number of shares of Common Stock into which such share of Series B
Preferred Stock would then be convertible multiplied by (ii) the
-------------
excess of $12.50 over such Liquidity Share Price.
All per share amounts in this Section 3.3 shall be appropriately adjusted
for any stock dividends, stock splits, recapitalizations or other similar
changes in the outstanding shares of Common stock after the Original Issue Date.
The payment of such special contingent dividends shall be made in cash or
in shares of Common Stock that are freely tradeable and registered under the
Securities Act. Such payment shall be made immediately prior to the automatic
conversion of the Series B Preferred Stock into Common Stock pursuant to Section
8.2 upon consummation of such Liquidity Event; provided, however, that in the
-------- -------
event of an initial public offering of the Common Stock, the dividend
contemplated by clause (a) or (b) above may be paid on the first anniversary of
the initial closing of such public offering or, if earlier, on the bankruptcy,
liquidation or sale of all or substantially all the assets or stock of the
Company; provided, further, however, that in the event the public trading price
-------- ------- -------
of Common Stock exceeds (i) $7.00 per share, in the event the initial public
offering occurs prior to May 1, 1998, or (ii) $8.00 per share, in the event the
initial public offering occurs after April 30, 1998 and prior to May 1, 2000, in
each case for 20 consecutive trading days, the dividend contemplated by clause
(a) or (b) above shall be terminated and canceled.
3.4 General. The Company shall not subdivide or combine any share of
-------
Series B Preferred Stock, or pay any dividend or make any other distribution on
any share of Series B Preferred Stock, or redeem any share of Series B Preferred
Stock, or accord any other similar payment, benefit or preference to any share
of Series B Preferred Stock, except by extending such subdivision, combination,
distribution, redemption, payment, benefit or preference equally to all shares
of Series B Preferred Stock; provided, however, that in the case of dividends or
-------- -------
other distributions payable in shares of Common Stock, or options, warrants or
rights to acquire shares of Common Stock, or securities convertible into or
exchangeable for shares of Common Stock, the shares, options, warrants,
-7-
<PAGE>
rights to acquire shares or securities so convertible or exchangeable shall be
payable in shares of or options, warrants or rights to acquire shares of, or
securities convertible into or exchangeable for, Voting Common Stock in respect
of Series B Voting Preferred Stock, and Non-Voting Common Stock in respect of
Series B Non-Voting Preferred Stock.
4. LIQUIDATION PREFERENCE. In the event of (a) any liquidation, dissolution
----------------------
or winding up of the Company, either voluntary or involuntary, or (b) unless
agreed otherwise in writing by the Required Holders, a merger or consolidation
of the Company (each, a "Distribution Event"), distributions to the stockholders
------------------
of the Company shall be made in the following manner. The holders of Series B
Preferred Stock shall first be entitled to receive, prior and in preference to
any distribution of any of the assets of the Company to the holders of any other
series of Preferred Stock, Common Stock or other capital stock of the Company by
reason of their ownership of such stock, but pari passu with the holders of
Class A Stock in accordance with the relative liquidation preferences of the
Class A Stock and Series B Preferred Stock, an amount per share equal to the
greater of (i) the sum of (A) $4.00 plus (B) all accrued and unpaid dividends on
----
the Series B Preferred Stock due under Section 3 (such sum being referred to as
the "Preferential Amount") and (ii) the sum of (A) the distribution to which the
-------------------
holder of such share of Series B Preferred Stock would have been entitled if
such share had been converted into Common Stock pursuant to Section 8
immediately prior to the Distribution Event plus (B) all accrued and unpaid
----
dividends on the Series B Preferred Stock due under Section 3. If the assets
and funds of the Company shall be insufficient to permit the payment of the full
amount specified in the immediately preceding sentence to the holders of Series
B Preferred Stock, then the entire assets of the Company legally available for
distribution shall be distributed ratably among the holders of Series B
Preferred Stock and Class A Stock in accordance with the relative liquidation
preferences of the shares of Series B Preferred Stock and Class A Stock held by
each of them.
5. VOTING RIGHTS; REPRESENTATIVE DIRECTORS;ETC.
--------------------------------------------
5.1 Series B Preferred Stock Votes Per Share; Notices. Except as otherwise
----------------------------------------
provided herein (including the election of Preferred Directors pursuant to
Section 5.2.1 and a majority of the members of the Company's Board of Directors
pursuant to Section 5.2.2) or required by law, the holders of Series B Voting
Preferred Stock shall vote as a single class with the holders of Voting Common
Stock and shall have such votes in respect of each share of Series B Voting
Preferred Stock on any matter submitted to the holders of Voting Common Stock as
the number of shares of Voting Common Stock into which shares of Series B Voting
Preferred Stock may then be converted. Record holders of Series B Voting
Preferred Stock shall be entitled to notice of any stockholders' meeting or
solicitation of stockholders' consents in the manner provided in the Bylaws of
the Company for general notices. Except as may be required by applicable law,
the holders of Series B Non-Voting Preferred Stock shall have no right to vote
on any matter to be voted on by the stockholders of the Company (including the
election or removal of directors), and the Series B Non-Voting Preferred Stock
shall not be included in determining the number of shares voting or entitled to
vote on such matters.
5.2 Preferred Directors.
-------------------
5.2.1 Representative Director. In addition to the rights set forth in
-----------------------
Section 5.2.2, the holders of a majority of the shares of Series B Voting
Preferred Stock, voting separately as a
-8-
<PAGE>
single class, shall be entitled to elect one director. Except as provided in
Section 5.2.2, the number of directors of the Company shall not exceed nine.
5.2.2 Majority Directors.
------------------
(a) In the event that any Remedy Event shall occur, then, upon
notice to the Company given by the Required Holders (a "Remedy
------
Notice"), the number of directors shall be increased as provided in
Section 5.2.2(b) and the holders of Series B Voting Preferred Stock
and the holders of Class A Stock, voting together as a single,
separate class, weighted between Series B Voting Preferred Stock and
Class A Stock according to their respective Proportionate Voting
Shares, shall become entitled to elect a majority of the Board of
Directors of the Company until any such Remedy Event shall have been
rectified or cured to the written satisfaction of the Required
Holders, whereupon such right of the holders of the Series B Voting
Preferred Stock to elect a majority of the Board of Directors of the
Company (together with holders of Class A Stock to the extent provided
above) shall cease, and the maximum number of directors shall be
reduced to the number in effect immediately prior to such Remedy
Notice, subject to being again revived from time to time upon the
reoccurrence of the conditions above described.
(b) Immediately upon receipt by the Company of a Remedy Notice
pursuant to Section 5.2.2(a) above, the number of directors of the
Company shall automatically be increased to the minimum number
sufficient to permit the election of additional directors so that
after such election a majority of directors will have been elected by
the holders of the Series B Voting Preferred Stock (together with
holders of Class A Stock to the extent provided above). Upon such
increase, the directors of the Company shall thereupon be divided into
classes. One class shall consist of a number of directors equal to a
majority of all the directors and shall be elected solely by the
holders of Series B Voting Preferred Stock (together with holders of
Class A Stock to the extent provided above), voting separately as a
single class, and the other class shall consist of the remaining
directors and shall be elected by the holders of the capital stock of
the Company entitled to vote generally in the election of directors.
Subject to Section 7, any director then in office who was elected
pursuant to Section 5.2.1 shall automatically become a member of the
class of directors elected solely by the holders of Series B Voting
Preferred Stock (together with holders of Class A Stock to the extent
provided above).
5.3 Tenure. Each Director elected by the holders of Series B Voting
------
Preferred Stock pursuant to Section 5.2 (a "Preferred Director") shall serve for
------------------
a term of the lesser of (a) one year and until such Preferred Director's
successor is elected and qualified, or (b) until the right to elect such
Preferred Director ceases (at which time such Preferred Director will be deemed
to be removed). So long as the holders of Series B Voting Preferred Stock are
entitled to elect a Preferred Director, any vacancy in the position of a
Preferred Director may be filled only by vote of the holders of a majority of
the shares of Series B Voting Preferred Stock entitled to vote thereon (together
with holders of Class A Stock to the extent provided above). A Preferred
Director may, during such Preferred Director's term of office, be removed at any
time, with or without cause, only by the affirmative vote of the
-9-
<PAGE>
holders of record of a majority of the outstanding shares of Series B Voting
Preferred Stock (together with holders of Class A Stock to the extent provided
above).
6. REDEMPTION.
----------
6.1 Mandatory Redemption. Except as set forth in Section 6.2,
--------------------
irrespective of any other redemptions or acquisitions of shares of the Series B
Preferred Stock, the Company will redeem at a price equal to the Preferential
Amount that number of shares of Series B Preferred Stock equal to 6.25% of the
total number of issued and outstanding shares of Series B Preferred Stock as of
the later of December 31, 2002 and the Cash Payment Date (or such lesser number
as is then outstanding) on the last day of each March, June, September and
December, commencing on the later of March 2003 or the first such date following
the Cash Payment Date.
6.2 Mandatory Contingent Redemption. Upon the earliest to occur of:
-------------------------------
(a) the sale by the Company of all or a substantial portion of
its assets,
(b) the merger of the Company with, or the consolidation of the
Company into, any other corporation as a result of which the
stockholders of the Company immediately prior to such merger or
consolidation do not own stock having more than 50% of the outstanding
voting power (assuming conversion of all convertible securities and
exercise of all outstanding options and warrants) of the surviving
corporation,
(c) the dissolution or liquidation of the Company,
(d) Sarah Garvin shall cease for any reason to be Chairman of,
and actively involved in the executive management of, the Company and
a replacement satisfactory to the Required Holders shall not be in
place within 180 days,
(e) more than 50% of the outstanding voting stock of the Company
becomes owned by Persons other than (i) holders of Series B Preferred
Stock and their transferees and (ii) stockholders of record on the
Original Issue Date (the foregoing events described in clauses (a)
through (e) shall constitute an "Organic Change"), or
--------------
(f) a Remedy Event,
except in the case of a transaction described in clauses (a), (b), (e) or (f)
above that constitutes a Liquidity Event consummated on the terms described in
Section 3.2.2, each holder of Series B Preferred Stock may require the Company,
on the Cash Payment Date, to redeem all or any portion of the then outstanding
shares of the Series B Preferred Stock of such holder, at the holder's option,
at a price equal to the Preferential Amount, together with warrants in
substantially the form of Exhibit 2.1A of the Purchase Agreements (the
"Conversion Warrants") to purchase the number of shares of Common Stock into
- --------------------
which the shares of Series B Preferred Stock so redeemed could at the time have
been converted at a purchase price per share equal to the aggregate cash
consideration received by the holder in connection with the redemption divided
by such number of shares of Common Stock. The number of shares for which each
Conversion Warrant shall be exercisable shall be reduced in proportion to the
mandatory redemption of Series B Preferred Stock under Section 6.1.
-10-
<PAGE>
6.3 Notice of Redemption; Pro Rata Treatment. Written notice of
----------------------------------------
redemption of Series B Preferred Stock pursuant to Sections 6.1 and 6.2 shall be
given not fewer than 30 days prior to the redemption date by first class mail,
postage prepaid, to each holder of record of shares of the Series B Preferred
Stock, at such holder's address on the books of the Company. Each such notice
shall state: (a) the redemption date; (b) the number of shares of the Series B
Preferred Stock to be redeemed; (c) the Preferential Amount; (d) the place or
places where certificates for such shares are to be surrendered for payment of
the Preferential Amount; and (e) that dividends on the shares to be redeemed
will cease to accrue on such redemption date. Redemptions under Sections 6.1
and 6.2 shall be made pro rata among all holders of Series B Preferred Stock.
6.4 Specific Performance. If any holder becomes obligated so to deliver
--------------------
any shares of Series B Preferred Stock to the Company upon any redemption under
this Section 6 and fails to deliver the certificate therefor in accordance with
this Certificate of Designation, the Company may, at its option, in addition to
all other remedies it may have, cancel on its books such certificate
representing such shares to be redeemed.
7. REMEDY EVENT. The term "Remedy Event" shall mean the occurrence and
------------ ------------
continuance of any of the following events for a period exceeding 30 days
(unless otherwise specified below) after written notice of the occurrence of
such event has been furnished to the Company at its registered address:
(a) The Company shall fail to make any payment in respect of
dividends on or redemptions of any shares of Series B Preferred Stock
as the same shall become due.
(b) The Company shall fail to perform or observe any of the
covenants, agreements or other provisions set forth in this
Certificate of Designation.
(c) Any written representation or warranty of or with respect to
the Company made in, or pursuant to the express requirements of,
either Purchase Agreement shall prove to have been false in any
material respect on the date as of which it was made without reference
to whether such representation or warranty was made with knowledge or
without knowledge.
(d) The Company or any of its Subsidiaries shall fail to make any
required payment on any Indebtedness exceeding $100,000 in principal
amount of (or guaranteed by) the Company or any of its Subsidiaries or
with respect to any share of capital stock (whether because funds are
not legally available therefor or otherwise), or the Company or any of
its Subsidiaries shall fail to perform or observe any of the covenants
or provisions required to be performed or observed by it pursuant to
any senior lending agreement (as from time to time in effect), and (i)
such failure shall continue, without having been duly cured, waived or
consented to, beyond the period of grace, if any, therein specified or
(ii) any security interest in or other lien on any property securing
any such indebtedness shall be enforced, unless contested in good
faith by the Company by appropriate proceedings or (iii) any such
Indebtedness shall become due and payable prior to stated maturity.
-11-
<PAGE>
(e) The Company shall fail to keep reserved a sufficient number
of shares of Voting Common Stock and Non-Voting Common Stock for
issuance upon conversion of the Series B Voting Preferred Stock and
the Series B Non-Voting Preferred Stock, respectively, or shall fail
to issue an amount of shares of Voting Common Stock and Non-Voting
Common Stock upon the conversion by the holders thereof of the Series
B Voting Preferred Stock and Series B Non-Voting Preferred Stock,
respectively.
(f) An Organic Change shall occur.
(g) The sum of Stockholders' Equity of the Company and its
subsidiaries plus (to the extent not included in Stockholders' Equity)
----
the Series B Preferred Stock, all determined in accordance with
generally accepted accounting principles consistently applied, shall
at any time be less than the amount equal to (i) $22,000,000 (being
the Company's pro forma net worth on the Original Issue Date) minus
-----
(ii) 25% of the aggregate purchase price for the then outstanding
Series B Preferred Stock minus (iii) the amount, not exceeding
-----
$14,000,000 in the aggregate, by which Stockholders' Equity has been
reduced after the Original Issue Date by the non-recurring write-off
of intangible assets carried on the balance sheet of the Company or
any of its Subsidiaries in connection with the acquisition of
professional practices acquired by the Company and its Subsidiaries.
(h) A final judgment which, in the aggregate with other
outstanding final judgments against the Company or any of its
Subsidiaries, exceeds $100,000 above insurance coverage shall be
rendered against the Company or any of its Subsidiaries and, within 30
days after entry thereof, such judgment shall not have been discharged
or stayed pending appeal, or within 30 days after expiration of such
stay such judgment shall not have been discharged.
(i) The Company or any of its Subsidiaries or their Affiliates
shall fail to perform or observe any other covenant, other agreement
or provision to be performed or observed by it under either Purchase
Agreement or any other Investor Agreement to which the Company is a
party and such failure shall not be rectified or cured to the
satisfaction of the Required Holders within 30 days after actual
knowledge by an executive officer of the Company.
(j) The Company or any of its subsidiaries owning at least 10%
of the assets, or contributing over the past fiscal year at least 10%
of the cash flow, of the Company and its subsidiaries on a
consolidated basis, shall:
(i) commence a voluntary case under Title 11 of the United
States as from time to time in effect, or authorize, by
appropriate proceedings of its Board of Directors or other
governing body, the commencement of such a voluntary case;
(ii) have filed against it a petition commencing an involuntary
case under such Title 11 and such petition is not dismissed
within 30 days;
-12-
<PAGE>
(iii) seek relief as a debtor under any applicable law, other
than such Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or
consent to or acquiesce in such relief;
(iv) have entered against it any nonappealable order by a court
of competent jurisdiction (A) finding it to be bankrupt or
insolvent, (B) ordering or approving its liquidation,
reorganization or any modification or alteration of the
rights of its creditors, or (C) assuming custody of, or
appointing a receiver or other custodian for, all or a
substantial part of its property; or
(v) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint or consent to
the appointment of a receiver or other custodian for all or
a substantial part of its property.
(k) An "Event of Default" under the Company's Certificate of
Incorporation, as from time to time amended and in effect, shall
occur.
8. CONVERSION.
----------
8.1 Right of Conversion of Series B Preferred Stock into Common Stock.
-----------------------------------------------------------------
Each share of Series B Voting Preferred Stock and Series B Non-Voting Preferred
Stock shall be convertible, at the option of the holder thereof at any time at
the office of the Company or any transfer agent into the number of shares of the
Voting Common Stock or Non-Voting Common Stock, respectively, of the Company
obtained by dividing $4.00 by the then effective conversion price of the Series
B Preferred Stock (as from time to time adjusted by this Section 8, the
"Conversion Price"). The initial Conversion Price shall be $4.00 per share;
- -----------------
provided, however, that in the event a Liquidity Event has not been consummated
- -------- -------
prior to May 1, 2002, the initial Conversion Price for each share of Series B
Preferred Stock then outstanding shall be deemed to be $3.00 per share. All
calculations under this Section 8 shall be made to the nearest one hundredth of
a cent.
8.2 Automatic Conversion of Series B Preferred Stock into Common Stock.
------------------------------------------------------------------
Each share of Series B Voting Preferred Stock and Series B Non-Voting Preferred
Stock shall automatically be converted into shares of Voting Common Stock and
Non-Voting Common Stock, respectively, at the then effective Conversion Price at
any time upon the closing of a Liquidity Event (to the extent such share of
Series B Preferred Stock is not then redeemed under Section 6.2).
8.3 Mechanics of Conversion Under Sections 8.1 and 8.2. Before any holder
--------------------------------------------------
of Series B Preferred Stock shall be entitled to convert the same into shares of
Common Stock and to receive certificates therefor, such holder shall surrender
the Series B Preferred Stock certificates, duly endorsed, at the office of the
Company or of any transfer agent for the Series B Preferred Stock, and shall
give written notice to the Company at such office that such holder elects to
convert the same; provided, however, that in the event of an automatic
-------- -------
conversion pursuant to Section 8.2, the outstanding shares of Series B Voting
Preferred Stock and Series B Non-Voting Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not
-13-
<PAGE>
the certificates representing such shares are surrendered to the Company or its
transfer agent; and provided, further that the Company shall not be obligated to
-------- -------
issue certificates evidencing the shares of Voting Common Stock and Non-Voting
Common Stock, respectively, issuable upon such automatic conversion unless the
certificates evidencing such shares of Series B Voting Preferred Stock or Series
B Non-Voting Preferred Stock, respectively, are either delivered to the Company
or its transfer agent as provided above, or the holder notifies the Company or
its transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement reasonably satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with such certificates.
The Company shall, as soon as practicable after such delivery, or execution of
such agreement in the case of a lost certificate, issue and deliver at such
office to such holder of Series B Voting Preferred Stock or Series B Non-Voting
Preferred Stock, a certificate or certificates for the number of shares of
Voting Common Stock or Non-Voting Common Stock, respectively, to which such
holder shall be entitled as aforesaid and a check payable to the holder in the
amount of any cash amounts payable as the result of a conversion into fractional
shares of Common Stock plus all accrued and unpaid dividends on such holder's
Series B Preferred Stock so converted; provided, however, that in the event of a
-------- -------
conversion prior to the Cash Payment Date, the Company shall issue fractional
shares in lieu of the cash payments contemplated above except that the Company
may pay cash for such fractional shares (a) to the extent permitted by its
lending agreements and (b) as a result of a reverse stock split consummated for
a legitimate business purpose (such as in preparation for an initial public
offering) so long as the cash amount paid for such fractional shares is not
material. Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of Series B
Preferred Stock to be converted, or in the case of automatic conversion
immediately upon closing of the Liquidity Event, and the person entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such shares of Common Stock on
such date.
8.4 Automatic Conversion between Series B Non-Voting Preferred Stock and
--------------------------------------------------------------------
Series B Voting Preferred Stock.
- -------------------------------
8.4.1 Series B Non-Voting Preferred Stock into Series B Voting
--------------------------------------------------------
Preferred Stock. If at any time any shares of Series B Non-Voting Preferred
---------------
Stock are held by or transferred to a Person which does not constitute a
Regulation Y Investor, then such shares shall automatically convert
one-for-one from Series B Non-Voting Preferred Stock to Series B Voting
Preferred Stock as of such time without any further action by the holder of
such shares and whether or not the certificates representing such shares
are surrendered to the Company or its transfer agent; provided, however,
-------- -------
that the Company shall not be obligated to issue certificates evidencing
the shares of Series B Voting Preferred Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Series B Non-
Voting Preferred Stock are either delivered to the Company or its transfer
agent as provided above, or the holder notifies the Company or its transfer
agent that such certificates have been lost, stolen or destroyed and
executes an agreement reasonably satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with such
certificates. The Company shall, as soon as practicable after such
delivery, or execution of such agreement in the case of a lost certificate,
issue and deliver at such office to such holder of Series B Non-Voting
Preferred Stock a certificate or certificates for the number of shares of
Series B Voting Preferred Stock to which such holder shall be entitled as
aforesaid.
-14-
<PAGE>
The term "Regulation Y Investor" shall mean (a) any Person that is
---------------------
subject to Regulation Y of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 225) and which holds shares of Series B Preferred
Stock of the Company, so long as such Person shall hold such shares of
Series B Preferred Stock, or shares issued upon conversion of such shares,
(b) any Affiliate of any such Regulation Y Investor that is a transferee of
any shares of Series B Preferred Stock, so long as such Affiliate shall
hold such shares of Series B Preferred Stock or shares issued upon
conversion of such shares.
For purposes of this Section 8, "Affiliate" shall mean, with respect
to any Person, any other Person directly or indirectly controlling,
controlled by or under common control with such Person (for purposes of the
above definition, the terms "control", "controlling", "controlled by" and
"under common control with", as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise).
8.4.2 Series B Voting Preferred Stock into Series B Non-Voting
--------------------------------------------------------
Preferred Stock. If at any time any shares of Series B Voting Preferred
---------------
Stock are held by or transferred to a Person which constitutes a Regulation
Y Investor, then such shares shall automatically convert one-for-one from
Series B Voting Preferred Stock to Series B Non-Voting Preferred Stock as
of such time without any further action by the holder of such shares and
whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of
Series B Non-Voting Preferred Stock issuable upon such automatic conversion
unless the certificates evidencing such shares of Series B Voting Preferred
Stock are either delivered to the Company or its transfer agent as provided
above, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Company to indemnify the Company from any
loss incurred by it in connection with such certificates. The Company
shall, as soon as practicable after such delivery, or execution of such
agreement in the case of a lost certificate, issue and deliver at such
office to such holder of Series B Voting Preferred Stock a certificate or
certificates for the number of shares of Series B Non-Voting Preferred
Stock to which such holder shall be entitled as aforesaid.
8.5 Adjustment of Conversion Price Due to Issuance of Additional Shares.
-------------------------------------------------------------------
The Conversion Price shall be subject to adjustment as follows:
8.5.1 Special Definitions.
-------------------
(a) "Options" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.
(b) "Original Issue Date" shall mean, with respect to any share
-------------------
of Series B Preferred Stock, the date on which such share of Series B
Preferred Stock is issued by the Company.
-15-
<PAGE>
(c) "Convertible Securities" shall mean any indebtedness,
----------------------
shares or other securities convertible into or exchangeable for Common
Stock.
(d) "Additional Shares of Common Stock" shall mean all shares
---------------------------------
of Common Stock issued (or, pursuant to Section 8.5.5, deemed to be
issued) by the Company after the Original Issue Date, other than
shares of Common Stock issued or issuable (or, pursuant to Section
8.5.5, deemed to be issued) at any time:
(i) upon conversion of the Series B Preferred Stock
authorized herein or upon exercise of the Purchase
Warrants (as defined in the respective Purchase
Agreements), Conversion Warrants (as defined in the
respective Purchase Agreements), Warrants (as defined in
the Subordinated Loan Agreement), and the other options
and warrants set forth in Exhibit 4.3.1 to either
Purchase Agreement;
(ii) as a stock dividend, stock split or similar distribution
on the Series B Preferred Stock or any other event for
which adjustment is made pursuant to Section 8.5.3;
(iii) pursuant to a stock option, stock bonus or other
employee stock plan permitted by section 5.14 of the
Weston Presidio Purchase Agreement and section 5.13 of
the Paribas Purchase Agreement or approved by the
Preferred Director at a meeting or by unanimous written
consent of the Board of Directors or approved by the
Required Holders, which approval shall specify the
number of shares of Common Stock available for
distribution under any such plan;
(iv) upon conversion of the Company's Non-voting Common
Stock, Prime Common Stock or Class A Stock into Voting
Common Stock, conversion of the Company's Series B Non-
Voting Preferred Stock into Series B Voting Preferred
Stock, or conversion of Series B Voting Preferred Stock
into Series B Non-Voting Preferred Stock;
(v) in connection with sales of Common Stock or other Future
Shares to the holders of the Series B Preferred Stock
pursuant to the exercise by such holders of their rights
under Section 10.1; or
(vi) by way of dividend or other distribution on shares of
Common Stock excluded from the definition of Additional
Shares of Common Stock by the foregoing clauses of this
Section 8.5.1(d).
8.5.2 No Adjustment of Conversion Price. No adjustment in the
---------------------------------
Conversion Price shall be made in respect of the issuance of Additional Shares
of Common Stock (a) unless the consideration per share (determined pursuant to
Section 8.5.6) for an Additional Share of Common Stock issued or deemed to be
issued by the Company is less than the applicable Conversion Price in effect on
the date of, and immediately prior to, such issue or (b) if prior to such
issuance the Required Holders give a written waiver of such adjustment.
-16-
<PAGE>
8.5.3 Adjustment of Conversion Price Upon Issuance of Additional
----------------------------------------------------------
Shares of Common Stock. In the event the Company shall issue Additional Shares
- ----------------------
of Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 8.5.5) for a consideration per share less than the
applicable Conversion Price of the Series B Preferred Stock in effect on the
date of and immediately prior to such issue, then and in such event, the
applicable Conversion Price shall be reduced, concurrently with such issue
(calculated to the nearest one hundredth of a cent), to a new Conversion Price
obtained by dividing (a) an amount equal to the sum of (i) the number of shares
of Common Stock outstanding immediately prior to such issue multiplied by the
then applicable Conversion Price and (ii) the consideration, if any, deemed
received by the Company upon such issue by (b) the total number of shares of
Common Stock deemed to be outstanding immediately after such issue; provided,
--------
however, that, for purposes of any calculation under this Section 8.5.3, all
- -------
shares of Common Stock outstanding and issuable upon conversion of outstanding
Options, Convertible Securities and the Series B Preferred Stock immediately
prior to giving effect to such calculation shall be deemed to be outstanding. In
no event will the Conversion Price be adjusted as the result of any issuance of
any Additional Shares of Common Stock for any amount higher than the Conversion
Price in effect immediately prior to such issuance.
8.5.4 Adjustments for Subdivisions, Stock Dividends, Combinations or
--------------------------------------------------------------
Consolidation of Common Stock. In the event the outstanding shares of Common
- -----------------------------
Stock shall be increased by way of stock issued as a dividend for no
consideration or subdivided (by stock split or otherwise) into a greater number
of shares of Common Stock, the respective Conversion Prices then in effect
shall, concurrently with the effectiveness of such increase or subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the respective Conversion Prices then
in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
8.5.5 Deemed Issue of Additional Shares of Common Stock - Options and
---------------------------------------------------------------
Convertible Securities. Except as provided in Section 8.5.3 or Section 8.5.4,
- ----------------------
in the event the Company at any time after the Original Issue Date shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date; provided, however, that Additional
-------- -------
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 8.5.6) of such
Additional Shares of Common Stock would be less than the applicable Conversion
Price in effect on the date of, and immediately prior to, such issue, or such
record date, as the case may be; and provided, further, that in any such case in
--------
which Additional Shares of Common Stock are deemed to be issued:
-17-
<PAGE>
(a) no further adjustment in the applicable Conversion Price
shall be made upon the subsequent issue of shares of Common Stock upon
the exercise of such Options or conversion or exchange of such
Convertible Securities or upon the subsequent issue of such
Convertible Securities or Options;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Company, or any increase in the
number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the applicable Conversion Price
computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase becoming effective, be
recomputed to reflect such increase insofar as it affects such Options
or the rights of conversion or exchange under such Convertible
Securities;
(c) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Conversion Price computed upon
the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon
shall remain in effect upon and after such expiration, but the
Additional Shares of Common Stock deemed issued as the result of the
original issue of such Option or rights shall not be deemed issued for
the purposes of any subsequent adjustment to the Conversion Price;
(d) in the event of any changes in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of such
Options or Convertible Securities, including a change resulting from
the anti-dilution provisions thereof, the Conversion Price then in
effect shall be readjusted to the Conversion Price that would have
been in effect if the adjustment which was made upon the issuance of
such Options or Convertible Securities had been made upon the basis of
such change;
(e) no readjustment pursuant to clauses (b) or (d) above shall
have the effect of increasing the applicable Conversion Price to an
amount which exceeds the lower of (i) the applicable Conversion Price
on the original adjustment date, or (ii) the applicable Conversion
Price that resulted from the issuance or deemed issuance of other
Additional Shares of Common Stock between the original adjustment date
and such readjustment date; and
(f) in the event the Company amends the terms of any Options or
Convertible Securities (whether such Options or Convertible Securities
were outstanding on the Original Issue Date or were issued after the
Original Issue Date), then such Options or Convertible Securities, as
so amended, shall be deemed to have been issued after the Original
Issue Date and the provisions of this Section 8.5.5 shall apply.
-18-
<PAGE>
8.5.6 Determination of Consideration. For purposes of this Section
------------------------------
8.5, the consideration received by the Company for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
-----------------
(i) insofar as it consists of cash, be computed at the
aggregate amount of net cash proceeds received by the
Company excluding amounts paid or payable for accrued
interest or accrued dividends;
(ii) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of
Directors of the Company; and
(iii) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of
the Company for consideration which covers both, be the
proportion of such consideration so received, computed as
provided in clauses (i) and (ii) above, which is allocated
to the Additional Shares of Common Stock as determined in
good faith by the Board of Directors.
(b) Options and Convertible Securities. The consideration per
----------------------------------
share received by the Company for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 8.5.5, relating to
Options and Convertible Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options or
Convertible Securities, plus, subject to Section 8.5.5(b),
the minimum aggregate amount of additional consideration
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such consideration) payable to the Company
upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or
exchange of such Convertible Securities by
(ii) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
8.5.7 Other Dilutive Events. In case any event shall occur as to
---------------------
which the other provisions of this Section 8.5 are not strictly applicable,
but the failure to make any adjustment in the Conversion Price would not, in
the reasonable judgment of a majority of the directors of
-19-
<PAGE>
the Company, fairly protect the conversion rights represented by the Series
B Preferred Stock in accordance with the intention of this Section 8, then,
upon request of the Required Holders, the Board of Directors of the Company
shall appoint a firm of independent public accountants of recognized
national standing (which may be the regular auditors of the Company) to give
their opinion as to the adjustment, if any, on a basis consistent with the
intention of this Section 8, necessary to preserve without dilution the
conversion rights represented by the Series B Preferred Stock. Upon receipt
of such opinion, the Company will promptly furnish a copy thereof to the
holders of the Series B Preferred Stock and the Conversion Price shall be
adjusted in accordance therewith to the extent recommended by such
accountants. The fees and expenses of such accountants shall be paid by the
Company; provided, however, that if such accountants opine that the total
-------- -------
adjustment per share of Series B Preferred Stock is less than 10% of the
previous per share Conversion Price, such fees and expenses will be paid by
the holders of the Series B Preferred Stock.
8.6 Other Distributions. In the event the Company shall declare a
-------------------
distribution payable in securities of the Company (other than shares of Common
Stock), securities of other entities, securities evidencing indebtedness issued
by the Company or other entities, assets (including cash dividends) or options
or rights, then, in each such case for the purpose of this Section 8, the
holders of the Series B Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the number of
shares of Common Stock of the Company into which their shares of such Series B
Preferred Stock were convertible as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution.
8.7 Subsequent Events. In the event of any recapitalization,
-----------------
consolidation or merger of the Company or its successor which does not require
redemption of the Series B Preferred Stock pursuant to Section 6.2, the shares
of Series B Preferred Stock shall be convertible into such shares or other
interests as the Series B Preferred Stock would have been entitled if the Series
B Preferred Stock had been converted into Common Stock immediately prior to such
event. In the event of any merger, consolidation or recapitalization the
Company will take reasonable steps to ensure that the Regulation Y Investors
would not receive (a) any voting securities which would cause such holder to
violate any law, regulation or other requirement of any governmental body
applicable to such holder, or (b) any securities convertible into voting
securities which if such conversion took place, would cause such holder to
violate any law, regulation or other requirement of any governmental body
applicable to such holder, other than securities which are specifically provided
to be convertible only in the event that such conversion may occur without such
violation.
8.8 Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Conversion Price pursuant to this Section 8, the Company
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of Series B
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment is based. The Company
shall, upon the written request at any time of any holder of Series B Preferred
Stock, furnish or cause to be furnished to such holder a certificate setting
forth (a) all such adjustments and readjustments previously made, (b) the
Conversion Price at the time in effect, and (c) the number of shares of Common
Stock and the amount, if any, of other property which at such time would be
received upon the conversion of Series B Preferred Stock.
-20-
<PAGE>
8.9 Issue Tax. The issuance of certificates for shares of Common Stock
---------
upon conversion of Series B Preferred Stock shall be made without charge to the
holders thereof for any issuance tax; provided, however, that the Company shall
-------- -------
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
the name of the holder of the Series B Preferred Stock which is being converted
to Common Stock. The issuance of certificates for shares of Series B Voting
Preferred Stock upon conversion of Series B Non-Voting Preferred Stock or for
shares of Series B Non-Voting Preferred Stock upon conversion of Series B Voting
Preferred Stock shall be made without charge to the holders thereof for any
issuance tax; provided, however, that the Company shall not be required to pay
-------- -------
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than the name of the holder of
the Series B Voting Preferred Stock or Series B Non-Voting Preferred Stock, as
the case may be, which is being converted.
9. CERTAIN COVENANTS.
-----------------
9.1 Special Restrictions. At any time when shares of Series B Preferred
--------------------
Stock are outstanding, except where the vote or written consent of the holders
of a greater number of shares of the Company is required by law or by the
Certificate of Incorporation, and in addition to any other vote required by law
or the Certificate of Incorporation, without the consent of the Required
Holders, given in writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class, the Company will not:
(a) create or authorize the creation of any additional class or
series of shares of stock, or issue any shares thereof, unless the
same ranks junior to the Series B Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding up
of the Company or increase the authorized amount of the Series B
Preferred Stock or increase the authorized amount of any additional
class or series of shares of stock unless the same ranks junior to the
Series B Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Company, or create or
authorize any instrument or security convertible into shares of Series
B Preferred Stock or into shares of any other class or series of stock
unless the same ranks junior to the Series B Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding up
of the Company, whether any such creation, authorization or increase
shall be by means of amendment to the Certificate of Incorporation or
by merger, consolidation or otherwise;
(b) amend, alter or repeal its Certificate of Incorporation or
By-laws in a manner that is adverse to the holders of Series B
Preferred Stock in any respect or for which the holders of Series B
Preferred Stock did not receive prior written notice;
(c) purchase or set aside any sums for the purchase of any shares
of the Company's capital stock other than the Series B Preferred
Stock, except for (i) the purchase of shares of Common Stock from
former employees of the Company who acquired such shares directly from
the Company pursuant to the Stock Option Plan (as defined in the
Weston Presidio Purchase Agreement), if each such purchase is made
-21-
<PAGE>
pursuant to contractual rights held by the Company relating to the
termination of employment of any such former employee and the total
purchase price does not exceed $100,000 plus any applicable life
insurance payments for all such purchases from each such former
employee and (ii) redemptions required by the warrants issued to the
lenders under the Senior Loan Agreement (as defined in the Weston
Presidio Purchase Agreement) or by the PCF Warrant Agreement or by the
Charter (as defined in the respective Purchase Agreements) of the
Company with respect to Class A Stock;
(d) redeem or otherwise acquire any shares of Series B Preferred
Stock except as expressly authorized in Section 6 or pursuant to a
purchase offer made pro rata to all holders of the shares of Series B
Preferred Stock on the basis of the aggregate number of outstanding
shares of Series B Preferred Stock then held by each such holder;
(e) consent to any liquidation, dissolution or winding up of the
Company; or
(f) consolidate or merge into or with any other entity or
entities or sell or transfer all or substantially all its assets,
except that the Company may, without the consent of the holders of at
least a majority of the then outstanding shares of Series B Voting
Preferred Stock, effectuate a merger in which (i) the Company is the
surviving corporation and (ii) the stockholders of the Company
immediately prior to the merger hold more than 50% of the outstanding
voting power of the surviving corporation (assuming conversion of all
convertible securities and exercise of all outstanding options and
warrants).
9.2 No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, recapitalization, transfer of
all or a substantial portion of its assets, consolidation, merger, dissolution,
issue or sale of securities, closing or transfer books or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed under this Certificate of Designation by the
Company, but will at all times in good faith assist in carrying out all the
provisions of this Certificate of Designation and in taking all such action as
may be necessary or appropriate in order to protect the conversion and other
rights of the holders of Series B Preferred Stock against impairment.
9.3 Reservation of Shares. So long as any share of Series B Preferred
---------------------
Stock shall remain outstanding, the Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized capital stock, for
the purpose of issuance upon conversion of the Series B Voting Preferred Stock
and the Series B Non-Voting Preferred Stock, the full number of shares of Voting
Common Stock and Non-Voting Common Stock, respectively, then issuable upon
exercise of all outstanding shares of Series B Preferred Stock. So long as any
share of Series B Non-Voting Preferred Stock shall remain outstanding, the
Company shall at all times reserve and keep available, free from preemptive
rights, out of its authorized capital stock, for the purpose of issuance upon
conversion of the Series B Non-Voting Preferred Stock, the full number of
shares of Series B Voting
-22-
<PAGE>
Preferred Stock then issuable upon transfer of all outstanding shares of Series
B Non-Voting Preferred Stock to a Person or Persons not constituting a
Regulation Y Investor. So long as any share of Series B Voting Preferred Stock
shall remain outstanding, the Company shall at all times reserve and keep
available, free from preemptive rights, out of its authorized capital stock, for
the purpose of issuance upon conversion of the Series B Voting Preferred Stock,
the full number of shares of Series B Non-Voting Preferred Stock then issuable
upon transfer of all outstanding shares of Series B Voting Preferred Stock to a
Person or Persons constituting a Regulation Y Investor. If the Company's Common
Stock shall be listed on any national stock exchange, the Company at its expense
shall include in its listing application all of the shares of Common Stock
reserved for issuance upon conversion of the Series B Preferred Stock (subject
to issuance or notice of issuance to the exchange) and will similarly procure
the listing of any further Common Stock reserved for issuance upon conversion of
the Series B Preferred Stock at any subsequent time as a result of adjustments
in the outstanding Common Stock or otherwise.
9.4 Validity of Shares. The Company will from time to time take all such
------------------
action as may be required to assure that all shares of Voting Common Stock and
Non-Voting Common Stock which may be issued upon conversion of any share of the
Series B Voting Preferred Stock and Series B Non-Voting Preferred Stock,
respectively, will, upon issuance, be legally and validly issued, fully paid and
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof. Without limiting the generality of the foregoing, the Company
will from time to time take all such action as may be required to assure that
the par value per share, if any, of the Common Stock is at all times equal to or
less than the lowest quotient obtained by dividing the then current par value of
the Series B Preferred Stock by the number of shares of Common Stock into which
each share of Series B Preferred Stock can, from time to time, be converted.
The Company will also from time to time take all such analogous actions as may
be required to assure that (a) all shares of Series B Voting Preferred Stock
which may be issued upon conversion of any share of the Series B Non-Voting
Preferred Stock will, upon issuance, be legally and validly issued, fully paid
and non-assessable and free from all taxes, liens and charges with respect to
the issuance thereof; and (b) all shares of Series B Non-Voting Preferred Stock
which may be issued upon conversion of any share of the Series B Voting
Preferred Stock will, upon issuance, be legally and validly issued, fully paid
and non-assessable and free from all taxes, liens and charges with respect to
the issuance thereof.
9.5 Notice of Certain Events. If at any time:
------------------------
(a) the Company shall declare any dividend or distribution
payable to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or
any other rights;
(c) any recapitalization of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its
assets to, another corporation or business organization shall occur;
or
(d) a voluntary or involuntary dissolution, liquidation or
winding up of the Company shall occur;
-23-
<PAGE>
then, in any one or more of such cases, the Company shall give the registered
holders of the Series B Preferred Stock written notice, by registered mail, of
the date on which a record shall be taken for such dividend, distribution or
subscription rights or for determining stockholders entitled to vote upon such
recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding up and of the date when any such transaction shall take place, as the
case may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given at least 20 days prior to the record
date with respect thereto.
9.6 No Reissuance of Preferred Stock. No shares of Series B Preferred
--------------------------------
Stock acquired by the Company 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 Company shall be authorized to issue. The
Company may from time to time take such appropriate corporate action as may be
necessary to reduce the authorized number of shares of Preferred Stock
accordingly.
10. PREEMPTIVE RIGHTS.
-----------------
10.1 Right of First Offer. Until the closing under a Liquidity Event, the
--------------------
Company shall not issue or sell any Common Stock (including securities
convertible into, or options, warrants or other rights to purchase Common Stock,
but excluding the shares described in Section 10.7) (collectively, the "Future
------
Shares") to any Person (an "Offeree") without first providing each holder of
- ------ -------
Series B Preferred Stock the right to subscribe for its Proportionate Percentage
of the Future Shares at a price and on such other terms which are at least as
favorable as shall have been offered or are proposed to be offered by the
Company to such Offeree and which shall have been specified by the Company in a
notice delivered to each holder of Series B Preferred Stock (the "Proposal");
--------
provided, however, that the holder of Series B Preferred Stock shall have the
- -------- -------
option to purchase Future Shares with cash, regardless of the method of purchase
offered to such Offeree. The Proposal by its terms shall remain open and
irrevocable for a period of 30 days from the date it is delivered by the Company
to each holder of Series B Preferred Stock (the "Future Shares Exercise
----------------------
Period"). The Proposal shall also certify that the Company has either (a)
received a bona fide offer from a prospective purchaser, who shall be identified
in such certification, and that the Company in good faith believes a binding
agreement of sale is obtainable for consideration having a fair market, cash
equivalent or present value set forth in such certification; or (b) intends in
good faith to make an offering of its securities to prospective purchasers, who
shall be identified to the extent possible in such certification at the price
and on the terms set forth in such certification.
"Proportionate Percentage" means, for any holder of Series B Preferred
------------------------
Stock, the percentage of Future Shares covered by the Proposal equal to (i) the
number of shares of Common Stock into which the shares of Series B Preferred
Stock held by such holder would then be convertible divided by (ii) the total
number of shares of Common Stock outstanding at the time of delivery of the
Proposal plus the aggregate number of shares of Common Stock into which all
----
shares of Series B Preferred Stock would then be convertible.
-24-
<PAGE>
10.2 Notice. Notice of the intention of each holder of Series B Preferred
------
Stock to accept the Proposal made pursuant to Section 10.1 shall be evidenced by
a writing signed by such holder and delivered to the Company prior to the end of
the Future Shares Exercise Period (the "Notice of Purchase") setting forth that
------------------
portion of the Future Shares such holder elects to purchase (the "Accepted
--------
Shares").
- ------
10.3 Full Acceptance. In the event that each holder of Series B Preferred
---------------
Stock elects to purchase all of the shares offered to such holder in the
Proposal, the Company shall sell to each such holder, pursuant to Section 10.6,
the number of Accepted Shares set forth in such holder's Notice of Purchase.
10.4 Partial Acceptance. In the event that one or more holders of Series
------------------
B Preferred Stock do not elect to purchase all of the shares offered to such
holders in the Proposal, the Company shall sell to each such holder, pursuant to
Section 10.6, the number of Accepted Shares, if any, set forth in such holder's
Notice of Purchase. Holders of Series B Preferred Stock may purchase pursuant to
Section 10.6 any remaining shares offered in the Proposal not purchased by the
other holders of Series B Preferred Stock pro rata based on the respective
Proportionate Percentages of such holders wishing to purchase additional shares,
or as they may otherwise agree.
10.5 No Fractional Shares. For the purpose of avoiding fractions as to
--------------------
Future Shares, the Company may adjust upward or downward by not more than one
full share the number of Future Shares which any holder of Series B Preferred
Stock would otherwise be entitled to purchase.
10.6 Sale of Shares. No later than 30 days after the expiration of the
--------------
Future Shares Exercise Period, the Company shall deliver to each holder of
Series B Preferred Stock who has submitted a Notice of Purchase to the Company a
notice indicating the number of Future Shares which the Company shall sell to
such holder pursuant to this Section 10 and the terms and conditions of such
sale, which shall be in all respects (including unit price and interest rates)
the same as specified in the proposal. The sale to such holders of such Future
Shares shall take place not later than 10 days after receipt of such notice.
Any sale to an Offeree of Future Shares that were not selected for purchase
by the holders of Series B Preferred Stock as provided above shall take place
not later than 90 days after the expiration of the Future Shares Exercise
Period. Such sale shall be upon terms and conditions in all respects (including
unit price and interest rates) which are no more favorable to such Offeree or
less favorable to the Company than those set forth in the Proposal. Any refused
Future Shares not purchased by the Offeree as contemplated by the Proposal
within the 90-day period specified above shall remain subject to this Section
10.
10.7 Exclusion of Certain Shares. Notwithstanding any contrary provision
---------------------------
of this Section 10, Future Shares shall not include Additional Shares of Common
Stock, Warrant Shares (as defined in the PCF Warrant Agreement), shares issued
by the Company as consideration in acquisitions permitted by the Purchase
Agreements, or shares issued in connection with a Liquidity Event.
11. AMENDMENTS. The provisions of these terms of the Series B Preferred Stock
----------
may not be amended, modified or waived without the written consent or
affirmative vote of the Required Holders;
-25-
<PAGE>
provided, however, that (a) any amendment reducing or postponing the payment of
- -------- -------
dividends or redemptions or increasing the amount of the Conversion Price shall
require the written consent or affirmative vote of holders of 90% of the then
outstanding shares of Series B Voting Preferred Stock, (b) any amendment
adversely affecting the rights of holders of Class A Stock under Section 5 shall
require the written consent or affirmative vote of holders of a majority of the
then outstanding shares of Class A Stock, and (c) any amendment, modification or
waiver adversely affecting the rights of an SBA Holder differently from the
effects on the other holders of Series B Preferred Stock shall require the prior
written consent of each SBA Holder. Except to the extent required by law, the
vote of the holders of any other class of capital stock of the Company is not
required for the amendment, modification or waiver of the terms of this
Certificate of Designation.
-26-
<PAGE>
PHYSICIAN HEALTH CORPORATION has caused this amended and restated
certificate to be signed by Sarah Garvin, its President, and attested by James
Ryan, Secretary, this ____ day of October, 1997.
--------------------------
President
ATTEST:
- ---------------------------
Secretary
-27-
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
PHYSICIAN HEALTH CORPORATION
<PAGE>
TABLE OF CONTENTS
ARTICLE I
OFFICES
-------
Section 1. Registered Office..................................... 1
-----------------
Section 2. Other Offices......................................... 1
-------------
ARTICLE II
STOCKHOLDERS
------------
Section 1. Place of Meetings..................................... 1
-----------------
Section 2. Annual Meeting........................................ 1
--------------
Section 3. List of Stockholders.................................. 1
--------------------
Section 4. Special Meetings...................................... 1
----------------
Section 5. Notice................................................ 1
------
Section 6. Quorum................................................ 2
------
Section 7. Voting................................................ 2
------
Section 8. Method of Voting...................................... 2
----------------
Section 9. Record Date........................................... 2
-----------
Section 10. Action by Consent.................................... 2
-----------------
Section 11. Stockholder Proposals................................ 3
---------------------
Section 12. Nomination of Directors.............................. 3
-----------------------
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Management............................................ 4
----------
Section 2. Qualification; Election; Term......................... 4
-----------------------------
Section 3. Number................................................ 4
------
Section 4. Removal............................................... 5
-------
Section 5. Vacancies............................................. 5
---------
Section 6. Place of Meetings..................................... 5
-----------------
Section 7. Annual Meeting........................................ 5
--------------
Section 8. Regular Meetings...................................... 5
----------------
Section 9. Special Meetings...................................... 5
----------------
Section 10. Quorum............................................... 5
------
Section 11. Interested Directors................................. 5
--------------------
Section 12. Committees........................................... 5
----------
Section 13. Action by Consent.................................... 6
-----------------
Section 14. Compensation of Directors............................ 6
-------------------------
ARTICLE IV
NOTICE
------
Section 1. Form of Notice........................................ 6
--------------
Section 2. Waiver................................................ 6
------
Amended and Restated Bylaws of Physician Health Corporation
i
<PAGE>
ARTICLE V
OFFICFRS AND AGENTS
-------------------
Section 1. In General............................................ 6
----------
Section 2. Election.............................................. 6
--------
Section 3. Other Officers and Agents............................. 6
-------------------------
Section 4. Compensation.......................................... 6
------------
Section 5. Term of Office and Removal............................ 7
--------------------------
Section 6. Employment and Other Contracts........................ 7
------------------------------
Section 7. Chairman of the Board of Directors.................... 7
----------------------------------
Section 8. Chief Executive Officer............................... 7
-----------------------
Section 9. President............................................. 7
---------
Section 10. Chief Financial Officer.............................. 7
-----------------------
Section 11. Secretary............................................ 7
---------
Section 12. Bonding.............................................. 7
-------
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
--------------------------------
Section 1. Form of Certificates.................................. 8
--------------------
Section 2. Lost Certificates..................................... 8
-----------------
Section 3. Transfer of Shares.................................... 8
------------------
Section 4. Registered Stockholders............................... 8
-----------------------
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends............................................. 8
---------
Section 2. Reserves.............................................. 9
--------
Section 3. Telephone and Similar Meetings........................ 9
------------------------------
Section 4. Books and Records..................................... 9
-----------------
Section 5. Fiscal Year........................................... 9
-----------
Section 6. Seal.................................................. 9
----
Section 7. Advances of Expenses.................................. 9
--------------------
Section 8. Indemnification...................................... 10
---------------
Section 9. Insurance............................................ 10
---------
Section 10. Resignation......................................... 10
-----------
Section 11. Amendment of Bylaws................................. 10
-------------------
Section 12. Invalid Provisions.................................. 10
------------------
Section 13. Relation to the Certificate of Incorporation........ 10
--------------------------------------------
Amended and Restated Bylaws of Physician Health Corporation
ii
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
PHYSICIAN HEALTH CORPORATION
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office and registered
--------- -----------------
agent of Physician Health Corporation (the "Corporation") will be as from time
to time set forth in the Corporation's Certificate of Incorporation (as may be
amended from time to time) or in any certificate filed with the Secretary of
State of the State of Delaware, and the appropriate county Recorder or
Recorders, as the case may be, to amend such information.
Section 2. Other Offices. The Corporation may also have offices at such
--------- -------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
------------
Section 1. Place of Meetings. All meetings of the stockholders for the
--------- -----------------
election of Directors will be held at such place, within or without the State of
Delaware, as may be fixed from time to time by the Board of Directors. Meetings
of stockholders for any other purpose may be held at such time and place, within
or without the State of Delaware, as may be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the stockholders will
--------- --------------
be held at such time as may be determined by the Board of Directors, at which
meeting the stockholders will elect a Board of Directors, and transact such
other business as may properly be brought before the meeting.
Section 3. List of Stockholders. At least ten days before each meeting
--------- --------------------
of stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order, with the address of and the number of
voting shares registered in the name of each, will be prepared by the officer or
agent having charge of the stock transfer books. Such list will 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 specified in the notice of the meeting, or if not so specified
at the place where the meeting is to be held. Such list will be produced and
kept open at the time and place of the meeting during the whole time thereof,
and will be subject to the inspection of any stockholder who may be present.
Section 4. Special Meetings. Special meetings of the stockholders, for
--------- ----------------
any purpose or purposes, unless otherwise prescribed by law, the Certificate of
Incorporation or these Bylaws, may be called by the Chairman of the Board, the
Chief Executive Officer, the President or the Board of Directors. Business
transacted at all special meetings will be confined to the purposes stated in
the notice of the meeting unless all stockholders entitled to vote are present
and consent.
Section 5. Notice. Written or printed notice stating the place, day and
--------- ------
hour of any meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, will be delivered not less
than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board, the
Chief Executive Officer, the President, the Secretary, or the officer or person
calling the meeting, to each stockholder of record entitled to vote at the
meeting. If mailed, such notice will
<PAGE>
be deemed to be delivered when deposited in the United States mail, addressed to
the stockholder at his address as it appears on the stock transfer books of the
Corporation, with postage thereon prepaid.
Section 6. Quorum. At all meetings of the stockholders, the presence in
--------- ------
person or by proxy of the holders of a majority of the shares issued and
outstanding and entitled to vote will be necessary and sufficient to constitute
a quorum for the transaction of business except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws. If, however, such quorum is
not present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, will have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting will
be given to each stockholder of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
notified.
Section 7. Voting. When a quorum is present at any meeting of the
--------- ------
Corporation's stockholders, the vote of the holders of a majority of the shares
entitled to vote on, and voted for or against, any matter will decide any
questions brought before such meeting, unless the question is one upon which, by
express provision of law, the Certificate of Incorporation or these Bylaws, a
different vote is required, in which case such express provision will govern and
control the decision of such question. The stockholders present in person or by
proxy at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 8. Method of Voting. Each outstanding share of the
--------- ----------------
Corporation's capital stock, regardless of class, will be entitled to one vote
on each matter submitted to a vote at a meeting of stockholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the Certificate of Incorporation, as amended from time to time. At
any meeting of the stockholders, every stockholder having the right to vote will
be entitled to vote in person, or by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to such meeting, unless such instrument provides for a longer period. Each
proxy will be revocable unless expressly provided therein to be irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock itself
or an interest in the Corporation generally. Such proxy will be filed with the
Secretary of the Corporation prior to or at the time of the meeting. Voting on
any question or in any election, other than for directors, may be by voice vote
or show of hands unless the presiding officer orders, or any stockholder
demands, that voting be by written ballot.
Section 9. Record Date. The Board of Directors may fix in advance a
--------- -----------
record date for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, which record date will not precede the
date upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date will not be less than ten nor more than sixty
days prior to such meeting. In the absence of any action by the Board of
Directors, the close of business on the date next preceding the day on which the
notice is given will be the record date, or, if notice is waived, the close of
business on the day next preceding the day on which the meeting is held will be
the record date.
Section 10. Action by Consent. Except as set forth below, any action
---------- -----------------
required or permitted by law, the Certificate of Incorporation or these Bylaws
to be taken at a meeting of the stockholders of the Corporation may be taken
without a meeting if a consent or consents in writing, setting forth the action
so taken, is signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and will be delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the minute book. Notwithstanding the foregoing,
from and after the first date that the Corporation has received funding from the
sale of capital stock of the Corporation in an initial public offering any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at an annual or
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special meeting of the stockholders of the Corporation and may not be effected
by any consent in writing by the stockholders.
Section 11. Stockholder Proposals. No proposal by a stockholder made
---------- ---------------------
pursuant to this Article II may be voted upon at a meeting of stockholders
unless such stockholder shall have delivered or mailed in a timely manner (as
set forth herein) and in writing to the Secretary of the Corporation (i) notice
of such proposal, (ii) the text of the proposed alteration, amendment or repeal,
if such proposal relates to a proposed change to the Corporation's Certificate
of Incorporation or Bylaws, (iii) evidence reasonably satisfactory to the
Secretary of the Corporation of such stockholder's status as such and of the
number of shares of each class of capital stock of the Corporation of which such
stockholder is the beneficial owner, (iv) a list of the names and addresses of
other beneficial owners of shares of the capital stock of the Corporation, if
any, with whom such stockholder is acting in concert, and the number of shares
of each class of capital stock of the Corporation beneficially owned by each
such beneficial owner, and (v) an opinion of counsel, which counsel and the form
and substance of which opinion shall be reasonably satisfactory to the Board of
Directors of the Corporation, to the effect that the Certificate of
Incorporation or Bylaws resulting from the adoption of such proposal would not
be in conflict with the laws of the State of Delaware, if such proposal relates
to a proposed change to the Corporation's Certificate of Incorporation or
Bylaws. To be timely in connection with an annual meeting of stockholders, a
stockholder's notice and other aforesaid items shall be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
ninety nor more than 180 days prior to the earlier of the date of the meeting or
the corresponding date on which the immediately preceding year's annual meeting
of stockholders was held. To be timely in connection with the voting on any
such proposal at a special meeting of the stockholders, a stockholder's notice
and other aforesaid items shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than forty days nor more
than sixty days prior to the date of such meeting; provided, however, that in
the event that less than fifty days' notice or prior public disclosure of the
date of the special meeting of the stockholders is given or made to the
stockholders, such stockholder's notice and other aforesaid items to be timely
must be so received not later than the close of business on the seventh day
following the day on which such notice of date of the meeting was mailed or such
public disclosure was made. Within thirty days (or such shorter period that may
exist prior to the date of the meeting) after such stockholder shall have
submitted the aforesaid items, the Secretary and the Board of Directors of the
Corporation shall respectively determine whether the items to be ruled upon by
them are reasonably satisfactory and shall notify such stockholder in writing of
their respective determinations. If such stockholder fails to submit a required
item in the form or within the time indicated, or if the Secretary or the Board
of Directors of the Corporation determines that the items to be ruled upon by
them are not reasonably satisfactory, then such proposal by such stockholder may
not be voted upon by the stockholders of the Corporation at such meeting of
stockholders. The presiding person at each meeting of stockholders shall, if
the facts warrant, determine and declare to the meeting that a proposal was not
made in accordance with the procedure prescribed by these Bylaws, and if he
should so determine, he shall so declare to the meeting and the defective
proposal shall be disregarded. The requirements of this Section 11 shall be in
addition to any other requirements imposed by these Bylaws, by the Corporation's
Certificate of Incorporation or the law.
Section 12. Nomination of Directors. Nominations for the election of
---------- -----------------------
directors may be made by the Board of Directors or by any stockholder (a
"Nominator") entitled to vote in the election of directors. Such nominations,
other than those made by the Board of Directors, shall be made in writing
pursuant to timely notice delivered to or mailed and received by the Secretary
of the Corporation as set forth in this Section 12. To be timely in connection
with an annual meeting of stockholders, a Nominator's notice, setting forth the
name and address of the person to be nominated, shall be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
ninety days nor more than 180 days prior to the earlier of the date of the
meeting or the corresponding date on which the immediately preceding year's
annual meeting of stockholders was held. To be timely in connection with any
election of a director at a special meeting of the stockholders, a Nominator's
notice, setting forth the name and address of the person to be nominated, shall
be delivered to or mailed and received at the principal executive offices of the
Corporation not later than the close of business on the tenth day following the
day on which such notice of date of the meeting was mailed or such public
disclosure was made, whichever first occurs. At such time, the Nominator shall
also submit written evidence, reasonably satisfactory to the Secretary of the
Corporation, that the Nominator is a stockholder of the Corporation and shall
identify in writing (i) the name and address of the Nominator, (ii) the number
of shares of each class of capital stock of the Corporation of which the
Nominator is the beneficial owner, (iii)
3
<PAGE>
the name and address of each of the persons with whom the Nominator is acting in
concert, and (iv) the number of shares of capital stock of which each such
person with whom the Nominator is acting in concert is the beneficial owner
pursuant to which the nomination or nominations are to be made. At such time,
the Nominator shall also submit in writing (i) the information with respect to
each such proposed nominee that would be required to be provided in a proxy
statement prepared in accordance with Regulation 14A under the Securities
Exchange Act of 1934, as amended, and (ii) a notarized affidavit executed by
each such proposed nominee to the effect that, if elected as a member of the
Board of Directors, he will serve and that he is eligible for election as a
member of the Board of Directors. Within thirty days (or such shorter time
period that may exist prior to the date of the meeting) after the Nominator has
submitted the aforesaid items to the Secretary of the Corporation, the Secretary
of the Corporation shall determine whether the evidence of the Nominator's
status as a stockholder submitted by the Nominator is reasonably satisfactory
and shall notify the Nominator in writing of his determination. If the Secretary
of the Corporation finds that such evidence is not reasonably satisfactory, or
if the Nominator fails to submit the requisite information in the form or within
the time indicated, such nomination shall be ineffective for the election at the
meeting at which such person is proposed to be nominated. The presiding person
at each meeting of stockholders shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these bylaws, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. The
requirements of this Section 12 shall be in addition to any other requirements
imposed by these bylaws, by the Certificate of Incorporation or by law.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Management. The business and affairs of the Corporation will
--------- ----------
be managed by or under the direction of its Board of Directors who may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law, by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 2. Qualification; Election; Term. None of the Directors need be
--------- -----------------------------
a stockholder of the Corporation or a resident of the State of Delaware. The
directors shall be elected at the annual meeting of the stockholders and shall
hold office until the next annual meeting and until their successors are duly
elected and shall qualify, unless sooner displaced. Notwithstanding the
foregoing, from and after the first date that the Corporation has received
funding from the sale of capital stock of the Corporation in an initial public
offering, the Directors shall be classified, with respect to the time for which
they severally hold office, into three classes (Class A, Class B and Class C),
as nearly equal in number as possible, as determined by the Board of Directors,
one class to hold office initially for a term expiring at the first annual
meeting of stockholders to be held after completion of such public offering,
another class to hold office initially for a term expiring at the second annual
meeting of stockholders to be held after completion of such initial public
offering and another class to hold office for a term expiring at the third
annual meeting of stockholders to be held after completion of such initial
public offering, with members of each class to hold office until whichever of
the following occurs first: his successor is elected and qualified, his
resignation, his removal from office by the stockholders or his death. At each
annual meeting of stockholders of the Corporation, the successors to the class
of directors whose term expires at the meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election. Directors shall be elected by a plurality
of the votes of the shares present in person or represented by proxy and
entitled to vote on the election of Directors at any annual or special meeting
of stockholders. Such election shall be by written ballot.
Section 3. Number. The number of Directors of the Corporation will be
--------- ------
at least one and not more than eleven. The number of Directors authorized will
be fixed as the Board of Directors may from time to time designate, or if no
such designation has been made, the number of Directors will be nine.
4
<PAGE>
Section 4. Removal. Any Director may be removed, only for cause, at any
--------- -------
special meeting of stockholders by the affirmative vote of the holders of a
majority in number of all outstanding voting stock entitled to vote; provided
that notice of the intention to act upon such matter has been given in the
notice calling such meeting.
Section 5. Vacancies. Vacancies and newly created directorships
--------- ---------
resulting from any increase in the authorized number of Directors may be filled
by the vote of a majority of the Directors then in office, though less than a
quorum, or by a sole remaining Director, and each Director so chosen shall hold
office until the next election of the class for which such Director has been
chosen and until his successor is duly elected and shall qualify, unless sooner
displaced. If there are no Directors in office, then an election of Directors
may be held in the manner provided by statute.
Section 6. Place of Meetings. Meetings of the Board of Directors,
--------- -----------------
regular or special, may be held at such place within or without the State of
Delaware as may be fixed from time to time by the Board of Directors.
Section 7. Annual Meeting. The first meeting of each newly elected
--------- --------------
Board of Directors will be held without further notice immediately following the
annual meeting of stockholders and at the same place, unless by unanimous
consent, the Directors then elected and serving change such time or place.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
--------- ----------------
may be held without notice at such time and place as is from time to time
determined by resolution of the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by the Chairman of the Board, the Chief Executive Officer or the
President on oral or written notice to each Director, given either personally,
by telephone, by telegram or by mail; special meetings will be called by the
Chairman of the Board, Chief Executive Officer, President or Secretary in like
manner and on like notice on the written request of at least three Directors.
The purpose or purposes of any special meeting will be specified in the notice
relating thereto.
Section 10. Quorum. At all meetings of the Board of Directors the
---------- ------
presence of a majority of the number of Directors fixed by these Bylaws will be
necessary and sufficient to constitute a quorum for the transaction of business,
and the affirmative vote of at least a majority of the Directors present at any
meeting at which there is a quorum will be the act of the Board of Directors,
except as may be otherwise specifically provided by law, the Certificate of
Incorporation or these Bylaws. If a quorum is not present at any meeting of the
Board of Directors, the Directors present thereat may adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum is present.
Section 11. Interested Directors. No contract or transaction between
---------- --------------------
the Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of the Corporation's Directors or officers are
directors or officers or have a financial interest, will be void or voidable
solely for this reason, solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (i) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested Directors, even though the disinterested Directors
be less than a quorum, (ii) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders, or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee that authorizes the contract or transaction.
Section 12. Committees. The Board of Directors may, by resolution
---------- ----------
passed by a majority of the entire Board, designate committees, each committee
to consist of two or more Directors of the Corporation, which committees will
have such power and authority and will perform such functions as may be provided
in such resolution. Such committee
5
<PAGE>
or committees will have such name or names as may be designated by the Board and
will keep regular minutes of their proceedings and report the same to the Board
of Directors when required.
Section 13. Action by Consent. Any action required or permitted to be
---------- -----------------
taken at any meeting of the Board of Directors or any committee of the Board of
Directors may be taken without such a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be.
Section 14. Compensation of Directors. Directors will receive such
---------- -------------------------
compensation for their services and reimbursement for their expenses as the
Board of Directors, by resolution, may establish; provided that nothing herein
contained will be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
NOTICE
------
Section 1. Form of Notice. Whenever by law, the Certificate of
--------- --------------
Incorporation or of these Bylaws, notice is to be given to any Director or
stockholder, and no provision is made as to how such notice will be given, such
notice may be given in writing, by mail, postage prepaid, addressed to such
Director or stockholder at such address as appears on the books of the
Corporation. Any notice required or permitted to be given by mail will be
deemed to be given at the time the same is deposited in the United States mails.
Section 2. Waiver. Whenever any notice is required to be given to any
--------- ------
stockholder or Director of the Corporation as required by law, the Certificate
of Incorporation or these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated in such notice, will be equivalent to the giving of such notice.
Attendance of a stockholder or Director at a meeting will constitute a waiver of
notice of such meeting, except where such stockholder or Director attends for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened.
ARTICLE V
OFFICERS AND AGENTS
-------------------
Section 1. In General. The officers of the Corporation will consist of a
--------- ----------
Chief Executive Officer, President, Chief Financial Officer and Secretary and
such other officers as shall be elected by the Board of Directors or the Chief
Executive Officer. Any two or more offices may be held by the same person.
Section 2. Election. The Board of Directors, at its first meeting after
--------- --------
each annual meeting of stockholders, will elect the officers, none of whom need
be a member of the Board of Directors.
Section 3. Other Officers and Agents. The Board of Directors and Chief
--------- -------------------------
Executive Officer may also elect and appoint such other officers and agents as
it or he deems necessary, who will be elected and appointed for such terms and
will exercise such powers and perform such duties as may be determined from time
to time by the Board or the Chief Executive Officer.
Section 4. Compensation. The compensation of all officers and agents of
--------- ------------
the Corporation will be fixed by the Board of Directors or any committee of the
Board, if so authorized by the Board.
6
<PAGE>
Section 5. Term of Office and Removal. Each officer of the Corporation
--------- --------------------------
will hold office until his death, his resignation or removal from office, or the
election and qualification of his successor, whichever occurs first. Any
officer or agent elected or appointed by the Board of Directors or the Chief
Executive Officer may be removed at any time, for or without cause, by the
affirmative vote of a majority of the entire Board of Directors or at the
discretion of the Chief Executive Officer (without regard to how the agent or
officer was elected), but such removal will not prejudice the contract rights,
if any, of the person so removed. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors or, in the
case of a vacancy in the office of officer other than Chief Executive Officer
and President, such vacancy may be filled by the Chief Executive Officer.
Section 6. Employment and Other Contracts. The Board of Directors may
--------- ------------------------------
authorize any officer or officers or agent or agents to enter into any contract
or execute and deliver any instrument in the name or on behalf of the
Corporation, and such authority may be general or confined to specific
instances. The Board of Directors may, when it believes the interest of the
Corporation will best be served thereby, authorize executive employment
contracts that will have terms no longer than ten years and contain such other
terms and conditions as the Board of Directors deems appropriate. Nothing
herein will limit the authority of the Board of Directors to authorize
employment contracts for shorter terms.
Section 7. Chairman of the Board of Directors. If the Board of
--------- ----------------------------------
Directors has elected a Chairman of the Board, he will preside at all meetings
of the stockholders and the Board of Directors.
Section 8. Chief Executive Officer. The Chief Executive Officer will be
--------- -----------------------
the chief executive officer of the Corporation and, subject to the control of
the Board of Directors, will supervise and control all of the business and
affairs of the Corporation. The Chief Executive Officer shall have the
authority to elect any officer of the Corporation other than the Chief Executive
Officer or President. He will, in the absence of the Chairman of the Board,
preside at all meetings of the stockholders and the Board of Directors. The
Chief Executive Officer will have all powers and perform all duties incident to
the office of Chief Executive Officer and will have such other powers and
perform such other duties as the Board of Directors may from time to time
prescribe. During the absence or disability of the President, the Chief
Executive Officer will exercise the powers and perform the duties of President.
Section 9. President. The President will have responsibility for
--------- ---------
oversight of the Corporation's operating and development activities. In the
absence or disability of the Chief Executive Officer and the Chairman of the
Board, the President will exercise the powers and perform the duties of the
Chief Executive Officer. The President will render to the Directors whenever
they may require it an account of the operating and development activities of
the Corporation and will have such other powers and perform such other duties as
the Board of Directors may from time to time prescribe or as the Chief Executive
Officer may from time to time delegate to him.
Section 10. Chief Financial Officer. The Chief Financial Officer will
---------- -----------------------
have principal responsibility for the financial operations of the Corporation.
The Chief Financial Officer will render to the Directors whenever they may
require it an account of the operating results and financial condition of the
Corporation and will have such other powers and perform such other duties as the
Board of Directors may from time to time prescribe or as the Chief Executive
Officer may from time to time delegate to him.
Section 11. Secretary. The Secretary will attend all meetings of the
---------- ---------
stockholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose. The Secretary will perform like duties for the
Board of Directors and committees thereof when required. The Secretary will
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors. The Secretary will keep in safe
custody the seal of the Corporation. The Secretary will be under the
supervision of the Chief Executive Officer. The Secretary will have such other
powers and perform such other duties as the Board of Directors may from time to
time prescribe or as the Chief Executive Officer may from time to time delegate
to him.
Section 12. Bonding. The Corporation may secure a bond to protect the
---------- -------
Corporation from loss in the event of defalcation by any of the officers, which
bond may be in such form and amount and with such surety as the Board of
Directors may deem appropriate.
7
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ARTICLE VI
CERTIFICATES REPRESENTING SHARES
--------------------------------
Section 1. Form of Certificates. Certificates, in such form as may be
--------- --------------------
determined by the Board of Directors, representing shares to which stockholders
are entitled will be delivered to each stockholder. Such certificates will be
consecutively numbered and will be entered in the stock book of the Corporation
as they are issued. Each certificate will state on the face thereof the
holder's name, the number, class of shares, and the par value of such shares or
a statement that such shares are without par value. They will be signed by the
Chief Executive Officer or President and the Secretary or an Assistant
Secretary, and may be sealed with the seal of the Corporation or a facsimile
thereof. If any certificate is countersigned by a transfer agent, or an
assistant transfer agent or registered by a registrar, either of which is other
than the Corporation or an employee of the Corporation, the signatures of the
Corporation's officers may be facsimiles. In case any officer or officers who
have signed, or whose facsimile signature or signatures have been used on such
certificate or certificates, ceases to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates have been delivered by the Corporation or its
agents, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the Corporation.
Section 2. Lost Certificates. The Board of Directors may direct that a
--------- -----------------
new certificate be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it may require
and/or to give the Corporation a bond, in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed. When a certificate has been lost, apparently destroyed
or wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after such holder has notice of it, and the Corporation
registers a transfer of the shares represented by the certificate before
receiving such notification, the holder of record is precluded from making any
claim against the Corporation for the transfer of a new certificate.
Section 3. Transfer of Shares. Shares of stock will be transferable
--------- ------------------
only on the books of the Corporation by the holder thereof in person or by such
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it will be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 4. Registered Stockholders. The Corporation will be entitled to
--------- -----------------------
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, will not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it has express or other notice thereof, except as otherwise
provided by law.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the outstanding shares of the
--------- ---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be declared and paid in cash, in property, or in shares
of the Corporation, subject to the provisions of the General Corporation Law of
the State of Delaware and the Certificate of Incorporation. The Board of
Directors
8
<PAGE>
may fix in advance a record date for the purpose of determining stockholders
entitled to receive payment of any dividend, such record date will not precede
the date upon which the resolution fixing the record date is adopted, and such
record date will not be more than sixty days prior to the payment date of such
dividend. In the absence of any action by the Board of Directors, the close of
business on the date upon which the Board of Directors adopts the resolution
declaring such dividend will be the record date.
Section 2. Reserves. There may be created by resolution of the Board of
--------- --------
Directors out of the surplus of the Corporation such reserve or reserves as the
Directors from time to time, in their discretion, deem proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the Directors may deem
beneficial to the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created. Surplus of the Corporation to
the extent so reserved will not be available for the payment of dividends or
other distributions by the Corporation.
Section 3. Telephone and Similar Meetings. Stockholders, directors and
--------- ------------------------------
committee members may participate in and hold meetings by means of conference
telephone or similar communications equipment by which all persons participating
in the meeting can hear each other. Participation in such a meeting will
constitute presence in person at the meeting, except where a person participates
in the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
Section 4. Books and Records. The Corporation will keep correct and
--------- -----------------
complete books and records of account and minutes of the proceedings of its
stockholders and Board of Directors, and will keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
Section 5. Fiscal Year. The fiscal year of the Corporation will be
--------- -----------
fixed by resolution of the Board of Directors.
Section 6. Seal. The Corporation may have a seal, and the seal may be
--------- ----
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. Any officer of the Corporation will have authority to
affix the seal to any document requiring it.
Section 7. Advances of Expenses. The Corporation will advance to its
--------- --------------------
directors and officers expenses incurred by them in connection with any
"Proceeding," which term includes any threatened, pending or completed action,
suit or proceeding, whether brought by or in the right of the Corporation or
otherwise and whether of a civil, criminal, administrative or investigative
nature (including all appeals therefrom), in which a director or officer may be
or may have been involved as a party or otherwise, by reason of the fact that he
is or was a director or officer of the Corporation, by reason of any action
taken by him or of any inaction on his part while acting as such, or by reason
of the fact that he is or was serving at the request of the Corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
("Official," which term also includes directors and officers of the Corporation
in their capacities as directors and officers of the Corporation), whether or
not he is serving in such capacity at the time any liability or expense is
incurred; provided that the Official undertakes to repay all amounts advanced
unless:
(i) in the case of all Proceedings other than a Proceeding by or in
the right of the Corporation, the Official establishes to the satisfaction
of the disinterested members of the Board of Directors that he acted in
good faith or in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation and, with respect to any criminal
proceeding, that he did not have reasonable cause to believe his conduct
was unlawful; provided that the termination of any such Proceeding by
judgment, order of court, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not by itself create a presumption as
to whether the Official acted in good faith or in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation
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and, with respect to any criminal proceeding, as to whether he had
reasonable cause to believe his conduct was unlawful; or
(ii) in the case of a Proceeding by or in the right of the
Corporation, the Official establishes to the satisfaction of the
disinterested members of the Board of Directors that he acted in good faith
or in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation; provided that if in such a Proceeding the
Official is adjudged to be liable to the Corporation, all amounts advanced
to the Official for expenses must be repaid except to the extent that the
court in which such adjudication was made shall determine upon application
that despite such adjudication, in view of all the circumstances, the
Official is fairly and reasonably entitled to indemnity for such expenses
as the court may deem proper.
Section 8. Indemnification. The Corporation will indemnify its
--------- ---------------
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware and may, if and to the extent
authorized by the Board of Directors, so indemnify such other persons whom it
has the power to indemnify against any liability, reasonable expense or other
matter whatsoever.
Section 9. Insurance. The Corporation may at the discretion of the
--------- ---------
Board of Directors purchase and maintain insurance on behalf of the Corporation
and any person whom it has the power to indemnify pursuant to law, the
Certificate of Incorporation, these Bylaws or otherwise.
Section 10. Resignation. Any director, officer or agent may resign by
---------- -----------
giving written notice to the President or the Secretary. Such resignation will
take effect at the time specified therein or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
will not be necessary to make it effective.
Section 11. Amendment of Bylaws. Other than as set forth herein or as
---------- -------------------
required by law, these Bylaws may be altered, amended, or repealed at any
meeting of the Board of Directors at which a quorum is present, by the
affirmative vote of a majority of the Directors present at such meeting.
Section 12. Invalid Provisions. If any part of these Bylaws is held
---------- ------------------
invalid or inoperative for any reason, the remaining parts, so far as possible
and reasonable, will be valid and operative.
Section 13. Relation to the Certificate of Incorporation. These Bylaws
---------- --------------------------------------------
are subject to, and governed by, the Certificate of Incorporation of the
Corporation as amended from time to time.
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EXHIBIT 9.1
PHYSICIAN HEALTH CORPORATION
SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
This SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this
"Agreement"), dated as of June 16, 1997, is among Physician Health Corporation,
a Delaware corporation (the "Company"), Weston Presidio Capital II, L.P. and the
other investors listed in Schedule A (collectively, and together with their
permitted successors and assigns, the "Weston Investors"), the other investors
listed in Schedule B (collectively, and together with their permitted successors
and assigns, the "EGL Investors") (the Weston Investors and the EGL Investors
together, the "Investors") and the other stockholders and stock option holders
of the Company listed from time to time in Schedule C (collectively with the
Investors, the "Stockholders"). This Agreement supersedes the Amended and
Restated Stockholders' Agreement dated February 26, 1996.
WHEREAS, the Company, the EGL Investors and certain of the Stockholders are
parties to a Stockholders' Agreement dated December 29, 1995, as superseded by
the Amended and Restated Stockholders' Agreement dated February 26, 1996 (as
amended and restated to the date hereof, the "Existing Stockholders'
Agreement");
WHEREAS, the parties to the Existing Stockholders' Agreement desire to
further amend and restate the Existing Stockholders' Agreement as set forth in
this Agreement; and
WHEREAS, the parties to the Existing Stockholders' Agreement wish to
provide for the Weston Investors and certain other stockholders to become
parties to this Agreement as of the date hereof, and the Weston Investors and
the other stockholders desire to become parties to this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. Except as the context otherwise explicitly requires, (a) the
capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section include all subsections thereof and (d) the word
"including" shall be construed as "including without limitation". Accounting
terms used in this Agreement and not otherwise defined herein shall have the
meanings provided in GAAP. Certain capitalized terms are used in this Agreement
as specifically defined in this Section 1 as follows:
1.1 "Certificate of Designation" means the Certificate of Designation,
Preferences and Rights of the Preferred Stock.
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1.2 "Class A Preferred Stock" means the Class A Preferred Stock, par value
$.01 per share, of the Company.
1.3 "Common Stock" means the Voting Common Stock, $0.0025 par value per
share, of the Company.
1.4 "Company" is defined in the preamble.
1.5 "Contingent Warrants" means contingent warrants to purchase shares of
Common Stock in the event the Class A Preferred Stock is redeemed.
1.6 "Co-Sale Notice" is defined in Section 3.1.
1.7 "Co-Sale Shares" means all shares of any class of capital stock of the
Company issued to the Investors, and all shares of capital stock issued with
respect to, in exchange for or upon conversion of any such shares or upon
conversion of the Preferred Stock or the Class A Preferred Stock or upon
exercise or conversion of the Warrants, the Contingent Warrants or the EGL
Warrants; provided, however, that once any such shares shall have been sold in a
-------- -------
sale that complies with Section 3, they shall cease to be Co-Sale Shares.
1.8 "EGL" means EGL Holdings, Inc.
1.9 "EGL Warrants" means the warrants to purchase Common Stock issued to
the EGL Investors.
1.10 "Healthmark" means Healthmark Partners, LLC.
1.11 "Investor" is defined in the preamble.
1.12 "Joint Director Designees" is defined in Section 4(b)(iv).
1.13 "Outside Offer" is defined in Section 2.1.1.
1.14 "Preferred Stock" means the Company's Series B Redeemable Convertible
Preferred Stock, par value $0.01 per share.
1.15 "Proportionate Share" with respect to a given Stockholder means a
fraction, the numerator of which is the number of shares of Common Stock (on an
as converted/exercised basis) owned by the subject Stockholder and the
denominator of which is the aggregate number of shares of Common Stock (on an as
converted/exercised basis) owned by all Stockholders.
2
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1.16 "Proposed Buyer" is defined in Section 3.
1.17 "Proposed Sale" is defined in Section 3.1.
1.18 "Purchase Agreement" means the Securities Purchase Agreement dated as
of June 16, 1997, as from time to time in effect, among the Company and the
Weston Investors.
1.19 "Restricted Shares" or "Restricted Stock" means all shares of any
class of capital stock of the Company owned by any Restricted Stockholder, and
all shares of capital stock issued with respect to, in exchange for or upon
conversion of any such shares; provided, however, that once any such shares
-------- -------
shall have been sold in a sale which complies with Sections 2.1, 2.2 or 2.3,
they shall cease to be Restricted Shares.
1.20 "Restricted Stockholders" means all stockholders and option holders of
the Company listed from time to time as Restricted Stockholders in Schedule C
and all other persons who become party to this Agreement pursuant to Section
2.3, and their permitted successors and assigns, but in no event including any
Weston Investor.
1.21 "Selling Stockholder" means a Restricted Stockholder selling
Restricted Shares under Sections 2 or 3.
1.22 "Stockholders" is defined in the preamble.
1.23 "Transfer" means sell, assign, encumber, pledge, hypothecate, give
away or dispose of or transfer in any other manner, whether voluntarily,
involuntarily, by operation of law, pursuant to judicial process, divorce
decree, property settlement, bankruptcy or otherwise.
1.24 "Warrants" means the Warrants issuable to the Weston Investors
pursuant to the Purchase Agreement in connection with the redemption of
Preferred Stock.
2. TRANSFER RESTRICTIONS AND PURCHASE RIGHTS.
2.1 TRANSFERS OF RESTRICTED SHARES. The Restricted Stockholders will not
Transfer Restricted Shares or allow the power to vote Restricted Shares to be
exercised by anyone else (except through ordinary proxies, revocable at the
option of such Restricted Stockholder) except that a Restricted Stockholder may
(a) make a Transfer permitted by Sections 2.2 or 2.3 or (b) make a sale on the
following terms and in compliance with the co-sale rights provisions in Section
3:
2.11 OUTSIDE OFFER. The Selling Stockholder wishing to Transfer
Restricted Shares shall prepare an offer (the "Outside Offer") that sets
forth the number of
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<PAGE>
Restricted Shares proposed to be sold, the minimum purchase price, the
proposed method of sale and the proposed purchaser or type of purchaser.
2.1.2 COMPANY PURCHASE OFFER. The Selling Stockholder shall offer to
sell the Restricted Shares described in the Outside Offer to the Company by
delivering to the Company a copy of the Outside Offer and a written offer
to sell to the Company all of such Restricted Shares on the terms contained
in the Outside Offer. If the Company elects to purchase Restricted Shares,
it shall purchase such shares in accordance with Section 2.4.
2.1.3 OTHER STOCKHOLDERS PURCHASE OFFER. If, within 20 days after
receipt by the Company of the Outside Offer from the Selling Stockholder,
the Company does not elect to purchase all of such Restricted Shares, then
the Selling Stockholder shall offer to sell the Restricted Shares not
chosen for purchase by the Company to the other Stockholders pro rata
according to their Proportionate Shares by delivering to each such other
Stockholder a copy of the Outside Offer and a written offer to sell to such
other Stockholder all of such Restricted Shares on the terms contained in
the Outside Offer. If any Stockholders (other than the Selling
Stockholder) elect to purchase Restricted Shares, they shall purchase such
shares in accordance with Section 2.4.
2.1.4 REMAINING SHARES. If, within 20 days after receipt by the
other Stockholders of the Outside Offer from the Selling Stockholder, the
other Stockholders do not elect to purchase all of such Restricted Shares,
then the Selling Stockholder may Transfer any remaining Restricted Shares
in accordance with the terms of the Outside Offer during the 60-day period
immediately following the 20-day notice period referred to above in Section
2.1.3, subject, however, to the co-sale rights provided in Section 3 in
favor of each Investor who has notified the Selling Stockholder in writing
within such 20-day notice period of its interest in exercising its co-sale
rights with respect to any such sale. If such shares are not so purchased
during such 60-day period, they shall again become subject to this Section
2.1.
2.2 TRANSFERS BY OPERATION OF LAW OR IN VIOLATION OF AGREEMENT. If a
Restricted Stockholder is subject to a Transfer of Restricted Shares by any
bankruptcy or insolvency law or proceeding, any divorce proceeding, pursuant to
the death of a Restricted Stockholder or otherwise by operation of law or court
order or decree, or if any Transfer of Restricted Shares is made or attempted
contrary to this Agreement, or if an offer to sell Restricted Shares is not
delivered to the Company and the other Stockholders as and when required by this
Agreement, the Company and the other Stockholders shall have the right to
purchase any or all of such shares of Restricted Shares from such Restricted
Stockholder, such Restricted Stockholder's estate or legal representative or
such Restricted Stockholder's transferees at any time before or after the
Transfer, at book value.
4
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2.3 CERTAIN PERMITTED TRANSFERS.
2.3.1 TRANSFERS TO IMMEDIATE FAMILY. Any Restricted Stockholder may
Transfer any of such Restricted Stockholders Restricted Shares to members
of such Restricted Stockholder's immediate family or a trust for the
benefit of members of such Restricted Stockholder's immediate family so
long as (a) each transferee executes a counterpart of this Agreement as a
Restricted Stockholder, and (b) Restricted Shares are not held by more than
ten members (including trusts as members) of the same immediate family.
2.3.2 PUBLIC OFFERING. A Selling Stockholder may sell any Restricted
Shares in a public offering registered under the federal Securities Act of
1933, as amended, or in a transaction permitted by Rule 144 thereunder,
whereupon such shares shall no longer be Restricted Shares.
2.3.3 FUND INVESTORS. Any Stockholder that constitutes an investment
fund may transfer Restricted Shares to its limited partners, members,
stockholders or other investors so long as such transferee executes a
counterpart of this Agreement as a Stockholder.
2.4 PURCHASES OF RESTRICTED SHARES.
2.4.1 ELECTION BY COMPANY AND STOCKHOLDERS. In the event of offers
under Sections 2.1 and 2.2, the Company shall have the right to determine
whether to purchase any or all shares of Restricted Shares available for
purchase by delivering written notice of the number of shares to be
purchased to the Selling Stockholder and the other Stockholders within 30
days after receipt of the offer by the Company. If the Selling Stockholder
is a member of the Board of Directors of the Company, the Selling
Stockholder shall not vote as a director on the question whether the
Company should purchase such Selling Stockholder's Restricted Shares or any
matter relating thereto, but for purposes of establishing a quorum such
Selling Stockholder shall attend any directors meetings at which such
question or matter is considered. Promptly after a determination by the
Board of Directors of the Company not to purchase all such shares, the
Company shall make the right to purchase any shares it does not purchase
available to the other Stockholders on the basis of their Proportionate
Shares. The other Stockholders may purchase any remaining Restricted Stock
not purchased by the Company and the other Stockholders pro rata based on
the respective Proportionate Shares of Stockholders wishing to purchase
additional shares, or as they may otherwise agree.
2.4.2 CLOSING ON STOCK SALES. The acceptance of any offer or
exercise of any right to purchase hereunder shall be by notice given in
accordance with Section 7.2 and
5
<PAGE>
shall specify a date of closing not earlier than 10 business days nor later
than 15 business days after the receipt of such notice. At the closing, the
purchaser shall pay the purchase price by certified or bank check drawn on
immediately available funds and payable to the order of the Selling
Stockholder. Certificates for the Restricted Shares to be purchased, duly
endorsed or accompanied by duly executed stock powers, in each case with
signatures guaranteed, if reasonably requested by the purchaser, shall be
delivered at the closing by the seller. In addition, the purchaser may
reasonably request waivers of any tax liens and evidence of good title and
authority of any representative before tendering payment.
3 CO-SALE RESTRICTIONS. A Restricted Stockholder may sell any Restricted
Shares in accordance with Section 2.1 to any other person (the "Proposed Buyer")
only if the Investors who notified the Selling Stockholder of their interest in
exercising co-sale rights as contemplated by Section 2.1.4 are offered the
chance to participate in such sale in the manner and on the terms set forth in
this Section 3. Notwithstanding the foregoing, the provisions of this Section 3
shall not be applicable to (i) any sale of Restricted Shares to a Proposed Buyer
that, when aggregated with the number of Restricted Shares sold to the Proposed
Buyer during the preceding 12 month period, does not exceed 1,000 (as presently
constituted and subject to adjustment for subsequent stock splits, combinations
and dividends) shares and (ii) any sale of Restricted Shares by a Stockholder
required by the restrictions set forth in Regulation Y under the Bank Holding
Company Act of 1956, as amended.
3.1 OFFER. A notice (the "Co-Sale Notice") shall be delivered by the
Selling Stockholder to each such Investor at the time the Outside Offer is
delivered to the other Stockholders under Section 2.1.3. The Co-Sale Notice
shall include:
(a) A copy of a bona fide offer from the Proposed Buyer, which shall
set forth the complete terms of the proposed sale, including the number of
Restricted Shares proposed to be purchased, the purchase price, the name
and address of the Proposed Buyer and the other principal terms of the
proposed transaction (the "Proposed Sale");
(b) An offer by the Selling Stockholder to include in the Proposed
Sale to the Proposed Buyer, at the option of such Investors, that number of
the Investors' Co-Sale Shares as is determined in accordance with Section
3.2, on the same terms and conditions as the Selling Stockholder shall sell
the Restricted Shares; and
(c) An agreement from the Proposed Buyer to purchase such number of
the Investors' Co-Sale Shares as shall be includable in such Proposed Sale
pursuant to Section 3.2.
3.2 TIME AND MANNER OF EXERCISE. If any of the Investors desires to
accept the
6
<PAGE>
offer contained in the Co-Sale Notice, such Investor shall notify the Selling
Stockholder in writing within 20 days after receipt of the Co-Sale Notice. If
none of the Investors has so accepted such offer in writing, they shall be
deemed to have waived all of their rights with respect to the Proposed Sale, and
the Selling Stockholder shall thereafter be free to sell the Restricted Shares
specified in the Co-Sale Notice pursuant to the Proposed Sale. Any acceptance by
any Investor of the offer contained in the Co-Sale Notice shall be irrevocable
except as hereinafter provided. Each Investor who has elected to participate in
such Proposed Sale shall be entitled to sell in the Proposed Sale, on the same
terms and conditions as the Selling Stockholder, such number of its Co-Sale
Shares equal to the proportion (rounded to the nearest whole share) of all
shares to be included in the Proposed Sale equal to a fraction, the numerator of
which is the total number of Co-Sale Shares of Investors who notified the
Restricted Stockholder of their interest in exercising co-sale rights as
contemplated by Section 2.1.4 (on an as converted/exercised basis) immediately
before the Proposed Sale and the denominator of which is the sum of the total
number of Restricted Shares immediately before the Proposed Sale plus the total
number of such Co-Sale Shares (on an as converted/exercised basis) immediately
before the Proposed Sale.
3.3 TIME AND MANNER OF CLOSING. Each of the Investors participating in
any Proposed Sale shall take such actions and execute such documents and
instruments as shall be reasonably necessary in order to consummate the Proposed
Sale expeditiously on the same terms as the Selling Stockholder. If at the end
of 60 days following the date on which the Co-Sale Notice was given the Selling
Stockholder has not completed the Proposed Sale in accordance with the terms
hereof, the Investors shall be released from their obligations hereunder. All
costs and expenses incurred by the Selling Stockholder in connection with any
sale, including without limitation all attorneys' fees and disbursements and any
finders or brokerage fees or commissions, shall be allocated pro rata among the
Selling Stockholder and the Investors according to the number of shares sold by
each. The portion of such costs and expenses allocable to each Investor shall
be remitted to the Selling Stockholder promptly after notice thereof
demonstrating reasonable supporting calculations. At the closing of any sale
under this Section 3.3, each Investor shall deliver certificates representing
the Co-Sale Shares to be sold by it, duly endorsed for transfer and (if
requested in writing by the Proposed Buyer) with signature guaranteed, and with
any stock transfer tax stamps affixed, against delivery of the applicable
purchase price. Any shares sold to the Proposed Buyer in accordance with this
Section 3.3 shall no longer be subject to this Agreement.
4 VOTING AGREEMENT. Each party hereto agrees:
(a) to cause the Board of Directors to consist of nine directors until
a Remedy Event (as defined in the Company's Certificate of Designation)
occurs and thereafter to consist of the number of directors contemplated by
such Certificate of Designation; and
(b) to vote all shares of the Company's capital stock owned by such
party, as the
7
<PAGE>
case may be,
(i) to refrain from violating the rights of the Investors as
set forth in the Purchase Agreement, the Investor Agreements, the
Material Agreements (each as defined in the Purchase Agreement) or the
Warrants;
(ii) to elect as directors one person nominated by the Weston
Investors and one person nominated by the holders of the Series I
Class A Preferred Stock (who shall be Murali Anantharaman until such
time as Mr. Anantharaman is no longer willing or able to serve as a
director);
(iii) to elect as directors three persons nominated by the Chief
Executive Officer of the Company;
(iv) to elect as directors two persons (the "Joint Director
Designees") jointly nominated by the Chief Executive Officer of the
Company and EGL; provided, however, that until such time as Healthmark
and/or its affiliates hold less than 50% (on an as converted/exercised
basis) of the Common Stock then outstanding, Andrew Miller or such
other Healthmark designee mutually acceptable to the Company and EGL
shall be one of the two Joint Director Designees;
(v) to cause the Company to maintain three member Audit and
Compensation Committees of the Company's Board of Directors, each
consisting of one executive director, one nonexecutive director and
one director who was either nominated by EGL or elected by the holders
of the Class A Preferred Stock; and
(vi) after a Remedy Event has occurred, to elect as additional
directors of the Company such persons nominated by the Investors as is
contemplated by the Certificate of Designation and to continue to vote
for such persons (or any successors nominated by the Investors, as the
case may be) as directors of the Company as is contemplated by the
Certificate of Designation;
provided, however, that the foregoing clause (b) shall not prevent any party
- -------- -------
from voting on any other matter that may properly be taken up by the
stockholders of the Company, including the election of directors that are not
the subject of this Agreement.
5 CLASS A STOCK CALL RIGHT. In the event that any Stockholder shall cause
the Company to redeem its shares of Class A Preferred Stock pursuant to the
provisions of Article IV, Section C, subsection 3(a)(ii) of the Company's Second
Restated Certificate of Incorporation, the Company may, at its option,
exercisable by written notice delivered to such
8
<PAGE>
Stockholder, elect to purchase, and, upon the giving of such notice, the Company
shall be obligated to purchase within thirty (30) days after giving such notice,
all of the Contingent Warrants owned by such Stockholder at a price equal to
twenty percent (20%) of the price paid by such Stockholder for the shares of
Class A Preferred Stock being redeemed, compounded at a rate of twenty percent
(20%) per annum from December 29, 1995, until the date of purchase. The rights
of the Company under this Section may be exercised only after payment in full
has been made to the Stockholder for the redeemed Class A Preferred Stock, and
must be exercised, if at all, within one hundred and twenty (120) days after the
Stockholder notifies the Company of its election to redeem its shares of Class A
Preferred Stock.
6 LEGEND. Each certificate evidencing Restricted Shares that was outstanding
immediately prior to the execution hereof shall continue to contain the
following legend:
THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF
A STOCKHOLDERS' AGREEMENT DATED DECEMBER 29, 1995, AMONG PHYSICIAN HEALTH
CORPORATION AND CERTAIN HOLDERS OF OUTSTANDING CAPITAL STOCK OF SUCH
CORPORATION, AS SUCH AGREEMENT MAY FROM TIME TO TIME BE AMENDED OR
RESTATED.
Each certificate evidencing Restricted Shares issued contemporaneously with or
after the execution hereof shall contain the following legend:
THE SALE, TRANSFER, ASSIGNMENT, PLEDGE, OR ENCUMBRANCE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF
A SECOND AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT DATED JUNE 16, 1997,
AMONG PHYSICIAN HEALTH CORPORATION AND CERTAIN HOLDERS OF OUTSTANDING
CAPITAL STOCK OF SUCH CORPORATION, AS SUCH AGREEMENT MAY FROM TIME TO TIME
BE AMENDED OR RESTATED. A COPY OF THE SECOND AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT AS AMENDED TO DATE IS ON FILE IN THE OFFICES OF THE
CORPORATION AND WILL BE FURNISHED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
WRITTEN REQUEST.
7 GENERAL.
7.1 REMEDIES. The parties shall have all remedies for breach of this
Agreement available to them provided by law or equity. Without limiting the
generality of the foregoing, in addition to all other rights and remedies
available at law or in equity, the parties shall be entitled to obtain specific
performance of the obligations of each party to this Agreement and
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immediate injunctive relief. In the event any action or proceeding is brought in
equity to enforce the same, neither the Company nor any party will urge, as a
defense, that an adequate remedy at law exists.
7.2 NOTICES. All notices or other communications required or permitted to
be delivered hereunder shall be in writing and shall be delivered to each of the
parties at their respective addresses as set forth in Schedules A, B or C. Any
party to this Agreement may at any time change the address to which notice to
such party shall be delivered by giving notice of such change to the other
parties and such notice shall be deemed given when received by the other
parties. Notices shall be deemed effectively given when personally delivered or
sent to the recipient at the address set forth above by telex or a facsimile
transmission, one business day after having been delivered to a receipted,
nationally recognized courier, properly addressed or five business days after
having been deposited into the United States mail, postage prepaid, provided,
--------
that any notice to any party outside of the United States shall be sent by
telecopy and confirmed by overnight or two-day courier.
7.3 AMENDMENTS, WAIVER AND CONSENTS. Any provision in this Agreement to
the contrary notwithstanding, changes in or additions to this Agreement may be
made, and compliance with any covenant or provision herein set forth may be
omitted or waived, only by written agreement signed by (a) the Company and (b)
Stockholders holding an aggregate of at least a majority of the Restricted
Shares, on an as converted/exercised basis and if, in each such case, copies of
such modification are delivered to any parties who did not execute the same;
provided, however, that any such modification adversely affecting the Restricted
- -------- -------
Stockholders in a manner distinct from the effect of such modification on the
Investors shall require the written consent of the Restricted Stockholders
holding a majority of the Restricted Shares.
7.4 BINDING EFFECT, ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the personal representatives, successors and assigns of
the respective parties hereto. The Company shall not have the right to assign
its rights or obligations hereunder or any interest herein without obtaining the
prior written consent of the Stockholders holding an aggregate of at least a
majority of the Restricted Shares, on an as converted/exercised basis. The
Restricted Stockholders and the Investors may assign or transfer their rights
under this Agreement to the extent permitted herein and by the other agreements
between the respective parties and the Company.
7.5 TERMINATION. This Agreement shall terminate at the time immediately
prior to the consummation of a Liquidity Event (as defined in the Certificate of
Designation for the Preferred Stock).
7.6 SEVERABILITY. If any provision of this Agreement shall be found by
any court of competent jurisdiction to be invalid or unenforceable, the parties
waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum
10
<PAGE>
extent allowable by law, be modified by such court so that it becomes
enforceable and, as modified, shall be enforced as any other provision hereof,
all the other provisions hereof continuing in full force and effect.
7.7 HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
7.8 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous understandings, whether written or oral.
7.9 JOINDER OF ADDITIONAL PARTIES. Future holders of the Company's
capital stock (or of options, warrants, conversion rights or other rights to
acquire such capital stock) may become party hereto as a Stockholder by
executing a joinder hereto in a form reasonably satisfactory to the Company.
7.10 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute the same instrument.
7.11 CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of the State of
Georgia.
11
<PAGE>
The parties hereto have executed this Agreement under seal as of the date
first above written.
PHYSICIAN HEALTH CORPORATION
By:_________________________________
Sarah Garvin, President
____________________________________
Sarah Garvin, Individually
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By:___________________________
Title:
EGL HOLDINGS, INC.
By:_________________________________
Title:______________________________
MERCURY ASSET MANAGEMENT plc
on behalf of Rowen Nominees Limited
By:_________________________________
Title:______________________________
NATWEST VENTURES INVESTMENTS LIMITED
12
<PAGE>
By:_________________________________
Title:______________________________
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
13
<PAGE>
SCHEDULE A TO SECOND AMENDED AND RESTATED
STOCKHOLDERS'AGREEMENT
----------------------
<TABLE>
<CAPTION>
Number of Preferred Stock Shares
Investors and Address Held on Date Hereof As of June 30, 1997
- --------------------- ------------------- -------------------
<S> <C> <C>
Weston Presidio Capital II, L.P. 1,529,928
One Federal Street
Boston, MA 02210
Telephone: (617) 988-2500
Telecopy: (617) 988-2515
BancBoston Ventures, Inc. 458,907
100 Federal Street
Boston. Massachusetts 02110
Telephone: (612) 434-2442
Telecopy: (612) 434-1153
MERCURY ASSET MANAGEMENT plc 305,938
on behalf of Rowen Nominees Limited
NATWEST VENTURES
INVESTMENTS LIMITED 152,969
Partech U.S. Partners III C.V. 244,763
c/o Partech International
50 California Street, Suite 3200
San Francisco, California 94111
Telephone (415)788-2929
Telecopy (415) 788-6763
U.S. Growth Fund Partners C.V. 133,507
c/o Partech International
50 California Street, Suite 3200
San Francisco, California 94111
Telephone (415)788-2929
Telecopy (415) 788-6763
Axa U.S. Growth Fund LLC 66,753
c/o Partech International
50 California Street, Suite 3200
San Francisco, California 94111
Telephone (415)788-2929
Telecopy (415) 788-6763
Double Black Diamond II LLC 8,900
c/o Partech International
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
50 California Street, Suite 3200
San Francisco, California 94111
Telephone (415)788-2929
Telecopy (415) 788-6763
Almanori Limited 3,382
c/o Partech International
50 California Street, Suite 3200
San Francisco, California 94111
Telephone (415)788-2929
Telecopy (415) 788-6763
Multinvest Limited 1,602
c/o Partech International
50 California Street, Suite 3200
San Francisco, California 94111
Telephone (415)788-2929
Telecopy (415) 788-6763
St. Paul Venture Capital IV, LLC 458,907
Normandale Office Park, Suite 1940
8500 Normandale Lake Blvd
Bloomington, Minnesota 55437
</TABLE>
2
<PAGE>
SCHEDULE B TO SECOND AMENDED AND RESTATED
STOCKHOLDERS'AGREEMENT
----------------------
EGL HOLDINGS, INC.
MERCURY ASSET MANAGEMENT plc
on behalf of Rowen Nominees Limited
NATWEST VENTURES INVESTMENTS LIMITED
3
<PAGE>
SCHEDULE C TO SECOND AMENDED AND RESTATED
STOCKHOLDERS'AGREEMENT
----------------------
<TABLE>
<CAPTION>
Restricted Stockholders and Address Number and Type of Shares
- -----------------------------------
Held on Date Hereof
-------------------
<S> <C>
Sarah C. Garvin 1,300,000 PHC Common Stock
990 Hammond Drive, Suite 300
Atlanta, GA 30328
Thomas Rodgers, Jr. 137,648 PHC Common Stock; Options
990 Hammond Drive, Suite 300 to acquire 280,500 shares of PHC
Atlanta, GA 30328 Common Stock; Options to acquire 484,000
shares of PHC Prime Common Stock
Shamus Holt 355,000 PHC Common Stock
3885 Oakwater Circle
Orlando, FL 32806
Julie Rawls Moore 360,000 PHC Common Stock
990 Hammond Drive, Suite 300
Atlanta, GA 30328
Howard E. Fagin, Ph.D. 330,000 PHC Common Stock
990 Hammond Drive, Suite 300
Atlanta, GA 30328
H. Thomas Scott 320,000 PHC Common Stock
990 Hammond Drive, Suite 300
Atlanta, GA 30328
J. Michael Ribaudo, M.D. 100,000 PHC Common Stock; 125,000
CEO, PHC MidWest, Inc. PHC Prime Common Stock; Options to
450 North New Ballas Road, Suite 250 acquire 450,000 shares of PHC Common
St. Louis, MO 63141-6835 Stock
</TABLE>
4
<PAGE>
EXHIBIT 10.1
- --------------------------------------------------------------------------------
ASSET PURCHASE AND CONTRIBUTION AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
ASSETS
<S> <C>
1.1 Purchase of the Metroplex Assets................................ 1
--------------------------------
1.2 Excluded Metroplex Assets....................................... 3
-------------------------
1.3 Closing Date.................................................... 4
------------
1.4 Assumption of Metroplex Liabilities............................. 4
-----------------------------------
1.5 Closing Date Actions and Deliveries............................. 6
-----------------------------------
1.6 Further Assurances.............................................. 7
------------------
1.7 Referrals....................................................... 7
---------
1.8 Employees....................................................... 8
---------
ARTICLE II
PURCHASE PRICE, OTHER AGREEMENTS
2.1 Purchase Price.................................................. 8
--------------
2.2 Contribution for Class B Interests.............................. 9
----------------------------------
2.3 Allocation of Purchase Price.................................... 9
----------------------------
2.4 Call Agreement.................................................. 9
--------------
2.5 Texas Sub....................................................... 10
---------
2.6 Management Services Agreement................................... 10
-----------------------------
2.7 Employment Agreements........................................... 10
---------------------
2.8 Board Representation............................................ 10
--------------------
2.9 Oncology Disease State Management Board......................... 11
---------------------------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF METROPLEX
3.1 Organization of Metroplex....................................... 11
-------------------------
3.2 Subsidiaries and Investments.................................... 11
----------------------------
3.3 Authority....................................................... 11
---------
3.4 Financial Statements............................................ 12
--------------------
3.5 Operations Since Metroplex Balance Sheet Date................... 12
---------------------------------------------
3.6 No Undisclosed Liabilities...................................... 13
--------------------------
3.7 Taxes........................................................... 14
-----
3.8 Availability of Assets.......................................... 14
----------------------
3.9 Real Property................................................... 14
-------------
3.10 Real Property Leases............................................ 14
--------------------
3.11 Condemnation.................................................... 14
------------
3.12 Personal Property............................................... 15
-----------------
3.13 Personal Property Leases........................................ 15
------------------------
3.14 Patents and Trademarks.......................................... 15
----------------------
3.15 Accounts Receivable............................................. 15
-------------------
3.16 Title to Purchased Assets....................................... 15
-------------------------
3.17 Employees....................................................... 16
---------
3.18 Employee Relations.............................................. 16
------------------
3.19 Contracts....................................................... 16
---------
3.20 Status of Contracts............................................. 18
-------------------
3.21 No Violation, Litigation or Regulatory Action................... 18
---------------------------------------------
3.22 Insurance....................................................... 18
---------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.23 Environmental Protection........................................ 19
------------------------
3.24 Books and Records............................................... 19
-----------------
3.25 No Finder's Fee................................................. 20
---------------
3.26 Transactions with Affiliates.................................... 20
----------------------------
3.27 Licenses and Permits............................................ 20
--------------------
3.28 Filing Reports.................................................. 20
--------------
3.29 Employment and Labor Relations.................................. 20
------------------------------
3.30 Benefit Plans................................................... 21
-------------
3.31 Telephone Numbers............................................... 22
-----------------
3.32 Related Party Interests......................................... 22
-----------------------
3.33 Other Names..................................................... 22
-----------
3.34 Payor Contracts................................................. 22
---------------
3.35 Accounting Controls............................................. 22
-------------------
3.36 Physicians...................................................... 23
----------
3.37 Conflicts of Interest........................................... 23
---------------------
3.38 Funding Sources and Commitments................................. 23
-------------------------------
3.39 Inventories..................................................... 23
-----------
3.40 Investment Intent............................................... 23
-----------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization of the Company..................................... 24
---------------------------
4.2 Capacity of the Company......................................... 24
-----------------------
4.3 Subsidiaries and Investments.................................... 24
----------------------------
4.4 Authority of the Company........................................ 24
------------------------
4.5 No Litigation................................................... 25
-------------
4.6 No Finder's Fee................................................. 25
---------------
ARTICLE V
ACTION PRIOR TO THE CLOSING DATE
5.1 Investigation of the Metroplex Business by the Company.......... 25
------------------------------------------------------
5.2 Preserve Accuracy of Representations and Warranties............. 26
---------------------------------------------------
5.3 Operations Prior to the Closing Date............................ 26
------------------------------------
5.4 No Public Announcement.......................................... 27
----------------------
5.5 Interim Financial Statements of Metroplex....................... 28
-----------------------------------------
5.6 Compliance With Laws............................................ 28
--------------------
5.7 Pre-Closing Obligations......................................... 28
-----------------------
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Sales, Use and Transfer Taxes................................... 28
-----------------------------
6.2 Discharge of Liabilities of Metroplex Business.................. 28
----------------------------------------------
6.3 Employee Benefit Plans.......................................... 29
----------------------
6.4 Acquisition Proposals........................................... 29
---------------------
6.5 Right to Remedy Certain Breaches Prior to Closing............... 29
-------------------------------------------------
6.6 Pro-Rations..................................................... 31
-----------
6.7 Audited Financial Statements.................................... 31
----------------------------
6.8 Texas Sub Budget................................................ 32
----------------
6.9 RIT Program..................................................... 32
-----------
ARTICLE VII
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
CONDITIONS PRECEDENT TO OBLIGATIONS OF METROPLEX
7.1 No Misrepresentation or Breach of Covenants and Warranties...... 32
----------------------------------------------------------
7.2 Opinions of Counsel for the Company............................. 32
-----------------------------------
7.3 Action by the Company........................................... 32
---------------------
7.4 No Restraint or Litigation...................................... 33
--------------------------
7.5 No Material Adverse Change...................................... 33
--------------------------
7.6 Financing....................................................... 33
---------
7.7 Consents........................................................ 33
--------
7.8 Partnership Agreement........................................... 33
---------------------
7.9 Due Diligence................................................... 33
-------------
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
8.1 No Misrepresentation or Breach of Covenants and Warranties...... 34
----------------------------------------------------------
8.2 Opinions of Counsel for Metroplex............................... 34
---------------------------------
8.3 Partnership Action.............................................. 34
------------------
8.4 No Restraint.................................................... 34
------------
8.5 Necessary Consents.............................................. 35
------------------
8.6 No Material Adverse Change...................................... 35
--------------------------
8.7 Financing....................................................... 35
---------
8.8 Due Diligence................................................... 35
-------------
8.9 Releases of Liens............................................... 35
-----------------
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the Company.................................. 35
------------------------------
9.2 Indemnification by Metroplex.................................... 37
----------------------------
9.3 Notice of Claims................................................ 39
----------------
9.4 Third Party Claims.............................................. 39
------------------
9.5 Arbitration and Mediation....................................... 40
-------------------------
ARTICLE X
TERMINATION
10.1 Termination..................................................... 42
-----------
ARTICLE XI
GENERAL PROVISIONS
11.1 Survival of Representations, Warranties and Obligations......... 43
-------------------------------------------------------
11.2 Confidential Nature of Information.............................. 44
----------------------------------
11.3 Governing Law................................................... 44
-------------
11.4 Notices......................................................... 44
-------
11.5 Successors and Assigns.......................................... 45
----------------------
11.6 Entire Agreement; Amendments.................................... 46
----------------------------
11.7 Interpretation.................................................. 46
--------------
11.8 Waivers......................................................... 46
-------
11.9 Expenses........................................................ 46
--------
11.10 Partial Invalidity.............................................. 46
------------------
11.11 Execution in Counterparts....................................... 46
-------------------------
11.12 Notice of Sale.................................................. 47
--------------
11.13 Definitions..................................................... 47
-----------
11.14 Risk of Loss; Damage to Facilities.............................. 50
----------------------------------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
11.15 Federal Income Tax Treatment.................................... 51
----------------------------
</TABLE>
EXHIBITS
A Assignment and Assumption Agreement
B-1 Nonrecourse Note
B-2 PHC Note
C-1 Assumption and Release Agreement
C-2 Exchange Rights Agreement
D Weston Equity Call Agreement
E Management Services Agreement
F Physician Owner Employment Agreement
G Individual Liability Limitation Amounts
iv
<PAGE>
ASSET PURCHASE AND CONTRIBUTION AGREEMENT
This ASSET PURCHASE AND CONTRIBUTION AGREEMENT (this "Agreement"), is
dated as of June 16, 1997, by and among Metroplex Hematology/Oncology
Associates, L.L.P., a Texas limited liability partnership ("Metroplex"), the
physicians listed as such on the signature page hereto (collectively, the
"Physicians"), each Physician's wholly owned professional association, MHOA
Texas I, L.L.C., a Texas limited liability company ("Texas Sub") and Physician
Health Corporation, a Delaware corporation (the "Company").
W I T N E S S E T H:
-------------------
A. Metroplex is, among other things, currently engaged in the
practice of medicine specializing in hematology and oncology in Arlington, Texas
(the "Metroplex Business").
B. The Company wishes to acquire, and Metroplex wishes to sell and
contribute substantially all of the tangible and intangible assets associated
with the Metroplex Business, as more specifically set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, it is hereby agreed between Metroplex, Texas Sub, the
Physicians and the Company as follows:
ARTICLE I
ASSETS
------
1.1 Purchase of the Metroplex Assets. Upon the terms and subject to
--------------------------------
the conditions of this Agreement, the Company hereby purchases, and Metroplex
hereby sells, transfers, assigns, conveys and delivers to the Company, free and
clear of all Encumbrances (except for Permitted Encumbrances), an 80% undivided
interest in all of the assets and properties (excepting only the Excluded
Metroplex Assets) of every kind and description, wherever located, real,
personal or mixed, tangible or intangible, owned or held by Metroplex relating
to the Metroplex Business as the same shall exist on the Closing Date (herein
collectively called the "Metroplex Assets"), including, without limitation, all
right, title and interest of Metroplex in, to and under:
(a) All in-house billing services as listed on Schedule 1.1(a);
---------------
(b) The real property leases and leasehold improvements listed or
described in Schedule 3.10;
-------------
(c) The personal property leases listed in Schedule 3.13;
-------------
(d) All trademarks, trade names, service marks and copyrights (and
all goodwill associated with such trademarks, trade names, service marks and
copyrights), registered or unregistered, owned by Metroplex relating to the
Metroplex Business, and the applications for registration thereof and all
patents and applications therefor owned by Metroplex and the licenses relating
to any of the foregoing including, without limitation, the items listed in
Schedule 3.14 and any trade name using or incorporating the name "The Arlington
- -------------
Cancer Center";
(e) All of Metroplex's rights, claims or causes of action against
third parties arising under warranties from manufacturers, vendors and others in
connection with the Metroplex Assets;
1
<PAGE>
(f) All prepaid expenses (except for prepaid insurance) arising from
payments made by Metroplex in the ordinary course of the operation of the
Metroplex Business prior to the Closing Date for goods or services where such
goods or services have not been received at the Closing Date;
(g) All books and records (including all computer programs and
personnel records of current employees of Metroplex who are hired by the Company
or Texas Sub on or following the Closing Date) of Metroplex relating to the
assets, business and operations of the Metroplex Business; it being understood
by all of the parties to this Agreement that Metroplex and the Physicians shall
have access to such books and records at all reasonable times, provided, any
duplicating or non-employee expense incurred therewith shall be borne solely by
Metroplex;
(h) All telephone and telecopy numbers used by Metroplex in
connection with the Metroplex Business including, without limitation, the
numbers 817/261-4906 and 817/261-5837;
(i) All goodwill associated with the Metroplex Business and all
intangible assets associated with the conduct of the Metroplex Business,
including Metroplex's workforce in place, business know-how, and information
base;
(j) All machinery, equipment (including computers and office
equipment), supplies, inventory, advertising and promotional materials, all
collection and credit records, medical literature, engineering plans, records
and data, (including medical records and data) vehicles, furniture, office
supplies and other personal property of Metroplex used in or relating to the
Metroplex Business including, but not limited to, those items listed or referred
to in Schedule 1.1(j);
---------------
(k) All rights, titles or any property interests, if any, in any
inventions and/or patents developed by Metroplex or any such rights, titles or
property interests subsequently acquired by Metroplex, including any such
rights, titles or interests in the radio-immunotherapy program under development
by Metroplex, it being acknowledged by the Company and Texas Sub that Metroplex
makes no representation that it now owns or will hereafter acquire any such
rights, titles or property interests; and
(l) All other assets or properties not referred to above which are
reflected on the Metroplex Financial Statements, except (i) any such assets or
properties disposed of after the Metroplex Balance Sheet Date in the ordinary
course of the Metroplex Business and (ii) the Excluded Metroplex Assets.
The parties acknowledge that the management of the non-medical aspects
of the Metroplex Business will change simultaneously with the closing of the
transactions contemplated hereby. Accordingly, under applicable law and
professional ethical standards appropriate arrangements need to be made for the
custody and maintenance of patient records. Texas Sub has agreed to take custody
of the records to assure that the records are properly handled and readily
available to patients and their treating physicians of choice. Accordingly, to
the fullest extent permitted by law, the medical records of patients,
simultaneously with the closing of the transaction contemplated hereby, shall be
assigned to the custody of Texas Sub. Metroplex and the Physicians shall
cooperate with and assist Texas Sub in taking all actions as may be necessary or
desirable to obtain or retain all custodial rights to such records. The parties
agree and acknowledge that the medical records are subject to legal and ethical
principles governing their confidentiality. Accordingly, to the extent
reasonably required, patients may be requested to sign appropriate record
transfer forms.
1.2 Excluded Metroplex Assets. Notwithstanding the foregoing, the
-------------------------
Metroplex Assets shall not include the following (herein referred to as the
"Excluded Metroplex Assets");
(a) Any of Metroplex's cash and cash equivalents (including any
marketable securities or certificates of deposit) as of the close of business on
the Closing Date;
2
<PAGE>
(b) The real property described in Schedule 3.9 and any option,
------------
right or contract to purchase real property described in Schedule 3.9;
------------
(c) Any accounts receivable generated by Metroplex for periods prior
to the Closing Date;
(d) All claims, rights and interests of Metroplex in and to any
refunds for federal, state or local franchise, income or other taxes or fees of
any nature whatsoever for periods prior to the Closing Date;
(e) Any of Metroplex's rights, claims or causes of action against
third parties relating to the assets, properties, business or operations of the
Metroplex Business arising out of transactions occurring prior to the Closing
Date, except to the extent any such claims relate to the Metroplex Assets;
(f) All contracts or policies of insurance and prepaid insurance
with respect to such contracts or policies;
(g) Metroplex's partnership records relating to its formation,
partnership tax returns and related documents, and supporting work papers and
any other records and returns relating to taxes, assessments and similar
governmental levies (other than real and personal property taxes, assessments
and levies imposed on the Metroplex Assets), except tax-related records,
documents and work papers relating to the Metroplex Assets, access to which
shall be provided to Metroplex during normal business hours;
(h) The contracts, agreements or understandings of Metroplex listed
in Schedule 3.19 and designated on such Schedule as a "Contract Not Assumed" and
-------------
any other contract, agreement or understanding of Metroplex (i) in existence on
the date hereof which is not listed in Schedule 3.19 but which, by the
-------------
provisions of Section 3.19, is required to be so listed or (ii) entered into by
------------
Metroplex after the date hereof in violation of Section 5.3 of this Agreement;
-----------
(i) Except to the extent the parties hereto shall otherwise
specifically agree in writing, any of Metroplex's employee benefit agreements,
plans or arrangements listed in Schedule 3.19;
-------------
(j) Any of Metroplex's rights under or pursuant to this Agreement
(including any interests in the Company acquired pursuant to this Agreement) or
the other agreements with the Company contemplated hereby;
(k) That certain equipment and other personal property listed on
Schedule 1.2(k); and
- ---------------
(l) Any asset the use of which by the Company or Texas Sub would be
illegal under Texas law.
1.3 Closing Date. The consummation of the transactions contemplated
------------
herein (the "Closing") shall be consummated at 10:00 a.m. on June ____, 1997
(such date and time being hereinafter called the "Closing Date").
1.4 Assumption of Metroplex Liabilities. (a) On the Closing Date,
-----------------------------------
Texas Sub shall deliver to Metroplex an assignment and assumption agreement,
substantially in the form attached hereto as Exhibit A, pursuant to which the
---------
Texas Sub shall assume and be obligated for, and shall agree to pay, perform,
defend and discharge in accordance with their terms:
(i) all liabilities listed in Schedule 1.4(a)(i);
------------------
(ii) all liabilities of Metroplex arising after the Closing
Date (other than any liability or obligation for breach or default
which occurred prior to the Closing) under the leases, contracts and
other agreements entered into by Metroplex with respect to the
Metroplex Business after the date hereof consistent with the terms of
Section 5.3 of this Agreement (which shall include all such leases,
-----------
contracts and other agreements or written arrangements described in
Schedule 5.3(b)); and
---------------
3
<PAGE>
(iii) all liabilities arising after the Closing Date with
respect to Assumed Contracts as specified on Schedule 3.19.
-------------
Notwithstanding the foregoing, Texas Sub shall assume no liability or
obligation arising as a result of the transfer or assignment to Texas Sub of any
Assumed Contract or agreement contemplated in Section 1.4(a)(ii) above without
------------------
any consent required by the terms thereof if the Company, not more than 15 days
following the Closing Date, has indicated to Metroplex, in writing, that Texas
Sub will not assume such liability or obligation without the required consent
(such consents being collectively referred to herein as the "Required
Consents"). Such liabilities or obligations for which consent to transfer is
required and not obtained shall be considered a Clinic Expense, as that term is
defined in the Management Services Agreement.
All of the foregoing to be assumed by Texas Sub under this Section
-------
1.4(a) are referred to herein as the "Metroplex Assumed Liabilities."
- -----
(b) Neither the Company nor Texas Sub shall assume or be obligated
for any, and Metroplex shall solely retain, pay, perform, defend and discharge
all of, Metroplex's liabilities or obligations of any and every kind whatsoever,
direct or indirect, disclosed or undisclosed, liquidated or unliquidated,
absolute or contingent, not expressly assumed by Texas Sub under Section 1.4(a)
--------------
and, notwithstanding anything to the contrary in Section 1.4(a), none of the
--------------
following shall be "Metroplex Assumed Liabilities" for purposes of this
Agreement and Metroplex shall remain responsible for all such matters and shall
indemnify Texas Sub and the Company with respect thereto:
(i) any liabilities of Metroplex in respect of
accounts payable, accrued equipment rentals, accrued salary, payroll
and wages, accrued sick or vacation pay or accounting and legal fees or
expenses, in each case which arise from the operation of the Metroplex
Business or the ownership of the Metroplex Assets prior to the Closing
Date and which are not reflected on the Metroplex Financial Statements;
(ii) any foreign, federal, state, county or local
income, excise, withholding, property, sales, use, franchise and other
taxes which arise from the operation of the Metroplex Business or the
ownership of the Metroplex Assets prior to the Closing Date;
(iii) except as listed in Schedule 1.4(a)(iii), any
--------------------
liability or obligation of Metroplex in respect of indebtedness for
borrowed money, including, without limitation, any liability or
obligation of Metroplex owing to any partner or Affiliate of Metroplex;
(iv) any costs and expenses incurred by Metroplex
incident to its negotiation and preparation of this Agreement or the
other documents contemplated hereby and its performance and compliance
with the agreements and conditions contained herein or therein;
(v) except to the extent the parties hereto shall
otherwise specifically agree in writing, any liabilities or
obligations, whenever arising, related to, associated with or arising
out of the employee benefit agreements, plans or arrangements listed in
Schedule 3.30;
-------------
(vi) any liability or obligation of Metroplex to make
or provide severance pay or benefits to any employee of the Metroplex
Business prior to the Closing Date who is not extended employment with
the Company or Texas Sub after the Closing Date (it being understood
that nothing contained herein is intended to create any obligation of
Metroplex, Texas Sub, or the Company to make or provide severance pay
or benefits to any employee);
(vii) any liabilities or obligations arising as a result
of the transfer or assignment of any Metroplex lease, contract or other
agreement entered into by Metroplex with
4
<PAGE>
respect to the Metroplex Business after the date hereof consistent with
the terms of Section 5.3 of this Agreement, in each case without any
-----------
consent required by the terms thereof;
(viii) any liabilities in respect of the claims, suits,
proceedings or investigations described in Schedule 3.21;
-------------
(ix) any of Metroplex's liabilities or obligations
under this Agreement or the other agreements contemplated hereby
including, without limitation, the liabilities and obligations of
Metroplex under the Physician Owner Employment Agreement, as defined
herein; and
(x) any of Metroplex's liabilities or obligations in
respect of claims, suits, proceedings or investigations in relation to
the treatment or diagnosis of patients or the failure to treat or
diagnose patients or otherwise in relation to health care services
rendered by or on behalf of Metroplex.
(c) In addition to the foregoing, at the Closing the Company shall
repay the existing equipment and receivables loans (including principal and
accrued but unpaid interest) of Metroplex more particularly described on
Schedule 1.4(c) hereto (the "Metroplex Loans").
- ---------------
1.5 Closing Date Actions and Deliveries. Upon the terms and subject
-----------------------------------
to the conditions set forth in this Agreement, on the Closing Date:
(a) Metroplex or the Physicians, as appropriate, shall execute and
deliver (i) a bill of sale and any other appropriate documents evidencing
transfer of the Metroplex Assets, (ii) all of the documents, instruments and
opinions required to be delivered by Metroplex or the Physicians, as
appropriate, pursuant to this Agreement and (iii) all such other instruments of
assignment, transfer or conveyance as the Company or Texas Sub may reasonably
request or as may be otherwise necessary to evidence and effect the sale,
assignment, transfer and delivery of the Metroplex Assets and Metroplex Business
to Texas Sub; and
(b) Texas Sub shall pay that portion of the Purchase Price payable
at Closing and shall repay the Metroplex Loans. The Company or Texas Sub, as the
case may be, shall deliver or execute and deliver (i) all of the documents and
instruments contemplated to be delivered by the Company or Texas Sub on the
Closing Date pursuant to this Agreement and (ii) all such other instruments of
assignment, transfer or conveyance as Metroplex may reasonably request or as may
be otherwise necessary to evidence and effect the sale, assignment, transfer and
delivery to Texas Sub of the Metroplex Assets and the Metroplex Business by
Metroplex.
1.6 Further Assurances. On the Closing Date, Metroplex shall
------------------
(a) deliver to the Company or Texas Sub, as the case may be, such other bills of
sale, deeds, endorsements, assignments and other good and sufficient instruments
of conveyance and transfer, in form reasonably satisfactory to the Company and
its counsel, as the Company may reasonably request or as may be otherwise
reasonably necessary to vest in the Company all the right, title and interest of
Metroplex in, to or under any or all of the Metroplex Assets, and (b) take all
steps as may be reasonably necessary to put the Company in actual possession and
control of all the Metroplex Assets and the Metroplex Business (with respect to
the latter to the extent permitted by applicable law). From time to time
following the Closing, Metroplex shall execute and deliver, or cause to be
executed and delivered, to the Company such other instruments of conveyance and
transfer as the Company may reasonably request or as may be otherwise necessary
to convey more effectively and transfer to, and vest in, the Company and put the
Company in possession of, any part of the Metroplex Assets and, in the case of
licenses, certificates, approvals, authorizations, agreements, contracts,
leases, easements and other commitments included in the Metroplex Assets which
cannot be transferred or assigned effectively without the consent of third
parties which consent has not been obtained prior to the Closing, to cooperate
with the Company and Texas Sub at their reasonable request in endeavoring to
obtain such consent. Notwithstanding anything in this Agreement to the contrary,
this Agreement shall not constitute an agreement to assign any license,
5
<PAGE>
certificate, approval, authorization, agreement, contract, lease, easement or
other commitment included in the Metroplex Assets if (i) such assignment is
prohibited by applicable law or (ii) an attempted assignment thereof without the
consent of a third party thereto would constitute a breach thereof, unless such
consent is obtained.
1.7 Referrals. The parties hereto acknowledge and agree that it is
---------
not a purpose of this Agreement or any of the transactions contemplated herein
to exert influence in any way over the reason or judgment of any party hereto
with respect to the referral of patients or business of any nature whatsoever,
and that neither Metroplex nor any of the Physicians are under any obligation
whatsoever to refer any patients or business to the Company or a parent,
subsidiary or affiliate of the Company. Likewise, neither the Company nor any of
its parent, subsidiaries or affiliates are under any obligation whatsoever to
refer any patients or business to Metroplex or its partners or any of their
parents, subsidiaries or affiliates (as applicable). It is the intent of all
parties hereto that any referrals made among them will continue to be based on
the medical judgment and discretion of individual physicians acting in the best
interests of the pertinent patient.
1.8 Employees. The Company or Texas Sub, as the case may be, may,
---------
but shall not be obligated to, offer employment to some or all of the employees
of Metroplex as of the Closing Date. During the period prior to the Closing
Date, the Company and Texas Sub shall be permitted reasonable access to the
employees of Metroplex for the purpose of allowing Texas Sub to interview and,
if so desired, to make offers of employment to such employees. All such
employees so hired shall be considered "new hires" by the Company or Texas Sub,
as the case may be, for all purposes and the Company or Texas Sub shall
establish all terms and conditions relating to their employment. Notwithstanding
the foregoing, each employee so hired shall retain his or her date of hire with
the Metroplex Business for purposes of determination of eligibility and vesting
under all employee benefit plans of Texas Sub or the Company for which such
employees are eligible, and such employees shall be initially compensated at the
same salary or hourly wage as they received from Metroplex immediately prior to
the Closing Date. The Company or Texas Sub, as the case may be, shall not,
unless it specifically agrees to do so in writing, assume any past or future
obligations of Metroplex to such employees, including specifically by way of
example and not limitation any obligations to pay severance pay to such
employees or to provide COBRA continuation benefits, and such obligations shall
be and remain obligations of Metroplex. Nothing contained in this Section 1.8 or
-----------
elsewhere in this Agreement shall obligate the Company or Texas Sub to continue
to employ any such former employees for any length of time, and the employment
of any such former employees by the Company or Texas Sub, if any, shall be
terminable at will at any time.
ARTICLE II
PURCHASE PRICE, OTHER AGREEMENTS
--------------------------------
2.1 Purchase Price. The purchase price for the Purchased Assets (the
--------------
"Purchase Price") shall be payable as follows:
(a) $11,810,000 paid by the Company to Metroplex at the Closing in
immediately available funds (the "Cash Payment");
(b) An aggregate of $12,670,000 paid pursuant to the terms of two
promissory notes, which shall be executed and delivered by the Company at
Closing, substantially in the forms attached hereto as Exhibit B-1 (the
-----------
"Nonrecourse Note") and Exhibit B-2 (the "PHC Note") (the "Promissory Notes"),
-----------
which Promissory Notes will bear no interest. In addition:
(i) the Nonrecourse Note shall provide for one payment of
$6,210,000 on April 1, 1998 (the "First Payment") and shall (a) provide
that Metroplex will have no right of recourse against the Company or
Texas Sub and their respective affiliates for payment thereunder,
(b) be freely assumable by Texas Sub
6
<PAGE>
and (c) be subordinated to the rights of DVI Financial Services, Inc.
("DVIF") and DVI Business Credit Corporation ("DVIBCC") pursuant to
these certain Subordination Agreements dated as of even date herewith
among (i) Metroplex, the Company, Texas Sub and DVIF and (ii)
Metroplex, the Company, Texas Sub and DVIBCC; and
(ii) the PHC Note shall provide for the remaining $6,460,000
to be paid in equal annual installments beginning on April 1, 1999,
with the final payment being due and payable on April 1, 2002.
2.2 Contribution for Class B Interests. At the Closing, Metroplex
----------------------------------
shall contribute the Contribution Assets to Texas Sub in exchange for all of the
Class B interests in Texas Sub, such interests being designated as a 20%
interest in Texas Sub, par value $0.01 per share (the "Texas Sub Class B
Interests"). The parties agree and acknowledge that immediately following the
Closing (i) the Company shall assign all of the Metroplex Assets to Texas Sub
and (ii) Texas Sub shall assume all obligations of the Company under the
Nonrecourse Note. Such assumption shall be pursuant to the Assumption and
Release Agreement attached hereto as Exhibit C-1. The parties agree that the
-----------
Texas Sub Class B Interests received herein may, at the option of Metroplex, be
distributed to either the Physicians or their professional associations. Texas
Sub Class B Interests shall be exchangeable into shares of common stock of the
Company, par value $0.01 per share ("PHC Common Stock"), pursuant to an Exchange
Rights Agreement executed by the parties and substantially in the form attached
hereto as Exhibit C-2. The Company agrees to sell to Texas Sub a sufficient
-----------
number of shares of PHC Common Stock to enable Texas Sub to meet its obligations
under the Exchange Agreement.
2.3 Allocation of Purchase Price. The Company and Metroplex agree
----------------------------
that the Purchase Price shall be allocated among the Purchased Assets for
accounting and other purposes as provided in Schedule 2.3. The Company and
------------
Metroplex further agree that the Purchase Price shall be allocated, for purposes
of Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"),
in accordance with the value of each class of asset set forth above, and any tax
returns or other tax information they may file or cause to be filed with any
governmental agency shall be prepared and filed consistently with such agreed
upon allocations. In this regard, the Company and Metroplex agree that, to the
extent required, they will each properly prepare and file Form 8594 in
accordance with Section 1060 of the Code.
2.4 Call Agreement. Texas Sub's obligation to pay the Nonrecourse
--------------
Note, provided the Nonrecourse Note is assumed by Texas Sub, shall be severally
guaranteed by Weston Presidio Capital Partners II, L.P., BancBoston Ventures,
Inc. and EGL Holdings, Inc. pursuant to the terms of the Equity Call Agreement
in substantially the form attached hereto as Exhibit D.
---------
2.5 Texas Sub. At the Closing, and for the term of the Management
---------
Services Agreement (as defined herein), the parties shall take such action as
shall be necessary to ensure that the Managers of Texas Sub (the "Texas Sub
Board") shall consist of eight persons, four of whom shall be persons designated
by Metroplex (the "Metroplex Designees") (two of whom shall initially be George
Blumenschein, M.D. and Al DiStefano, M.D.) and four of whom shall be designated
by the Company (the "PHC Designees") (two of whom shall be Sarah Garvin and Ira
Snider, D.O.). Should either Metroplex or the Company fail to designate a
manager to serve on the Texas Sub Board, the holders of a majority of Texas Sub
Class B Interests shall have the right to nominate for election a replacement
member to serve on the Texas Sub Board, provided, however, that a failure by the
Company or Metroplex to designate a manager to serve on the Texas Sub Board
shall not act as a waiver of such right. If any Metroplex Designee elected to
serve as a manager on the Texas Sub Board (a "Metroplex Manager") or any Company
Designee elected to serve as a manager on the Texas Sub Board (a "PHC Director")
resigns or otherwise ceases to serve as a manager of Texas Sub, or if: (i) the
Company desires to remove a PHC Designee or (ii) Metroplex desires to remove a
Metroplex Designee, each party agrees that it will promptly take all action
requested to fill such vacancy, or to remove and replace such director, as the
case may be.
7
<PAGE>
A simple majority of the Texas Sub Board shall be necessary to take
action with regard to any matter provided, however, that in the event of a tie
on any vote, such matter shall be decided by the vote of a physician member of
the Board of Directors of the Company reasonably acceptable to Metroplex.
Metroplex and the Company further agree to use their best efforts to elect Dr.
Alfred D. Stefano as chief executive officer of Texas Sub at the first meeting
of the Managers of Texas Sub to occur after the Closing Date.
2.6 Management Services Agreement. At the Closing, Texas Sub and
-----------------------------
Metroplex shall enter into a Management Services Agreement, substantially in the
form attached hereto as Exhibit E (the "Management Services Agreement"),
---------
pursuant to which, among other things, Texas Sub will provide certain management
services to Metroplex as provided therein.
2.7 Employment Agreements. At the Closing, Metroplex will enter into
---------------------
an employment agreement with each Physician substantially in the form attached
hereto as Exhibit F (each a "Physician Owner Employment Agreement").
---------
2.8 Board Representation. On the Closing Date, the Company shall
--------------------
take such action as is necessary in order to enable one individual designated by
Metroplex (the "Designee") to be elected to the Company's Board of Directors
(the "Board"). Metroplex has selected Alfred DiStefano, M.D. as the Designee.
The Company agrees to use its best efforts to retain the Designee on the Board
until the sooner of (i) the second anniversary of any Designee's election to the
Board or (ii) the registration of a class of the Company's, or its successor's,
equity securities under the Securities Act of 1933, as amended.
2.9 Oncology Disease State Management Board. In the event the
---------------------------------------
Company shall create an Oncology Disease State Management Board (the "ODSM
Board"), the Company shall appoint four Metroplex designees to the ODSM Board.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF METROPLEX
-------------------------------------------
As an inducement to the Company to enter into this Agreement and to
consummate the transactions contemplated hereby, Metroplex hereby represents and
warrants to the Company and agrees as follows:
3.1 Organization of Metroplex. Metroplex is a limited liability
-------------------------
partnership duly organized, validly existing and in good standing under the laws
of the State of Texas and is duly qualified to transact business as a foreign
limited liability partnership in each jurisdiction in which the ownership or
leasing of the Metroplex Assets or the conduct of the Metroplex Business
requires such qualification.
3.2 Subsidiaries and Investments. Except as set forth in Schedule
---------------------------- --------
3.2, neither Metroplex nor any of the Physicians, directly or indirectly, (a)
- ---
owns, of record or beneficially, any outstanding voting securities or other
equity interests in any corporation, partnership, joint venture or other entity
which is involved in or relates to the Metroplex Business, or (b) otherwise
controls any such corporation, partnership, joint venture or other entity which
is involved in or relates to the Metroplex Business.
3.3 Authority. Metroplex has the power and authority to execute and
---------
deliver this Agreement and all of the other agreements and instruments to be
executed and delivered by Metroplex pursuant hereto (collectively, the
"Metroplex Ancillary Agreements"), to consummate the transactions contemplated
hereby and thereby and to comply with the terms, conditions and provisions
hereof and thereof.
8
<PAGE>
Each Physician has the power and authority to execute and deliver this
Agreement and all of the other agreements and instruments to be executed and
delivered by such Physician pursuant hereto (collectively, the "Physician
Ancillary Agreements"), to consummate the transactions contemplated hereby and
thereby and to comply with the terms, conditions and provisions hereof and
thereof.
The execution, delivery and performance of this Agreement and the
Metroplex Ancillary Agreements by Metroplex have been duly authorized and
approved by all necessary partnership action on behalf of, and do not require
any further authorization or consent of, Metroplex or the Physicians. This
Agreement is, and each Metroplex Ancillary Agreement or Physician Ancillary
Agreement, as the case may be, when executed and delivered by Metroplex or the
Physicians, as the case may be, and the other parties thereto will be, legal,
valid and binding agreements of Metroplex enforceable against Metroplex or the
Physicians, as the case may be, in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditor's rights generally or the availability of equitable remedies.
Except as set forth in Schedule 3.3, neither the execution and delivery
------------
by Metroplex of this Agreement and the Metroplex Ancillary Agreements nor the
consummation by Metroplex of any of the transactions contemplated hereby or
thereby nor compliance by Metroplex with or fulfillment by Metroplex of the
terms, conditions and provisions hereof or thereof will: conflict with, result
in a breach of the terms, conditions or provisions of, or constitute a default,
an event of default or an event creating rights of acceleration, termination or
cancellation or a loss of rights under, or result in the creation or imposition
of any Encumbrance upon any of the Metroplex Assets under, the partnership
agreement of Metroplex, any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument or governmental license or
permit applicable to Metroplex, the Metroplex Assets or the Metroplex Business
or any judgment, order, award or decree to which Metroplex a party or any of its
respective assets or properties is subject or by which Metroplex is bound, or
any statute, other law or regulatory provision affecting Metroplex, the
Metroplex Assets or the Metroplex Business.
3.4 Financial Statements. Schedule 3.4 contains (A) the audited
-------------------- ------------
consolidated balance sheets of Metroplex as of December 31, 1996 and the related
statements of income and cash flow for the year ended December 31, 1996 and (B)
an unaudited balance sheet of Metroplex as of April 30, 1997 and related
statements of operations and cash flow for the month then ended (collectively,
the "Metroplex Financial Statements"). The Metroplex Financial Statements have
been prepared in accordance with generally accepted accounting principles
consistently applied and present fairly in all material respects the financial
position and results of operations of Metroplex, as of their dates and for the
periods covered thereby.
3.5 Operations Since Metroplex Balance Sheet Date. (a) Except as set
---------------------------------------------
forth in Schedule 3.5(a), during the period from the Metroplex Balance Sheet
---------------
Date to the date hereof, inclusive, there has been:
(i) no material adverse change in the financial
condition or the results of operations of the Metroplex Business from
that reflected on the Metroplex Financial Statements; or
(ii) no damage, destruction, loss or claim not fully
covered by insurance or condemnation or other taking which materially
adversely affects the Metroplex Assets or the Metroplex Business, taken
as a whole.
(b) Except as set forth in Schedule 3.5(b) hereto, since the
---------------
Metroplex Balance Sheet Date, Metroplex has conducted the Metroplex Business
only in the ordinary course and substantially in conformity with past practice.
Without limiting the generality of the foregoing, since the Metroplex Balance
Sheet Date, except as set forth in such Schedule, Metroplex has not, in respect
of the Metroplex Business:
(i) sold, leased, transferred or otherwise disposed of
(including any transfers from Metroplex to any of its Affiliates), or
mortgaged or pledged, or imposed or suffered to be
9
<PAGE>
imposed any Encumbrance on, any of the assets reflected on the
Metroplex Financial Statements or any assets acquired by Metroplex
after the Metroplex Balance Sheet Date, other than personal property
sold or otherwise disposed of for fair value in the ordinary course of
the Metroplex Business consistent with past practice and except for
Permitted Encumbrances and Encumbrances;
(ii) cancelled without fair consideration therefor
any debts owed to or claims held by Metroplex (including the settlement
of any claims or litigation) or waived any right of significant value
to Metroplex, other than in the ordinary course of the Metroplex
Business consistent with past practice;
(iii) created, incurred, guaranteed or assumed, or
agreed to create, incur, guarantee or assume, any indebtedness for
borrowed money or entered into any capitalized leases;
(iv) accelerated collection of notes or accounts
receivable generated by the Metroplex Business to a date prior to the
date such collection would have occurred in the ordinary course of the
Metroplex Business;
(v) delayed payment of any account payable or other
liability of the Metroplex Business beyond its due date or the date
when such liability would have been paid in the ordinary course of the
Metroplex Business consistent with past practice;
(vi) entered, cancelled, modified or amended any
contract or agreement with a third-party payor;
(vii) granted or instituted any increase in any rate of
salary or compensation or any profit sharing, bonus, incentive,
deferred compensation, insurance, pension, retirement, medical,
hospital, disability, welfare or other employee benefit plan: or
(viii) entered into any agreement or made any commitment
to take any action described in subparagraphs (i) through (vii) above.
3.6 No Undisclosed Liabilities. Except as set forth in Schedule 3.6,
-------------------------- ------------
and except for liabilities which individually, or when aggregated with other
liabilities, are less than $5,000, Metroplex is not subject, to its actual
knowledge, with respect to the Metroplex Business, to any liability (including,
without limitation, unasserted claims), whether absolute, contingent, accrued or
otherwise, which is not shown or which is in excess of amounts shown or reserved
for in the Metroplex Financial Statements, other than liabilities of the same
nature as those set forth in the Metroplex Financial Statements and the notes
thereto and incurred in the ordinary course of the Metroplex Business after the
Metroplex Financial Statements.
3.7 Taxes. Metroplex has either filed or obtained extensions for
-----
filings pursuant to established procedures of all foreign, federal, state,
county or local income, excise, property, sales, use, franchise or other tax
returns and reports which are required to have been filed by Metroplex under
applicable law on or prior to the date of this Agreement and has paid or made
provision for the payment of all taxes which have become due pursuant to such
returns or pursuant to any assessments which have become payable and which are
not being contested in good faith by appropriate proceedings. All monies
required to be withheld by Metroplex from employees of the Metroplex Business
for income taxes, social security and other payroll taxes have been collected or
withheld, and either paid to the respective governmental agencies, set aside in
accounts for such purpose, or accrued, reserved against and entered upon the
books of Metroplex.
3.8 Availability of Assets. Except as set forth in Schedule 3.8 and
---------------------- ------------
except for the Excluded Metroplex Assets, the Metroplex Assets constitute all
the material assets used in the conduct of the Metroplex Business
10
<PAGE>
(including, but not limited to, all books, records, computers and computer
programs and data processing systems) and all such material assets are in good
operating condition and repair (reasonable wear and tear in ordinary usage
excepted) for the purposes for which they are currently used by Metroplex.
3.9 Real Property. Schedule 3.9 contains a brief description of each
------------- ------------
parcel of real property owned by Metroplex and used in or relating to the
Metroplex Business (showing the record title holder, legal description,
location, improvements, the uses being made thereof and any indebtedness secured
by a mortgage or other lien thereon) and of each option, right or contract to
purchase held by Metroplex to acquire any real property for use in connection
with the Metroplex Business. Complete and correct copies of any policies of
title insurance currently in force and in possession of Metroplex with respect
to each such parcel shall be delivered by Metroplex to the Company on request.
3.10 Real Property Leases. Schedule 3.10 sets forth a list and brief
-------------------- -------------
description of each lease or similar agreement (showing the rental, expiration
date, renewal, the uses being made thereof and the location of the real property
covered by such lease or other agreement) under which Metroplex is lessee of, or
holds or operates, any real property owned by any third party and used in or
relating to the Metroplex Business.
3.11 Condemnation. (A) Neither the whole nor any part of any real
------------
property owned, leased, used or occupied by Metroplex in connection with the
Metroplex Business is subject to any pending suit for condemnation or other
taking by any public authority and (B) to the actual knowledge of Metroplex
after due inquiry, no such condemnation or other taking is threatened.
3.12 Personal Property. Schedule 3.12 contains a list as of June 4,
----------------- -------------
1997 of (A) all vehicles used in or relating to the Metroplex Business and (B)
all machinery and instruments (other than minor medical instruments) and
material equipment, furniture, and other personal property owned by Metroplex
used in or relating to the Metroplex Business.
3.13 Personal Property Leases. Schedule 3.13 contains a brief
------------------------ -------------
description of each lease or other agreement or right, whether written or oral
(including in each case the rental, the expiration date thereof and a brief
description of the property covered), under which Metroplex is lessee of, or
holds or operates, any machinery, equipment, instruments, vehicle or other
tangible personal property owned by a third party and used in or relating to the
Metroplex Business and which is not terminable by Metroplex without penalty on
30 days' notice or less and which provides for annual rentals in excess of
$10,000.
3.14 Patents and Trademarks. (a) Schedule 3.14 contains a list of:
---------------------- -------------
(i) all trademarks, service marks, trade names and copyrights related to the
Metroplex Business for which registrations have been issued to Metroplex or
applications for registrations have been made by Metroplex, (ii) all registered
assumed or fictitious names under which Metroplex is doing business and (iii)
all licenses, agreements or other arrangements under which Metroplex, in
connection with the Metroplex Business, has the right to use any trademark,
service mark, trade name or copyright. Metroplex does not own, and has not
applied for, any patents, in connection with the Metroplex Business. No
proceedings have been instituted or are pending or, to the actual knowledge of
Metroplex, after due inquiry, are threatened which challenge the validity of the
ownership or use by Metroplex of any trademarks, service marks, trade names,
copyrights or patents related to the Metroplex Business. Except as set forth in
Schedule 3.14, Metroplex has not licensed anyone to use any trademarks, trade
- -------------
names or copyrights of Metroplex, and Metroplex has no actual knowledge, after
due inquiry, of the infringement by any person of any trademarks or trade names
or copyrights or patents owned or used by it. Except as set forth in Schedule
--------
3.14, to its actual knowledge, after due inquiry, Metroplex owns, or has the
- ----
royalty-free right to use, all trademarks, service marks, trade names,
copyrights or patents used in the operation of the Metroplex Business and has
not received any notice of conflict with the asserted rights of others. Except
as set forth in Schedule 3.14, no trademark, service mark, trade name, copyright
-------------
or patent listed in Schedule 3.14 is subject to any outstanding order, judgment,
-------------
decree, stipulation or agreement restricting the use thereof by Metroplex or
restricting the licensing thereof by Metroplex to any person.
11
<PAGE>
3.15 Accounts Receivable. All accounts receivable of Metroplex
-------------------
relating to the Metroplex Business have arisen from bona fide transactions by
Metroplex in the ordinary course of the Metroplex Business and, to the knowledge
of Metroplex, constitute only valid claims which are not subject to
counterclaims or setoffs.
3.16 Title to Purchased Assets. Metroplex has good and marketable
-------------------------
title to all of the Metroplex Assets, free and clear of all Encumbrances, except
for those items listed in Schedule 3.16 and Permitted Encumbrances and subject
-------------
to receipt of the applicable consents from, or the making of any requisite
filings with, any third parties listed in Schedule 3.3. Upon delivery to the
------------
Company on the Closing Date of the bill of sale contemplated by Section 1.6(a),
--------------
Metroplex will thereby transfer to the Company good and marketable title to the
Metroplex Assets, subject to no Encumbrances, except for Permitted Encumbrances.
3.17 Employees. Schedule 3.17 contains: (A) a list of all individuals
--------- -------------
employed by Metroplex in connection with the Metroplex Business; and (B) the
then current rate of compensation of, and a description of the fringe benefits
(including sick and vacation pay) indicating how much has actually been accrued
(other than those generally available to employees of Metroplex under the plans
listed in Schedule 3.19 or Schedule 3.30) provided by Metroplex to, any such
------------- -------------
employees, in each case as of February 28, 1997.
3.18 Employee Relations. (a) Except as set forth in Schedule 3.18, or
------------------ -------------
as could not have a material adverse effect on the business or operations of
Metroplex, Metroplex has complied with respect to the Metroplex Business in all
material respects with all applicable laws, rules and regulations which relate
to occupational health and safety, prices, wages, hours, discrimination in
employment and collective bargaining and to the operation of the Metroplex
Business and is not liable for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing.
(b) Except as set forth in Schedule 3.18, as of the date of this
-------------
Agreement, there is with respect to the Metroplex Business no (i) unfair labor
practice charge or complaint against Metroplex pending before the National Labor
Relations Board, any state labor relations board or any court or tribunal and,
to the actual knowledge of Metroplex, after due inquiry, none is or has been
threatened, (ii) strike, dispute, request for representation, slowdown or
stoppage pending against Metroplex and, to the actual knowledge of Metroplex,
after due inquiry, none is or has been threatened, or (iii) arbitration
proceeding arising out of or under any collective bargaining agreement pending
against Metroplex and, to the best knowledge of Metroplex, none is or has been
threatened.
(c) Except as set forth in Schedule 3.18, Metroplex has no severance
-------------
obligations with respect to its employees.
3.19 Contracts. Except as set forth in Schedule 3.19 or any other
--------- -------------
Schedule hereto, as of the date of this Agreement, Metroplex is not, with
respect to the Metroplex Business, a party to or bound by:
(a) Any contract for the purchase or sale of real property;
(b) Any contract for the payment for health care goods and services
to be delivered by Metroplex;
(c) Any contract for the purchase of merchandise, supplies or
personal property or for the receipt of services (other than services referred
to in clause (b) above) which is not terminable by Metroplex on 30 days' notice
or less or which provides for performance over a period of more than 90 days or
which involves the payment after the date hereof of more than $5,000;
(d) Any guarantee of the obligations of customers, suppliers,
officers, directors, employees, Affiliates or others;
(e) Any contract not made in the ordinary course of the Metroplex
Business;
12
<PAGE>
(f) Any agreement which provides for the incurrence or assumption of
debt for borrowed money;
(g) Any employee collective bargaining agreement, employment
agreement (other than employment agreements terminable by Metroplex without
premium or penalty on notice of 30 days or less under which the only monetary
obligation of Metroplex is to make current wage or salary payments and provide
current fringe benefits), consulting, advisory or service agreement, deferred
compensation agreement or covenant not to compete;
(h) Any contract or agreement with any officer, director or employee
(other than employment agreements disclosed in response to clause (g) above or
clause (j) below), agent or attorney-in-fact of Metroplex;
(i) Any employees' pension, profit-sharing, stock option, phantom
stock, bonus, incentive, stock purchase, welfare, life insurance, hospital or
medical benefit plan or other employee benefit agreement or plan;
(j) Any contract lease, agreement or arrangement, written or oral,
with any of Metroplex's partners or with any of the employees, consultants,
advisors or agents of the foregoing;
(k) any joint venture contract or arrangement, or any other
agreement involving a sharing of profits;
(l) any lease, option or right of first refusal pertaining to any of
the Metroplex Assets;
(m) any license or franchise agreement, either as licensor or
licensee, or as franchisor or franchisee;
(n) any outstanding bids, sales proposals, or service proposals;
(o) any noncompetition agreements or similar restraint contracts; or
(p) any instruments granting any powers of attorney or authority to
act on behalf of Metroplex;
Schedule 3.19 also indicates which contract, agreement or other instrument
- -------------
listed therein is to be deemed an "Assumed Contract" or a "Contract Not Assumed"
for purposes of this Agreement.
3.20 Status of Contracts. Except as set forth in Schedule 3.20 or in
------------------- -------------
any other Schedule hereto, each of (a) the leases, contracts and other
agreements listed in Schedules 3.10, 3.13, 3.14 and 3.19 (provided, in the case
-------------------------- ----
of Schedule 3.19, such contract or other agreement is designated therein as an
-------------
"Assumed Contract") and (b) the contracts of Metroplex for other purposes made
in the ordinary course of the Metroplex Business and consistent with past
practice (collectively in the case of clauses (a) and (b), but excluding the
contracts and other agreements designated in Schedule 3.19 as a "Contract Not
-------------
Assumed") constitutes a valid and binding obligation of Metroplex and, to the
actual knowledge of Metroplex, after due inquiry, the other parties thereto and
is in full force and effect and, except as set forth in Schedule 3.3, may be
------------
transferred to Texas Sub pursuant to this Agreement and will continue in full
force and effect thereafter, in each case without breaching the terms thereof or
resulting in the forfeiture or impairment of any rights thereunder and without
the consent, approval or act of, or the making of any filing with, any other
party.
3.21 No Violation, Litigation or Regulatory Action. Except as set
---------------------------------------------
forth in Schedule 3.21:
-------------
(a) Except as could not have a material adverse effect on the
business or operations of Metroplex, Metroplex has complied in all material
respects with all laws, regulations, rules, writs, injunctions, ordinances,
franchises, decrees or orders of any court or of any foreign, federal, state,
municipal or other government, governmental department, commission, board,
bureau, agency or instrumentality which are applicable to the Metroplex Assets
or the Metroplex Business including, without limitation, those relating to
environmental,
13
<PAGE>
occupational health and hazardous waste, those relating to the payment and
withholding of taxes and those relating to third-party programs as they have
been in effect from time to time;
(b) There are no lawsuits, claims, suits, proceedings or
investigations pending or, to the actual knowledge of Metroplex, after due
inquiry, threatened against Metroplex or any of the Physicians in respect of the
Metroplex Assets or the Metroplex Business;
(c) There is no action, suit or proceeding pending or, to the actual
knowledge of Metroplex, after due inquiry, threatened which questions the
legality or propriety of the transactions contemplated by this Agreement; and
(d) Neither Metroplex nor any Physician has received any notice of
any violation or claim of violation of any governmental laws, rules or
regulations or any moratorium, ban or similar restriction on the Metroplex
Business or the Metroplex Assets.
3.22 Insurance. Metroplex maintains policies of, or self insures with
---------
respect to, fire and extended coverage and casualty, liability, professional
liability, errors and omissions, property loss, and other forms of insurance in
such amounts and against such risks and losses as are in the judgment of
Metroplex prudent for the Metroplex Business and the Metroplex Assets. Metroplex
has maintained such insurance for the last five years. All such policies are
currently in full force and effect and Metroplex shall use its best efforts to
keep such insurance policies in full force and effect through the Closing Date.
Metroplex has received no written notification from any insurer disputing or
denying a claim within the last 12 months. Metroplex has no claim pending or
anticipated against any of its insurers under any such policies. Metroplex shall
provide the Company prior to Closing with a list of all such forms of insurance
and the amount of coverage provided thereby.
3.23 Environmental Protection. Except as set forth in Schedule 3.23,
------------------------ -------------
(a) to the actual knowledge of Metroplex, after due inquiry, neither the
Metroplex Business nor any of its present properties, assets or operations are
subject to any order from or agreement with any governmental authority,
regulatory body or private party respecting (i) any environmental, health or
safety Requirements of Law, (ii) any Remedial Action or (iii) any liabilities
and costs arising from the Release or threatened Release of a Contaminant into
the environment;
(b) There is not, to the knowledge of Metroplex, now, nor has there
ever been on or in the properties of the Metroplex Business:
(i) any Release of any Contaminant on, in, under or from
such properties;
(ii) any underground storage tanks or surface
impoundments;
(iii) any asbestos containing material; or
(iv) any polychlorinated biphenyls (PCB) used in
hydraulic oils, electrical transformers or other
equipment;
except, in each case, for items which have previously been remedied in
accordance with applicable law.
(c) Neither Metroplex nor the Metroplex Business has received any
notice or claim to the effect that it is or may be liable to any Person as a
result of the Release or threatened Release of a Contaminant into the
environment with respect to the Metroplex Business; or
(d) The present operations of the Metroplex Business are not, to the
knowledge of Metroplex, the subject of any investigation by any governmental
authority or regulatory body evaluating whether any Remedial Action is needed to
respond to a Release or threatened Release of a contaminant into the
environment.
14
<PAGE>
3.24 Books and Records. The books and records of Metroplex relating
-----------------
to the Metroplex Business have been maintained in accordance with good business
practices and applicable legal, regulatory and accounting requirements, reflect
only valid transactions, are complete and materially reflect the financial
position and results of operations of the Metroplex Business.
3.25 No Finder's Fee. Neither Metroplex nor any party acting on its
---------------
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement, and, to the extent that it shall be hereafter determined that
any broker, finder or intermediary acting on behalf of Metroplex is entitled to
any fee or commission with respect to the transactions contemplated by this
Agreement, Metroplex shall be responsible for the payment thereof.
3.26 Transactions with Affiliates. Except as set forth in
----------------------------
Schedule 3.26, since the Metroplex Balance Sheet Date, other than in the
- -------------
ordinary course of business there have been no material transactions in respect
of the Metroplex Assets or the Metroplex Business between Metroplex and any
officer, director or other Affiliate of Metroplex.
3.27 Licenses and Permits.
--------------------
(a) Metroplex has all material, local, state and federal licenses,
permits, registrations, certificates, contracts, consents, accreditations and
approvals (collectively referred to as "Licenses and Permits") necessary for its
operation as a health care business, including but not limited to Licenses and
Permits from the fire marshal, the police, the sanitation and health
departments, OSHA and applicable work authorities. Metroplex is not in default
in any respect under any of such Licenses and Permits and Metroplex has no
knowledge of any grounds for revocation, suspension or limitation of such
Licenses or Permits. Copies of these Licenses and Permits have been previously
delivered to the Company by Metroplex, and have been described in Schedule 3.27.
-------------
(b) There are no, and at Closing will be no, provisions in any
License or Permit which would preclude or limit Metroplex from operating the
Metroplex Business.
3.28 Filing Reports. All returns, reports, plans and filings of any
--------------
kind or nature necessary to be filed by Metroplex with any governmental
authorities have been properly completed and timely filed and accompanied by all
required payments in compliance with all applicable requirements, and Metroplex
has not received written notice or other written communication of, nor does it
have any actual knowledge, after due inquiry, of claims from a governmental
agency for any failure to file any such return, report, plan or filing or to
make any payments required in connection therewith.
3.29 Employment and Labor Relations. Metroplex is not a party to any
------------------------------
collective bargaining agreement or other contract or understanding with a labor
or employees union and there are no disputes, claims or grievances involving the
employees of Metroplex or others concerning employment in connection with
Metroplex's business pending or to the actual knowledge of Metroplex, after due
inquiry, threatened against Metroplex.
3.30 Benefit Plans.
-------------
(a) Identification. Schedule 3.30 contains a complete and accurate
-------------
list of all employee benefit plans (the "Employee Benefit Plans") (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) sponsored by Metroplex or to which Metroplex contributes
on behalf of its employees and all Employee Benefit Plans previously sponsored
or contributed to on behalf of its employees within the three years preceding
the date hereof. For purposes of this Section 3.30 only, the term "Metroplex"
shall mean Metroplex and any member of a "Controlled Group" or "Affiliated
Service Group" (within the meaning of Section 414 of the Internal Revenue Code)
of which Metroplex may be a member. Metroplex has provided the Company with
copies of all plan documents, determination letters, pending determination
letter applications, trust instruments,
15
<PAGE>
insurance contracts, administrative services contracts, annual reports,
actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, Metroplex has provided the Company a written description of all
existing practices engaged in by Metroplex that constitute Employee Benefit
Plans. Each of the Employee Benefit Plans can be terminated or amended at will
by Metroplex, subject to applicable law. No unwritten amendment exists with
respect to any Employee Benefit Plan.
(b) Administration. Each Employee Benefit Plan has been administered
and maintained in compliance with all laws, rules and regulations in all
material respects.
(c) Examinations. No Employee Benefit Plan is currently the subject
of an audit, investigation, enforcement action or other similar proceeding
conducted by any state or federal agency, the outcome of which could have a
material adverse effect on Metroplex.
(d) Prohibited Transactions. No material, uncorrected prohibited
transactions (within the meaning of Section 4975 of the Code) have occurred with
respect to any Employee Benefit Plan.
(e) Claims and Litigation. No threatened or pending claims, suits or
other proceedings exist with respect to any Employee Benefit Plan the outcome of
which could have a material adverse effect on Metroplex, other than normal
benefit claims filed by participants or beneficiaries.
(f) Qualification. Except as provided in Schedule 3.30, Seller has
-------------
received a favorable determination letter or ruling from the Internal Revenue
Service for each Employee Benefit Plan intended to be qualified within the
meaning of Section 401(a) of the Code and/or tax-exempt within the meaning of
Section 501(a) of the Code. No proceedings exist or have been threatened that
could result in the revocation of any such favorable determination letter or
ruling.
(g) Funding Requirements. Neither Metroplex nor any member of a
Controlled Group (within the meaning of Section 412(n)(6)(B) of the Code) in
which Metroplex is a member maintains, or has maintained, any Employee Benefit
Plan subject to Title IV of ERISA or the funding requirement of Section 412 of
the Code.
(h) Excise Taxes. Neither Metroplex nor any member of a Controlled
Group has any material liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
(i) Retirees. Metroplex has no obligation or commitment to provide
medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired from
employment with Metroplex, except as provided by COBRA.
3.31 Telephone Numbers. The telephone numbers set forth in
-----------------
Section 1.1(h) hereof are the telephone numbers principally and currently used
- --------------
by Metroplex in connection with the Metroplex Business.
3.32 Related Party Interests. Except for the real estate leases
-----------------------
described in Schedule 3.10, after the Closing, neither Metroplex nor any of the
-------------
Physicians will have any interest or investment in any corporation, partnership,
joint venture, other business organization or facility which owns, operates or
has any interest in any medical practice, medical clinic, diagnostic facility,
or clinical laboratory or provides professional medical services.
3.33 Other Names. In the five-year period prior to the Closing Date,
-----------
Metroplex has conducted operations only under the names "[The] Arlington Cancer
Center" and the names listed on Schedule 3.33 and has not conducted operations
-------------
under any other names.
16
<PAGE>
3.34 Payor Contracts. Schedule 3.34 sets forth a list of all third
--------------- -------------
party payor contracts, agreements and billing numbers of Metroplex and its
partners. Copies of Metroplex's existing Medicare and Medicaid contracts (the
"Program Agreements"), all of which are listed on Schedule 3.34, have been made
-------------
available to the Company. Metroplex is, and will be at the time of Closing, in
material compliance with all of the terms, conditions and provisions of such
contracts.
3.35 Accounting Controls. For all periods not covered by the
-------------------
Metroplex Financial Statements, Metroplex has maintained a system of internal
accounting controls which provides reasonable assurances that (a) transactions
are executed in accordance with Metroplex's general or specific authorization,
(b) transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and to
maintain accountability for assets and liabilities, (c) access to assets is
permitted only in accordance with Metroplex's general or specific authorization,
and (d) the recorded accountability for assets and liabilities is compared to
its existing assets and liabilities at reasonable intervals and appropriate
action is taken to correct any differences.
3.36 Physicians. With regard to the Physicians, there are not pending
----------
or, to Metroplex's actual knowledge, after due inquiry, medical staff privilege
or licensure-related threatened appeals, challenges, disciplinary or correction
actions, or disputes involving the Physicians or their ability to practice
medicine, except as set forth in Schedule 3.36 hereto.
-------------
3.37 Conflicts of Interest. Except as described in Schedule 3.37
--------------------- -------------
hereto, none of the Physicians is either a supplier or customer of Metroplex or
directly or indirectly controls or is a director, trustee, officer, employee or
agent of any corporation, firm, association, partnership of other business
entity which is a supplier or customer of Metroplex.
3.38 Funding Sources and Commitments. Metroplex has not received any
-------------------------------
funds (including grants or loans) under any federal laws, including Title VI and
XVI of the Public Health Service Act, pursuant to which Metroplex has agreed to
abide by assurances requiring Metroplex to offer uncompensated or community
service. Metroplex has made no commitments to any governmental authority,
utility company, school board, church or other religious body, or to any other
organization, group or individual, relating to the Metroplex Business or the
Metroplex Assets which would impose an obligation upon the Company or its
successors or assigns to make any contributions or dedications of money or land
or to construct, install or maintain any improvements of a public or private
nature or to provide services of any type or nature to any person.
3.39 Inventories. The inventory of Metroplex shall on the Closing
-----------
Date be of a quality consistent with Metroplex's past practice. The inventory of
Metroplex is at the date of this Agreement, and on the Closing Date will be,
maintained at Metroplex's normal levels.
3.40 Investment Intent. Except as contemplated herein, Metroplex is
-----------------
acquiring its interest as a stockholder in Texas Sub for its own account and not
with a view to the distribution or resale thereof and with no present intention
of distributing or reselling any portion of such interest, or solicit offers to
buy the same from or otherwise approach or negotiate in respect thereof with any
Person or Persons whomsoever, so as thereby to bring the transactions
contemplated by this Agreement or its acquisition of an interest in Texas Sub
within the provisions of Section 5 of the Securities Act of 1933, as amended, or
the registration requirements of any state Blue Sky statute unless an effective
registration statement is in effect or appropriate exemptions from the
requirements of such Securities Act and any applicable state Blue Sky statutes
are available.
3.41 Acknowledgement. Except as previously disclosed in writing to
---------------
the Company, Metroplex does not have actual knowledge of a fact that would
result in a breach of any of the representations and warranties of the Company
contained in this Agreement. For purposes of this representation and warranty,
"actual knowledge" shall
17
<PAGE>
not be deemed to include the fact that documents or other materials containing
information with respect to a breach of a representation and warranty were
delivered to Metroplex or its representatives prior to the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
As an inducement to Metroplex and the Physicians to enter into this
Agreement and to consummate the transactions contemplated hereby, the Company
hereby represents and warrants to Metroplex and the Physicians and agrees as
follows:
4.1 Organization of the Company. The Company is a corporation duly
---------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware and is duly qualified to transact business as a foreign corporation
in each jurisdiction in which such qualification is required.
4.2 Capacity of the Company. The Company has full legal right, power
-----------------------
and capacity to execute and deliver this Agreement and all of the other
agreements and instruments to be executed and delivered by the Company pursuant
hereto or thereto (collectively, the "Company Ancillary Agreements"), to
consummate the transactions contemplated hereby and thereby and to comply with
the terms, conditions and provisions hereof and thereof.
4.3 Subsidiaries and Investments. The Company does not, directly or
----------------------------
indirectly, (a) own of record or beneficially, any outstanding voting securities
or other equity interests in any corporation, partnership, joint venture or
other entity which is involved in or relates to the Metroplex Business, or (b)
otherwise control any such corporation, partnership, joint venture or other
entity which is involved in or relates to the Metroplex Business.
4.4 Authority of the Company. The Company has the power and
------------------------
authority to execute and deliver this Agreement and the Company Ancillary
Agreements, to consummate the transactions contemplated hereby and thereby and
to comply with the terms, conditions and provisions hereof and thereof.
The execution, delivery and performance of this Agreement and the
Company Ancillary Agreements by the Company have been duly authorized and
approved by all necessary corporate action on behalf of, and do not require any
further authorization or consent of, the Company. This Agreement is, and each
Company Ancillary Agreement when executed and delivered by the Company and the
other parties thereto will be, legal, valid and binding agreements of the
Company enforceable in accordance with their respective terms.
Except as set forth in Schedule 4.4, neither the execution and delivery
------------
by the Company of this Agreement and the Company Ancillary Agreements or the
consummation by the Company of any of the transactions contemplated hereby or
thereby nor compliance by the Company with or fulfillment by the Company of the
terms, conditions and provisions hereof thereof will conflict with, result in a
breach of the terms, conditions or provisions of, or constitute a default, an
event of default or an event creating rights of acceleration, termination or
cancellation or a loss of rights under, any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument or governmental
license or permit applicable to the Company, or any judgment, order, award or
decree to which the Company a party or any of its respective assets or
properties is subject or by which the Company is bound, or any statute, other
law or regulatory provision affecting the Company.
4.5 No Litigation. There is no action, suit or proceeding pending
-------------
or, to the best knowledge of the Company, threatened against the Company which
questions the legality or propriety of the transactions contemplated by this
Agreement.
18
<PAGE>
4.6 No Finder's Fee. Neither the Company nor any party acting on its
---------------
behalf has paid or become obligated to pay any fee or commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement, and to the extent that it shall be hereafter determined that any
broker, finder or intermediary acting on behalf of the Company is entitled to
any fee or commission with respect to the transactions contemplated by this
Agreement, the Company shall be responsible for the payment thereof.
4.7 Acknowledgement. Except as previously disclosed in writing to
---------------
Metroplex, the Company does not have actual knowledge of a fact that would
result in a breach of any of the representations and warranties of Metroplex
contained in this Agreement. For purposes of this representation and warranty,
"actual knowledge" shall not be deemed to include the fact that documents or
other materials containing information with respect to a breach of a
representation and warranty were delivered to the Company or its representatives
prior to the Closing Date.
ARTICLE V
ACTION PRIOR TO THE CLOSING DATE
--------------------------------
The respective parties hereto covenant and agree to take the following
actions between the date hereof and the Closing Date:
5.1 Investigation of the Metroplex Business by the Company. Upon the
------------------------------------------------------
request of the Company, Metroplex shall afford to the officers, employees and
authorized representatives of the Company (including, without limitation,
independent public accountants, attorneys and consultants) reasonable access
during normal business hours, and upon 24-hour prior notice, to the offices,
properties, employees and business and financial records (including computer
files, retrieval programs and similar documentation) of the Metroplex Business
to the extent the Company shall reasonably deem necessary or desirable and shall
furnish to the Company or its authorized representatives such additional
information concerning the Metroplex Assets and the Metroplex Business as shall
be reasonably requested, including all such information as shall be necessary to
enable the Company or its representatives to verify the accuracy of the
representations and warranties contained in Article III and to verify that the
covenants of Metroplex in Section 5.3 have been complied with. The Company
agrees that any such investigation or audit, including interviews with
employees, shall be conducted in such a manner as not to interfere unreasonably
with the operations of Metroplex or the Metroplex Business.
5.2 Preserve Accuracy of Representations and Warranties. Each of
---------------------------------------------------
Metroplex, the Physicians and the Company shall use reasonable, good faith
efforts to refrain from taking any action which would render any representation
or warranty contained in Article III or IV, respectively, of this Agreement
inaccurate in any material respect as of the Closing Date. Metroplex, the
Physicians and the Company shall promptly notify the other parties of any
action, suit or proceeding that shall be instituted or threatened against
Metroplex, the Physicians or the Company to restrain, prohibit or otherwise
challenge the legality of any transaction contemplated by this Agreement.
Metroplex, the Physicians or the Company shall promptly notify the other parties
of any lawsuit, claim, proceeding or investigation that may be threatened,
brought, asserted or commenced against either party which would have been listed
in Schedule 3.21, or in response to Section 3.3 if such lawsuit, claim,
------------- -----------
proceeding or investigation had arisen prior to the date hereof.
5.3 Operations Prior to the Closing Date. (a) Prior to the Closing
------------------------------------
Date, Metroplex shall operate and carry on the Metroplex Business only in the
ordinary course and substantially as presently operated. Consistent with the
foregoing, Metroplex shall use reasonable efforts to keep and maintain the
Metroplex Assets in good operating condition and repair.
19
<PAGE>
(b) Notwithstanding Section 5.3(a), except as expressly
--------------
contemplated by this Agreement, except as set forth in Schedule 5.3(b) or
---------------
except with the express prior written approval of the other party to this
Agreement, Metroplex shall not:
(i) make any material change in the Metroplex Business
or sell, assign, pledge, subject to lien or security interests or
otherwise transfer the Metroplex Assets other than in the ordinary
course of business;
(ii) make any capital expenditure, or enter into any
contract or commitment therefore in excess of $5,000, or make any
capital expenditures not previously discussed with such other party;
(iii) enter into any contract, agreement, undertaking or
commitment (or any extension or renewal thereof) not in the ordinary
course of business;
(iv) amend or consent to the amendment of any contract,
agreement, undertaking or commitment listed in Schedule 3.19, if the
-------------
aggregate effect of such amendment and all similar amendments is to
cause the terms of such contracts, agreements, undertakings or
commitments, in the aggregate, to be materially less favorable to
Metroplex, or, subsequent to Closing, the Company than prior to such
amendments or consents to amendment;
(v) grant any powers of attorney;
(vi) except in the ordinary course of business consistent
with past practice, grant any salary or benefit increase or otherwise
modify any other benefit due or compensation payable to any employee or
other person performing services for Metroplex;
(vii) issue any equity securities or rights to acquire
equity securities;
(viii) except in the ordinary course of business consistent
with past practice, pay any dividends, make any distributions, redeem
any securities or otherwise cause the Metroplex Assets to be
distributed to any of its partners;
(ix) borrow any funds, under existing lines of credit or
otherwise, except as reasonably necessary for the ordinary operation of
the Metroplex Business;
(x) make any material change in the accounting policies
applied in the preparation of the Metroplex Financial Statements; and
(xi) agree or commit to do or authorize any of the
foregoing.
(c) Metroplex may at any time prior to Closing, and in the event
that the Closing has not occurred within 90 days of this Agreement Metroplex
shall commencing on such ninetieth day and thereafter on a bi-monthly basis,
amend its respective Schedules to this Agreement to reflect changes in the
information set forth in such Schedules or developments that have occurred since
the date as of which information has been given in such statements. All such
changes to such Schedules shall be automatically incorporated in the Schedules
previously delivered and made a part of this Agreement except that no such
change shall be deemed to amend, to update or be incorporated in any such
previously delivered Schedule if (i) such change reflects that Metroplex is in
breach of any of its covenants and agreements set forth in this Section 5.3 or
-----------
(ii) such change, when considered together with any other changes made pursuant
to this subsection (c), would (A) reflect a material adverse effect on the
financial condition, results of operations or business prospects of the
Metroplex Business or (B) reflect that the Company would
20
<PAGE>
have to incur any material cost or penalty with respect to any of the
governmental licenses necessary to operate the business of the Company after
Closing or to be unable in any material respect to operate the business of the
Company after Closing in the manner currently proposed.
5.4 No Public Announcement. Neither Metroplex, the Physicians, Texas
----------------------
Sub nor the Company shall, without the approval of the other party, make any
press release or other public announcement concerning the transactions
contemplated by this Agreement, except as and to the extent that any such party
shall be so obligated by law, in which case the other party shall be advised and
the parties shall use their best efforts to cause a mutually agreeable release
or announcement to be issued.
5.5 Interim Financial Statements of Metroplex. Metroplex shall
-----------------------------------------
promptly deliver to the Company copies of any monthly, quarterly or annual
balance sheets or statements of income and cash flow (presented on both a
consolidated all-station basis and a consolidating basis reflecting each
station) relating to the Metroplex Business that may be prepared by it during
the period from the date hereof through the Closing Date. Such financial
statements shall fairly present the financial position and results of operations
of the Metroplex Business as at the dates and for the periods indicated, and
shall be prepared on a basis consistent and in accordance with the basis upon
which the Metroplex Financial Statements were prepared, subject to normal year
end adjustments.
5.6 Compliance With Laws. Metroplex shall not take any action in
--------------------
respect of the Metroplex Assets which violates any law, regulation, rule, writ,
injunction, ordinance, franchise, decree or order of any court or of any
foreign, federal, state, municipal or other government, governmental department,
commission, board, bureau, agency or instrumentality applicable in any material
respect to the Metroplex Assets.
5.7 Pre-Closing Obligations. (a) Metroplex shall provide reasonable
-----------------------
cooperation to the Company in obtaining the permits, licenses, authorizations
and approvals required by the Company under applicable state and federal law to
purchase and operate the Metroplex Assets.
(b) Metroplex will maintain the insurance currently carried to
insure the Metroplex Assets against liability, loss or other casualty and will
continue all professional liability insurance coverage currently carried through
the date of Closing. Metroplex will not, without the consent of the Company,
which will not be unreasonably withheld, amend, modify or cancel any policies
currently in effect.
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
6.1 Sales, Use and Transfer Taxes. The transfer and conveyance of
-----------------------------
the Metroplex Assets hereunder will qualify for the occasional sale exemption
under the Texas Tax Code (S)151.304(b)(2).
6.2 Discharge of Liabilities of Metroplex Business. Metroplex
----------------------------------------------
covenants and agrees that it will pay and discharge, and hold the Company and
the directors and officers of the Company harmless from, each and every
liability and obligation of Metroplex in respect of the Metroplex Business or
the Metroplex Assets arising from events occurring on or prior to the Closing
Date, excepting only those obligations expressly assumed by the Company and/or
Texas Sub at the Closing pursuant to the Assignment and Assumption Agreement and
any other instruments of assumption delivered to Metroplex at the Closing, it
being understood and agreed that the Company or Texas Sub are assuming no
liabilities or obligations of Metroplex other than obligations so expressly
assumed by the Company or Texas Sub, as the case may be.
21
<PAGE>
6.3 Employee Benefit Plans.
----------------------
(a) The Company, Texas Sub and Metroplex agree to cooperate with
respect to employee benefit plans covering employees of Metroplex and the
Company or Texas Sub. The parties shall administer such employee benefit plans
and plan-related issues in a manner specified in the Management Services
Agreement.
(b) Notwithstanding any of the provisions of this Section 6.3 or
-----------
anything else contained in this Agreement, none of the foregoing shall create
any obligation or agreement on behalf of the Company or Texas Sub to employ any
employees of the Metroplex Business after the Closing Date or, except as
provided in the Management Services Agreement, to maintain or provide any
specific benefits or level of benefits to employees of the Company or Texas Sub
from and after the Closing Date. All decisions regarding employment and employee
benefits after the Closing Date shall remain at the sole discretion of the
Company or Texas Sub, as the case may be, except as provided in the Management
Services Agreement.
6.4 Acquisition Proposals. Metroplex and the Physicians agree not
---------------------
to do any of the following or permit the employees, agents or affiliates of
Metroplex or any Physician to do any of the following: (i) solicit or accept any
other offer to acquire the partnership interests of Metroplex or to purchase all
or any part of the assets, business or operations of Metroplex, (ii) furnish any
information regarding Metroplex to any potential buyer of Metroplex other than
the Company or (iii) hold discussions with any party concerning any such
transaction (other than such discussions that are in furtherance of the
consummation of the transactions contemplated by this Agreement).
Notwithstanding the foregoing, Metroplex and the Physicians shall have the right
to conduct negotiations with and to consummate any acquisitions with respect to,
any third parties, provided that Metroplex is the surviving or acquiring entity
in such transaction. The parties agree that discussions, transactions,
negotiations or similar actions involving Texas Association of Oncology
Specialists, P.A. or Oncology Network of America, P.A. shall not constitute a
violation of this Section 6.4, it being understood that such actions are in
-----------
furtherance of the business and/or betterment of Metroplex.
6.5 Right to Remedy Certain Breaches Prior to Closing.
-------------------------------------------------
Notwithstanding anything contained in this Agreement to the contrary, in the
event of a material failure by Metroplex or the Company (the party so failing
being referred to in this Section 6.5 as the "Defaulting Party") to satisfy the
-----------
conditions precedent to the obligations of the other party set forth in Articles
VII or VIII, respectively, by reason of a material breach by the Defaulting
Party of its respective covenants, agreements and obligations herein or by
reason of the material breach by the Defaulting Party of any of its respective
warranties contained herein or the inaccuracy of any of its respective
representations contained herein, the Defaulting Party shall have the right to
undertake to cure or remedy such breach or inaccuracy, and to postpone the
Closing for up to 15 days so to cure or remedy such breach or inaccuracy;
provided, however, that, in any such case, such right to cure, remedy or
- -------- -------
postpone shall be subject at all times to the fulfillment and satisfaction in
all respects, on or prior to the then scheduled Closing Date, of each and every
one of the following conditions:
(a) The breach or inaccuracy is of such nature that it is capable of
being cured and remedied by the Defaulting Party in all respects on or prior to
the Closing Date (either as originally scheduled or as so postponed), and that,
upon the taking by the Defaulting Party of the actions specified in the notice
described in paragraph (b) below, such breach or inaccuracy will not impair or
otherwise have any continuing effect on the business or operations of the
Company after the Closing Date;
(b) The Defaulting Party shall have delivered to the other parties
hereto, at least one business day prior to the Closing Date as originally
scheduled, written notice of the existence of such breach and inaccuracy setting
forth (i) the specific nature of such breach and inaccuracy and the
circumstances giving rise thereto, (ii) the Defaulting Party's intention to cure
or remedy such breach or inaccuracy, (iii) if the Closing Date is to be
postponed, the date to which the Closing is to be postponed (which date must be
a date not later than 15 days after the originally scheduled Closing Date) and
(iv) the specific actions the Defaulting Party anticipates taking to cure or
remedy such breach or inaccuracy;
22
<PAGE>
(c) The existence of such breach or inaccuracy (even after giving
effect to any such cure or remedy) must not have resulted, or be reasonably
expected to result, in the imposition by the Company's financing sources of any
adverse addition to or modification or other change in the terms and conditions
of the Company's anticipated financing or otherwise have impaired, or be
reasonably expected to impair, the Company's ability to obtain the governmental
and other approvals necessary to enable the parties hereto to consummate the
transactions contemplated by this Agreement;
(d) The Defaulting Party shall have (i) paid (and/or reimbursed the
Company or the other parties hereto prior to the Closing for) any and all costs
and expenses of the Defaulting Party, the Company or the other parties hereto
arising from or related to such attempt to cure or remedy or resulting from any
postponement of the Closing Date and (ii) furnished the Company and such other
parties with a written undertaking of the Defaulting Party to indemnify and hold
harmless the Company and such other parties and their respective Affiliates from
and against any and all costs and expenses associated with any such
postponement, including any and all additional charges, fees or other costs
incurred by the Company and such other parties or their respective Affiliates in
preserving and maintaining the Company's financing sources and commitments
during the period of such postponement; and
(e) The aggregate amount of Loss and Expense which could reasonably
be expected to be incurred at any time by the Company or such other parties as a
result of such breach or inaccuracy (assuming the consummation of the Closing
without any action on behalf of the Defaulting Party, the Company or any other
party prior to the Closing to cure or remedy such breach or inaccuracy) shall
not exceed $100,000.
6.6 Pro-Rations. (a) The following expenses shall be pro-rated as of
-----------
June 1, 1997 in favor of Metroplex, Texas Sub or the Company as the case may be:
all fees and other rentals and charges payable under the Assumed Contracts and
agreements listed on Schedule 3.19; all real and personal property taxes and
-------------
assessments levied and assessed against any of the Assets; and charges for
utilities (including, but not limited to electricity, fuel, water, sanitation
and garbage disposal).
(b) Within 45 days after the Closing Date, the Company shall prepare
and deliver to Metroplex a statement (the "Final Statement"), setting forth the
Company's good faith determination of the foregoing pro-rations (the "Final
Adjustment Amount"). During the 15-day period following delivery of the Final
Statement to Metroplex, the Company shall provide Metroplex with access during
normal business hours to any books, records, working papers or other information
reasonably necessary or useful in the review of the Final Statement and the
calculation of the Final Adjustment Amount to enable Metroplex to verify the
accuracy of the Final Statement. The Final Statement shall become final and
binding upon all parties hereto on the sixteenth day following delivery thereof
(without counting such day of delivery) to Metroplex unless Metroplex gives
written notice of disagreement with the Final Statement (a "Notice of
Disagreement") to the Company prior to such date. Any Notice of Disagreement
shall specify in reasonable detail the nature of any disagreement so asserted
and relate solely to the review of the Final Statement and the calculation of
the Final Adjustment Amount. The matters so specified in the Notice of
Disagreement shall be resolved in accordance with the provisions of Section 9.5
-----------
of this Agreement.
(c) The Final Statement shall become final and binding upon all
parties hereto on the earlier of (i) the date the Company and Metroplex resolve
in writing any differences they may have with respect to all matters specified
in the Notice of Disagreement and (ii) the date all disputed matters are finally
resolved in writing by the arbitrator appointed pursuant to this Agreement.
Within five business days after the Final Statement becomes final and binding
upon the parties, the Company, Texas Sub or Metroplex, as the case may be, shall
pay the difference between the Estimated Adjustment Amount and the Final
Adjustment Amount. All payments pursuant to this Section 6.6 shall be by wire
-----------
transfer of immediately available funds to an account designated by the
recipient at least two business days prior to the date of payment.
6.7 Audited Financial Statements. In the event that the Company or a
----------------------------
successor to the Company proposes to engage in an underwritten initial public
offering and it is legally required that audited financial statements
23
<PAGE>
of Metroplex be contained in the registration statement(s) related to such
initial public offering or any subsequent or concurrent public offering
conducted by the Company or its successor, Metroplex and the Physicians will
fully cooperate with the Company and its representatives to provide in the
registration statement(s) such audited financial statements.
6.8 Texas Sub Budget. The parties agree to work together in good
----------------
faith to create a definitive one-year business plan for the conduct of the
operations of Texas Sub within forty-five days after the Closing Date.
6.9 RIT Program. The parties agree to work together in good faith to
-----------
develop within forty-five days after the Closing Date a protocol for the
development of the Radio-Immune Therapy Program (the "RIT Program"). Such
protocol (the "RIT Protocol") shall include a determination of the rights,
titles and interests Metroplex will receive in any inventions or patents
resulting from the RIT Program. Metroplex hereby agrees to immediately assign
all rights, titles or interests it receives in any inventions or patents
resulting from the RIT Program directly to Texas Sub or a designee of Texas Sub.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF METROPLEX
------------------------------------------------
The obligations of Metroplex under this Agreement shall, at the option
of Metroplex be subject to the satisfaction, on or prior to the Closing Date, of
the following conditions:
7.1 No Misrepresentation or Breach of Covenants and Warranties.
----------------------------------------------------------
Without limitation of the Company's rights under Section 6.5, there shall have
-----------
been no material breach by the Company in the performance of any of its
covenants and agreements herein; each of the representations and warranties of
the Company contained or referred to herein shall be true and correct in all
material respects on the Closing Date as though made on the Closing Date (except
to the extent that they expressly speak as of a specific date or time other than
the Closing Date, in which case they need only have been true and correct in all
material respects as of such specified date or time), except for changes therein
specifically permitted by this Agreement or resulting from any transaction
expressly consented to in writing by Metroplex; and there shall have been
delivered to Metroplex a certificate or certificates by the members of the
Company to so elect.
7.2 Opinions of Counsel for the Company. Metroplex shall have
-----------------------------------
received from Jackson & Walker, L.L.P., counsel for the Company, an opinion
dated as of the Closing Date, in form and substance reasonably satisfactory to
Metroplex and its counsel.
7.3 Action by the Company. (a) The Company shall have taken all
---------------------
corporate action necessary to approve the transactions contemplated by this
Agreement, and the Company shall have furnished Metroplex with certified copies
of all such action.
(b) The Company shall have caused Texas Sub to take all corporate
action necessary to approve and perform the transactions contemplated by this
Agreement, and the Company shall cause Texas Sub to furnish Metroplex with
appropriate documentation of all such action.
7.4 No Restraint or Litigation. (a) There shall not be in effect or,
--------------------------
to the best knowledge of Metroplex, threatened any preliminary or permanent
injunction or other order, decree or ruling by a court of competent jurisdiction
or by a governmental, regulatory or administrative agency or commission, no
statute, rule, regulation or executive order shall have been promulgated or
enacted by a government authority and there shall not be in effect or,
24
<PAGE>
to the best knowledge of Metroplex or the Company, threatened any temporary
restraining order of a court of competent jurisdiction, which, in any case,
restrains or prohibits the transactions contemplated hereby.
(b) There shall be no action, suit or proceeding pending or, to the
knowledge of Metroplex, threatened which questions the legality or propriety of
the transactions contemplated hereby.
7.5 No Material Adverse Change. Since the date of this Agreement,
--------------------------
there shall have been no material adverse change in the financial condition of
the Company.
7.6 Financing. The Company shall on or before June 16, 1997, subject
---------
to extension by the mutual agreement of the parties, have received requisite
financing to complete the transactions contemplated herein on terms acceptable
to the Company in its sole discretion.
7.7 Consents. Metroplex shall have obtained the Required Consents.
--------
7.8 Partnership Agreement. Metroplex shall have amended its current
---------------------
Amended and Restated Partnership Agreement (the "Partnership Agreement") to
eliminate any provision which would require the payment of any termination or
severance payment upon the occurrence of the transactions contemplated under
this Agreement.
7.9 Due Diligence. Metroplex shall be satisfied, in its sole
-------------
discretion, with its due diligence review of the operations and financial
condition of the Company, which due diligence review shall have been completed
by June 16, 1997.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
--------------------------------------------------
The obligations of the Company under this Agreement shall, at the
option of the Company, be subject to the satisfaction on or prior to the Closing
Date, of the following conditions:
8.1 No Misrepresentation or Breach of Covenants and Warranties. With
----------------------------------------------------------
out limitation of Metroplex's rights under Section 6.5, there shall have been no
-----------
material breach by Metroplex in the performance of any of its covenants and
agreements herein; each of the representations and warranties of Metroplex
contained or referred to in this Agreement shall be true and correct in all
material respects on the Closing Date as though made on the Closing Date, except
for changes therein specifically permitted by this Agreement or resulting from
any transaction expressly consented to in writing by the Company or any
transaction contemplated by this Agreement; and there shall have been delivered
to the Company a certificate or certificates to such effect, dated the Closing
Date and signed on behalf of Metroplex by all of its partners.
8.2 Opinions of Counsel for Metroplex. The Company shall have
---------------------------------
received from Vinson & Elkins, L.L.P., counsel for Metroplex, an opinion, dated
as of the Closing Date, in form and substance reasonably satisfactory to the
Company and its counsel.
8.3 Partnership Action. Metroplex shall have taken all partnership
------------------
action necessary to: (i) approve the transactions contemplated by this Agreement
and (ii) amend the Partnership Agreement pursuant to Section 7.8 of this
-----------
Agreement, and Metroplex shall have furnished the Company with certified copies
of such resolutions and the amended Partnership Agreement, as duly adopted by
the partners of Metroplex, in form and substance reasonably satisfactory to
counsel for the Company, in connection with such transactions.
8.4 No Restraint. (a) There shall not be in effect or, to the best
------------
knowledge of the Company, threatened any preliminary or permanent injunction or
other order, decree or ruling by a court of competent jurisdiction or by
25
<PAGE>
a governmental, regulatory or administrative agency or commission, no statute,
rule, regulation or executive order shall have been promulgated or enacted by a
government authority and there shall not be in effect any temporary restraining
order of a court of competent jurisdiction, which, in any case, restrains or
prohibits the transactions contemplated hereby.
(b) Except as set forth in or contemplated by Schedule 3.21, there
-------------
shall be no lawsuits, claims, suits, proceedings or investigations pending or,
to the best knowledge of the Company after due inquiry, threatened against
Metroplex in respect of the Metroplex Assets or the Metroplex Business, other
than such lawsuits, claims, suits, proceedings or investigations which are not
Metroplex Assumed Liabilities and which, if determined adversely against
Metroplex, would not materially adversely affect the business or operations of
the Company.
(c) Except as set forth in or contemplated by Schedule 3.21, there
-------------
shall be no action, suit or proceeding pending or, to the knowledge of the
Company, threatened which questions the legality or propriety of the
transactions contemplated hereby.
8.5 Necessary Consents. Metroplex shall have received consents, in
------------------
form and substance reasonably satisfactory to the Company, to the assignment to
the Company of all leases, contracts and other agreements entered into by
Metroplex with respect to the Metroplex Business after the date hereof
consistent with the terms of Section 1.4, or Section 6.5, as the case may be, of
----------- -----------
this Agreement, except for leases, contracts or other agreements which have been
or will be terminated, effective as of the Closing Date, as contemplated by this
Agreement.
8.6 No Material Adverse Change. Except as set forth in Schedule
-------------------------- --------
3.5(a), since the date of this Agreement there shall have been (a) no material
- ------
adverse change in the financial condition or the results of operations of the
Metroplex Business or (b) no damage, destruction, loss or claim (whether or not
covered by insurance) or condemnation or other taking which materially adversely
affects the Metroplex Assets or the Metroplex Business.
8.7 Financing. The Company shall, on or before June 16, 1997 have
---------
received requisite financing to complete the transactions contemplated herein on
terms acceptable to the Company in its sole discretion.
8.8 Due Diligence. The Company shall be satisfied, in its sole
-------------
discretion, with its due diligence review of the operations and financial
condition of Metroplex, which due diligence review shall have been completed by
June 16, 1997.
8.9 Releases of Liens. The Company shall have received evidence
-----------------
reasonably satisfactory to it and its counsel that all liens on the Metroplex
Assets have been released.
ARTICLE IX
INDEMNIFICATION
---------------
9.1 Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless Metroplex from and against any and all (a) liabilities,
losses, costs or damages ("Loss") and (b) reasonable attorneys' and accountants'
fees and expenses, court costs and all other reasonable out-of-pocket expenses
("Expense") incurred by Metroplex in connection with or arising from:
(a) any breach by the Company or Texas Sub of, or any other failure
of the Company or Texas Sub to perform, any of its covenants, agreements or
obligations in this Agreement or in any agreement or instrument contemplated
hereby;
26
<PAGE>
(b) any breach of any warranty or the inaccuracy of any
representation of the Company contained or referred to in this Agreement or any
certificate delivered by or on behalf of the Company pursuant hereto;
(c) the failure of the Company or Texas Sub to perform any
obligation assumed by the Company pursuant to this Agreement;
(d) any liability or claim arising out of the obligations or
liabilities and commitments of the Company or Texas Sub, or its employees or
agents expressly assumed by the Company or Texas Sub pursuant to the terms of
this Agreement;
(e) any liability or claim arising out of actions taken in
connection with the hiring (or failing to hire), firing, disciplining, and
supervising of, and otherwise with respect to, any employees of the Company or
Texas Sub following the Closing Date;
(f) any claim(s) made against Metroplex arising out of Metroplex's
ownership, operation, use or sale of the Metroplex Assets, including, but not
limited to, any suit, claim or proceeding of any nature seeking to recover
damages for personal injury, death or property damage due to occurrences in
connection with the Metroplex Assets arising after the Closing Date and any
suit, claim or proceeding by any person an employee of the Company which arises
as a result of acts or omissions following the Closing Date;
(g) any claim(s) made against the Company for any broker's, finder's
or originator's fees or commissions by reason of services alleged to have been
rendered for or at the instance of the Company, in connection with this
Agreement and the transactions contemplated hereby;
(h) any liability incurred by Metroplex arising out of a violation
by the Company or Texas Sub of applicable laws or regulations relating to
"leased employees"; or
(i) any liability incurred by the Company or Texas Sub
arising out of a violation by Metroplex of applicable laws or regulations
relating to "leased employees".
provided, however, that the Company shall not be required to indemnify and hold
- -------- -------
harmless Metroplex in accordance with this Section 9.1 with respect to any Loss
-----------
or Expense incurred by any such person unless, until and then only to the extent
that the aggregate amount of all Loss and Expense incurred by any such person
under this Section 9.1 exceeds $500,000; and provided, further, that,
----------- -----------------
notwithstanding anything contained herein to the contrary, the aggregate
liability and obligation of the Company to indemnify and hold harmless hereunder
shall be limited solely to, and satisfied and discharged solely from, the assets
of the Company and Texas Sub and shall be without recourse to any other assets
or properties of the shareholders of the Company or their respective Affiliates.
9.2 Indemnification by Metroplex. Metroplex agrees to indemnify and
----------------------------
hold the Company and Texas Sub harmless from and against any and all Loss and
Expense incurred by the Company or Texas Sub, in connection with or arising
from:
(a) Any breach by Metroplex of, or other failure of Metroplex to
perform, any of its covenants, agreements or obligations in this Agreement or
any agreement or instrument contemplated hereby;
(b) Any breach of any warranty or the inaccuracy of any
representation of Metroplex contained or referred to in this Agreement or in any
certificate delivered by or on behalf of Metroplex pursuant hereto;
(c) The failure of Metroplex to perform any obligation of Metroplex
or the Metroplex Business not assumed by the Company pursuant to this Agreement;
27
<PAGE>
(d) The failure of Metroplex to use reasonable best efforts to
obtain any of the consents or amendments in accordance with the terms hereof;
(e) Any liability or claim arising out of the obligations or
liabilities and commitments of Metroplex, or its employees or agents not
expressly assumed by the Company or Texas Sub pursuant to the terms of this
Agreement, including but not limited to personal injury and professional
liability claims;
(f) Any liability or claim arising out of actions taken in
connection with the hiring (or failing to hire), firing, disciplining, and
supervising of, and otherwise with respect to, any employees of Metroplex prior
to the Closing Date;
(g) Any liability or claim arising out of any audit, recoupment, or
contractual settlement retroactively or otherwise adjusting the amounts payable
for reimbursement purposes, with respect to services rendered by or on behalf of
Metroplex or billed for, by or on behalf of Metroplex prior to the Closing Date;
(h) Any liability, claim, loss or expense of any nature whatsoever
relating to the provision of fringe benefits of any kind to the employees of
Metroplex and their dependents including, without limitation, those arising out
of COBRA continuation coverage, including but not limited to those applicable or
claimed to be applicable to the Company or Texas Sub as the result of being
determined to be a "successor employer" of Metroplex;
(i) Any federal, state or local tax liability, obligation or claim
(including any such liability, obligation or claim arising as a result of or
with respect to the consummation of the transactions contemplated by this
Agreement), for periods on or before the Closing Date which affect in any way
the Metroplex Assets, the Metroplex Business or the Company or Texas Sub as
transferee thereof;
(j) Any claim(s) made against the Company or Texas Sub arising out
of Metroplex's ownership, operation, use or sale of the Metroplex Assets or the
operations of the Metroplex Business, including, but not limited to, any suit,
claim or proceeding of any nature seeking to recover damages for personal
injury, death or property damage due to occurrences in connection with the
Metroplex Business or the Metroplex Assets arising on or before the Closing Date
and any suit, claim or proceeding by any person currently an employee of
Metroplex which arises as a result of acts or omissions prior to the Closing
Date or in connection with any communications between or arrangements with the
employees and Metroplex; or
(k) Any claim(s) made against the Company or Texas Sub for any
broker's, finder's or originator's fees or commissions by reason of services
alleged to have been rendered for or at the instance of Metroplex, in connection
with this Agreement and the transactions contemplated hereby;
provided, however, that Metroplex shall not be required to indemnify and hold
- -------- -------
harmless the Company or Texas Sub in accordance with this Section 9.2 with
-----------
respect to any Loss or Expense incurred by any such person unless, until and
then only to the extent that the aggregate amount of all Loss and Expense
incurred by any such person under this Section 9.2 exceeds $500,000; and that
-----------
the liability of Metroplex hereunder shall not exceed $30,600,000. The parties
agree that the Company and Texas Sub shall have the right to set-off any amount
to which it may be entitled under this Section 9.2 against amounts otherwise
-----------
payable under the Promissory Notes. The exercise of such right of set-off by the
Company or Texas Sub in good faith, whether or not ultimately determined to be
justified, will not constitute an event of default under the Promissory Notes or
any instrument securing the Promissory Notes. In the event the parties disagree
with respect to the amount to be set-off, the Company or Texas Sub, as the case
may be, shall, at the time the payment in question under the Promissory Notes is
due, place such funds in escrow with a mutually acceptable escrow agent. The
amount to be set-off shall then be determined in accordance with Section 9.5
-----------
hereof and any party who receives an award of such escrowed funds shall be
entitled to retain any accrued interest thereon. If at any time the unpaid
balance of the Promissory Notes is insufficient to satisfy Metroplex's
obligation to the Company or Texas Sub hereunder, and Metroplex is otherwise
unable to satisfy its obligation to the Company or
28
<PAGE>
Texas Sub, each of the Physicians agrees to indemnify the Company and Texas Sub
from all Loss and Expense incurred by the Company or Texas Sub in connection
with or arising from any breach of any warranty or the inaccuracy of any
representation of Metroplex contained in Sections 3.4, 3.6, 3.7, 3.8, 3.15,
------------------------
3.27, 3.28 and 3.36 of this Agreement; provided, however, that the aggregate of
- -------------------
the amounts paid by individual Physicians (and their respective professional
associations) to the Company and Texas Sub pursuant to this Section 9.2 shall
-----------
not exceed the amounts of any such unsatisfied Loss or Expense incurred by the
Company or Texas Sub, and no individual Physician (or his professional
association) shall be liable for an amount in excess of an aggregate of (i) the
individual liability limitations ascribed to him in Exhibit G attached hereto,
---------
and (ii) an amount equal to 30% of the compensation payable under the Physician
Owner's Employment Agreement of such individual Physician for one year. Any
amount due under subsection (ii) hereof shall be paid in equal installments as
the salary obligation is accrued and shall not be paid in a lump sum. The
Company or Texas Sub shall have the right to withhold the amounts to be paid to
the Company or Texas Sub pursuant to this subsection from amounts due to
Metroplex under Section 5.3 of the Management Services Agreement. To the extent
that the amount to be withheld is in dispute, such amounts shall be paid into an
escrow account as they are accrued and be distributed as provided above upon
settlement of the dispute. As more particularly provided in Section 11.1 hereof,
------------
the representations contained in Sections 3.4, 3.6, 3.8, 3.15, 3.27, 3.28 and
--------------------------------------------
3.36 referred to above shall be terminated as of the second anniversary of the
- ----
Closing Date, and the representations contained in Section 3.7 shall survive for
-----------
a period of five years from the Closing Date.
9.3 Notice of Claims. (a) If any party entitled to seek
----------------
indemnification hereunder (an "Indemnified Person") believes that it has
suffered or incurred any Loss or incurred any Expense, such Indemnified Person
shall so notify the party from whom indemnification is to be sought (the
"Indemnifying Party") promptly in writing describing such Loss or Expense, the
amount thereof if known, and the method of computation of such Loss or Expense,
all with reasonable particularity and containing a reference to the provisions
of this Agreement or other agreement, instrument or certificate delivered
pursuant hereto in respect of which such Loss or Expense shall have occurred.
If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Person intends to claim any
liability or expense as Loss or Expense under this Article IX, such Indemnified
Person shall promptly notify the Indemnifying Party of such action or suit. The
failure of any party to give any notice required by this Section 9.3 shall not
-----------
affect any of such party's rights under this Article IX except to the extent
such failure is actually prejudicial to the rights or obligations of the other
party.
(b) The amount to which an Indemnified Person shall be entitled
under this Article IX shall be determined: (i) by written agreement between the
Indemnified Person and Indemnifying Party, or (ii) pursuant to Section 9.5
-----------
hereof.
9.4 Third Party Claims. (a) Subject to paragraph (b) of this Section
------------------ -------
9.4, the Indemnified Person under this Article IX shall have the right to
- ---
conduct and control, through counsel of its choosing, any third party claim,
action or suit, and the Indemnified Person may compromise or settle the same,
provided that the Indemnified Person shall give the Indemnifying Party advance
notice of any proposed compromise or settlement. The Indemnified Person shall
permit the Indemnifying Party to participate in the defense of any such action
or suit through counsel chosen by it, provided that the fees and expenses of
such counsel shall be borne by the Indemnifying Party. Subject to paragraph (b)
of this Section 9.4, any compromise or settlement with respect to a claim for
-----------
money damages effected after the Indemnifying Party by notice to the Indemnified
Person shall have disapproved such compromise or settlement shall discharge the
Indemnifying Party from liability with respect to the subject matter thereof,
and no amount in respect thereof shall be claimed as Loss or Expense under this
Article IX.
(b) If the remedy sought in any action or suit referred to in
paragraph (a) of this Section 9.4 is solely money damages and will have no
-----------
continuingeffect on the business of the Indemnified Person, the Indemnifying
Party shall have 15 business days after receipt of the notice referred to in
Section 9.4(a) to notify the Indemnified Person that it elects to conduct and
- --------------
control such action or suit. If the Indemnifying Party does not give the
foregoing notice,
29
<PAGE>
the Indemnified Person shall have the right to defend, contest settle or
compromise such action or suit in the exercise of its exclusive discretion, and
the Indemnifying Party shall, upon request from the Indemnified Person, promptly
pay to the Indemnified Person in accordance with the other terms of this Article
IX the amount of any Loss resulting from its liability to the third party
claimant and all related Expense. If the Indemnifying Party gives the foregoing
notice, the Indemnifying Party shall have the right to undertake, conduct and
control, through counsel of its own choosing and at the sole expense of the
Indemnifying Party, the conduct and settlement of such action or suit and the
Indemnified Party shall cooperate with the Indemnifying Party in connection
therewith; provided that (x) the Indemnifying Party shall not thereby permit to
--------
exist any lien, encumbrance or other adverse change upon any asset of the
Indemnified Person; (y) the Indemnifying Party shall permit the Indemnified
Person to participate in such conduct or settlement through counsel chosen by
the Indemnified Person, but the fees and expenses of such counsel shall be borne
by the Indemnified Person except as provided in clause (z) below; and (z) the
Indemnifying Party shall agree promptly to reimburse to the extent required
under this Article IX the Indemnified Person for the full amount of any Loss
resulting from such action or suit and all related Expense incurred by the
Indemnified Person, except fees and expenses of counsel for the Indemnified
Person incurred after the assumption of the conduct and control of such action
or suit by the Indemnifying Party. So long as the Indemnifying Party is
contesting any such action or suit in good faith, the Indemnified Person shall
not pay or settle any such action or suit. Notwithstanding the foregoing, the
Indemnified Person shall have the right to pay or settle any such action or
suit, provided that in such event the Indemnified Person shall waive any right
to indemnity therefor by the Indemnifying Party, and no amount in respect
thereof shall be claimed as Loss or Expense under this Article IX.
9.5 Arbitration and Mediation.
-------------------------
(a) Mediation:
(i) Agreement to Use Procedure: The parties agree to utilize
the following procedure with regard to any contention or claim arising
out of or relating to a claim for indemnification pursuant to this
Agreement, (a "Dispute").
(ii) Initiation of Procedure: The initiating party shall give
written notice to the other party, describing the nature of the
Dispute, its claim for relief and identifying one or more individuals
with authority to resolve the Dispute on such party's behalf. The other
party shall have five (5) business days from receipt of such notice
within which to designate in writing one or more individuals with
authority to resolve the Dispute on such party's behalf.
(iii) Selection of Mediator: Within ten (10) business days
from the date of designation by the noninitiating party, the parties
shall make a good faith effort to select a person to mediate the
Dispute. If no mediator has been selected under this procedure, the
parties shall jointly request a State or Federal District Judge of
their choosing (or if they cannot agree, the President of the Dallas
Bar Association) to supply within ten (10) business days a list of
potential qualified attorney-mediators in Dallas, Texas. Within five
(5) business days of receipt of the list, the parties shall rank the
proposed mediators in numerical order of preference, simultaneously
exchange such list, and select as the mediator the individual receiving
the highest combined ranking. If such mediator is not available to
serve, they shall proceed to contact the mediator who was next highest
in ranking until they select a mediator.
(iv) Time and Place for Mediation; Parties Represented: In
consultation with the mediator selected, the parties shall promptly
designate a mutually convenient time in Dallas, Texas for the
mediation, such time to be no later than sixty (60) days after
selection of the mediator. In the mediation, each party shall be
represented by persons with authority and discretion to negotiate a
resolution of the Dispute, and may be represented by counsel.
30
<PAGE>
(v) Conduct of Mediation: The mediator shall determine the
format for the meetings and the mediation sessions shall be private.
The mediator will keep confidential all information learned in private
caucus with any party unless specifically authorized by such party to
make disclosure of the information to the other party. The parties
agree that the mediation shall be governed by the provisions of Chapter
154 of the Tex. Civ. Prac. & Rem. Code and such other rules as the
mediator shall reasonably prescribe.
(vi) Fees of Mediator; Disqualification: The reasonable fees
and expenses of the mediator shall be shared equally by the parties.
The mediator shall be disqualified as a witness, consultant, expert or
counsel for any party with respect to the dispute and any related
matters.
(vii) Confidentiality: Mediation is a compromise negotiation
for purposes of Federal and State Rules of Evidence and constitutes
privileged communication under Texas law. The entire mediation process
is confidential, and such conduct, statements, promises, offers, views
and opinions shall not be discoverable or admissible in any level
proceeding for any purpose.
(b) Binding Arbitration: If any Dispute cannot be settled through
direct discussions, the parties agree to first endeavor to settle the Dispute by
mediation as set forth in Section 9.5(a) above, before resorting to arbitration.
--------------
Thereafter, any Dispute shall be settled solely by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator(s) may be entered and
enforced in any court having jurisdiction thereof. The parties agree to execute
a complete written Arbitration Agreement (requiring binding arbitration and
setting forth in detail procedures for arbitration) within ten (10) days of the
close of any unsuccessful mediation proceeding. If the parties cannot agree on a
binding Arbitration Agreement, such agreement shall, within twenty (20) days of
the close of unsuccessful mediation proceedings, be prepared and submitted to
each party by the mediator and such agreement in the form submitted by the
mediator shall be binding on both parties as to all arbitration procedures.
(c) Breach of Mediation and/or Arbitration Provisions.
(i) Enforcement: In the event any party shall breach the
terms of Section 9.5(a) or (b) above regarding mediation and
------------- ---
arbitration, the parties agree the following shall occur:
(A) The non-breaching party may, no earlier than five
(5) days after written notice to the breaching party, apply to a
court of competent jurisdiction for specific enforcement of the
mediation and arbitration procedures set forth herein;
(B) The breaching party shall pay all costs and
expenses of such breach to the non-breaching party, including
attorney's fees, travel expenses and mediator fees;
(C) Upon a judicial determination of a material breach,
the breaching party hereby waives and relinquishes all claims of
treble, punitive or similar damages or claims of irreparable
harm concerning the Dispute in question, and further waives all
objections to the non-breaching party's claim of treble,
punitive or similar damages or claims of irreparable harm
concerning said Dispute; and
(D) The breaching party shall pay all other actual and
special damages to the non-breaching parties that result from
such breach.
(ii) Other Damages: In addition to the agreed consequences
of breach set out above, the parties hereby agree any court obtaining
jurisdiction over the involved Dispute shall, upon the court's
discretion, have the authority to impose the consequences set out in
the Rules of Civil Procedure of that court, for the failure of a party
to cooperate in discovery and pretrial matters, including, but not
limited to, the striking of
31
<PAGE>
a party's pleading, award of attorney's fees and costs, and such other
remedies as the court may deem appropriate. The remedies set forth in
this subparagraph are in addition to the court's contempt and other
judicial powers.
ARTICLE X
TERMINATION
-----------
10.1 Termination. (a) Notwithstanding anything contained in this
-----------
Agreement to the contrary, this Agreement may be terminated at any time prior to
the Closing: (i) by the mutual consent of Metroplex, the Physicians and the
Company; (ii) subject to the rights of the Company under Section 6.5, by
-----------
Metroplex in the event of a material breach by the Company of any of its
agreements, representations or warranties contained in this Agreement which are
not qualified by materiality or do not contain a materiality exception (it being
understood that if any of the Company's representations or warranties contained
in this Agreement are not qualified by materiality or do not contain a
materiality exception, then a breach thereof for purposes of this Section 10.1
------------
must have been inaccurate in any material respect when made); (iii) subject to
the rights of Metroplex under Section 6.5, by the Company in the event of a
-----------
material breach by the Company of any of their agreements, representations or
warranties contained in this Agreement which are qualified by materiality or
contain a materiality exception (it being understood that if any of the
Company's representations or warranties contained in this Agreement are not
qualified by materiality or do not contain a materiality exception, then a
breach thereof for purposes of this Section 10.1 must have been inaccurate in
------------
any respect when made); or (iv) by Metroplex and or the Company if the Closing
shall not have occurred on or before June 30, 1997 (or such later date as may be
mutually agreed to by Metroplex and the Company) provided that no party shall
--------
terminate pursuant to this clause (iv) if the reason the Closing has not
occurred by such date relates to a breach by such party of any of its
obligations and agreements hereunder.
(b) This Agreement may be terminated at any time on or prior to June
16, 1997 by the Company if the Company is not satisfied with its due diligence
review.
(c) This Agreement may be terminated at any time on or prior to June
16, 1997 by Metroplex if Metroplex is not satisfied with its due diligence
review of the Company.
(d) In the event that this Agreement shall be terminated pursuant to
this Article X, all further obligations of the parties under this Agreement
(other than Sections 11.2 and 11.9) shall be terminated without further
------------- ----
liability of any party to the others, provided that nothing herein shall relieve
any party from liability for its willful breach of this Agreement.
ARTICLE XI
GENERAL PROVISIONS
------------------
11.1 Survival of Representations, Warranties and Obligations. All
-------------------------------------------------------
representations, warranties, covenants and obligations contained in this
Agreement shall survive the consummation of the transactions contemplated by
this Agreement; provided, however, that, except as otherwise provided in Article
-------- -------
IX, the representations and warranties contained in Articles III and IV of this
Agreement (other than the representations and warranties contained in Sections
--------
3.16, 3.21 or 4.1, which shall survive indefinitely and those contained in
- ---------- ---
Sections 3.1, 3.3, 3.7, 3.15, 3.23, 3.30, 3.40, 4.2 and 4.4, which shall survive
- --------------------------------------------------- ---
for a period of five years) shall terminate as of the second anniversary of the
Closing Date. Except as otherwise provided herein, no claim shall be made for
the breach of any representation or warranty contained in Article III or IV
after the date on which such representations and warranties terminate as set
forth in this Section.
32
<PAGE>
11.2 Confidential Nature of Information. (a) Each party agrees that
----------------------------------
it will treat in confidence all documents, materials and other information which
it shall have obtained regarding any other party during the course of the
negotiations leading to the consummation of the transactions contemplated hereby
(whether obtained before or after the date of this Agreement), the investigation
provided for herein and the preparation of this Agreement and other related
documents, and, in the event the transactions (contemplated hereby shall not be
consummated, each party will return to the appropriate party all copies of
nonpublic documents and materials which have been furnished in connection
therewith. The obligation of each party to treat such documents, materials and
other information in confidence shall not apply to any information which (a)
such party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by any other party, (b) is known to the public and did not
become so known through any violation of a legal obligation, (c) became known to
the public through no fault of such party, (d) is later lawfully acquired by
such party from other sources or (e) such party is required to disclose any such
information pursuant to judicial order or, in the opinion of counsel, pursuant
to applicable law. Without limiting the right of any party to pursue all other
legal and equitable rights available to it for violation of this Section 11.2 by
------------
any other party, it is agreed that other remedies cannot fully compensate the
aggrieved party for such a violation of this Section 11.2 and that the aggrieved
------------
party shall be entitled to injunctive relief to prevent a violation or
continuing violation hereof.
(b) Notwithstanding anything to the contrary contained in Section
-------
11.2(a) the Company shall be entitled to share nonpublic information regarding
- -------
Metroplex with potential sources of financing provided that the recipients of
such nonpublic information agree to maintain the confidentiality of the
nonpublic information.
11.3 Governing Law. THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
-------------
HEREBY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS WITHOUT REFERENCE TO ITS CHOICE OF LAW RULES.
11.4 Notices. All notices or other communications required or
-------
permitted hereunder shall be in writing and shall be deemed given or delivered
when delivered personally or by messenger or 72 hours after having been sent by
registered or certified mail or by private courier addressed as follows:
If to Metroplex, to:
Metroplex Hematology/Oncology Associates, L.L.P.
Arlington Cancer Center
906 West Randol Mill Road
Arlington, Texas 76012
Attention: Alfred DiStefano, M.D.
with a copy to:
Vinson & Elkins L.L.P.
2001 Ross Avenue
3700 Trammell Crow Center
Dallas, Texas 75201
Attention: Michael L. Malone, Esq.
If to the Company or to Texas Sub, to:
Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Thomas Rodgers
33
<PAGE>
with a copy to:
Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: James S. Ryan, III, Esq.
or, in the case of any notice described above, to such other address as such
party may indicate by a notice delivered to the other parties hereto.
11.5 Successors and Assigns. (a) Except as specifically
----------------------
contemplated herein, the rights of parties hereto shall not be assignable by any
party hereto prior to the Closing without the written consent of the other
parties hereto. Following the Closing, the parties hereto may assign any of
their respective rights hereunder, but no such assignment shall relieve any
party of its obligations hereunder.
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their successors and permitted assigns. Nothing in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon any person other than the parties and successors and assigns
permitted by this Section 11.5 any right, remedy or claim under or by reason of
------------
this Agreement.
11.6 Entire Agreement; Amendments. This Agreement and the Exhibits
----------------------------
and Schedules referred to herein and the documents delivered pursuant hereto
contain the entire understanding of the parties hereto with regard to the
subject matter contained herein or therein, and supersede all prior agreements,
understandings or intents between or among any of the partes hereto. The parties
hereto, by mutual agreement in writing, may amend, modify and supplement this
Agreement.
11.7 Interpretation. Article titles and headings to sections herein
--------------
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement. The Schedules and
Exhibits referred to herein shall be construed with and as an integral part of
this Agreement to the same extent as if they were set forth verbatim herein.
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
11.8 Waivers. Any term or provision of this Agreement may be
-------
waived, or the time for its performance may be extended, by the party or parties
entitled to the benefit thereof. The failure of any party hereto to enforce at
any time any provision of this Agreement shall not be construed to be a waiver
of such provision, nor in any way to affect the validity of this Agreement or
any part hereof or the right of any party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
11.9 Expenses. Each party hereto will pay all of its own costs and
--------
expenses incident to its negotiation and preparation of this Agreement and to
its performance and compliance with all agreements and conditions contained
herein on its part to be performed or complied with, including the fees,
expenses and disbursements of its counsel and accountants.
11.10 Partial Invalidity. Wherever possible, each provision hereof
------------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect such invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision or provisions had never been
contained herein unless the deletion of
34
<PAGE>
such provision or provisions would result in such a material change as to cause
completion of the transactions contemplated hereby to be unreasonable.
11.11 Execution in Counterparts. This Agreement may be executed in one
-------------------------
or more counterparts, each of which shall be considered an original instrument,
but all of which shall be considered one and the same agreement and shall become
binding when one or more counterparts have been signed by each of the parties
and delivered to each of the other parties hereto.
11.12 Notice of Sale. The parties agree that Metroplex will not be
--------------
obligated to notify any state and local taxing or other persons, entities or
authorities of the intended sale of the Metroplex Assets to the Company in order
to relieve the Company of any liability as a successor to the Metroplex in the
conduct of its business or for any other reason, and that Metroplex will
indemnify the Company, in the manner set forth in Article X hereof, for any
Damages that the Company as a result of may incur from Metroplex's failure to
make such notification.
11.13 Definitions. As used in this Agreement, the following terms have
-----------
the meanings specified or referred to in this Section 11.13:
-------------
"Accounts Receivable" has the meaning specified in Section 2.11.
------------------- ------------
"Actual knowledge" has the meaning specified in Section 3.41.
---------------- ------------
"Affiliate" means, with respect to any person, any other person which
---------
directly or indirectly controls, is controlled by or is under common control
with such person.
"Agreement" has the meaning specified in the introductory paragraph
---------
hereof.
"Assumed Contract" has the meaning specified in Section 3.20.
---------------- ------------
"Cash Payment" has the meaning specified in Section 2.1(a).
------------ --------------
"Closing" has the meaning specified in Section 1.3.
------- -----------
"Closing Date" has the meaning specified in Section 1.3.
------------- -----------
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
-----
1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Company" has the meaning specified in the introductory paragraph to
-------
this Agreement.
"Company Ancillary Agreements" has the meaning specified in
----------------------------
Section 4.2.
- -----------
"Contaminant" means any waste, pollutant, hazardous substance, toxic
-----------
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste.
"Contract Not Assumed" has the meaning specified in Section 1.2(h).
-------------------- --------------
"Contribution Assets" means the undivided 20% interest in the Metroplex
-------------------
Assets that will be contributed to Texas Sub in exchange for the Class B
Interests.
"Controlled Group" has the meaning specified in Section 3.30(a).
---------------- ---------------
35
<PAGE>
"Defaulting Party" has the meaning specified in Section 6.5.
---------------- -----------
"Designee" has the meaning specified in Section 2.8.
-------- -----------
"Dispute" has the meaning specified in Section 9.5.
------- -----------
"Employee Benefit Plans" has the meaning specified in Section 3.30(a).
---------------------- ---------------
"Encumbrance" means any lien, claim, charge, security interest,
-----------
mortgage, pledge, easement, conditional sale or other title retention agreement,
defect in title, covenant or other restrictions of any kind.
"ERISA" has the meaning specified in Section 3.30(a) hereof.
----- ---------------
"Event of Loss" has the meaning specified in Section 11.14, 11.15.
------------- --------------------
"Exchange Agreement" has the meaning specified in Section 2.2.
------------------ -----------
"Excluded Metroplex Assets" has the meaning specified in Section 1.2.
------------------------- -----------
"Expense" has the meaning specified in Section 9.1.
------- -----------
"Final Adjustment Amount" has the meaning specified in Section 6.6(b).
----------------------- -------------
"Final Statement" has the meaning specified in Section 6.6(b).
--------------- --------------
"First Payment" has the meaning specified in Section 2.1(b).
------------- --------------
"Indemnified Person" has the meaning specified in Section 9.3(a).
------------------ --------------
"Indemnifying Party" has the meaning specified in Section 9.3(a).
------------------ --------------
"Licenses and Permits" has the meaning specified in Section 3.27
-------------------- ------------
hereof.
"Loss" has the meaning specified in Section 9.1.
---- -----------
"Management Services Agreement" has the meaning specified in
-----------------------------
Section 2.6.
- -----------
"Metroplex" has the meaning specified in the introductory paragraph to
---------
this Agreement.
"Metroplex Ancillary Agreements" has the meaning specified in Section
------------------------------ -------
3.3.
- ---
"Metroplex Assets" has the meaning specified in Section 1.1.
---------------- -----------
"Metroplex Assumed Liabilities" has the meaning specified in Section
----------------------------
1.4(a).
- ------
"Metroplex Balance Sheet Date" means December 31, 1995.
----------------------------
"Metroplex Business" has the meaning specified in the introductory
-----------------
paragraph.
"Metroplex Financial Statements" has the meaning specified in Section
------------------------------ -------
3.4.
- ---
36
<PAGE>
"Metroplex Loans" has the meaning specified in Section 1.4(c).
--------------- --------------
"New hires" has the meaning specified in Section 1.8.
--------- -----------
"Notice of Disagreement" has the meaning specified in Section 6.6(b).
---------------------- --------------
"ODSM Board" has the meaning specified in Section 2.9.
---------- -----------
"Permitted Encumbrance" means the liens described in Schedule 3.16 and
--------------------- -------------
liens for taxes, assessments or other governmental charges which are not yet due
and payable and any other Encumbrance which, either individually or in the
aggregate when considered with all other Encumbrances on the affected property,
does not have a material adverse effect on the value of such property or its
usefulness for the purposes it has been used for prior to Closing.
"Person" means any person, employee, individual, corporation, partnership,
------
trust, or any other non-governmental entity or any governmental or regulatory
authority or body.
"Physician Ancillary Agreements" has the meaning specified in Section 3.3.
------------------------------ -----------
"Physician Owner Employment Agreement" has the meaning specified in
------------------------------------
Section 2.7.
- -----------
"Physicians" has the meaning specified in the introductory paragraph to this
----------
Agreement.
"Program Agreements" has the meaning specified in Section 3.34 hereof.
------------------ ------------
"Promissory Notes" has the meaning specified in Section 2.1(b).
---------------- --------------
"Purchase Price" has the meaning specified in Section 2.1.
-------------- -----------
"Purchased Assets" means the undivided interest in the Metroplex Assets
----------------
that will be sold to the Company in exchange for cash and the Promissory Notes
pursuant to the terms hereof.
"Release" means any release, spill, emission, leaking, pumping, injection,
-------
deposit, disposal discharge, dispersal, leaching or migration into the indoor or
outdoor environment or into or out of any property, including the movement of
Contaminants through or in the air, soil, surface water, groundwater or
property.
"Remedial Action" means actions required to (a) clean up, remove, treat
---------------
or in any other way address Contaminants in the indoor or outdoor environment;
(b) prevent the Release or threat of Release or minimize the further Release of
Contaminants so they do not migrate or endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment: or (c) perform
pre-remedial studies and investigations and post-remedial monitoring and care.
"Required Consents" has the meaning specified in Section 1.4(a).
----------------- --------------
"Requirements of Law" means any federal, state or local law, rule or
-------------------
regulation, governmental permit license, or other binding determination of any
governmental or regulatory authority or body.
"Shareholders' Agreement" has the meaning specified in Section 2.2.
-----------------------
"Successor employer" has the meaning specified in Section 9.2(h).
------------------ --------------
"Texas Sub" has the meaning specified in Section 2.5.
--------- -----------
37
<PAGE>
"Texas Sub Class B Interests" has the meaning specified in Section 2.2.
--------------------------- -----------
"The Arlington Cancer Center" has the meaning specified in Section 1.1(d).
--------------------------- --------------
11.14 Risk of Loss; Damage to Facilities. The risk of loss or damage to
----------------------------------
any of the Metroplex Assets shall be on Metroplex prior to the Closing Date and
thereafter shall be on Texas Sub. If any of the Metroplex Assets is damaged or
destroyed prior to the Closing Date (any such event being referred to as an
"Event of Loss"), Metroplex, as the case may be, at its expense, shall use
reasonable efforts to replace or repair the item with comparable property of
like value and quality as soon as practicable before the Closing Date. If any
Event of Loss shall materially affect the operations of the Metroplex Business
or the repair or replacement cannot be accomplished by the scheduled Closing
Date but can be accomplished within 60 days after that date, the Closing Date
shall be postponed for that 60-day period; if, however, the repair or
replacement cannot be accomplished within that 60-day period, the unaffected
party may elect by written notice to the affected party within 20 days after the
unaffected party has received notice that any Event of Loss has occurred:
(a) To postpone the Closing for a period not more than 120 days beyond
the date specified in Section 10.1, until such time as the Metroplex Assets
which are the subject of the Event of Loss have been substantially restored to
their condition immediately prior to the Event of Loss;
(b) To consummate the Closing on the scheduled Closing Date and accept
all of the Metroplex Assets as is, in which event the affected party shall
assign to the Company at the Closing all of its rights under any insurance
policies and to all insurance proceeds covering that Event of Loss, including
property damage, loss of income and continuing expenses (less amounts due to the
affected party for repairs or replacements of the property prior to the
Closing); or
(c) To terminate this Agreement without liability on the part of
Metroplex or the Company.
11.15 Federal Income Tax Treatment. Notwithstanding any implications to
----------------------------
the contrary which may be contained in this Agreement, the parties hereto intend
and expressly agree that the transactions described herein shall be reported by
the parties for income purposes as (i) a transfer by Metroplex of the Metroplex
Assets, subject to the Metroplex Liabilities, to Texas Sub, in exchange for a
membership interest in Texas Sub, the Nonrecourse Note and the PHC Note,
followed by (ii) the distribution by Texas Sub of cash derived by Texas Sub from
loan proceeds supplied by DBIF and DVIBCC (the "DVI Loan"). Accordingly, the
transaction shall be treated by the parties as a part-sale, part-contribution
transaction and, pursuant to Treas. Reg. (S) 1.707-5(b), the transfer of the
Nonrecourse Note, the PHC Note and cash to Metroplex shall be taken into account
as part of a sale transaction only to the extent that the fair market value of
such notes and the amount of such cash exceed Metroplex's allocable share (as
determined pursuant to Treas. Reg. (S) 1.707-5(b)(2) and 1.707-5(a)(2)) of the
DVI Loan. The parties agree to cooperate reasonably with one another in the
interpretation and implementation of the foregoing.
[intentionally left blank]
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
METROPLEX
HEMATOLOGY/ONCOLOGY
ASSOCIATES, L.L.P., a Texas limited
liability partnership
By: /s/ Alfred DiStefano, M.D., P.A.
----------------------------------
Title: President and Managing Partner
------------------------------
PHYSICIANS:
/s/ Alfred DiStefano, M.D.
-------------------------------------
Alfred DiStefano, M.D.
/s/ George Blumenschein, M.D.
-------------------------------------
George Blumenschein, M.D.
/s/ Barry Firstenberg, D.O.
-------------------------------------
Barry Firstenberg, D.O.
/s/ John W. Adams, D.O.
-------------------------------------
John W. Adams, D.O.
/s/ Joshua Rettig, M.D.
-------------------------------------
Joshua Rettig, M.D.
/s/ Karel Dicke, M.D.
-------------------------------------
Karel Dicke, M.D.
/s/ Jess B. Caderao, M.D.
-------------------------------------
Jess B. Caderao, M.D.
39
<PAGE>
PHYSICIANS PROFESSIONAL
ASSOCIATIONS:
Alfred DiStefano, M.D., P.A.
By: /s/ Alfred DiStefano, M.D., P.A.
-------------------------------------
Its:
---------------------------------
George Blumenschein, M.D., P.A.
By: /s/ George Blumenshein, M.D. ,P.A.
-------------------------------------
Its:
---------------------------------
Barry Firstenberg, D.O., P.A.
By: /s/ Barry Firstenberg, D.O., P.A.
-------------------------------------
Its:
---------------------------------
John W. Adams, D.O., P.A.
By: /s/ John W. Adams, D.O., P.A.
-------------------------------------
Its:
---------------------------------
Joshua Rettig, M.D., P.A.
By: /s/ Joshua Rettig, M.D., P.A.
-------------------------------------
Its:
---------------------------------
Karel Dicke, M.D., P.A.
By: /s/ Karel Dicke, M.D., P.A.
-------------------------------------
Its:
---------------------------------
Caderao Radiation Oncology, P.A.
By: /s/ Jesse D. Caderao M.D., P.A.
-------------------------------------
Its:
---------------------------------
40
<PAGE>
PHYSICIAN HEALTH CORPORATION
By:/s/ Sarah C. Garvin
-------------------------------------
Its:
---------------------------------
MHOA TEXAS I, L.L.C.
By: /s/ Sarah C. Garvin
-------------------------------------
Its:
---------------------------------
41
<PAGE>
EXHIBIT 10.2
- --------------------------------------------------------------------------------
MANAGEMENT SERVICES AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions............................................................1
Section 2. Clinic Committee.......................................................7
2.1 Formation and Operation of the Clinic Committee........................7
2.2 Functions of the Clinic Committee......................................7
(a) Annual Budgets................................................7
--------------
(b) Physician Employment and Recruitment..........................7
------------------------------------
(c) Strategic Planning............................................8
------------------
(d) Capital Expenditures..........................................8
--------------------
(e) Capital Improvements and Expansion............................8
----------------------------------
(f) Provider and Payor Relationships..............................8
--------------------------------
(g) Ancillary Services............................................8
------------------
(h) Patient Fees; Collection Policies.............................8
---------------------------------
(i) Advertising...................................................8
-----------
(j) Exclusions from Collections...................................8
---------------------------
(k) Other.........................................................8
-----
Section 3. Obligations of Texas Sub...............................................9
3.1 Provisions of Management Services......................................9
3.2 Medical Offices........................................................9
3.3 Furniture, Fixtures and Equipment......................................9
3.4 Financial Planning and Goals..........................................10
3.5 Business Office Services..............................................10
3.6 Deposit of Collections................................................12
3.7 Financial Reports.....................................................12
3.8 Support Services......................................................13
3.9 Administrator.........................................................13
3.10 Personnel.............................................................13
3.11 Clinic Professional Services..........................................14
3.12 Patient and Financial Records.........................................15
3.13 Marketing Services....................................................15
3.14 Expansion of Clinic...................................................16
3.15 Performance of Business Office Services...............................16
3.16 Vendors...............................................................16
3.17 Force Majeure.........................................................16
3.18 Security Agreement....................................................17
3.19 Payment of Metroplex Receipts.........................................20
Section 4. Obligations of Metroplex..............................................20
4.1 Work Ethic............................................................21
4.2 Non-Clinic Expenses...................................................22
4.3 Professional Standards................................................22
4.4 Formation and Operation of the Compliance Committee...................22
4.5 Provider and Payor Relationships......................................23
4.6 Additional Documents..................................................23
4.7 Restrictive Covenants.................................................23
4.8 Professional Dues and Education Expenses..............................24
4.9 Clinic Employee Benefit Plans.........................................24
4.10 Covenants of Metroplex................................................25
</TABLE>
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<TABLE>
<S> <C> <C>
Section 5. Compensation; Payments. ..............................................26
5.1 Texas Sub Compensation................................................26
5.2 Payment of Clinic Expenses............................................27
5.3 Accounts Receivable...................................................27
5.4 Payments..............................................................28
5.5 Deposit Arrangements..................................................28
5.6 Accounting............................................................28
Section 6. Term and Termination..................................................29
6.1 Term..................................................................29
6.2 Termination...........................................................29
6.3 Remedies Upon Termination.............................................31
6.4 Duties Upon Termination or Expiration of Agreement....................31
6.5 Repurchase of Assets..................................................32
Section 7. Representations and Warranties of the Parties.........................33
7.1 Metroplex.............................................................33
(a) Organization and Good Standing...............................33
(b) No Violations................................................33
(c) Financial Information........................................33
7.2 Texas Sub.............................................................33
(a) Organization and Good Standing...............................33
------------------------------
(b) No Violations................................................33
-------------
Section 8. Insurance.............................................................34
8.1 Insurance to be Maintained by Metroplex...............................34
8.2 Insurance to be Maintained by Texas Sub...............................34
8.3 Key Man Insurance.....................................................34
Section 9. Rights Regarding Metroplex............................................35
Section 10. Managed Care Contracting..............................................36
Section 11. Practice Growth and Locations.........................................36
Section 12. Assignment............................................................37
Section 13. Compliance with Regulations...........................................38
13.1 Practice of Medicine..................................................38
13.2 Subcontracts..........................................................38
Section 14. Independent Relationship..............................................38
14.1 Independent Contractor Status.........................................38
14.2 Referral Arrangements.................................................39
Section 15. Confidential Information..............................................39
Section 16. Miscellaneous.........................................................39
16.1 Notices...............................................................39
16.2 Additional Acts.......................................................40
16.3 Governing Law.........................................................40
16.4 Captions..............................................................40
16.5 Severability..........................................................41
</TABLE>
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<TABLE>
<S> <C> <C>
16.6 Changes in Law........................................................41
16.7 Integration and Modifications.........................................41
16.8 No Rule of Construction...............................................41
16.9 Counterparts..........................................................41
16.10 Binding Effect........................................................41
16.11 Costs of Enforcement..................................................41
16.12 Relationship of Parties...............................................42
16.13 Third Party Beneficiary...............................................42
16.14 Arbitration and Mediation............................................ 32
</TABLE>
EXHIBITS
2.2(c) Two-Year Planning Objectives
3.3 Furniture, Fixtures and Equipment
4.1(b) Physician Owner Employment Agreement
4.7(d) Restrictive Covenant Exceptions
SCHEDULES
1(b)(x) Contracts Not Assigned
1(p) Annual Debt Obligations of Metroplex
4.7(b) Nondesignated Metroplex Providers
4.9 Employee Benefit Plans
6.5(a) Purchase Loan Amortization
11 Managed Care Contracting Services
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<PAGE>
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT (this "Agreement"), dated as of June 1,
1997 (the "Effective Date"), by and among METROPLEX HEMATOLOGY/ONCOLOGY
ASSOCIATES, L.L.P., a Texas limited liability partnership ("Metroplex"), MHOA
Texas I, L.L.C., a Texas limited liability company ("Texas Sub"), Physician
Health Corporation, a Delaware corporation ("PHC") and each of the undersigned
Metroplex Providers (as defined herein).
W I T N E S S E T H:
-------------------
WHEREAS, Texas Sub is in the business of providing healthcare
management services to individual physicians and physician practice groups;
WHEREAS, pursuant to an Asset Purchase and Contribution Agreement dated
as of even date herewith, among Texas Sub, PHC, the Physicians (as defined
therein) and their respective professional associations, and Metroplex (the
"Purchase Agreement"), Texas Sub has agreed, among other things, to assume
certain contracts and acquire certain assets of Metroplex;
WHEREAS, Metroplex desires to utilize such assets in connection with
the operation of the Clinic (as defined herein) and to engage Texas Sub to
provide management services as described herein.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants herein contained, the parties hereto hereby agree as
follows:
Section 1. Definitions.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to them in the Purchase Agreement. For purposes of
this Agreement, the following terms shall have the meanings ascribed to them
below:
(a) Account Debtors shall mean all customers of Metroplex, the
insurance companies, or other payors responsible for Metroplex's
customers and all other persons who are obligated or indebted to
Metroplex in any manner, whether directly or indirectly, primarily or
secondarily, contingently or otherwise, with respect to the Accounts.
(b) Accounts shall mean all existing and hereafter arising or
acquired accounts, contract rights, instruments, documents, chattel
paper, and obligations in any form owing to Metroplex arising out of
the sale or lease of goods or the rendition of services by Metroplex
and/or the Metroplex Providers, whether or not earned by performance;
all credit insurance, guarantees, letters of credit, advices of credit,
and other security for any of the above; all merchandise returned to or
reclaimed by Metroplex or Metroplex Providers; and, Metroplex's Books
relating to any of the foregoing.
(c) Affiliate shall mean with regard to any party hereto, a
"Subsidiary" of such party, which is defined as any entity that is
controlled by, in control of, or under common control with such party,
directly or indirectly, or in which such party has a substantial equity
interest, directly or indirectly, and (ii) any entity with which such
party or any Subsidiary maintains a substantial operating affiliation
by contract or otherwise, including, without limitation, a substantial
contractual affiliation for managed care contracting purposes.
(d) Clinic shall mean the medical business operations managed
by Texas Sub utilizing the physician services of Metroplex, regardless
of the location where such services are rendered. It is the intent
<PAGE>
of the parties that Metroplex will be primarily focused on the
provision of medical services specializing in hematology and oncology
and related diagnostic and therapeutic radiology services.
(e) Clinic Expenses shall mean the operating and non-operating
expenses incurred in the operation of the Clinic and the Medical
Offices whether by Texas Sub or by Metroplex, including, but not
limited to:
(i) depreciation and amortization;
(ii) expenses associated with all employees and
contract labor (but excluding independent contractor
physicians) incurred in the operation of the Clinic (other
than any Metroplex Providers, provided that any revenues which
are generated by such individuals shall be included in
Collections and provided that salaries, contractor payments
and benefits related to such individuals shall be approved in
advance in writing by Texas Sub);
(iii) expense incurred by Metroplex in the purchase
of drugs and supplies;
(iv) obligations under leases or subleases for the
Medical Offices and equipment used by the Clinic;
(v) taxes assessed against real and personal property
used by and for the Clinic and costs incurred in the
maintenance of such assets, including costs of maintaining and
operating motor vehicles, except for those motor vehicles used
by any physician or employee primarily for personal use;
(vi) advertising and marketing expenses as budgeted
and reviewed by the Clinic Committee (as defined in Section
2.1 below);
(vii) interest expense on indebtedness related to the
furniture, fixtures, equipment and other capital items used in
connection with the operation of the Clinic;
(viii) interest expense on any working capital advances to
Metroplex by either Texas Sub or PHC;
(ix) $110,000 per year for a period of six years
after the Closing Date, representing the amount approximately
equal to the annual accrued but unpaid interest of the
Metroplex Loans as of the Closing Date;
(x) liabilities or obligations under those contracts
or agreements listed in Schedule 1(b)(x), which schedule lists
----------------
those obligations not assumed by Texas Sub because consent to
such assignment was required pursuant to their terms but such
consent was not obtained;
(xi) utility and telephone expenses relating to the
Medical Offices;
(xii) dues or fees payable to managed care
contracting organizations, independent practice associations
or physician hospital associations as a result of
participation with such entities;
(xiii) other expenses incurred by Metroplex or Texas
Sub in carrying out their respective obligations under this
Agreement, except as otherwise provided herein;
(xiv) direct costs of Texas Sub or PHC employees
reasonably allocable to the Clinic for the provision of
services from the corporate office of PHC or Texas Sub, as
reflected in an invoice provided to Metroplex by Texas Sub
setting forth the time spent and services rendered;
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<PAGE>
(xv) $150,000 per year representing an amount equal
to the salary, benefits or compensation payable to PHC;
(xvi) reasonable expenses of PHC employees incurred
for travel to the corporate headquarters of Texas Sub for
purpose of providing services to the Clinic;
(xvii) reasonable expenses of Texas Sub incurred in
the provision of business, legal and financial services to
Metroplex pursuant to Section 3.11(a) hereof;
(xviii) direct costs incurred by Physician Owners in
making speeches or other presentations related to the practice
of medicine;
(xix) expenses incurred by Texas Sub or Metroplex in
connection with the RIT Protocol, provided that the RIT
Protocol has been approved by Texas Sub prior to the
incurrence of such expenses; and
(xx) miscellaneous expenses, including laundry, waste
disposal, patient services, office supplies and equipment,
postage and delivery and employee recruiting expenses.
"Clinic Expenses" shall not include
(i) any overhead charges (including general
administrative overhead not directly related to Clinic
operations) of Texas Sub or any entity affiliated with Texas
Sub (provided, however, that direct costs of Texas Sub or PHC
employees who provide services to the Clinic from the offices
of PHC or Texas Sub shall not be deemed to constitute overhead
charges);
(ii) any federal, state or local income taxes of
Metroplex or Texas Sub or the costs of preparing federal,
state or local tax returns;
(iii) any salaries, benefits or compensation
(including without limitation retirement plan contributions,
workers compensation costs, health, disability and life
insurance premiums and payroll taxes) payable with respect to
Metroplex Providers;
(iv) physician licensure fees, board certification
fees and costs of membership in professional associations for
Metroplex Providers;
(v) costs of continuing professional education for
Metroplex Providers;
(vi) costs associated with legal, accounting and
professional services incurred by or on behalf of Metroplex
other than as described in the first sentence of Section 3.11;
(vii) professional liability or malpractice insurance
premiums, deductibles under such insurance policies, any and
all costs and expenses incurred with respect to claims under
such insurance policies; and liability judgments assessed
against Metroplex or Metroplex Providers in excess of policy
limits (except to the extent that liability results from the
actions or omissions of Texas Sub employees or agents);
(viii) direct personal expenses of Metroplex
Providers of a kind which Metroplex has historically charged
to its Metroplex Providers (including, but not limited to, car
allowances, costs of employees providing personal services to
particular Physician Owners or other Metroplex Providers, and
like expenses that are personal in nature);
(ix) any reimbursement of costs and expenses relating
to the organization of Texas Sub;
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<PAGE>
(x) payment of principal and interest amounts due
under the Receivables Note; and
(xxi) any costs associated with the development of
the RIT Program not approved by Texas Sub pursuant to the RIT
Protocol.
(f) COBRA shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(g) Collateral shall mean all property mortgaged, pledged or
otherwise purported to be subject to a lien pursuant to the
Professional Service Provider Security Agreement.
(h) Collections shall mean the amount calculated as follows:
the total revenues collected on behalf of Metroplex for all services
performed during the Fiscal Year (as defined in Section 5.1) by
Metroplex and the Metroplex Providers, including revenues from
professional medical services rendered to patients and from ancillary
services conducted at the Clinic or elsewhere. All fees, compensation,
monies and other things of value received or realized as a result of or
in connection with the rendition of medical services by Metroplex and
the Metroplex Providers, including but not limited to, fees and
compensation for services rendered to patients and all income generated
through consultation, shall be considered part of the total revenues
collected on behalf of Metroplex for services performed by Metroplex
and the Metroplex Providers. From and after the date of this Agreement,
any fees, compensation, monies and other things of value received or
realized by Metroplex by virtue of the Metroplex Providers rendering an
opinion or advice or otherwise acting as an expert witness in
connection with any litigation threatened or brought shall be
considered part of the total revenues collected for services performed
by Metroplex and the Metroplex Providers for purposes of calculating
the amount to be paid as set forth in Section 5.1(a) hereof.
(i) DVI Purchase Loans shall mean the loans made to Texas Sub
pursuant to (i) that certain loan agreement between DVI Business Credit
Corporation ("DVIBC") and Texas Sub ("the DVIBC Loan Agreement"), and
(ii) those six (6) certain loan agreements (collectively, the "DVIFS
Loan Agreement") between DVI Financial Services Inc. ("DVIFS") and
Texas Sub, each dated on or about the date hereof, and all amendments,
renewals and restatements thereof.
(j) Incident to Personnel shall mean individuals who are
employed or retained by Metroplex with respect to the Clinic because
such employment or retention is required by contract, law or regulatory
authority to obtain payment or reimbursement or otherwise, but shall
not include the Physician Owners.
(k) Lien shall mean any security interest, mortgage, pledge,
assignment, lien or other encumbrance of any kind, including any
interest of a vendor under conditional sale contract or consignment,
and any interest of a lessor of a capital lease.
(l) Medical Offices shall have the meaning assigned to such
term in Section 3.1 below.
(m) Metroplex's Books shall mean all of Metroplex's books and
records including, but not limited to, minute books, ledgers, records
indicating, summarizing, or evidencing Metroplex's assets, liabilities
and the Accounts; all information relating to Metroplex's business
operations and financial condition; and, all computer programs, disks
or tape files, printouts, runs and other computer-prepared information
and the equipment containing such information; provided, however, that
confidential patient records shall not be included therein, except to
the extent otherwise not prohibited by law. Metroplex's chief executive
office is located at 901 and 906 West Randol Mill Road, Arlington,
Texas 76012. Metroplex maintains the Metroplex Books with respect to
the Accounts at that address. Metroplex shall not maintain its chief
executive office or the Metroplex Books with respect to the Accounts at
any other location and shall not do so hereafter except with the prior
written consent of Texas Sub.
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<PAGE>
(n) Metroplex EBITDA shall mean, for any period, the
consolidated net income of Metroplex and its subsidiaries for such
period, after all expenses and other proper charges except
depreciation, amortization and income taxes, as determined in
accordance with GAAP.
(o) Metroplex Providers shall mean the Physician Owners and
all other physicians or professional associations or other clinical
practice entities delivering professional medical services (or medical
services incident thereto) through Metroplex.
(p) Metroplex Receipts shall mean, initially, an amount equal
to $4,260,927.16 annually, which amount shall represent payment for (i)
all annual salary, benefits or compensation payments to all Metroplex
Providers, including payments to dependents of Metroplex Providers and
payments on behalf of Metroplex Providers and their dependents arising
out of COBRA continuation coverage; (ii) payment of the annual debt
obligations of Metroplex listed on Schedule 1(p) hereto; and (iii)
payroll taxes payable by Metroplex. The parties agree and acknowledge
that the amount of the Metroplex Receipts shall be adjusted from time
to time as provided in Section 12 hereof.
(q) Net Revenues shall mean gross revenues of Metroplex net of
provisions for contractual adjustments, charity care and bad debt
expense, as determined by Texas Sub on an accrual basis in accordance
with generally accepted accounting principles, after consultation with
Texas Sub's independent certified public accountants on no less than an
annual basis.
(r) North Texas Service Area shall mean that geographical
territory comprised of the following Texas counties: Archer, Baylor,
Bosque, Brown, Callahan, Clay, Collin, Comanche, Cooke, Dallas, Denton,
Foard, Eastland, Ellis, Erath, Fannin, Foard, Grayson, Hamilton,
Hardeman, Haskell, Henderson, Hill, Hood, Hunt, Jack, Johnson, Jones,
Kaufman, Knox, Mills, Montague, Navarro, Palo Pinto, Parker, Rockwall,
Shackelford, Somervell, Stephens, Tarrant, Throckmorton, Van Zandt,
Wichita, Wilbarger, Wise, and Young.
(s) PHC Expansion Borrowings shall mean those borrowings of
PHC used to fund expansion of PHC or its subsidiaries.
(t) Physician Owners shall mean those physicians who are
partners of, or who own the professional associations that are partners
of, Metroplex.
(u) Repurchase Period shall mean that period commencing the
date of this Agreement and ending on the date that the following
conditions are first met: (i) PHC has either (a) consummated a
registered initial public offering of its equity securities or (b)
achieved a net worth of greater than $50,000,000, as reflected in its
most recent balance sheet, and (ii) no PHC line of credit or other
borrowing requires (a) a pledge of the assets of Texas Sub to secure
such line of credit or other borrowing or (b) Metroplex to repurchase
the Metroplex Assets upon termination of this Agreement.
(v) Secured Party shall mean DVI or any successor or assignee
of DVI.
Section 2. Clinic Committee.
2.1 Formation and Operation of the Clinic Committee. PHC, Texas
Sub and Metroplex shall establish a Clinic Committee (herein so called) which
shall be responsible for advising Texas Sub and Metroplex in connection with the
development of management and administrative policies for the overall operation
of the Clinic. Texas Sub and Metroplex shall have equal representation on the
Clinic Committee. PHC shall designate, in its sole discretion, three members of
the Clinic Committee who shall represent Texas Sub, although at least one such
designee shall be an employee of either Texas Sub or PHC. Metroplex shall
designate, in its sole discretion, three members of the Clinic Committee who
shall represent Metroplex, each of whom must be a Physician Owner. The act of a
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<PAGE>
majority of the total number of members of the Clinic Committee shall be the act
of the Clinic Committee. Physician Owners of Metroplex who are not members of
the Clinic Committee shall be permitted to attend Clinic Committee meetings,
unless the Clinic Committee otherwise determines or unless a majority of the
Texas Sub designees object because it reasonably can be expected that the number
of persons in attendance will interfere with the effective functioning of the
Clinic Committee.
Texas Sub and Metroplex agree and acknowledge that it is not
the function of the Clinic Committee to provide oversight or direction with
respect to the medical decisions made by Metroplex and the Metroplex Providers.
The Metroplex Providers shall at all times exercise independent medical judgment
regarding the treatment of their patients and shall make medical decisions in
light of their judgments regarding the best medical interests of their patients.
2.2 Functions of the Clinic Committee. The Clinic Committee shall
review, evaluate and make recommendations to Metroplex and Texas Sub regarding
the following:
(a) Annual Budgets. All annual capital and operating budgets
--------------
of Texas Sub shall be initially developed in accordance with Section
3.4 hereof, and subject to review by the Clinic Committee, which may
also make recommendations to Texas Sub with respect to any proposed
changes therein. The annual capital and operating budgets of Texas Sub
shall be subject to final review and approval by the Board of Directors
of Texas Sub, such review and approval to be in accordance with the
Bylaws of Texas Sub.
(b) Physician Employment and Recruitment. The Clinic Committee
------------------------------------
shall advise Metroplex as to the type of physicians and other personnel
required for the efficient operation of the Clinic and provide
consultation relative to the termination from employment of physicians
and other personnel. The final authority with respect to the engagement
of physicians (including, without limitation, the hiring, compensation
and termination of employment of physicians) shall rest with Metroplex.
(c) Strategic Planning. The Clinic Committee shall make
------------------
recommendations regarding the development of long-term strategic
planning objectives for the Clinic. Texas Sub and Metroplex agree that
those items listed on Exhibit 2.2(c) attached hereto shall be planning
objectives of the Clinic for the period following two years after the
date hereof, and that Metroplex and Texas Sub shall use their best
efforts to achieve the objectives listed thereto, provided, however,
that in no event shall the failure to realize any such objective
constitute a breach of any term or provision of this Agreement.
(d) Capital Expenditures. The Clinic Committee shall make
--------------------
recommendations regarding the priority of major capital expenditures
for the Clinic.
(e) Capital Improvements and Expansion. Any renovation and
----------------------------------
expansion plans and capital equipment expenditures with respect to the
Clinic shall be reviewed by the Clinic Committee and with regard to
economic feasibility, physician support, productivity and then current
market conditions.
(f) Provider and Payor Relationships. Decisions regarding the
--------------------------------
establishment or maintenance of relationships with institutional
healthcare providers and payors shall be reviewed by the Clinic
Committee.
(g) Ancillary Services. The Clinic Committee shall review and
------------------
make recommendations regarding Clinic-provided ancillary services based
upon the pricing, access to and quality of such services. At the
request of the Clinic Committee, Texas Sub shall conduct feasibility
studies regarding the economic and legal ramifications of providing
ancillary services.
(h) Patient Fees; Collection Policies. At least annually, the
---------------------------------
Clinic Committee shall review the fee schedule for all physician and
ancillary services rendered in connection with the operation of the
Clinic and shall review the policies regarding charity care and
professional courtesy allowances. All final decisions on physician fees
shall be made by Metroplex.
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<PAGE>
(i) Advertising. All advertising and other marketing of
-----------
services performed at the Clinic, including design and erection of
exterior signs, shall be subject to review by the Clinic Committee.
(j) Exclusions from Collections. The exclusion of any revenue
---------------------------
from Collections shall be subject to review by the Clinic Committee.
(k) Other. The Clinic Committee shall consider, review, and
-----
make recommendations to Texas Sub and Metroplex with respect to any
matters arising in connection with the operations of the Clinic which
are not specifically addressed in this Agreement and as to which Texas
Sub or Metroplex requests consideration by the Clinic Committee.
Except as provided in Sections 4.5, 4.9, 10 and the penultimate
sentence of Section 11 of this Agreement, it is acknowledged and agreed that
recommendations of the Clinic Committee are intended for the advice and guidance
of Texas Sub and Metroplex and that the Clinic Committee does not have the power
to bind Texas Sub or Metroplex or approve in advance actions to be taken by
Texas Sub or Metroplex. Where discretion with respect to any matter is vested in
Texas Sub or Metroplex under the terms of this Agreement, Texas Sub or
Metroplex, as the case may be, shall have ultimate responsibility for the
exercise of such discretion notwithstanding any recommendation of the Clinic
Committee. Texas Sub and Metroplex shall, however, take such recommendations of
the Clinic Committee into account in good faith in the exercise of such
discretion.
Section 3. Obligations of Texas Sub.
3.1 Provisions of Management Services. Texas Sub shall provide to
Metroplex the management services, personnel, equipment and supplies provided
for in this Section 3 (hereinafter collectively referred to as the "Management
Services") or otherwise reasonably required for the operation of the Clinic.
Texas Sub shall provide the Management Services at the medical offices of the
Clinic as existing from time to time. The medical offices for which the
Management Services will be provided are hereinafter referred to as the "Medical
Offices". The locations of Medical Offices shall be agreed to by the parties
from time to time.
3.2 Medical Offices. Texas Sub shall pay all rent due from the
Effective Date forward with respect to the leases regarding the Medical Offices
and all costs of repairs, maintenance and improvements, telephone, electric, gas
and water utility expense, premises liability insurance, normal janitorial
services, refuse disposal and all other costs and expenses reasonably incurred
in connection with the operations of the Clinic, including, but not limited to,
related real or personal property lease payments and expenses, taxes and
insurance. Texas Sub shall consult with Metroplex (and Metroplex shall advise
Texas Sub, as requested) with respect to the condition, use and needs of the
Medical Offices, as expanded, improved or relocated from time to time. Without
limitation of any provision of the Purchase Agreement, including, without
limitation, the provisions regarding the assignment and assumption of leases,
Texas Sub shall not be obligated to pay in excess of market rates pursuant to
any lease for space or equipment or for any contracted service or purchased
item; provided that nothing contained herein shall be construed to relieve Texas
Sub of the obligations to pay rentals or other amounts payable under any lease
or contract described in Schedule 3.19 of, and specifically assumed by Texas Sub
under, the Purchase Agreement.
3.3 Furniture, Fixtures and Equipment. Texas Sub agrees to provide
those supplies and items of furniture, fixtures and equipment as are determined
by Texas Sub, after consultation with Metroplex, to be necessary and/or
appropriate for Metroplex's operations at the Medical Offices during the term of
this Agreement (all such items of furniture, fixtures and equipment are
collectively referred to hereinafter as the "FFE"), initially including those
items identified on Exhibit 3.3; subject, however, to the following conditions:
-----------
(a) Metroplex shall have the use of the FFE only during the
term of this Agreement and as between the parties hereto title to the
FFE shall be and remain in Texas Sub at all times during such term.
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<PAGE>
(b) Texas Sub shall be responsible for all repairs,
maintenance and replacement of the FFE, except for repairs, maintenance
and replacement necessitated by the gross negligence of Metroplex, its
employees and agents.
(c) Texas Sub hereby grants to Metroplex, unless this
Agreement is terminated during the Repurchase Period or unless this
Agreement is terminated by Texas Sub pursuant to Sections 6.2(a) or
6.2(b) of this Agreement, in which case the terms of this Section
3.3(c) will not apply, the option ("FFE Option") to acquire, after the
expiration or termination of this Agreement, in its sole discretion,
the FFE (together with the phone numbers acquired pursuant to the
Purchase Agreement, if those numbers are still in use in connection
with the Clinic at the time of exercise of the FFE Option) from Texas
Sub for cash in an amount equal to the fair market value of the FFE.
Fair market value shall be determined by an appraisal firm mutually
agreed to by the parties and pursuant to a methodology deemed
appropriate by such appraisal firm at the time of the valuation in
light of valuation methodologies used for a going concern in the same
or similar circumstances in comparable markets. In the event the
parties are unable to agree on a single appraisal firm within thirty
days after Metroplex gives notice of exercise of the FFE Option as
required by this paragraph, then each party shall select an appraisal
firm within ten days after the expiration of such thirty day period.
The two appraisal firms shall within an additional ten days select a
third appraisal firm. Each appraisal firm shall conduct its valuation
within forty-five days after the selection of the final appraiser. In
the event three appraisal firms are used, the average of the three
appraisals shall be deemed the fair market value of the FFE. The
determination of the sole appraiser, if a sole appraiser is used, shall
be deemed the fair market value of the FFE. Exercise of the FFE Option
by Metroplex shall be accomplished by written notice to Texas Sub
within thirty days after the expiration or termination of this
Agreement. In the event that Metroplex does not exercise the FFE Option
within thirty days after written notice to Metroplex and the expiration
or termination of this Agreement, Texas Sub shall have the right to
retain, sell or otherwise dispose of the FFE upon whatever terms and
conditions Texas Sub establishes. All appraisal fees incurred pursuant
to this Section 3.3 shall be borne equally by Metroplex and Sub.
3.4 Financial Planning and Goals. The parties, through the Clinic
Committee, will prepare proposed annual capital and operating budgets for
Metroplex and the Clinic, reflecting in reasonable detail anticipated revenues
and sources and uses of capital for the growth and operation of Metroplex and
the Clinic. The final capital and operating budgets of Metroplex and the Clinic
must be approved by both Texas Sub and Metroplex, provided that Texas Sub shall
be solely responsible for determining the amount of capital to be invested
annually in assets used in the operation of the Clinic.
3.5 Business Office Services. Subject to Section 3.16 below,
regarding the use of third-party management services vendors, Metroplex hereby
appoints Texas Sub as its manager and administrator of business functions and
services related to Metroplex's services at the Clinic during the term of this
Agreement. Texas Sub shall have the right to contract and deal otherwise with
its affiliates in providing services required hereunder; provided that such
transactions are on such terms and conditions as favorable to Metroplex as would
be obtained from a third party. Without limiting the generality of the
foregoing, in providing the Management Services, Texas Sub shall perform the
following functions:
(a) Texas Sub shall evaluate, negotiate, and administer all
managed care contracts on behalf of Metroplex and shall consult with
Metroplex on all professional or clinical matters relating thereto.
(b) Texas Sub shall provide ongoing assessment of business
activities, including product line analysis, outcomes monitoring, and
patient satisfaction.
(c) Texas Sub shall be responsible for providing or causing to
be provided all reasonably required medical and office supplies
required in the day-to-day operation of the Clinic.
(d) Texas Sub shall use reasonable diligence in conducting its
business office activities in a manner consistent with managing a
first-class medical office facility.
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<PAGE>
(e) As Metroplex's agent, Texas Sub shall bill and collect
from patients all professional fees for medical services and for
ancillary services performed through the Clinic by Metroplex and the
Metroplex Providers, including, but not limited to, the Physician
Owners. Texas Sub will use its best efforts, diligently and in good
faith, but consistent with all applicable laws, to collect accounts
receivable resulting from medical services and ancillary services
performed through the Clinic by Metroplex and the Metroplex Providers,
and Texas Sub shall be free to take such actions as it reasonably deems
appropriate in collection such accounts receivable. Metroplex and each
of the undersigned Metroplex Providers hereby appoint Texas Sub as
their agent for the term of this Agreement as their true and lawful
attorney-in-fact for the following purposes:
(i) To bill patients in Metroplex's name and on
Metroplex's behalf, and in the name and on behalf of all
Physician Owners and other Metroplex Providers;
(ii) To collect accounts receivable generated by such
billings in Metroplex's name and on Metroplex's behalf, and in
the name and on behalf of all Physician Owners and other
Metroplex Providers;
(iii) To receive, on behalf of Metroplex and all
Physician Owners and other Metroplex Providers, payments from
patients, insurance companies, Medicare, Medicaid and all
other payors with respect to services rendered by Metroplex
and the Physician Owners and other Metroplex Providers, and
Metroplex hereby covenants to forward such payments to Texas
Sub for deposit;
(iv) To take possession of and endorse in the name of
Metroplex or in the name of any Physician Owner or other
Metroplex Provider any notes, checks, money orders, insurance
payments and any other instruments received as payment of such
accounts receivable for purpose of depositing the same in the
Account (as hereinafter defined); and
(v) To collect in Metroplex's name and on its behalf,
and in the name and on behalf of all Physician Owners and
other Metroplex Providers, all other Collections.
(f) Texas Sub shall provide data processing services as are
reasonably required by Metroplex, which services shall include but not
be limited to data processing related to billing and collections,
accounting, laboratory, radiotherapy, radiology and medical records
transcription.
3.6 Deposit of Collections. Subject to Section 5.5 hereof, during
the term of this Agreement, all Collections collected shall be deposited
directly into a bank account of which Metroplex shall be the owner and from
which both Texas Sub and Metroplex shall have the right to make withdrawals (the
"Account"), in the furtherance of this Agreement although, except as provided in
Section 5.4(a), Metroplex hereby agrees not to make withdrawals from the
Account. Metroplex hereby appoints Texas Sub as its true and lawful attorney-in-
fact to deposit in the Account all Collections collected and to make withdrawals
from the Account to pay Texas Sub Compensation (as that term is hereinafter
defined). Texas Sub shall maintain its accounting records in such a way as to
clearly segregate Collections from other funds of Texas Sub, and the Account
shall not be commingled with any other funds of Texas Sub or Metroplex.
Metroplex and Texas Sub shall provide the bank where the Account is maintained
with instructions with respect to the Account such that the Account is swept
daily to two separate accounts, one solely in the name of Texas Sub (the "Texas
Sub Account") and one solely in the name of Metroplex (the "Metroplex Account").
The funds shall be swept to these accounts as follows: (i) beginning on the
first day of a month, 55% of the funds shall be swept to the Texas Sub Account,
and 45% of the funds shall be swept to the Metroplex Account, until such time in
any month as Metroplex shall have received an amount equal to one-twelfth of the
Metroplex Receipts as then in effect, at which time (ii) 100% of such funds
shall be swept to the Texas Sub Account for the remainder of the month.
Metroplex and Texas Sub hereby agree to execute from time to time such documents
and instructions as shall be required by the bank at which the Account is
maintained and mutually agreed upon to effectuate the foregoing provisions and
to extend or amend such documents and instructions with respect to payment for
the Management Services during any extended term of this Agreement.
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3.7 Financial Reports. Texas Sub shall maintain financial reports,
as determined by the books and records of Texas Sub, with respect to the Clinic.
Financial reports shall reflect the total gross revenues and Collections
generated with respect to operations of the Clinic, as well as expenses and
costs incurred in operating the Clinic. Texas Sub shall provide Metroplex with
unaudited monthly financial reports within twenty business days after the end of
each month and shall provide an audited year-end financial report of Clinic
operations within 120 days after the end of each Fiscal Year, and all such
reports shall be in a form reasonably acceptable to Metroplex. Metroplex shall
have reasonable access to the books and records with respect to the Clinic
during normal business hours for the purpose of confirming the matters set forth
in the financial reports.
3.8 Support Services. As part of Clinic Expenses, Texas Sub shall
provide all reasonable and necessary transportation, computer, bookkeeping,
billing and collection services, accounts receivable and accounts payable
management services, laundry, linen, janitorial and cleaning services and
management services as determined by Texas Sub in consultation with Metroplex.
3.9 Administrator. Subject to Section 3.16 below, regarding the
use of third-party management services vendors, Texas Sub shall provide an
Administrator to manage and administer all of the day-to-day business functions
and services of the Clinic. The Administrator will be selected by Texas Sub
after consultation with Metroplex. Metroplex shall have the right to request
reassignment by Texas Sub of the Administrator, if, after having given Texas Sub
notice and a reasonable opportunity to cure any complained of failure to
perform, in Metroplex's reasonable judgment the Administrator is not adequately
performing the required services, which judgment shall be made by reference to a
mutually developed job description. Texas Sub shall determine the salary and
fringe benefits of the Administrator, but shall consult with Metroplex with
respect thereto.
3.10 Personnel. Texas Sub shall provide such non-physician
personnel as determined by Texas Sub, after consultation with Metroplex, to be
reasonably necessary for the effective operation of the Clinic, subject,
however, to the following:
(a) Except to the extent required by law, contract or
regulatory authority to permit billing and collections or otherwise for
such personnel to be employees of Metroplex, Texas Sub shall provide to
Metroplex all nurses, transcriptionists, medical records personnel and
other non-physician medical support personnel as reasonably requested
by Metroplex and as shall be reasonably necessary for the operation of
Metroplex's medical practice through the Clinic. As to the nursing and
non-physician medical support personnel provided under this Section
3.10(a), Texas Sub shall determine the salaries and benefits of all
such personnel, but shall consult with Metroplex with respect thereto.
Texas Sub shall also recommend the assignment of all such personnel to
perform services through the Clinic; provided, however, that Metroplex
shall have the right to approve, based on professional competence and
rapport with the Metroplex Providers and patients of the Clinic, the
assignment of all non-physician medical support personnel to provide
services through the Clinic and Texas Sub shall, at Metroplex's
request, reassign and replace such personnel from time to time who are
not, in Metroplex's reasonable judgment, adequately performing the
required services. The foregoing shall not restrict Texas Sub's right
to remove non-physician medical support personnel from the Clinic,
although Texas Sub shall consult with Metroplex in that regard to the
extent it is reasonably able to do so prior to removing any such
personnel from the Clinic.
(b) Texas Sub shall provide to Metroplex all business office
personnel, i.e., all clerical, secretarial, data processing,
bookkeeping and collection personnel reasonably necessary for the
maintenance of patient records, collection of accounts receivable and
upkeep of the financial books of account to the extent that same are
required for, and directly related to, the operation of the Clinic. As
to the personnel provided under this Section, Texas Sub shall determine
the salaries and fringe benefits of all such personnel, but shall
consult with Metroplex with respect thereto.
(c) In exercising its judgment with regard to personnel as
provided in Section 3.9 and this Section 3.10, Texas Sub and Metroplex
agree to not discriminate against such personnel on the basis of race,
religion, age, sex, disability, national origin or any other basis
prohibited by law.
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(d) In recognition of the fact that non-physician medical
support personnel provided to Metroplex under this Agreement may
perform services from time to time for others, this Agreement shall not
prevent Texas Sub from performing such services for others or restrict
Texas Sub from so using such personnel. Texas Sub will make every
effort consistent with sound business practices to honor the specific
requests of Metroplex with regard to the assignment of such personnel;
provided, however, that except for non-physician medical support
personnel (which shall be governed by Section 3.10(a) above), Texas Sub
hereby retains the sole and exclusive decision-making authority
regarding all such personnel assignments. To the extent that
non-physician personnel may perform services from time to time for
others, expenses regarding the employment of such personnel shall be
allocated such that Metroplex does not bear an economic burden beyond
the proportional time spent providing services for Metroplex. Further,
Texas Sub agrees that it will not remove from service in Clinic
operations non-physician medical support personnel for reasons of
providing services in connection with other operations of Texas Sub, if
to do so would substantially interfere with the patient care operations
of Clinic.
3.11 Clinic Professional Services.
(a) Texas Sub shall arrange for or render to Metroplex such
business, legal and financial management consultation and advice as may
be reasonably required or requested by Metroplex directly relating to
physician licensure issues or the patient care operations of the
Clinic. The cost of such services shall constitute a Clinic Expense.
(b) Unless such expenses are reimbursable under any insurance
policy, Texas Sub shall reimburse Metroplex for its actually and
reasonably incurred legal expenses to the extent such expenses are
incurred by Metroplex in connection with the defense of a legal
proceeding brought against Metroplex by a third party as the proximate
result of the actions of Texas Sub in providing services hereunder.
(c) The foregoing Sections 3.11(a) and 3.11(b) shall not
obligate Texas Sub to reimburse Metroplex with respect to legal
expenses incurred as a result of the decision to enter into, enforce or
terminate this Agreement. In addition, except as provided in Section
3.11(a), Texas Sub shall not be obligated to, nor be responsible for
the rendering of any legal or tax advice or services or personal
financial services to Metroplex or any employee, partner or agent of
Metroplex.
3.12 Patient and Financial Records. The following provisions shall
apply to patient and financial records:
(a) Texas Sub shall maintain all files and records relating to
the operation of the Clinic, including, but not limited to, customary
financial records and patient files, provided that all patient medical
records shall remain the property of Metroplex and shall be located at
the Medical Offices (or as the volume of records warrants at an
off-site central storage facility). The management of all files and
records shall comply with all applicable federal, state and local
statutes and regulations, and all files and records shall be located so
that they are reasonably accessible for patient care. Upon the
expiration or termination of this Agreement, Texas Sub shall make
available to Metroplex and Metroplex shall have reasonable access to,
the billing records of the Clinic, including the right to a magnetic
media copy of all such billing records. Because Texas Sub will be
involved in activities regarding the payment and collection of fees for
medical services rendered by physicians and in other activities
relevant to the management of appropriate purposes and personnel under
the direction of physicians who are participating in the diagnosis,
evaluation, or treatment of patients, Texas Sub will be given access to
medical and financial records as reasonably required.
(b) Metroplex shall supervise the preparation of, and direct
the contents of, patient medical records, all of which shall be and
remain confidential and the property of Metroplex. Notwithstanding the
preceding sentence, at such time as this Agreement terminates or is
terminated, Metroplex will provide Texas Sub with copies thereof, at
Texas Sub's expense, to the extent permitted by applicable law and
reasonably required by Texas Sub. Texas Sub hereby agrees to preserve
the confidentiality and security of such patient
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<PAGE>
medical records and to use the information in such records only for the
limited purposes necessary to perform the Management Services and,
within the limits of its responsibilities hereunder, to ensure that
provision is made for appropriate care for patients of the Clinic. In
no event may the patient medical records be used by Texas Sub or
provided by Texas Sub to any third party whether during or after the
term of this Agreement for the purpose of maintaining a legal action
against Metroplex (except for an action between Texas Sub and
Metroplex), or providing or assisting in the provision of medical
services other than through Metroplex, to any person who is a patient
of Metroplex, now or at any time during the term of this Agreement
without the prior written direction of the patient whose record is
involved or as otherwise required by law. Texas Sub shall be free at
all times to comply with written and signed patient requests regarding
the handling and transfer of medical records.
3.13 Marketing Services. Texas Sub shall use its best efforts to
market the services provided by Metroplex through the Clinic. Such marketing
shall be directed to the general public and not to specific individuals, shall
be undertaken in a tasteful manner, shall be in compliance with applicable laws
and regulations regulating advertising by the medical profession and shall be
subject to prior review and written approval by Metroplex, such approval not to
be unreasonably withheld, although each physician in his or her discretion may
reject any use of his name or likeness in such marketing efforts. The parties
agree that at the option of Texas Sub, Texas Sub's name and/or logo may be
included on any or all signage, letterhead, professional announcements and the
like relating to the Clinic in such manner as Metroplex shall reasonably
approve.
3.14 Expansion of Clinic. As more fully set forth in Section 11
below, Texas Sub will, at Texas Sub's expense, assist Metroplex in attempting to
establish satellite offices, as mutually determined by Texas Sub and Metroplex
to be beneficial to the Clinic, and in developing relationships and affiliations
with physicians and other specialists, hospitals, networks, HMO's, PPO's, etc.
to assist in the continued growth and development of the Clinic. Metroplex will
cooperate with Texas Sub in such efforts and use its best efforts to assist
Texas Sub with respect thereto, to the extent it is able in light of its primary
obligation to treat patients of the Clinic such that absences by Metroplex
Providers for these services do not unduly burden the patient care activities of
the Clinic. Additionally, Texas Sub recognizes that it is to the benefit of the
community that appropriate healthcare resources are available in a coordinated
and effective fashion. Accordingly, consistent with Texas Sub's and Metroplex's
assessment of the community's need, Texas Sub will assist Metroplex in
identifying additional equipment which is appropriate for the operation and
expansion of the Clinic in an efficient and quality manner and that is also
economically suitable. Texas Sub also shall be responsible for the replacement
of obsolete or poorly functioning equipment.
3.15 Performance of Business Office Services. Texas Sub shall
perform its business office services hereunder in a commercially reasonable
manner so as to meet the day-to-day requirements of the non-medical business
functions of Metroplex's medical practice at the Medical Offices. Texas Sub may
perform some or all of the business office functions of Metroplex at locations
other than at the Medical Offices.
3.16 Vendors. Texas Sub may provide Management Services through the
use of a third-party vendor of such services or through the use of its own
personnel or through a combination of the two methods. If at any time either
Texas Sub or Metroplex reasonably becomes dissatisfied with a third-party
provider of management services, a reasonably mutually acceptable replacement
shall be furnished by Texas Sub. If Texas Sub shall engage a third-party vendor
of services, such engagement shall not relieve Texas Sub from its ultimate
responsibility for supervision and oversight of the delivery of Management
Services and Texas Sub shall be vested with the ultimate decision-making
authority in that regard. If a third-party vendor provides some or all of the
comprehensive management services, that vendor will not be permitted to
participate with Metroplex or Texas Sub in any third-party payor contracting
arrangements as a provider of healthcare services, without the prior written
consent of Texas Sub and Metroplex. Further, any such third-party vendor will be
prohibited from participating as an owner, investor or otherwise, directly or
indirectly, in a business involved in the provision of ancillary medical
services in the service area of Texas Sub. Any such vendor will not be permitted
to be an owner, investor, operator or manager, directly or indirectly, of any
facility or service competitive with the activities of Texas Sub in any service
area of Texas Sub. In the event that a vendor is engaged to provide management
services, the terms and conditions of the management agreement will be
negotiated at that time to the mutual satisfaction of all involved parties,
provided, however, any
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such management agreement shall incorporate the principles restricting the
activities of the management company as set forth in this Agreement.
3.17 Force Majeure. As long as Texas Sub, on the one hand, and
Metroplex, on the other hand, use reasonable diligence in its efforts to perform
the services required by such party under this Agreement, such diligent party
shall not be liable to the other party for failure to perform any of the
services required herein in the event of strikes, lockouts, calamities, acts of
God, unavailability of supplies or other events over which the diligent party
has no control for so long as such event continues and for a reasonable period
of time thereafter.
3.18 Security Agreement.
(a) As security for the payment and performance of all of the
obligations and indebtedness of Metroplex to Texas Sub under this
Agreement, Metroplex hereby pledges and assigns to Texas Sub, and
grants to Texas Sub a first priority lien and security interest in, all
the Accounts and all of Metroplex's right, title and interest in and to
all of the Accounts, and the proceeds thereof, and replacements and
accessions thereto, which lien and security interest is and shall
remain first and prior and free and clear of all other mortgages,
pledges, security interests, liens and other encumbrances thereon or on
the transfer thereof. All Accounts shall include all rights to receive
the payment of money or other considerations for professional services
rendered, whether or not evidenced by or set forth in any present or
future writing or document. Texas Sub may specifically assign and/or
pledge all of its rights and interests under this Agreement and its
security interest and all other rights, title and interest in the
Accounts hereunder as security for third-party loans and other
financing arrangements obtained by Texas Sub, including without
limitation Texas Sub's operating line of credit revolver loan with its
accounts receivable lender, including DVIBC and its term loan with
DVIFS (DVIBC and DVIFS, together with any other lender that may receive
such an assignment from Texas Sub being sometimes referred to herein as
"Assignee"), and Metroplex will execute any documents reasonably
requested for this purpose by Texas Sub. Any such Assignee shall have
all of Texas Sub's rights and remedies, but none of Texas Sub's
obligations, under this Agreement.
(b) In the event any one or more of the following events shall
have occurred:
(i) If default shall be made in the due and punctual
payment of all or any portion of any sum payable hereunder
when and as the same shall become due and payable; or
(ii) If default shall be made in the due observance
or performance of any covenant, agreement or condition to be
observed or performed by Metroplex hereunder which default is
not cured within thirty (30) days of receipt of written notice
from Texas Sub; or
(iii) If (a) Metroplex shall (1) admit in writing its
inability to pay its debts generally as they become due, (2)
file a petition or commence a voluntary case seeking relief
under the Federal Bankruptcy Code, as now constituted or
hereafter amended, or any other applicable Federal or state
bankruptcy or insolvency law, or other similar law, (3)
consent to the entry of an order for relief under any law
listed in (2) above, or to the filing of any such petition or
to the appointment or taking possession of a receiver,
liquidator, assignee, trustee, custodian (or other similar
official) of Metroplex or of any substantial part of its
property, (4) fail generally to pay its debts as such debts
become due, or take corporate action in furtherance of any
such action, (5) make an assignment for the benefit of its
creditors, or (6) cease to be treated as a professional
corporation or association under the laws of its jurisdiction
of formation, or (b) an order for relief shall be entered in a
voluntary or involuntary case under any law listed in this
Subsection (b)(iii); or
(iv) If an involuntary case is commenced in respect
of Metroplex under the Federal Bankruptcy Code, as now
constituted or hereafter amended, or any other applicable
Federal or state bankruptcy or insolvency law or other similar
law, or a decree or order shall be entered by a court
appointing a receiver, liquidator, assignee, trustee (or
similar official) of Metroplex or of any
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substantial part of its property, or ordering the winding-up
or liquidation of its affairs and such involuntary case shall
not be dismissed or such decree or order shall not be vacated
or set aside or stayed within a period of thirty (30) days
from the date of commencement of such case or entry of such
decree or order,
then an event of default (an "Event of Default") shall be
deemed to have occurred hereunder.
(c) Upon the occurrence and continuation of any Event of
Default which shall not have been cured within thirty (30) days
following the date of such Event of Default, Texas Sub and/or Texas
Sub's Assignee shall have the option to proceed as hereinafter
provided:
(i) Texas Sub and its Assignee shall have the rights
and remedies of a secured party under the Uniform Commercial
Code of the State of California and under any and all other
laws in addition to the rights and remedies provided herein;
(ii) Texas Sub or its Assignee may proceed to realize
upon any and all rights in the Accounts. Any officer, employee
or agent of Texas Sub shall have the right, at any time or
times thereafter, in the name of Texas Sub or its nominee
(including Metroplex), to verify the validity, amount, or any
other matter relating to any Account, by mail, telephone, or
otherwise; and all reasonable costs thereof shall be payable
by Metroplex to Texas Sub;
(iii) Texas Sub or Assignee may at any time after the
occurrence of an Event of Default notify customers or Account
Debtors that the Accounts have been assigned to Texas Sub or
its Assignee or of Texas Sub's security interest therein and
collect the same directly and charge all reasonable collection
costs and expenses to Metroplex's account;
(iv) No discount, credit or allowance shall be granted by
Metroplex to any Account Debtor;
(v) Texas Sub or its Assignee may settle or adjust
disputes and claims directly with Account Debtors for amounts
and upon terms that Texas Sub considers advisable, and in such
cases, Texas Sub will credit Metroplex's account with only the
net amounts received by Texas Sub in payment of such disputed
Accounts, after deducting all reasonable Texas Sub expenses
incurred in connection therewith; and
(vi) Texas Sub or its Assignee may:
(1) Notify Account Debtors to make payment on
Accounts directly to Texas Sub or its Assignee;
(2) Settle, adjust, compromise, extend or renew
Accounts, whether before or after legal proceedings to
collect such Accounts have commenced;
(3) Prepare and file any bankruptcy proofs of claim
or similar documents against Account Debtor;
(4) Prepare and file any notice, assignment,
satisfaction, or release of Lien, UCC termination statement
or any similar documents;
(5) Sell or assign Accounts, individually or in
bulk, upon such terms, and for such amounts, and at such
time or times as Texas Sub or its assignee deems advisable;
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<PAGE>
(6) Complete the performance, if feasible, under any
contract or agreement, to which Metroplex is a party and out
of which Accounts arise or may arise. Texas Sub may use and
operate Metroplex's equipment for all such purposes; and
(7) (a) endorse Metroplex's name on all checks,
notes, drafts, money orders, or other forms of payment of
security for Accounts; (b) sign Metroplex's name on drafts
drawn on Account Debtors or issuers of letters of credit;
and (c) notify the postal authorities in Metroplex's name to
change the address for delivery of Metroplex's mail to an
address designated by Texas Sub, receive and open all mail
addressed to Metroplex, copy all mail relating to the
Accounts and hold all other mail available for pickup by
Metroplex;
(d) Texas Sub shall not be required to marshal the Accounts, or resort to
the Accounts at any particular time or in any particular order and all of Texas
Sub's rights hereunder or any other agreement, instrument or document executed
and delivered by Metroplex shall be cumulative and none of such rights shall be
exclusive. Any of the proceeds of the Accounts received by Metroplex shall not,
prior to distribution from the lock box be commingled with any other of property
but shall be separated, held by it in trust as exclusive property of Texas Sub,
and Metroplex will immediately deliver to Texas Sub by its checks, monies, or
other proceeds of the Accounts received;
(e) Metroplex shall remain fully liable for any balance of any sums owing
by Metroplex to Texas Sub, remaining unpaid after application of any proceeds of
the collection of the Accounts;
(f) No waiver by, nor any failure or delay on the part of Texas Sub in any
one or more instances to insist upon strict performance or observance of one or
more covenants or conditions hereof shall in any way be, or be construed to be,
a waiver thereof or to prevent Texas Sub's rights to later require the
performance or observance of such covenants or conditions, otherwise prejudice
Texas Sub's rights, powers or remedies;
(g) To the extent not prohibited by applicable law, Metroplex hereby agrees
to waive, and does hereby absolutely and irrevocably waive and relinquish, the
benefit and advantage of any valuation, stay, appraisement, extension or
redemption law now existing or which may hereafter exist which, but for this
provision might be applicable to any sale made under any judgement, order or
decree of any court, or otherwise, based on any sums owing by Metroplex to Texas
Sub. Metroplex waives demand, protest, notice of protest, or dishonor, notice of
payments and non-payments;
(h) Metroplex hereby irrevocably waives any bonds and any surety or
security with respect to any action by Texas Sub to take possession of or assert
dominion or control over any item of the Accounts;
(i) Metroplex will promptly execute, deliver, record, register or file all
such financing statements, assignment pledges and other instruments as Texas Sub
may reasonably request to create, evidence and perfect the liens and security
interests granted herein. Metroplex will cause all security instruments,
financing statements and other instruments to be duly registered, recorded and
filed and to be duly re-registered, re-recorded and refiled at the times and in
the places now or hereafter required by all applicable laws for the proper
maintenance of the validity and priority of the security interest and liens
given as described above. To the extent not prohibited by applicable law,
Metroplex hereby authorizes Texas Sub to execute and file, in the name of
Metroplex or otherwise, financing statements and assignments and amendments
thereto which Texas Sub or assignee in its sole discretion deems necessary to
further protect the security interest granted under this Agreement.
3.19 Payment of Metroplex Receipts. Metroplex hereby agrees to pay the
Metroplex Receipts as they come due. To the extent Metroplex is unable to pay
the Metroplex Receipts as they fall due, PHC agrees to pay any such unpaid
Metroplex Receipts, solely to the extent that Metroplex is unable to pay the
same.
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Section 4. Obligations of Metroplex.
4.1 Work Ethic.
(a) Metroplex shall enter into a Physician Owner Employment
Agreement (herein so called) with each of the Physician Owners for a
minimum term of five years; which Physician Owner Employment Agreement
shall be subject to review and consultation by Texas Sub prior to their
execution and delivery. Metroplex shall not take any action that would
cause it to be in breach of any Physician Owner Employment Agreement.
(b) Each Physician Owner Employment Agreement, a form of which
is attached hereto as Exhibit 4.1(b), contains certain provisions in
--------------
Section 14 thereof, pertaining to the payment of liquidated damages to
Metroplex in certain cases of early termination of such Physician Owner
Employment Agreement (the "Liquidated Damages Provisions"). During the
term of this Agreement, Metroplex shall not amend, alter or otherwise
change, or allow the Physician Owner to amend, alter or otherwise
change, any term or provision of any Physician Owner Employment
Agreement without the prior written consent of Texas Sub, which consent
shall not be unreasonably withheld.
(c) Metroplex hereby acknowledges that the terms and
conditions of this Agreement and the Purchase Agreement were determined
based upon numerous factors, including the agreement of the Physician
Owners to remain employed by Metroplex pursuant to the terms of the
Physician Owner Employment Agreements for a period of at least five (5)
years. Accordingly, in the event that Metroplex shall be entitled to any
liquidated damages (the "Liquidated Damages") pursuant to the terms of
the Liquidated Damages Provisions, (i) at the request of Texas Sub,
Metroplex shall assign to Texas Sub such causes of action and/or other
rights it has in connection with the events and actions giving rise to
the Liquidated Damages (the "LD Causes of Action") and shall cooperate
with and provide reasonable assistance to Texas Sub with respect to the
pursuit of the LD Causes of Action by Texas Sub, and (ii) at the request
of Texas Sub, Metroplex shall seek any and all remedies at law or in
equity that it may have available to it in connection with the LD Causes
of Action. Texas Sub shall be entitled to receive all Liquidated Damages
and/or other damages or amounts recovered in connection with the LD
Causes of Action. The costs and expenses incurred by Metroplex or Texas
Sub in connection with pursuing the LD Causes of Action shall be borne
by Texas Sub. Nothing contained herein shall be construed to obligate
Metroplex to pay Liquidated Damages to Texas Sub. In the event Metroplex
elects to pay Liquidated Damages to Texas Sub, such payment by Metroplex
to Texas Sub shall not relieve Metroplex of its obligation to assign the
LD Causes of Action to Texas Sub. In the event that Metroplex pays
Liquidated Damages to Texas Sub pursuant to the immediately preceding
sentence and Metroplex has assigned the related LD Cause of Action to
Texas Sub, Texas Sub shall prosecute such LD Cause of Action and if
Texas Sub recovers such Liquidated Damages from the Physician Owner,
Texas Sub shall reimburse Metroplex up to the amount paid to Texas Sub
by Metroplex out of any Liquidated Damages so recovered.
(d) If the billings for professional services of any Physician
Owner decline by 50% or more for any three-month period, as compared to
the same period for the prior year, Metroplex shall immediately: (i)
notify Texas Sub of this determination and (ii) consult with such
Physician Owner to determine the cause of the decline in billings and
take such corrective action as is necessary to increase the Physician
Owner's billings. In the event that the billings for professional
services of any Physician Owner decline by 50% or more for any six-month
period, as compared to the same period for the prior year, and the
aggregate billings for professional services of Metroplex decline by 10%
or more in any such six-month period, as compared to the same period for
the prior year, Texas Sub may enforce Texas Sub's rights as a third-
party beneficiary to such Physician Owner's Employment Agreement.
4.2 Non-Clinic Expenses. Metroplex shall be solely responsible for
the payment of all costs and expenses incurred in connection with Metroplex's
operations which are not Clinic Expenses.
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4.3 Professional Standards. It is expressly acknowledged by the parties
to the Agreement that all medical services provided at the Medical Offices shall
be performed by physicians duly licensed to practice medicine in the State of
Texas or other appropriately trained and licensed personnel under the
supervision of a physician. The professional services provided by Metroplex and
the Metroplex Providers shall at all times be provided in accordance with
applicable ethical standards, laws and regulations applying to the medical
profession. Metroplex will take steps to resolve any utilization review or
quality assurance issues which may arise in connection with the Clinic and Texas
Sub shall cooperate with Metroplex in that regard. In the event that any
disciplinary actions or investigations or professional liability actions are
initiated or overtly threatened against any Metroplex Provider, Metroplex shall
immediately inform Texas Sub of such action and the underlying facts and
circumstances. Metroplex agrees to implement and maintain a program to monitor
the quality of medical care provided by Metroplex, and Texas Sub shall, at its
own expense, render administrative assistance to Metroplex on an as-requested
basis to assist Metroplex in implementing and maintaining such program.
4.4 Formation and Operation of the Compliance Committee. Texas Sub and
Metroplex shall establish a Compliance Committee (herein so called) which shall
be responsible for advising Texas Sub and Metroplex in connection with the
development and administration of procedures designed to detect and deter
potential violations of the Ethics Referrals Act, Medicare and Medicaid
anti-kickback laws and other healthcare and federal laws applicable to the
conduct of Metroplex's business. Texas Sub and Metroplex shall have equal
representation on the Compliance Committee. Texas Sub shall designate, in its
sole discretion, two members of the Compliance Committee. Metroplex shall
designate, in its sole discretion, two members of the Compliance Committee. The
act of a majority of the total number of members of the Compliance Committee
shall be the act of the Compliance Committee. Physician Owners of Metroplex who
are not members of the Compliance Committee shall be permitted to attend
Compliance Committee meetings, unless the Compliance Committee otherwise
determines or unless Texas Sub objects because it reasonably can be expected
that the number of persons in attendance will interfere with the effective
functioning of the Compliance Committee.
4.5 Provider and Payor Relationships. Subject to Section 10 below
regarding managed care contracting, Texas Sub shall decide, after consultation
with Metroplex and consent of the majority of the members of the Clinic
Committee who are designees of Metroplex, all matters relating to the
establishment or maintenance of relationships with institutional healthcare
providers and third-party payors, including, but not limited to, managed care
programs, health maintenance organizations and preferred provider organizations.
Notwithstanding the foregoing, Metroplex may determine that it shall not, and
none of its Metroplex Providers shall be required to, participate with third
party payors or utilize the services of any other healthcare providers if
Metroplex reasonably objects in light of the quality of patient care services
rendered by such providers or payors.
4.6 Additional Documents. Metroplex shall require all Physician Owners
and other Metroplex Providers to execute and deliver to Texas Sub such documents
and instruments as are reasonably necessary to permit Texas Sub to meet its
obligations hereunder and comply with applicable law, including, without
limitation, its obligation to provide billing and collection services,
reasonably satisfactory in form and substance to Texas Sub. Texas Sub shall
execute and deliver to Metroplex such documents and instruments as are
reasonably necessary to permit Metroplex to meet its obligations hereunder and
comply with applicable law, reasonably satisfactory in form and substance to
Metroplex.
4.7 Restrictive Covenants.
(a) Metroplex acknowledges and agrees that the services to be
provided by Texas Sub hereunder are feasible only if Metroplex operates
a vigorous medical practice to which its Physician Owners have devoted
their full professional time and attention. Accordingly, Metroplex
agrees that, during the term of this Agreement, it shall not, without
the prior written consent of Texas Sub, establish, operate or provide
medical services, unless fees generated for such services constitute
Collections.
(b) In addition, and except for those persons listed on Schedule
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4.7(b) attached hereto and made a part hereof, Metroplex hereby agrees,
------
and Metroplex shall cause, each Physician Owner and other
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Metroplex Providers designated by the Clinic Committee ("Designated
Metroplex Providers") to agree in writing not to, directly or
indirectly, establish, operate or provide medical services, without the
prior written consent of Texas Sub, at any medical office, clinic or
other healthcare facility during the term of this Agreement, unless
fees generated for such services constitute Collections, and further
if, such person shall cease to be a Physician Owner or a Designated
Metroplex Provider, as the case may be, for a period of two (2) years
following the termination of the professional relationship between such
person and Metroplex, such Physician Owner or Designated Metroplex
Provider agrees not to establish, operate, or provide medical services,
without the prior written consent of Texas Sub, at any medical office,
clinic or other healthcare facility within a 25-mile radius of (i) 900
West Randol Mill Road, Arlington, Texas, (ii) Baylor Grapevine Medical
Center, Grapevine, Texas and (iii) any other site in the North Texas
Service Area designated in writing by the Board of Directors of Texas
Sub. Texas Sub shall be expressly named as a third-party beneficiary to
the restrictive agreements between Metroplex and each Physician Owner.
Notwithstanding the foregoing and subject the provisions of Section
6.5(d), the restrictive covenants described in this Section 4.7(b)
shall be of no force or effect if this Agreement shall be terminated by
Metroplex pursuant to Sections 6.2(c)(i), (ii) or 6.2(d) below. Nothing
contained herein shall be construed to cause Metroplex or any Physician
Owner to be liable for any damages relating to the enforceability of
any covenant against competition with any Designated Metroplex
Provider.
(c) Texas Sub and Metroplex acknowledge and agree that Texas
Sub's remedy at law for any breach or attempted breach of the foregoing
provisions will be inadequate and Texas Sub shall be entitled to
specific performance, injunction or other equitable relief in the event
of any such breach or attempted breach, in addition to any other
remedies which might be available at law or in equity. In the event
that the duration, scope or geographic area contemplated by the
foregoing provisions is determined to be unenforceable by a court of
competent jurisdiction, the parties agree that such duration, scope or
geographic area shall be deemed to be reduced to the greatest scope,
duration or geographic area which would be enforceable.
(d) It is further mutually understood and agreed that
Metroplex and its Physician Owners shall devote all of their
professional time to their practice in connection with the Clinic,
except to the extent listed on Exhibit 4.7(d) hereto.
--------------
4.8 Professional Dues and Education Expenses. Metroplex and the
Metroplex Providers shall be solely responsible for all costs and expenses
associated with membership in professional associations, professional licensure
fees, board certification fees and continuing professional education. Metroplex
shall ensure that each of the Metroplex Providers participates in such
continuing medical education activities as are necessary for such persons to
remain current in their respective specialties, including, but not limited to,
the minimum continuing medical education requirements imposed by applicable laws
and policies of applicable specialty boards.
4.9 Clinic Employee Benefit Plans.
(a) Effective on the date hereof, Texas Sub shall take all
necessary actions to become a participating employer with respect to
Texas Sub's employees in the employee benefit plans sponsored by
Metroplex which are listed on Schedule 4.9 (the "Clinic Plans").
Metroplex shall take all necessary actions to permit Texas Sub to
become a participating employer in the Clinic Plans; provided, however,
that participation of any persons no longer employed by Metroplex in
any self-funded health benefit plan within the meaning of ERISA shall
be not be permitted. Health insurance benefits after the execution of
this Agreement shall be provided for former employees of Metroplex who
become employees of Texas Sub either under the provisions of COBRA or
by alternative means determined by mutual agreement that are not in
violation of applicable federal or state laws. Within 360 days from the
Effective Date, Texas Sub will make available for the benefit of the
employees for both Texas Sub and Metroplex, an insured group health
benefit plan featuring benefits and premiums substantially the same as
those available on the Effective Date. Nothing contained herein shall
be construed to obligate Texas Sub to pay premiums allocable to the
benefits of Metroplex employees
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<PAGE>
(b) Texas Sub and Metroplex agree to cooperate with each other
in the administration of the Clinic Plans and agree to administer the
Clinic Plans in such a manner as to ensure the continued favorable tax
qualification of any Clinic Plan intended to be so qualified and to
ensure that the Clinic Plans, as adopted by Texas Sub and by Metroplex,
are administered in accordance with the applicable requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended (the "Code"). In the
event of any disagreement between Texas Sub and Metroplex concerning
the establishment, amendment or termination of the Clinic Plans or any
other employee benefit plan, such dispute shall be resolved finally and
conclusively by the Clinic Committee, and Texas Sub and Metroplex agree
to comply with the final decisions of the Clinic Committee.
(c) With respect to all employees of Texas Sub as of the date
hereof who were employed by Metroplex immediately prior to the date
hereof, such employees shall receive credit with Texas Sub (and with
respect to Texas Sub's adoption of the Clinic Plans) for eligibility
and vesting purposes to the extent such credit was recognized by
Metroplex (or with respect to Metroplex's adoption of the Clinic
Plans).
(d) Neither Texas Sub nor Metroplex shall adopt, amend or
terminate any employee benefit plan, including a Clinic Plan, without
the prior written approval of the Clinic Committee which approval will
not be unreasonably withheld.
(e) Administrative expenses incurred in connection with the
Clinic Plans, including without limitation the compensation of counsel,
accountants, corporate trustees and other agents, shall be treated as
Clinic Expenses for purposes of this Agreement.
(f) Texas Sub and Metroplex agree to provide the Clinic
Committee information upon request concerning the amount and cost of
benefits provided under their respective adoptions of the Clinic Plans.
The Clinic Committee shall have the authority to impose adjustments to
such benefit amounts and costs if necessary to comply with the Code and
ERISA, and Texas Sub and Metroplex agree to make such adjustments as
may be imposed by the Clinic Committee in a timely manner.
(g) Notwithstanding the foregoing provisions of this Section
4.9 (except the last sentence of subsection 4.9(b) above), Metroplex
may cease participating in any Clinic Plan, and, at its sole
discretion, adopt its own separate employee benefit plan(s) (which
shall not constitute Clinic Plan(s)) to the degree that the aggregation
and qualification requirements under Code section 401(a) and 414 (or
similar Code sections) permit Metroplex to adopt its own employee
benefit plan(s) without adversely affecting the qualification of the
Clinic Plans.
4.10 Covenants of Metroplex.
(a) Metroplex shall use its best efforts to maintain
certification for, and avoid suspension or termination from,
participation in Medicare and Medicaid programs.
(b) Metroplex shall not incur any debt for borrowed funds or
capital lease obligations without the prior written consent of PHC.
(c) Metroplex shall cause to be promptly and duly taken,
executed, acknowledged and delivered all such further acts, documents
and assurances:
(i) as may from time to time be necessary or as a
Secured Party may from time to time reasonably request to
establish, preserve, protect, and perfect the estate, right,
title, and interest to the Collateral (including Collateral
acquired after the date hereof) including first priority liens
thereon; and
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<PAGE>
(ii) as a Secured Party may from time to time reasonably
request to establish, preserve, protect, and perfect a first
priority lien on the Receivables now owed or hereafter
acquired that are not Collateral on the date hereof.
(d) Metroplex will use its best efforts to assist Texas Sub in
keeping accurate and complete records of its Receivables.
(e) At the request of the Secured Party, Metroplex will
appoint the Secured Party as its attorney-in-fact for the purpose of
collecting Receivables, consistent with any limitations provided by law
and will cooperate with the Secured Party in signing or otherwise
providing notices to third party payors with respect to this agency.
Section 5. Compensation; Payments.
5.1 Texas Sub Compensation.
(a) As compensation to Texas Sub (the "Texas Sub
Compensation") for the services to be performed by Texas Sub under this
Agreement, and all capital expenditures and credit enhancements to be
undertaken by Texas Sub on behalf of Metroplex, for a calendar year (a
"Fiscal Year"), Texas Sub shall be paid (i) 12% of Net Revenues (the
"Texas Sub Fee") and (ii) 55% of the amount of Net Revenues exceeding
an amount equal to the sum of the Metroplex Receipts, the Texas Sub Fee
and the total amount for Clinic Expenses recorded by Texas Sub on an
accrual basis and reflected on the financial reports prepared by Texas
Sub pursuant to Section 3.7 hereof during such Fiscal Year (it being
understood that (i) Metroplex shall be entitled to retain 45% of such
excess (the "Metroplex Additional Receipts") and (ii) Collections
retained by DVIFS or DVIBC from a lock box account established by DVIBC
to satisfy Texas Sub's obligations for payment of funds pursuant to the
DVI Purchase Loans shall be considered paid out of the Texas Sub Fee,
and not out of the Net Revenues). Texas Sub and Metroplex agree that
the Texas Sub Compensation was established only after a thorough
examination and analysis of the cost of the provision of Management
Services, and the parties agree that this is a reasonable charge in
light of the value of the services and facilities furnished by Texas
Sub. To the extent that Metroplex conducts revenue producing activities
during the term of this Agreement as provided in Section 6.1, which
activities were not conducted by Metroplex on the date of this
Agreement, the parties shall negotiate in good faith an appropriate
division of such revenues. In the event the parties are unable to agree
upon an appropriate revenue division, such dispute shall be settled in
accordance with Section 16.15 hereof.
(b) For any period covered by the term of this Agreement that
is not a full Fiscal Year, the calculations of Collections, the Texas
Sub Fee, the Metroplex Receipts, the Metroplex Additional Receipts and
the amount to be paid to Texas Sub pursuant to subsection 5.1(a)(ii)
(regarding a portion of the Net Revenues) above shall be made on a
prorated basis for the portion of the calendar year covered by this
Agreement.
(c) Metroplex shall have reasonable access during normal
business hours to Texas Sub's books and records related to the
provision of Management Services for the purposes of verifying the
Collections and the amount of Clinic Expenses. Further, the Agreement
is established based on the following principles:
(i) Texas Sub shall use its best efforts, diligently and
in good faith to manage the Clinic at the lowest practicable
market-competitive rate taking into account the management fee
charged by other managers of physician practices managing an
efficiently and effectively operated physician group practice.
(ii) Metroplex agrees to take reasonable and appropriate
actions to reduce its overall expenses of operation and will
support and cooperate with Texas Sub in its efforts in this
regard, with the understanding that no actions will be taken
that will jeopardize the quality of patient care,
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or unnecessarily or unreasonably diminish the quality of the
working conditions or the customary aspects of the practice.
5.2 Payment of Clinic Expenses. Texas Sub shall pay all Clinic Expenses
as they fall due; provided, however, that Texas Sub may, in the name of and on
behalf of Metroplex, contest in good faith any claimed Clinic Expenses as to
which there is any dispute regarding the nature, existence or validity of such
claimed Clinic Expenses. Texas Sub shall be entitled to satisfy all Clinic
Expenses out of Collections. Texas Sub agrees to indemnify and hold Metroplex
harmless from and against any liability, loss, damages, claims, causes of action
and reasonable expenses of Metroplex resulting from Texas Sub's contest of any
Clinic Expenses. Metroplex shall not be required to pay any Clinic Expense, and
Texas Sub shall reimburse Metroplex for any Clinic Expenses paid by Metroplex.
5.3 Accounts Receivable.
(a) Metroplex shall cooperate with Texas Sub and execute all necessary
documents in connection with the pledge of accounts receivable to Texas Sub or
at Texas Sub's option, its lenders. All collections in respect of accounts
receivable shall be deposited in the Account. To the extent Metroplex comes into
possession of any payments in respect of such accounts receivable, Metroplex
shall transfer such payments to Texas Sub for deposit in the Account and as
further security for Texas Sub advances.
5.4 Payments.
(a) On a monthly basis, Metroplex shall be entitled to retain the
lesser of (i) one-twelfth of the Metroplex Receipts or (ii) Collections
collected for such month. It is understood by the parties that
Metroplex's right to receive its monthly portion of the Metroplex
Receipts is cumulative and is not limited by a shortfall in the Account
in any month. Notwithstanding anything in this Agreement to the
contrary, should Metroplex not receive the amount it is entitled to
retain pursuant to this Section 5.4(a), upon two days prior written
notice to Texas Sub, Metroplex shall have the right to make one or more
distributions to itself from the Account until an amount equal to the
amount owing is received by Metroplex.
(b) Texas Sub may withdraw from the Account on a monthly basis the
Texas Sub Fee for the preceding month and on an annual basis the
remainder, if any, of the compensation due Texas Sub pursuant to
Section 5.1(a). It is understood by the parties that Texas Sub's right
to receive the Texas Sub Fee is cumulative from month to month and year
to year, and is not limited by a shortfall in the Account in any month
or year, but is subject to payment of the amount due under Section
5.4(a) above.
(c) Nothing contained herein shall be construed to require either
Metroplex or Texas Sub, as the case may be, to satisfy the obligation
to pay the Texas Sub Fee or the Metroplex Receipts, as the case may be,
from any source other than Collections.
(d) Subject to the sweep provisions contained in Section 3.6 hereof
and the override provisions of Section 5.4(a) hereof, payments shall be
made in accordance with the following priorities: (i) Metroplex
Receipts; (ii) Clinic Expenses and (iii) Texas Sub Fee.
5.5 Deposit Arrangements. The parties agree that, for the term of the
DVIBC Loan Agreement, the provisions of Sections 3.5, 3.6, 4.10(e), 5.1 and 5.4
relating to the Accounts and Collections and payments to Metroplex of the
Collections from Accounts generated prior to the Effective Date are subject to
Section 2.6 of the DVIBC Loan Agreement relating to the deposit of all payments
on the Accounts into certain lock box accounts, and that, except for Collections
from Medicare and Medicaid, no Collections shall be deposited directly into any
bank account owned by Metroplex or Texas Sub. The establishment of such lock box
accounts and procedures, obligations pertaining thereto are subject to the terms
of the DVIBC Loan Agreement.
5.6 Accounting. Within one hundred twenty (120) days after the end of
each Fiscal Year, Texas Sub shall deliver to Metroplex an accounting of the
Collections for such Fiscal Year. In addition, within one hundred fifty
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<PAGE>
(150) days after the Effective Date, and monthly thereafter Texas Sub shall
deliver to Metroplex an accounting of the Collections for that period of time
(the "Initial Period") from the Effective Date through a date thirty (30) days
prior to such accounting. Such accounting shall specify the amount of
Collections during the Initial Period attributable to services performed by the
Metroplex Providers prior to the date of this Agreement (the "Prior Closing
Collections Amounts"). Within thirty days after each such accounting Prior
Closing Collections Amounts received and identified in such accounting has
previously been remitted to Metroplex (to the extent not previously remitted).
Section 6. Term and Termination.
6.1 Term. The initial term of this Agreement shall be for a period of
forty (40) years commencing on the Effective Date and ending forty (40) years
later. This Agreement will be extended for separate and successive five-year
periods (each such five-year period referred to hereinafter as an "extended
term"), under such terms and conditions as stated herein with respect to any
such extended term; provided that either party may elect to not renew this
Agreement by sending the other written notice of non-renewal not less than 120
days prior to the expiration of the then effective term or extended term.
6.2 Termination.
(a) Texas Sub may terminate this Agreement, and have no further
liability or obligation hereunder, upon the occurrence of one or more of
the following events:
(i) No Texas Sub Fee is paid to Texas Sub for a period of two
consecutive years.
(ii) Metroplex is involuntarily suspended or terminated
(without right of further appeal) from participation in the
Medicare or Medicaid programs or Metroplex withdraws from
participation in the Medicare or Medicaid programs as a result of
regulatory investigation.
(iii) Metroplex voluntarily files a petition in bankruptcy or
makes an assignment for the benefit of creditors or otherwise seeks
relief from creditors under any federal or state bankruptcy,
insolvency, reorganization or moratorium statute, or Metroplex is
the subject of an involuntary petition in bankruptcy which is not
set aside within 60 days of its filing.
(iv) The representations and warranties made by Metroplex in
Section 7.1 of this Agreement are not true and correct in all
material respects or Metroplex is not organized as "a group
practice" under applicable state and federal law and such falsity
or failure is not cured within 30 days of notice of the same from
Texas Sub to Metroplex.
(b) In addition to the foregoing, Texas Sub may terminate this
Agreement, and have no further liability or obligation hereunder, if
Metroplex materially breaches any term or condition of this Agreement, and
such cessation or breach continues uncured for a period of 60 days after
Metroplex's receipt of written notice specifying such breach; provided,
however, that if at the end of such 60 day period Texas Sub does not
believe that the breach has been cured, Texas Sub shall, prior to having
the right to terminate, submit the following issues directly to arbitration
in accordance with Section 16.15(b) hereof: (i) whether Metroplex has
materially breached this Agreement and (ii) the amount of income Texas Sub
has foregone as the result of such breach, without giving effect to
consequential or punitive damages (the "Texas Sub Lost Income Amount").
Should (a) such arbitration determine finally that Metroplex has materially
breached any term or condition of this Agreement and (b) Metroplex fails to
pay Texas Sub the Texas Sub Lost Income Amount within 30 days after receipt
of written notice specifying the Texas Sub Lost Income Amount, Texas Sub
may terminate this Agreement by delivery of written notice to Metroplex.
(c) Metroplex may terminate this Agreement, and have no further
liability hereunder, upon the occurrence of one or more of the following
events:
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(i) Texas Sub fails to make any payment required herein, other
than a payroll obligation, (a "Financial Breach"), and (a) such
Financial Breach remains uncured for a period of 60 days after Texas
Sub's receipt of a written notice specifying such breach and (b)
Metroplex provides DVIFS with 15 days prior notice of such breach and
of Metroplex's intent to terminate this Agreement hereunder.
(ii) Texas Sub materially breaches any payroll obligation required
herein and (a) such breach remains uncured for a period of 15 days
after Metroplex's receipt of a written notice specifying such breach
and (b) Metroplex provides DVIFS with 15 days prior notice such breach
and of Metroplex's intent to terminate this Agreement hereunder.
(iii) Texas Sub voluntarily files a petition in bankruptcy or makes
an assignment for the benefit of creditors or otherwise seeks relief
from creditors under any federal or state bankruptcy, insolvency,
reorganization or moratorium statute, or Texas Sub is the subject of an
involuntary petition in bankruptcy which is not set aside within 60
days of its filing.
(iv) Metroplex assumes both (i) the operation of the FFE and (ii)
the obligations of Texas Sub under the DVIFS Loan Agreement (the
"Obligations") pursuant to that certain Assumption Agreement dated June
16, 1997 between DVIFS and Metroplex (the "Assumption Agreement").
(d) In the event that Metroplex determines that there has been a
material breach by Texas Sub of the terms of this Agreement, other than
those specified in Section 6.2(c) hereof (a "Nonfinancial Breach"), and
such Nonfinancial Breach remains uncured for a period of 60 days after
Texas Sub's receipt of a written notice specifying such breach, Metroplex
shall, prior to having the right to terminate, submit the following issues
directly to arbitration in accordance with Section 16.15(b) hereof: (i)
whether Texas Sub has materially breached this Agreement and (ii) if Texas
Sub has materially breached this Agreement, the amount of income Metroplex
has foregone as a result of the Nonfinancial Breach, without giving effect
to consequential or punitive damages (the "Metroplex Lost Income Amount").
Should (a) such arbitration determine finally that Texas Sub has materially
breached this Agreement, (b) Texas Sub fail to pay to Metroplex the
Metroplex Lost Income Amount within 30 days after Texas Sub's receipt of
written notice specifying the Metroplex Lost Income Amount and (c)
Metroplex provide DVIFS with 15 days prior notice of Metroplex's intent to
terminate this Agreement hereunder, Metroplex may terminate this Agreement
by delivery of written notice to PHC and Texas Sub.
(e) The parties acknowledge that they have entered into this Agreement
based upon their mutual expectations that neither party has committed or
will commit any act that will cause it to be suspended or prohibited from
participation in the Medicare/Medicaid programs or excluded from entering
into healthcare provider agreements with any material portion of the
managed care or healthcare insurance industry. In the event of any such
suspension, prohibition or exclusion, either party may terminate this
Agreement effective thirty days after written notice to the other party.
6.3 Remedies Upon Termination. In the event that this Agreement shall
be terminated pursuant to Section 6.2, the payments under Section 5 shall be
prorated between the parties to reflect any partial Fiscal Year. Texas Sub shall
disburse funds for such payment from the Account on the effective date of
termination. If this Agreement is terminated pursuant to Sections 6.2(a)(ii),
6.2(a)(iv), 6.2(b), 6.2(c)(i), 6.2(c)(ii), 6.2(c)(iii) or 6.2(d) hereof, the
non-breaching party may pursue such other legal or equitable relief as may be
available in addition to such proration.
6.4 Duties Upon Termination or Expiration of Agreement. Upon expiration or
termination of this Agreement, Metroplex and Texas Sub hereby agree to perform,
in addition to their obligations provided for elsewhere in this Agreement and
continuing after such termination or expiration of this Agreement, such steps as
are otherwise customarily required to wind up their relationship under this
Agreement in as orderly a manner as possible, including,
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without limitation, Texas Sub's provision to Metroplex of patient billing
records. Metroplex hereby acknowledges and agrees that, upon termination or
expiration of this Agreement: (a) Texas Sub shall retain all right, title and
interest in and to all of its proprietary software and systems, including
software and systems licensed by Texas Sub from others, used in connection with
the Management Services; and (b) Metroplex is responsible for obtaining its own
software and systems to take over the Management Services from Texas Sub. Upon
expiration or termination of the Agreement and payment of all amounts due to
Metroplex hereunder through the date of expiration or termination, Metroplex
shall, upon prior written notice to DVIBC, fully and completely assign to Texas
Sub the outstanding accounts receivable of Metroplex generated pursuant to this
Agreement as compensation for Texas Sub's services up to and through the date of
termination or expiration, and Metroplex (and its Physician Owners and other
Metroplex Providers) shall fully cooperate with Texas Sub in Texas Sub's efforts
to collect such accounts receivable and Metroplex (and its Physician Owners and
other Metroplex Providers) in that regard shall execute and deliver any
reasonably necessary documents to permit Texas Sub to assume such receivables
and realize upon them.
6.5 Repurchase of Assets.
(a) If this Agreement is terminated during the Repurchase Period,
except pursuant to Section 6.2(c)(iv) hereof, Metroplex shall purchase from
Texas Sub all of the FFE for cash in an amount (the "Metroplex Buyout Amount")
equal to the lesser of (i) $13,000,000 or (ii) the balance of the DVI Purchase
Loans at the Termination Date (as hereafter defined), assuming the reduction of
principal balance occurring between June 16, 1997 and the date of termination of
this Agreement (the "Termination Date") pursuant to the amortization schedule
attached hereto as Schedule 6.5(a). In no event, however, shall the Metroplex
---------------
Buyout Amount be less than the fair market value of the FFE. Beginning on the
seventh anniversary of the date of this Agreement, the Metroplex Buyout Amount
shall equal the fair market value of the FFE.
(b) Upon receipt of the Metroplex Buyout Amount by Texas Sub,
Texas Sub shall transfer and assign all of the FFE to Metroplex free
and clear of liens, other than liens securing PHC Expansion Borrowings,
provided, however, that on the date of transfer of the FFE (the "FFE
Transfer Date"), the PHC Expansion Borrowings secured by liens on the
FFE shall not exceed $13,000,000. In addition, in the event of the
purchase of all the FFE by Metroplex pursuant to this Section 6.5(b).
--------------
(c) Fair market value of the FFE and the Metroplex Buyout Amount,
as applicable, shall be determined by a nationally recognized
accounting firm capable of making such determinations and chosen by
Metroplex from a list of three such firms submitted by Texas Sub.
Metroplex shall submit its choice of such firms in writing no later
than five days after receipt of such list from Texas Sub. Texas Sub and
Metroplex shall bear the cost of such determination equally.
(d) The restrictive covenants contained in Section 4.7(b) of this
--------------
Agreement shall terminate and Texas Sub shall cease to be a third-party
beneficiary to any Physician Owner Employment Agreement upon payment at
any time by Metroplex of the Metroplex Buyout Amount in accordance with
Section 6.5(a) or upon termination of this Agreement pursuant to
--------------
Section 6.2(c)(iv) hereof. If Metroplex does not remit the Metroplex
------------------
Buyout Amount in accordance with Section 6.5(a) hereof to Texas Sub
--------------
within six months after determination of the Metroplex Buyout Amount,
the provisions of Section 4.7 of this Agreement shall survive in their
-----------
entirety for a period of two years following the Termination Date and
Texas Sub may dispose of all or any of the FFE in any manner that Texas
Sub shall determine in its sole discretion.
(e) If this Agreement is terminated pursuant to Section 6.2(c)(iv)
------------------
hereof, in exchange for the assumption by Metroplex of all indebtedness
and obligations of Texas Sub under the DVIFS Loan Agreement, Texas Sub
agrees to take all reasonable and necessary steps to transfer the
Metroplex Assets to Metroplex. In addition, Texas Sub shall (i) take
all steps requested by Metroplex reasonably necessary to assign to
Metroplex Texas Sub's interest and obligations under all Clinic real
estate leases and other Clinic contracts which Texas Sub is a party and
(ii) assign to Metroplex Texas Sub's rights and obligations under the
employment agreements of those employees employed by Metroplex prior to
the Effective Date and subsequently employed by Texas Sub.
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Section 7. Representations and Warranties of the Parties.
7.1 Metroplex. Metroplex hereby represents and warrants to Texas Sub, as
of the Effective Date, as follows:
(a) Organization and Good Standing. Metroplex is a limited
------------------------------
liability partnership duly organized, validly existing and in good
standing under the laws of the State of Texas. Metroplex has all
necessary power to own all of it properties and assets and to carry on
its business as now being conducted.
(b) No Violations. Metroplex has the partnership authority to
-------------
execute, deliver and perform this Agreement and all agreements executed
and delivered by it pursuant to this Agreement, and has taken all
action required by law, its partnership agreement or otherwise to
authorize the execution, delivery and performance of this Agreement and
such related documents. The execution and delivery of this Agreement
does not and, subject to the consummation of the transactions
contemplated hereby, will not, violate any provisions of the
partnership agreement of Metroplex or any provisions of or result in
the acceleration of any obligation under any mortgage, lien, lease,
agreement, instrument, order, arbitration award, judgment or decree, to
which Metroplex is a party, or by which it is bound. This Agreement has
been duly executed and delivered by Metroplex and constitutes the
legal, valid and binding obligation of Metroplex, enforceable in
accordance with its terms.
(c) Financial Information. Metroplex has hereto furnished
---------------------
Texas Sub with complete copies of financial records pursuant to the
Purchase Agreement about the Clinic which records are true and correct
in all material respects and are reflective of the financial results
experienced by the Clinic for the periods addressed in such records.
7.2 Texas Sub. Texas Sub hereby represents to Metroplex, as of June 16,
1997, as follows:
(a) Organization and Good Standing. Texas Sub is a limited
------------------------------
liability company duly organized, validly existing and in good standing
under the laws of the State of Texas. Texas Sub has all necessary power
to own all of it properties and assets and to carry on its business as
now being conducted.
(b) No Violations. Texas Sub has the authority to execute, deliver
-------------
and perform this Agreement and all agreements executed and delivered by
it pursuant to this Agreement, and has taken all action required by law,
its articles of organization, regulations or otherwise to authorize the
execution, delivery and performance of this Agreement and such related
documents. The execution and delivery of this Agreement does not and,
subject to the receipt of the noted corporate approvals, the
consummation of the transactions contemplated hereby, will not, violate
any provisions of the articles of organization or regulations of Texas
Sub, or any provisions of or result in the acceleration of any
obligation under any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree, to which Texas Sub is a
party, or by which it is bound. This Agreement has been duly executed
and delivered by Texas Sub and constitutes the legal, valid and binding
obligation of Texas Sub, enforceable in accordance with its terms.
Section 8. Insurance.
8.1 Insurance to be Maintained by Metroplex. Metroplex shall provide,
or arrange for the provision of, and maintain throughout the entire term of this
Agreement, professional liability insurance coverage on Metroplex and each of
the Metroplex Providers, in the minimum amount of $2,000,000 per occurrence and
$5,000,000 annual aggregate. Metroplex shall provide to Texas Sub written
documentation evidencing such insurance coverage. Metroplex shall, at its sole
cost and expense, pay the premium costs of all such professional liability
insurance coverage during the term of this Agreement. Metroplex reserves the
right, however, to present to Texas Sub a plan whereby Metroplex would operate
without professional liability coverage or with reduced liability limits if in
Metroplex's reasonable business judgment it would be more economically sound to
do so. Implementation of such plan would be subject to the consent of Texas Sub,
which consent shall not be withheld unreasonably. Metroplex shall
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provide, or shall arrange for the provision of, and shall maintain throughout
the entire term of this Agreement, workers' compensation insurance coverage on
Metroplex and each of its employees, independent contractors and agents,
including, but not limited to, all Physician Owners and other Metroplex
Providers, in the amounts required by law. Metroplex shall provide to Texas Sub
written documentation evidencing such insurance coverage. Metroplex shall, at
its sole cost and expense, pay the premium costs of all such workers'
compensation insurance coverage.
8.2 Insurance to be Maintained by Texas Sub. Texas Sub shall provide,
or shall arrange for the provision of, and maintain throughout the entire term
of this Agreement, workers' compensation insurance coverage on Texas Sub and
each of its employees and agents performing services under this Agreement in the
amounts required by law, general liability and hazard insurance for the Medical
Offices in coverage amounts and with carriers acceptable to Metroplex and the
lienholder, naming Metroplex and the lienholder as additional insureds, and
professional liability insurance with respect to the Metroplex Assets (as such
term is defined in the Purchase Agreement) and all employees and agents of Texas
Sub performing services under this Agreement, in the minimum amount of
$2,000,000 per occurrence and $5,000,000 annual aggregate. Texas Sub shall, at
its sole cost and expense, pay the premium costs of all such workers'
compensation and insurance coverage. Texas Sub shall provide to Metroplex
written documentation evidencing such insurance coverage.
8.3 Key Man Insurance. Metroplex agrees, and shall cause the Metroplex
Providers to agree, that Texas Sub may obtain, at its sole expense and for its
sole benefit, "key man" life insurance policies on any or all Metroplex
Providers. Premiums for "key man" life insurance shall not be considered as a
Clinic Expense. Neither Metroplex nor any Metroplex Provider shall have any
right, title or interest in or to the proceeds of any such insurance policies.
Metroplex shall cause its Metroplex Providers to cooperate with Texas Sub, as
reasonably requested by Texas Sub from time to time, in obtaining any such
insurance policies, including, but not limited to, causing such Metroplex
Providers to submit to such physical examinations and providing such information
relating to insurability as Texas Sub may reasonably request from time to time.
Upon the termination of this Agreement each physician shall have the right to
purchase the policy maintained on his life at the time of termination of the
Agreement, if any, with the purchase price to be in an amount equal to the cash
surrender value of the policy, if any, and any prepaid premiums. The foregoing
notwithstanding, Texas Sub shall not be obligated to obtain or maintain such
insurance and Texas Sub may at its discretion maintain any such insurance as
term insurance or in any form it determines. If Texas Sub obtains such "key man"
life insurance it shall do so in a manner that does not affect any Physician
Owner's ability to obtain (or Metroplex's ability to maintain its policies in
effect on the date hereof insuring the lives of Physician Owners) life insurance
on his or her own life. All information with respect to a Physician Owner
obtained by Texas Sub in connection with obtaining such insurance shall be kept
confidential by Texas Sub (except as necessary to obtain the insurance).
Section 9. Rights Regarding Metroplex.
Metroplex will no later than the Effective Date amend its partnership
agreement to provide that no partner may directly or indirectly sell or transfer
its, his or her partnership interest in Metroplex as part of a sale or other
transfer of his practice to any person or entity, other than a physician who is
purchasing such partnership interest either directly or through a professional
association or other similar entity in connection with an affiliation with
Metroplex such that the purchasing physician shall after the purchase provide
professional medical services as a Metroplex Employee. In addition, in the event
there is a sale, transfer or other disposition of all or substantially all of
the assets or business of Metroplex (including a sale of all or substantially
all of the partnership interests of Metroplex) Texas Sub or an assignee will
have a right of first offer (to the extent legally permissible) to purchase the
assets, business or partnership interests. This right of first offer for the
benefit of the Texas Sub or an assignee shall be effective during the term of
this Agreement and for a six month period thereafter. If during such period
Metroplex desires to sell its assets, business or partnership interests,
Metroplex shall furnish Texas Sub a bona fide written offer to sell its assets,
partnership interests or business, which offer shall remain open for a period of
thirty days. If Texas Sub or an assignee does not accept such offer, Metroplex
can sell its assets, partnership interests or business on substantially the same
terms and conditions as were set forth in said offer to Texas Sub (except the
purchase price may be as low as 95% of the purchase price set forth in the
offer), provided that such sale is consummated within 180 days after the offer
is rejected by Texas Sub. In the event Metroplex receives an offer for less than
95% of the purchase
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price set forth in the offer to Texas Sub which Metroplex desires to accept (the
"Third Party Offer"), Metroplex shall offer Texas Sub or an assignee the
opportunity to consummate a transaction on the same terms and conditions as the
Third Party Offer, provided that the purchase price to Texas Sub or an assignee
shall be an amount equal to the purchase price in the Third Party Offer plus an
amount equal to one-half of the difference between the purchase price set forth
in the Third Party Offer and the original offer to Texas Sub.
Section 10. Managed Care Contracting.
With the approval of the majority of the members of the Clinic
Committee that are designees of Metroplex, Metroplex shall participate with
those payors that Texas Sub or Texas Sub's affiliates participate with and shall
in any event accept Medicare and Medicaid patients. Metroplex shall permit Texas
Sub to use Metroplex's name in seeking third-party payor contracts, and Texas
Sub shall be permitted to identify the physicians.
Through an overall Texas Sub managed care contracting strategy,
Metroplex, other Texas Sub affiliated physicians and Texas Sub will develop
proposals to payors. These proposals shall be developed in part utilizing
criteria that will be developed by Metroplex and Texas Sub and other affiliated
physicians. The criteria will require that Metroplex, Texas Sub and the other
affiliated physicians provide services at competitive rates. The criteria will
enable Texas Sub and Metroplex to compete with other providers of managed care,
recognizing the need for both Metroplex and Texas Sub to increase the number of
patients within managed care programs for which Metroplex provides services. The
criteria are intended to enable all parties to act in a unified manner,
consistent with all applicable legal requirements, and may include bundled
billing, capitated contracts and the like.
In the marketplace, Metroplex will identify itself as affiliated with
Texas Sub. Metroplex will not permit any healthcare provider to use its name in
payor contracting or marketing efforts without the prior written consent of
Texas Sub, which consent will not unreasonably be withheld, except for any third
party payor contractor. Further, except as specifically provided on Schedule 11
attached hereto, Metroplex will not obtain management services or payor
contracting assistance or services from any party, or amend any agreement for
the provision of the same, or participate in any provider network or affiliation
other than from or through Texas Sub without the prior written consent of Texas
Sub, which consent will not unreasonably be withheld.
The parties shall exert particular effort to assure that the managed
care and other integration initiatives of Texas Sub are successful, it being the
mutual understanding of the parties that this Agreement is one among several
physician integration initiatives of Texas Sub, and Metroplex shall act in a
collaborative fashion in these other initiatives.
Section 11. Practice Growth and Locations.
As patient demand for services increases, new physicians will be
identified and recruited by Metroplex. At the request of Metroplex, Texas Sub
shall perform administrative services relating to the recruitment of physicians
for Metroplex. Metroplex shall determine the need for additional physicians, in
consultation with Texas Sub. It shall be the responsibility of Metroplex to
interview and select physicians for Metroplex. No physicians shall be considered
employees of Texas Sub. Any expenses incurred in the recruitment of physicians
shall be treated as Clinic Expenses only to the extent, if any, that such
expenses have been approved and budgeted by Texas Sub after discussion and
consultation through the Clinic Committee. Metroplex will be solely responsible
for establishing any recruited physician's compensation and other terms of
employment. The compensation for any recruited physician shall not constitute a
Clinic Expense, but shall constitute a portion of Metroplex Receipts as adjusted
pursuant to the third paragraph of this Section 12.
It is the intent of Texas Sub to assist Metroplex in expanding its
capacity to provide hematology and oncological and related services, all toward
the aim of expanding the overall capacity of Texas Sub to deliver care in a
managed care environment, utilizing Metroplex as part of an integrated network
of physicians to deliver the care to enrollees of managed care plans and to
others.
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<PAGE>
The parties acknowledge that the initial level of Metroplex Receipts
was based on (i) the desire of Texas Sub, Metroplex and the Physician Owners to
maintain for the initial five years of the term of this Agreement compensation
for each Physician Owner at $425,000 per annum plus benefits similar to those
paid on a historic basis and (ii) historic levels of the other expenses that
constitute a component of Metroplex Receipts. The parties agree that the amount
to be retained from Collections by Metroplex as Metroplex Receipts will be
changed to reflect any of the following events: (i) additions of salary payments
and benefits payable to additional Physician Owners who are hired or become
affiliated with Metroplex upon consultation with the Clinic Committee or
deletions of salary payments or benefits to departing Physician Owners, (ii)
additions, changes or deletions of salary, benefits or compensation payments to
Metroplex Providers who are hired upon consultation with the Clinic Committee
other than Physician Owners, (iii) changes in the debt payments payable by
Metroplex listed on Schedule 1(p) hereto (including any changes as a result of
any negotiated or contractually required acceleration provisions contained in
the documents governing such debt payments; provided that any negotiated changes
to the acceleration provisions shall require the prior consent of Texas Sub,
such consent not to be unreasonably withheld), (iv) increases in insurance or
other expenses that constitute a component of Metroplex Receipts, evidence of
which is established to the reasonable satisfaction of Texas Sub, (v)
adjustments on the fifth year anniversary of this Agreement and on each annual
anniversary thereafter in salary of and benefits of Physician Owners as agreed
to between Metroplex, Texas Sub and the Physician Owners, and (vi) such other
events as Texas Sub, Metroplex and the Physician Owners agree justify a
modification of Metroplex Receipts in keeping with the intent of the parties as
expressed in the first sentence of this paragraph. Any changes in the amount of
Metroplex Receipts will take effect with the next monthly payment due following
the change; provided that the Metroplex Receipts amount for that month shall
include any prorated portion of the required payments that may be due. In the
event that the parties cannot agree on an appropriate adjustment, the matter
shall first be referred to the Clinic Committee. If the Clinic Committee is not
able to resolve the disagreement within 30 days after the date that the
disagreement is referred to the Clinic Committee, the matter shall be referred
to mediation and, if necessary, arbitration in accordance with the provisions of
Section 16.15 hereof.
Section 12. Assignment.
PHC or Texas Sub shall have the right to assign its rights hereunder to
any affiliate of PHC or Texas Sub and to any lending institution, for security
purposes or as collateral, from which PHC or Texas Sub obtains financing.
Metroplex acknowledges that Texas Sub intends to collaterally assign its rights
hereunder, and its security interest in the Accounts hereunder, to DVIBC and
DVIFS as security for the DVI Purchase Loans, and Metroplex hereby consents to
such assignment. Except as set forth in this Section 12 and Section 3.16 above,
the parties hereby agree that this Agreement shall not be assigned or
transferred by either party without the prior written consent of the other;
provided, however, that upon the prior written consent of PHC, such consent not
to be unreasonably withheld, Metroplex may assign this Agreement in connection
with a reorganization of its business structure which reorganization involves
only the equity holders of Metroplex, its Physician Owners and any other
Metroplex Providers at the time of the reorganization and does not involve
non-physicians as equity holders. For these purposes, "affiliate" means, with
respect to either party (i) any person or entity who, on any relevant date, is
an officer, director, manager, shareholder, partner, member or equity owner of
any entity that is a party; (ii) any ancestor, descendant, sibling, spouse, or
spousal sibling of any individual person referred to in clause (i) above; (iii)
any trust established for the benefit of any individual or one or more of the
persons referred to in clauses (i) or (ii) above; and (iv) any entity, which
directly or indirectly, is controlled by any party or one or more other persons
referred to in clauses (i) or (ii) above.
Section 13. Compliance with Regulations.
13.1 Practice of Medicine. The parties hereto acknowledge that Texas
Sub is not authorized or qualified to engage in any activity which may be
construed or deemed to constitute the practice of medicine. To the extent any
act or service herein required of Texas Sub should be construed or deemed to
constitute the practice of medicine, the performance of said act or service by
Texas Sub shall be deemed waived and forever unenforceable. The preceding
sentence shall not operate to release Texas Sub from its obligation to pay any
sums due hereunder.
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13.2 Subcontracts. Pursuant to Title 42 of the United States Code and
applicable rules and regulations thereunder, until the expiration of four years
after termination of this Agreement, each party shall make available, upon
appropriate written request by the Secretary of the United States Department of
Health and Human Services or the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of this Agreement and such books, documents and records as are necessary to
certify the nature and extent of the costs of the services under this Agreement.
Each party further agrees that in the event it carries out any of its duties
under this Agreement through a subcontract with a value or cost of $10,000 or
more over a 12-month period with a related organization, such subcontract shall
contain a clause to the effect that until the expiration of four years after the
furnishing of such services pursuant to such subcontract, the related
organization shall make available, upon appropriate written request by the
Secretary of the United States Department of Health and Human Services or the
Comptroller General of the United States General Accounting Office, or any of
their duly authorized representatives, a copy of such subcontract and such
books, documents and records of such organization as are necessary to verify the
nature and extent of such costs. Disclosure pursuant to this Section shall not
be construed as a waiver of any other legal right to which either party may be
entitled under law or regulation.
Section 14. Independent Relationship.
14.1 Independent Contractor Status. Texas Sub and Metroplex intend to
act and perform as independent contractors. It is acknowledged and agreed that
Metroplex and Texas Sub are at all times acting and performing hereunder as
independent contractors. Texas Sub shall neither have nor exercise any control
or direction over the methods by which Metroplex, the Physician Owners and other
Metroplex Providers practice medicine. The sole function of Texas Sub hereunder
is to provide all Management Services in a competent, efficient and satisfactory
manner. Texas Sub shall not, by entering into and performing its obligations
under this Agreement, become liable for any of the existing obligations,
liabilities or debts of Metroplex unless otherwise specifically provided for
under the terms of this Agreement or any other written agreement between the
parties. Neither party shall have any liability whatsoever to the other for
damages suffered on account of the willful misconduct or negligence of any
employee, agent or independent contractor of the other. Each party shall be
solely responsible for compliance with all state and federal laws pertaining to
employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes regarding their respective employees,
agents and servants.
14.2 Referral Arrangements. The parties hereby acknowledge and agree
that no benefits to Metroplex hereunder require nor are in any way contingent
upon the admission, recommendation, referral or any other arrangement for the
provision of any item or service offered by Texas Sub or any of its affiliates,
to any patients of Metroplex, or the Metroplex Providers.
Section 15. Confidential Information.
At no time during the term of this Agreement or after the date that
this Agreement shall terminate shall either party, and in the case of Metroplex,
its Physician Owners, or any of their respective employees or agents disclose to
anyone any confidential or secret information concerning (a) the business,
affairs or operations, (b) any trade secrets, new product developments, special
or unique processes or methods, or (c) any marketing, sales, advertising or
other concepts or plans, of the other or any of its parents, subsidiaries or
affiliates. Each party hereby acknowledges that in the event that it or any of
its shareholders, employees or agents engage in activities within the
limitations of this Section 15, money damages shall be an inadequate remedy, and
each party agrees that the other shall be entitled to obtain, in addition to any
other remedy provided by law or equity, an injunction against the violation of
the other's obligations hereunder. The covenants contained in this Section 15
shall not apply to any information which (i) was already known to a party at the
time of receipt thereof, (ii) was readily available to the general public at the
time of receipt thereof, (iii) subsequently becomes known to the general public
through no fault or omission on the part of such party, (iv) is subsequently
disclosed by a third party which has the bona fide right to make such
disclosure, or (v) is required to be disclosed by law or governmental agency.
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Section 16. Miscellaneous.
16.1 Notices. Any notice required or permitted by this Agreement or any
agreement or document executed and delivered in connection with this Agreement
shall be deemed to have been served properly if hand delivered or sent by
overnight express, charges prepaid and properly addressed, to the respective
party to whom such notice relates at the following addresses:
If to Metroplex:
Metroplex Hematology/Oncology Associates, L.L.P.
c/o Alfred DiStefano, M.D.
Arlington Cancer Center
906 West Randol Mill Road
Arlington, Texas 76012
with a copy to:
Michael Malone, Esq.
Vinson & Elkins LLP
2001 Ross Avenue
3700 Trammell Crow Center
Dallas, Texas 75201
If to Texas Sub:
c/o Physician Health Corporation
990 Hammond Street, Suite 300
Atlanta, Georgia 30328
Attn: Tom Rodgers
with a copy to:
James S. Ryan, III
Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
or such other address as shall be furnished in writing by any party to the other
party. All such notices shall be considered received when hand delivered or one
business day after delivery to the overnight courier.
16.2 Additional Acts. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Agreement.
16.3 Governing Law. This Agreement shall be interpreted, construed and
enforced in accordance with the laws of the State of Texas, applied without
giving effect to any conflicts-of-law principles.
16.4 Captions. The captions or headings in this Agreement are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Agreement.
16.5 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part hereof;
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<PAGE>
and the remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of this
Agreement a provision as similar in its terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
16.6 Changes in Law. In the event of any changes in any Federal, state
or local laws, rules, regulations or interpretations of the same, at any time
during the term of this Agreement, that makes all or any part of this Agreement
illegal or either party reasonably determines based upon the advice of counsel
that all or any part of this Agreement is illegal, then the parties shall
negotiate in good faith to amend this Agreement in a manner consistent with
applicable law. If the parties cannot reach agreement on such amendment by the
earlier of: (i) 90 days from the announced date of such change or a party's
conclusion about the legality of this Agreement, or (ii) 60 days prior to the
effective date of such law, rule, regulation or interpretation, then this
Agreement shall be submitted to mediation and arbitration, in accordance with
Section 16.15 hereof, to amend this Agreement as necessary and as legally
permissible to preserve the underlying economic and financial arrangements
between the parties hereto without substantial economic detriment to either
party.
16.7 Integration and Modifications. This instrument contains the entire
agreement of the parties and supersedes any and all prior or contemporaneous
negotiations, understandings or agreements between the parties, written or oral,
with respect to the management arrangement contemplated hereby. This Agreement
may not be changed or terminated orally, but may only be changed by an agreement
in writing signed by the parties hereto.
16.8 No Rule of Construction. The parties acknowledge that this
Agreement was initially prepared by Texas Sub solely as a convenience and that
all parties and their counsel have read and fully negotiated all the language
used in this Agreement. The parties acknowledge and agree that because all
parties and their counsel participated in negotiating and drafting this
Agreement, no rule of construction shall apply to this Agreement which construes
any language, whether ambiguous, unclear or otherwise, in favor of, or against
any party by reason of that party's role in drafting this Agreement.
16.9 Counterparts. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
16.10 Binding Effect. This Agreement shall be binding on and shall
inure to the benefit of the parties hereto, and their successors and assigns.
16.11 Costs of Enforcement. In the event that either party files suit
in any court against the other party to enforce the terms of this Agreement
against the other party or to obtain performance by it hereunder, the prevailing
party will be entitled to recover all reasonable costs, including reasonable
attorneys' fees, from the other party as part of any judgment in such suit. The
term "prevailing party" shall mean the party in whose favor final judgment after
appeal (if any) is rendered with respect to the claims asserted in the
Complaint. "Reasonable attorneys' fees" are those attorneys' fees actually
incurred in obtaining a judgment in favor of the prevailing party.
16.12 Relationship of Parties. This Agreement is not to be construed as
creating a partnership, joint venture or similar relationship between the
parties hereto.
16.13 Third Party Beneficiary. This Agreement shall inure to the
benefit of the parties hereto and their successors-in-interest by virtue of an
assignment which is not prohibited hereunder and shall not be for the benefit of
any third party. This Agreement is not entered into for the benefit of any other
person or entity whatsoever, including, without limitation, employees or
patients of the parties, or their representatives. Without limiting the
generality of the foregoing, this Agreement shall not be construed as
establishing any obligation, duty or standard of care, or practice different
from, or in addition to, whatever obligations, duties or practices exist
separate and apart from this Agreement with respect to any person not a party to
this Agreement.
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16.14 Certain Signatories. The parties agree that the undersigned
Metroplex Providers are parties to this Agreement for the sole purpose of
signifying their consent to Section 3.5(e) and Section 16 of this Agreement and
----------
that PHC is a party hereto solely for the purpose of signifying its assent to
Section 3.19 of this Agreement.
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16.15 Arbitration and Mediation.
(a) Mediation:
(i) Agreement to Use Procedure: Except for any action
brought by Texas Sub to enforce the restrictive covenants
contained in Section 4.7 above, the parties agree to utilize the
following procedure with regard to any contention or claim arising
out of or relating to this Agreement, (a "Dispute").
(ii) Initiation of Procedure: The initiating party shall
give written notice to the other part, describing the nature of
the Dispute, its claim for relief and identifying one or more
individuals with authority to resolve the Dispute on such party's
behalf. The other party shall have five (5) business days from
receipt of such notice within which to designate in writing one or
more individuals with authority to resolve the Dispute on such
party's behalf.
(iii) Selection of Mediator: Within ten (10) business days
from the date of designation by the noninitiating party, the
parties shall make a good faith effort to select a person to
mediate the Dispute. If no mediator has been selected under this
procedure, the parties shall jointly request a State or Federal
District Judge of their choosing (or if they cannot agree, the
President of the Dallas Association) to supply within ten (10)
business days a list of potential qualified attorney-mediators in
Dallas, Texas. Within five (5) business days of receipt of the
list, the parties shall rank the proposed mediators in numerical
order of preference, simultaneously exchange such list, and select
as the mediator the individual receiving the highest combined
ranking. If such mediator is not available to serve, they shall
proceed to contact the mediator who was next highest in ranking
until they select a mediator.
(iv) Time and Place for Mediation; Parties Represented: In
consultation with the mediator selected, the parties shall
promptly designate a mutually convenient time in Dallas, Texas for
the mediation, such time to be no later than sixty (60) days after
selection of the mediator. In the mediation, each party shall be
represented by persons with authority and discretion to negotiate
a resolution of the Dispute, and may be represented by counsel.
(v) Conduct of Mediation: The mediator shall determine the
format for the meetings and the mediation sessions shall be
private. The mediator will keep confidential all information
learned in private caucus with any party unless specifically
authorized by such party to make disclosure of the information to
the other party. The parties agree that the mediation shall be
governed by the provisions of Chapter 154 of the Tex. Civ. Prac. &
Rem. Code and such other rules as the mediator shall reasonably
prescribe.
(vi) Fees of Mediator; Disqualification: The reasonable fees
and expenses of the mediator shall be shared equally by the
parties. The mediator shall be disqualified as a witness,
consultant, expert or counsel for any party with respect to the
Dispute and any related matters.
(vii) Confidentiality: Mediation is a compromise negotiation
for purposes of Federal and State Rules of Evidence and
constitutes privileged communication under Texas law. The entire
mediation process is confidential, and such conduct, statements,
promises, offers, views and opinions shall not be discoverable or
admissible in any level proceeding for any purpose.
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<PAGE>
(b) Binding Arbitration: If any dispute cannot be settled through
direct discussions, the parties agree to first endeavor to settle the
Dispute by mediation as set forth in Section 16.15(a) above, before
resorting to arbitration. Thereafter, any Dispute shall be settled
solely by arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator(s) may be entered and enforced in any
court having jurisdiction thereof. The parties agree to execute a
complete written Arbitration Agreement (requiring binding arbitration
and setting forth in detail procedures for arbitration) within ten (10)
days of the close of any unsuccessful mediation proceeding. The parties
agree that, except for any action brought by Texas Sub to enforce the
restrictive covenants contained in Section 4.7 above, the arbitrator(s)
shall be instructed that the arbitration award related to any breach of
this Agreement shall be monetary and limited to the lost income suffered
by the non-breaching party or parties as the result of the breach,
without giving effect to consequential or punitive damages. If the
parties cannot agree on a binding Arbitration Agreement, such agreement
shall, within 20 days of the close of the unsuccessful mediation
proceedings, be prepared and submitted to each party by the mediator and
such agreement in the form submitted by the mediator shall be binding on
both parties as to all arbitration procedures.
(c) Breach of Mediation and/or Arbitration Provisions.
(i) Enforcement: In the event any party shall breach the
terms of Section 16.15(a) or (b) above regarding mediation and
arbitration, the parties agree the following shall occur:
(A) The non-breaching party may, no earlier than five
(5) days after written notice to the breaching party, apply
to a court of competent jurisdiction for specific enforcement
of the mediation and arbitration procedures set forth herein;
(B) The breaching party shall pay all costs and expenses
of such breach to the non-breaching party, including
attorney's fees, travel expenses and mediator fees;
(C) Upon a judicial determination of a material breach,
the breaching party hereby waives and relinquishes all claims
of treble, punitive damages or similar damages or claims of
irreparable harm concerning the Dispute in question, and
further waives all objections to the non-breaching party's
claim of treble, punitive or similar damages or claims of
irreparable harm concerning said Dispute; and
(D) The breaching party shall pay all other actual and
special damages to the non-breaching parties that result from
such breach.
(ii) Other Damages: In addition to the agreed consequences of
breach set out above, the parties hereby agree any court obtaining
jurisdiction over the involved Dispute shall, upon the court's
discretion, have the authority to impose the consequences set out
in the Rules of Civil Procedure of that court, for the failure of
a party to cooperate in discovery and pretrial matters, including,
but no limited to, the striking of a party's pleadings, award of
attorney's fees and costs, and such other remedies as the court
may deem appropriate. The remedies set forth in this subparagraph
are in addition to the court's contempt and other judicial powers.
- 33 -
<PAGE>
IN WITNESS WHEREOF, Metroplex and Texas Sub have duly executed this
Agreement on the day and year first above written.
METROPLEX HEMATOLOGY/ONCOLOGY
ASSOCIATES, L.L.P.
a Texas limited liability partnership
/s/ Alfred DiStefano, M.D., P.A.
---------------------------------------
Authorized Partner
Managing Partner and President
MHOA Texas I, L.L.C.
a Texas limited liability company
By: /s/ Sarah C. Garvin
------------------------------------
Sarah C. Garvin, President
PHYSICIANS:
/s/ Alfred DiStefano,M.D.
---------------------------------------
Alfred DiStefano, M.D.
/s/ George Blumenschein, M.D.
---------------------------------------
George Blumenschein, M.D.
/s/ Barry Firstenberg, D.O.
---------------------------------------
Barry Firstenberg, D.O.
/s/ John W. Adams, D.O.
---------------------------------------
John W. Adams, D.O.
/s/ Joshua Rettig, M.D.
---------------------------------------
Joshua Rettig, M.D.
/s/ Karel Dicke, M.D.
---------------------------------------
Karel Dicke, M.D.
<PAGE>
/s/ Jess B. Caderao, M.D.
-----------------------------------------
Jess B. Caderao, M.D.
PHYSICIANS PROFESSIONAL
ASSOCIATIONS:
Alfred DiStefano, M.D., P.A.
By: /s/ Alfred DiStefano, M.D., P.A.
-----------------------------------------
Its:
-------------------------------------
George Blumenschein, M.D., P.A.
By: /s/ George Blumenschein, M.D.,P.A.
-----------------------------------------
Its:
-------------------------------------
Barry Firstenberg, D.O., P.A.
By: /s/ Barry Firstenberg, D.O., P.A.
-----------------------------------------
Its:
-------------------------------------
John W. Adams, D.O., P.A.
By: /s/ John W. Adams, D.O., P.A.
-----------------------------------------
Its:
-------------------------------------
Joshua Rettig, M.D., P.A.
By: /s/ Joshua Rettig, M.D., P.A.
-----------------------------------------
Its:
-------------------------------------
Karel Dicke, M.D., P.A.
By: /s/ Karel Dicke, M.D., P.A.
-----------------------------------------
Its:
-------------------------------------
Caderao Radiation Oncology, P.A.
By: /s/ Jess B. Caderao, P.A.
-----------------------------------------
Its:
-------------------------------------
<PAGE>
PHYSICIAN HEALTH CORPORATION
A Delaware corporation
By: /s/ Sarah C. Garvin
-------------------------------------
Sarah C. Garvin, President
<PAGE>
EXHIBIT 10.3
SUPPLEMENTAL AGREEMENT
This Supplemental Agreement (this "Agreement") dated as of September
18, 1997 is by and among Metroplex Hematology/Oncology Associates, L.L.P., a
Texas limited liability partnership ("Metroplex"), MHOA Texas I, L.L.C., a Texas
limited liability company ("Texas Sub"), Physician Health Corporation, a
Delaware corporation ("PHC") and each of the undersigned partners of Metroplex
(the "Metroplex Providers").
RECITALS:
WHEREAS, Metroplex, Texas Sub, PHC and the Metroplex Providers are
parties to that certain Management Services Agreement dated as of June 1, 1997
(the "Management Services Agreement"); and
WHEREAS, Metroplex, Texas Sub and PHC are parties to that certain
Assumption and Release Agreement dated as of June 16, 1997 (the "Assumption and
Release Agreement"); and
WHEREAS, Metroplex, Texas Sub, PHC and the Metroplex Providers are
parties to that certain Exchange Rights Agreement dated as of June 16, 1997 (the
"Exchange Rights Agreement"); and
WHEREAS, the undersigned parties desire to amend the Management
Services Agreement, the Assumption and Release Agreement and the Exchange Rights
Agreement as set forth herein;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual agreements contained herein, Metroplex, Texas Sub, PHC and the Metroplex
Providers hereby agree as follows:
1. Paragraph I of the Assumption and Release Agreement is hereby
amended to read in its entirety as follows:
I. PHC has executed and delivered that certain promissory note
(the "Note"), dated the date hereof, in the original principal
amount of $6,210,000.00, payable to the order of Payee, pursuant
to that certain Asset Purchase and Contribution Agreement of even
dated herewith executed by and between Payee, PHC, MHOA, and
certain other parties.
2. Paragraph 3 of the Assumption and Release Agreement is hereby
amended to read in its entirety as follows:
3. Principal Balance. The unpaid principal balance of the Note as
-----------------
of the date hereof is $6,210,000.
3. Section 6.5 of the Management Services Agreement is hereby amended
to read in its entirety as attached to Exhibit A of this
---------
Agreement.
4. Section 1(e)(ix) of the Management Services Agreement is hereby
amended to read in its entirety as follows:
(ix) $180,000 per year for a period of six years after the Closing
Date, representing the amount approximately equal to the annual
accrued but unpaid interest of the Metroplex Loans as of the
Closing Date;
5. Section 2.2 of the Exchange Agreement is hereby amended to read in
its entirety as follows:
2.3 Termination of Obligation to Issue PHC Shares. The Exchange
---------------------------------------------
Rights shall expire with respect to any Texas Sub Interests for
which a Notice of Exchange has not been delivered to PHC on or
before the first anniversary of the consummation of the earlier to
occur of (i) PHC's initial public
<PAGE>
offering or (ii) a transaction pursuant to which PHC's Common
Stock is converted into or exchanged for equity securities that
are registered under the Securities Exchange Act of 1934, as
amended.
6. Section 3.1 of the Exchange Agreement is hereby amended to read in
its entirety as follows:
Section 3.1 Covenants of PHC.
----------------
A. During the pendency of the Exchange Rights, PHC shall deliver
to Metroplex in a timely manner all reports filed by PHC with the
SEC to the extent PHC also transmits such reports to its
shareholders and all other communications transmitted from time to
time by PHC to its shareholders generally.
B. PHC shall notify Metroplex, upon the written request of
Metroplex, of the then current Exchange Factor.
The parties hereto further acknowledge that Gemini Rx, Inc. is part of
the existing Medical Offices, as that term is defined in the Management Services
Agreement.
Except as specifically amended above, the Management Services
Agreement, the Exchange Rights Agreement and the Assumption and Release
Agreement shall remain in full force and effect.
EXECUTED as of the date first above written.
METROPLEX
HEMATOLOGY/ONCOLOGY
ASSOCIATES, L.L.P., a Texas limited
liability partnership
By: /s/ Alfred DiStefano, M.D., P.A.
-------------------------------------
Title: Managing Partner and President
----------------------------------
METROPLEX PROVIDERS:
Alfred DiStefano, M.D., P.A.
By: /s/ Alfred DiStefano, M.D., P.A.
-------------------------------------
Its: President
------------------------------------
<PAGE>
George Blumenschein, M.D., P.A.
By: /s/ George Blumenschein, M.D., P.A.
-------------------------------------
Its: George Blumenschein, M.D., P.A.
------------------------------------
Barry Firstenberg, D.O., P.A.
By: /s/ Barry Firstenberg, D.O., P.A.
-------------------------------------
Its: Barry Firstenberg, D.O., P.A.
------------------------------------
John W. Adams, D.O., P.A.
By: /s/ John W. Adams D.O.,P.A.
-------------------------------------
Its:
------------------------------------
Joshua Rettig, M.D., P.A.
By: /s/ Joshua Rettig, M.D., P.A.
-------------------------------------
Its:
------------------------------------
Karel Dicke, M.D., P.A.
By: /s/ Karel Dicke, M.D., P.A.
-------------------------------------
Its:
------------------------------------
Caderao Radiation Oncology, P.A.
By: /s/ Jesse D. Caderao, P.A.
-------------------------------------
Its:
------------------------------------
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
-------------------------------------
Its:
------------------------------------
MHOA TEXAS I, L.L.C.
By: /s/ Sarah C. Garvin
-------------------------------------
Its:
------------------------------------
<PAGE>
EXHIBIT A
---------
6.5 Repurchase of Assets.
(c) If this Agreement is terminated during the Repurchase Period,
except pursuant to Section 6.2(c)(iv) hereof, Metroplex shall purchase
from Texas Sub all of the FFE for cash in an amount (the "Metroplex
Buyout Amount") equal to the lesser of (i) $13,000,000, or (ii) the
balance of the DVI Purchase Loans at the Termination Date (as hereafter
defined), assuming the reduction of principal balance occurring between
June 16, 1997, and the date of termination of this Agreement (the
"Termination Date") pursuant to the amortization schedule attached
hereto as Schedule 6.5(a). In no event, however, shall the Metroplex
---------------
Buyout Amount be less than the fair market value of the FFE. Beginning
on the seventh anniversary of the date of this Agreement, the Metroplex
Buyout Amount shall equal the fair market value of the FFE.
(d) Upon receipt of the Metroplex Buyout Amount by Texas Sub, Texas
Sub shall transfer and assign all of the FFE to Metroplex free and
clear of liens, other than liens securing PHC Expansion Borrowings,
provided, however, that on the date of transfer of the FFE (the "FFE
Transfer Date"), the PHC Expansion Borrowings secured by liens on the
FFE shall not exceed $13,000,000. In addition, in the event of the
purchase of all the FFE by Metroplex pursuant to this Section 6.5(b):
--------------
(i) Fair market value of the FFE and the Metroplex Buyout
Amount, as applicable, shall be determined by a nationally
recognized accounting firm capable of making such
determinations and chosen by Metroplex from a list of
three such firms submitted by Texas Sub. Metroplex shall
submit its choice of such firms in writing no later than
five days after receipt of such list from Texas Sub. Texas
Sub and Metroplex shall bear the cost of such
determination equally; and
(ii) The restrictive covenants contained in Section 4.7(b) of
--------------
this Agreement shall terminate and Texas Sub shall cease
to be a third-party beneficiary to any Physician Owner
Employment Agreement upon payment at any time by Metroplex
of the Metroplex Buyout Amount in accordance with Section
-------
6.5(a) or upon termination of this Agreement pursuant to
------
Section 6.2(c)(iv) hereof. If Metroplex does not remit
------------------
the Metroplex Buyout Amount in accordance with Section
-------
6.5(a) hereof to Texas Sub within six months after
------
determination of the Metroplex Buyout Amount, the
provisions of Section 4.7 of this Agreement shall survive
-----------
in their entirety for a period of two years following the
Termination Date and Texas Sub may dispose of all or any
of the FFE in any manner that Texas Sub shall determine in
its sole discretion.
(e) If this Agreement is terminated pursuant to Section 6.2(c)(iv)
------------------
hereof, in exchange for the assumption by Metroplex of all indebtedness
and obligations of Texas Sub under the DVIFS Loan Agreement, Texas Sub
agrees to take all reasonable and necessary steps to transfer the
Metroplex Assets to Metroplex. In addition, Texas Sub shall (i) take
all steps requested by Metroplex reasonably necessary to assign to
Metroplex Texas Sub's interest and obligations under all Clinic real
estate leases and other Clinic contracts which Texas Sub is a party,
and (ii) assign to Metroplex Texas Sub's rights and obligations under
the employment agreements of those employees employed by Metroplex
prior to the Effective Date and subsequently employed by Texas Sub.
<PAGE>
Section 7. Representations and Warranties of the Parties.
7.1 Metroplex. Metroplex hereby represents and warrants to Texas Sub,
as of the Effective Date, as follows:
(a) Organization and Good Standing. Metroplex is a limited
------------------------------
liability partnership duly organized, validly existing and in good
standing under the laws of the State of Texas. Metroplex has all
necessary power to own all of its properties and assets and to carry on
its business as now being conducted.
(b) No Violations. Metroplex has the partnership authority to
-------------
execute, deliver and perform this Agreement and all agreements executed
and delivered by it pursuant to this Agreement, and has taken all
action required by law, its partnership agreement or otherwise to
authorize the execution, delivery and performance of this Agreement and
such related documents. The execution and delivery of this Agreement
does not and, subject to the consummation of the transactions
contemplated hereby, will not, violate any provisions of the
partnership agreement of Metroplex or any provisions of or result in
the acceleration of any obligation under any mortgage, lien, lease,
agreement, instrument, order, arbitration award, judgment or decree, to
which Metroplex is a party, or by which it is bound. This Agreement
has been duly executed and delivered by Metroplex and constitutes the
legal, valid and binding obligation of Metroplex, enforceable in
accordance with its terms.
(c) Financial Information. Metroplex has hereto furnished Texas Sub
---------------------
with complete copies of financial records pursuant to the Purchase
Agreement about the Clinic which records are true and correct in all
material respects and are reflective of the financial results
experienced by the Clinic for the periods addressed in such records.
7.2 Texas Sub. Texas Sub hereby represents to Metroplex, as of June 16,
1997, as follows:
(a) Organization and Good Standing. Texas Sub is a limited
------------------------------
liability company duly organized, validly existing and in good standing
under the laws of the State of Texas. Texas Sub has all necessary power
to own all of its properties and assets and to carry on its business as
now being conducted.
(b) No Violations. Texas Sub has the authority to execute, deliver
-------------
and perform this Agreement and all agreements executed and delivered by
it pursuant to this Agreement, and has taken all action required by
law, its articles of organization, regulations or otherwise to
authorize the execution, delivery and performance of this
<PAGE>
EXHIBIT 10.4
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into to be effective as of August 31, 1997, by and between Physician
Health Corporation, a Delaware corporation ("PHC"), Greater Cincinnati
Gastroenterology Associates, Inc. ("Practice Group") and the individual
shareholders of the Practice Group listed on Exhibit A attached hereto
---------
(individually a "Shareholder" and collectively the "Shareholders").
R E C I T A L S:
---------------
WHEREAS, the Boards of Directors of Practice Group and PHC have determined
that a reorganization between Practice Group and PHC is in the best interests of
their respective companies;
WHEREAS, it is intended for Federal income tax purposes that the
reorganization contemplated by this Agreement shall qualify as an reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986 (the
"Code"); and
WHEREAS, the Shareholders own all the issued and outstanding shares (the
"Practice Group Shares") of common stock of Practice Group.
A G R E E M E N T S:
-------------------
For and in consideration of the premises and the mutual covenants,
agreements, representations and warranties contained herein, the parties hereto,
intending to be legally bound, covenant and agree as follows:
ARTICLE I.
TERMS OF THE REORGANIZATION
---------------------------
I.1 The Closing. The closing of the transactions contemplated hereby
-----------
shall take place at 10:00 am local time, at the offices of Katz, Teller, Brant &
Hild, a legal professional association, on the day (the "Closing Date")
following the first day that the conditions precedent to Closing set forth in
Article VI and Article VII have been satisfied (or at such other place and time
- ---------- -----------
as the parties hereto shall mutually agree). In the event that the Closing does
not occur on or prior to November 14, 1997, any party may terminate this
Agreement by delivery of written notice to the other parties.
I.2 Merger. Subject to and upon the terms and conditions contained
------
herein, on the Closing Date, the Practice Group shall be merged with and into
PHC in accordance with this Agreement and the separate corporate existence of
the Practice Group shall thereupon cease ("Merger"). PHC shall be the surviving
corporation in the Merger ("Surviving Corporation") and
1-
<PAGE>
shall continue to be governed by the laws of the State of Delaware and the
separate corporate existence of PHC with all rights, privileges, powers,
immunities and purposes shall continue unaffected by the Merger. The Merger
shall have the effects specified in the Delaware General Corporation Law and the
Ohio General Corporation Law. If all the conditions to the Merger set forth
herein shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated in accordance herewith, the parties
hereto shall cause to be properly executed and filed on the Closing Date
Certificates of Merger for the Practice Group meeting the applicable legal
requirements. The Merger shall become effective on the Closing Date or the
filing of such documents, in accordance with applicable law.
I.3 Certificate of Incorporation; Bylaws. The Certificate of
------------------------------------
Incorporation and Bylaws of PHC shall be the Certificate of Incorporation and
Bylaws of the Surviving Corporation unless and until duly amended in accordance
with their terms.
I.4 Directors; Officers. The persons who are directors of PHC immediately
-------------------
prior to the effective date of the Merger shall be the directors of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws. The
persons who are officers of PHC immediately prior to the effective date of the
Merger shall be the officers of the Surviving Corporation and shall hold their
respective offices until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal.
I.5 Conversion of Practice Group Shares. As a result of the Merger and
-----------------------------------
without any action on the part of the holder thereof, all Practice Group Shares
issued and outstanding on the effective date of the Merger shall cease to be
outstanding and shall be canceled and retired and shall cease to exist, and each
holder of a certificate representing Practice Group Shares shall thereafter
cease to have any rights with respect to such shares except the right to receive
the cash and shares of the common stock of PHC (the "PHC Shares") in the amounts
and as allocated as set forth on Annex I attached hereto, plus an amount (the
-------
"Initial Working Capital Amount") in cash equal to the amount by which current
assets exceed current liabilities as reflected on the balance sheet of the
Practice Group prepared by the Practice Group in accordance with generally
accepted accounting principles consistently applied ("GAAP") on the accrual
basis of accounting as of the close of business on August 31, 1997 (the "Merger
Consideration"). Notwithstanding the previous sentence, in computing the
Initial Working Capital Amount, adequate provision shall be made (in accordance
with GAAP except that the applicable federal income tax rate shall be assumed to
be 34% and the applicable state and local income tax rates, if any, shall be the
applicable maximum marginal corporate income tax rates and except that all
accrued compensation expense shall be deemed to be fully deductible in 1997 for
federal income tax purposes) for federal, state and local income taxes arising
from conversion of such balance sheet from the cash method of accounting to the
accrual method of accounting as if such taxes were due and payable in full by
the Practice Group on August 31, 1997 (without regard to any
2-
<PAGE>
available deferral). The Practice Group shall designate the Initial Working
Capital Amount at least two business days prior to the Closing Date.
Notwithstanding the foregoing, the Merger Consideration otherwise receivable by
the Shareholders on the effective date of the Merger shall be reduced by
$200,000.00 cash (the "Withheld Portion"). Each share of Practice Group Shares
held in treasury at the effective date of the Merger shall cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor. On the effective date of the Merger, each share of PHC
Common Stock issued and outstanding shall, by virtue of the Mergers, and without
any action on the part of the holder thereof, continue unchanged and remain
outstanding as a share of validly issued, fully paid and nonassessable share of
Surviving Corporation common stock.
I.6 Closing Matters.
---------------
(a) At the Closing, the Shareholders shall deliver or cause to be
delivered to PHC stock certificates evidencing the Practice Group
Shares duly endorsed in blank or accompanied by stock powers duly
executed in blank.
(b) At the Closing, PHC shall deliver to the Shareholders the cash and
the PHC Shares set forth opposite their names on Annex I attached
-------
hereto representing the Purchase Price, less the Withheld Portion.
I.7 Exchange of Stock Certificates. On the effective date of the Merger,
------------------------------
the Shareholders, as the holders of a certificate or certificates representing
Practice Group Shares shall, upon surrender of such certificate or certificates,
receive the Merger Consideration, and until the certificate or certificates of
Practice Group Shares shall have been surrendered by the Shareholder and
replaced by a certificate or certificates representing PHC Common Stock (as set
forth on Annex I), the certificate or certificates of Practice Group Shares
--------
shall, for all purposes be deemed to evidence ownership of the number of shares
of PHC Common Stock determined in accordance with the provisions of Annex I.
-------
All PHC Shares issuable to the Shareholders in the Merger shall be deemed for
all purposes to have been issued by PHC on the Closing Date. The Shareholders
shall deliver to PHC at Closing the certificate or certificates representing the
Practice Group Shares owned by them, duly endorsed in blank by the Shareholders,
or accompanied by duly executed blank stock powers, and with all necessary
transfer tax and other revenue stamps, acquired at the Shareholder's expense,
affixed and canceled.
I.8 Subsequent Actions. If, at any time after the Closing Date, PHC shall
------------------
consider or be advised that any deeds, bills of sale, assignments, assurances or
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in PHC its right, title or interest in, to or
under any of the assets of Practice Group or otherwise to carry out this
Agreement, in return for the consideration set forth in this Agreement, the
Practice Group and Shareholders shall execute and deliver all such deeds, bills
of sale, assignments and assurances and take and do all such other actions and
things as may be necessary or desirable to vest, perfect
3-
<PAGE>
or confirm any and all right, title and interest in, to and under the assets of
Practice Group in PHC or otherwise to carry out this Agreement.
I.9 Purchase Price Adjustment.
-------------------------
(a) On or prior to the 180th day following the Closing Date, PHC shall
deliver to the Shareholder Representative (defined below) in
writing PHC's calculation of the Closing Working Capital Amount
(defined below). If the Shareholder Representative objects to
PHC's calculation of the Closing Working Capital Amount, he shall
deliver to PHC a Dispute Notice within fifteen (15) business days
of receipt by the Shareholder Representative of PHC's calculation.
In the absence of such Dispute Notice, PHC's calculation shall be
final and binding on each party hereto. If a Dispute Notice is
delivered to PHC, PHC and the Shareholder Representative shall
negotiate in good faith to resolve any differences related to the
calculation of the Closing Working Capital Amount promptly
following delivery of the Dispute Notice. If PHC and the
Shareholder Representative fail to reach agreement after three
business days of such good faith negotiations, then the Closing
Working Capital Amount shall be determined by a partner in the
Houston, Texas office of Coopers & Lybrand, L.L.P. (or its
successor entity) with significant health care experience (the
"Determining Party"), whose determination of the Closing Working
Capital Amount shall be final and binding on each party hereto. In
the event that it is necessary for the Determining Party to
calculate the Closing Working Capital Amount, PHC and the
Shareholder Representative will fully cooperate with the
Determining Party in order to enable the Determining Party to
reach its determination as soon as practicable, but in no event
later than 15 days after the matter is referred to the Determining
Party. The cost of retaining the Determining Party will be borne
equally fifty percent (50%) by PHC and fifty percent (50%) through
a deduction from the Withheld Portion. The "Shareholder
Representative" shall be the individual designated by Alan Safdi,
M.D., whom the parties agree has the power to bind the
Shareholders for the limited purpose of this Section 1.9.
-----------
(b) Subject to further adjustment as set forth in Section 8.1, on the
-----------
date that is two hundred and twenty-five (225) days following the
Closing Date, (i) to the extent that the Initial Working Capital
Amount exceeds the Closing Working Capital Amount, PHC shall pay
to the Shareholders (other than the Recent Shareholders and the
Daniel G. Walker Trust ("Walker")) an amount equal to the Withheld
Portion less the amount by which the Initial Working Capital
Amount exceeds the Closing Working Capital Amount; (ii) to the
extent that the Closing Working Capital Amount exceeds the Initial
Working Capital Amount, PHC shall pay to the Shareholders (other
4-
<PAGE>
than the Recent Shareholders and Walker) an amount equal to the
Withheld Portion plus the amount by which the Closing Working
Capital Amount exceeds the Initial Working Capital Amount; and
(iii) to the extent that the Initial Working Capital Amount equals
the Closing Working Capital Amount, PHC shall pay to the
Shareholders (other than the Recent Shareholders and Walker) an
amount equal to the Withheld Portion. To the extent that PHC pays
to the Shareholders any portion of the Withheld Portion as
provided above, PHC shall also pay to the Shareholders (other than
the Recent Shareholders and Walker) an amount equal to the
interest that has accrued on such portion since the Closing Date
(computed using an interest rate of nine percent (9%) per annum).
As used in this Agreement, the term "Closing Working Capital
Amount" shall mean the amount by which current assets exceed
current liabilities as reflected on the balance sheet of the
Practice Group prepared in accordance with GAAP as of the close of
business on August 31, 1997. Notwithstanding the previous
sentence, in computing the Closing Working Capital Amount,
provision shall be made (in accordance with GAAP except that the
applicable federal income tax rate shall be assumed to be 34% and
the applicable state and local income tax rates, if any, shall be
the applicable maximum marginal corporate income tax rates and
except that all accrued compensation expense shall be deemed to be
fully deductible in 1997 for federal income tax purposes) for
federal, state and local income taxes arising from conversion of
such balance sheet from the cash method of accounting to the
accrual method of accounting as if such taxes were due and payable
in full by the Practice Group on August 31, 1997 (without regard
to any available deferral).
(c) Any payment made to the Shareholders (other than the Recent
Shareholders and Walker) pursuant to this Section shall be made in
cash on a pro rata basis in accordance with the number of Practice
Group Shares held by each Shareholder (other than the Recent
Shareholders) immediately preceding the Closing.
I.10 Risk of Loss. Risk of loss to the assets of the Practice Group,
------------
however caused (other than by PHC or those duly authorized to act on behalf of
PHC) from the date hereof, through the Closing Date, shall remain wholly upon
the Practice Group. Such risk shall shift to PHC at the beginning (viz.,
12:00:01 a.m.) of the day immediately following the Closing Date.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
----------------------------------------------
AND PRACTICE GROUP
------------------
5-
<PAGE>
As a material inducement to PHC to enter into this Agreement, each
Shareholder and Practice Group hereby, jointly, severally and unconditionally,
represent and warrant to PHC as follows:
II.1 Organization, Standing and Authority of Practice Group. Practice
------------------------------------------------------
Group is a corporation duly organized and validly existing under the laws of the
State of Ohio and qualified to do business in all locations where the nature of
its business or the ownership of its assets or properties requires such
qualification. Practice Group has the full requisite corporate power and
authority to (a) own all its assets and properties and to operate its business
of operating a medical practice in the specialty of gastroenterology in the
greater metropolitan Cincinnati, Ohio area (the "Practice") as conducted on the
date hereof, (b) execute and deliver this Agreement and each other document or
instrument contemplated hereby (collectively, the "Transaction Agreements") and
perform its obligations hereunder and thereunder according to their respective
terms, and (c) to carry on and operate the Practice as now being conducted.
Practice Group is not a participant in any joint venture, partnership,
association or similar business arrangement with any other person or party.
II.2 Absence of Conflicting Agreements or Required Consents Relating to
------------------------------------------------------------------
Shareholders and Practice Group's Respective Obligations. The execution,
- --------------------------------------------------------
delivery and performance by Shareholders and Practice Group respectively, of the
Transaction Agreements (with or without the giving of notice, the lapse of time,
or both): (a) except as expressly set forth on Schedule 2.2, do not require the
------------
consent of any governmental or regulatory authority or any other third party;
(b) will not conflict with any provision of Practice Group's articles of
incorporation, regulations or other organizational documents; (c) will not
conflict with, result in a breach of, or constitute a default under any law,
ordinance, regulation, ruling, judgment, order or injunction of any court or
governmental instrumentality to which a Shareholder or Practice Group is a party
or by which a Shareholder or Practice Group or their respective properties are
bound; (d) will not conflict with, constitute grounds for termination of, result
in a breach of, constitute a default under, or accelerate or permit the
acceleration of any performance required by the terms of any agreement,
instrument, license or permit, material to this transaction, to which a
Shareholder or Practice Group is a party or by which a Shareholder or Practice
Group or their respective properties are bound and (e) will not create any
claim, lien, charge or encumbrance upon any of the assets or properties of
Practice Group.
II.3 Licenses and Authorizations. Shareholders and Practice Group hold all
---------------------------
valid licenses, permits and other rights and authorizations required by any
federal, state or local law, ordinance, regulation or ruling of any governmental
regulatory authority necessary to operate the Practice at each of its current
locations as it is currently being operated including, without limitation, the
right to receive Medicare and Medicaid reimbursements. A correct and complete
list of all such licenses, permits and other authorizations is set forth in
Schedule 2.3 hereto. None of such licenses has been revoked or suspended or is
- ------------
the subject of any proceeding or
6-
<PAGE>
action for revocation or suspension.
II.4 Lease Agreements. Schedule 2.4 hereto contains a current list of all
---------------- ------------
the lease agreements and license and sublicense agreements to which Practice
Group and/or Shareholders are parties and pursuant to which the Practice Group
and/or a Shareholder lease (whether as lessor or lessee) or license (whether as
licensor or licensee) any real or personal property related to the operation of
the Practice Group (the "Lease Agreements"). Practice Group has delivered to
PHC true and complete copies of all of the Lease Agreements. Each of the Lease
Agreements is valid and effective in accordance with its terms, and there is not
under any of such Lease Agreements (a) any existing or claimed default by
Practice Group or a Shareholder or event of default or event which with notice
or lapse of time, or both, would constitute a default by Practice Group or a
Shareholder, or (b) any existing default by any other party under any of the
Lease Agreements or any event of default or event which with notice or lapse of
time, or both, would constitute a default by any such party.
II.5 Financial Statements. Attached hereto as Schedule 2.5 are Practice
-------------------- ------------
Group's unaudited financial statements for the fiscal years ending December 31,
1994, 1995 and 1996 and unaudited interim financial statements (the "Interim
Financial Statements") for the period ending August 31, 1997 (the "Interim
Financial Date"), reflecting the results of the operations and financial
condition of Practice Group and the Practice at such dates which have been
prepared in accordance with the federal income tax basis of accounting (cash
method) consistently applied (collectively, the "Financial Statements"). The
Financial Statements: (i) present fairly in all material respects the financial
position of Practice Group and the Practice as of the dates indicated and
present fairly in all material respects the results of Practice Group's
operations for the periods then ended in accordance with the federal income tax
basis of accounting (cash method) and (ii) are in accordance with the books and
records of the Practice Group, as the case may be, which have been properly
maintained and are complete and correct in all material respects.
II.6 Absence of Changes. Except as expressly set forth in Schedule 2.6
------------------ ------------
hereto and as permitted or contemplated by this Agreement, since the Interim
Financial Date, Shareholders and Practice Group have conducted the Practice only
in the ordinary course of business consistent with past practices, and have not:
(a) Suffered any material adverse change in its working capital,
condition (financial or otherwise), assets, liabilities, reserves,
business or operations (such change, a "Material Adverse Effect");
(b) Paid, discharged or satisfied any material liability other than
the payments, discharge or satisfaction of liabilities in the
ordinary course of business;
(c) Written off as uncollectible any receivable, except for
contractual
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<PAGE>
discounts and write-offs in the ordinary course of business,
exceeding Five Thousand and No/100 Dollars ($5,000) in the
aggregate;
(d) Canceled or compromised any debts or waived or permitted to lapse
any claims or rights or sold, transferred or otherwise disposed of
any of its properties or assets;
(e) Entered into any commitment or transaction not in the ordinary
course of business or made any capital expenditure or commitment
in excess of Five Thousand and No/100 Dollars ($5,000.00);
(f) Made any change in any method of accounting or accounting practice
for financial or income tax purposes;
(g) Incurred any liabilities or obligations (absolute, accrued or
contingent) in excess of Five Thousand and No/100 Dollars
($5,000.00), except for trade payables incurred in the ordinary
course of business;
(h) Mortgaged, pledged, subjected or agreed to subject, any of its
assets, tangible or intangible, to any lien, claim or encumbrance,
except for liens of current personal property taxes not yet due
and payable;
(i) Sold or otherwise transferred any ownership interest in Practice
Group;
(j) Increased any salaries, wages or any employee benefits for any
employee;
(k) Hired, committed to hire or terminated any employee; or
(l) Agreed, whether in writing or otherwise, to take any action
particularly described in this Section 2.6.
-----------
II.7 Litigation and Claims. Except as expressly set forth in Schedule 2.7
--------------------- ------------
hereto, there are no claims, lawsuits, counterclaims, proceedings, or
investigations pending, and to Shareholders' or Practice Group's knowledge
threatened, against or affecting a Shareholder, Practice Group, the Practice or
any licensed professional or other individual employed by or under contract with
the Practice in any court or before any arbitrator or governmental authority or
agency, and to Shareholders' or Practice Group's knowledge, there is no
reasonable basis for any such action or any state of facts or occurrence of any
event which would be likely to give rise to the foregoing which has or would be
likely to have a Material Adverse Effect on the Practice Group, on a
Shareholder's or Practice Group's performance hereunder, or on the continued
operation of the Practice. There are no unsatisfied judgments against a
Shareholder, Practice Group, the Practice, or any licensed professional or other
individual affiliated with the Practice,
8-
<PAGE>
or any consent decrees to which any of the foregoing are subject which would
reasonably be likely to have a Material Adverse Effect on the Practice Group, on
Practice Group's or a Shareholder's performance hereunder, or on the continued
operation of the Practice.
II.8 No Undisclosed Liabilities. Except as and to the extent reflected in
--------------------------
the Financial Statements or as expressly shown in Schedule 2.8 hereto, Practice
------------
Group has no material liability or obligation whatsoever, whether matured,
unmatured, absolute, contingent or otherwise, except for liabilities and
obligations incurred in the ordinary course of its business since the Interim
Financial Date, which do not in the aggregate have a Material Adverse Effect on
the Practice Group or the Practice.
II.9 No Violation of Law, Generally.
------------------------------
(a) Except as expressly set forth in Schedule 2.9 hereto, to the
------------
Shareholders' or Practice Group's knowledge, neither Practice
Group nor a Shareholder has been or shall be as of the Closing
Date (by virtue of any action, omission to act, contract to which
it is a party or any occurrence or state of facts whatsoever) in
violation of any applicable local, state or federal law,
ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court
binding on it, or relating to its property or business or its
advertising, sales, referral or pricing practices (including,
without limitation, Titles 18 and 19 of the Social Security Act
and all applicable zoning and use laws).
(b) Billing Practices/Regulatory Compliance.
---------------------------------------
(i) Billing Practices Generally. Except as set forth in Schedule
--------------------------- --------
2.9, to Shareholders' or Practice Group's knowledge, all
---
billing practices by Practice Group to all third party
payors, including, but not limited to, the federal Medicare
program, state Medicaid programs and private insurance
companies, have been true, fair and correct and in
compliance with all applicable laws, regulations and
policies of all such third party payors, and Practice Group
has not billed for or received any payment or reimbursement
in excess of amounts allowed by law.
(ii) Fraud and Abuse. Practice Group, its officers and
---------------
directors, and persons and entities providing professional
services for Practice Group, have not engaged in any
activities which are prohibited under the federal Fraud and
Abuse Statute, 42 U.S.C. (S) 1320 a-7b and Regulations
contained in 42 CFR (S) 1001 et seq. (the "Fraud and Abuse
Statute"), or related state or local statutes or
regulations,
9-
<PAGE>
or which are prohibited by rules of professional conduct,
including, but not limited, to the following: (a) knowingly
and willfully making or causing to be made a false statement
or representation 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 representation
of a material fact for use in determining rights to any
benefit or payment; (c) 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 (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 or Medicaid 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 or Medicaid; and (d)
knowingly and willfully offering or paying any remuneration
(including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind to any
person to induce such person (1) to refer 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 under Medicare or Medicaid or (2) to purchase,
lease, order, or arrange for or recommend purchasing,
leasing, or ordering any good, facility, service, or item
for which payment may be made in whole or in part under
Medicare or Medicaid.
(c) Transactions with Referral Sources. Except as expressly set forth
----------------------------------
in Schedule 2.9, neither any Shareholder nor Practice Group nor
------------
any affiliate of Practice Group, nor any director, officer or
employee thereof, is a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or
consulting agreement with any physician, hospital, nursing
facility, home health agency or other person who is in a position
to make or influence referrals to or otherwise generate business
for Practice Group to provide services, lease space, lease
equipment or engage in any other venture or activity.
II.10 Properties.
----------
(a) Schedule 2.10(a) hereto sets forth a current and complete list
----------------
and description of all of the tangible and intangible assets
owned by Practice Group as of the Interim Financial Date.
10-
<PAGE>
(b) Schedule 2.10(b) hereto sets forth a current and complete list of
----------------
all property, equipment and other assets leased, subleased, or
licensed or sublicensed by Practice Group including, without
limitation, all computer hardware and software (collectively, the
"Leased Equipment").
(c) To the extent not expressly itemized in the Interim Financial
Statements, Schedule 2.10(c) hereto sets forth a current and
----------------
complete list and description of all equipment, utility and other
deposits owned by Practice Group.
(d) Except as expressly set forth and described on Schedule 2.10(d),
----------------
Practice Group: (i) has good, valid and indefeasible title to all
of the personal and mixed, tangible and intangible property,
rights and assets which it purports to own, including all the
personal property and assets reflected, but not shown as leased
or encumbered, in the Interim Financial Statements (except for
inventory and assets sold in the ordinary course of business
consistent with past practice and supplies consumed in the
ordinary course of business consistent with past practice since
the Interim Financial Date) and (ii) owns such rights, assets and
personal property free and clear of all title defects or
objections, liens, restrictions, claims, charges, security
interest, or other encumbrances of any nature whatsoever,
including any mortgages, leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title
or interest retention arrangements.
(e) All of the Leased Equipment and tangible assets owned by Practice
Group are in good operating condition and repair and will be in
such condition on the Closing Date.
(f) All of the durable and nondurable supplies owned by Practice
Group are of a quality and quantity usable in the ordinary and
usual course of the business of Practice Group.
(g) No assets, rights or interests are required in addition to those
tangible assets, Leased Equipment, rights and interests owned by
Practice Group in order to manage or operate the Practice and/or
business of the Practice Group as it is currently being managed
and operated by Practice Group.
II.11 Indebtedness. Schedule 2.11 sets forth a current and complete list
------------ -------------
and description of all instruments or other documents relating to any direct or
indirect indebtedness for borrowed funds of Practice Group in excess of Five
Thousand and No/100 Dollars ($5,000.00), as well as indebtedness by way of lease
purchase arrangements, guarantees, undertakings on which others
11-
<PAGE>
rely in extending credit and all conditional sales contracts, chattel mortgages
and other security arrangements with respect to personal property used or owned
by Practice Group. Practice Group has not loaned funds to or guaranteed a loan
to any employee or shareholder of Practice Group or other investor in Practice
Group that is in a position, directly or indirectly to make or influence
referrals of patients to, furnish items or services to, or otherwise generate
business for the Practice.
II.12 Employee Contracts, Union Agreements and Benefit Plans. Except as set
------------------------------------------------------
forth on Schedule 2.12 hereto, Practice Group is not a party to any employment
-------------
contract (except for oral employment agreements which are terminable by Practice
Group at will), consulting or collective bargaining contracts, deferred
compensation, pension (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended, and all rules and regulations from time
to time promulgated thereunder ("ERISA")), profit sharing, bonus or other
nonqualified benefit or compensation commitments, benefit plans, arrangements or
plans (whether written or oral), including all welfare plans, as defined in
Section 3(l) of ERISA, of or pertaining to any present or former employee of
Practice Group, or its predecessors in interest, that have been in effect at any
time within the past five (5) years.
II.13 Labor Relations. Except as expressly set forth in Schedule 2.13
--------------- -------------
hereto:
(a) Practice Group is in compliance with all applicable laws
respecting employment and employment practices, terms and
conditions of employment, wages and hours, occupational safety and
health, and is not engaged in any unfair labor practice within the
meaning of Section 8 of the National Labor Relations Act;
(b) There is no unfair labor practice, charge or complaint or any
other matter against or involving Practice Group pending or, to
the Shareholders' or Practice Group's knowledge, threatened before
the National Labor Relations Board or any court of law;
(c) There are no charges, investigations, administrative proceedings
or formal complaints of discrimination (including discrimination
based upon sex, age, marital status, race, national origin, the
making of workers' compensation claims, sexual preference,
handicap or veteran status) pending or threatened before the Equal
Employment Opportunity Commission or any federal, state or local
agency or court against Practice Group. There have been no
governmental audits of the equal employment opportunity practices
of Practice Group, and to Shareholders' or Practice Group's
knowledge, no reasonable basis for any such audit exists;
(d) Practice Group is in compliance with the Immigration Reform and
Control
12-
<PAGE>
Act of 1986, as amended, and all applicable regulations
promulgated thereunder; and
(e) There are no inquiries, investigations or monitoring activities of
any licensed, registered, or certified professional personnel
employed by, credentialed or privileged, or under contract with
Practice Group or the Practice pending or, to Shareholders' or
Practice Group's knowledge, threatened by any state professional
board or agency charged with regulating the professional
activities of health care practitioners or providers.
II.14 Contracts and Commitments. Except as expressly set forth in Schedule
------------------------- --------
2.14 hereto:
- ----
(a) No written or oral contract or commitment to which Practice Group
is a party or is bound continues for a period of more than six
(6) months from the date hereof or requires payments by Practice
Group after the Closing Date, in the aggregate, in excess of Five
Thousand and No/100 Dollars ($5,000.00);
(b) There are no written or oral contracts or agreements to which
Practice Group is a party or is bound:
(i) With any of the directors, officers or shareholders of the
Practice Group, or
(ii) With any person related by blood or marriage to any
director, officer or shareholder of Practice Group or with
any company or other organization in which anyone related
by blood or marriage to Practice Group has a direct or
indirect financial interest;
(c) Neither Practice Group nor any Shareholder is a party to or bound
by any contracts or agreements containing covenants prohibiting
or limiting the freedom of a Shareholder and/or Practice Group to
compete in any line of business or to subject the employees or
patients of any business in any geographic area or requiring a
Shareholder and/or Practice Group to share any profits;
(d) Neither Practice Group nor any Shareholder is a party to any
existing agreement for the management or administration of the
Practice, and neither Practice Group nor any Shareholder is
obligated to become a party to any such management or
administration agreement;
13-
<PAGE>
(e) Neither Practice Group nor any Shareholder is a party to or bound
by any contract, agreement or other arrangement that has had or
may in the future have a Material Adverse Effect upon the
Practice Group; and
(f) Neither Practice Group nor any Shareholder is a party to or bound
by any contract, agreement or other arrangement, requiring the
personal services of another person or entity which would be
reasonably likely to violate any of the provisions of the Fraud
and Abuse Statute.
II.15 Environmental Protection. Except as would not reasonably be expected
------------------------
to have a Material Adverse Effect, Practice Group has obtained all permits,
licenses and other authorizations and filed all notices which are required to be
obtained or filed by a Shareholder and/or Practice Group for the operation of
the Practice under federal, state and local laws relating to pollution,
protection of the environment or the generation or disposal of waste. Except as
would not reasonably be expected to have a Material Adverse Effect, Practice
Group is in compliance in all material respects with all terms and conditions of
such required permits, licenses and authorizations. Except as would not
reasonably be expected to have a Material Adverse Effect, Practice Group is in
compliance with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in those laws or contained in any law, regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. Except as expressly disclosed on Schedule 2.15 hereto and,
-------------
except as would not reasonably be expected to have a Material Adverse Effect,
there are no past or present events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
continued compliance, or which may give rise to any common law or statutory
liability or, to Shareholders' or Practice Group's knowledge, otherwise form the
basis of any claim, action, suit, proceeding, hearing or investigation, based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, or any pollutant, contaminant, or
hazardous or toxic material or waste (including medical waste) with respect to
Practice Group or the Practice.
II.16 Filing of Reports. All returns, reports, plans and filings of any
-----------------
kind or nature necessary to be filed by Practice Group with any governmental
authority have been properly completed and timely filed in compliance with all
applicable requirements where failure to so file would have a Material Adverse
Effect on the Practice after the Closing.
II.17 Insurance Policies. Schedule 2.17 hereto sets forth a complete and
------------------ -------------
accurate list and description of all insurance policies in force (i) naming any
Shareholder or any director, officer or employee of Practice Group as an insured
or beneficiary or as a loss payee and for which Practice Group has paid or is
obligated to pay all or any part of the premiums including, without limitation,
all general liability, malpractice, fire, health, disability and life insurance
14-
<PAGE>
policies or (ii) naming Practice Group as an insured or beneficiary or as a loss
payee. Practice Group has not received notice of any pending or threatened
termination or premium increase (retroactive or otherwise) with respect thereto,
and Practice Group and Shareholders are in compliance with all conditions
contained therein. Except as expressly set forth on Schedule 2.17 hereto, there
-------------
are no pending claims against such insurance by Practice Group as to which
insurers are defending under reservation of rights or have denied liability, and
except as set forth on Schedule 2.17 hereto, there exists no claim under such
-------------
insurance that has not been properly filed or reported by Practice Group.
II.18 Accounts Receivable. Attached hereto as Schedule 2.18 is a true,
------------------- -------------
complete and accurate list and aging of all accounts receivable of Practice
Group as of the Interim Financial Date. All such accounts receivable arose in
the ordinary course of the business of Practice Group for the provision of
professional services, have not been previously written off as bad debts and, to
the knowledge of the Practice Group and the Shareholders, are properly recorded
in the Interim Financial Statements.
II.19 Accounts Payable. Attached hereto as Schedule 2.19 is a current and
---------------- -------------
complete list of all accounts payable of Practice Group as of the Interim
Financial Date, including each individual indebtedness of Five Hundred and
No/100 Dollars ($500.00) or more and setting forth the payee, the amount of
indebtedness and such additional information as may be material with respect to
any such account payable.
11.20 Inventory. All items of inventory of the Practice reflected on the
---------
Interim Financial Statements consisted, all such items on hand on the date of
this Agreement consist, and all such items on hand on the Closing Date will
consist, of items of a quality and a quantity usable in the ordinary course of
the Practice Group's business and conform to generally accepted standards for
physician medical practices. The purchase commitments of Practice Group for
inventory are not materially in excess of normal requirements, and none of such
purchase commitments were made at prices in excess of prevailing market prices
at the time of purchase.
II.21 Inspections and Investigations. Neither any Shareholder's nor
------------------------------
Practice Group's right nor the right of any licensed professional or other
individual employed by or under contract with the Practice to receive Medicare
and Medicaid reimbursements has been terminated or otherwise adversely affected
as a result of any investigation or action by any federal or state governmental
regulatory authority. Except as expressly set forth and described on Schedule
--------
2.21, to Shareholders' or Practice Group's knowledge, neither Practice Group nor
- ----
any Shareholder nor any licensed professional or other individual affiliated
with the Practice has, during the past three (3) years, been the subject of any
inspection, investigation, survey, audit or monitoring by any governmental
regulatory entity, trade association, professional review organization,
accrediting organization or certifying agency, nor has Practice Group, any
Shareholder or the Practice received from any such entity any notice of
deficiency in connection with the operation of the Practice. Except as set
forth in Schedule 2.21, no Shareholder has been the subject of a "medical
-------------
15-
<PAGE>
malpractice action or claim" or a "professional review action" within the last
three (3) years as those terms are defined in the Health Care Quality
Improvement Act of 1986. Attached as part of Schedule 2.21 hereto are copies of
-------------
all reports, correspondence, notices and other documents relating to any such
inspection, investigation, survey, audit, monitoring or other form of review to
which any of the foregoing has been subject.
II.22 Ownership of Medical Service Practice(s). Except as expressly set
----------------------------------------
forth in Schedule 2.22 hereto, no Shareholder nor any member of any
-------------
Shareholder's family owns any interest in nor has a financial relationship with
any health care facility, practice or entity other than Practice Group
(including, without limitation, any physician or physician practice, allied
professional services such as chiropracty, physical therapy or podiatry, or any
physician management services organization, or any provider of ancillary or
specialty services including, but not limited to, laboratory and radiology
services).
II.23 Agreements in Full Force and Effect. Except as expressly set forth in
-----------------------------------
the Schedules to this Agreement, all contracts, agreements, plans, leases,
policies and licenses referred to, or required to be referred to, in any
Schedule delivered hereunder are valid and binding and are in full force and
effect and are enforceable in accordance with their terms, except to the extent
that the validity or enforceability thereof may be limited by bankruptcy,
insolvency, reorganization and other similar laws affecting creditors' rights
generally. There is no pending or, to Shareholders' or Practice Group's
knowledge, threatened bankruptcy, insolvency or similar proceeding with respect
to any party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by Practice Group, any Shareholder
or any other party thereto.
II.24 Taxes.
-----
(a) As used in this Agreement, "Taxes" means all taxes, fees,
assessments, levies, duties and other charges of any nature
imposed by any federal, state, local or foreign taxing authority,
together with all interest, penalties, fines and other additions
imposed in respect thereof.
(b) As used in this Agreement, "Tax Returns" means all original and
amended returns, declarations, certifications, statements,
notices, elections, estimates, reports, claims for refund and
information returns relating to or required to be filed or
maintained in connection with any Tax, together with all
schedules and attachments thereto.
(c) All Tax Returns required to have been filed by the Practice Group
have been timely filed (taking into account duly granted
extensions) and are true, correct and complete in all material
respects. Except as disclosed in Schedule 2.24, (i) the Practice
-------------
Group is not currently the beneficiary of
16-
<PAGE>
any extension of time within which to file any Tax Return, and
(ii) no claim has ever been made by any governmental authority in
a jurisdiction where the Practice Group does not file Tax Returns
that the Practice Group is or may be subject to taxation by that
jurisdiction.
(d) All Taxes of the Practice Group which have become due (without
regard to any extension of the time for payment and whether or
not shown on any Tax Return) have been paid. The Practice Group
has withheld and paid over to the applicable taxing authority all
Taxes required to have been withheld and paid over and has
complied with all information reporting and back-up withholding
requirements relating to Taxes. There are no liens with respect
to Taxes on any of the assets of the Practice Group, other than
liens for Taxes not yet due and payable or for Taxes disclosed in
Schedule 2.24 that are being contested in good faith through
-------------
appropriate proceedings and for which adequate reserves have been
established in the Financial Statements.
(e) The accrued unpaid Taxes of the Practice Group at August 31,
1997, will not exceed the amount of the current liability
accruals for Taxes (exclusive of reserves for deferred Taxes
established to reflect timing differences) reflected in the
calculation of the Closing Working Capital Amount. For this
purpose, the portion of any Tax imposed on a periodic basis that
is attributable to a taxable period beginning before and ending
after the Closing Date shall be determined by apportioning the
Tax for the entire period based upon the number of days in the
period, except that any such Tax measured by income or receipts
shall be apportioned based upon actual results of operations
through the end of the Closing Date.
(f) No deficiencies exist or have been asserted or are expected to be
asserted (verbally or in writing) with respect to Taxes of the
Practice Group and the Practice Group has not received notice nor
does it expect to receive notice (verbally or in writing) that it
has not filed a Tax Return or paid any Taxes required to be filed
or paid by it. No audit, examination, investigation, action,
suit, claim or proceeding relating to the determination,
assessment or collection of any Tax of the Practice Group is
currently in process, pending or, to the Shareholders' or
Practice Group's knowledge, threatened (verbally or in writing).
No waiver or extension of any statute of limitations relating to
the assessment or collection of any Tax of the Practice Group is
in effect. There are no outstanding requests for rulings with any
taxing authority relating to Taxes of the Practice Group.
(g) The Practice Group is not and has never been (i) a party to any
tax sharing
17-
<PAGE>
agreement or arrangement (formal or informal, verbal or in
writing), or (ii) a member of an affiliated group of corporations
(within the meaning of Section 1504 of the Code) filing a
consolidated federal income Tax Return, or any similar group
under analogous provisions of other law.
(h) The Practice Group has delivered to PHC true and complete copies
of all federal, state, local and foreign income Tax Returns filed
by the Practice Group for its three most recently ended taxable
years, together with all related examination reports, statements
of deficiencies and closing and other agreements. Schedule 2.24
-------------
indicates which, if any, of such returns have been, or currently
are, the subject of any audit, examination or other Tax
proceeding.
(i) The Practice Group (i) has not filed a consent under Code Section
341(f) concerning collapsible corporations; (ii) has not made any
payments, obligated itself to make any payments or become a party
to any agreement that under any circumstance could obligate it or
any successor or assignee of it to make any payments that are not
or will not be deductible under Code Section 280G, or that would
be subject to excise Tax under Code Section 4999; (iii) is not a
"foreign person" as defined in Code Section 1445(f)(3); (iv) is
not and has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii);
(v) does not own and has not owned any interest in any
"controlled foreign corporation" as defined in Code Section 957
or "passive foreign investment company" as defined in Code
Section 1296; (vi) is not and has not been a party to any
agreement or arrangement for which partnership Tax Returns are
required to have been filed; (vii) does not own any asset that is
subject to a "safe harbor lease" within the meaning of Code
Section 168(f)(8), as in effect prior to amendment by the Tax
Equity and Fiscal Responsibility Act of 1982; (viii) does not own
any "tax-exempt use property" within the meaning of Code Section
168(h) or "tax exempt bond financed property" within the meaning
of Code Section 168(g)(5); and (ix) has not agreed to and is not
required to make any adjustment under Code Section 481(a) by
reason of a change in accounting method or otherwise.
(j) As used in this Section only, "Practice Group" shall be deemed to
include any and all subsidiaries and predecessor entities.
II.25 Capitalization; Title to Shares. Each Shareholder has, and on the
-------------------------------
Closing Date will have, good title to those Practice Group Shares owned by
Shareholder, free and clear of all claims, liens, charges, encumbrances,
options, and rights of any third parties whatsoever.
18-
<PAGE>
Practice Group has a total number of shares of its capital stock authorized and
a total number of shares of its capital stock outstanding as set forth in Annex
-----
I attached hereto. No person or entity has any rights to acquire or to be
- -
granted from the Practice Group any shares in the Practice Group or any options
or other rights to acquire shares in the Practice Group.
II.26 Corporate Documents.
-------------------
(a) The corporate minute books of Practice Group, made available by
Practice Group to PHC prior to the date hereof, accurately
reflect all significant corporate actions taken by the directors
and shareholders of Practice Group or any committee of the Board
of Directors of Practice Group, and contain true and accurate
copies of or originals of the respective minutes of all meetings
or consent actions of the directors and shareholders of Practice
Group and any committee of the Board of Directors of Practice
Group.
(b) The stock record books of Practice Group, made available by
Practice Group to PHC prior to the date hereof, accurately
reflect the stock ownership of Practice Group, and contain
complete and accurate records with respect to the transfer of all
securities issued by Practice Group since its inception.
II.27 Statements True and Correct. No representation or warranty made by
---------------------------
any Shareholder or Practice Group herein, nor any statement, certificate or
instrument furnished or to be furnished by any Shareholder or Practice Group to
PHC pursuant to this Agreement or any other document, agreement or instrument
referred to herein or therein, contains or will contain any untrue statement of
material fact or omits or will omit any material fact necessary to make the
statements contained therein not misleading.
II.28 Investment Intent. Each Shareholder represents that he is acquiring
-----------------
his PHC Shares for his own direct account or investment and not with a view,
directly or indirectly, to or in connection with a distribution thereof and will
not sell or transfer his or her respective PHC Shares in violation of any
federal or state securities laws and the rules and regulations promulgated
pursuant thereto. Each Shareholder (other than the Recent Shareholders) is an
"Accredited Investor" within the meaning of Rule 501 under Regulation D of the
Securities Act of 1933 (the "Securities Act"), and capable of evaluating, either
alone or with Shareholder's representatives and advisors, the merits and risks
of the investment in the PHC Shares to be made hereunder by such Shareholder.
II.29 Reorganization Matters.
----------------------
(a) There is no present plan, intention or arrangement by any Shareholder
to sell, exchange, or otherwise dispose of any of the PHC Shares to be received
by any Shareholder in
19-
<PAGE>
the Merger.
(b) Except as disclosed to PHC in writing, neither Practice Group nor any
Shareholder has issued, redeemed, acquired or disposed of, or agreed to issue,
redeem, acquire or dispose of, any shares of capital stock of Practice Group, or
securities convertible into or exchangeable for shares of capital stock of
Practice Group, in contemplation of the Merger.
(c) Practice Group owns a significant portion of its historic business
assets within the meaning of Treasury Regulations Section 1.368-1(d)(4).
(d) None of the Practice Group Shares is encumbered by or subject to any
liability. No liabilities of any Shareholder will be assumed by PHC or any
affiliate of PHC in the Merger. All of Practice Group's liabilities were
incurred in the ordinary course of its business, for a bona-fide business
purpose and not in contemplation of the Merger or with a principal purpose of
federal income tax avoidance.
(e) The fair market value of Practice Group's assets exceeds the sum of the
Practice Group's liabilities.
II.30 Walker Matters. All representations and warranties of Practice Group
--------------
contained herein are qualified to the extent (and only to the extent) made
untrue or inaccurate by the issuance of Practice Group Shares to Walker (whom
the parties acknowledge is not licensed to practice medicine) immediately prior
to Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PHC
-------------------------------------
As an inducement to Shareholders and Practice Group to enter into this
Agreement, PHC hereby represents and warrants to the Shareholders and to
Practice Group as follows:
III.1 Organization, Standing and Authority of PHC. PHC is a corporation
-------------------------------------------
duly organized and validly existing under the laws of the State of Delaware and
qualified to do business in all locations where the nature of its business or
the ownership of its assets or properties requires such qualification. PHC has
the full requisite corporate power and authority to (a) own all its assets and
properties and to operate its business as conducted on the date hereof and (b)
execute and deliver the Transaction Agreements and perform its obligations
hereunder and thereunder according to their respective terms. PHC is not a
participant in any joint venture, partnership, association or similar business
arrangement with any other person or party, other than the various management
services agreements and similar agreements which it has entered into and enters
into from time to time as part of its business.
III.2 Absence of Conflicting Agreement or Required Consents Relating to
-----------------------------------------------------------------
PHC's
- -----
20-
<PAGE>
Obligations. Except as expressly set forth on Schedule 3.2, the execution,
- ----------- ------------
delivery and performance by PHC of the Transaction Agreements (with or without
the giving of notice, the lapse of time, or both): (a) do not require the
consent of any governmental or regulatory authority or any other third party;
(b) will not conflict with any provision of PHC's restated certificate of
incorporation, bylaws or other organizational documents; (c) will not conflict
with, result in a breach of, or constitute a default under any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or governmental
instrumentality to which PHC is a party or by which PHC is bound; (d) will not
conflict with, constitute grounds for termination of, result in a breach of,
constitute a default under, or accelerate or permit the acceleration of any
performance required by the terms of any agreement, instrument, license or
permit, material to this transaction, to which PHC is a party or by which PHC is
bound and (e) will not create any claim, lien, charge or encumbrance upon any of
the assets or properties of PHC.
III.3 Capital Stock of PHC. The PHC Shares are duly authorized, and when
--------------------
issued to Shareholders by PHC, will be validly issued, fully paid and
nonassessable. As of October 9, 1997, PHC has such number of shares of its
various classes of capital stock authorized and such number of shares of its
various classes of capital stock outstanding as set forth in Schedule 3.3
------------
attached hereto.
III.4 No Violation of Law. To PHC's knowledge, PHC has not been nor shall
-------------------
be, as of the Closing Date (by virtue of any act, omission to act, contract to
which it is a party or any current state of facts whatsoever) in violation of
any applicable material local, state or federal law, ordinance, regulation,
order, injunction or decree, or any other requirement of any other governmental
body, agency, authority or court binding on it, or relating to its property or
business which could have a Material Adverse Effect.
III.5 Litigation and Claims. Except as expressly set forth in Schedule 3.5,
--------------------- ------------
there are no claims, lawsuits, counterclaims, proceedings, or investigations
pending, or to PHC's knowledge, threatened, against or affecting PHC in any
court or before any arbitrator or governmental authority or agency, and, to
PHC's knowledge, there is no basis for any such action or state of facts or
occurrence of any event which might give rise to the foregoing which has or
could have a Material Adverse Effect on PHC. There are no unsatisfied judgments
against PHC or any consent decrees to which PHC is subject which would have a
Material Adverse Effect on PHC.
III.6 Financial Statements of PHC. Attached hereto as Schedule 3.6 are PHC'
--------------------------- ------------
unaudited financial statements for the calendar year ending December 31, 1995,
audited financial statements for the calendar year ending December 31, 1996, and
the audited financial statements for the six month period ending June 30, 1997
(collectively, the "PHC Financial Statements"), reflecting the results of the
operations and financial condition of PHC as of such date, which have been
prepared in accordance with generally accepted accounting principles
consistently applied, subject, in the case of PHC's interim financial
statements, to normal year-end adjustments. The PHC Financial Statements: (i)
present fairly in all material respects the
21-
<PAGE>
financial condition of PHC as of such date, which have been prepared in
accordance with generally accepted accounting principles consistently applied,
subject, in the case of PHC's interim financial statements, to normal year-end
adjustments. The PHC Financial Statements: (i) present fairly in all material
respects the financial position of PHC as of the dates indicated and present
fairly in all material respects the results of PHC's operations for the periods
then ended in accordance with GAAP and (ii) are in accordance with the books and
records of PHC which have been properly maintained and are complete and correct
in all material respects.
III.7 No Undisclosed Liabilities. Except as and to the extent reflected
--------------------------
in the PHC Financial Statements or in the Memorandum (as such term is defined in
Section 6.5), PHC has no material liability or obligation whatsoever, whether
- -----------
matured, unmatured, absolute, contingent or otherwise, except for liabilities
and obligations incurred in the ordinary course of its business since the
Interim Financial Date, which do not in the aggregate have a Material Adverse
Effect on PHC.
III.8 No Violation of Law, Generally.
------------------------------
(a) Billing Practices Generally. To PHC's knowledge, all billing
---------------------------
practices by PHC to all third party payors, including, but
not limited to, the federal Medicare program, state Medicaid
programs and private insurance companies, have been true,
fair and correct and in compliance with all applicable laws,
regulations and policies of all such third party payors, and
PHC has not billed for or received any payment or
reimbursement in excess of amounts allowed by law.
(b) Fraud and Abuse. PHC has not engaged in any activities which
---------------
are prohibited under the federal Fraud and Abuse Statute, 42
U.S.C. (S) 1320 a-7b and Regulations contained in 42 CFR (S)
1001 et seq. (the "Fraud and Abuse Statute"), or related
state or local statutes or regulations, or which are
prohibited by rules of professional conduct, including, but
not limited, to the following: (a) knowingly and willfully
making or causing to be made a false statement or
representation 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 representation of
a material fact for use in determining rights to any benefit
or payment; (c) knowingly and willfully soliciting or
receiving any remuneration (including any kickback, bribe,
or rebate),
22-
<PAGE>
directly or indirectly, overtly or covertly, in cash or in
kind (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 or Medicaid 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 or Medicaid; and (d) knowingly
and willfully offering or paying any remuneration (including
any kickback, bribe, or rebate), directly or indirectly,
overtly or covertly, in cash or in kind to any person to
induce such person (1) to refer 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 under Medicare or Medicaid or (2) to purchase, lease,
order, or arrange for or recommend purchasing, leasing, or
ordering any good, facility, service, or item for which
payment may be made in whole or in part under Medicare or
Medicaid.
III.9 Environmental Protection. Except as would not reasonably be
------------------------
expected to have a Material Adverse Effect, PHC has obtained all permits,
licenses and other authorizations and filed all notices which are required to be
obtained or filed by PHC for the operation of PHC's business under federal,
state and local laws relating to pollution, protection of the environment or the
generation or disposal of waste. Except as would not reasonably be expected to
have a Material Adverse Effect, PHC is in compliance in all material respects
with all terms and conditions of such required permits, licenses and
authorizations. Except as would not reasonably be expected to have a Material
Adverse Effect, PHC is in compliance with all other applicable limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in those laws or contained in any law,
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder. Except as expressly disclosed on
Schedule 3.9 hereto and, except as would not reasonably be expected to have a
- ------------
Material Adverse Effect, there are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans which may
interfere with or prevent continued compliance, or which may give rise to any
common law or statutory liability or, to PHC's knowledge, otherwise form the
basis of any claim, action, suit, proceeding, hearing or investigation, based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, or any pollutant, contaminant, or
hazardous or toxic material or waste (including medical waste) with respect to
PHC.
III.10 Filing of Reports. All returns, reports, plans and filings of any
-----------------
kind or nature necessary to be filed by PHC with any governmental authority have
been properly completed and timely filed in compliance with all applicable
requirements where failure to so file would have a Material Adverse Effect on
PHC.
III.11 Taxes.
-----
(a) All Tax Returns required to have been filed by PHC have been
timely filed (taking into account duly granted extensions)
and are true, correct and complete in all material respects.
Except as disclosed in Schedule 3.11, (i) PHC is not
currently the beneficiary of any extension of time within
which to file any Tax Return, and (ii) no claim has ever
been made by any governmental authority in a jurisdiction
where PHC does not file Tax
23-
<PAGE>
Returns that PHC is or may be subject to taxation by that
jurisdiction.
(b) All Taxes of PHC which have become due (without regard to
any extension of the time for payment and whether or not
shown on any Tax Return) have been paid. PHC has withheld
and paid over to the applicable taxing authority all Taxes
required to have been withheld and paid over and has
complied with all information reporting and back-up
withholding requirements relating to Taxes. There are no
liens with respect to Taxes on any of the assets of PHC,
other than liens for Taxes not yet due and payable or for
Taxes disclosed in Schedule 3.11 that are being contested in
-------------
good faith through appropriate proceedings and for which
adequate reserves have been established in the Financial
Statements.
(c) No deficiencies exist or have been asserted or are expected
to be asserted (verbally or in writing) with respect to
Taxes of PHC and PHC has not received notice nor does it
expect to receive notice (verbally or in writing) that it
has not filed a Tax Return or paid any Taxes required to be
filed or paid by it. No audit, examination, investigation,
action, suit, claim or proceeding relating to the
determination, assessment or collection of any Tax of PHC is
currently in process, pending or threatened (verbally or in
writing). No waiver or extension of any statute of
limitations relating to the assessment or collection of any
Tax of PHC is in effect. There are no outstanding requests
for rulings with any taxing authority relating to Taxes of
PHC.
III.12 Statements True and Correct. No representation or warranty made
---------------------------
by PHC herein, nor any statement, certificate or instrument furnished or to be
furnished by PHC pursuant to this Agreement or any other document, agreement or
instrument referred to herein or therein, contains or will contain any untrue
statement of material fact or omits or will omit any material fact necessary to
make the statements contained therein not misleading.
III.13 Reorganization Matters. Following the Merger, the Surviving
----------------------
Corporation will use a significant portion of Practice Group's historic business
assets in a business, within the meaning of Treasury Regulations Section 1.368-
1(d)(4).
ARTICLE IV.
ADDITIONAL AGREEMENTS
---------------------
IV.1 Access and Inspection. From and after the date of this Agreement,
---------------------
PHC and its representatives and agents, on the one hand, and the Practice Group
and the Shareholders and their representatives and agents, on the other hand,
shall each have the right to enter the other's
24-
<PAGE>
premises during regular business hours to review, inspect and copy any and all
books, records, documents or other information concerning the operation of the
Practice or PHC (as the case may be) as the other may reasonably request (the
"Due Diligence Inspection"). Following Closing, the Shareholders, on the one
hand, and PHC, on the other hand, shall continue to provide the other with
access to any and all financial and other records of the other as the other may
reasonably request in order to operate the Practice or the business of PHC, as
the case may be, to file any reports or respond to inquiries or investigations
including, without limitation, (i) the preparation or examination of tax
returns, (ii) the preparation of documents in connection with any proposed
public offering of any class of the capital stock of PHC or of debt instruments
of PHC, or (iii) for any other reasonable business purpose in connection with
the operation of the Practice or the business of PHC.
IV.2 Cooperation in Meeting Filing Requirements. Shareholders,
------------------------------------------
Practice Group and PHC shall cooperate in preparing, executing and filing such
requests, applications, information and other submittals as may be required by
any federal or state governmental agency or authority having jurisdiction over
the assets or properties of Practice Group or the Practice, for the purpose of
consummating the transactions contemplated herein and operation of the Practice.
IV.3 Post Closing Audit of Practice Group. Shareholders shall
------------------------------------
cooperate with and assist PHC and its accountants and other representatives in
preparing audited financial statements of Practice Group for any time period
ending prior to the Closing Date.
IV.4 Conversion of PHC Shares. In the event that (i) PHC should
------------------------
conduct an underwritten public offering of any class of its capital stock or
otherwise access the public markets for capital in a transaction that would
require registration under the Securities Act or would require PHC to file
reports under the Securities Exchange Act of 1934, as amended, and (ii) such
transaction (the "Non-Triggering Transaction") would not trigger the conversion
(the "Conversion") of the PHC Shares into the Voting Common Stock of PHC as
provided in PHC's certificate of incorporation, PHC shall promptly either (x)
offer the Shareholders the right to exchange their PHC Shares for PHC's Voting
Common Stock on the same terms and effective as of such time as if the Non-
Triggering Transaction had triggered the Conversion or (y) amend PHC's
certificate of incorporation to provide for such Non-Triggering Transaction to
trigger the Conversion effective as of the time of such Non-Triggering
Transaction.
IV.5 Further Assurances. Each party covenants that it will, in
------------------
connection with the Closing and from time to time after the Closing Date,
execute such additional instruments and take such actions as may be reasonably
requested by the other party to confirm or perfect or otherwise to carry out the
intent and purposes of this Agreement.
IV.6 Benefit Plans.
-------------
(a) Before Closing, Shareholders shall cause the entity carrying
on the
25-
<PAGE>
Practice after Closing (the "New P.A.") to become the plan
sponsor, employer and plan administrator of all plans
identified on Schedule 2.12 which are in effect at that
-------------
time.
(b) PHC or an affiliate thereof shall employ, as employees at
will, all persons (other than physician Shareholders and
employees who perform clinical/medical services incident to
the services of Shareholders) who are employees of Practice
Group (the "Transferred Employees") in good standing on the
Closing Date. As of the Closing Date, Shareholders shall
cause the plans, agreements, arrangements and understandings
set forth in Schedule 2.12 to be amended to provide for the
-------------
eligibility of the Transferred Employees as "leased
employees" in accordance with the applicable provisions of
the Code and ERISA. Notwithstanding the foregoing, New P.A.
shall not maintain a self-insured group health plan after
the Closing Date.
IV.7 Best Efforts to Close. Each party covenants that it will use its
---------------------
best efforts to fulfill the conditions precedent to closing as set forth in
Articles VI and VII and to consummate the transactions contemplated hereby as
- ---------- ---
soon as is practicably possible.
IV.8 Reorganization Matter. No party to this Agreement shall take any
---------------------
position on any Tax Return inconsistent with qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
ARTICLE V.
CONDUCT OF BUSINESS OF PRACTICE GROUP AND SHAREHOLDERS
------------------------------------------------------
PENDING CLOSING
---------------
Shareholders and Practice Group jointly and severally covenant and agree
that, without the prior written consent of PHC, between the date of this
Agreement and the Closing:
V.1 Disposition of Assets. The operation of the Practice shall be
---------------------
conducted only in the ordinary course, and, except for the assets and properties
set forth in Schedule 5.1 hereto or inventory or supply items disposed of in the
------------
ordinary course of business, Practice Group shall not dispose of any interest of
any kind in the assets or properties of Practice Group nor incur nor guarantee
any obligations for borrowed money, except as otherwise permitted by this
Agreement.
V.2 Sale of Shares. Shareholders and Practice Group shall not sell or
--------------
transfer, or consent to the issuance, sale or transfer of, any shares of capital
stock in Practice Group or any option, warrant or other right to acquire an
equity interest in Practice Group.
26-
<PAGE>
V.3 Contracts. Practice Group will not enter into any contract or
---------
other arrangement except in the ordinary course of business and then only if
such contract or arrangement would not have a Material Adverse Effect on the
operation of the Practice.
V.4 Condition of Assets. Practice Group will maintain its assets in
-------------------
substantially the same condition as they are in on the date of this Agreement,
ordinary wear and tear excepted.
V.5 Liens; Encumbrances. Practice Group will not sell, transfer or
-------------------
otherwise dispose of, nor mortgage, pledge or subject to any lien, charge or
other encumbrance, any of the assets or any interest in the rights, except (i)
as otherwise permitted by this Agreement and (ii) for inventory or supply items
disposed of in the ordinary course of business.
V.6 Conversion to Business Corporation. Practice Group will convert
----------------------------------
from a professional corporation to a business corporation or other entity which
would be permitted to consummate the transactions contemplated hereby in
accordance with applicable laws.
ARTICLE VI.
CONDITIONS TO OBLIGATIONS OF PHC
--------------------------------
The obligations of PHC to close the transactions contemplated hereby are
subject to the satisfaction, at or prior to Closing, of each of the following
conditions:
VI.1 Necessary Approvals. Except as set forth in Schedule 6.1, PHC
------------------- ------------
shall have received all (i) licenses, consents, permits and approvals, if any,
necessary in order for the New P.A. to operate the Practice in substantially the
same manner as Practice Group; (ii) consents necessary to consummate the
transactions contemplated by this Agreement, including the consents of (x) third
party lenders, (y) E.G.L. Holdings, Inc., an investor in PHC and (z) the
investors in PHC pursuant to the terms of the Securities Purchase Agreement
dated June 16, 1997 among PHC and such investors; and (iii) the approval of the
Board of Directors of PHC. In the event that, following the execution of this
Agreement, PHC is unable to consummate the transactions contemplated herein
because of its failure to obtain the consents set forth in subclauses (x)
through (z) above, PHC shall reimburse the Practice Group for the reasonable
legal fees incurred by Practice Group in connection with the negotiation and
documentation of this Agreement and ancillary agreements (provided, however,
that under no circumstances shall PHC be obligated to reimburse the Practice
Group to the extent that the legal fees incurred by the Practice Group exceed
Twenty Thousand Dollars ($20,000.00).
VI.2 Representations and Warranties. The representations and
------------------------------
warranties of the Shareholders and Practice Group set forth in this Agreement,
or any document or instrument delivered to PHC hereunder, that are qualified as
to materiality shall have been true and correct in all respects when initially
made and shall be true and correct in all respects as of the Closing Date and
all other representations and warranties of the Shareholders and Practice Group
set
27-
<PAGE>
forth in this Agreement, or any document or instrument delivered to PHC
hereunder, shall have been true and correct in all material respects when
initially made and shall be true and correct in all material respects at the
Closing Date.
VI.3 Performance; Covenants. All of the terms, covenants and
----------------------
conditions of this Agreement to be complied with or performed by Shareholders or
Practice Group at or prior to Closing shall have been complied with and
performed in all material respects.
VI.4 Closing Deliveries. The following documents shall have been
------------------
delivered to PHC:
(a) An Acquisition Restrictive Covenant Agreement executed by
Shareholders in substantially the form of Exhibit B;
---------
(b) A Practice Management Agreement executed by Shareholders in
substantially the form of Exhibit C;
---------
(c) A certificate dated the Closing Date signed by a duly
authorized officer of Practice Group certifying that the
representations and warranties are true and correct as of
the date of such certificate and that Shareholders and
Practice Group have fulfilled the conditions of this Section
-------
64;
--
(d) Unanimous Consent Resolutions of the Board of Directors and
Shareholders of Practice Group in form and substance
satisfactory to PHC approving the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby, certified by a duly
authorized representative of Practice Group;
(e) Written consents of all third parties necessary for the
consummation of the transactions contemplated by this
Agreement and the operation of the Practice by the New P.A.
as currently being operated (except to the extent disclosed
in Schedule 6.1);
------------
(f) All of the books and records of the Practice Group related
to the operation of the Practice including, but not limited
to: (i) the books of accounts, contracts and agreements to
which either the Practice Group or the Practice is a party
and (ii) such other documents or certificates as shall be
reasonably requested by PHC (notwithstanding the foregoing,
it is acknowledged by the parties that (i) such books and
records shall remain in the Cincinnati metropolitan area
indefinitely after Closing and (ii) the Shareholders shall
be permitted reasonable access to such books and records
after Closing);
28-
<PAGE>
(g) An opinion of counsel of Practice Group in substantially the
form of Exhibit D attached hereto;
---------
(h) The Investment Agreement in the form of Exhibit E attached
---------
hereto executed by the Shareholders pursuant to this
Agreement (the "Investment Agreement");
(i) Tail insurance policies as may be reasonably required by PHC
for any and all former professional employees and/or
shareholders of the Practice Group; and
(j) Such other documents as counsel for PHC shall reasonably
request, including, without limitation, any documents
required to be filed with any governmental body.
VI.5 Private Offering Memorandum. Each Shareholder shall have reviewed
---------------------------
the Private Offering Memorandum (the "Memorandum") of PHC and returned to PHC
within forty-eight (48) hours of the receipt by the Shareholder of the
Memorandum an acknowledgment (substantially in the form attached hereto as
Exhibit I) of such Shareholder's (i) review of the Memorandum and (ii) intention
- ---------
to proceed with the transactions contemplated by this Agreement.
ARTICLE VII.
CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS AND PRACTICE GROUP
------------------------------------------------------------
The obligations of Shareholders and Practice Group to close the transaction
contemplated hereby are subject to the satisfaction, at or prior to Closing, of
each of the following conditions:
VII.1 Representations and Warranties. The representations and
------------------------------
warranties of PHC set forth in this Agreement, or any document or instrument
delivered to the Shareholders and Practice Group hereunder, that are qualified
as to materiality shall have been true and correct in all respects when
initially made and shall be true and correct in all respects as of the Closing
Date and all other representations and warranties of PHC set forth in this
Agreement, or any document or instrument delivered to the Shareholders and
Practice Group hereunder, shall have been true and correct in all material
respects when initially made and shall be true and correct in all material
respects at the Closing Date.
VII.2 Performance; Covenants. All of the terms, covenants and
----------------------
conditions of this Agreement to be complied with or performed by PHC at or prior
to Closing shall have been complied with and performed in all material respects.
29-
<PAGE>
VII.3 Closing Deliveries. The following documents shall have been
------------------
delivered to the Shareholders and the Practice Group:
(a) The PHC Shares (to the extent set forth in Annex I);
-------
(b) A certificate dated the Closing Date signed by duly
authorized representatives of PHC certifying that the
representations and warranties are true and correct on the
date of such certificate and that PHC has fulfilled all of
the conditions of this Section 7.3;
-----------
(c) Consent Resolutions of the Board of Directors of PHC
approving the execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated hereby, certified by a duly authorized
representative of PHC.
(d) An opinion of counsel of PHC in substantially the form of
Exhibit F attached hereto;
---------
(e) The Investment Agreement;
(f) The Letter Agreement in substantially the form of Exhibit G
---------
attached hereto;
(g) The Agreement regarding Certain Shareholders substantially
in the form of Exhibit H attached hereto and any deliveries
---------
required thereby; and
(h) Such other documents necessary for the consummation of the
transactions contemplated herein as counsel for Shareholder
shall reasonably request, including, without limitation, any
documents required to be filed with any governmental body.
VII.4 Private Offering Memorandum. Each of the Shareholders shall have
---------------------------
received the Memorandum at least forty-eight (48) hours prior to Closing and
shall have elected to proceed with the transactions contemplated by this
Agreement within forty-eight (48) hours after receipt of the Memorandum.
ARTICLE VII
INDEMNIFICATION
---------------
VIII.1 Indemnification by Shareholders. Subject to the terms and
-------------------------------
conditions of this Article VIII, Shareholders, jointly and severally, agree to
------------
indemnify, defend, and hold PHC
30-
<PAGE>
harmless from, against, for, and in respect of any and all Losses (as defined
below) asserted against, relating to, imposed upon, or incurred by PHC by reason
of, resulting from, based upon, or arising out of:
(a) The inaccuracy, untruth, or incompleteness of any
representation or warranty of Practice Group and/or
Shareholder contained in or made pursuant to this Agreement;
(b) The failure of Practice Group and/or any Shareholder to
comply with any of the covenants made by Practice Group
and/or a Shareholder in this Agreement;
(c) The conduct of the Practice and business of Practice Group
on or prior to the Closing Date, other than for liabilities
disclosed in the Schedules hereto or in the Financial
Statements; and
(d) Taxes of any Shareholder arising from or as a result of the
transactions contemplated by this Agreement and all sales,
use, transfer, registration or similar Taxes arising from or
as a result of the transactions contemplated by this
Agreement (regardless of upon whom imposed).
In the event that any Losses are asserted against, imposed upon, or incurred by
PHC prior to the date on which PHC is obligated to remit the Withheld Amount, as
adjusted, to the Shareholders pursuant to Section 1.4, and for which the
-----------
Shareholders would be required to indemnify PHC pursuant to this Section, PHC
shall have the option, but not the obligation, to subtract the amount of the
Losses from the Withheld Amount. The preceding sentence provides for a non-
exclusive remedy and shall in no way limit PHC's right to be indemnified by the
Shareholders for any and all Losses that may be asserted against, imposed upon,
or incurred by PHC at any time.
VIII.2 Indemnification by PHC. Subject to the terms and conditions of
----------------------
this Article VIII, PHC agrees to indemnify, defend and hold Shareholders
------------
harmless from, against, for and in respect of any and all Losses (as defined
below) asserted against, relating to, imposed upon, or incurred by Practice
Group and/or Shareholders by reason of, resulting from, based upon, or arising
out of:
(a) The inaccuracy, untruth, or incompleteness of any
representation or warranty of PHC contained in or made
pursuant to this Agreement; and
(b) The failure of PHC to comply with any of the covenants made
by PHC in this Agreement.
VIII.3 Definition of Losses. For the purposes of this Article VIII,
-------------------- ------------
"Losses" shall mean
31-
<PAGE>
any and all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs, and expenses, including, without limitation,
interest, penalties, and reasonable attorneys' and other professional fees, and
expenses incurred in the investigation, preparation, defense, and settlement of
any claim, loss, damage, or liability as to which a party is entitled to
indemnification hereunder.
VIII.4 Notice and Opportunity to Defend.
--------------------------------
(a) The party indemnified hereunder (the "Indemnified Party")
shall notify in writing the indemnifying party (the
"Indemnifying Party") within thirty (30) days after a claim
is presented to the Indemnified Party, and the Indemnifying
Party shall defend such claim at its expense. If the
Indemnifying Party does not defend or settle such claim, the
Indemnified Party may do so without the Indemnifying Party's
participation, in which case the Indemnifying Party shall
pay the expenses of such defense, and the Indemnified Party
may settle or compromise such claim without the Indemnifying
Party's consent. If the Indemnified Party fails to notify
the Indemnifying Party, and if the Indemnifying Party is
thereby materially prejudiced by such failure of notice in
its defense of the claim, the Indemnifying Party's
obligation of indemnity hereunder shall be extinguished with
respect to such claim to the extent that the Indemnifying
Party has been prejudiced by the failure to give such
notice.
(b) Anything herein to the contrary notwithstanding, no party
shall make any claim against any other party pursuant to
this Article VIII unless the dollar amount of all Losses
------------
suffered or incurred by the party seeking such indemnity
hereunder shall exceed, in the aggregate, the amount of
Fifty Thousand and No/100 Dollars ($50,000.00). If such
amount is exceeded, the Indemnifying Party shall be required
to pay the amount by which such aggregate Losses exceed
Fifty Thousand and No/100 Dollars ($50,000.00) (up to an
amount (the "Cap Amount") equal to the sum of (i) the cash
portion of the Purchase Price plus (ii) the then Fair Market
Value of any PHC Shares then held by the Shareholders plus
(iii) the cash proceeds from any and all sales of PHC Shares
by the Shareholders and without deduction for such Fifty
Thousand and No/100 Dollars ($50,000.00) threshold amount)
for which indemnification rights and obligations are
provided under this Article VIII. "Fair Market Value" per
------------
share as used in this paragraph means (if the PHC Shares are
then listed on a national securities exchange) the average
closing price per share over the five business days ending
two business days prior to the date of valuation, or (if the
PHC Shares are not listed on a national securities exchange)
the price per share determined by an independent certified
public accounting
32-
<PAGE>
firm (the cost of which shall be borne equally between the
Shareholders, on the one hand, and PHC and the other hand)
selected by PHC and reasonably satisfactory to a majority in
interest of the Shareholders. Payments by the Shareholders
to PHC pursuant to this Article VIII may be in cash or the
PHC Shares (valued at Fair Market Value); provided, however,
that in the event that PHC shall incur indebtedness pursuant
to a financing arrangement with a third party in connection
with the payment of the Purchase Price, all payments to PHC
by the Shareholders pursuant to this Article VIII shall be
made in cash (up to an amount equal to the cash portion of
the Purchase Price) until such time as the third party
financing arrangement has been extinguished.
The foregoing notwithstanding, the Cap Amount shall not
apply to Losses suffered or incurred in connection with (i)
medical malpractice or professional liability claims in
excess of the insured limits provided for in the
professional liability insurance policies maintained for the
benefit of the Practice Group and professional employees
and/or shareholders of the Practice; (ii) violations by the
Practice Group or the Shareholders of any of the billing
practices or Fraud and Abuse laws, rules and regulations
referenced in Section 3.8 hereof; (iii) violations by the
-----------
Practice Group or the Shareholders of the Civilian Health
and Medical Program of the Uniformed Service ("CHAMPUS") and
all laws, rules, regulations, manuals, orders, guidelines or
requirements pertaining to such program including (a) all
federal statutes (whether set forth in U.S. (S)(S)1071-1106
or elsewhere) affecting such program; and (b) all rules,
regulations, (including 32 C.F.R. (S)199), manuals, orders
and administrative, reimbursement and other guidelines of
all governmental authorities promulgated in connection with
such program (whether or not having the force of law), in
each case as the same may be amended, supplemented or
otherwise modified from time to time (iv) the Civilian
Health and Medical Program of the Department of Veteran
Affairs ("CHAMPVA") and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to
such program, including (a) all federal statutes (whether
set forth in 38 U.S.C. (S)1713 or elsewhere) affecting such
program or, to the extent applicable to CHAMPVA, CHAMPUS;
and (b) all rules, regulations (including 38 C.F.R.
(S)17.54), manuals, orders and administrative, reimbursement
and other guidelines of all governmental authorities
promulgated in connection with such program (whether or not
having the force of law), in each case as the same may be
amended, supplemented or otherwise modified from time to
time and (v) violations by the Practice Groups or the
Shareholders of the representations and warranties contained
in Section 2.24.
------------
33-
<PAGE>
(b) Anything herein to the contrary notwithstanding, no party
shall be liable to any other party under this Article VIII
------------
for punitive or consequential damages, including lost
profits, except to the extent contained in a settlement,
award or judgment obtained by a third party.
VIII.5 Effect of Investigation by PHC. No investigation or inquiry made
------------------------------
by PHC of Shareholders or Practice Group or its books and records and financial
condition shall, regardless of the Closing of the transactions contemplated
hereby, affect or limit any representation or warranty made by Shareholders or
Practice Group to PHC in this Agreement or in any Schedule delivered by any of
them pursuant hereto or any right of indemnification of PHC under Section 8.1
-----------
hereof.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
------------------------
IX.1 Notices. Any notice required or permitted by this Agreement or
-------
any agreement or document executed and delivered in connection with this
Agreement shall be deemed to have been served properly if transmitted by
certified mail, return receipt requested, with proper postage prepaid or sent by
overnight carrier or by personal delivery, addressed to the respective party to
whom such notice relates at the following addresses:
If to PHC: Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah C. Garvin, President
With a copy to: Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Daniel M. Epstein, M.D., Esq.
And a Copy to: Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Attention: James S. Ryan, III
34-
<PAGE>
If to Practice Group GCGA Physicians
or the Shareholders: 2924 Vernon Place, Suite 100
Cincinnati, Ohio 45219
Attention: Dan Walker
With a Copy to: Katz, Teller, Brant & Hild
255 East Fifth Street
2400 Chemed Building
Cincinnati, Ohio 45202
Attention: Robert E. Brant, Esq.
or such other address as shall be furnished in writing by any party to the other
party. All such notices shall be considered received: (a) if transmitted by
certified mail, return receipt requested, with proper postage prepaid, upon the
fifth (5/th/) business day after mailing; (b) if transmitted by overnight
carrier, on the next business day and (c) if transmitted by personal delivery,
upon receipt.
IX.2 Successors and Assigns. PHC may assign its rights under this
----------------------
Agreement to any affiliated entity, but otherwise this Agreement shall not be
assignable, by operation of law or otherwise, without the prior written consent
of the other parties. Subject to the foregoing, this Agreement shall inure to
the benefit of, be enforceable by and be binding upon the parties, their
successors and assigns.
IX.3 Entire Agreement. This Agreement and the Exhibits, Schedules,
----------------
certificates and other documents delivered pursuant hereto or incorporated
herein by reference, contain and constitute the entire agreement among the
parties and supersede and cancel any prior agreements, representations,
warranties, or communications, whether oral or written, among the parties
relating to the transactions contemplated by this Agreement. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, but only by an agreement in writing signed by the party
against whom or which the enforcement of such change, waiver, discharge or
termination is sought.
IX.4 Governing Law; Severability. This Agreement shall be governed by
---------------------------
and construed in accordance with the laws of the State of Georgia, but excluding
the conflicts laws of the State of Georgia. The parties consent to the
jurisdiction of such courts. The provisions of this Agreement are severable and
the invalidity of one or more of the provisions herein shall not have any effect
upon the validity or enforceability of any other provision.
IX.5 No Brokers. Shareholders, Practice Group and PHC each represent
----------
to the others that no broker or finder has been employed in connection with the
transactions hereunder.
IX.6 Schedules and Exhibits. All Schedules and Exhibits attached to
----------------------
this Agreement
35-
<PAGE>
are by reference made a part hereof.
IX .7 Waivers. No failure on the part of any party hereto to exercise,
-------
and no delay in exercising, any right, power or remedy created hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or remedy by any such party preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. No waiver by any
party hereto of any breach of or default in any term or condition of this
Agreement shall constitute a waiver of or assent to any succeeding breach of or
default in the same or any other term or condition hereof.
IX.8 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IX.9 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
IX.10 Confidentiality. The parties agree that they will not make any
---------------
disclosure about the existence or contents of this Agreement or activities
relating to the consummation of the transactions contemplated herein without
prior approval of the other party, except as may be required by law, as may be
necessary to obtain the required consents, licenses, permits or approvals
pursuant to Section 6.1 herein, or as may be necessary in the ordinary course of
-----------
business of PHC.
IX.1I Mediation. Except as provided in Section 1.9 of this Agreement,
---------
the parties agree to utilize the following procedure with regard to any
contention or claim arising out of or relating to this Agreement (a "Dispute")
if any such Dispute can not be settled through direct discussions.
(a) Initiation of Procedure: The initiating party shall give
written notice to the other parties describing the nature of
the Dispute, its claim for relief and identifying one or
more individuals with authority to resolve the Dispute on
such party's behalf. The other parties shall each have five
business days from receipt of such notice within which to
designate in writing one or more individuals with authority
to resolve the Dispute on each other party's behalf.
(b) Selection of Mediator: Within ten business days from the
last date of designation by the noninitiating parties, the
parties shall make a good faith effort to select a person to
mediate the Dispute. If no mediator has been selected under
this procedure, the parties shall jointly request a State or
Federal District Judge of their choosing to supply within
ten business days a list of potential qualified attorney-
mediators in Cincinnati, Ohio. Within
36-
<PAGE>
five business days of receipt of the list, the parties shall
rank the proposed mediators in numerical order of
preference, simultaneously exchange such lists and select as
the mediator the individual receiving the highest combined
ranking. If such mediator is not available to serve, they
shall proceed to contact the mediator who was next highest
in ranking until they select a mediator.
(c) Time and Place for Mediation; Parties Represented: In
consultation with the mediator selected, the parties shall
promptly designate a mutually convenient time in Cincinnati,
Ohio for the mediation, such time to be no later than sixty
days after selection of the mediator. In the mediation, each
party shall be represented by a person with authority and
discretion to negotiate a resolution of the Dispute, and may
be represented by counsel.
(d) Conduct of Mediation: The mediator shall determine the
format for the meetings and the mediation sessions shall be
private. The mediator will keep confidential all information
learned in private caucus with any party unless specifically
authorized by such party to make disclosure of the
information to the other parties. The parties agree that the
mediation shall be governed by such rules as the mediator
shall reasonably prescribe.
(e) Fees of Mediator; Disqualification: The reasonable fees and
expenses of the mediator shall be shared equally by the
parties. The mediator shall be disqualified as a witness,
consultant, expert or counsel for any party with respect to
the Dispute and any related matters.
(f) Confidentiality: Mediation is a compromise negotiation for
purposes of Federal and state rules of evidence and
constitutes privileged communication. The entire mediation
process is confidential, and such conduct, statements,
promises, offers, views and opinions shall not be
discoverable or admissible in any legal proceeding for any
purpose.
IX.12 Binding Arbitration. If any Dispute cannot be settled through
-------------------
mediation as set forth in Section 9.11 above, such Dispute shall be settled
------------
solely by arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered and enforced in any court having jurisdiction
thereof. The parties agree to execute a complete written Arbitration Agreement
(requiring binding arbitration and setting forth in detail procedures for
arbitration) within ten days of the close of any unsuccessful mediation
proceeding. If the parties cannot agree on a binding Arbitration Agreement, such
agreement shall, within twenty days of the close of the unsuccessful mediation
proceedings, be prepared and submitted to each party by the mediator and such
agreement in the form submitted by the mediator shall be binding on both parties
as to all arbitration procedures.
37-
<PAGE>
IX.13 Breach of Mediation and/or Arbitration Provisions. In the event
-------------------------------------------------
any party shall breach the terms of Sections 9.11 or 9.12 above regarding
------------- ----
mediation and arbitration, the parties agree the following shall occur:
(a) The non-breaching party/parties may, no earlier than five
days after written notice to the breaching party/parties,
apply to a court of competent jurisdiction for specific
enforcement of the mediation and arbitration procedures set
forth herein;
(b) The breaching party/parties shall pay all costs and expenses
of such breach to the non-breaching party/parties, including
attorney's fees, travel expenses and mediator fees;
(c) Upon a judicial determination of a material breach, the
breaching party/parties hereby waive(s) and relinquish(es)
all claims of treble, punitive damages or similar damages or
claims of irreparable harm concerning the Dispute in
question, and further waives all objections to the non-
breaching parties' claim of treble, punitive or similar
damages or claims of irreparable harm concerning said
Dispute; and
(d) The breaching party/parties shall pay all other actual and
special damages to the non-breaching party/parties that
result from such breach.
(e) Other Damages: In addition to the agreed consequences of
breach set out above, the parties hereby agree any court
obtaining jurisdiction over the involved Dispute shall, upon
the court's discretion, have the authority to impose the
consequences set out in the Rules of Civil Procedure of the
court, for the failure of a party to cooperate in discovery
and pretrial matters, including, but not limited to, the
striking of a party's pleadings, award of attorney's fees
and costs, and such other remedies as the court may deem
appropriate. The remedies set forth in this subparagraph are
in addition to the court's contempt and other judicial
power.
IX.14 Expenses. Each party shall bear its own expenses incurred in the
--------
preparation, negotiation and performance of this Agreement; provided, however,
that the Shareholders shall bear all of the expenses of the Practice Group so
incurred.
IX.15 No Third Party Beneficiaries. Nothing contained in this Agreement
----------------------------
(express or implied) is intended or shall be construed to confer upon or give to
any person, corporation or other entity, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
38-
<PAGE>
IX.16 Survival. Except for the provisions of Section 2.9(b), Section
-------- -------------- -------
2.24, Section 3.8, Section 3.11, Section 4.1, Section 4.2, Section 4.3, Section
- ---- ----------- ------------ ----------- ----------- ----------- -------
4.4, Section 4.5, Section 4.8, Section 8.1(d), Section 9.10, Section 9.11,
- --- ----------- ----------- -------------- ------------ ------------
Section 9.12 and Section 9.13, which shall continue in full force and effect
- ------------ ------------
indefinitely, the provisions of Articles I, II, III, IV and VIII of this
-------------- --- -- ----
Agreement shall survive the Closing and continue in full force and effect until
eighteen (18) months after the Closing Date.
IX.17 Attorney-Client Privilege. Except in connection with the
-------------------------
enforcement of this Agreement and/or as set forth below, Practice Group hereby
conveys to the Shareholders, effective as of the Closing, the right to invoke
the attorney-client privilege with respect to all matters involving any or all
of the Shareholders in their dealings with Practice Group or otherwise to the
extent that such privilege may be possessed by Practice Group. Except in
connection with the enforcement of this Agreement and/or as set forth below,
neither PHC nor Practice Group shall object to the assertion of the attorney-
client privilege by any or all of the Shareholders, or waive the attorney-client
privilege, regarding any matter involving legal services performed for Practice
Group or any or all of the Shareholders prior to Closing. Notwithstanding the
foregoing, nothing contained herein shall be construed in any way to prevent
PHC, its affiliates or their successors and assigns from investigating any
alleged breach of this Agreement and/or enforcing any provision of this
Agreement against the Shareholders, and the Practice Group and the Shareholders
shall cooperate fully with PHC in connection with any such matter. This
provision shall be binding upon Practice Group, PHC and their successors and
assigns, and shall survive the Closing.
39-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first written above.
GREATER CINCINNATI
PHYSICIAN HEALTH CORPORATION GASTROENTEROLOGY ASSOCIATES,
INC.
By:_____________________________ By:______________________________
Sarah C. Garvin, President M.D.
THE SHAREHOLDERS
_________________________, M.D.
George D. Waissbluth, M.D.
_________________________, M.D.
Ronald C. Schneider, M.D.
_________________________, M.D.
Michael A. Safdi, M.D.
_________________________, M.D.
Alan V. Safdi, M.D.
_________________________, M.D.
Michael D. Kreines, M.D.
_________________________, M.D.
Kris Ramprasad, M.D.
_________________________, M.D.
Kim R. Jurell, M.D.
_________________________, M.D.
David G. Mangels, M.D.
_________________________, M.D.
Pradeep K. Bekal, M.D.
_________________________, M.D.
Daniel G. Walker Trust by Alan V. Safdi, M.D., Trustee
40-
<PAGE>
EXHIBIT A
---------
LIST OF SHAREHOLDERS AND ADDRESSES
George D. Waissbluth, M.D. David G. Mangels, M.D.
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
Ronald C. Schneider, M.D. Pradeep K. Bekal, M.D.
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
Michael A. Safdi, M.D. Alan V. Safdi, M.D.
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
Michael D. Kreines, M.D. Kris Ramprasad, M.D.
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
Kim R. Jurell, M.D. Alan V. Safdi, Trustee
________________________________ ________________________________
________________________________ ________________________________
________________________________ ________________________________
1-
<PAGE>
EXHIBIT B
---------
ACQUISITION RESTRICTIVE COVENANT AGREEMENT
<PAGE>
EXHIBIT C
---------
PRACTICE MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT D
---------
OPINION OF COUNSEL OF PRACTICE GROUP
<PAGE>
EXHIBIT E
---------
INVESTMENT AGREEMENT
<PAGE>
EXHIBIT F
---------
OPINION OF COUNSEL OF PHC
<PAGE>
EXHIBIT G
---------
LETTER AGREEMENT
<PAGE>
EXHIBIT H
---------
AGREEMENT REGARDING CERTAIN SHAREHOLDERS
<PAGE>
EXHIBIT I
---------
ACKNOWLEDGMENT
<PAGE>
ANNEX I
-------
PURCHASE PRICE
<PAGE>
SCHEDULE 2.2
------------
REQUIRED CONSENTS RELATING TO SELLER'S OBLIGATIONS
<PAGE>
SCHEDULE 2.3
------------
LICENSES AND AUTHORIZATIONS
<PAGE>
SCHEDULE 2.4
------------
LEASE AND LICENSE AGREEMENTS
<PAGE>
SCHEDULE 2.5
------------
FINANCIAL STATEMENTS OF PRACTICE GROUP
<PAGE>
SCHEDULE 2.6
------------
ABSENCE OF CHARGES
<PAGE>
SCHEDULE 2.7
------------
LITIGATION AND CLAIMS
<PAGE>
SCHEDULE 2.8
------------
UNDISCLOSED LIABILITIES
<PAGE>
SCHEDULE 2.9
------------
VIOLATIONS OF LAW; TRANSACTIONS WITH REFERRAL SOURCES
<PAGE>
SCHEDULE 2.10(A)
----------------
OWNED ASSETS
<PAGE>
SCHEDULE 2.10(B)
----------------
LEASED EQUIPMENT
<PAGE>
SCHEDULE 2.10(C)
----------------
EQUIPMENT, UTILITY AND OTHER DEPOSITS
<PAGE>
SCHEDULE 2.10(D)
----------------
EXCEPTIONS TO TITLE TO ASSETS
<PAGE>
SCHEDULE 2.11
-------------
INDEBTEDNESS
<PAGE>
SCHEDULE 2.12
-------------
EMPLOYMENT CONTRACTS, UNION AGREEMENTS AND BENEFIT PLANS
<PAGE>
SCHEDULE 2.13
-------------
EXCEPTIONS TO COMPLIANCE WITH EMPLOYMENT AND LABOR LAWS
<PAGE>
SCHEDULE 2.14
-------------
CONTRACTS AND AGREEMENTS OF PRACTICE GROUP
<PAGE>
SCHEDULE 2.15
-------------
ENVIRONMENTAL PROTECTION
<PAGE>
SCHEDULE 2.17
-------------
INSURANCE POLICIES
<PAGE>
SCHEDULE 2.18
-------------
ACCOUNTS RECEIVABLE
<PAGE>
SCHEDULE 2.19
-------------
ACCOUNTS PAYABLE
<PAGE>
SCHEDULE 2.21
-------------
INSPECTIONS AND INVESTIGATIONS
<PAGE>
SCHEDULE 2.22
-------------
OWNERSHIP OF MEDICAL SERVICE PRACTICE(S)
<PAGE>
SCHEDULE 2.24
-------------
TAXES
<PAGE>
SCHEDULE 3.2
------------
ABSENCE OF CONFLICTING AGREEMENT OR REQUIRED CONSENTS
None, except as set forth in Section 6.1
<PAGE>
SCHEDULE 3.3
------------
CAPITAL STOCK OF PHC
Please see attached
<PAGE>
SCHEDULE 3.5
------------
LITIGATION AND CLAIMS OF PHC
None
<PAGE>
SCHEDULE 3.6
------------
FINANCIAL STATEMENTS OF PHC
Please see attached
<PAGE>
SCHEDULE 3.7
------------
UNDISCLOSED LIABILITIES
<PAGE>
SCHEDULE 3.9
------------
COMPLIANCE
None
<PAGE>
SCHEDULE 3.11
-------------
TAXES
None
<PAGE>
SCHEDULE 5.1
------------
DISPOSITION OF ASSETS
<PAGE>
SCHEDULE 6.1
------------
NECESSARY APPROVALS
1. Consents referenced in Section 4.11 of the Due Diligence Checklist.
<PAGE>
EXHIBIT 10.5
PRACTICE MANAGEMENT AGREEMENT
THIS PRACTICE MANAGEMENT AGREEMENT (this "Agreement") is made and executed
to be effective as of the 31st day of August, 1997 (the "Effective Date"), by
and among Physician Health Corporation, a Delaware corporation ("PHC") as to
Section 16 only; PHC Ohio, Inc., a Georgia corporation ("PHC-SUB"); and GCGA
- ----------
Physicians, Inc., an Ohio corporation (the "Practice").
RECITALS:
--------
A. Pursuant to the terms of that certain Agreement and Plan of
Reorganization dated as of August 31, 1997 (the "Reorganization Agreement") by
and among PHC, PHC-SUB and the former stockholders (the "Stockholders") of
Greater Cincinnati Gastroenterology Associates, Inc. (the "Former Practice"),
PHC acquired the Former Practice (the "Reorganization").
B. Prior to the Reorganization, each of the current physician employees
of the Practice had practiced medicine as a physician employee of the Former
Practice.
C. PHC-SUB and its Affiliates (as defined herein) are engaged in the
business of providing high quality healthcare management services in the form of
(1) physician practice management, development and administration, and (2)
physician network development, marketing, management and administration.
D. In conjunction with the Reorganization, but prior to its effective
time, physician employees terminated their employment relationships with the
Former Practice and entered into relationships with the Practice, which will
continue to practice medicine and provide medical services to patients at
various medical offices in the metropolitan Cincinnati area with practice
management services being provided by PHC-SUB pursuant to this Agreement.
E. PHC-SUB and the Practice desire to enter into this Agreement for (1)
the provision of practice management and development services by PHC-SUB to the
Practice and (2) the provision by PHC-SUB of facilities, personnel, equipment
and supplies necessary to operate the Practice, pursuant to the terms and
conditions hereof, to permit the Practice and each of its physician employees to
devote their respective efforts on a concentrated and continuous basis to the
rendering of medical services to their patients.
F. PHC owns all the issued and outstanding capital stock of PHC-SUB and
is a party to this Agreement for the sole purpose of guaranteeing the full and
complete performance by PHC-SUB of the obligations, duties and covenants of PHC-
SUB owed to the Practice hereunder.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1
<PAGE>
SECTION 1. GENERAL PRACTICE GOVERNANCE AND MUTUAL PLEDGE OF SUPPORT.
(a) As described more fully in this Agreement, the Practice will continue
to operate independently of PHC-SUB with broad control over the day-to-day
operations of the Practice remaining with the directors and officers of, and the
physicians employed by, the Practice. PHC-SUB shall (i) consult with the
Practice and its physician employees as to the method of PHC-SUB's performance
of the General Management Services (as defined herein) and (ii) follow the
reasonable advice thereon of the Practice in a cooperative effort to promote the
future development and success of the Practice.
(b) The Practice acknowledges that among the reasons it is entering into
this Agreement is to gain access to the strategic planning, financing, ancillary
services development, managed care, purchasing groups, information systems,
consulting and other practice management and development, expertise that PHC-SUB
can make available to the Practice, as well as the potential greater
efficiencies and economies of scale to be recognized by centralizing certain
management services to be provided by PHC-SUB to the Practice and the formation
of multi-specialty or single specialty physician practice groups within the
Practice. Consistent with the Practice's control and direction over its day-to-
day operations, the Practice and PHC-SUB pledge to work together to identify and
take advantage of such opportunities for the achievement of greater efficiency
and economies in the operation of the Practice. With the support of PHC-SUB
through the establishment and operation of the Joint Policy Board (as described
in Section 6 hereof), the Practice and PHC-SUB will work together to develop
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and implement strategic plans related to expansion of ancillary and other
services provided by, and the addition of medical offices, physicians and other
professional personnel to, the Practice.
SECTION 2. DEFINITIONS.
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principals, as in effect from time
to time ("GAAP") applied on a consistent basis.
As used herein, the following capitalized terms shall have the meanings
ascribed to such terms below:
2.1. "ADJUSTED NET PRACTICE REVENUE" means, for any period, the Net
Practice Revenues minus the New Practice Employee Expenses.
2.2. "AFFILIATE" of a corporation means (a) any person or entity directly
or indirectly controlled by such corporation, (b) any person or entity directly
or indirectly controlling such corporation, (c) any subsidiary of such
corporation if the corporation has a fifty percent (50%) or greater equity
ownership interest in the subsidiary, or (d) such corporation's parent
corporation if the parent has a fifty percent (50%) or greater ownership
interest in the corporation.
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2.3. "AGENT" means such person or entity as may be appointed by PHC-SUB
in writing to the Practice from time to time to serve as Agent hereunder.
2.4. "CHAMPUS" means, collectively, the Civilian Health and Medical
Program of the Uniformed Service, a program of medical benefits covering former
and active members of the uniformed services and certain of their dependents,
financed and administered by the United States Departments of Defense, Health
and Human Services and Transportation, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program including
(a) all federal statutes (whether set forth in 10 U.S.C. (S)(S)1071-1106 or
elsewhere) affecting such program; and (b) all rules, regulations, (including 32
C.F.R. (S)199), manuals, orders and administrative, reimbursement and other
guidelines of all governmental authorities promulgated in connection with such
program (whether or not having the force of law), in each case as the same may
be amended, supplemented or otherwise modified from time to time.
2.5. "CHAMPUS RECEIVABLE" means a Receivable payable pursuant to CHAMPUS.
2.6. "CHAMPVA" means, collectively, the Civilian Health and Medical
Program of the Department of Veteran Affairs, a program of medical benefits
covering retirees and dependents of former members of the armed services
administered by the United States Department of Veteran Affairs, and all laws,
rules, regulations, manuals, orders, guidelines or requirements pertaining to
such program, including (a) all federal statutes (whether set forth in 38 U.S.C.
(S)1713 or elsewhere) affecting such program or, to the extent applicable to
CHAMPVA, CHAMPUS; and (b) all rules, regulations (including 38 C.F.R. (S)17.54),
manuals, orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
2.7. "CHAMPVA RECEIVABLE" means a Receivable payable pursuant to CHAMPVA.
2.8. "COLLATERAL" means all property mortgaged, pledged or otherwise
purported to be subject to a lien pursuant to the Credit Agreement.
2.9. "CREDIT AGREEMENT" means any credit, lending or financing agreement
entered into by PHC in connection with the financing of the transactions
contemplated by the Reorganization Agreement.
2.10. "DEPOSITORY BANK" has the meaning set forth in SECTION 7.4(B).
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2.11. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.12. "GOVERNMENT ADVANCE" has the meaning set forth in SECTION 7.4(C).
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2.13. "GOVERNMENT RECEIVABLES" means, collectively, any and all
Receivables which are (a) Medicare Receivables, (b) Medicaid Receivables, (c)
CHAMPUS Receivables, (d) CHAMPVA Receivables, or (e) any other Receivable
payable by a governmental authority approved by the Agent.
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2.14. "GOVERNMENT RECEIVABLES PAYMENT AMOUNT" means, for any month, the
product of (a) the Practice Government Collection Percentage for the twelve (12)
month period immediately preceding such month, times (b) the total amount of all
Government Receivables arising during such month.
2.15. "GROSS MONTHLY PAYMENT AMOUNT" means the sum of the Private
Receivables Payment Amount plus the Government Receivables Payment Amount.
2.16. "HCFA" means the Health Care Financing Administration, an agency of
the United States Department of Health and Human Services, and any successor
thereto.
2.17. "MATERIAL ADVERSE EFFECT" means, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related, a material
adverse change in, or a material adverse effect upon, any of the financial
condition, operations, business, properties or prospects of the Practice.
2.18. "MEDICAID" means, collectively, the healthcare assistance program
established by Title XIX of the Social Security Act (42 USC (S)(S)1396 et seq.)
and any statutes succeeding thereto, and all laws, rules, regulations, manuals,
orders, guidelines or requirements pertaining to such program including (a) all
federal statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting such program; (b) all state statues and plans for medical
assistance enacted in connection with such program and federal rules and
regulations promulgated in connection with such program; and (c) all applicable
provisions of all rules, regulations, manuals, orders and administrate,
reimbursement, guidelines and requirements of all government authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
2.19. "MEDICAID PROVIDER AGREEMENT" means an agreement entered into
between a state agency or other entity administering Medicaid in such state and
a healthcare facility or physician under which the healthcare facility or
physician agrees to provide services or merchandise for Medicaid patients.
2.20. "MEDICAID RECEIVABLE" means a Receivable payable pursuant to a
Medicaid Provider Agreement.
2.21. "MEDICARE" means, collectively, the health insurance program for the
aged and disabled established by Title XVIII of the Social Security Act (42 USC
(S)(S)1395 et seq.) and any statutes succeeding thereto, and all laws, rules,
regulations, manuals, orders or guidelines pertaining to such program including
(a) all federal statutes (whether set forth in Title XVIII of the Social
Security Act or elsewhere) affecting such program; and (b) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all governmental authorities
promulgated in connection with such program
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(whether or not having the force of law), in each case as the same may be
amended, supplemented or otherwise modified from time to time.
2.22. "MEDICARE PROVIDER AGREEMENT" means an agreement entered into
between a state agency or other entity administering Medicare in such state and
a healthcare facility or physician under which the healthcare facility or
physician agrees to provide services or merchandise for Medicare patients.
2.23. "MEDICARE RECEIVABLE" means a Receivable payable pursuant to
Medicare Provider Agreement.
2.24. "MEDICAL OFFICE" means any of the medical offices provided by PHC-SUB
that are utilized, in whole or in part, by the Practice.
2.25. "NET PRACTICE REVENUES" means, for any fiscal period, (i) all
revenues recognized by or on behalf of the Practice or any of its Practice
Employees, including New Practice Employees, as a result of professional medical
services furnished to patients, ancillary services furnished to patients,
pharmaceuticals and other items and supplies sold to patients; (ii) revenues
received by the Practice from the purchase of its accounts receivable by PHC-SUB
as provided in Section 7 hereof; and (iii) other fees or income received by the
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Practice or its Practice Employees in their capacity as Practice Employees,
whether rendered in an inpatient or outpatient setting and whether rendered to
health maintenance organizations, preferred provider organizations, Medicare,
Medicaid or other patients, including, but not limited to, payments received
under any capitation arrangement (including, without limitation, monthly
capitation payments, bonus payments, risk pool payments, etc.). For the
purposes of this Agreement, only the professional component of New Ancillary
Service Revenue shall be included in Net Practice Revenues.
2.26. "NEW ANCILLARY SERVICE EXPENSES" means, for any fiscal period, all
expenses paid during such period by PHC-SUB in generating New Ancillary Service
Revenue, including, without limitation, the costs of facilities, equipment,
supplies, staff and technicians directly associated therewith and the direct
capital expenses (not to exceed the sum of interest expense plus depreciation
attributable to the capital expenditure in question) associated therewith.
2.27. "NEW ANCILLARY SERVICE REVENUE" means, for any fiscal period, all
revenue generated during such period by the Practice as a result of new
ancillary services furnished to patients unlike in nature or in scope the
ancillary services that were provided by the Practice immediately prior to the
Effective Date (excluding, in any event, services in connection with Consultants
for Clinical Research, "New Ancillary Services"), except for the professional
medical services revenue component of such new ancillary services, which
component shall constitute a portion of Net Practice Revenue or New Practice
Employee Revenue, as applicable, for such period.
2.28. "NEW PRACTICE EMPLOYEE" means any physician Practice Employee who
was not employed by or under contract with the Practice as of the Effective
Date.
2.29. "NEW PRACTICE EMPLOYEE EXPENSES" means, for any fiscal period, the
aggregate
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amount of salaries, benefits and recruitment expenses paid by the Practice
relating to the employment or engagement by the Practice of each New Practice
Employee.
2.30. "OPERATIONAL EXPENSES" means, for any fiscal period, all the
expenses and capitalized costs (other than PHC-SUB Expenses, Practice Expenses,
New Ancillary Service Expenses, and New Practice Employee Expenses) incurred by
PHC-SUB in the provision of the General Management Services and the Practice
Development Services to the Practice pursuant to this Agreement and such other
expenses of a kind set forth in the Annual Budget (as defined in Section 41)
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for provision of services by PHC-SUB to the Practice (provided that, with
respect to any Operational Expenses required to be capitalized under GAAP, the
capitalized cost of the item shall not be an Operational Expense, but the
depreciation or amortization of such expense by PHC-SUB shall be an Operational
Expense), including, but not limited to, the following:
(a) salaries, benefits (including any deferred compensation) and other
costs relating to the employment or engagement by PHC-SUB of employees or
independent contractors to provide services for the Practice, including a pro-
rata share of expenses relating to employees or independent contractors who
provide services to the Practice and to other persons or entities;
(b) professional liability insurance premiums and deductibles to the extent
provided in Section 10 hereof, including premiums and deductibles related to
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policies obtained pursuant to Section 103 hereof;
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(c) Practice Employee licensure fees, board certification fees, and
hospital staff privilege dues;
(d) obligations under leases or subleases for the Medical Offices and
equipment used by the Practice;
(e) personal property and intangible taxes assessed against assets used by
the Practice and state and local business taxes, fees and charges of the
Practice or of PHC-SUB and related to the Practice;
(f) charitable contributions approved in the Annual Budget or by a
unanimous vote of the Joint Policy Board (as defined in Section 6);
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(g) depreciation, amortization and all other expenses related to FF&E (as
defined in Section 34 hereof);
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(h) interest expenses or other costs of funds on indebtedness incurred by
PHC-SUB or PHC to finance or refinance any of its obligations hereunder or
services provided under this Agreement, including such expenses related to
salary advances for Practice Employees as approved by the Joint Policy Board;
(i) medical and office supply expenses, including pharmaceutical products;
(j) utility expenses and all other costs relating to the Medical Offices,
including without limitation, costs of repairs, maintenance, telephone, normal
janitorial services, refuse
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disposal;
(k) insurance premiums for general comprehensive liability insurance
(including without limitation insurance relating to the potential liability of
PHC-SUB arising out of the operation of the Practice) and workers' compensation
insurance for PHC-SUB's employees described in Section 232 hereof;
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(l) expenses related to billing and collecting for payment for services
rendered by the Practice;
(m) expenses relating to the recruitment of physicians and any other
personnel for the Practice; and
(n) all dues and fees for hospital and medical staff memberships for
Practice Employees.
2.31. "PAYOR INSTRUCTION LETTER" has the meaning set forth in SECTION
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7.4(B).
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2.32. "PHC-SUB EXPENSE" means any expense paid by PHC-SUB not directly
related to the Practice or the provision by PHC-SUB of the General Management
Services including, but not limited to, the following:
(a) corporate overhead charge of or allocated to PHC-SUB other than the
kind of items listed in Section 229 hereof, except as may be otherwise agreed
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upon by PHC-SUB and the Practice;
(b) amortization expense resulting from the amortization of Management
Agreement Costs (as defined in Section 84 hereof) in connection with this
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Agreement or the Reorganization Agreement;
(c) interest expense or other cost of funds on indebtedness incurred by PHC
or PHC-SUB to finance the purchase price paid or withheld pursuant to any
liabilities assumed by PHC-SUB under the Reorganization Agreement;
(d) federal and state income taxes of PHC-SUB, PHC, or any of their
Affiliates and the costs of preparing their respective federal and state income
and employment tax returns and other related filings; and
(e) liability judgments assessed against PHC-SUB, PHC or any of that
affiliates or any employees or agents thereof in excess of applicable insurance
policy limits.
PHC-SUB Expense shall not include any New Ancillary Service Expenses and
any New Practice Employee Expenses.
2.33. "PRACTICE EMPLOYEE" means any individual:
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(1) who is (a) duly licensed to practice medicine and (b) an employee
or independent contractor of the Practice, including the physician
shareholders of the Practice, or
(2) who is (a) required by contract, law or regulatory authority to be
employed by or whose services are required to be billed through a licensed
physician for purposes of obtaining payment or reimbursement for such
services or otherwise and (b) provides medical services to patients of the
Practice, including, without limitation, nurse practitioners, certified
registered nurse anesthetists, physician assistants, fellows, surgical
assistants, certified nurse midwives, individuals with a masters degree in
social work, physical therapists, psychologists, and any other similar
individuals.
Notwithstanding, anything contained here to the contrary, the Practice may,
at its discretion, retain other non-professional employees to provide other
services to the Practice or its Practice Employees, provided that all expenses
related to such non-professional employees shall constitute Practice Expenses
and not Operational Expenses, and such non-professional employees shall not be
considered "Practice Employees" for the purposes of this Agreement.
2.34. "PRACTICE EXPENSE" means any expense of the Practice which is not an
Operational Expense, a PHC-SUB Expense, a New Ancillary Service Expense, or a
New Practice Employee Expense. Practice Expenses shall include, without
limitation, the following:
(a) all salaries or benefits (including, for example, deferred compensation
benefits and health insurance benefits) payable with respect to Practice
Employees or compensation paid or payable to physician independent contractors,
including New Practice Employee Expenses;
(b) all federal, state or local income and employment taxes of the Practice
and the costs of preparing its federal, state or local income and employment tax
returns;
(c) all costs of membership in professional associations and continuing
professional education expenses, including subscriptions, for Practice
Employees;
(d) all liability judgments assessed against the Practice or Practice
Employees in excess of policy limits;
(e) all costs of employees providing personal services to particular
Practice Employees and like expenses personal in nature;
(f) the General Management Fee;
(g) the Practice Development Fee;
(h) the Payor Contracting Development Fee;
(i) automobile allowances for physician Practice Employees;
(j) entertainment expenses; and
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(k) all other expenses to be taken as Practice Expenses as specifically set
forth herein.
2.35. "PRE-DISTRIBUTION PROFIT MARGIN" means, for any fiscal period, the
amount equal to the Adjusted Net Practice Revenue minus the Operational Expenses
for such period.
2.36. "PRACTICE GOVERNMENT COLLECTION PERCENTAGE" means the ratio,
expressed as a percentage, of (a) payments received by the Practice or PHC-SUB
on the account of the Practice's Government Receivables during the twelve (12)
month period immediately preceding any date of determination to (b) the total
amount of the Practice's Government Receivables billed during such twelve (12)
month period.
2.37. "PRACTICE LOCKBOX" has the meaning set forth in SECTION 7.4(B).
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2.38. "PRACTICE MANAGEMENT SECURITY AGREEMENT" means the security
agreement between the Agent and the Practice in the form prescribed by the
Credit Agreement or, in lieu thereof or in addition thereto, any security
agreement required by PHC-SUB to secure any advances made by it under this
Agreement.
2.39. "PRACTICE PRIVATE COLLECTION PERCENTAGE" means the ratio, expressed
as a percentage, of (a) payments received by the Practice or PHC-SUB on the
account of the Practice's Private Receivables during the twelve (12) month
period immediately preceding any date of determination to (b) the total amount
of the Practice's Private Receivables billed during such twelve (12) month
period.
2.40. "PRIVATE RECEIVABLE" shall have the meaning given to such term in
Section 7.4.
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2.41. "PRIVATE RECEIVABLES PAYMENT AMOUNT" means, for any month, the
product of (a) the Practice Private Collection Percentage for the twelve (12)
month period immediately preceding such month, times (b) the total amount of all
Private Receivables arising during such month.
2.42. "PUBLIC OFFERING" means any method or means by which PHC initially
accesses any public capital market for any shares of its capital stock,
including without limitation, an initial public offering of the shares of the
common stock of PHC.
2.43. "RECEIVABLE" means, as at any date of determination thereof, the
unpaid portion of the obligation, as stated in the receptive invoice, of a
patient of the Practice or any of the Practice Employees in respect of Inventory
(as defined in Article 9 of the Uniform Commercial Code of the State of Ohio) or
services rendered in the ordinary course of business, which amount has been
earned by performance under the terms of the related contract and recognized as
revenue on the books of the Practice, net of any credits, rebates or offsets
owed to such patient or any Third Party Payor in respect thereof and also net of
any commissions payable to any person or entity other than PHC-SUB, any of its
Affiliates, the Practice, or any of their employees.
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2.44. "SECURED PARTY" means any of the secured parties to the Practice
Management Security Agreement(s).
2.45. "THIRD PARTY PAYORS" means any governmental entity, insurance
company, health maintenance organization, preferred provider organization
employer or other person or similar entity that is obligated to make payments
with respect to a Receivable.
SECTION 3. GENERAL MANAGEMENT SERVICES.
PHC-SUB shall render to the Practice the general management services and
provide personnel, office space, equipment and supplies as set out in this
Section 3 (collectively the "General Management Services").
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3.1. PHC-SUB PERSONNEL.
(a) PHC-SUB shall employ and provide to the Practice, as reasonably
requested by the Practice: (i) all nurses (except for nurses who shall be
Practice Employees pursuant to Section 2.33 hereof), medical records personnel
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and other medical support personnel as shall be reasonably necessary for the
operation of the Practice at the Medical Offices; (ii) all business office
personnel (i.e., clerical, secretarial, bookkeeping and revenue collection
personnel) as shall be reasonably necessary for the maintenance of patient
records, collection of accounts receivable and upkeep of the financial records
of the Practice; and (iii) an office administrator (the "Administrator") as
shall be reasonably necessary to manage and administer, subject to the terms and
conditions hereof, all of the day-to-day routine business functions and services
of the Practice.
(b) As to the personnel provided by PHC-SUB to the Practice under Section
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3.1, (a) PHC-SUB shall consult with the Practice as to the salaries of all such
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personnel and shall follow the Practice's reasonable advice thereon. As of the
Effective Date, the Stockholders shall cause the plans, agreements, arrangements
and understandings set forth in Schedule 2.12 to the Reorganization Agreement to
be amended to provide for the eligibility of the Transferred Employees (as
defined in the Reorganization Agreement) as "leased employees" in accordance
with the applicable provisions of the Internal Revenue Code of 1986 (the "Code")
and ERISA. Notwithstanding the foregoing, the Practice shall not maintain a
self-insured group health plan after the Effective Date which provides benefits
to the Transferred Employees. As requested by the Practice, PHC-SUB shall
identify and recommend personnel candidates for all such positions to perform
services at the Medical Offices; provided, however, that the Practice shall have
the right to direct and approve, based solely on professional competence, the
assignment of all non-physician medical support personnel to provide services at
the Medical Offices. PHC-SUB shall, at the Practice's request, remove from the
Practice and reassign or replace any such personnel who are not, in the
Practice's professional judgment, adequately performing the required services.
In providing its consultation and advice with regard to personnel as provided to
the Practice pursuant to Section 3.1 (a) hereof, neither the Practice nor
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PHC-SUB shall discriminate against such personnel on the basis of race,
religion, age, sex, disability or national origin in violation of any applicable
federal or state law. All the Practice's and PHC-SUB's obligations regarding
staff
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of the Practice shall be governed by the overriding principle and goal of
providing high quality medical care. Employee assignments shall be made to
assure consistent and continued rendering of high quality medical support
services and to ensure prompt availability and accessibility of individual
medical support personnel to physicians in order to develop constant, familiar
and routine working relationships between individual physicians and individual
members of the medical support personnel.
3.2. MEDICAL OFFICES.
PHC-SUB shall lease or sublease the Medical Offices, and hereby grants the
Practice the exclusive right in conjunction with PHC-SUB, during the term of
this Agreement, to use, subject to the terms and conditions of such lease or
sublease, the Medical Offices for the practice of medicine and the performance
of services ancillary thereto. PHC-SUB shall provide, manage and maintain the
Medical Offices in good condition and repair, including the provision of routine
janitorial services and maintenance services, subject to the terms of the
various leases. PHC-SUB shall pay rent as due, provide utilities, and pay
other related expenses, consistent with the Annual Budget.
3.3. LICENSE OF PRACTICE NAME.
PHC-SUB hereby licenses the Practice to use the name "Greater Cincinnati
Gastroenterology Associates" during the term of this Agreement; provided,
however, such license shall terminate upon any termination of this Agreement.
3.4. FURNITURE, FIXTURES AND EQUIPMENT.
PHC-SUB agrees to provide to the Practice those supplies and items of
furniture, fixtures and equipment reasonably determined in the Practice's
discretion to be necessary and/or appropriate for the Practice's operations at
the Medical Offices during the term of this Agreement (all such items of
furniture, fixtures and equipment are collectively referred to hereinafter as
the "FF&E"). Title to the existing, additional and replacement FF&E shall be in
the name of PHC-SUB or its nominee or a leasing company. PHC-SUB shall be
responsible for all repairs and maintenance of the FF&E. The FF&E provided
shall be at least reasonably equivalent to that of the Practice immediately
prior to the Effective Date.
The Practice acknowledges that PHC-SUB makes no warranties or
representations, express or implied, as to the fitness, suitability or adequacy
of any furniture, fixtures, equipment, inventory, or supplies which are leased
or provided to the Practice pursuant to this Agreement, for the conduct of a
medical practice or for any other particular purpose.
3.5. BUSINESS OFFICE SERVICES.
(a) PHC-SUB shall provide or cause to be provided all management and
administrative business functions and services related to the Practice's
services during the term of this Agreement as reasonably requested or approved
by the Practice, including but not limited to all reasonable and necessary
computer, bookkeeping, billing and collection services, accounts
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receivable and accounts payable management services, laundry, linen, janitorial
and cleaning services and management services. The provision of all such
management and administrative business functions and services shall be performed
in a manner and by such PHC-SUB personnel as shall be reasonably requested by
the Practice. At the reasonable request or with the approval of the Practice,
certain management and administrative business functions and services related to
the Practice may be centralized in PHC-SUB, PHC or affiliated sites located
outside the Medical Offices. Without limiting the generality of the foregoing,
PHC-SUB shall perform the following functions:
(i) Administer all managed care contracts on behalf of the
Practice, all such managed care contracts being subject to approval by the
Joint Policy Board as set forth in Section 6.1;
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(ii) Provide ongoing assessment of business activity including
product line analysis, outcomes monitoring and patient satisfaction;
(iii) Order and purchase all medical and office supplies reasonably
required in the day-to-day operation of the Practice at the Medical
Offices;
(iv) Negotiate for and cause premiums to be paid with respect to the
insurance provided for in Section 10 hereof;
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(v) Bill and collect from patients all professional fees for
medical services and for ancillary services performed at or on behalf of
the Practice and the Practice Employees. The Practice hereby appoints PHC-
SUB for the term of this Agreement as its true and lawful attorney in fact
for the following purposes:
(1) To bill patients in the Practice's name and on the
Practice's behalf, and in the name and on behalf of all Practice
Employees;
(2) To collect accounts receivable generated by such billings
in the Practice's name and on the Practice's behalf, and in the name
and on behalf of all Practice Employees;
(3) To receive, on behalf of the Practice and all Practice
Employees, payments from patients, insurance companies, Medicare,
Medicaid and all other payers with respect to services rendered by the
Practice and Practice Employees, and the Practice hereby covenants to
forward such payments to PHC-SUB for deposit;
(4) To take possession of and endorse in the name of the
Practice, or in the name of any Practice Employee, any notes, checks,
money orders, insurance payments and any other instruments received as
payment of such accounts receivable; and
(5) To initiate and pursue legal proceedings in the name of the
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Practice, to collect any accounts and moneys owed to the Practice or
any Practice Employee, to enforce the rights of the Practice as
creditors under any contract or in connection with the rendering of any
service, and to contest adjustments and denials by governmental
agencies (or its fiscal intermediaries) as third-party payors.
(b) PHC-SUB agrees that the Practice and only the Practice will perform the
medical functions of its practice. PHC-SUB will have no authority, directly or
indirectly, to perform, and will not perform, any medical function. PHC-SUB
may, however, advise the Practice as to the relationship (if any) between its
performance of medical functions and the overall administrative and business
functioning of its practice. To the extent that they assist the Practice in
performing medical functions, all clinical personnel provided by PHC-SUB who
perform patient care services shall be subject to the professional direction and
supervision of the Practice and, in the performance of such medical functions,
shall not be subject to any direction or control by, or create any liability on
behalf of, PHC-SUB, except as may be specifically authorized by PHC-SUB.
3.6. PATIENT AND FINANCIAL RECORDS.
PHC-SUB shall own and maintain all files and records (other than medical
records) relating to the operation of the Practice in such manner and method as
reasonably directed by the Practice, including, but not limited to, customary
financial records and patient files. PHC-SUB shall use its best efforts to
manage all files and records in compliance with all applicable federal, state
and local statutes and regulations, and all files and records shall be located
so that they are readily accessible for patient care, consistent with ordinary
records management practices.
The Practice shall supervise the preparation of, and direct the contents
of, patient medical records, all of which shall be and remain confidential and
the property of the Practice. PHC-SUB shall have reasonable access to such
records and, subject to applicable laws, regulations and accreditation policies,
PHC-SUB shall be permitted to retain true and complete copies of such records.
PHC-SUB shall maintain all medical records owned by it at the Effective
Date, will provide the Practice with full access to such medical records and
will not relocate or destroy such medical records without the Practice's prior
written consent.
3.7. FINANCIAL STATEMENTS.
PHC-SUB shall prepare and deliver to the Practice monthly financial
statements within thirty (30) days after the end of each month and a year-end
financial statement within one hundred twenty (120) days after the end of each
calendar year, in a form mutually acceptable to PHC-SUB and the Practice,
reflecting Net Practice Revenue, Operational Expenses, the General Management
Fee, the Practice Development Fee, the Payor Contracting Development Fee, PHC-
SUB Expenses, Adjusted Net Practice Revenue, New Ancillary Service Expenses, New
Ancillary Service Revenue, New Practice Employee Expenses, and the Pre-
Distribution Profit Margin, for such period.
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<PAGE>
3.8. PAYMENT OF OPERATIONAL EXPENSES AND PHC-SUB EXPENSES.
All Net Practice Revenues shall be deposited in a bank account in the name
of the Practice. PHC-SUB shall have the authority to pay all Practice Expenses
from such account, including without limitation, all fees due and payable to
PHC-SUB hereunder and to reimburse itself for all expenses advanced by PHC-SUB
to or on behalf of the Practice, including without limitation, Operational
Expenses and New Practice Employee Expenses.
SECTION 4. PRACTICE DEVELOPMENT SERVICES.
PHC-SUB shall provide to the Practice the practice development services
provided for in this Section 4 which are intended to identify and evaluate for
---------
the Practice opportunities for: (i) expanding ancillary and other services and
adding Medical Offices and Practice Employees; and (ii) creating greater
efficiency and economy in the operation of the Practice (collectively the
"Practice Development Services") in a manner consistent with the provisions of
this Section 4 and the other provisions of this Agreement.
---------
4.1. FINANCIAL PLANNING AND GOALS.
PHC-SUB will prepare, in consultation with the Practice, an annual budget
(the "Annual Budget") for the Practice, reflecting in reasonable detail
anticipated revenues, expenses, sources and uses of capital for growth,
personnel staffing, and anticipated ancillary services. The Annual Budget shall
be subject to review and approval by the Joint Policy Board, in accordance with
Section 6 hereof. Subject to such approval, the access to needed working
- ---------
capital and capital expenditures provided therein shall be provided by PHC-SUB.
4.2. RECRUITMENT OF NEW PRACTICE EMPLOYEES.
At the request of the Practice, PHC-SUB shall perform administrative
services relating to the recruitment of Practice Employees. The decision to
retain a New Practice Employee shall be made by the Joint Policy Board, as set
forth in Section 6, provided the Practice shall interview and hire each
---------
individual New Practice Employee and all such personnel shall be employees,
independent contractors or agents of the Practice.
4.3. MANAGED CARE RELATIONSHIPS.
PHC-SUB shall assist the Practice in evaluating and developing
relationships and affiliations with other physicians, physician practices,
physician networks, hospitals, integrated delivery systems and managed care
organizations ("Managed Care Relationships") that may expand or increase the
business or value of the Practice. The Practice shall cooperate with PHC-SUB
and contribute reasonable efforts to assist PHC-SUB in its efforts to pursue
Managed Care Relationships. All decisions regarding initiating or terminating
Managed Care Relationships shall be subject to the review and approval of the
Joint Policy Board.
14
<PAGE>
4.4. EXPANSION OF THE PRACTICE.
PHC-SUB shall assist the Practice in evaluating and adding additional
office space, new Medical Offices, new office-based procedures and services, and
new ancillary services, as provided for in the Annual Budget or otherwise
approved by the Joint Policy Board. PHC-SUB and the Practice hereby pledge
their mutual intention and support for such reasonable expansion of the
Practice.
4.5. PRACTICE ASSESSMENT AND CONSULTING SERVICES.
PHC-SUB shall assess Practice performance including product line analysis,
outcomes monitoring and patient satisfaction. PHC-SUB shall develop systems to
track revenues, expenses, utilization, quality improvement, Practice and
physician productivity, and patient satisfaction. PHC-SUB shall arrange for or
provide business and financial management consultation and advice reasonably
requested by the Practice and directly related to the operations of the Practice
pursuant to this Agreement.
4.6. PAYOR CONTRACTING DEVELOPMENT SERVICES.
Directly or through an Affiliate, PHC-SUB shall dedicate reasonable efforts
to develop and foster payor relationships and secure additional and more
favorable managed care contracts on behalf of the Practice, including, but not
limited to, marketing services, physician network development services, and
contract development services on behalf of the Practice (the "Payor Contracting
Development Services").
SECTION 5. OBLIGATIONS OF THE PRACTICE.
5.1. PRACTICE EXPENSES.
The Practice shall be solely responsible for the payment of all of Practice
Expenses, as herein defined. The Practice shall pay all Practice Expenses as
they fall due; provided, however, the Practice may contest in good faith any
such claimed expense as to which there is any dispute.
5.2. PROFESSIONAL STANDARDS.
The professional services provided by the Practice and the Practice
Employees shall be performed solely by or under the supervision of physicians
licensed to practice medicine and shall at all times be provided in accordance
with applicable ethical standards, laws and regulations applying to the medical
profession. The Practice shall, with the assistance of PHC-SUB if so requested,
resolve any utilization management or quality improvement issues which may arise
in connection with the Practice.
If any disciplinary actions or professional liability actions are initiated
against the Practice or any Practice Employee, the Practice shall immediately
inform PHC-SUB of such action and the underlying facts and circumstances. PHC-
SUB shall similarly inform the Practice of any
15
<PAGE>
such disciplinary actions or professional liability actions initiated against
the Practice or any Practice Employee of which it first becomes aware.
The Practice shall establish and maintain procedures to assure the
consistency and quality of all professional medical services provided by the
Practice, and PHC-SUB shall render administrative assistance to the Practice as
requested in furtherance thereof.
5.3. PHYSICIAN POWERS OF ATTORNEY.
The Practice shall require all Practice Employees to execute and deliver to
PHC-SUB powers of attorney, satisfactory in form and substance to PHC-SUB,
appointing PHC-SUB as attorney in fact for each such Practice Employee for the
purposes set forth in Section 3.5(a)(v).
-----------------
5.4. RESTRICTIVE COVENANTS.
(a) The Practice acknowledges and agrees that the services to be provided
by PHC-SUB hereunder are feasible only if the Practice operates a vigorous
medical practice to which the Practice Employees devote their full time and
attention. Accordingly, the Practice agrees that except as set forth on Exhibit
-------
5.4(a) attached hereto, it shall not, without the prior written consent of PHC-
- ------
SUB, establish, operate or provide physician services substantially similar to
those professional medical, surgical and related ancillary services offered by
the Practice other than pursuant to this Agreement, during the term of this
Agreement and for a period of twelve (12) months following this Agreement within
a twenty (20) mile radius of any Medical Office. Except as set forth below, the
Practice shall obtain, maintain, update and reasonably enforce agreements with
its physician Practice Employees, satisfactory in form and substance to PHC-SUB,
pursuant to which physician Practice Employees shall agree: (i) not to
establish, operate or provide physician medical or surgical services
substantially similar to those professional medical, surgical and related
ancillary services offered by the Practice other than on behalf of the Practice
and pursuant to this Agreement, without the prior written consent of PHC-SUB,
while such physician is a Practice Employee during the term of this Agreement;
and (ii) not to provide physician services substantially similar to those
professional medical and surgical services provided by such physician on behalf
of the Practice within a twenty (20) mile radius of each of the Medical Offices
for a period of two (2) years following the termination of the professional
relationship between such physician and the Practice. PHC-SUB shall be expressly
named as a third-party beneficiary to such agreements between the Practice and
each physician Practice Employee. Notwithstanding the foregoing, the agreement
that Practice shall be required to obtain, maintain, update and reasonably
enforce with respect to Dr. Mangels shall provide that the provisions set forth
in clause (ii) of this paragraph shall not apply to Dr. Mangels unless and until
Dr. Mangels remains a Practice Employee through the first annual anniversary of
the Effective Date. Further notwithstanding the foregoing, following the eighth
anniversary of the Effective Date, a physician who was a shareholder in the
Practice on the Effective Date of this Agreement shall be released by PHC-SUB
from his or her covenant not-to-compete as set forth in this Section 5.4(a) upon
--------------
payment to PHC-SUB of the consideration set forth in Exhibit 5.4(a) attached
--------------
hereto. New Practice Employees shall not be required to enter into the
agreements containing restrictive covenants described in this Section 5.4(a)
--------------
provided that the Practice and the New Practice Employees agree in writing that
the New Practice Employees will provide ninety
16
<PAGE>
(90) days written notice prior to leaving the employment of the Practice.
(b) During the term of this Agreement and for a period of eighteen (18)
months following the termination or expiration of this Agreement, the Practice
shall not, without the prior written consent of PHC-SUB, employ, hire or
contract for services with any employee or former employee of PHC-SUB, nor shall
the Practice solicit any such person to leave the employ of PHC-SUB. For
purposes of this Section 5.4(b), a "former employee" shall be any person who was
--------------
employed by PHC-SUB within the six (6) months prior to the termination or
expiration of this Agreement. The Practice shall cause its Practice Employees
to enter into written agreements, satisfactory in form and substance to PHC-SUB,
pursuant to which such persons shall agree to be bound by the same restrictions
as set forth in this Section 5.4(b) with respect to the Practice and PHC-SUB,
--------------
and PHC-SUB shall be expressly named as a third-party beneficiary to such
agreements between the Practice and each physician Practice Employee.
(c) If this Agreement is terminated by PHC-SUB pursuant to Section 8.2(a)
--------------
or 82(b) hereof, the Practice shall not, for a period of two (2) years
-----
following the effective date of such termination, engage or contract with any
person, firm or entity (or group of affiliated entities) for the provision of
comprehensive management services of the kind contemplated by this Agreement.
If this Agreement is terminated for any reason, other than by PHC-SUB pursuant
to Section 8.2(a) or 8.2(b), then the restrictions of this Section 5.4(c) shall
-------------- ------ --------------
not apply.
(d) Notwithstanding any provisions of this Agreement providing for
mandatory arbitration, PHC-SUB and the Practice acknowledge and agree that PHC-
SUB's remedy at law for any breach or attempted breach of the foregoing
provisions of this Section 5.4 will be inadequate and that PHC shall be entitled
-----------
to specific performance, injunction or other equitable relief in the event of
any such breach or attempted breach, in addition to any other remedies which
might be available at law or in equity.
(e) Notwithstanding anything contained herein to the contrary, the
provisions of this Agreement shall not apply following the termination of this
Agreement in connection with the expiration of its 40 year term.
5.5. CONTINUING PROFESSIONAL EDUCATION.
The Practice shall ensure that each of its Practice Employees participates
in such continuing medical education activities as are necessary for such
physicians or other employees to remain current in their respective specialties,
including, but not limited to, the minimum continuing medical education
requirements imposed by applicable laws and policies of applicable specialty
boards.
5.6. CONTRACTS WITH PRACTICE EMPLOYEES.
Decisions regarding the addition of a New Practice Employee shall be made
by the Joint Policy Board pursuant to Section 6.1 hereof. In addition, the
-----------
Practice shall use its best efforts to consult with PHC-SUB prior to terminating
the employment by the Practice of any Practice Employee. The Practice shall
also, during the term of this Agreement, use its reasonable efforts
17
<PAGE>
to consult with PHC-SUB with regard to the terms and conditions of contracts or
other arrangements entered into between the Practice and Practice Employees.
Notwithstanding the foregoing, all decisions with respect to removing Practice
Employees, and with respect to the terms and conditions of contracts or other
arrangements in connection therewith, shall be made by the Practice, in its sole
and absolute discretion.
5.7. COOPERATION.
The Practice shall cooperate in the obtaining and maintaining of
professional liability insurance coverage on the Practice and Practice Employees
by assuring that it and its Practice Employees are insurable, and by
participating in an on-going risk management program. The Practice shall, and
shall cause its Practice Employees to, use their respective good faith efforts
to exercise diligence in assisting PHC-SUB to control costs and expenses of the
Practice without sacrificing professional standards or high quality patient
care. The Practice shall, and shall require Practice Employees to, exercise due
care to ensure that, when being used by the Practice Employees, medical
equipment utilized by the Practice is being used in a safe and efficient manner,
and shall timely report any unsafe or unsatisfactory equipment of which the
Practice, or any of its Practice Employees, is aware. The Practice acknowledges
and agrees that on execution of this Agreement, PHC-SUB intends to implement its
own policies and procedures, including, but not limited to, policies and
procedures regarding cash management and revenue controls. The implementation
of such policies and procedures shall be subject to the approval of the
Practice, such approval not to be unreasonably withheld. These policies and
procedures will be implemented as soon as reasonably practicable after execution
of this Agreement and may be revised or amended by PHC-SUB from time to time
thereafter during the term of this Agreement, subject to the approval of the
Practice. Upon their approval, the Practice agrees to cooperate with any such
implementation, revision, or enactment of PHC-SUB's policies and procedures. The
Practice also agrees to cooperate with, and participate in, any patient
satisfaction surveys and/or outcomes management surveys or programs instituted
or implemented by PHC-SUB, subject to approval by the Practice.
5.8. COVENANTS RELATING TO CREDIT AGREEMENT.
(a) The Practice will cause to be promptly and duly taken, executed,
acknowledged, and delivered all such further acts, documents, and assurances:
(i) as may from time-to-time be necessary or as the secured party to
the Practice Management Security Agreement may from time to time reasonably
request in order to carry out the intent and purposes of that document and
the transactions contemplated thereby, including all such actions to
establish, preserve, protect, and perfect the estate, right, title, and
interest to the Collateral (including Collateral acquired after the date
hereof) including first priority liens thereon; and
(ii) as the secured party under the Practice Management Security
Agreement may from time-to-time reasonably request to establish, preserve,
protect, and perfect first priority liens on the Net Practice Revenues and
the Receivables, now owned or hereafter acquired that are not Collateral on
the date hereof.
18
<PAGE>
(b) The Practice will use its best efforts to assist PHC-SUB in keeping
accurate and complete records of its Receivables.
(c) At the request of the Secured Party, the Practice will appoint the
Secured Party as its attorney-in-fact for the purpose of collecting the
Practice's Receivables, including, without limitation, its Governmental
Receivables, consistent with any limitations provided by law and will cooperate
with the Secured Party in signing or otherwise providing notices to Third Party
Payors with respect to this agency.
SECTION 6. JOINT POLICY BOARD.
6.1. FORMATION AND RESPONSIBILITIES OF JOINT POLICY BOARD.
PHC-SUB and the Practice shall establish a Joint Policy Board to be
comprised of three (3) members. PHC-SUB shall designate, in its sole
discretion, one (1) member to the Joint Policy Board. Initially, PHC-SUB will
designate Alan Safdi, M.D. to serve as a member of the Joint Policy Board. In
the event that Alan Safdi, M.D. is unable or unwilling to serve as PHC-SUB's
designee on the Joint Policy Board, PHC-SUB will designate Michael Safdi, M.D.
to serve as a member of the Joint Policy Board. In the event that both Alan
Safdi, M.D. and Michael Safdi, M.D. are unable or unwilling to serve as PHC-
SUB's designee on the Joint Policy Board, PHC-SUB may designate (with the
Practice's prior consent, which may be granted or withheld in its sole
discretion) any individual to the Joint Policy Board. In the event that the
Practice withholds its consent to PHC's first two such designees, the Practice
shall be obligated to propose three designees from which PHC-SUB (in its sole
discretion) shall select one to serve on the Joint Policy Board. The Practice
shall designate, in its sole discretion, two (2) members to the Joint Policy
Board. The Joint Policy Board shall consider, review, determine and approve, by
unanimous vote only, the following matters as they relate to the operation of
the Practice:
(i) the jointly developed Annual Budgets as prepared by PHC-SUB;
(ii) the long-term strategic planning objectives for the Practice;
(iii) operational or capital expenditures not included in the Annual
Budget greater than twenty-five thousand dollars ($25,000);
(iv) the opening or closing of any Medical Office;
(v) the addition of a New Practice Employee and the terms of any
contract with such employee;
(vi) the establishment or maintenance of Managed Care Relationships;
(vii) the addition of Practice provided New Ancillary Services;
19
<PAGE>
(viii) the setting of Practice provided New Ancillary Service fees and
collection policies and the distribution of New Ancillary Service Revenues
of the Practice between the Practice and PHC-SUB;
(ix) the purchase, lease or sublease of any real property by PHC-SUB
which will be used, in whole or in part, by the Practice;
(x) the establishment of performance and productivity incentives as
provided in Section 7.3 hereof;
-----------
(xi) such other matters requiring or permitting action by PHC-SUB as
set forth in Sections 3 and 4 hereof; provided, that the Joint Policy
---------- -
Board shall not have the exclusive decision-making authority over the
matters set forth in Sections 4.3, 4.5 or 4.6, and PHC-SUB may act pursuant
------------ --- ---
to those Sections in consultation with but without the approval of the
Joint Policy Board.
Notwithstanding any provision of this Agreement, it is acknowledged and
agreed that, while the parties to this Agreement shall be obligated to follow
the decisions of the Joint Policy Board as set forth above, the Joint Policy
Board does not have the legal authority or power to bind PHC-SUB or the Practice
with respect to any third party, and no person not a party hereto shall have any
right under or by virtue of any vote taken or decision made by the Joint Policy
Board.
Notwithstanding any provision of this Agreement, under no circumstances
shall PHC-SUB be deemed to be in breach of this Agreement as a result (whether
direct or indirect) of any vacancy on the Joint Policy Board resulting from any
of (i) the withholding of the Practice's consent to PHC-SUB's designees to the
Joint Policy Board, (ii) the failure of the Practice to propose in a timely
fashion the three designees from which PHC-SUB may choose (as set forth in the
introductory paragraph to this Section 6.1) or (iii) the inability or refusal of
-----------
any nominee to serve on the Joint Policy Board.
6.2. RESOLUTION MECHANISM FOR DIVIDED VOTE OF JOINT POLICY BOARD.
Except as set forth in this Section 6.2 below, on any matter on which there
-----------
is a divided vote among the members of the Joint Policy Board, the Joint Policy
Board shall consider the matter for at least thirty (30) days from the date of
such divided vote and make its best good faith efforts to reach a unanimous
consensus. If a unanimous consensus cannot be reached within thirty (30) days,
the Joint Policy Board, by majority vote, shall select any other PHC (or PHC
Affiliate) designated representative to another Joint Policy Board of another
PHC (or PHC Affiliate) affiliated practice, who shall consider the matter in
good faith and whose decision on such matter shall be final. Notwithstanding
the foregoing, on matters related to items (iii), (iv), (v) and (ix) of Section
-------
6.1, the Joint Policy Board may, by majority vote, submit such matter for
- ---
resolution pursuant to this Section 6.2, but shall not be required to do so; and
---
no expenditure greater than twenty-five thousand dollars ($25,000), no new
Medical Office, no closure of an existing Medical Office, no addition of a New
Practice Employee, and no purchase, lease or sublease of any real property shall
be undertaken by PHC-SUB on behalf of the Practice without
20
<PAGE>
a unanimous vote of the Joint Policy Board or resolution of a deadlock pursuant
to this Section 6.2.
-----------
6.3. ANNUAL BUDGET AND BUSINESS PLAN.
PHC-SUB shall be authorized to incur any operational, capital or other
expense approved by the Joint Policy Board pursuant to the Annual Budget. PHC-
SUB shall be required to seek the approval of the Joint Policy Board to incur an
expense exceeding the budgeted amounts specified in the annual business plan and
budget unless: (i) the expense is reasonable and does not exceed a line item
expense specified in the Annual Budget by more than twenty percent (20%) for any
twelve (12) month period; (ii) the total expenses for the applicable budget
year, on an annualized basis, do not exceed the total amount budgeted for such
year by more than ten percent (10%); or (iii) the expenditure is consented to by
the Joint Policy Board or the Practice. Notwithstanding the foregoing, PHC-SUB
may exceed budgeted amounts in the event the increase in the expenditure is
reasonable and is the result of an event beyond the control of PHC-SUB (e.g.,
increases in tax rates or utility charges, Acts of God, strikes and labor
disputes) provided that PHC-SUB shall provide notice of such a situation to the
Practice.
SECTION 7. FINANCIAL ARRANGEMENTS.
7.1. PHC-SUB COMPENSATION.
The Practice and PHC-SUB agree that the compensation described in this
Section 7.1 will be paid by the Practice to PHC-SUB in consideration of the
- -----------
substantial commitment made by PHC-SUB hereunder and that such compensation is
fair and reasonable.
(a) General Management Fee.
(i) As compensation for the provision by PHC-SUB of the General
Management Services, for the first five (5) years of this Agreement, PHC-
SUB shall receive, except as provided under Section 7.1(a)(ii) hereof, a
------------------
general management fee (the "General Management Fee") equal to the greater
of (i) the amount set forth on Schedule 7.1 as the Minimum Management Fee
------------
(the "Minimum Management Fee") and (ii) twenty percent (20%) of annual Pre-
Distribution Profit Margin, up to the amount set forth on Schedule 7.1 as
------------
the Cap (such twenty percent (20%) of the annual Pre-Distribution Profit
Margin, the "Cap").
From the fifth anniversary of the Effective Date through the
expiration or termination of this Agreement, PHC-SUB shall receive a
General Management Fee of twenty percent (20%) of the annual Pre-
Distribution Profit Margin, up to the Cap.
Contemporaneously with the execution of this Agreement, the Practice
shall cause each of the physician shareholders of the Practice to execute
and deliver to PHC-SUB a guaranty of payment of such physician's
proportionate share of the Minimum Management Fee for the first five (5)
years of this Agreement in the form of Exhibit
-------
21
<PAGE>
7.1(a) or Exhibit 7.1(b) hereto. Notwithstanding the foregoing, in the
------ --------------
event of death or disability of a physician shareholder of the Practice, or
in the event of the termination of employment of Dr. Jurell, Mangels or
Bekal with the Practice prior to the date that is eighteen (18) months
following the Effective Date, the guarantee of payment of such physician's
proportionate share of the Minimum Management Fee for the first five (5)
years of this Agreement shall be released, and the Minimum Management Fee
shall be reduced by the amount of such physician shareholder's
proportionate share; provided, however, that in such event the Joint Policy
Board shall agree to the addition of a New Practice Employee if so
requested by PHC-SUB.
During the second calendar quarter of each of the first five years
during the term of this Agreement beginning with the second calendar
quarter of 1998, Practice and PHC-SUB shall jointly undertake a review of
financial and operational trends at the Practice for the prior twelve (12)
month period (the "Annual Review"). In the event that an Annual Review
reveals a downward trend in reimbursement rates per professional procedure
performed by the Practice exceeding ten percent (10%) on a cumulative basis
since January 1, 1997 when compared to the twelve (12) month period ending
December 31, 1996, then the Minimum Management Fee shall be reduced (on a
cumulative basis and giving credit to reductions, if any, made in
connection with prior Annual Reviews) by the same percentage that
reimbursement rates declined on a cumulative basis compared to the twelve
(12) month period ending December 31, 1996. PHC-SUB and Practice agree to
cooperate fully and work in good faith with one another in connection with
each Annual Review. Disagreements arising out of any Annual Review shall
be submitted to Arbitration pursuant to the provisions of Section 14 of
----------
this Agreement.
(ii) Notwithstanding any other provisions of Section 7 hereof, if PHC
---------
shall not have consummated the Public Offering as of the end of the sixty-
sixth (66/th/) month following the Effective Date and the Practice shall
not have terminated this Agreement pursuant to Section 8.2(c)(iv) hereof,
------------------
then the General Management Fee shall be reduced by thirty percent (30%);
provided, however, that if PHC shall have commenced the Public Offering
prior to the date that is seven and one-half (7 1/2) years after the
Effective Date, then the General Management Fee shall, as of the date of
the commencement of the Public Offering, return to the original General
Management Fee.
(b) Practice Development Fee. As compensation for the provision by PHC-SUB
of the Practice Development Services, PHC-SUB shall receive a practice
development fee (the "Practice Development Fee") equal to twenty percent (20%)
of amount by which the annual Pre-Distribution Profit Margin exceeds the product
of (i) the Cap times (ii) five.
(c) Operational Expenses. PHC-SUB shall be reimbursed the amount of all
Operational Expenses paid by PHC-SUB.
(d) Managed Care Development Fee. In connection with the Managed Care
Development Services, PHC-SUB shall receive a "Managed Care Development Fee"
equal to one-half of one percent (0.5%) of the collected revenue of the Practice
generated from contracts with managed care payors with which PHC-SUB did not
have a contract prior to the Effective Date that are delivered by PHC-SUB or an
affiliate to the Practice after the Effective Date.
22
<PAGE>
7.2. RECRUITMENT AND PRODUCTIVITY INCENTIVES.
The Joint Policy Board, by a unanimous vote, may from time to time
establish performance and productivity incentives for the Practice and the
Practice Employees in addition to the financial arrangements set forth in
Section 7.1 hereof. At the request of the Practice, PHC-SUB will also advise
- -----------
and assist the Practice in establishing its own productivity incentives for the
Practice and the individual Practice Employees.
7.3. REVIEW OF FINANCIAL ARRANGEMENTS BY THE JOINT POLICY BOARD.
The Joint Policy Board shall have the right to review PHC-SUB's
calculations of all payments, fees and expenses due by any party to any other
party or a third party under this Agreement. In the event the Joint Policy
Board desires to review PHC-SUB's calculations or allocation of any such
payments, fees or expenses, the Joint Policy Board shall be provided, upon
reasonable notice to the PHC-SUB, the documents used in determining such amounts
(the "Compensation Documents"). Not later than twenty (20) business days
following the delivery of the Compensation Documents to the Joint Policy Board,
the Joint Policy Board, pursuant to a majority determination and vote, may
furnish PHC-SUB with written notification of any dispute concerning any items
shown thereon or omitted therefrom, together with a detailed explanation in
support of the Joint Policy Board's position in respect thereof. PHC-SUB and
the Joint Policy Board shall consult to resolve any dispute for a period of
fifteen (15) business days following such notification to PHC-SUB. If such
fifteen (15) business day consultation period expires and the dispute has not
been fully resolved, the matter shall be referred to an independent public
accounting firm chosen by a unanimous vote of the Joint Policy Board (the
"Accountants"), which shall resolve the dispute and render its decision
(together with a brief explanation of the basis therefor) to the Joint Policy
Board and PHC-SUB not later than twenty (20) business days following submission
of the dispute to it; provided, however, that if the Joint Policy Board is
unable to agree by unanimous vote upon an independent public accounting firm,
then the Joint Policy Board, by majority vote, and PHC-SUB shall each choose an
independent public accounting firm and those firms shall appoint a third
independent public accounting firm to act as the Accountants. The decision of
such Accountants shall be a final determination of such amounts. The fees and
expenses of the Accountants shall be paid fifty percent (50%) by PHC-SUB and
fifty percent (50%) by the Practice unless the Accountants determine that there
was an error of ten percent or more in PHC-SUB's calculations or allocations in
the aggregate, in which case all of the Accountants' fees and expenses shall be
paid by PHC-SUB.
7.4. PURCHASE OF PRIVATE ACCOUNTS RECEIVABLE; SECURITY AGREEMENT; DEPOSIT
--------------------------------------------------------------------
OF PROCEEDS OF RECEIVABLES.
- ---------------------------
(a) Purchase of Private Receivables; Security. Except for the first month
-----------------------------------------
of this Agreement, on or before the tenth (10th) day of each month, PHC-SUB
shall purchase the Receivables of the Practice arising during the previous month
which are not Government Receivables (the "Private Receivables") for an amount
-------------------
equal to the Private Receivables Payment Amount. PHC-SUB shall pay the Practice
for such Private Receivables in the manner provided in SECTION 7.4(C). For
--------------
purposes of determining whether a particular Receivable arose during a
23
<PAGE>
given month and is therefore eligible for purchase as provided above, or for
inclusion in the Monthly Payment as provided in SECTION 7.4(C), Receivables
--------------
shall be deemed to arise during the month in which such receivable was billed to
the appropriate payor. As security for the payment and performance of all of the
obligations and indebtedness of the Practice to PHC-SUB under this Agreement,
the Practice hereby agrees to execute the Security Agreement (the "Security
--------
Agreement") in the form as attached hereto as EXHIBIT 7.4(A). PHC-SUB may
- --------- --------------
specifically assign (collaterally or otherwise) and/or pledge (i) the Private
Receivables purchased pursuant to the first sentence of this SECTION 7.4(A) and
--------------
(ii) all of its rights and interests under this Agreement or the Security
Agreement as security for loans and other financing arrangements obtained by
PHC-SUB from any other person or entity, whether now existing or hereafter
arising (any such person or entity being hereafter referred to as an
"Assignee"). Any such Assignee shall have all of PHC-SUB's rights and remedies,
--------
but none of PHC-SUB's obligations, under this Agreement or the Security
Agreement. In addition, the Practice shall cooperate with PHC-SUB and execute
all necessary documents in connection with the pledge of such accounts
receivable to PHC-SUB or at PHC-SUB's option, any Assignee.
(b) Deposit of Proceeds. In recognition of the fact that PHC-SUB will
-------------------
have purchased all of the Practice's Private Receivables and to facilitate
repayment of the Government Advances, the Practice agrees, within 10 days of the
date of this Agreement, to deliver a letter, in the form as attached hereto as
EXHIBIT 7.4(B)-1 and EXHIBIT 7.4(B)-2 to all payors under the Private
- ---------------- ----------------
Receivables and the Government Receivables, respectively (the "Payor Instruction
-----------------
Letter"). The Practice acknowledges that PHC-SUB is an intended third party
- ------
beneficiary of the instructions contained in the Payor Instruction Letter and
that such instructions are irrevocable without PHC-SUB's prior written consent.
The Payor Instruction Letters shall direct payments on the Receivables to Post
Office Box _______(the "Practice Lockbox"), which lockbox shall be opened by the
----------------
Depository Bank and all proceeds of Government Receivables therein contained
shall be deposited by the Depository Bank into the Sweeping Account. The
depository agreement for the Sweeping Account shall provide (i) that the
Depository Bank shall deposit all checks or other forms of payment received in
the Practice Lockbox into the Sweeping Account, and (ii) that the account
balance in the Sweeping Account shall be "swept" daily into the Lockbox Account.
Prior to the effective date of the instructions contained in the Payor
Instruction Letters, and to the extent that the Practice receives any payments
contrary to the terms of any Payor Instruction Letter (including, without
limitation, any amounts received directly from patients at the time medical
services are rendered or otherwise), the Practice agrees to deposit all such
payments received by the Practice into Account No. 717-63961 (the "Sweeping
--------
Account") maintained by the Practice at the Fifth Third Bank (the "Depository
- ------- ----------
Bank"), which such account shall be "swept" daily into Account No. 728-07970
- ----
maintained by PHC-SUB at Depository Bank (the "Lockbox Account").
---------------
All amounts received by PHC-SUB as provided above which are proceeds of
Private Receivables shall be owned by PHC-SUB. All amounts received by PHC-SUB
as provided above which are proceeds of Government Receivables shall be applied
first to the repayment of all Government Advances theretofore made, and the
balance, if any, shall be refunded to the Practice.
(c) Allocation of Proceeds; Monthly Payments. PHC-SUB shall, within ten
----------------------------------------
(10)
24
<PAGE>
days after the end of each calendar month, make a payment to the Practice (the
"Monthly Payment"), which shall represent (A) the purchase price for the Private
---------------
Receivables which arose during the previous month and (B) an advance (the
"Government Advance") to the Practice in an amount equal to the Practice
------------------
Government Collection Percentage times the Government Receivables which arose
during the previous month, in an amount equal to the difference between (i) the
difference between (x) the Gross Monthly Payment Amount for such month, minus
(y) an amount equal to all items deposited into the Lockbox Account which were
returned to PHC-SUB by its depository bank as a result of insufficient funds, a
stop payment order, or otherwise during such month, minus (ii) a projection of
all fees and expenses due to PHC-SUB from the Practice under this Agreement for
such month, including, without limitation, this SECTION 7, based on the
---------
Receivables which arose during such month.
(d) Adjustments. Adjustments to the Monthly Payments shall be made to
-----------
reconcile actual amounts due under this SECTION 7 within 45 days after the end
---------
of each six (6) month period during the term of this Agreement. At such semi-
annual intervals, PHC-SUB shall determine the actual amounts due PHC-SUB
pursuant to this SECTION 7 for each such six (6) month period, with such amounts
---------
to be calculated on an annualized basis for such six (6) month period.
PHC-SUB shall notify the Practice of the amount of payments, if any, due
from one party to another as a result of such adjustments within 60 days of the
end of each six (6) month period. If payment is due from one party to the
other, such amount shall be paid in full within ten (10) days of such
notification of the Practice; provided, however, that in the case such amounts
are due PHC-SUB on such calculations, PHC-SUB may, at its discretion, offset
such amounts due from the Practice against the Monthly Payment due the Practice
for succeeding calendar months.
Within 120 days after the end of each calendar year, PHC-SUB will determine
the actual amounts due PHC-SUB pursuant to this SECTION 7 for such calendar year
---------
(prorated for any calendar year for which this Agreement has been in effect less
than the entire year).
If, after taking into account all Monthly Payments and any mid year
adjustments for such calendar year, payment is due from one party to the other,
such amount shall be paid in full within ten (10) business days after such
calculations are made final; provided, however, that in the case amounts are due
PHC-SUB on such calculations, PHC-SUB may, at its discretion, offset such
amounts due from the Practice against the Monthly Payment due the Practice for
succeeding calendar months. This year-end reconciliation shall include
reconciliation of any amounts owed by one party to another with respect to any
expenses of any party, as set forth hereunder, paid by any other party.
7.5. NEW ANCILLARY SERVICES.
The Practice and PHC-SUB jointly acknowledge that a primary motivation for
their entering into an affiliation is to expand the Practice and develop New
Ancillary Services for the Practice. In consultation with the Practice, PHC-SUB
will identify and evaluate such New Ancillary Service opportunities, and,
consistent with and subject to all applicable state and federal regulations, the
Practice and PHC-SUB will mutually agree upon and determine the financial
arrangements with respect to the New Ancillary Service Revenue and New Ancillary
25
<PAGE>
Service Expenses related thereto. The Practice agrees and shall require all
Practice Employees to agree that, subject to all applicable state and federal
regulations and subject to this Section 75, the Practice and each such employee
----------
shall develop, invest or participate in New Ancillary Services and facilities
only in partnership or other business arrangement with PHC-SUB. PHC-SUB shall
be entitled to participate in any such partnership or business arrangement by
purchasing fifty-one percent (51%) of the Practice's (or the Practice
Employee's, as the case may be) prospective interest in such partnership or
business arrangement. In the event that any such partnership or business
arrangement should be unavailable to the Practice or the applicable Practice
Employee because of PHC-SUB's prospective interest therein, the Practice or
Practice Employee shall not be permitted to participate in such partnership or
business arrangement without PHC-SUB's prior written consent, which shall not be
unreasonably withheld; provided that the Practice or Practice Employee shall use
its or their best efforts to cause PHC-SUB to be allowed to participate in such
partnership or business venture on a fifty-one percent (51%) basis as aforesaid.
However, if upon advice of a law firm with nationally recognized expertise in
healthcare law that is acceptable to the parties hereto, the Practice in good
faith determines that a joint partnership or other business relationship between
PHC-SUB and the Practice or its employees is legally impermissible or involves a
high degree of legal risk, the Practice or its employees may pursue the New
Ancillary Services and facilities without the joint participation of PHC-SUB.
7.6. SALE OF ASSETS ACQUIRED AFTER EFFECTIVE DATE.
Notwithstanding anything to the contrary contained herein, the parties
agree that, to the extent that any assets acquired after the Effective Date are
to be sold, PHC-SUB shall be entitled to the proceeds from such sale to the
extent of the greater of (i) any outstanding indebtedness related to the asset
sold and (ii) the undepreciated value of such asset as reflected in PHC-SUB's
books and records. The Practice shall be entitled to eighty percent (80%), and
PHC -SUB shall be entitled to twenty percent (20%), of any and all remaining
proceeds from such sale.
SECTION 8. TERM AND TERMINATION.
8.1. TERM; RENEWAL TERMS.
This Agreement shall commence on the date hereof and shall expire on the
40th anniversary hereof unless earlier terminated as provided for in Section 8.2
-----------
hereof.
8.2. TERMINATION.
(a) BY PHC-SUB. Subject to compliance with the procedures set forth in
Section 8.5, PHC-SUB may terminate this Agreement upon the occurrence of any of
- -----------
the following events without any further action on the part of PHC-SUB:
(i) The Practice is involuntarily suspended or terminated (without
right of
26
<PAGE>
further appeal) from participation in the Medicare or Medicaid programs or
the Practice withdraws from participation in the Medicare or Medicaid
programs as a result of regulatory investigation, unless the same results
from the acts or omissions of PHC or PHC-SUB as determined by arbitration
in accordance with Section 14 hereof.
----------
(ii) The Practice voluntarily files a petition in bankruptcy or makes
an assignment for the benefit of creditors or otherwise seeks relief from
creditors under any federal or state bankruptcy, insolvency, reorganization
or moratorium statute, or the Practice is the subject of an involuntary
petition in bankruptcy which is not set aside within 60 days of its filing.
(iii) The Practice or any physician Practice Employee or physician New
Practice Employee (A) has its or his license to practice medicine revoked
or suspended or (B) is otherwise disciplined by any licensing, regulatory
or professional entity or institution, the result of any of which event
described in clause (A) or (B) does or reasonably would be expected to
materially adversely affect the Practice and provided that the Practice
fails to take reasonable action to remedy or correct such noncompliance or
conduct or to remove such physician from the Practice within thirty (30)
days after the revocation, suspension or discipline.
(b) ADDITIONAL TERMINATION RIGHT OF PHC-SUB. In the event that the
Practice materially breaches any term or condition of this Agreement (other than
as set forth in Section 8.2(a) hereof) and, in the opinion of PHC-SUB, such
--------------
breach remains uncured after a period of 60 days after the Practice's receipt of
a written notice specifying such breach, PHC-SUB shall submit the issue of
whether the Practice has materially breached this Agreement directly to
arbitration in accordance with Section 14 hereof. In the event that the Practice
----------
is found to have materially breached this Agreement, PHC-SUB may immediately
terminate this Agreement by delivery of written notice to the Practice with no
further action required on its behalf to effect such termination.
(c) BY THE PRACTICE. Subject to compliance with the provisions set forth
in Section 8.5, the Practice may terminate this Agreement upon the occurrence
-----------
of any of the following events without any further action on the part of the
Practice:
(i) PHC-SUB fails to make any payment required herein, other than a
payroll obligation, and (A) such breach remains uncured for a period of 30
days after PHC-SUB's receipt of a written notice specifying such breach and
(B) the Practice provides Agent with 15 days prior notice of such breach
and of the Practice's intent to terminate this Agreement hereunder (which
notice period may run concurrently with the 15 day period specified in
clause (A)).
(ii) PHC-SUB materially breaches any payroll obligation required
herein and (A) such breach remains uncured for a period of 15 days after
PHC-SUB's receipt of a written notice specifying such breach and (B) the
Practice provides Agent with 15 days prior notice of such breach and of the
Practice's intent to terminate this Agreement
27
<PAGE>
hereunder (which notice period may run concurrently with the 15 day period
specified in clause (A)).
(iii) PHC-SUB voluntarily files a petition in bankruptcy or makes an
assignment for the benefit of creditors or otherwise seeks relief from
creditors under any federal or state bankruptcy, insolvency, reorganization
or moratorium statute, or PHC-SUB is the subject of an involuntary petition
in bankruptcy which is not set aside within 60 days of its filing.
(iv) If PHC shall not have consummated the Public Offering as of the
end of the sixty-sixth (66th) month following the Effective Date; provided
that the Practice notifies PHC-SUB of the decision of the Practice to
terminate this Agreement pursuant to this Section 8.2(c)(iv) within ninety
------------------
(90) days following the end of the sixty-sixth (66th) month following the
Effective Date.
(d) ADDITIONAL TERMINATION RIGHTS OF THE PRACTICE.
(i) In the event that PHC-SUB materially breaches the terms of this
Agreement (other than as set forth in Section 8.2(c) hereof) prior to the
--------------
end of the sixty-sixth (66/th/) month following the Effective Date and, in
the opinion of the Practice, such breach remains uncured for a period of 60
days after PHC-SUB's receipt of a written notice specifying such breach,
the Practice shall submit the issue of whether PHC-SUB has materially
breached this Agreement directly to arbitration in accordance with Section
-------
14 hereof. In the event that the arbitrator determines that PHC-SUB has
--
materially breached this Agreement, the arbitrator shall attempt to
determine whether the breach may be remedied fairly through the payment of
the amount of the actual damages the Practice has incurred as a result of
the breach (exclusive of punitive and consequential damages but inclusive
of reasonable legal fees) (the "Actual Damages") and shall determine, if
determinable, the exact amount of the Actual Damages. If the arbitrator
determines that the breach may be remedied fairly through the payment of
the Actual Damages and PHC-SUB fails to pay to the Practice the Actual
Damages within 30 days after receipt of written notice specifying the
amount of the Actual Damages, the Practice may terminate this Agreement
after providing PHC-SUB and Agent with 15 days prior written notice of the
Practice's intent to terminate this Agreement. In the event that the
arbitrator determines that the breach may not be remedied equitably through
the payment of the Actual Damages, the arbitrator shall proscribe such
equitable remedies and/or specific performance (the "Curative Actions") of
such obligations as are necessary to remedy the breach (provided that all
such Curative Actions shall in all respects be consistent with (i) the
maintenance of the highest standards of quality of the practice of medicine
at the Practice, (ii) the economic growth of the Practice and (iii) the
increase in compensation of the physicians of the Practice and of PHC-SUB).
In the event that PHC-SUB fails to comply with such Curative Actions within
30 days after receipt by PHC-SUB of written notice specifying the Curative
Actions, the Practice may terminate this Agreement after providing PHC-SUB
and Agent 15 days prior written notice. Notwithstanding the foregoing,
until the end of the sixty-sixth (66/th/) month following the
28
<PAGE>
Effective Date, PHC may not prevent the Practice from terminating this
Agreement by paying the Practice the amount of the Actual Damages or taking
the Curative Actions under this Section 8.2(d)(i) more than once during
-----------------
each one-year period of the term of this Agreement.
(ii) In the event that PHC-SUB materially breaches the terms of this
Agreement (other than as set forth in Section 8.2(c) hereof) at or after
--------------
the end of the sixty-sixth (66/th/) month following the Effective Date and,
in the opinion of the Practice, such breach remains uncured for a period of
60 days after PHC-SUB's receipt of a written notice specifying such breach,
the Practice shall submit the issue of whether PHC-SUB has materially
breached this Agreement directly to arbitration in accordance with Section
-------
14 hereof. In the event that the arbitrator determines that PHC-SUB has
--
materially breached this Agreement, the arbitrator shall attempt to
determine whether the breach may be remedied fairly through the payment of
Actual Damages and shall determine, if determinable, the exact amount of
the Actual Damages. If the arbitrator determines that the breach may be
remedied fairly through the payment of the Actual Damages and PHC-SUB fails
to pay to the Practice the greater of (A) the Actual Damages and (B) the
sum of $250,000 within 30 days after receipt of written notice specifying
the amount of the Actual Damages, the Practice may terminate this Agreement
after providing PHC-SUB and Agent with 15 days prior notice of the
Practice's intent to terminate this Agreement. In the event that the
arbitrator determines that the breach may not be remedied equitably through
the payment of the Actual Damages, the arbitrator shall proscribe such
Curative Actions as are necessary to remedy the breach (provided that all
such Curative Actions shall in all respects be consistent with (i) the
maintenance of the highest standards of quality of the practice of medicine
at the Practice, (ii) the economic growth of the Practice and (iii) the
increase in compensation of the physicians of the Practice and of PHC-SUB).
In the event that, in the opinion of the Practice, PHC-SUB fails to comply
with such Curative Actions within 30 days after receipt by PHC-SUB of
written notice specifying the Curative Actions, the Practice shall be
entitled to immediately submit the issue of whether PHC-SUB has materially
breached the performance of the Curative Actions directly to arbitration in
accordance with Section 14 hereof. If the arbitrator determines that PHC
----------
SUB has materially breached the terms of the Curative Actions, the Practice
may immediately terminate this Agreement via 15 days prior written notice
to PHC-SUB and Agent.
(iii) In the event that PHC-SUB at any time elects to pay the Actual
Damages or the sum of $250,000 to the Practice or take Curative Actions in
accordance with either Section 8.2(d)(i) or (ii) hereof and subsequently
----------------- ----
materially breaches the terms of this Agreement (other than as set forth in
Section 8.2(c) hereof) at any time at or after the end of the sixty-sixth
--------------
(66/th/) month following the Effective Date and, in the opinion of the
Practice, such subsequent breach remains uncured for a period of 60 days
after PHC-SUB's receipt of a written notice specifying such subsequent
breach, the Practice shall submit the issue of whether PHC-SUB has
materially breached this Agreement directly to arbitration in accordance
with Section 14 hereof. In the event that the arbitrator determines that
----------
PHC-SUB has materially breached this Agreement, the Practice may
29
<PAGE>
terminate this Agreement by written notice to PHC-SUB.
(e) LIMITATION ON TERMINATION RIGHTS. (i) Notwithstanding anything to the
contrary contained herein, the Practice shall not be permitted to terminate this
Agreement pursuant to a breach by PHC-SUB of any of the provisions of Section 3
---------
or Section 4 hereof that result from the acts, directions, instructions or
---------
omissions of the Joint Policy Board, or pursuant to a breach of any of the other
obligations of the Joint Policy Board hereunder, so long as PHC-SUB complies
with its obligations under Section 6.1 concerning the composition of the Joint
-----------
Policy Board. No failure to act by PHC-SUB pursuant to Sections 4.3, 4.5 or 4.6
------------ --- ---
shall permit the Practice to terminate this Agreement. Nothing herein shall be
construed to convey to any individual Stockholder any right to terminate this
Agreement. The refusal by the Practice to designate members to the Joint Policy
Board, the refusal of designees of the Practice to serve on the Joint Policy
Board, or the refusal of Practice Employees designated by PHC-SUB to serve on
the Joint Policy Board as set forth in Section 6.1 shall not form the basis for
-----------
any termination of this Agreement by the Practice.
(ii) Notwithstanding anything to the contrary contained herein, it is
acknowledged and agreed that PHC-SUB may under no circumstances be found to have
breached the provisions of Sections 3 and 4 hereof unless PHC-SUB acts (or fails
---------- -
to act) in a manner that is directly contrary to the specific reasonable written
instructions of the Joint Policy Board. PHC-SUB's acts (or failures to act)
contrary to the instructions of the Joint Policy Board shall not be deemed to be
in breach of any provision of this Agreement in the event that the instructions
of (or the failure to provide instructions by) the Joint Policy Board are
unreasonable or arbitrary.
8.3. DUTIES AND REMEDIES UPON EXPIRATION OR TERMINATION.
Upon expiration or termination of this Agreement, the Practice and PHC-SUB
hereby agree to perform, in addition to their obligations provided for elsewhere
in this Agreement and continuing after such termination or expiration of this
Agreement, such steps as are otherwise customarily required to wind up their
relationship under this Agreement in as orderly a manner as possible, including,
without limitation, PHC-SUB's provision to the Practice of patient billing
records. The Practice hereby acknowledges and agrees that, upon termination or
expiration of this Agreement: (a) PHC-SUB shall retain all right, title and
interest in and to all of PHC-SUB's proprietary software and systems, including
software and systems licensed by PHC-SUB from others, used in connection with
the General Management Services; and (b) the Practice shall be responsible for
obtaining its own software and systems to take over the General Management
Services from PHC-SUB; provided that the Practice may continue to use such
software and systems after expiration or termination for a reasonable period of
time until the Practice can obtain and make operational substitute software and
systems. Upon expiration or termination of the Agreement, PHC-SUB shall fully
and completely assign (to the extent then owned by PHC-SUB) to the Practice the
outstanding accounts receivable of the Practice purchased by PHC-SUB pursuant to
this Agreement under Section 7.4 above up to and through the date of termination
-----------
or expiration, and PHC-SUB shall fully cooperate with the Practice in the
Practice's efforts to collect such accounts receivable and PHC-SUB in that
regard shall execute and deliver any reasonably necessary documents to permit
the Practice to assume such receivables and realize
30
<PAGE>
upon them.
Except as set forth in this Section 8.3 and in Section 5.4 hereof, upon the
----------- -----------
expiration or earlier termination of this Agreement, neither party shall have
any further obligation hereunder with the exception of obligations accruing
prior to the date of such expiration or earlier termination and obligations,
promises and covenants contained herein which extend beyond the terms hereof
including, without limitation, any indemnities, restrictive covenants, and
access to books and records. Upon the expiration or earlier termination of this
Agreement, the financial arrangements set forth in Section 7 shall be prorated
---------
between the parties to reflect any partial fiscal year. The funds for
settlement of such financial arrangements shall be disbursed on the closing date
of the repurchase of assets provided for in Section 8.4, but shall in no event
-----------
occur later than 180 days from the date of the notice of termination. If this
Agreement is terminated pursuant to Sections 8.2(a)(i), 8.2(b), 8.2(c)(i), 8.2
------------------ ------ --------- ---
(c)(ii) or 8.2(d) hereof, the non-breaching party may pursue such other legal or
- ------- ------
equitable relief as may be available in addition to such proration.
From and after any termination, each party shall provide the other with
reasonable access to books and records then owned by it to permit such
requesting party to satisfy reporting and contractual obligations which may be
required of it.
8.4. REPURCHASE OF ASSETS.
(a) Upon termination of this Agreement pursuant to Sections 8.1 or 8.2
------------ ---
hereof, the Practice shall purchase from PHC-SUB those assets then owned by PHC-
SUB that primarily relate to the operation of the Practice, including all
accounts receivable (to the extent then owned by PHC-SUB), FF&E and all real
estate (the "Real Estate") then owned by PHC-SUB and associated primarily with
the operation of the Practice at a purchase price (the "Buyout Amount") equal to
the sum of (i) the cost to PHC-SUB of the outstanding accounts receivable of the
Practice previously purchased by PHC-SUB (if any) plus (ii) greater of:
(A) the total consideration paid by PHC in connection with the
purchase of the capital stock of PHC-SUB pursuant to the
Reorganization Agreement, less the aggregate amount of General
Management Fees actually collected by PHC-SUB under this
Agreement; or
(B) the product of (A) the "Percentage Multiplier" times (B) the
aggregate fair market value of the FF&E and the Real Estate. As
used herein, "Percentage Multiplier" shall mean 300% until the
fifth annual anniversary of the Effective Date of this Agreement;
250% from the fifth anniversary until the tenth anniversary; 150%
from the tenth anniversary until the twenty-fifth anniversary;
and 100% thereafter.
The Practice shall pay the Buyout Amount first by returning the shares (the
"Transaction Shares") received by the former shareholders of the Former Practice
(the "Sellers") in connection with the Reorganization who are employed by the
Practice at the date of termination, up to the
31
<PAGE>
Buyout Amount. The Practice shall pay the balance of the Buyout Amount, if any,
in Transaction Shares received by Sellers who are not employed by the Practice
at the date of termination, or in cash.
The Practice and PHC-SUB each acknowledge that they contemplate the
reasonable expansion of the Practice in the future through the addition of
physicians and ancillary services. The Practice and PHC-SUB further acknowledge
that they contemplate that the formula for computing the Buyout Amount shall be
equitably adjusted (to each party's satisfaction in their sole discretion) in
the future to account for such expansion to the extent expansion is funded by
PHC.
(b) Upon termination of this Agreement, the Practice shall assume without
recourse against PHC-SUB (up to the Buyout Amount) all debts, contracts,
payables and leases which are obligations of PHC-SUB and which relate
exclusively to the performance of its obligations under this Agreement or the
properties subleased by PHC-SUB, other than such contracts, payables and leases
that are between the Practice and PHC-SUB or its affiliates. The Buyout Amount
shall be credited by the amount of debt and liabilities of PHC-SUB assumed by
the Practice, and by any payment PHC-SUB has failed to make under this
Agreement. The Practice and any physician shareholder of the Practice shall
execute such documents as may be required to assume the liabilities set forth in
this Section 8.4 and to remove or indemnify PHC-SUB to its reasonable
-----------
satisfaction from any liability with respect to such repurchased assets and with
respect to any property leased or subleased by PHC-SUB.
The closing date for the repurchase shall be determined by the Practice,
but shall in no event occur later than 60 days from the date of the notice of
termination. The termination of this Agreement shall become effective upon the
closing of the sale of the assets and the Practice and the Practice Employees
shall be released from the restrictive covenants as and to the extent set forth
in Section 8.4(c) on the closing date.
--------------
(c) If the Practice remits the Buyout Amount to PHC-SUB in accordance with
this Section 8.4, the Practice and the Practice Employees shall be released from
-----------
the restrictive covenants of Section 5.4; provided that the Practice and the
-----------
Practice Employees shall not be released from the restrictive covenants of
Section 5.4(c) if this Agreement is terminated pursuant to Section 8.2(b).
- -------------- --------------
(d) Except as set forth below, fair market value of the Transaction
Shares, the FF&E and the Real Estate shall be determined by a nationally
recognized accounting firm capable of making such determination and chosen by
the Practice from a list of three such firms submitted by PHC-SUB. The Practice
shall submit its choice of such firm in writing no later than five days after
receipt of such list from PHC-SUB. PHC-SUB and the Practice shall bear the cost
of such determination equally. For purposes of this Section 8, Transaction
---------
Shares shall be valued at the greater of fair market value or $4.00 per share.
8.5. PROCEDURES RELATED TO TERMINATION.
32
<PAGE>
In taking action to terminate this Agreement the parties shall comply with
the following procedures:
(a) Prior to taking any action to terminate, the party seeking termination
shall provide 15 days prior written notice to Agent, which notice period may run
concurrently with any other notice and cure periods specified herein.
(b) The taking by the Practice of any action with respect to termination
of this Agreement shall require the affirmative vote of the holders of two-
thirds of the equity interests of the shareholders of the Practice.
8.6. OPTION TO REQUIRE REPURCHASE OF STOCK.
If (i) PHC shall not have consummated the Public Offering as of the end of
the sixty-sixth (66th) month following the Effective Date and (ii) the Practice
does not notify PHC-SUB of the decision of the Practice to terminate this
Agreement pursuant to Section 8.2(c)(iv) within ninety (90) days following the
------------------
end of the sixty-sixth (66th) month following the Effective Date, then the
Practice or any former shareholder of the Former Practice shall have the option
to require PHC to purchase the PHC common stock received by such former
shareholder in connection with the Reorganization then held by such former
shareholder for an amount equal to $4.00 per share, payable in cash as
equitably adjusted for stock splits, conversions, exchanges, and
recapitalizations). In order to exercise such option, the option holder must
give written notice of exercise to PHC within ninety (90) days following the end
of the sixty-sixth (66th) month following the Effective Date. If any such option
is exercised, the closing shall take place within thirty (30) days after notice
of exercise of the option is given, and the purchase price shall be payable by
wire transfer of immediately available funds.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF PRACTICE.
The Practice hereby represents and warrants to PHC as follows:
9.1. ORGANIZATION IN GOOD STANDING; LICENSES.
The Practice is an Ohio professional corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio. Except as
set forth in Schedule 6.1 to the Reorganization Agreement, the Practice has all
necessary corporate power to own all of its properties and assets and all
material governmental licenses, authorizations, consents, and approvals to carry
on its business as now conducted and as will be conducted (including, without
limitation, accreditations and certifications as a provider of healthcare
services eligible to receive payment and compensation and to participate under
Medicare, Medicaid, CHAMPUS and CHAMPVA.
33
<PAGE>
9.2. NO VIOLATIONS.
The Practice has the corporate authority to execute, deliver and perform
this Agreement and all agreements executed and delivered by it pursuant to this
Agreement, and has taken all action required by law, its Articles or Certificate
of Incorporation, its Regulations or otherwise to authorize the execution,
delivery and performance of this Agreement and such related documents. The
execution and delivery of this Agreement does not and, subject to the
consummation of the transactions contemplated hereby, will not, violate any
provisions of the Articles or Certificate of Incorporation or Regulations of the
Practice or any provisions of, or result in the acceleration of, any obligation
under any mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree, to which the Practice is a party, or by which it is
bound. This Agreement has been duly executed and delivered by the Practice.
9.3. PROFESSIONAL LIABILITY.
No Practice Employee has ever (a) had his or her license to practice
medicine or other profession in any state or his or her Drug Enforcement Agency
Number suspended, relinquished, terminated, restricted or revoked; (b) been
reprimanded, sanctioned or disciplined by any licensing board, or any federal,
state or local society or agency, governmental body or specialty board; or (c)
had his medical staff privileges at any hospital or medical facility suspended,
involuntarily terminated, restricted or revoked.
9.4. LITIGATION.
Except as set forth in Schedule 2.7 or Schedule 2.21 to the Reorganization
Agreement,
(a) There is no action, suit, or proceeding pending against, or to the
best knowledge of the Practice threatened against or affecting, the Practice or
any Practice Employee before any court or arbitrator or any governmental body,
agency or official which in any manner draws into question the validity of the
Practice Management Security Agreement;
(b) There is no pending investigation of the Practice or any of its
members, partners, or Practice Employees, or any one or more of them, as the
case may be, by HCFA or any other governmental authority, which investigation is
not otherwise conducted in the ordinary course of business and no criminal,
civil or administrative action, audit, or investigation by a fiscal intermediary
or by or on behalf of any governmental authority exists against the Practice or
any of its members, partners, or Practice Employees, or any one or more of them,
as the case may be, or to the best knowledge of the Practice, is threatened with
respect to such persons or any one of them which could reasonably be expected to
materially and adversely affect the right of such person or persons to receive
Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement to which such person or
persons would otherwise be entitled, or right to participate in the Medicare,
Medicaid, CHAMPUS or CHAMPVA programs, or otherwise have a Material Adverse
Effect on
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the receipt of Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement by such
person or persons; and
(c) To the best knowledge of the Practice, neither the Practice nor any
of its members, partners or Practice Employees or any one or more of them, as
the case may be, is subject to any pending but unassessed Medicare, Medicaid,
CHAMPUS or CHAMPVA claim payment adjustments, except to the extent that such
person or persons is contesting such assessment in good faith by appropriate
proceedings diligently pursued and has established or caused to be established
by his or her employer, limited liability company, or partnership, as the case
may be, adequate reserves for such adjustments in accordance with GAAP.
9.5. NO DEFAULT.
Neither the Practice nor its members, partners, Practice Employees, or any
one or more of them has received notification from any governmental authority
that any such governmental authority has taken or intends to take action to
revoke, terminate, or adversely amend any license, certificate, accreditation or
permit of such person to operate a healthcare facility or to participate under
Medicare, Medicaid, CHAMPUS or CHAMPVA.
9.6. THIRD PARTY REIMBURSEMENT.
If the Practice or any Practice Employee is being audited or has been
audited by Medicare, Medicaid, CHAMPUS or CHAMPVA or similar governmental Third
Party Payors:
(a) none of such audits provides for adjustments in reimbursable costs or
assets, claims for reimbursement or repayment by the Practice or any Practice
Employee of costs and/or payments theretofore made by such governmental Third
Party Payor that, if adversely determined, could reasonably be expected to have
or result in a Material Adverse Effect; and
(b) neither the Practice nor any Practice Employee has had requests or
assertions of claims for reimbursement or repayment by it, or him or her, as the
case may be, of costs and/or payments heretofore made by any other Third Party
Payor that, if adversely determined, could reasonably be expected to have or
result in a Material Adverse Effect.
9.7. CERTIFICATES.
The Practice agrees to use its best efforts to provide, and to use its best
efforts to cause each Practice Employee to provide, notice to PHC-SUB if any
representation or warranty contained therein becomes untrue as of a date after
the Effective Date because of subsequent events and to provide from time to
time, at the reasonable request of PHC-SUB, a certificate stating that the
representations and warranties contained herein are true, or, if they are not
true, specifying in reasonable detail the extent to which they are not true.
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SECTION 10. INSURANCE AND INDEMNITY.
10.1. INSURANCE MAINTAINED BY THE PRACTICE.
During the term of this Agreement, the Practice shall provide, or shall
arrange for the provision of, and maintain comprehensive professional liability
insurance on the Practice and each of the physician Practice Employees and
agents in the minimum amount of One Million Dollars ($1,000,000) per occurrence
and Ten Million Dollars ($10,000,000) annual aggregate with a $10,000,000
"umbrella" policy per physician, and in such reasonable amounts as are agreed
upon by PHC-SUB and the Practice for non-physician Practice Employees. The
Practice shall provide to PHC-SUB written documentation evidencing such
insurance coverage. The Practice shall have the right to increase any such
coverage with the written approval of the Joint Policy Board. All such
professional liability insurance premiums and deductibles related thereto shall
be included in Operational Expenses. The Practice shall be responsible for all
liabilities in excess of the limits of such policies. The Practice's obligation
to maintain such professional liability insurance coverage shall survive the
expiration or termination of this Agreement for any reason so as to cover any
and all professional liability claims or causes of action caused or asserted to
have been caused as a result of the performance of medical services by the
Practice and its employees or agents during the term of this Agreement. The
Practice shall provide, or shall arrange for the provision of, and shall
maintain throughout the entire term of this Agreement, workers' compensation
insurance coverage on the Practice and each of its employees and agents in the
amounts required by law. The Practice shall provide to PHC-SUB written
documentation evidencing such insurance coverage.
10.2. INSURANCE MAINTAINED BY PHC-SUB.
During the term of this Agreement, PHC-SUB shall provide and maintain
comprehensive professional liability insurance for all professional employees of
the PHC-SUB providing any services related to the Practice pursuant to this
Agreement, and comprehensive general liability and property insurance covering
the Medical Office premises and operations. PHC-SUB shall provide, or shall
arrange for the provision of, and shall maintain throughout the term of this
Agreement, workers' compensation insurance coverage on PHC-SUB and each of its
employees and agents in the amounts required by law. If so requested by the
Practice, PHC-SUB shall provide written documentation evidencing such insurance
coverage.
10.3. CONTINUING LIABILITY INSURANCE COVERAGE.
The Practice shall obtain, or shall ensure that each Practice Employee or
agent obtains, continuing liability insurance coverage under either a "tail
policy" or a "prior acts policy," with the same limits and deductibles as the
insurance coverage provided pursuant to Section 10.1, for each of the Practice's
------------
employees and agents upon the termination of such employee's or agent's
relationship with the Practice for any reason. The Practice shall provide to
PHC-SUB written documentation evidencing such insurance coverage. All such
professional liability insurance premiums shall be included in Operational
Expenses. In the event the Practice does not obtain such continuing liability
insurance coverage, PHC-SUB may do so and the cost of such coverage
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shall be included as an Operational Expense. The Practice's obligation to
obtain, or ensure that each of the Practice's employees and agents obtains, such
continuing liability insurance coverage shall survive the termination of this
Agreement for any Practice employee or agent associated with the Practice during
the term of this Agreement.
10.4. KEY PERSON INSURANCE.
The Practice agrees, and shall cause its Practice Employees to agree, that
PHC-SUB may obtain, as a PHC-SUB Expense and for PHC-SUB's sole benefit, "key
person" life and/or disability insurance policies on any or all Practice
Employees. Neither the Practice nor any Practice Employee shall have any right,
title or interest, in or to the proceeds of any such insurance policies. The
Practice shall cause its Practice Employees to cooperate with PHC-SUB, as
reasonably requested by PHC-SUB from time to time, in obtaining any such
insurance policies, including, but not limited to, causing such Practice
Employees to submit to such physical examinations and providing such information
relating to insurability as PHC-SUB may reasonably request from time to time.
SECTION 11. COMPLIANCE WITH REGULATIONS.
11.1. SUBCONTRACTS.
Pursuant to Title 42 of the United States Code and applicable rules and
regulations thereunder, until the expiration of four (4) years after termination
of this Agreement, PHC-SUB shall make available, upon appropriate written
request by the Secretary of the United States Department of Health and Human
Services or the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, a copy of this
Agreement and such books, documents and records as are necessary to certify the
nature and extent of the costs of the services provided by PHC-SUB under this
Agreement. PHC-SUB further agrees that if it carries out any of its duties
under this Agreement through a subcontract with a value or cost of Ten Thousand
Dollars ($10,000.00) or more over a twelve (12) month period with a related
organization, such subcontract shall contain a clause to the effect that until
the expiration of four (4) years after the furnishing of such services pursuant
to such subcontract, the related organization shall make available, upon
appropriate written request by the Secretary of the United States Department of
Health and Human Services or the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of such subcontract and such books, documents and records of such
organization as are necessary to verify the nature and extent of such costs.
Disclosure pursuant to this Section shall not be construed as a waiver of any
other legal right to which PHC-SUB or the Practice may be entitled under law or
regulation.
SECTION 12. RELATIONSHIP OF THE PARTIES.
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12.1. INDEPENDENT CONTRACTOR STATUS.
(a) It is acknowledged and agreed that the Practice and PHC-SUB are at
all times acting and performing hereunder as independent contractors. PHC-SUB
shall neither have nor exercise any control or direction over the methods by
which the Practice and Practice Employees practice medicine. PHC-SUB shall not,
by entering into and performing its obligations under this Agreement, become
liable for any of the existing obligations, liabilities or debts of the Practice
unless otherwise specifically provided for under the terms of this Agreement or
the Reorganization Agreement. In its management role, PHC-SUB will have only an
obligation to exercise reasonable care in the performance of the management
services. PHC-SUB shall have no liability whatsoever for damages suffered on
account of the willful misconduct or negligence of any employee, agent or
independent contractor of the Practice. Each party hereto shall be solely
responsible for compliance with all state and federal laws pertaining to
employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes regarding their respective employees,
agents and servants.
(b) In the event any state or federal laws or regulations, now existing
or enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel in such a manner as to indicate
that this Agreement or any provision hereof may be in violation of such laws or
regulations, the Practice and PHC-SUB shall amend this Agreement as necessary to
preserve the underlying economic and financial arrangements between the Practice
and PHC-SUB and without substantial economic detriment to either party. To the
extent any act or service required of PHC-SUB in this Agreement should be
construed o r deemed, by any governmental authority, agency or court, to
constitute the unauthorized practice of medicine, the performance of said act or
service by PHC-SUB shall be deemed waived and forever unenforceable and the
provisions of this Section 12.1(b) shall be applicable. Neither party shall
---------------
claim or assert illegality as a defense to the enforcement of this Agreement or
any provision hereof; instead, any such purported illegality shall be resolved
pursuant to the terms of this Section 12.1(b).
---------------
12.2. REFERRAL ARRANGEMENTS.
The parties hereby acknowledge and agree that no benefits to the Practice
hereunder require or are in any way contingent upon the admission,
recommendation, referral or any other arrangement for the provision of any item
or service offered by PHC-SUB or any of its Affiliates, to any patients of the
Practice, the Practice's employees or agents.
SECTION 13. CONFIDENTIAL INFORMATION AND INSPECTION RIGHTS.
(a) At no time during the term of this Agreement or the five (5) year
period after any termination or expiration of this Agreement for any reason
shall the Practice or any of its employees or agents, on the one hand, or PHC-
SUB or any of its employees or agents, on the
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other hand, disclose to anyone, other than its attorneys, accountants or other
financial advisors, the material terms of this Agreement or any other written
agreement between the parties hereto, or any confidential or secret information
concerning (a) the business, affairs or operations, (b) any trade secrets, new
product developments, special or unique processes or methods, or (c) any
marketing, sales, advertising or other concepts or plans, of PHC-SUB or any of
its Affiliates, on the one hand, or of the Practice, its Practice Employees,
subsidiaries or Affiliates, on the other hand.
The covenants contained in this Section 13 shall not apply to any
----------
information which (i) was already known to such party at the time of receipt
thereof, (ii) was readily available to the general public at the time of receipt
thereof, (iii) subsequently becomes known to the general public through no fault
or omission on the part of such party, (iv) is subsequently disclosed by a third
party which has the bona fide right to make such disclosure, or (v) is required
to be disclosed by law or governmental agency.
Each of PHC-SUB and the Practice hereby acknowledges that if it or any of
its employees or agents engage in activities within the limitations of this
Section 13, money damages shall be an inadequate remedy, and each of PHC-SUB
- ----------
and the Practice agree that the nonbreaching party shall be entitled to obtain,
in addition to any other remedy provided by law or equity, an injunction against
the violation of breaching party's obligation to the nonbreaching party
hereunder.
(b) The Practice shall have reasonable access to the files and records
relating to such revenue and expenses and the overall operation of the Practice.
The Practice, at its expense, may have its accountants review such records, at
reasonable intervals, to confirm the accuracy of such records and fees paid by
the Practice to PHC-SUB under this Agreement.
SECTION 14. ARBITRATION.
(a) Any and all disputes arising out of or in connection with the
negotiation, execution, interpretation, performance or nonperformance of this
Agreement shall be solely and finally settled by arbitration, which shall be
conducted in Cincinnati, Ohio or at such other location as the parties may agree
in writing. The arbitrator shall conduct the proceedings in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"Rules"). The arbitration proceeding shall be initiated in accordance with the
Rules. The parties hereby renounce all recourse to litigation and agree that
any arbitration award shall be final and subject to no judicial review. The
arbitration shall be conducted before one or more arbitrators, chosen in
accordance with the Rules. The arbitrator(s) shall decide the issues submitted
in accordance with (i) the language and commercial purposes of this Agreement;
and (ii) what is just and equitable under the circumstances, provided that all
substantive questions of law (excluding principles of conflicts of laws) shall
be determined under the laws of the State of Ohio.
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(b) The parties agree to facilitate the arbitration by: (i) making
available to one another and to the arbitrator for examination, inspection and
extraction all documents, books, records and personnel under their control
determined by the arbitrator to be relevant to the dispute (ii) conducting
arbitration hearings to the greatest extent possible on successive days; and
(iii) observing strictly the time periods established by the Rules, or by the
arbitrator, for submission of evidence or briefs.
(c) Judgment on the award of the arbitrator may be entered in any court
having jurisdiction over the party against which enforcement of the award is
being sought. All deposits and other costs (other than fees of counsel)
incurred in conducting the arbitration shall be borne equally by the parties.
Each party shall be solely responsible for its own attorney's fees incurred in
connection with the arbitration.
(d) This section shall survive completion or termination of this
Agreement, and shall be specifically enforceable in any court of competent
jurisdiction. In no event shall a demand for arbitration be made after the date
when any applicable statute of limitations, or period for claims under this
Agreement, would bar institution of a legal or equitable proceeding based on
such dispute or subject matter in question.
SECTION 15. MISCELLANEOUS.
15.1. ASSIGNMENT AND DELEGATION.
PHC-SUB shall have the right to assign its rights hereunder to any
Affiliate of PHC-SUB and to any lending institution, for security purposes or as
collateral, from which PHC, PHC-SUB or such person, firm or corporation obtains
financing. Except as set forth in this Section 15.1, neither PHC-SUB nor the
------------
Practice shall have the right to assign their respective rights and obligations
hereunder without the written consent of the other party. The Practice may not
delegate any of its duties hereunder, except as expressly contemplated herein;
however, PHC-SUB may delegate some or all of its duties hereunder to the extent
it concludes, in its sole discretion, that such delegation is in the mutual
interest of the parties hereto.
15.2. OTHER CONTRACTUAL ARRANGEMENTS.
The parties acknowledge and agree that they have been advised and consent
to the fact that PHC-SUB or its Affiliates (i) may have, prior to the date of
this Agreement, discussed proposals with respect to, or (ii) may, from time to
time hereafter enter agreements with one or more Practice Employees to provide
consulting, medical direction, advisory or similar services relating to
activities of PHC-SUB or its Affiliates in clinical areas. The parties agree
that such agreements, if any, shall be entered into at the sole discretion of
the parties thereto and subject to such terms and conditions to which such
parties may agree, and any compensation payable to or by PHC-SUB, on the one
hand, and such Practice Employees, on the other hand, shall not
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constitute Net Practice Revenues and shall otherwise not be subject to the
provisions of this Agreement. Each current physician shareholder of the Practice
by his or her execution of this Agreement as provided on the signature page
hereof, agrees that neither the negotiation nor the entry into any agreement or
arrangement of a type described in this Section 15.2 shall constitute a breach
------------
of fiduciary or other duty owed by any such physician to another or to any
Practice Employee, or by PHC-SUB, to the Practice or any such physician or
Practice Employee. Accordingly, the Practice and each physician shareholder
hereby waive any right to disclosure of the negotiations, proposals or terms of
any such agreement, arrangement or right to participate in and/or share revenues
derived from any such agreement or arrangement with any physician shareholder or
Practice Employee, and hereby forever release and discharge the Practice, the
physician shareholders, PHC-SUB, and their respective representatives
(including, but not limited to, their respective attorneys, accountants,
Affiliates, shareholders, officer, directors, employees and agents) from any and
all actions, claims, charges, suits, damages and liabilities of any kind
whatsoever arising from or by reason of the participation of any physician
shareholder or Practice Employee in any agreement or arrangement with PHC-SUB or
its Affiliates of a type described in this Section 15.2 above or from or by
------------
reason of the failure of PHC-SUB, any physician shareholder or Practice Employee
or their respective representatives to disclose the negotiation, existence or
terms of any such agreement or arrangement. In keeping with the private nature
of these matters, the physician shareholders further agree that such
negotiations, proposals or terms of agreement are to be kept confidential
between the physician on one hand, and PHC-SUB, on the other hand, and shall not
be disclosed by them or their representatives, except to their attorneys,
accountants and professional advisors or as required by law.
15.3. NOTICES.
Any notice required or permitted by this Agreement or any agreement or
document executed and delivered in connection with this Agreement shall be
deemed to have been served properly received if hand delivered upon actual
receipt, or if sent by overnight express, one (1) business day after
transmittal, or if mailed by certified mail, return receipt requested, proper
postage prepaid, then five (5) business days after posting, at the following
addresses:
If to the Practice: GCGA Physicians
2924 Vernon Place, Suite 100
Cincinnati, Ohio 45219
Attention: Dan Walker
with a copy to: Katz, Teller, Brant & Hild
255 East Fifth Street
2400 Chemed Building
Cincinnati, Ohio 45202
Attention: Robert E. Brant, Esq.
If to PHC-SUB: Newco
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One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah C. Garvin, President
with a copy to: Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Daniel M. Epstein, M.D., Esq.
or such other address as shall be furnished in writing by any party to the
other party. All such notices shall be considered received when hand delivered
or one business day after delivery to the overnight courier.
15.4. ADDITIONAL ACTS.
Each party hereby agrees to perform any further acts and to execute and
deliver any documents which may be reasonably necessary to carry out the
provisions of this Agreement.
15.5. GOVERNING LAW.
This Agreement shall be interpreted, construed and enforced in accordance
with the laws of the State of Ohio, applied without giving effect to any
conflicts of law principles.
15.6. CAPTIONS.
The captions or headings in this Agreement are made for convenience and
general reference only and shall not be construed to describe, define or limit
the scope or intent of the provisions of this Agreement.
15.7. SEVERABILITY.
The provisions of this Agreement shall be deemed severable and if any
portion shall be held invalid, illegal or unenforceable for any reason, the
remainder of this Agreement shall be effective and binding upon the parties.
15.8. ENTIRE AGREEMENT.
This Agreement, the Reorganization Agreement and the documents contemplated
thereby and hereby contain the entire agreement of the parties and supersedes
any and all prior or
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contemporaneous negotiations, understandings or agreements between the parties,
written or oral, with respect to the transactions contemplated hereby and
thereby. This Agreement may not be changed or terminated orally, but may only be
changed by an agreement in writing signed by a duly authorized officer of PHC-
SUB if PHC-SUB is the party against whom enforcement of any such waiver, change,
modification, extension, discharge or termination is sought, or by the Practice
if the Practice is the party against whom enforcement of any such waiver,
change, modification, extension, discharge or termination is sought.
15.9. WAIVER OF PROVISIONS.
Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
15.10. NO RULE OF CONSTRUCTION.
The parties acknowledge that this Agreement was initially prepared by PHC-
SUB solely as a convenience and that all parties and their counsel have read and
fully negotiated all the language used in this Agreement. The parties
acknowledge and agree that because all parties and their counsel participated in
negotiating and drafting this Agreement, no rule of construction shall apply to
this Agreement which construes any language, whether ambiguous, unclear or
otherwise, in favor of, or against any party by reason of that party's role in
drafting this Agreement.
15.11. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which, when
so executed, shall be deemed to be an original, and such counterparts shall,
together, constitute and be one and the same instrument.
15.12. BINDING EFFECT.
This Agreement shall be binding on and shall inure to the benefit of the
parties hereto, and their successors and permitted assigns. Subject to the
foregoing sentence, no person not a party hereto shall have any right under or
by virtue of this Agreement.
SECTION 16. GUARANTY BY PHC.
PHC hereby absolutely and unconditionally and irrevocably guarantees the
full, prompt and faithful performance by PHC-SUB of all covenants and
obligations to be performed by PHC-SUB under this Agreement, including, but not
limited to, the payment of all sums to be paid by
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PHC-SUB pursuant to this Agreement. If PHC-SUB fails to fully perform all such
covenants and obligations in accordance with their terms or pay all or any part
of such sums when due upon written demand from the Practice, PHC will perform
immediately all such covenants and obligations in accordance with their terms or
immediately pay to the Practice the amount due and unpaid by PHC-SUB. In the
event of termination, liquidation or dissolution of PHC-SUB, this unconditional
guaranty shall continue in full force and effect.
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IN WITNESS WHEREOF, the Practice and PHC-SUB have duly executed this
Agreement on the day and year first above written.
GCGA Physicians, Inc.
----------------------------------
By:_______________________________
Name:/s/ Ronald C. Schneider, M.D.
-----------------------------
Title: President
----------------------------
PHC Ohio, Inc.
By:_______________________________
Name:_____________________________
Title:____________________________
Physician Health Corporation
By:_______________________________
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Name:_________________________________
Title:________________________________
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EXHIBIT 5.4(A)
--------------
EXCEPTIONS TO AND PAYMENT TO BUY-OUT OF RESTRICTIVE COVENANT
Practice Group and its Practice Employees may render administrative
services for Consultants for Clinical Research in historically customary amounts
of time, and David Mangels, M.D. may render administrative and clinical services
for TQM Research Center in historically customary amounts of time.
A physician (the "Terminating Physician") may receive a release from the
covenant not-to-compete as set forth in the Practice Management Agreement only
in strict accordance with the terms thereof and upon delivery to PHC-SUB of:
(i) an amount in cash equal to the amount of cash received by the
Terminating Physician upon the consummation of the transactions
contemplated by the Reorganization Agreement, less taxes paid in
connection therewith and
(ii) the PHC Shares, as such term is defined in the Reorganization
Agreement, that were tendered to the Terminating Physician upon
the consummation of the transactions contemplated by the
Reorganization Agreement, or such other equity instruments into
which such PHC Shares were subsequently converted.
In the event that the PHC Shares (or such other equity instruments into which
the PHC Shares were subsequently converted) or any shares of the same class of
PHC stock are listed on a national securities exchange or quoted in an
interdealer quotation system at the time the Terminating Physician desires to
obtain a release from the covenant not-to-compete, the Terminating Physician
may, in lieu of tendering the shares as set forth in clause (ii) immediately
above, instead pay to PHC-SUB an amount in cash equal to the Fair Market Value
of such PHC Shares (or such other equity instruments into which the PHC Shares
were subsequently converted). "Fair Market Value" per share as used in this
paragraph means the average closing price per share over the five business days
ending two business days prior to the date the Terminating Physician desires to
obtain the release.
<PAGE>
EXHIBIT 7.1(A)
-----------
[PHYSICIANS OTHER THAN JURELL, MANGELS AND BEKAL]
UNCONDITIONAL GUARANTY
THIS UNCONDITIONAL GUARANTY is made as of the ____ day of ___________, 1997
by ____________________, an individual resident of the State of Ohio
("Guarantor"), in favor of Greater Cincinnati Gastroenterology Associates, Inc.
("PHC-SUB") and its affiliates.
ARTICLE I - BACKGROUND AND AGREEMENT
------------------------------------
1.01 Background. PHC-SUB and GCGA Physicians, Inc, an Ohio corporation
----------
(the "Practice") have entered into that certain Practice Management Agreement
dated as of August 31, 1997 (the "PM Agreement"). This Guaranty is executed and
delivered pursuant to Section 7.1 (b) of the PM Agreement.
1.02 Statement of Agreement. For and in consideration of the sum of
----------------------
$10.00 and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Guarantor, and for the purpose of seeking to induce
PHC-SUB to enter into the PM Agreement, Guarantor does hereby make the following
guarantees to and agreements with PHC-SUB.
ARTICLE II - GUARANTEES
-----------------------
2.01 Guaranty of Payment. Guarantor does hereby unconditionally guarantee
-------------------
to PHC-SUB the full and prompt payment when due of the "Applicable Percentage"
(as defined below) of the Minimum Management Fee (as such term is defined in the
PM Agreement) payable by the Practice to PHC-SUB pursuant to Section 7.1 (a) of
the PM Agreement when due, during the five (5) year period following the date
hereof, up to the amount per year (the "Maximum Liability") set forth in
Schedule 7.1 to the PM Agreement.
2.02 Guarantor Obligations. Guarantor does hereby agree that if the
---------------------
Minimum Management Fee is not paid by the Practice in accordance with its terms
for any reason whatsoever, Guarantor will immediately make the Applicable
Percentage of such payments. Guarantor further agrees to pay the Applicable
Percentage of all expenses (including, without limitation, reasonable attorneys'
fees actually paid) paid by PHC-SUB in endeavoring to collect all or any portion
of the indebtedness evidenced by the Minimum Management Fee, to enforce any
other obligations guaranteed hereby, or to enforce this Guaranty.
2.03 Applicable Percentage. For purposes of this Guaranty, the Guarantor's
---------------------
Applicable Percentage shall be equal to a fraction, expressed as a percentage,
in which the numerator is the amount of the Guarantor's Maximum Liability, and
the denominator is the aggregate amount of the Maximum Liability of all of the
guarantors executing guaranties of the Minimum Management Fee (including
Guarantor). Such amounts shall be computed as of the time
2
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payment is due under such guaranties.
ARTICLE III - AGREEMENTS AND WARRANTIES
---------------------------------------
3.01 Consents. Guarantor hereby consents and agrees that PHC-SUB may at
--------
any time, and from time to time, without notice to or further consent from
Guarantor, either with or without consideration: release and surrender any
property or other security of any kind or nature whatsoever hereafter held by it
or by any person or entity on its behalf or for its account, securing any
indebtedness or liability hereby guaranteed, if any; extend or renew the time
for payment of the Minimum Management Fee for any period; grant releases,
compromises and indulgences with respect to the Minimum Management Fee and to
any persons or entities now or hereafter liable thereunder or hereunder; release
any other guarantor or endorser of or other person or entity liable for the
Minimum Management Fee; or take or fail to take any action of any type
whatsoever. No such action which PHC-SUB shall take or fail to take in
connection with the Minimum Management Fee, nor any course of dealing with the
Practice or any other person, shall limit, impair or release Guarantor's
obligations hereunder, affect this Guaranty in any way or afford Guarantor any
recourse against PHC-SUB. Nothing contained in this section shall be construed
to require PHC-SUB to take or refrain from taking any action referred to herein.
3.02 Waiver and Subordination. Guarantor hereby expressly waives any
------------------------
right of contribution from or indemnity against the Practice, whether at law or
in equity, arising from any payments made by Guarantor pursuant to the terms of
this Guaranty, and Guarantor acknowledges that Guarantor has no right whatsoever
to proceed against the Practice for reimbursement of any such payments. In
connection with the foregoing, Guarantor expressly waives any and all rights of
subrogation to PHC-SUB against the Practice, and Guarantor hereby waives any
rights to enforce any remedy which PHC-SUB may have against the Practice. In
addition to and without in any way limiting the foregoing, Guarantor hereby
subordinates any and all indebtedness of the Practice now or hereafter owed to
Guarantor to all indebtedness of the Practice to PHC-SUB, and agrees with PHC-
SUB that Guarantor shall not demand or accept any payment of principal or
interest from the Practice, shall not claim any offset or other reduction of
Guarantor's obligations hereunder because of any such indebtedness.
3.03 Waiver of Defenses. Guarantor hereby waives and agrees not to assert
------------------
or take advantage of any defense based upon: (a) any incapacity, lack of
authority, death or disability of Guarantor or any other person or entity; (b)
any failure of PHC-SUB to commence an action against the Practice or any other
person or entity (including, without limitation, other guarantors, if any), or
to file or enforce a claim against the estate (either in administration,
bankruptcy, or any other proceeding) of the Practice or any other person or
entity, whether or not demand is made upon PHC-SUB to file or enforce such
claim; (c) any failure of PHC-SUB to give notice of the existence, creation or
incurring of any new or additional indebtedness or other obligation or of any
action or nonaction on the part of any other person or entity, in connection
with the PM Agreement or any obligation hereby guaranteed; (d) any failure on
the part of PHC-SUB to disclose to Guarantor any facts it may now or hereafter
know regarding the Practice; (e) any lack of acceptance or notice of acceptance
of this Guaranty by PHC-SUB; (f) any lack of presentment, demand, protest, or
notice of demand, protest or nonpayment with respect to any indebtedness or
3
<PAGE>
obligations under the PM Agreement; (g) any lack of other notices to which
Guarantor might otherwise be entitled; (h) any invalidity, irregularity or
unenforceability, in whole or in part, of the PM Agreement; and (i) any action,
occurrence, event or matter consented to by Guarantor under Section 3.01 hereof,
under any other provision hereof, or otherwise.
3.04 Liability of Guarantor. This is a guaranty of payment and
----------------------
performance and not of collection. The liability of Guarantor under this
Guaranty shall be direct and immediate and not conditional or contingent upon
the pursuit of any remedies against the Practice or any other person (including,
without limitation, other guarantors, if any). Guarantor waives any right to
require that an action be brought against the Practice or any other person or to
require that resort be had to any collateral or to any balance of any deposit
account or credit on the books of PHC-SUB in favor of the Practice or any other
person. In the event that, on account of the Bankruptcy Reform Act of 1978, as
amended, or any other debtor relief law (whether statutory, common law, case law
or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which
may be or become applicable, the Practice shall be relieved of or fail to incur
any debt, obligation or liability as provided in the PM Agreement, Guarantor
shall nevertheless be fully liable therefor. In the event of a default under
the PM Agreement, PHC-SUB shall have the right to enforce its rights, powers
and remedies thereunder or hereunder, in any order, and all rights, powers and
remedies available to PHC-SUB in such event shall be nonexclusive and cumulative
of all other rights, powers and remedies provided thereunder or hereunder or by
law or in equity. If the indebtedness guaranteed hereby is partially paid by
reason of the election of PHC-SUB to pursue any of the remedies available to
PHC-SUB, or is otherwise partially paid, this Guaranty shall nevertheless remain
in full force and effect, and Guarantor shall remain liable for the entire
remaining unpaid balance of the Applicable Percentage of the indebtedness
guaranteed hereby, even though any rights which Guarantor may have against the
Practice may be destroyed or diminished by the exercise of any such remedy.
ARTICLE IV - GENERAL CONDITIONS
-------------------------------
4.01 Waiver of Rights. Guarantor hereby waives and renounces, to the
----------------
fullest extent permitted by law, all rights to the benefits of any statute of
limitations and any moratorium, reinstatement, marshaling, forbearance,
valuation, stay, extension, redemption, appraisement, exemption and homestead
now or hereafter provided by the Constitution and laws of the United States of
America and of each state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Guaranty. To the extent permitted by law,
Guarantor also waives any right to a trial by jury, and any right to assert or
interpose any setoff, counterclaim or crossclaim of any nature (unless same
could not be asserted in a separate, unrelated action) in any action relating to
this Guaranty.
4.02 Irrevocability and Revival. This Guaranty shall be irrevocable by
--------------------------
Guarantor and shall remain in effect until all indebtedness guaranteed hereby
has been completely repaid. This Guaranty shall continue to be effective or be
revived and reinstated, as the case may be, in the event that any payment
received by PHC-SUB of any of the indebtedness guaranteed hereby is returned or
rescinded by reason of any present or future federal, state or other law or
regulation relating to bankruptcy, insolvency or other relief of debtors or for
any other reason.
4
<PAGE>
4.03 Limit of Validity. If from any circumstances whatsoever fulfillment
-----------------
of any provisions of this Guaranty, at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently
prescribed by any applicable usury statute or any other applicable law, with
regard to obligations of like character and amount, then ipso facto the
---- -----
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Guaranty that is in
excess of the current limit of such validity, but such obligation shall be
fulfilled to the limit of such validity. The provisions of this section shall
control every other provision of this Guaranty.
4.04 Applicable Law. This Guaranty shall be interpreted, construed and
--------------
enforced according to the laws of the State of Georgia.
4.05 Miscellaneous. This Guaranty may not be changed orally, and no
-------------
obligation of Guarantor can be released or waived by PHC-SUB or any officer or
agent of PHC-SUB, except by a writing signed by a duly authorized officer of
PHC-SUB. Guarantor has executed this Guaranty individually and not as a partner
of the Practice or any other guarantor. All personal pronouns used herein,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; and the singular shall include the plural and vice versa. Titles
of articles and sections are for convenience only and in no way define, limit,
amplify or describe the scope or intent of any provisions hereof. This Guaranty
contains the entire agreement between Guarantor and PHC-SUB relating to the
guarantying of the Minimum Management Fee by Guarantor and supersedes entirely
any and all prior written or oral agreements with respect thereto; and Guarantor
and PHC-SUB acknowledge that there are no contemporaneous oral agreements with
respect to the subject matter hereof.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the date first above written.
__________________________(SEAL)
Name:
EXHIBIT 7.1(B)
--------------
[DRS. JURELL, MANGELS AND BEKAL]
UNCONDITIONAL GUARANTY
THIS UNCONDITIONAL GUARANTY is made as of the ____ day of ___________,
5
<PAGE>
1997 by ____________________, an individual resident of the State of Ohio
("Guarantor"), in favor of Greater Cincinnati Gastroenterology Associates, Inc.
("PHC-SUB") and its affiliates.
ARTICLE I - BACKGROUND AND AGREEMENT
------------------------------------
1.01 Background. PHC-SUB and GCGA Physicians, Inc, an Ohio corporation
----------
(the "Practice") have entered into that certain Practice Management Agreement
dated as of August 31, 1997 (the "PM Agreement"). This Guaranty is executed and
delivered pursuant to Section 7.1(b) of the PM Agreement.
1.02 Statement of Agreement. For and in consideration of the sum of
----------------------
$10.00 and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Guarantor, and for the purpose of seeking to induce
PHC-SUB to enter into the PM Agreement, Guarantor does hereby make the following
guarantees to and agreements with PHC-SUB.
ARTICLE II - GUARANTEES
-----------------------
2.01 Guaranty of Payment. Guarantor does hereby unconditionally guarantee
-------------------
to PHC-SUB the full and prompt payment when due of the "Applicable Percentage"
(as defined below) of the Minimum Management Fee (as such term is defined in the
PM Agreement) payable by the Practice to PHC-SUB pursuant to Section 7.1(a) of
the PM Agreement when due, during the five (5) year period following the date
hereof, up to $16,266.67 during the period August 31, 1997 to August 31, 1998,
$32,533.33 during the period September 1, 1998 to August 31, 1999, and
$48,800.00 after September 1, 1998 (each such amount during the applicable
period, the "Maximum Liability").
2.02 Guarantor Obligations. Guarantor does hereby agree that if the
---------------------
Minimum Management Fee is not paid by the Practice in accordance with its terms
for any reason whatsoever, Guarantor will immediately make the Applicable
Percentage of such payments. Guarantor further agrees to pay the Applicable
Percentage of all expenses (including, without limitation, reasonable attorneys'
fees actually paid) paid by PHC-SUB in endeavoring to collect all or any portion
of the indebtedness evidenced by the Minimum Management Fee, to enforce any
other obligations guaranteed hereby, or to enforce this Guaranty.
2.03 Applicable Percentage. For purposes of this Guaranty, the Guarantor's
---------------------
Applicable Percentage shall be equal to a fraction, expressed as a percentage,
in which the numerator is the amount of the Guarantor's Maximum Liability, and
the denominator is the aggregate amount of the Maximum Liability of all of the
guarantors executing guaranties of the Minimum Management Fee (including
Guarantor). Such amounts shall be computed as of the time payment is due under
such guaranties.
ARTICLE III - AGREEMENTS AND WARRANTIES
---------------------------------------
6
<PAGE>
3.01 Consents. Guarantor hereby consents and agrees that PHC-SUB may at
--------
any time, and from time to time, without notice to or further consent from
Guarantor, either with or without consideration: release and surrender any
property or other security of any kind or nature whatsoever hereafter held by it
or by any person or entity on its behalf or for its account, securing any
indebtedness or liability hereby guaranteed, if any; extend or renew the time
for payment of the Minimum Management Fee for any period; grant releases,
compromises and indulgences with respect to the Minimum Management Fee and to
any persons or entities now or hereafter liable thereunder or hereunder; release
any other guarantor or endorser of or other person or entity liable for the
Minimum Management Fee; or take or fail to take any action of any type
whatsoever. No such action which PHC-SUB shall take or fail to take in
connection with the Minimum Management Fee, nor any course of dealing with the
Practice or any other person, shall limit, impair or release Guarantor's
obligations hereunder, affect this Guaranty in any way or afford Guarantor any
recourse against PHC-SUB. Nothing contained in this section shall be construed
to require PHC-SUB to take or refrain from taking any action referred to herein.
3.02 Waiver and Subordination. Guarantor hereby expressly waives any
------------------------
right of contribution from or indemnity against the Practice, whether at law or
in equity, arising from any payments made by Guarantor pursuant to the terms of
this Guaranty, and Guarantor acknowledges that Guarantor has no right whatsoever
to proceed against the Practice for reimbursement of any such payments. In
connection with the foregoing, Guarantor expressly waives any and all rights of
subrogation to PHC-SUB against the Practice, and Guarantor hereby waives any
rights to enforce any remedy which PHC-SUB may have against the Practice. In
addition to and without in any way limiting the foregoing, Guarantor hereby
subordinates any and all indebtedness of the Practice now or hereafter owed to
Guarantor to all indebtedness of the Practice to PHC-SUB, and agrees with PHC-
SUB that Guarantor shall not demand or accept any payment of principal or
interest from the Practice, shall not claim any offset or other reduction of
Guarantor's obligations hereunder because of any such indebtedness.
3.03 Waiver of Defenses. Guarantor hereby waives and agrees not to assert
------------------
or take advantage of any defense based upon: (a) any incapacity, lack of
authority, death or disability of Guarantor or any other person or entity; (b)
any failure of PHC-SUB to commence an action against the Practice or any other
person or entity (including, without limitation, other guarantors, if any), or
to file or enforce a claim against the estate (either in administration,
bankruptcy, or any other proceeding) of the Practice or any other person or
entity, whether or not demand is made upon PHC-SUB to file or enforce such
claim; (c) any failure of PHC-SUB to give notice of the existence, creation or
incurring of any new or additional indebtedness or other obligation or of any
action or nonaction on the part of any other person or entity, in connection
with the PM Agreement or any obligation hereby guaranteed; (d) any failure on
the part of PHC-SUB to disclose to Guarantor any facts it may now or hereafter
know regarding the Practice; (e) any lack of acceptance or notice of acceptance
of this Guaranty by PHC-SUB; (f) any lack of presentment, demand, protest, or
notice of demand, protest or nonpayment with respect to any indebtedness or
obligations under the PM Agreement; (g) any lack of other notices to which
Guarantor might otherwise be entitled; (h) any invalidity, irregularity or
unenforceability, in whole or in part, of the PM Agreement; and (i) any action,
occurrence, event or matter consented to by Guarantor under Section 3.01 hereof,
under any other provision hereof, or otherwise.
7
<PAGE>
3.04 Liability of Guarantor. This is a guaranty of payment and
----------------------
performance and not of collection. The liability of Guarantor under this
Guaranty shall be direct and immediate and not conditional or contingent upon
the pursuit of any remedies against the Practice or any other person (including,
without limitation, other guarantors, if any). Guarantor waives any right to
require that an action be brought against the Practice or any other person or to
require that resort be had to any collateral or to any balance of any deposit
account or credit on the books of PHC-SUB in favor of the Practice or any other
person. In the event that, on account of the Bankruptcy Reform Act of 1978, as
amended, or any other debtor relief law (whether statutory, common law, case law
or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which
may be or become applicable, the Practice shall be relieved of or fail to incur
any debt, obligation or liability as provided in the PM Agreement, Guarantor
shall nevertheless be fully liable therefor. In the event of a default under
the PM Agreement, PHC-SUB shall have the right to enforce its rights, powers
and remedies thereunder or hereunder, in any order, and all rights, powers and
remedies available to PHC-SUB in such event shall be nonexclusive and cumulative
of all other rights, powers and remedies provided thereunder or hereunder or by
law or in equity. If the indebtedness guaranteed hereby is partially paid by
reason of the election of PHC-SUB to pursue any of the remedies available to
PHC-SUB, or is otherwise partially paid, this Guaranty shall nevertheless remain
in full force and effect, and Guarantor shall remain liable for the entire
remaining unpaid balance of the Applicable Percentage of the indebtedness
guaranteed hereby, even though any rights which Guarantor may have against the
Practice may be destroyed or diminished by the exercise of any such remedy.
ARTICLE IV - GENERAL CONDITIONS
-------------------------------
4.01 Waiver of Rights. Guarantor hereby waives and renounces, to the
----------------
fullest extent permitted by law, all rights to the benefits of any statute of
limitations and any moratorium, reinstatement, marshaling, forbearance,
valuation, stay, extension, redemption, appraisement, exemption and homestead
now or hereafter provided by the Constitution and laws of the United States of
America and of each state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Guaranty. To the extent permitted by law,
Guarantor also waives any right to a trial by jury, and any right to assert or
interpose any setoff, counterclaim or crossclaim of any nature (unless same
could not be asserted in a separate, unrelated action) in any action relating to
this Guaranty.
4.02 Irrevocability and Revival. This Guaranty shall be irrevocable by
--------------------------
Guarantor and shall remain in effect until all indebtedness guaranteed hereby
has been completely repaid. This Guaranty shall continue to be effective or be
revived and reinstated, as the case may be, in the event that any payment
received by PHC-SUB of any of the indebtedness guaranteed hereby is returned or
rescinded by reason of any present or future federal, state or other law or
regulation relating to bankruptcy, insolvency or other relief of debtors or for
any other reason.
4.03 Limit of Validity. If from any circumstances whatsoever fulfillment
-----------------
of any provisions of this Guaranty, at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently
prescribed by any applicable usury statute or any other applicable law, with
regard to obligations of like character and amount, then ipso facto the
---- -----
8
<PAGE>
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Guaranty that is in
excess of the current limit of such validity, but such obligation shall be
fulfilled to the limit of such validity. The provisions of this section shall
control every other provision of this Guaranty.
4.04 Applicable Law. This Guaranty shall be interpreted, construed and
--------------
enforced according to the laws of the State of Georgia.
4.05 Miscellaneous. This Guaranty may not be changed orally, and no
-------------
obligation of Guarantor can be released or waived by PHC-SUB or any officer or
agent of PHC-SUB, except by a writing signed by a duly authorized officer of
PHC-SUB. Guarantor has executed this Guaranty individually and not as a partner
of the Practice or any other guarantor. All personal pronouns used herein,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; and the singular shall include the plural and vice versa. Titles
of articles and sections are for convenience only and in no way define, limit,
amplify or describe the scope or intent of any provisions hereof. This Guaranty
contains the entire agreement between Guarantor and PHC-SUB relating to the
guarantying of the Minimum Management Fee by Guarantor and supersedes entirely
any and all prior written or oral agreements with respect thereto; and Guarantor
and PHC-SUB acknowledge that there are no contemporaneous oral agreements with
respect to the subject matter hereof.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the date first above written.
__________________________(SEAL)
Name:
EXHIBIT 7.4(A)
--------------
SECURITY AGREEMENT
9
<PAGE>
EXHIBIT 7.4(B)-1
----------------
(Private Payor)
_______________, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: [NAME OF PRACTICE]
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
You are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Sweeping Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________(Practice Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Sweeping Account)
2
<PAGE>
Thank you for your cooperation in this matter.
______________________________
3
<PAGE>
EXHIBIT 7.4(B)-2
----------------
(Government Payor)
_______________, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: [NAME OF PRACTICE]
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
You are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Sweeping Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________ (Practice Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Sweeping Account)
4
<PAGE>
Thank you for your cooperation in this matter.
______________________________
5
<PAGE>
SCHEDULE 7.1
------------
GENERAL MANAGEMENT FEE
6
<PAGE>
EXHIBIT 10.7
EXHIBIT F
EMPLOYMENT AGREEMENT
OF
,M.D.
WITH
INTERNAL MEDICINE SPECIALISTS, INC.
THIS AGREEMENT is made and entered into effective as of the ________ day of
November, 1997 (the "Effective Date"), by and between INTERNAL MEDICINE
SPECIALISTS, INC., a Florida corporation (hereinafter referred to as "the
Corporation") and , M.D. (hereinafter referred to as "Physician").
WHEREAS, the Corporation is engaged in the practice of medicine solely
through its physician employees;
WHEREAS, the Corporation is a wholly-owned subsidiary of PHC Holding
Corporation, a Georgia corporation ("PHC-SUB");
WHEREAS, PHC-SUB is a wholly-owned subsidiary of Physician Health
Corporation, a Delaware corporation ("PHC"); and
WHEREAS, Physician is duly licensed as a Doctor of Medicine in the State of
Florida; and
WHEREAS, the Corporation desires to employ Physician and Physician desires
to accept or continue such employment during the term of this Agreement upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and the benefits
accruing to the parties hereto, the parties agree as follows:
1. Employment. The Corporation hereby agrees to employ or to continue to
----------
employ Physician, and Physician hereby agrees to accept such employment, to
render services on behalf of the Corporation as a Doctor of Medicine.
2. Devotion to Employment. During the term of this Agreement, Physician
----------------------
shall devote his or her full time on behalf of the Corporation, and he or she
shall not engage in any other gainful employment; provided, however, that
nothing contained herein shall prohibit Physician from performing certain non-
patient related personal services outside his employment by the Corporation
<PAGE>
(e.g., speeches involving honoraria or expert witness services involving expert
witness fees) or from having a financial interest in or a financial arrangement
with the facilities identified on EXHIBIT A hereto.
3. Term. The term of this Agreement shall commence on the Effective Date
----
and shall continue for five (5) years (the "Initial Term"), unless terminated
pursuant to the provisions set forth below. This Agreement shall automatically
renew for successive five (5) year terms unless terminated pursuant to the
provisions set forth below.
4. Compensation.
------------
(a) Stock Options. On the date hereof, the Corporation shall grant
--------------
to Physician options under its 1995 Stock Option Plan to acquire up to 10,000
shares of the voting common stock of PHC. The Stock Option Agreement shall be
in substantially the form attached hereto as EXHIBIT B-1.
(b) Cash Compensation.
-----------------
(i) For purposes of this Agreement:
"Direct Physician Revenue" shall mean, for any period, the amounts
collected by the Corporation attributable to professional services
rendered by Physician on behalf of the Corporation during such
period;
"Common Physician Revenue" shall mean, for any period, the amounts
collected by the Corporation attributable to Physician's share
(such relative share to be determined by the Joint Policy
Committee) of any ancillary services performed by the Corporation
during such period; provided such share shall be in compliance with
all state and federal regulations. Common Physician Revenue shall
not include New Physician Employee Net Income as defined in this
Section 4(b)(i) below;
"Total Physician Revenue" shall mean Direct Physician Revenue plus
Common Physician Revenue;
"Direct Operational Expenses" shall mean, for any period, the
Operational Expenses (as defined in EXHIBIT C attached hereto) paid
for such period by the Corporation directly attributable to
Physician;
"Common Operational Expenses" shall mean, for any period,
Physician's allocable share of any common Operational Expenses paid
by the Corporation for such period, as determined by the accountant
regularly engaged by the Corporation
2
<PAGE>
"Total Operational Expenses" shall mean Direct Operational
Expenses plus Common Operational Expenses, provided that Total
Operational Expenses shall in no event include the Management
Fee;
"Physician Net Income" shall mean, for any period, Total
Physician Revenue less the Total Operational Expenses;
The "Management Fee" shall be, for the first five (5) years of
this Agreement, (x) [PHYSICIAN'S CONTRIBUTION] plus (y) fifteen
percent (15%) of the annual Physician Net Income in excess of
[PHYSICIAN'S CONTRIBUTION] plus Physician's 1996 Compensation for
such year. After such five (5) year period, the Management Fee
shall be fifteen percent (15%) of the Physician Net Income per
year; and
"New Physician Employee Net Income" shall mean, for the first
three (3) years following such New Physician Employee's initial
employment by the Corporation, the sum of the Direct Physician
Revenue plus Common Physician Revenue attributable to such
physician, reduced by the sum of Direct Operational Expenses plus
Common Operational Expenses for such physician; and, following
the third anniversary of such New Physician Employee's initial
employment by the Corporation, the sum of the Direct Physician
Revenue plus Common Physician Revenue attributable to such
physician, reduced by the Common Operational Expenses. For
purposes of this Agreement, a New Physician Employee shall mean
any physician first providing professional medical services on
behalf of the Corporation after the Effective Date of this
Agreement.
(ii) For any period, Physician shall receive as compensation
for his or her services rendered hereunder (the "Cash Compensation") the
Physician Net Income less the Management Fee for such period. Notwithstanding
the foregoing, the Cash Compensation paid to Physician shall be subject to
adjustments as determined by the Original Physician Employees engaged in the
practice of nephrology/gastroenterology.
(iii) For all periods during the term of this Agreement, the
Corporation shall pay to Physician, Physician's share (such relative share to be
determined by the Original Physician Employees) of such percentage of the New
Physician Employee Net Income generated by each such New Physician Employee as
is set forth in Section 3.18 of the Bylaws of the Corporation.
(c) Method of Payment. Physician's Cash Compensation shall be paid to
Physician in two (2) monthly payments (the "Monthly Payments") and four (4)
quarterly bonuses (the "Quarterly
3
<PAGE>
Bonuses"), provided the division between such Monthly Payments and Quarterly
Bonuses shall be mutually agreed upon by Physician and the Corporation. The
Monthly Payments shall be based on the accounts receivable of the Corporation
attributable to professional services rendered by Physician on behalf of the
Corporation during the respective payment period of this Agreement, taking into
account adjustments to the accounts receivable based upon the historical
collection rate on such receivables by the Corporation, and the expenses as set
forth in Section 4(b), and the division of the Cash Compensation between the
Monthly Payments and the Quarterly Bonuses as agreed upon by Physician and the
Corporation. Adjustments to the payments made to Physician as Cash Compensation
shall be made to reconcile the monthly payments made based on accounts
receivable with amounts actually collected and due under this Section 4 within
forty-five (45) days after the end of each calendar quarter during the term of
this Agreement. At such quarterly intervals, the Corporation shall determine the
actual amounts due Physician pursuant to this Section 4 for each such calendar
quarter, with such amounts to be calculated on an annualized basis. The
Corporation shall notify the Physician of the amount, if any, due from one party
to another as a result of such adjustments within sixty (60) days of the end of
each calendar quarter. If payment is due from one party to the other, such
amount shall be taken as an adjustment to the subsequent Quarterly Bonus,
provided, however, that in the event such payment is due by Physician to the
Corporation on such calculations and the subsequent Quarterly Bonus is not
sufficient to cover the amount of such payment, the Corporation may, at its
discretion, offset such amount due from the Physician against the Monthly
Payments due the Physician for succeeding calendar months. Notwithstanding the
foregoing, in the event the Physician Net Income is less than the Management
Fee, the Physician shall nonetheless remain obligated to pay the Management Fee
when due.
(d) Signing Bonus; Right to Repurchase. In consideration of
----------------------------------
Physician's execution of this Agreement and as compensation for the services to
be rendered by Physician on behalf of the Corporation hereunder, the Corporation
shall deliver ___ shares of the voting common stock of PHC (the "PHC Shares") to
Physician upon execution of this Agreement by Physician. However, if during the
Initial Term of this Agreement the Physician terminates this Agreement for any
reason, other than pursuant to Sections 10(b) and (c) hereof, or if the
Corporation terminates this Agreement for any reason, other than for death or
disability pursuant to Section 10(a)(ii) hereof, the Corporation shall have the
right, exercisable for a period of ninety (90) days following such termination,
to purchase from the Physician for $.0001 per share the number of PHC Shares
calculated as follows:
4
<PAGE>
Total number of PHC Shares multiplied by A, where A equals:
<TABLE>
<CAPTION>
Years from Effective
Date to termination A Equals
-------------------- --------
<S> <C>
1 or less 1.000
After 1 .798
After 2 .696
After 3 .594
After 4 .492
</TABLE>
Physician agrees to make an election under Section 83(b) of the
Internal Revenue Code of 1986, as amended (the "Code") on a form acceptable to
PHC and filed with the Internal Revenue Service, to treat the PHC Shares
received pursuant to this Section 4(d) as if they were substantially vested upon
execution of this Agreement. The Corporation agrees to loan to Physician the
amount necessary for Physician to pay any Federal and State income taxes due by
Physician as a result of the issuance of PHC Shares pursuant to this Section
4(d) (the "Tax Loan"), including the amount pursuant to the Physician's election
under Section 83(b) of the Code with respect to the PHC Shares received pursuant
to this Section 4(d). The Tax Loan will be made within ten (10) days prior to
the date such taxes are due and will be evidenced by a promissory note in the
form agreed to by the Corporation and Physician on the date hereof.
The Tax Loan shall bear interest at the lowest rate which may be
utilized without incurring any "original issue discount" as defined in Section
1273 of the Code and shall require payment of interest and principal beginning
on the date that Physician's PHC Shares are tradeable without restriction on the
public market based on a sixty (60) month amortization. The principal balance
of the Tax Loan and any interest accrued thereon shall be forgiven by PHC if the
Corporation is repurchased by any of the Original Physician Employees (as
defined in Section 10(a)(i) below) pursuant to the Practice Repurchase Agreement
(as defined in Section 19(a) below).
(e) Stock Bonus. Upon the Effective Date, Physician shall be granted
-----------
options to purchase ____ shares of Voting Common stock of PHC (the "Stock Bonus
Options"). Such Stock Bonus Options shall be substantially in the form attached
hereto as EXHIBIT B-2. The exercise price for Stock Bonus Options shall be a
price equal to one hundred twenty-five percent (125%) of the price at which the
shares of common stock of PHC are offered to the public through an initial
public offering. Stock Bonus Options granted Physician shall vest as follows:
one hundred (100) Stock Bonus Options on each of the first seven anniversaries
of the Effective Date, and Three Thousand Nine (3,009) shares on each of the
eighth, ninth and tenth anniversaries of the Effective Date. All Stock Bonus
Options shall expire no less than five (5) years after the date on which each
such Stock Bonus Options vests, provided such exercise period is in compliance
with PHC's then existing Qualified Stock Option Plan.
5
<PAGE>
(f) Withholding FICA, FUTA. Physician's salary and stock bonus, if
----------------------
any, shall be subject to, and reduced by, applicable federal income tax
withholding and FICA tax, and any other taxes imposed by law.
(g) Review of Compensation by Joint Policy Committee. The Joint
------------------------------------------------
Policy Committee, on behalf of the Physician and pursuant to the terms of the
Bylaws of the Corporation, shall have the right to review the Corporation's
computation or allocation of the Cash Compensation, Monthly Payments, Quarterly
Bonuses, Operational Expenses, Physician Net Income or stock bonus related to
Physician and to resolve any disputes arising out of such review pursuant to the
terms set forth in the Bylaws.
5. Fringe Benefits. During the term of this Agreement, Physician shall be
---------------
entitled to all fringe benefits offered generally to the Corporation's physician
employees as established or modified from time to time by the Corporation,
according to the terms of the Corporation's Bylaws, subject always to the rules
in effect regarding participation in such plans. Physician shall not be entitled
to any other fringe benefits as a result of his or her employment with the
Corporation.
6. Business Expenses. Except as otherwise provided herein, the
-----------------
Corporation shall pay, either directly or by reimbursement to Physician, such
reasonable and necessary business expenses incurred by him or her (not including
entertainment expenses, which shall be the sole responsibility of Physician) in
the course of his or her employment by the Corporation as are consistent with
the Corporation's policies in existence from time to time, subject to such
dollar limitations and verification and record keeping requirements as may be
established from time to time by the Corporation. Such expenses shall include,
but shall not be limited to, occupational license fees, membership dues in
professional organizations, educational expenses, and subscriptions to
professional journals. Such expenses shall be taken into account in determining
Physician's annual Physician Net Income under Section 4(b) above.
7. Vacation and Sick Leave. Physician shall be entitled to such paid
-----------------------
vacation time and paid sick leave as shall be authorized by the Corporation,
according to the terms of the Corporation's Bylaws, from time to time. All
vacations shall be taken by Physician at such time or times as may be approved
by the Joint Policy Committee of the Corporation. There will be no carryover of
unused vacation time or sick leave from one year to another, and there shall be
no additional compensation paid to Physician by the Corporation for such unused
vacation time or sick leave.
8. Time Off. Physician shall be entitled to such time off with pay for
--------
attendance at seminars, courses, meetings and conventions as is authorized by
the Corporation according to the terms of its Bylaws. The specific seminars,
courses, meetings and conventions to be attended by Physician shall be subject
to the prior approval of the Joint Policy Committee of the Corporation
established pursuant to its Bylaws.
6
<PAGE>
9. Automobile. Physician, as a condition of his or her employment, shall
----------
provide an automobile for use in the conduct of his or her duties on behalf of
the Corporation, and the Corporation shall pay to Physician a reasonable
allowance determined by the Corporation to defray the cost of insurance, gas,
oil, repairs, maintenance and other expenses incurred by Physician in connection
with the operation of such automobile. Any expenses in excess of said allowance
shall be the sole responsibility of Physician. Physician shall be required to
maintain written records of the percentage of total miles for which such
automobile is used by Physician for business purposes and for personal purposes,
respectively. Physician's records shall reflect the amount of mileage,
destination and purpose of each trip treated by Physician as for business.
10 Termination of Employment.
-------------------------
(a) Termination by the Corporation.
------------------------------
(i) The Corporation shall be entitled to terminate this Agreement
upon (1) the conviction of Physician of a felony or a crime involving moral
turpitude provided, however, that, during the Initial Term of this Agreement,
termination pursuant to this Section 10(a)(i)(1) shall require the approval of
at least seventy-five percent (75%) of the individual physicians who are
signatories to that certain Merger Agreement dated as of October 29, 1997 (the
"Merger Agreement") who are still employees of the Corporation (the "Original
Physician Employees"); (2) the commission of an act of fraud by Physician
against the Corporation; (3) at the request of at least seventy-five percent
(75%) of the Original Physician Employees, upon Physician's failure or refusal
to faithfully and diligently perform his or her duties pursuant to this
Agreement; (4) Physician's gross neglect in the performance of his or her duties
pursuant to this Agreement; (5) the loss, or suspension for a period longer than
six months, of Physician's license to practice medicine in the State of Florida;
(6) the permanent loss of Physician's privileges following all due process at
any hospital or medical facility at which Physician may be primarily required to
perform services; (7) Physician being not insurable for professional liability
insurance for any reason whatsoever; (8) Physician's status as an approved
medical provider under the federal Medicare/Medicaid system being revoked, or
suspended for a period greater than six (6) months, provided, however, that such
six (6) month period shall not apply if the Physician is the subject of a
criminal investigation for Medicare/Medicaid Violations; (9) Physician willfully
committing any act materially harmful to the Corporation or any of its patients
provided, however, that during the Initial Term of this Agreement, termination
pursuant to this Section 10(a)(i)(9) shall require the approval of at least
seventy-five percent (75%) of the Original Physician Employees; or (10)
Physician becoming chemically dependent, as hereinafter defined in Section
10(b)(iii), on alcohol or any drugs (termination upon the occurrence of items 1-
10 of this Section 10(a)(i) is hereinafter referred to as "termination for
cause"). Termination for cause shall occur only upon at least forty-five (45)
days advance written notice of the proposed termination and the specific
reason(s) therefor, and then only if, in the reasonable judgment of the
Corporation, the specific reason(s) for termination have not been corrected
within such period. Should the Corporation terminate this Agreement for any of
the foregoing reasons, Physician will be entitled to receive the compensation
provided for in Section 4 hereof until the effective date of termination.
7
<PAGE>
(ii) This Agreement shall terminate upon the death, permanent
disability, or full retirement of Physician. The determination of "permanent
disability" shall be made by reference to the permanent disability policy
maintained by the Corporation for the Physician or, in the absence of such a
policy, by an independent physician mutually agreed upon by the Physician (or a
representative of Physician if he is unable to make such decision) and the
Corporation.
(iii) Physician shall be considered to have a "chemical dependency"
or be "chemically dependent" on alcohol or any drugs if the Corporation's Joint
Policy Committee, in its reasonable discretion, determines that Physician is
chemically dependent and requests that Physician submit to an independent
medical or psychological examination, the results of which confirm a chemical
dependency. Physician shall not be terminated for chemical dependency if this is
a first occurrence of chemical dependency by Physician and Physician enters an
approved treatment program and successfully continues such program through its
completion. If Physician refuses to submit to an independent examination to
determine if there is a chemical dependency, or does not successfully complete
the treatment program, or if there is a chemical dependency and such individual
refuses to enter a treatment program, or if this is the second or subsequent
occurrence of a chemical dependency, then the Corporation shall be entitled to
terminate this Agreement pursuant to this Section 10(a).
(iv) In addition to the foregoing, the Corporation may terminate
this Agreement, and have no further liability or obligation hereunder, if
Physician materially breaches any term or condition of this Agreement or any
other agreement between the Corporation or any of its affiliates and Physician,
and such cessation or breach continues uncured for a period of ninety (90) days
(the "Physician Cure Period") after Physician's receipt of written notice
specifying such breach (the "Physician Material Breach"); provided, however,
that if at the end of the Physician Cure Period the Corporation does not believe
that the Physician Material Breach has been cured, the Corporation shall, prior
to having the right to terminate under this Section 10(a)(iv), submit the
following issues directly to arbitration in accordance with the provisions of
Section 22(b) hereof: (i) whether Physician has materially breached this
Agreement and (ii) the amount of income the Corporation has foregone as the
result of such breach, without giving effect to consequential or punitive
damages (the "Corporation Lost Income Amount"). Should (X) such arbitration
determine finally that Physician has materially breached any term or condition
of this Agreement and (Y) Physician (i) fails to pay the Corporation the
Corporation Lost Income Amount within ninety (90) days after receipt of written
notice specifying such amount or (ii) continues the Physician Material Breach
after thirty (30) days following receipt of such notice, the Corporation may
terminate this Agreement by delivery of written notice to the Physician.
(b) Termination By Physician Upon Financial Breach or Bankruptcy. The
------------------------------------------------------------
Physician may terminate this Agreement, and have no further liability or
obligation hereunder, except as provided herein, upon the occurrence of the
following events:
8
<PAGE>
(i) If the Corporation materially breaches its obligation to make
any payment to the Physician required pursuant to this Agreement (a "Financial
Breach"), and such Financial Breach remains uncured for a period of seventy-five
(75) days after receipt by the Corporation and Banque Paribas of written notice
specifying such Financial Breach and Physician's intent to terminate this
Agreement hereunder.
(ii) In the event of the occurrence of one or more of the following
events described below (each an "Event of Bankruptcy"):
(a) PHC or the Corporation files a voluntary petition or an
involuntary petition is filed against either of them under any provision of any
bankruptcy act (whether bankruptcy, reorganization, arrangement, composition,
extension or otherwise);
(b) PHC or the Corporation seeks, consents to, applies for
or acquiesces to the appointment of a receiver;
(c) PHC or the Corporation makes an assignment for the
benefit of creditors;
(d) PHC or the Corporation submits an offer by composition or
extension to creditors or a committee of creditors or a liquidating agent is
appointed with respect to PHC or the Corporation.
(c) Termination By Physician Upon Non-Financial Breach. In the event
--------------------------------------------------
the Physician determines that there has been a material breach by the
Corporation of the terms of this Agreement, other than a Financial Breach, or
during the term of this Agreement, a breach of any of the provisions of the
Corporation's Bylaws regarding the decision-making authority granted to the
Joint Policy Committee which provisions are hereby incorporated herein by
reference and made a part hereof, or a breach of any other agreements between
the Corporation or any of its affiliates and Physician (any such breach being
referred to herein as a "Nonfinancial Breach"), and such Nonfinancial Breach
remains uncured for a period of ninety (90) days after the Corporation's receipt
of written notice specifying such breach (the "Corporation Cure Period"), the
Physician shall, prior to having the right to terminate, submit the following
issues directly to arbitration in accordance with Section 22(b) hereof: (i)
whether the Corporation has materially breached this Agreement and (ii) if the
Corporation has materially breached this Agreement, the amount of income
Physician has foregone as a result of the Nonfinancial Breach, without giving
effect to consequential or punitive damages (the "Physician Lost Income
Amount"). Should (X) such arbitration determine finally that the Corporation
has materially breached this Agreement and (Y) the Corporation or Banque Paribas
(i) fails to pay to Physician the Physician Lost Income Amount within ninety
(90) days after the receipt by each of the Corporation and Banque Paribas of
written notice specifying the Physician Lost Income Amount or (ii) continue the
Nonfinancial Breach after thirty (30) days following receipt of such notice,
Physician may terminate this Agreement by delivery of written notice to
Corporation and Banque Paribas.
9
<PAGE>
(d) Voluntary Termination. Physician may terminate this Agreement
---------------------
at any time, by delivering to the Corporation written notice of such intention
not less than one (1) year prior to the effective date of termination (the
effective date of termination specified in such notice shall be referred to
herein as the ("Notice Date")). Notwithstanding the foregoing, if notice of
termination is given by Physician to the Corporation, then the Corporation shall
have the option of advancing the effective date of such termination to a date
not less than ninety (90) days from receipt of such notice from Physician (the
"Accelerated Date"). In the event that Physician gives written notice of
voluntary termination as provided in this Section 10(d) and the Corporation
elects to accelerate the date of termination, the effective date of termination
for the purpose of calculating the number of PHC Shares subject to repurchase by
the Corporation pursuant to Section 4(d) and for the purpose of calculating the
Liquidated Damages pursuant to Section 10(f) shall be the Notice Date given in
the Physician's notice.
(e) Right of Offset. In the event that Physician's employment with
---------------
the Corporation is terminated for any reason, the Corporation shall have the
right to offset any indebtedness, whether or not evidenced by a promissory note
and whether or not mature or due and payable, owed by Physician to the
Corporation against any compensation due to Physician, whether salary, bonus or
deferred compensation, under this Agreement. Additionally, in the event that
Physician's employment with the Corporation is terminated for any reason, the
Corporation shall have the right to offset the following amounts against any
compensation due to Physician, whether salary, bonus or deferred compensation,
under this Agreement:
(i) Expenses paid or incurred by the Corporation, or to be
paid or incurred by the Corporation, directly attributable to Physician; and
(ii) Expenses paid or incurred by the Corporation, or to be
paid or incurred by the Corporation, on behalf of Physician to the extent
Physician will benefit from such expenses following the date of termination of
Physician's employment with the Corporation, including, without limitations,
amounts paid or incurred or to be paid or incurred by the Corporation for yellow
page advertising that will benefit Physician after the date of termination of
his or her employment with the Corporation.
(f) Early Termination. In the event this Agreement is terminated
-----------------
during the Initial Term pursuant to the provisions of Sections 10(a), 10(b)(i),
or 10(c) or in the event the Physician voluntarily terminates this Agreement
during the Initial Term pursuant to the provisions of Section 10(d) hereof,
Physician shall, within ninety (90) days after such termination, pay to the
Corporation, as "Liquidated Damages", and not as a penalty, the amount
determined in accordance with the formula set forth on EXHIBIT D-1 attached
hereto provided, however, that if the Physician is permanently retiring from the
practice of medicine, the Physician shall pay Liquidated Damages in accordance
with the formula set forth on EXHIBIT D-2 attached hereto. In the event this
Agreement is terminated pursuant to Section 10(d) hereof, the Liquidated Damages
shall be paid by the Physician pursuant to this Section 10(f) within ninety (90)
days after the earlier of the Accelerated Date or the
10
<PAGE>
Notice Date. Physician acknowledges and agrees that the Liquidated Damages
payment does not constitute a penalty and is a fair and reasonable payment to
the Corporation in light of the substantial expenditure of capital and other
resources the Corporation will make under this Agreement to maintain, develop
and expand the medical practice of the Physician and the Corporation. Physician
further acknowledges and agrees that the actual losses to be suffered by the
Corporation in the event of termination of Physician's employment in the Initial
Term will be difficult to ascertain, and that the Liquidated Damages have been
arrived at after a good faith effort to estimate such losses and are reasonable.
The Liquidated Damages payment shall not be required if this Agreement
terminates due to the death or permanent disability of Physician or if this
Agreement terminates as the result of an Event of Bankruptcy pursuant to Section
10(b)(ii) hereof. Additionally, the Liquidated Damages payment shall not be
required if the Original Physician Employees exercise the Repurchase Option (as
defined herein) pursuant to the Practice Repurchase Agreement. Provided
Physician pays the Liquidated Damages Amount in accordance with the provisions
of this Section 10 or exercises the Repurchase Option pursuant to the terms of
the Practice Repurchase Agreement, this Agreement, including without limitation
the restrictive covenants contained in Section 18 (other than Section 18(d)),
shall terminate and be of no further force and effect, except for the provisions
of Section 10(e), Section 15, Section 17 and Section 18(d) hereof
(g) Credentialing Criteria. The Corporation's Joint Policy
----------------------
Committee shall, from time to time, establish uniform credentialing criteria
applicable to all physician-employees in order to properly evaluate the
performance of such physician-employee, including Physician. This uniform
credentialing criteria shall include, without limitation, such factors as the
licensing of a physician, the good standing of a physician with payors, and the
continuing medical education taken by a physician. Additionally, the
Corporation's Joint Policy Committee shall establish uniform criteria in the
following areas for the purpose of evaluating the performance of all physician-
employees, including Physician, and in order to compile the data necessary to
compete for, and comply with, managed care contracts: (i) utilization review;
(ii) practice parameters, and (iii) outcome analysis.
11 Fees. The Corporation's Joint Policy Committee shall have the
----
authority to review the fees (or a procedure for establishing the fees) to be
charged patients of the Corporation who are treated by Physician in the course
of his or her employment. All sums paid in the way of fees or otherwise for
medical services rendered by Physician shall belong to the Corporation and shall
be included in the Corporation's income. All income received by Physician for
lectures, articles, medical papers, witness fees and other non-patient related
personal services sources shall be retained by the Physician. Exceptions to
these rules may be authorized by a unanimous vote of the Joint Policy Committee
of the Corporation from time to time upon a showing of good cause by Physician.
12 Patients. The Corporation, through its Joint Policy Committee and
--------
pursuant to its Bylaws, shall have the exclusive authority to determine who will
be accepted as its patients and to designate (or to establish a procedure for
designating) which Physician will treat each patient. It is specifically
understood that all patients treated by Physician are patients of the
Corporation.
11
<PAGE>
13. Professional Policies and Procedures. Subject to its Bylaws, the
------------------------------------
Corporation shall have the exclusive authority to establish from time to time
the professional policies and procedures to be followed by Physician in treating
his or her patients.
14. Medical Records. All medical records of patients treated by Physician
---------------
within the scope of his or her employment, including, but not limited to,
charts, case histories, x-rays, lab reports and billing and payment information,
shall be the exclusive property of the Corporation. In the event of termination
of Physician's employment with the Corporation, the Corporation shall advise all
active patients under Physician's care of such termination by letter signed by
the Corporation and Physician, which letter shall be sent, if possible, prior to
the date of Physician's departure. The cost of mailing such letters shall be
shared equally by the parties. Physician shall then be entitled to the original
medical records of any patient who files a written request with the Corporation
that his or her records be transferred to Physician, provided that Physician
agrees to make copies of such records available to the Corporation at its
request. The duplication of patient records shall be effected during non-office
hours and the cost of such duplication shall be borne equally by the parties.
15. Reimbursement of Disallowed Amounts. Any sums paid by the Corporation
-----------------------------------
to or on behalf of Physician, including, but not limited to, travel expenses,
continuing education costs, car allowance, medical reimbursement and other
fringe benefits, which are subsequently disallowed in whole or in part as a
deductible expense for federal income tax purposes shall be reimbursed by
Physician to the Corporation, to the full extent of the tax paid by the
Corporation as a result of the disallowance, within ninety (90) days after the
final determination thereof. Additionally, any amounts which must be refunded to
payors, fines or penalties attributable to services performed by Physician,
shall be reimbursed by Physician to the Corporation, to the full extent of the
amount paid by the Corporation as a result of such repayment, fine or penalty.
This Section 15 shall survive the termination of this Agreement and the
termination of Physician's employment with the Corporation.
16. Managed Care Contracts. The Corporation and Physician agree that the
----------------------
Corporation shall have the exclusive right to bid on any managed care contracts
with third party payors. Any managed care contracts of the Corporation shall be
the exclusive property of the Corporation. In the event the Corporation does
not enter into a managed care contract with a particular third party payor,
Physician may, if approved by the unanimous vote of the Joint Policy Committee
of the Corporation in its reasonable judgment, individually bid to provide
services through the Corporation with respect to such managed care contract.
17. Professional Liability Insurance. The Corporation shall provide
--------------------------------
professional malpractice liability insurance coverage for Physician in such
amounts as the Corporation deems necessary and appropriate, subject to
Physician's insurability. Upon termination of this Agreement, the Physician
shall be obligated to pay the cost of professional liability reporting
endorsement "tail coverage" insurance for Physician. In such event, if
Physician does not obtain such reporting endorsement coverage by or promptly
following the effective date of termination of employment, then the Corporation
may, at its option, obtain such coverage and may offset the cost of such
coverage
12
<PAGE>
against any amounts then due and owing to Physician. Notwithstanding the
foregoing, Physician may satisfy the obligation to obtain reporting endorsement
coverage by obtaining and maintaining in full force and effect, for a period of
not less than five (5) years from the effective date of termination of
employment, professional liability insurance with benefit levels of at least One
Million Dollars ($1,000,000.00) per occurrence and Three Million Dollars
($3,000,000.00) annual aggregate, which specifically includes coverage with
respect to claims arising out of professional services rendered by Physician
during the period Physician provided services to the Corporation.
18. Specific Covenants and Agreements.
---------------------------------
(a) Covenant Not to Compete. Physician covenants and agrees that
-----------------------
during his or her employment hereunder and for a period of two (2) years
commencing on the date of cessation of Physician's employment with the
Corporation, Physician shall not, on his or her own behalf or on behalf of any
person, firm, partnership, association, corporation, or business organization,
entity, or enterprise, either directly or indirectly, conduct a practice of
medicine consisting of or including the practice of gastroenterology/nephrology
medicine within a five (5) mile radius (the "Non-Compete Radius") of the medical
offices of the Corporation at which Physician performs a substantial portion of
the services Physician provides on the Corporation's behalf (the "Medical
Offices") identified on EXHIBIT E attached hereto and incorporated herein by
this reference. Physician acknowledges and agrees that this covenant is intended
to protect the investment that the Corporation has made and will make in the
practice of Physician, and that the restrictions contained herein are reasonable
in duration and geographic scope.
(b) Covenant Not to Solicit Employees. Physician covenants and agrees
---------------------------------
that during his or her employment hereunder and for a period of two (2) years
immediately following the date of cessation of Physician's employment with the
Corporation, Physician shall not, on his or her own behalf or on behalf of any
person, firm, partnership, association, corporation, or business organization,
entity or enterprise, either directly or indirectly, solicit, recruit, entice,
persuade, or induce, or attempt to solicit, recruit, entice, persuade, or
induce, any employee, consultant, or independent contractor employed or
otherwise engaged by the Corporation at the time of cessation of Physician's
employment or within the one (1) year period immediately preceding such date of
cessation, to sever his or her relationship with the Corporation or to be
employed or otherwise engaged in any capacity by any person, firm, partnership,
association, corporation, or business organization, entity, or other enterprise
conducting a business of practicing medicine.
(c) Covenant Not To Solicit Patients. Physician covenants and agrees
--------------------------------
that during his or her employment hereunder and for a period of two (2) years
immediately following the date of cessation of Physician's employment with the
Corporation, Physician shall not, on his or her own behalf or on behalf of any
person, firm, partnership, association, corporation, or business organization,
entity or enterprise, either directly or indirectly, solicit or attempt to
solicit, for the purpose of providing gastroenterology/nephrology medical
services to, any patient of the Corporation who has consulted with, been treated
by or cared for by, or had material contact with Physician,
13
<PAGE>
acting on behalf of the Corporation, at any time within the one (1) year period
immediately preceding such date of cessation of Physician's employment.
(d) Covenant Not to Disclose Trade Secrets and Other Confidential
-------------------------------------------------------------
Information. Physician covenants and agrees that from the date hereof and for
- -----------
all time he or she shall treat as confidential and shall not use, disclose,
reveal or divulge (except in connection with Physician's performance of his or
her duties to the Corporation, pursuant to this Agreement and as provided in
Section 14 with respect to medical records of patients transferred in accordance
with the terms of Section 14), any and all trade secret information concerning
the Corporation or its business obtained by Physician in any manner during his
or her employment with the Corporation. For purposes hereof, "trade secret
information" shall mean all information including, but not limited to, (i) lists
of actual or potential patients, lists of actual or potential suppliers, lists
of referral sources, lists of third party payors, including without limitation,
managed care entities, insurance companies, and self-insured employers, with
whom the Corporation contracted or from whom the Corporation received an
assignment of benefits or other reimbursement at any time during the term of
this Agreement ("Third Party Payors") and lists of medical service fees, (ii)
any new product developments, special or unique processes or methods, or (iii)
any marketing, sales, advertising or other concepts or plans of the Corporation
or of PHC, technical or nontechnical data, formulae, patterns, compilations,
programs, devices, methods, techniques, drawings, processes, financial data,
financial plans, and product plans, which information is known only to the
Corporation and those of its employees in whom the trade secret must be confided
in order to apply the trade secret to its intended use and from which the
Corporation derives actual or potential economic value from the nondisclosure of
such information to persons who can obtain economic value from its disclosure or
use. Physician further covenants and agrees that during his or her employment
hereunder and for a period of five (5) years immediately following the date of
cessation of Physician's employment with the Corporation, Physician shall treat
as confidential and shall not use, disclose, or divulge (except in connection
with Physician's performance of his or her duties to the Corporation), any
confidential business information regarding the Corporation that does not fall
within the definition of "trade secret information" as defined in this Section.
Such confidential business information shall include, without limitation, the
material terms of the Merger Agreement or the agreements contemplated therein,
or any other written agreement between the parties hereto, information disclosed
to, acquired, or learned by Physician as a consequence of his or her employment
by the Corporation and not generally known to or by the Corporation's
competitors or the general public about the business of the Corporation or the
Corporation's financial affairs, all of which is hereby agreed to be the
property of and confidential to the Corporation.
(e) Medical Offices. Physician acknowledges that the Medical Offices at
---------------
which he or she may perform a substantial portion of the services Physician
provides on the Corporation's behalf may change from time to time pursuant to
agreement with the Corporation. Accordingly, Physician agrees that, in the
event of such a change, and as a condition thereto and in consideration thereof,
Physician shall execute and deliver to the Corporation, as may be reasonably
requested by the Corporation, from time to time and upon termination of
employment, an amendment to this Agreement in form satisfactory to the
Corporation for the purpose of amending EXHIBIT E hereto to
14
<PAGE>
more properly reflect the Medical Offices at which Physician is then providing a
substantial portion of his services on behalf of the Corporation.
(f) Remedies and Acknowledgments. The Parties hereto agree that: (i)
----------------------------
the covenants and agreements of Physician contained in this Agreement are
reasonably necessary to protect the interests of the Corporation, in whose favor
said covenants and agreements are imposed in light of the nature of the
Corporation's medical practice and the professional involvement of Physician in
such businesses, (ii) the restrictions imposed by this Agreement are not greater
than are necessary for the protection of the Corporation in light of the
substantial harm that the Corporation will suffer should Physician breach any of
the provisions of said covenants or agreements, (iii) the covenants and
agreements of Physician contained in this Agreement are material inducements for
the Corporation to hire or continue the employment of Physician, (iv) by having
access to information concerning the employees, patients and Third Party Payors
of the Corporation, Physician will gain a competitive advantage as to such
parties and (v) the nature, kind and character of the activities Physician is
prohibited from engaging in are reasonable and necessary to protect the
Corporation in that the Corporation will introduce Physician to its employees,
patients and Third Party Payors and other important aspects of its medical
practice. Physician acknowledges and agrees that the covenants set forth in
this Section 18 are intended to protect the investment the Corporation will make
in the practice of Physician, that the restrictions contained herein are
reasonable in duration and geographic scope. Physician further acknowledges and
agrees that any breach of any of the foregoing covenants will result in
irrevocable injury to the Corporation and that the Corporation's remedies at law
for such a breach would be inadequate and that damages would be extremely
difficult to calculate or determine. Accordingly, Physician agrees that, upon a
breach or threatened breach of any of the foregoing covenants, the Corporation
shall, in addition to all other remedies available at law and equity, be
entitled to both preliminary and permanent injunctions to halt or prevent any
such breach or threatened breach. In addition, in the event a court of
competent jurisdiction determines that Physician has breached any of the
foregoing covenants, Physician shall pay all costs of enforcement of the
foregoing covenants, including, but not limited to, court costs and reasonable
attorneys' fees.
(g) Survival. Except as otherwise expressly provided herein, the
--------
provisions of this Section 18 shall survive the termination of Physician's
employment with the Corporation and the termination of this Agreement.
19. Termination of Certain Restrictive Covenants.
---------------------------------------------
(a) In the event (i) PHC fails to access the public market with its
stock (the "IPO") within the sixty-six (66) month period following the Effective
Date, as more particularly set forth in the Practice Repurchase Agreement dated
as of the Effective Date by and among PHC and the Original Physician Employees
(the "Practice Repurchase Agreement"), which is incorporated herein by reference
and made a part hereof, (ii) a Change of Control (as defined in the Practice
Repurchase Agreement) occurs prior to the IPO, or (iii) each of the Employment
Agreements between the Corporation and the Original Physician Employees is
terminated during the Initial Term pursuant to the terms of Sections 10(b) or
10(c) of the respective Employment Agreements, the
15
<PAGE>
Original Physician Employees shall have the option (the "Repurchase Option") in
lieu of paying the Liquidated Damages Amount, if required, to repurchase the
common stock or certain assets of Internal Medicine Specialists, Inc., pursuant
to the Practice Repurchase Agreement. If the Original Physician Employees
exercise the Repurchase Option in accordance with the terms of the Practice
Repurchase Agreement, this Agreement, including, without limitation, the
restrictive covenants of Section 18 hereof (other than the provisions of Section
18(d)), but excluding the provisions of Section 10(f), Section 15 and Section
17, shall terminate upon the closing of the Repurchase Option.
(b) Upon (X) the expiration of this Agreement at the end of the
Initial Term or any term thereafter and (Y) the Physician's return to the
Corporation of an amount (the "Non-Compete Buyout Amount") of PHC Shares and
cash equal to forty percent (40%) of (i) the total consideration received by
the Physician pursuant to the Merger Agreement and (ii) the Stock Bonus, if any
received by the Physician on the Effective Date, the restrictive covenants of
Section 18 hereof (other than the provisions of Section 18(d)) shall terminate.
In the event the Physician has liquidated the shares required to be included in
the Non-Compete Buyout Amount, the Physician shall pay cash in an amount equal
to the fair market value of the same number of shares on the earlier of the date
of such shares' liquidation or the date of termination of this Agreement. If
the Physician does not remit the Non-Compete Buyout Amount to the Corporation,
the provisions of Section 18 hereof shall continue in full force and effect for
the time period specified therein.
20. Certain Amendments to Bylaws. During the term of this Agreement, the
----------------------------
Corporation agrees not to amend any of the provisions of Section 3.18 of the
Bylaws of the Corporation or any other provision of the Bylaws concerning the
authority of the Joint Policy Committee established pursuant to Section 3.18 of
the Bylaws to govern the operation of the Corporation without the receipt of the
prior written consent of at least seventy-five percent (75%) of the Original
Physician Employees, unless such amendment is required by applicable law.
21. Severability. The covenants set forth in Sections 18(a) through 18(d)
------------
of this Agreement shall be construed to be separate and distinct from each other
and every other provision of this Agreement. In the event that any court of
competent jurisdiction shall declare any covenant to be invalid, prohibited, or
unenforceable, the remaining covenants and obligations of this Agreement shall
remain independent, divisible, and enforceable. Any such unenforceable or
prohibited provision or provisions may be modified in a court of law to the
fullest extent allowed by the law of such jurisdiction so as to allow such a
provision or provisions to be written in such a manner and to such an extent as
to be enforceable in such jurisdiction under the circumstances. Without
limitation of the foregoing, with respect to Sections 18(a) through 18(d) of
this Agreement, if it is determined that any restriction contained in such
provisions is excessive as to duration or scope, it is intended that such
restriction be enforced for such shorter duration or with such narrow scope as
will render it enforceable.
22. Arbitration and Mediation.
-------------------------
16
<PAGE>
(a) Mediation.
---------
(i) Agreement to Use Procedure. Except for any action
--------------------------
brought by the Corporation to enforce the restrictive covenants contained
in Section 18 above, the parties agree to utilize the following procedure
with regard to any contention or claim arising out of or relating to this
Agreement (a "Dispute").
(ii) Initiation of Procedure. The initiating party shall
-----------------------
give written notice to the other party, describing the nature of the
Dispute, its claim for relief and identifying one or more individuals with
authority to resolve the Dispute on such party's behalf. The other party
shall have five (5) business days from receipt of such notice within which
to designate in writing one or more individuals with authority to resolve
the Dispute on such party's behalf.
(iii) Selection of Mediator. Within ten (10) business
---------------------
days from the date of designation by the noninitiating party, the parties
shall make a good faith effort to select a person to mediate the Dispute.
If no mediator has been selected under this procedure, the parties shall
jointly request a State or Federal District Judge of their choosing (or if
they cannot agree, the President of the Orange County, Florida Bar
Association) to supply within ten (10) business days a list of potential
qualified attorney-mediators in Orlando, Florida. Within five (5) business
days of receipt of the list, the parties shall rank the proposed mediators
in numerical order of preference, simultaneously exchange such list, and
select as the mediator the individual receiving the highest combined
ranking. If such mediator is not available to serve, they shall proceed to
contact the mediator who was next highest in ranking until they select a
mediator.
(iv) Time and Place for Mediation; Parties Represented. In
-------------------------------------------------
consultation with the mediator selected, the parties shall promptly
designate a mutually convenient time in Orlando, Florida for the mediation,
such time to be no later than sixty (60) days after selection of the
mediator. In the mediation, each party shall be represented by persons
with authority and discretion to negotiate a resolution of the Dispute, and
may be represented by counsel.
(v) Conduct of Mediation. The mediator shall determine the
---------------------
format for the meetings and the mediation sessions shall be private. The
mediator will keep confidential all information learned in private
17
<PAGE>
caucus with any party unless specifically authorized by such party to make
disclosure of the information to the other party. The parties agree that
the mediation shall be governed by the provisions of the Florida Code of
Civil Procedure and such other rules as the mediator shall reasonably
prescribe.
(vi) Fees of Mediator; Disqualification. The reasonable fees
----------------------------------
and expenses of the mediator shall be shared equally by the parties. The
mediator shall be disqualified as a witness, consultant, expert or counsel
for any party with respect to the Dispute and any related matters.
(vii) Confidentiality. Mediation is a compromise negotiation
---------------
for purposes of Federal and State Rules of Evidence and constitutes
privileged communication under Florida law. The entire mediation process is
confidential, and such conduct, statements, promises, offers, views and
opinions shall not be discoverable or admissible in any level proceeding
for any purpose.
(b) Binding Arbitration. If any Dispute cannot be settled through
-------------------
direct discussions, the parties agree to first endeavor to settle the Dispute by
mediation as set forth in Section 22(a) above, before resorting to arbitration.
Thereafter, any Dispute shall be settled solely by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator(s) may be entered and
enforced in any court having jurisdiction thereof. The parties agree to execute
a complete written Arbitration Agreement (requiring binding arbitration and
setting forth in detail procedures for arbitration) within ten (10) days of the
close of any unsuccessful mediation proceeding or, in the case of a Dispute
brought immediately to arbitration pursuant to the provisions of Section
10(a)(iv) or Section 10(c), within ten (10) days following the expiration of the
Physician Cure Period or the Corporation Cure Period. The parties agree that,
except for any action brought by the Corporation to enforce the restrictive
covenants contained in Section 18 above, the arbitrator(s) shall be instructed
that the arbitration award related to any breach of this Agreement shall be
monetary and limited to the lost income suffered by the non-breaching party or
parties as the result of the breach, without giving effect to consequential or
punitive damages. If the parties cannot agree on a binding Arbitration
Agreement, such agreement shall, within twenty (20) days of the close of the
unsuccessful mediation proceedings, be prepared and submitted to each party by
the mediator and such agreement in the form submitted by the mediator shall be
binding on both parties as to all arbitration procedures.
(c) Breach of Mediation and/or Arbitration Provisions.
-------------------------------------------------
18
<PAGE>
(i) Enforcement. In the event any party shall breach the terms
-----------
of Section 22(a) or (b) above regarding mediation and arbitration, the
parties agree the following shall occur:
(1) The non-breaching party may, no earlier than five (5) days
after written notice to the breaching party, apply to a court of
competent jurisdiction for specific enforcement of the mediation
and arbitration procedures set forth herein;
(2) The breaching party shall pay all costs and expenses of
such breach to the non-breaching party, including attorney's
fees, travel expenses and mediator fees;
(3) Upon a judicial determination of a material breach, the
breaching party hereby waives and relinquishes all claims of
treble, punitive damages or similar damages or claims of
irreparable harm concerning the Dispute in question, and further
waives all objections to the non-breaching party's claim of
treble, punitive or similar damages or claims of irreparable
harm concerning said Dispute; and
(4) The breaching party shall pay all other actual and special
damages to the non-breaching parties that result from such
breach.
(ii) Other Damages. In addition to the agreed consequences of
-------------
breach set out above, the parties hereby agree any court obtaining
jurisdiction over the involved Dispute shall, upon the court's
discretion, have the authority to impose the consequences set out in
the Rules of Civil Procedure of that court, for the failure of a party
to cooperate in discovery and pretrial matters, including, but not
limited to, the striking of a party's pleadings, award of attorney's
fees and costs, and such other remedies as the court may deem
appropriate. The remedies set forth in this subparagraph are in
addition to the court's contempt and other judicial powers.
23. Attorney's Fees and Costs. Except as provided in Section 18 above,in
-------------------------
the event a Dispute arises between the parties hereto and suit is instituted,
the prevailing party in such litigation shall be entitled to recover reasonable
attorney's fees and other costs and expenses from the non-prevailing party,
whether incurred at the trial level or in any appellate proceeding.
24. Governing Law; Venue. This Agreement shall be governed by and
---------------------
construed in accordance with the laws of the State of Florida, and venue for any
legal proceeding or action at law
19
<PAGE>
arising out of or construing this Agreement shall lie in the state courts of
Orange County, Florida, or the United States District Court for the Middle
District of Florida, Orlando Division.
25. Completeness of Agreement. All understandings and agreements
-------------------------
heretofore made between the parties hereto with respect to the subject matter of
this Agreement are merged into this document which alone fully and completely
expresses their agreement. No change or modification may be made to this
Agreement except by instrument in writing duly executed by the parties hereto
with the same formalities as this document.
26. Notices. Any and all notices or other communications provided for
-------
herein shall be given in writing and shall be hand delivered or sent by United
States mail, postage prepaid, registered or certified, return receipt requested,
addressed as follows:
If to the Corporation:
Internal Medicine Specialists, Inc.
3885 Oakwater Circle
Orlando, Florida 32806
Attention: Mr. Shamus Holt
with a copy to:
Physician Health Corporation
990 Hammond Road - Suite 300
Atlanta, Georgia 30328
Attention: Daniel M. Epstein, M.D., Esq.
If to Physician:
, M.D.
_____________________________
_____________________________
with a copy to:
Maguire, Voorhis & Wells, P.A.
Suntrust Center, Suite 3000
200 South Orange Avenue
Orlando, Florida 32801
Attention: Stephen R. Looney, Esq.
Any party may, however, from time to time, give notice in the manner specified
in this Section 26 to the other party of some other address to which notices or
other communications to such party shall be sent, in which event, notices or
other communications to such party shall be sent to such address.
20
<PAGE>
Any notice or other communication shall be deemed to have been given and
received hereunder as of the date the same is actually hand delivered or, if
mailed, when deposited in the United States mail, postage prepaid, registered or
certified, return receipt requested.
27. Assignment. Neither party to this Agreement may assign its rights or
----------
obligations hereunder without the prior written consent of the other party.
28. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the respective parties hereto, their heirs, legal representatives,
successors and permitted assigns.
29. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed an original, and all of which shall constitute but
one and the same instrument.
30. Captions. The captions appearing in this Agreement are inserted only
--------
as a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any provisions of this Agreement or in any way affect this
Agreement.
31. Equal Preparation. This Agreement shall be construed without regard
-----------------
to the party or parties responsible for its preparation and shall be deemed as
having been prepared jointly by the parties. Any ambiguity or uncertainty
existing in this Agreement shall not be interpreted or construed against any
party hereto. The parties hereto agree that no representations except those
contained herein have been made by any party to induce the execution of this
Agreement by any other party.
32. PHC Guaranty. PHC shall unconditionally guaranty the performance of
-------------
all the obligations and covenants of the Corporation hereunder pursuant to the
Guaranty set forth as EXHIBIT F hereto.
33. Life Insurance. The Physician agrees that the Corporation may obtain,
--------------
at its sole expense (and not as an Operational Expense) and for its sole
benefit, life and/or disability insurance policies on Physician, provided that
the cost of such insurance shall not reduce Physician Net Income. Physician
shall not have any right, title or interest, in or to the proceeds of any such
insurance policies. Physician shall cooperate, as requested by Corporation from
time to time, in obtaining any such insurance policies, including, but not
limited to, submitting to such physical examinations and providing such
information relating to insurability as the Corporation may request from time to
time.
34. New Practice Assistance. In the event Physician elects voluntarily to
-----------------------
terminate Physician's employment under this Agreement and practice medicine
specializing in gastroenterology/nephrology outside the Non-Compete Radius but
within the greater metropolitan Orlando area of the counties of Orange,
Seminole, Osceola, Volusia, Brevard or Lake, Florida, then, provided Physician
agrees to enter into an employment agreement with an affiliate of the
Corporation on terms substantially similar to the terms of employment set forth
in this Agreement, the Corporation shall cause such affiliate to provide or
establish a medical practice for the employment of Physician and the provision
of gastroenterology/nephrology services. Such provision or establishment of a
medical practice shall include at least the following: assistance in selecting a
medical office location, assistance with continuing Physician's existing managed
care contractual relationships or in establishing new ones, assistance with
securing new physician provider numbers as necessary, and
21
<PAGE>
provision of all other medical office functions, employee benefits and practice
marketing as were provided to Physician by the Corporation under this Agreement.
In the event Physician enters into an employment agreement with an affiliate of
the Corporation pursuant to this Section 34 within five (5) years of the
Effective Date of this Agreement and satisfactorily continues such employment
until at least the fifth anniversary of the Effective Date of this Agreement,
then the Liquidated Damages Payment set forth in Section 10(g) of this Agreement
shall not be required of Physician.
35. Exclusivity; Right of First Refusal. The Corporation agrees that
-----------------------------------
during the term of this Agreement, without the written consent of Physician,
neither PHC nor any of its affiliates or any of its successors in interest shall
enter into an employment agreement or a practice management agreement with a
physician to engage in the practice of gastroenterology/nephrology within the
Non-Compete Radius of any office of the Corporation or any hospital at which
Physician performs a substantial portion of Physician's hospital based practice
(the "Exclusive Territory"), other than pursuant to an agreement between such
physician and the Corporation that is approved by the Joint Policy Committee of
the Corporation pursuant to the Corporation's Bylaws. In addition, in the event
that PHC or any of its affiliates or any of its successors in interest desires
to (i) enter into an employment agreement or a practice management agreement
with a physician (the "New Physician") who has not previously practiced medicine
in the counties of Orange, Osceola and Seminole, Florida (the "Tri-County Area")
to engage in the practice of gastroenterology/nephrology outside of the
Exclusive Territory but within the Tri-County Area or (ii) establish a de novo
gastroenterology or nephrology practice outside of the Exclusive Territory but
within the Tri-County Area (the "New Practice") then the Corporation, as
determined by a majority vote of the Joint Policy Committee, shall have a right
of first refusal to enter into an employment agreement with the New Physician or
with any physician to be employed at the New Practice pursuant to the
Corporation's Bylaws; provided, however, that if the Corporation as directed by
the Joint Policy Committee does not enter into an employment agreement with such
physician, PHC or any of its affiliates or any of its successors in interest
shall be free to otherwise employ or enter into a practice management agreement
with such physician outside the Exclusive Territory.
22
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the date and
year set forth above.
WITNESSES: CORPORATION:
INTERNAL MEDICINE
SPECIALISTS, INC.
- --------------------------------- By:
--------------------------------
, President
------------------
- ---------------------------------
EMPLOYEE:
- --------------------------------- ------------------------------------
, M.D.
- ---------------------------------
23
<PAGE>
EXHIBIT A
---------
EXEMPT FACILITIES
-----------------
For gastroenterologists: Central Florida Surgical Centers, Inc. and Oakwater
Surgical Center, Inc.
For nephrologists: the Nephrology Network, Oakwater Nephrology Network, Inc.,
East Orlando Dialysis, Inc., North Orlando Dialysis, Inc., West Orange Dialysis,
Inc. and any other existing or future dialysis facility.
Dr. Marbury: Orlando Clinical Research Center, Inc.
Dr. Caos: Central Florida Clinical Studies, Inc.
24
<PAGE>
EXHIBIT B-1
-----------
STOCK OPTION AGREEMENT
----------------------
ATTACHED
--------
25
<PAGE>
PHYSICIAN HEALTH CORPORATION
1995 STOCK OPTION PLAN
QUALIFIED STOCK OPTION AGREEMENT
Optionee: , M.D.
Number of shares Optioned: 10,000
Option Price: $6.25
Date of Grant:__________________
1. Grant of Option. Physician Health Corporation (the "Company") hereby
---------------
grants to , M.D. (the "Optionee"), under its Amended & Restated 1995 Stock
Option Plan (the "Plan"), a qualified stock option to purchase, on the terms and
conditions set forth in this agreement ("Option Agreement"), 10,000 shares
("Shares") of its common stock ("Common Stock") at a price equal to $6.25 per
share.
2. Period of Option. This option will expire thirty (30) days following
----------------
the fifth anniversary of the Date of Grant unless earlier terminated in whole or
in part, provided however, that the option to purchase 1,000 shares vesting
herein on the fifth anniversary of the Date of Grant shall expire on the sixth
anniversary of the Date of Grant.
3. Exercise of Option. The terms, times and conditions of exercise of
------------------
this option are as follows:
(a) The option shall vest as follows: 4,000 shares shall vest
immediately, 2,000 shares shall vest on the first anniversary of the Date of
Grant, and 1,000 shares shall vest in each of the second, third, fourth and
fifth anniversaries of the Date of Grant; provided that on each such
anniversary, Optionee is still employed by Internal Medicine Specialists, Inc.
Except as set forth in Section 2 above, no vested portion of this option shall
expire until the expiration of this option.
(b) The terms contained in the Plan are incorporated into and made a
part of this Option Agreement and this Option Agreement shall be governed by and
construed in accordance with the Plan.
(c) The option shall be exercised by written notice directed to the
Secretary of the Company at the principal executive offices of the Company.
Such written notice shall be accompanied by full payment in cash, Common Stock
which was previously acquired by the Optionee, or any combination thereof for
the number of Shares specified in such written notice. The fair market value of
the surrendered Common Stock as of the date of the exercise shall be determined
in valuing Common Stock used in payment for options.
(d) Subject to the terms of this Option Agreement, this option may be
exercised at any time and without regard to any other option to purchase stock
of the Company held by the Optionee.
26
<PAGE>
4. Nontransferability. The option is not transferable except by will or
------------------
by the laws of descent and distribution and is subject to the provisions of
Section 9 hereof. The option may be exercised during the lifetime of the
Optionee only by the Optionee.
5. Death or Permanent Disability of Optionee. In the event of the death,
-----------------------------------------
or permanent disability under Optionee's Employment Agreement with Internal
Medicine Specialists, Inc. of the Optionee, Optionee or, in the case of the
Optionee's death, the personal representative of the Optionee may exercise the
option to the extent of all the Shares not previously exercised on the date of
Optionee's death or permanent disability. Such exercise must occur within
twelve (12) months after the date of death of the Optionee or the date of
determination of permanent disability, but in no event after the Expiration Date
of the option.
6. Limitation of Rights. The Optionee or the personal representative of
--------------------
the Optionee shall have no rights as a stockholder with respect to the Shares
covered by the option until the Optionee or the personal representative of the
Optionee shall become the holder of record of such Shares. Neither the Plan,
the granting of the option nor this Option Agreement shall impose any obligation
on the Company or a subsidiary to continue the engagement of Optionee to serve
as an employee on behalf of the Company.
7. Stock Reserve. The Company shall at all times during the term of this
-------------
Option Agreement reserve and keep available such number of Shares of Common
Stock as will be sufficient to satisfy the requirements of this Option
Agreement.
8. Restrictions on Transfer and Pledge. Except as provided in Section 5
-----------------------------------
hereof, the option and all rights and privileges granted hereunder shall not be
transferred, assigned, pledged or hypothecated in any way, whether by operation
of law or otherwise, and shall not be subject to execution, attachment or
similar process.
9. Restrictions on Issuance of Shares. If at any time the Board of
----------------------------------
Directors of the Company shall determine in its discretion, that listing,
registration or qualification of the shares covered by the option upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to the exercise of the option, the option may not be exercised in
whole or in part unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Board of Directors of the Company.
10. Plan Controls. In the event of any actual or alleged conflict between
-------------
the provisions of the Plan and the provisions of this Option Agreement, the
provisions of the Plan shall be controlling and determinative.
11. Successors. This Option Agreement shall be binding upon any successor
----------
of the Company, in accordance with the terms of this Option Agreement and the
Plan.
27
<PAGE>
IN WITNESS WHEREOF, the Company, acting by and through its duly authorized
officers, has caused this Option Agreement to be executed, and the Optionee has
executed this Option Agreement, all as of the day and year first above written.
PHYSICIAN HEALTH CORPORATION
By:
------------------------
Name:
Title:
OPTIONEE
By:
------------------------
Printed Name: , M.D.
28
<PAGE>
EXHIBIT B-2
-----------
STOCK OPTION AGREEMENT
----------------------
ATTACHED
--------
29
<PAGE>
PHYSICIAN HEALTH CORPORATION
1995 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Optionee: , M.D.
Number of shares Optioned: 9,727
Option Price: $6.25
Date of Grant: November ____, 1997
1. Grant of Option. Physician Health Corporation (the "Company") hereby
---------------
grants to , M.D. (the "Optionee"), under its Amended & Restated 1995 Stock
Option Plan (the "Plan"), qualified stock options to purchase, on the terms and
conditions set forth in this agreement ("Option Agreement"), Nine Thousand Seven
Hundred Twenty Seven shares ("Shares") of its common stock ("Common Stock") at a
price equal to the per share price at which shares of Common Stock are first
offered to the public through an initial public offering (the "IPO"); provided,
however, that if the Company has not consummated the IPO prior to the vesting of
any option hereunder, shares purchasable under such option shall be purchasable
at a price equal to $6.25 per share. The parties acknowledge that the fair
market value of the Shares on the Date of Grant is not more than $6.25 per
share.
2. Period of Option. Options granted hereunder will expire on the fifth
----------------
anniversary of the date such option vests unless earlier terminated in whole or
in part.
3. Exercise of Options. The terms, times and conditions of exercise of
-------------------
the options are as follows:
(a) The options shall vest as follows: One Hundred (100) shares shall
vest on each of the first, second, third, fourth, fifth, sixth and seventh
anniversaries of the Date of Grant and Three Thousand Nine (3,009) shares shall
vest on each of the eighth, ninth and tenth anniversaries of the Date of Grant
provided that on each such anniversary, Optionee is still employed by Internal
Medicine Specialists, Inc.
(b) The terms contained in the Plan are incorporated into and made a
part of this Option Agreement and this Option Agreement shall be governed by and
construed in accordance with the Plan.
(c) Options shall be exercised by written notice directed to the
Secretary of the Company at the principal executive offices of the Company.
Such written notice shall be accompanied by full payment in cash, Common Stock
which was previously acquired by the Optionee, or any combination thereof for
the number of Shares specified in such written notice. The fair market value of
the surrendered Common Stock as of the date of the exercise shall be determined
in valuing Common Stock used in payment for options.
30
<PAGE>
(d) Subject to the terms of this Option Agreement, these options may
be exercised at any time and without regard to any other option to purchase
stock of the Company held by the Optionee.
4. Nontransferability. The options are not transferable except by will
------------------
or by the laws of descent and distribution and is subject to the provisions of
Section 9 hereof. The options may be exercised during the lifetime of the
Optionee only by the Optionee.
5. Death or Permanent Disability of Optionee. In the event of the death
-----------------------------------------
or permanent disability under Optionee's Employment Agreement with Internal
Medicine Specialists, Inc. of the Optionee, Optionee or, in the case of the
Optionee's death, the personal representative of the Optionee may exercise the
vested options to the extent of all the Shares not previously exercised on the
date of Optionee's death or permanent disability. Such exercise must occur
within twelve (12) months after the date of death of the Optionee or the date of
determination of permanent disability, but in no event after the Expiration Date
of the option.
6. Limitation of Rights. The Optionee or the personal representative of
--------------------
the Optionee shall have no rights as a stockholder with respect to the Shares
covered by the options until the Optionee or the personal representative of the
Optionee shall become the holder of record of such Shares. Neither the Plan,
the granting of the options nor this Option Agreement shall impose any
obligation on the Company or a subsidiary to continue the engagement of Optionee
to serve as a employee on behalf of the Company.
7. Stock Reserve. The Company shall at all times during the term of this
-------------
Option Agreement reserve and keep available such number of Shares of Common
Stock as will be sufficient to satisfy the requirements of this Option
Agreement.
8. Restrictions on Transfer and Pledge. Except as provided in Section 5
-----------------------------------
hereof, the options and all rights and privileges granted hereunder shall not be
transferred, assigned, pledged or hypothecated in any way, whether by operation
of law or otherwise, and shall not be subject to execution, attachment or
similar process.
9. Restrictions on Issuance of Shares. If at any time the Board of
----------------------------------
Directors of the Company shall determine in its discretion, that listing,
registration or qualification of the shares covered by the options upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition to the exercise of the option, the options may not be exercised in
whole or in part unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Board of Directors of the Company.
10. Plan Controls. In the event of any actual or alleged conflict between
-------------
the provisions of the Plan and the provisions of this Option Agreement, the
provisions of the Plan shall be controlling and determinative.
11. Successors. This Option Agreement shall be binding upon any successor
----------
of the Company, in accordance with the terms of this Option Agreement and the
Plan.
31
<PAGE>
IN WITNESS WHEREOF, the Company, acting by and through its duly authorized
officers, has caused this Option Agreement to be executed, and the Optionee has
executed this Option Agreement, all as of the day and year first above written.
PHYSICIAN HEALTH CORPORATION
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
OPTIONEE
By:
---------------------------------------
Printed Name: , M.D
32
<PAGE>
EXHIBIT C
---------
OPERATIONAL EXPENSES
--------------------
1. "Operational Expenses" shall mean all the expenses incurred by the
Corporation in the operation of the medical practice of the Corporation and such
other expenses of a kind set forth in the Annual Budget (as approved by the
Joint Policy Committee of the Corporation), including, but not limited to, the
following:
(a) Salaries, benefits and other costs relating to the employment or
engagement of employees or independent contractors to provide services for
the Corporation, including a pro-rata share of expenses relating to
employees who provide services to the Corporation and to other persons or
entities;
(b) professional liability insurance premiums and deductibles;
(c) licensure fees, board certification fees, and hospital staff privilege
dues;
(d) obligations under leases or subleases for the medical offices and
equipment;
(e) personal property and intangible taxes assessed against assets used by
the Corporation and other taxes, fees and charges of the Corporation;
(f) charitable contributions approved in the Annual Budget or by a
unanimous vote of the Joint Policy Committee;
(g) depreciation, amortization and all other expenses related to
furniture, fixtures and equipment;
(h) interest expenses on indebtedness incurred by the Corporation, PHC or
PHC-SUB to finance or refinance any obligations of the Corporation;
(i) medical and office supply expenses, including pharmaceuticals;
(j) utility expenses relating to the Medical Offices of the Corporation,
and all other costs relating thereto, including without limitation, costs
of repairs, maintenance, telephone, normal janitorial services, refuse
disposal;
(k) insurance premiums for general comprehensive liability insurance and
workers' compensation for those employees of the Corporation described in
section (a) above;
(l) expenses related to billing and collecting;
(m) expenses relating to the recruitment of physicians and other personnel
(which shall constitute Direct Operational Expenses as defined in Section
4(b) hereof); and
33
<PAGE>
(n) costs of membership in professional associations and continuing
professional education expenses.
Operational Expenses shall not include any expenses incurred by the Corporation
prior to the Effective Date of this Agreement whether paid before or after the
Effective Date.
34
<PAGE>
EXHIBIT D-1
-----------
LIQUIDATED DAMAGES
------------------
<TABLE>
<CAPTION>
YEARS FROM
EFFECTIVE DATE OF MERGER
AGREEMENT CASH CONSIDERATION
---------------------------------------------
<S> <C> <C>
1 or less $500,000 66,611
---------------------------------------------
After 1 500,000 58,325
---------------------------------------------
After 2 500,000 50,040
---------------------------------------------
After 3 500,000 41,754
---------------------------------------------
After 4 500,000 33,467
---------------------------------------------
</TABLE>
1. The Liquidated Damages shall be cash in the amount set forth in the above
table. In the alternative, the Physician may return the number of shares of PHC
Voting Stock set forth in the above table.
35
<PAGE>
EXHIBIT D-2
-----------
RETIREMENT LIQUIDATED DAMAGES
-----------------------------
<TABLE>
<CAPTION>
YEARS FROM
EFFECTIVE DATE OF MERGER
AGREEMENT CASH CONSIDERATION
----------------------------------------------
<S> <C> <C>
2 or less $500,000 64,986
----------------------------------------------
Less than 3 500,000 48,740
----------------------------------------------
Less than 4 500,000 32,493
----------------------------------------------
Less than 5 500,000 16,247
----------------------------------------------
</TABLE>
1. The Retirement Liquidated Damages shall be cash in the amount set forth in
the above table. In the alternative, the Physician may return the percentage of
Merger Consideration set forth in the above table.
36
<PAGE>
EXHIBIT E
---------
MEDICAL OFFICES
---------------
For purposes of this Agreement, "Medical Office(s)" shall mean those
offices located at:
West Orange Medical Center Condominium
Suite 3
2850 State Road 50
Ocoee, FL
Oakwater Professional Park
Suite 1
3885 Oakwater Circle
Orlando, FL
SandLake Physicians Building
Suite 206
9430 Turkey Lake Road
Orlando, FL
- ---------------------- ------------------------------------
Date Corporation Signature
------------------------------------
Physician Signature
AMENDMENT TO EXHIBIT E
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ------------------------------------------------------------------
- ---------------------- ------------------------------------
Date Corporation Signature
------------------------------------
Physician Signature
37
<PAGE>
EXHIBIT F
---------
GUARANTY
--------
THIS GUARANTY is made as of the ____ day of November, 1997 by Physician
Health Corporation, a Delaware corporation ("Guarantor"), in favor of, M.D., an
individual resident of the state of Florida ("EMPLOYEE").
ARTICLE I - BACKGROUND AND AGREEMENT
------------------------------------
1.01 Background. Internal Medicine Specialists, Inc., a Florida
----------
corporation (the "Practice"), and the Physician have entered into that certain
Employment Agreement dated November ____, 1997 (the "Agreement"). This Guaranty
is executed and delivered pursuant to Section 32 of the Agreement.
1.02 Statement of Agreement. For and in consideration of the sum of
----------------------
$10.00 and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged by Guarantor, and for the purpose of seeking to induce
the Employee to enter into the Agreement, Guarantor does hereby make the
following guarantees to and agreements with Employee.
ARTICLE II - GUARANTEES
-----------------------
2.01 Guaranty of Payment. Guarantor does hereby unconditionally
-------------------
guarantee to EMPLOYEE the full and prompt payment when due of all compensation
payable by the Practice to EMPLOYEE pursuant to the Agreement (the
"Compensation") when due, during the five (5) year period following the date
hereof.
2.02 Guarantor Obligations. Guarantor does hereby agree that if the
---------------------
Compensation is not paid by the Practice in accordance with its terms for any
reason whatsoever, Guarantor will immediately make such payments. Guarantor
further agrees to pay EMPLOYEE all expenses (including, without limitation,
reasonable attorneys' fees actually paid) paid by EMPLOYEE in endeavoring to
collect all or any portion of the indebtedness evidenced by the Compensation, to
enforce any other obligations guaranteed hereby, or to enforce this Guaranty.
38
<PAGE>
ARTICLE III - AGREEMENTS AND WARRANTIES
---------------------------------------
3.01 Consents. Guarantor hereby consents and agrees that EMPLOYEE may
--------
at any time, and from time to time, without notice to or further consent from
Guarantor, either with or without consideration: release and surrender any
property or other security of any kind or nature whatsoever hereafter held by it
or by any person or entity on its behalf or for its account, securing any
indebtedness or liability hereby guaranteed, if any; extend or renew the time
for payment of the Compensation for any period; grant releases, compromises and
indulgences with respect to the Compensation and to any persons or entities now
or hereafter liable thereunder or hereunder; release any other guarantor or
endorser of or other person or entity liable for the Compensation; or take or
fail to take any action of any type whatsoever. No such action which EMPLOYEE
shall take or fail to take in connection with the Compensation, nor any course
of dealing with the Practice or any other person, shall limit, impair or release
Guarantor's obligations hereunder, affect this Guaranty in any way or afford
Guarantor any recourse against EMPLOYEE. Nothing contained in this section
shall be construed to require EMPLOYEE to take or refrain from taking any action
referred to herein.
3.02 Waiver and Subordination. Guarantor hereby expressly waives any
------------------------
right of contribution from or indemnity against the Practice, whether at law or
in equity, arising from any payments made by Guarantor pursuant to the terms of
this Guaranty, and Guarantor acknowledges that Guarantor has no right whatsoever
to proceed against the Practice for reimbursement of any such payments. In
connection with the foregoing, Guarantor expressly waives any and all rights of
subrogation to EMPLOYEE against the Practice, and Guarantor hereby waives any
rights to enforce any remedy which EMPLOYEE may have against the Practice. In
addition to and without in any way limiting the foregoing, Guarantor hereby
subordinates any and all indebtedness of the Practice now or hereafter owed to
Guarantor to all indebtedness of the Practice to EMPLOYEE, and agrees with
EMPLOYEE that Guarantor shall not demand or accept any payment of principal or
interest from the Practice, shall not claim any offset or other reduction of
Guarantor's obligations hereunder because of any such indebtedness.
3.03 Waiver of Defenses. Guarantor hereby waives and agrees not to assert
------------------
or take advantage of any defense based upon: (a) any incapacity, lack of
authority, death or disability of Guarantor or any other person or entity; (b)
any failure of EMPLOYEE to commence an action against the Practice or any other
person or entity (including, without limitation, other guarantors, if any), or
to file or enforce a claim against the estate (either in administration,
bankruptcy, or any other proceeding) of the Practice or any other person or
entity, whether or not demand is made upon EMPLOYEE to file or enforce such
claim; (c) any failure of EMPLOYEE to give notice of the existence, creation or
incurring of any new or additional indebtedness or other obligation or of any
action or nonaction on the part of any other person or entity, in connection
with the Agreement or any obligation hereby guaranteed; (d) any failure on the
part of EMPLOYEE to disclose to Guarantor any facts it may now or hereafter know
regarding the Practice; (e) any lack of acceptance or notice of acceptance of
this Guaranty by EMPLOYEE; (f) any lack of presentment, demand, protest, or
notice of demand, protest or nonpayment with respect to any indebtedness or
obligations under the Agreement; (g) any lack of other notices to which
Guarantor might otherwise be entitled; (h) any invalidity, irregularity or
unenforceability, in whole or in part, of the Agreement; and (i) any action,
39
<PAGE>
occurrence, event or matter consented to by Guarantor under Section 3.01 hereof,
under any other provision hereof, or otherwise.
3.04 Liability of Guarantor. This is a guaranty of payment and
----------------------
performance and not of collection. The liability of Guarantor under this
Guaranty shall be direct and immediate and not conditional or contingent upon
the pursuit of any remedies against the Practice or any other person (including,
without limitation, other guarantors, if any). Guarantor waives any right to
require that an action be brought against the Practice or any other person or to
require that resort be had to any collateral or to any balance of any deposit
account or credit on the books of EMPLOYEE in favor of the Practice or any other
person. In the event that, on account of the Bankruptcy Reform Act of 1978, as
amended, or any other debtor relief law (whether statutory, common law, case law
or otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which
may be or become applicable, the Practice shall be relieved of or fail to incur
any debt, obligation or liability as provided in the Agreement, Guarantor shall
nevertheless be fully liable therefor. In the event of a default under the
Agreement, EMPLOYEE shall have the right to enforce his rights, powers and
remedies thereunder or hereunder, in any order, and all rights, powers and
remedies available to EMPLOYEE in such event shall be nonexclusive and
cumulative of all other rights, powers and remedies provided thereunder or
hereunder or by law or in equity. If the indebtedness guaranteed hereby is
partially paid by reason of the election of EMPLOYEE to pursue any of the
remedies available to EMPLOYEE, or is otherwise partially paid, this Guaranty
shall nevertheless remain in full force and effect, and Guarantor shall remain
liable for the entire remaining unpaid balance of the indebtedness guaranteed
hereby, even though any rights which Guarantor may have against the Practice may
be destroyed or diminished by the exercise of any such remedy.
ARTICLE IV - GENERAL CONDITIONS
-------------------------------
4.01 Waiver of Rights. Guarantor hereby waives and renounces, to the
----------------
fullest extent permitted by law, all rights to the benefits of any statute of
limitations and any moratorium, reinstatement, marshaling, forbearance,
valuation, stay, extension, redemption, appraisement, exemption and homestead
now or hereafter provided by the Constitution and laws of the United States of
America and of each state thereof, both as to itself and in and to all of its
property, real and personal, against the enforcement and collection of the
obligations evidenced by this Guaranty. To the extent permitted by law,
Guarantor also waives any right to a trial by jury, and any right to assert or
interpose any setoff, counterclaim or crossclaim of any nature (unless same
could not be asserted in a separate, unrelated action) in any action relating to
this Guaranty.
4.02 Irrevocability and Revival. This Guaranty shall be irrevocable by
--------------------------
Guarantor and shall remain in effect until all indebtedness guaranteed hereby
has been completely repaid. This Guaranty shall continue to be effective or be
revived and reinstated, as the case may be, in the event that any payment
received by EMPLOYEE of any of the indebtedness guaranteed hereby is returned or
rescinded by reason of any present or future federal, state or other law or
regulation relating to bankruptcy, insolvency or other relief of debtors or for
any other reason.
40
<PAGE>
4.03 Limit of Validity. If from any circumstances whatsoever fulfillment
-----------------
of any provisions of this Guaranty, at the time performance of such provision
shall be due, shall involve transcending the limit of validity presently
prescribed by any applicable usury statute or any other applicable law, with
regard to obligations of like character and amount, then ipso facto the
---- -----
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Guaranty that is in
excess of the current limit of such validity, but such obligation shall be
fulfilled to the limit of such validity. The provisions of this section shall
control every other provision of this Guaranty.
4.04 Applicable Law. This Guaranty shall be interpreted, construed and
--------------
enforced according to the laws of the State of Georgia.
4.05 Miscellaneous. This Guaranty may not be changed orally, and no
-------------
obligation of Guarantor can be released or waived by EMPLOYEE or any officer or
agent of EMPLOYEE, except by a writing signed by a duly authorized officer of
EMPLOYEE. Guarantor has executed this Guaranty individually and not as a partner
of the Practice or any other guarantor. All personal pronouns used herein,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; and the singular shall include the plural and vice versa. Titles
of articles and sections are for convenience only and in no way define, limit,
amplify or describe the scope or intent of any provisions hereof. This Guaranty
contains the entire agreement between Guarantor and EMPLOYEE relating to the
guarantying of the obligations of the Practice under the Agreement by Guarantor
and supersedes entirely any and all prior written or oral agreements with
respect thereto; and Guarantor and EMPLOYEE acknowledge that there are no
contemporaneous oral agreements with respect to the subject matter hereof.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty under seal as of
the date first above written.
GUARANTOR
Physician Health Corporation
By:
-------------------------------
Title:
-------------------------------
41
<PAGE>
EXHIBIT 10.8
_______________________________________________________________________________
OPTION AGREEMENT
by and among
OAKWATER SURGICAL CENTER, INC.,
C. RAYMOND COTTRELL, M.D.,
ANTONIO CAOS, M.D.,
ALEX MENENDEZ, M.D.,
KENNETH R. FEUER, M.D.,
ROBERT T. BAKER, M.D.
and
PHC HOLDING CORPORATION
________________________________________________________________________________
<PAGE>
OPTION AGREEMENT
----------------
This Option Agreement (this "Agreement"), dated as of ______________, 1997,
is by and among Oakwater Surgical Center, Inc., a Florida corporation ("ASC"),
C. Raymond Cottrell, M.D., Antonio Caos, M.D., Alex Menendez, M.D., Kenneth R.
Feuer, M.D. and Robert T. Baker, M.D. (collectively, the "Shareholders") and PHC
Holding Corporation, a Georgia corporation ("PHC-SUB").
W I T N E S E T H :
-----------------
WHEREAS, the Shareholders are all of the shareholders of ASC;
WHEREAS, PHC-SUB is a wholly-owned subsidiary of Physician Health
Corporation, a Delaware corporation ("PHC");
WHEREAS, PHC-SUB desires to acquire an option to purchase an undivided
fifty-one percent (51%) interest in the assets of ASC from ASC, and ASC desires
to grant such an option to PHC-SUB; and
WHEREAS, ASC and Shareholders have agreed to grant to PHC-SUB an option to
acquire an undivided fifty-one percent (51%) interest in all of the assets of
ASC on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual
representations, warranties and covenants herein contained, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and on the terms and subject to the conditions herein set forth,
the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Acquisition" shall have the meaning set forth in Section 3.1.
-----------
(b) "Acquisition Proposal" shall have the meaning set forth in Section 6.3.
-----------
(c) "Affiliate" with respect to any person shall mean a person that
directly or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such person.
(d) "Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including
information derived from reports, investigations, research, work in progress,
codes, marketing and sales programs, financial projections, cost summaries,
pricing formulae, contract analyses, financial information, projections, maps,
confidential filings with any state or federal agency, and all other concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "Execution Date" shall mean the date that the Purchase Agreement shall
be duly executed and delivered by all parties thereto.
-1-
<PAGE>
(g) "Exercise Date" shall mean the date on which notice of the exercise of
the Option is given.
(h) "Exercise Period" shall mean the period commencing on August 1, 1998
and ending six (6) months thereafter, unless otherwise extended as provided
hereunder.
(i) "Material Adverse Effect" shall mean a material adverse effect on ASC's
business, operations, condition (financial or otherwise), the results of
operations, either individually or in the aggregate in consideration of all
relevant facts and circumstances.
(j) "Option" shall have the meaning set forth in Section 2.1.
-----------
(k) "Person" shall mean any natural person, corporation, partnership, joint
venture, association, group, organization or other entity.
(l) "Purchase Agreement" shall have the meaning set forth in Section .
--------
(m) "Securities Act" shall mean the Securities Act of 1933, as amended.
(n) "Termination Date" shall mean the date this Agreement is terminated in
accordance with its terms.
ARTICLE II
THE OPTION
SECTION 2.1. GRANT OF OPTION. Subject to the terms and conditions of
this Agreement, ASC and Shareholders hereby grant to PHC-SUB the irrevocable and
exclusive right and option to acquire an undivided fifty-one percent (51%)
interest in the assets of ASC (the "Option").
SECTION 2.2. TIME AND MANNER OF EXERCISE. The Option shall become
immediately exercisable on August 1, 1998 and shall continue to be exercisable
by PHC-SUB until the expiration of the Exercise Period. PHC-SUB may exercise
the Option at any time during the Exercise Period by giving written notice
thereof to ASC (the "Exercise Notice").
SECTION 2.3. CONDITIONS TO EXERCISE. The Option may not be exercised
unless:
(a) All representations and warranties of PHC-SUB contained herein shall be
true and correct in all material respects; and
(b) The exercise of the Option and the transactions contemplated by the
Purchase Agreement shall not be prohibited by law, rule or regulation.
SECTION 2.4. CONSIDERATION. The consideration to be paid by PHC-SUB for
the grant of this Option is Five Hundred Thousand Dollars $500,000 (the "Option
Fee"), payable in immediately available funds upon the execution of this
Agreement.
In the event PHC-SUB exercises the Option prior to the expiration of the
Exercise Period and closes the Acquisition pursuant to the Purchase Agreement
within ninety (90) days after exercising the Option, the Option Fee paid
pursuant to this Section 2.4 shall be credited toward the total purchase price
due under the Purchase Agreement. In the event PHC-SUB fails to exercise the
Option prior to the expiration of the Exercise Period or timely exercises the
Option but is otherwise unable to close the Acquisition pursuant to the Purchase
Agreement within ninety (90) days after exercising the Option, the Option Fee
paid pursuant to this Section 2.4 shall be retained by or for the account of ASC
-----------
as liquidated damages (and forfeited by PHC-SUB). The Option Fee is a bona fide
provision for liquidated and agreed
-2-
<PAGE>
upon damages and is not a penalty, and PHC-SUB acknowledges and agrees that by
reason of ASC binding itself to this Agreement, ASC will have sustained damages
if PHC-SUB does not exercise its option to purchase such assets within the
Exercise Period, which damages shall be substantial but will be difficult if not
incapable of determination with mathematical precision and, therefore, this
provision for liquidated and agreed upon damages has been incorporated in this
Agreement as a bona fide provision beneficial to both parties. Notwithstanding
the foregoing, in the event PHC-SUB, solely for the specific reasons set forth
in Subsections 2.4(a)-(e), below, does not exercise the Option prior to the
----------------------
expiration of the Exercise Period (or close the Acquisition pursuant to the
Purchase Agreement within ninety (90) days after timely exercising the Option),
the Option Fee shall be returned by ASC to PHC-SUB within sixty (60) days after
the earlier of (i) receipt by the ASC of a written notice from PHC-SUB
requesting the return of the Option Fee or (ii) the expiration of the Exercise
Period:
(a) If, for any reason, other than solely as a result of actions taken by
PHC, PHC-SUB or any affiliate of PHC, the Agency for Health Care Administration
of the State of Florida, the Health Care Financing Administration or any other
applicable governmental entity denies the application of PHC-SUB for transfer of
ownership of the ASC assets and such application is not subsequently approved by
such entity within one hundred twenty (120) days from the date of the initial
denial;
(b) Two (2) or more Shareholder's licenses to practice medicine or other
required licenses or certifications are suspended or revoked, and neither
Shareholder's license is reinstated within ninety (90) days of the suspension or
revocation;
(c) ASC's license to conduct its business or other required licensure or
certification is suspended or revoked, and such license or certification is not
reinstated within one hundred twenty (120) days of the suspension or revocation;
(d) ASC or any Shareholder materially breaches the terms of this Agreement
and such breach is not cured by ASC or the Shareholder within forty-five (45)
days after receipt of a written notice from PHC-SUB specifying the alleged
breach; or
(e) The assets of ASC are destroyed pursuant to an act of God or
destruction as set forth in Section 2.5, below, and such assets are not replaced
or rebuilt such that ASC is fully operational before the end of the Exercise
Period, including any extension to the Exercise Period pursuant to Section 2.5.
SECTION 2.5. ACT OF GOD OR DESTRUCTION. In the event of the partial or
complete destruction of the assets of ASC because of any act of God, fire,
earthquake, flood, natural disaster, riot, war or other act of destruction,
Shareholders and ASC shall immediately replace or rebuild such assets, as is
appropriate. The Exercise Period shall be extended by the number of days in
which ASC is inoperable due to such destruction, however, such extension shall
not exceed one (1) year.
ARTICLE III
THE ACQUISITION
SECTION 3.1. FORM OF ACQUISITION. The acquisition of an undivided fifty-
one percent (51%) interest in the assets of ASC pursuant to the Option (the
"Acquisition") shall be effected pursuant to the terms and subject to the
conditions set forth in an asset purchase agreement in substantially the same
form as attached hereto as Annex I (the "Purchase Agreement"), which form may be
-------
revised only by written agreement of the parties.
SECTION 3.2. EXECUTION OF PURCHASE AGREEMENT. Within forty-five (45)
days, unless otherwise mutually agreed, following the Exercise Date, the parties
hereto shall duly execute and deliver the Purchase Agreement.
-3-
<PAGE>
SECTION 3.3. DUE DILIGENCE. On the Exercise Date, ASC shall use its best
efforts to provide PHC-SUB with a complete response to the Due Diligence
Questionnaire attached hereto as Annex II.
--------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ASC AND THE SHAREHOLDERS
ASC and the Shareholders, jointly and severally, represent and warrant that
the following are true and correct as of the date hereof and will be true and
correct in all material respects on the Exercise Date:
SECTION 4.1. ORGANIZATION AND GOOD STANDING; QUALIFICATION. On the date
hereof, ASC is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with all requisite
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. On the Exercise Date, ASC will
be a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the properties
it owns and to consummate the transactions contemplated thereby. ASC is not
qualified or licensed to do business in any other jurisdiction. ASC does not
have any assets, employees or offices in any state other than the state of its
incorporation.
SECTION 4.2. AUTHORIZATION AND VALIDITY. This Agreement has been duly
executed and delivered by ASC and the Shareholders and to the extent that the
terms and conditions hereof create any obligation on behalf of ASC and the
Shareholders, constitutes legal, valid and binding obligations of ASC and the
Shareholders enforceable against ASC and the Shareholders in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies. The person executing this Agreement on
behalf of ASC has been duly authorized to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. Each Shareholder has the
legal capacity to enter into and perform this Agreement and the Purchase
Agreement.
SECTION 4.3. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the Purchase Agreement nor the consummation of
the transactions contemplated hereby or thereby will (a) conflict with, or
result in a violation or breach of the terms, conditions or provisions of, or
constitute a default under the Articles of Incorporation or Bylaws of ASC or any
agreement, indenture or other instrument under which ASC or the Shareholders are
bound or to which any of the assets of ASC are subject, or result in the
creation or imposition of any security interest, lien, charge or encumbrance
upon any of the assets of ASC, or (b) except as would not result in a Material
Adverse Effect, violate or conflict with any judgment, decree, order, statute,
rule or regulation of any court or any public, governmental or regulatory agency
or body.
SECTION 4.4. CONSENTS. Except as may be required under the Exchange Act,
the Securities Act, state securities laws, the Florida General Business
Corporation Act or as required under the Hart-Scott Rodino Act, or as set forth
in Schedule 4.4, no consent, authorization, approval, permit or license of, or
------------
filing with, any governmental or public body or authority, any lender or lessor
or any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the Purchase Agreement on the part of ASC or the Shareholders.
SECTION 4.5. FINDER'S FEE. ASC and the Shareholders have not incurred
any obligation for any finder's, broker's or agent's fee in connection with the
transactions contemplated hereby.
SECTION 4.6. COMPLIANCE WITH LAWS. To the best of ASC's and each
Shareholder's knowledge, ASC and each Shareholder has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports. There are no existing
violations by ASC or the Shareholders of any federal, state or local law or
regulation that would, individually or in the aggregate, result in a Material
Adverse Effect. Except as set forth on Schedule 4.6, the transactions
------------
contemplated by this Agreement or the Purchase Agreement
-4-
<PAGE>
will not result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded by any such licenses, franchises,
permits or government authorizations, except for any such default, breach or
violation that would not, individually or in the aggregate, have a Material
Adverse Effect. Except as set forth on Schedule 4.6, neither ASC nor any
------------
Shareholder has received any notice from any federal, state or other
governmental authority or agency having jurisdiction over its properties or
activities, or any insurance or inspection body, that ASC's operations or any of
its properties, facilities, equipment, or business practices fail to comply with
any applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body except where failure
to do so would not, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 4.7. INSURANCE. Shareholders and ASC shall have adequate
policies of property, casualty and other insurance in effect sufficient to
replace the assets of ASC in the event of any damage or destruction thereto, and
will keep such insurance policies in effect with respect to all of the assets of
ASC for the duration of the Exercise Period.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PHC-SUB
PHC-SUB represents and warrants that the following are true and correct as
of the date hereof and will be true and correct in all material respects on the
Exercise Date:
SECTION 5.1. ORGANIZATION AND GOOD STANDING. PHC-SUB is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, with all requisite corporate power and authority to
carry on the business in which it is engaged, to own the properties it owns, to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. On the Exercise Date, PHC-SUB will be a corporation, duly
organized, validly existing and in good standing under the laws of its state of
incorporation, with all requisite power and authority to carry on the business
in which it is engaged, to own the properties it owns and to consummate the
transactions contemplated thereby. As of the date of execution of this
Agreement, and on the Exercise Date, PHC-SUB will be duly qualified to conduct
business in the state of Florida.
SECTION 5.2. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by PHC-SUB of this Agreement and the Purchase Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by PHC-SUB. This Agreement has been duly executed and delivered by PHC-SUB and
constitutes the legal, valid and binding obligation of PHC-SUB, enforceable
against PHC-SUB in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
SECTION 5.3. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the Purchase Agreement nor the consummation of
the transactions contemplated hereby or thereby will (a) conflict with, or
result in a violation or breach of the terms, conditions and provisions of, or
constitute a default under, the Certificate of Incorporation or Bylaws of PHC-
SUB or any agreement, indenture or other instrument under which PHC-SUB is
bound, or (b) violate or conflict with any judgment, decree, order, statute,
rule or regulation of any court or any public, governmental or regulatory agency
or body having jurisdiction over PHC-SUB or the properties or assets of PHC-SUB.
SECTION 5.4. CONSENTS. Except as may be required under the Exchange Act,
the Securities Act, state security laws, the Florida General Business
Corporation Act or as required under the Hart-Scott Rodino Act, or as set forth
on Schedule 5.4, no consent, authorization, approval, permit or license of, or
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filing with, any governmental or public body or authority, any lender or lessor
or any other person is required to authorize, or is required in connection with,
the execution, delivery and performance of this Agreement or the Purchase
Agreement on the part of PHC-SUB.
SECTION 5.5. FINDER'S FEE. PHC-SUB has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
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ARTICLE VI
COVENANTS OF ASC AND THE SHAREHOLDERS
ASC and the Shareholders, jointly and severally, agree that between the
date hereof and the earlier of the Execution Date or the Termination Date:
SECTION 6.1. ACCESS. ASC and the Shareholders shall, at reasonable times
during normal business hours and on reasonable notice, permit PHC-SUB and its
authorized representatives reasonable access to, and make available for
inspection, all of the assets and business of ASC, including its employees,
customers and suppliers, and permit PHC-SUB and its authorized representatives
to inspect, and at PHC-SUB's sole cost and expense, make copies of all
documents, records and information with respect to the affairs of ASC as PHC-SUB
and its representatives may request, all for the sole purpose of permitting PHC-
SUB to become familiar with the business and assets and liabilities of ASC.
SECTION 6.2. NOTIFICATION OF CERTAIN MATTERS. ASC and the Shareholders
shall promptly inform PHC-SUB in writing of any material adverse change in ASC's
condition (financial or otherwise), operations, assets, liabilities, business or
prospects.
SECTION 6.3. ACQUISITION PROPOSALS. ASC and the Shareholders agree that
from the date of this Agreement through the expiration of the Exercise Period
(a) that neither the Shareholders, nor ASC, nor any of its respective officers
and directors shall, and ASC and the Shareholders shall direct and use their
best efforts to cause ASC's employees, agents and representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its shareholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any purchase of,
all or any significant portion of the assets or any equity securities of, ASC
(any such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any Confidential
Information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; (b) that the Shareholders and ASC will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and each will take the necessary steps to inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 6.3; and (c) that ASC and the
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Shareholders will notify PHC-SUB immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, ASC or
the Shareholders .
SECTION 6.4. INSURANCE. Shareholders and ASC have adequate policies of
property, casualty and other insurance in effect sufficient to replace the
assets of ASC in the event of any damage or destruction thereto, and will keep
such insurance policies in effect with respect to all of the assets of the ASC
for the duration of the Exercise Period.
SECTION 6.5. BUSINESS OPERATIONS. ASC and the Shareholders shall operate
the business of ASC in the ordinary course and will not introduce any new method
of management or operation. ASC and the Shareholders shall use their best
efforts to preserve the business of ASC intact, to retain its present customers
and suppliers so that they will be available after the closing of the Purchase
Agreement. ASC and Shareholders shall not take any action that could reasonably
be expected to have, or does have, a Material Adverse Effect on the condition
(financial or otherwise), operations, assets, liabilities, business or prospects
of ASC or take or fail to take any action that would cause or permit the
representations made in Article IV to be inaccurate on the Execution Date or at
the time of the closing of the Purchase Agreement or preclude ASC or
Shareholders from making such representations and warranties on the Execution
Date or at the time of the closing of the Purchase Agreement.
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ARTICLE VII
TERMINATION
SECTION 7.1. TERMINATION. This Agreement shall automatically terminate
upon the expiration of the Exercise Period (including any extensions thereto as
provided herein) if prior thereto PHC-SUB has not exercised the Option. In
addition, this Agreement may be terminated at any time by mutual agreement of
all parties hereto.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
SECTION 8.1. COVENANT NOT TO DISCLOSE. ASC and the Shareholders
recognize and acknowledge that they had in the past, currently have, and in the
future may possibly have, access to certain Confidential Information of PHC-SUB
that is a valuable, special and unique asset of PHC-SUB's business. PHC-SUB
acknowledges that it has had in the past, currently has, and in the future may
possibly have, access to certain Confidential Information of ASC that is a
valuable, special and unique asset of ASC's business. ASC and the Shareholders,
on the one hand, and PHC-SUB, on the other hand, agree that they will not
disclose such Confidential Information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of PHC-SUB or ASC and the Shareholders, and (b) to
counsel and other advisers to PHC-SUB or to ASC and the Shareholders, provided
that such advisers (other than counsel) agree to the confidentiality provisions
of this Section 8.1, unless (i) such information becomes known to the public
-----------
generally through no fault of ASC, the Shareholders or PHC-SUB, as the case may
be, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the disclosing party shall, if possible, give
prior written notice thereof to the other parties and provide such other parties
with the opportunity to contest such disclosure, (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, or (iv) the disclosing party
is the sole and exclusive owner of such Confidential Information as a result of
the consummation of the transactions contemplated by the Merger Agreement, the
Acquisition or otherwise.
SECTION 8.2. DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the covenants contained in Section 8.1, and
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because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, each party hereto agrees that, in the
event of a breach by any of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders. Nothing herein
shall be construed as prohibiting any party from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
SECTION 8.3. SURVIVAL. The obligations of the parties under this Article
shall survive the termination of this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. AMENDMENT; WAIVERS. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
SECTION 9.2. ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by PHC-SUB
to an Affiliate or a senior creditor of PHC-SUB in which case PHC-SUB shall
remain obligated for all obligations of PHC-SUB contained herein.
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<PAGE>
SECTION 9.3. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto.
Neither this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
SECTION 9.4. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 9.5. WAIVER. No waiver by any party of any default or breach by
another party of any representation, warranty, covenant or condition contained
in this Agreement shall be deemed to be a waiver of any subsequent default or
breach by such party of the same or any other representation, warranty, covenant
or condition. No act, delay, omission or course of dealing on the part of any
party in exercising any right, power or remedy under this Agreement or at law or
in equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
SECTION 9.6. COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
SECTION 9.7. SPECIFIC PERFORMANCE. The parties hereto acknowledge that a
refusal by any party hereto to consummate the transactions contemplated hereby
will cause irreparable harm to the other parties, for which there may be no
adequate remedy at law and for which the ascertainment of damages would be
difficult. Therefore, each party hereto shall be entitled, in addition to, and
without having to prove the inadequacy of, other remedies at law, to specific
performance of this Agreement, as well as injunctive relief (without being
required to post bond or other security).
SECTION 9.8. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF FLORIDA.
SECTION 9.9. NO OBLIGATION TO EXERCISE OPTION. Notwithstanding the
provisions of Section 9.7, this Agreement does not impose any obligation upon
PHC-SUB to exercise the Option.
SECTION 9.10. CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
SECTION 9.11. GENDER AND NUMBER. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
SECTION 9.12. REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 9.13. CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the
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<PAGE>
foregoing shall not prohibit any disclosure (a) by press release, filing or
otherwise that PHC-SUB has determined in its good faith judgment to be required
by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by PHC-SUB in connection with the conduct
of any initial public offering and conducting an examination of the operations
and assets of ASC; provided that PHC-SUB shall reasonably promptly provide
notice to ASC and the Shareholders of any press release made under this Section.
SECTION 9.14. NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to PHC-SUB: PHC Holding Corporation
990 Hammond Drive
Suite 300
Atlanta, Georgia 30328
Attn: Sarah Garvin
Fax No.: (770) 673-1970
with a copy to: Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Fax No.: (214) 953-5822
Attn: James S. Ryan, III
If to ASC: Oakwater Surgical Center, Inc.
3885 Oakwater Circle
Orlando, Florida 32806
Fax No.: (407) 438-9500
Attn: C. Raymond Cottrell, M.D.
with a copy to: Maguire, Voorhis & Wells, P.A.
200 South Orange Avenue, Suite 3000
Orlando, Florida 32801
Fax No.: (407) 872-6207
Attn: Stephen R. Looney, Esquire
If to Shareholders: Robert T. Baker, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
Antonio Caos, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
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<PAGE>
C. Raymond Cottrell, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
Kenneth R. Feuer, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
Alex Menendez, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
with a copy to: Maguire, Voorhis & Wells, P.A.
200 South Orange Avenue, Suite 3000
Orlando, Florida 32801
Fax No.: (407) 872-6207
Attn: Stephen R. Looney, Esquire
SECTION 9.15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 9.16. DEFINED TERMS. Terms used in the attachments hereto with
their initial letter capitalized and not otherwise defined therein shall have
the meanings as assigned to such terms in this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
PHC-SUB:
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PHC HOLDING CORPORATION
By:_________________________________
Its:________________________________
ASC:
---
OAKWATER SURGICAL CENTER, INC.
By:_________________________________
C. Raymond Cottrell, M.D., President
SHAREHOLDERS:
------------
____________________________________
C. Raymond Cottrell, M.D.
____________________________________
Antonio Caos, M.D.
____________________________________
Alex Menendez, M.D.
____________________________________
Kenneth R. Feuer, M.D.
___________________________________
Robert T. Baker, M.D.
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<PAGE>
ANNEX I
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ASSET PURCHASE AGREEMENT
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<PAGE>
ANNEX II
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DUE DILIGENCE QUESTIONNAIRE
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<PAGE>
________________________________________________________________________________
EXHIBIT 10.9
OPTION AGREEMENT
by and among
CENTRAL FLORIDA SURGICAL CENTERS, INC.,
C. RAYMOND COTTRELL, M.D.,
ANTONIO CAOS, M.D.,
ALEX MENENDEZ, M.D.,
KENNETH R. FEUER, M.D.,
ROBERT T. BAKER, M.D.
and
PHC HOLDING CORPORATION
________________________________________________________________________________
<PAGE>
OPTION AGREEMENT
----------------
This Option Agreement (this "Agreement"), dated as of ______________, 1997,
is by and among Central Florida Surgical Centers, Inc., a Florida corporation
("ASC"), C. Raymond Cottrell, M.D., Antonio Caos, M.D., Alex Menendez, M.D.,
Kenneth R. Feuer, M.D. and Robert T. Baker, M.D. (collectively, the
"Shareholders") and PHC Holding Corporation, a Georgia corporation ("PHC-SUB").
W I T N E S E T H :
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WHEREAS, the Shareholders are all of the shareholders of ASC;
WHEREAS, PHC-SUB is a wholly-owned subsidiary of Physician Health
Corporation, a Delaware corporation ("PHC");
WHEREAS, PHC-SUB desires to acquire an option to purchase an undivided
fifty-one percent (51%) interest in the assets of ASC from ASC, and ASC desires
to grant such an option to PHC-SUB; and
WHEREAS, ASC and Shareholders have agreed to grant to PHC-SUB an option to
acquire an undivided fifty-one percent (51%) interest in all of the assets of
ASC on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual
representations, warranties and covenants herein contained, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and on the terms and subject to the conditions herein set forth,
the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Acquisition" shall have the meaning set forth in Section 3.1.
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(b) "Acquisition Proposal" shall have the meaning set forth in Section 6.3.
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(c) "Affiliate" with respect to any person shall mean a person that
directly or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such person.
(d) "Confidential Information" shall mean all trade secrets and other
confidential and/or proprietary information of the particular person, including
information derived from reports, investigations, research, work in progress,
codes, marketing and sales programs, financial projections, cost summaries,
pricing formulae, contract analyses, financial information, projections, maps,
confidential filings with any state or federal agency, and all other concepts,
methods of doing business, ideas, materials or information prepared or performed
for, by or on behalf of such person by its employees, officers, directors,
agents, representatives, or consultants.
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(f) "Execution Date" shall mean the date that the Purchase Agreement shall
be duly executed and delivered by all parties thereto.
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<PAGE>
(g) "Exercise Date" shall mean the date on which notice of the exercise of
the Option is given.
(h) "Exercise Period" shall mean the period commencing on August 1, 1998
and ending six (6) months thereafter, unless otherwise extended as provided
hereunder.
(i) "Material Adverse Effect" shall mean a material adverse effect on ASC's
business, operations, condition (financial or otherwise), the results of
operations, either individually or in the aggregate in consideration of all
relevant facts and circumstances.
(j) "Option" shall have the meaning set forth in Section 2.1.
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(k) "Person" shall mean any natural person, corporation, partnership, joint
venture, association, group, organization or other entity.
(l) "Purchase Agreement" shall have the meaning set forth in Section 3.1.
-----------
(m) "Securities Act" shall mean the Securities Act of 1933, as amended.
(n) "Termination Date" shall mean the date this Agreement is terminated in
accordance with its terms.
ARTICLE II
THE OPTION
SECTION 2.1. GRANT OF OPTION. Subject to the terms and conditions of
this Agreement, ASC and Shareholders hereby grant to PHC-SUB the irrevocable and
exclusive right and option to acquire an undivided fifty-one percent (51%)
interest in the assets of ASC (the "Option").
SECTION 2.2. TIME AND MANNER OF EXERCISE. The Option shall become
immediately exercisable on August 1, 1998 and shall continue to be exercisable
by PHC-SUB until the expiration of the Exercise Period. PHC-SUB may exercise
the Option at any time during the Exercise Period by giving written notice
thereof to ASC (the "Exercise Notice").
SECTION 2.3. CONDITIONS TO EXERCISE. The Option may not be exercised
unless:
(a) All representations and warranties of PHC-SUB contained herein shall be
true and correct in all material respects; and
(b) The exercise of the Option and the transactions contemplated by the
Purchase Agreement shall not be prohibited by law, rule or regulation.
SECTION 2.4. CONSIDERATION. The consideration to be paid by PHC-SUB for
the grant of this Option is Five Hundred Thousand Dollars $500,000 (the "Option
Fee"), payable in immediately available funds upon the execution of this
Agreement.
In the event PHC-SUB exercises the Option prior to the expiration of the
Exercise Period and closes the Acquisition pursuant to the Purchase Agreement
within ninety (90) days after exercising the Option, the Option Fee paid
pursuant to this Section 2.4 shall be credited toward the total purchase price
due under the Purchase Agreement. In the event PHC-SUB fails to exercise the
Option prior to the expiration of the Exerc ise Period or timely exercises the
Option but is otherwise unable to close the Acquisition pursuant to the Purchase
Agreement within ninety (90) days after exercising the Option, the Option Fee
paid pursuant to this Section 2.4 shall be retained by or for the account of ASC
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as liquidated damages (and forfeited by PHC-SUB). The Option Fee is a bona fide
provision for liquidated and agreed
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<PAGE>
upon damages and is not a penalty, and PHC-SUB acknowledges and agrees that by
reason of ASC binding itself to this Agreement, ASC will have sustained damages
if PHC-SUB does not exercise its option to purchase such assets within the
Exercise Period, which damages shall be substantial but will be difficult if not
incapable of determination with mathematical precision and, therefore, this
provision for liquidated and agreed upon damages has been incorporated in this
Agreement as a bona fide provision beneficial to both parties. Notwithstanding
the foregoing, in the event PHC-SUB, for the specific reasons set forth in
Subsections 2.4(a)-(e), below, does not exercise the Option prior to the
- ----------------------
expiration of the Exercise Period (or close the Acquisition pursuant to the
Purchase Agreement within ninety (90) days after timely exercising the Option),
the Option Fee shall be returned by ASC to PHC-SUB within sixty (60) days after
the earlier of (i) receipt by the ASC of a written notice from PHC-SUB
requesting the return of the Option Fee or (ii) the expiration of the Exercise
Period:
(a) If, for any reason, other than solely as a result of actions taken by
PHC or any affiliate of PHC, the Agency for Health Care Administration of the
State of Florida, the Health Care Financing Administration or any other
applicable governmental entity denies the application of PHC-SUB for transfer of
ownership of the ASC assets and such application is not subsequently approved by
such entity within one hundred twenty (120) days from the date of the initial
denial;
(b) Two (2) or more Shareholder's licenses to practice medicine or other
required licenses or certifications are suspended or revoked, and neither
Shareholder's license is reinstated within ninety (90) days of the suspension or
revocation;
(c) ASC's license to conduct its business or other required licensure or
certification is suspended or revoked, and such license or certification is not
reinstated within one hundred twenty (120) days of the suspension or
revocation;
(d) ASC or any Shareholder materially breaches the terms of this Agreement
and such breach is not cured by ASC or the Shareholder within forty-five (45)
days after receipt of a written notice from PHC-SUB specifying the alleged
breach; or
(e) The assets of ASC are destroyed pursuant to an act of God or
destruction as set forth in Section 2.5, below, and such assets are not replaced
or rebuilt such that ASC is fully operational before the end of the Exercise
Period, including any extension to the Exercise Period pursuant to Section 2.5.
SECTION 2.5. ACT OF GOD OR DESTRUCTION. In the event of the partial or
complete destruction of the assets of ASC because of any act of God, fire,
earthquake, flood, natural disaster, riot, war or other act of destruction,
Shareholders and ASC shall immediately replace or rebuild such assets, as is
appropriate. The Exercise Period shall be extended by the number of days in
which ASC is inoperable due to such destruction, however, such extension shall
not exceed one (1) year.
ARTICLE III
THE ACQUISITION
SECTION 3.1. FORM OF ACQUISITION. The acquisition of an undivided fifty-
one percent (51%) interest in the assets of ASC pursuant to the Option (the
"Acquisition") shall be effected pursuant to the terms and subject to the
conditions set forth in an asset purchase agreement in substantially the same
form as attached hereto as Annex I (the "Purchase Agreement"), which form may be
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revised only by written agreement of the parties.
SECTION 3.2. EXECUTION OF PURCHASE AGREEMENT. Within forty-five (45)
days, unless otherwise mutually agreed, following the Exercise Date, the parties
hereto shall duly execute and deliver the Purchase Agreement.
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<PAGE>
SECTION 3.3. DUE DILIGENCE. On the Exercise Date, ASC shall use its best
efforts to provide PHC-SUB with a complete response to the Due Diligence
Questionnaire attached hereto as Annex II.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ASC AND THE SHAREHOLDERS
ASC and the Shareholders, jointly and severally, represent and warrant that
the following are true and correct as of the date hereof and will be true and
correct in all material respects on the Exercise Date:
SECTION 4.1. ORGANIZATION AND GOOD STANDING; QUALIFICATION. On the date
hereof, ASC is a corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation, with all requisite
corporate power and authority to carry on the business in which it is engaged,
to own the properties it owns, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. On the Exercise Date, ASC will
be a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the properties
it owns and to consummate the transactions contemplated thereby. ASC is not
qualified or licensed to do business in any other jurisdiction. ASC does not
have any assets, employees or offices in any state other than the state of its
incorporation.
SECTION 4.2. AUTHORIZATION AND VALIDITY. This Agreement has been duly
executed and delivered by ASC and the Shareholders and to the extent that the
terms and conditions hereof create any obligation on behalf of ASC and the
Shareholders, constitutes legal, valid and binding obligations of ASC and the
Shareholders enforceable against ASC and the Shareholders in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies. The person executing this Agreement on
behalf of ASC has been duly authorized to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. Each Shareholder has the
legal capacity to enter into and perform this Agreement and the Purchase
Agreement.
SECTION 4.3. NO VIOLATION. Neither the execution, delivery or performance
of this Agreement or the Purchase Agreement nor the consummation of the
transactions contemplated hereby or thereby will (a) conflict with, or result in
a violation or breach of the terms, conditions or provisions of, or constitute a
default under the Articles of Incorporation or Bylaws of ASC or any agreement,
indenture or other instrument under which ASC or the Shareholders are bound or
to which any of the assets of ASC are subject, or result in the creation or
imposition of any security interest, lien, charge or encumbrance upon any of the
assets of ASC, or (b) except as would not result in a Material Adverse Effect,
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory agency or
body.
SECTION 4.4. CONSENTS. Except as may be required under the Exchange Act,
the Securities Act, state securities laws, the Florida General Business
Corporation Act or as required under the Hart-Scott Rodino Act, or as set forth
in Schedule 4.4, no consent, authorization, approval, permit or license of, or
------------
filing with, any governmental or public body or authority, any lender or lessor
or any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the Purchase Agreement on the part of ASC or the Shareholders.
SECTION 4.5. FINDER'S FEE. ASC and the Shareholders have not incurred
any obligation for any finder's, broker's or agent's fee in connection with the
transactions contemplated hereby.
SECTION 4.6. COMPLIANCE WITH LAWS. To the best of ASC's and each
Shareholder's knowledge, ASC and each Shareholder has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports. There are no existing
violations by ASC or the Shareholders of any federal, state or local law or
regulation that would, individually or in the aggregate, result in a Material
Adverse Effect. Except as set forth on Schedule 4.6, the transactions
------------
contemplated by this Agreement or the Purchase Agreement
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<PAGE>
will not result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded by any such licenses, franchises,
permits or government authorizations, except for any such default, breach or
violation that would not, individually or in the aggregate, have a Material
Adverse Effect. Except as set forth on Schedule 4.6, neither ASC nor any
------------
Shareholder has received any notice from any federal, state or other
governmental authority or agency having jurisdiction over its properties or
activities, or any insurance or inspection body, that ASC's operations or any of
its properties, facilities, equipment, or business practices fail to comply with
any applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body except where failure
to do so would not, individually or in the aggregate, have a Material Adverse
Effect.
SECTION 4.7. INSURANCE. Shareholders and ASC shall have adequate
policies of property, casualty and other insurance in effect sufficient to
replace the assets of ASC in the event of any damage or destruction thereto, and
will keep such insurance policies in effect with respect to all of the assets of
ASC for the duration of the Exercise Period.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PHC-SUB
PHC-SUB represents and warrants that the following are true and correct as
of the date hereof and will be true and correct in all material respects on the
Exercise Date:
SECTION 5.1. ORGANIZATION AND GOOD STANDING. PHC-SUB is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, with all requisite corporate power and authority to
carry on the business in which it is engaged, to own the properties it owns, to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. On the Exercise Date, PHC-SUB will be a corporation, duly
organized, validly existing and in good standing under the laws of its state of
incorporation, with all requisite power and authority to carry on the business
in which it is engaged, to own the properties it owns and to consummate the
transactions contemplated thereby. As of the date of execution of this
Agreement, and on the Exercise Date, PHC-SUB will be duly qualified to conduct
business in the state of Florida.
SECTION 5.2. AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by PHC-SUB of this Agreement and the Purchase Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by PHC-SUB. This Agreement has been duly executed and delivered by PHC-SUB and
constitutes the legal, valid and binding obligation of PHC-SUB, enforceable
against PHC-SUB in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
SECTION 5.3. NO VIOLATION. Neither the execution, delivery or
performance of this Agreement or the Purchase Agreement nor the consummation of
the transactions contemplated hereby or thereby will (a) conflict with, or
result in a violation or breach of the terms, conditions and provisions of, or
constitute a default under, the Certificate of Incorporation or Bylaws of PHC-
SUB or any agreement, indenture or other instrument under which PHC-SUB is
bound, or (b) violate or conflict with any judgment, decree, order, statute,
rule or regulation of any court or any public, governmental or regulatory agency
or body having jurisdiction over PHC-SUB or the properties or assets of PHC-SUB.
SECTION 5.4. CONSENTS. Except as may be required under the Exchange Act,
the Securities Act, state security laws, the Florida General Business
Corporation Act or as required under the Hart-Scott Rodino Act, or as set forth
on Schedule 5.4, no consent, authorization, approval, permit or license of, or
------------
filing with, any governmental or public body or authority, any lender or lessor
or any other person is required to authorize, or is required in connection with,
the execution, delivery and performance of this Agreement or the Purchase
Agreement on the part of PHC-SUB.
SECTION 5.5. FINDER'S FEE. PHC-SUB has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
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ARTICLE VI
COVENANTS OF ASC AND THE SHAREHOLDERS
ASC and the Shareholders, jointly and severally, agree that between the
date hereof and the earlier of the Execution Date or the Termination Date:
SECTION 6.1. ACCESS. ASC and the Shareholders shall, at reasonable times
during normal business hours and on reasonable notice, permit PHC-SUB and its
authorized representatives reasonable access to, and make available for
inspection, all of the assets and business of ASC, including its employees,
customers and suppliers, and permit PHC-SUB and its authorized representatives
to inspect, and at PHC-SUB's sole cost and expense, make copies of all
documents, records and information with respect to the affairs of ASC as PHC-SUB
and its representatives may request, all for the sole purpose of permitting PHC-
SUB to become familiar with the business and assets and liabilities of ASC.
SECTION 6.2. NOTIFICATION OF CERTAIN MATTERS. ASC and the Shareholders
shall promptly inform PHC-SUB in writing of any material adverse change in ASC's
condition (financial or otherwise), operations, assets, liabilities, business or
prospects.
SECTION 6.3. ACQUISITION PROPOSALS. ASC and the Shareholders agree that
from the date of this Agreement through the expiration of the Exercise Period
(a) that neither the Shareholders, nor ASC, nor any of its respective officers
and directors shall, and ASC and the Shareholders shall direct and use their
best efforts to cause ASC's employees, agents and representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its shareholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any purchase of,
all or any significant portion of the assets or any equity securities of, ASC
(any such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any Confidential
Information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; (b) that the Shareholders and ASC will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and each will take the necessary steps to inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 6.3; and (c) that ASC and the
-----------
Shareholders will notify PHC-SUB immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, ASC or
the Shareholders.
SECTION 6.4. INSURANCE. Shareholders and ASC have adequate policies of
property, casualty and other insurance in effect sufficient to replace the
assets of ASC in the event of any damage or destruction thereto, and will keep
such insurance policies in effect with respect to all of the assets of the ASC
for the duration of the Exercise Period.
SECTION 6.5. BUSINESS OPERATIONS. ASC and the Shareholders shall operate
the business of ASC in the ordinary course and will not introduce any new method
of management or operation. ASC and the Shareholders shall use their best
efforts to preserve the business of ASC intact, to retain its present customers
and suppliers so that they will be available after the closing of the Purchase
Agreement. ASC and Shareholders shall not take any action that could reasonably
be expected to have, or does have, a Material Adverse Effect on the condition
(financial or otherwise), operations, assets, liabilities, business or prospects
of ASC or take or fail to take any action that would cause or permit the
representations made in Article IV to be inaccurate on the Execution Date or at
the time of the closing of the Purchase Agreement or preclude ASC or
Shareholders from making such representations and warranties on the Execution
Date or at the time of the closing of the Purchase Agreement.
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<PAGE>
ARTICLE VII
TERMINATION
SECTION 7.1. TERMINATION. This Agreement shall automatically terminate
upon the expiration of the Exercise Period (including any extensions thereto as
provided herein) if prior thereto PHC-SUB has not exercised the Option. In
addition, this Agreement may be terminated at any time by mutual agreement of
all parties hereto.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
SECTION 8.1. COVENANT NOT TO DISCLOSE. ASC and the Shareholders recognize
and acknowledge that they had in the past, currently have, and in the future may
possibly have, access to certain Confidential Information of PHC-SUB that is a
valuable, special and unique asset of PHC-SUB's business. PHC-SUB acknowledges
that it has had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of ASC that is a valuable, special
and unique asset of ASC's business. ASC and the Shareholders, on the one hand,
and PHC-SUB, on the other hand, agree that they will not disclose such
Confidential Information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except (a) to authorized
representatives of PHC-SUB or ASC and the Shareholders, and (b) to counsel and
other advisers to PHC-SUB or to ASC and the Shareholders, provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 8.1, unless (i) such information becomes known to the public
- -----------
generally through no fault of ASC, the Shareholders or PHC-SUB, as the case may
be, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the disclosing party shall, if possible, give
prior written notice thereof to the other parties and provide such other parties
with the opportunity to contest such disclosure, (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, or (iv) the disclosing party
is the sole and exclusive owner of such Confidential Information as a result of
the consummation of the transactions contemplated by the Merger Agreement, the
Acquisition or otherwise.
SECTION 8.2. DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the covenants contained in Section 8.1, and
-----------
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, each party hereto agrees that, in the
event of a breach by any of them of the foregoing covenant, the covenant may be
enforced against them by injunctions and restraining orders. Nothing herein
shall be construed as prohibiting any party from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
SECTION 8.3. SURVIVAL. The obligations of the parties under this Article
shall survive the termination of this Agreement.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. AMENDMENT; WAIVERS. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
SECTION 9.2. ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by PHC-SUB
to an Affiliate or a senior creditor of PHC-SUB in which case PHC-SUB shall
remain obligated for all obligations of PHC-SUB contained herein.
-7-
<PAGE>
SECTION 9.3. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and permitted assigns of the parties hereto.
Neither this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
SECTION 9.4. ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 9.5. WAIVER. No waiver by any party of any default or breach by
another party of any representation, warranty, covenant or condition contained
in this Agreement shall be deemed to be a waiver of any subsequent default or
breach by such party of the same or any other representation, warranty, covenant
or condition. No act, delay, omission or course of dealing on the part of any
party in exercising any right, power or remedy under this Agreement or at law or
in equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
SECTION 9.6. COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees), except that each party
hereto agrees to pay the costs and expenses (including reasonable attorneys'
fees and expenses) incurred by the other parties in successfully (a) enforcing
any of the terms of this Agreement or (b) proving that another party breached
any of the terms of this Agreement.
SECTION 9.7. SPECIFIC PERFORMANCE. The parties hereto acknowledge that a
refusal by any party hereto to consummate the transactions contemplated hereby
will cause irreparable harm to the other parties, for which there may be no
adequate remedy at law and for which the ascertainment of damages would be
difficult. Therefore, each party hereto shall be entitled, in addition to, and
without having to prove the inadequacy of, other remedies at law, to specific
performance of this Agreement, as well as injunctive relief (without being
required to post bond or other security).
SECTION 9.8. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING CONFLICTS OF
LAWS) OF THE STATE OF FLORIDA.
SECTION 9.9. NO OBLIGATION TO EXERCISE OPTION. Notwithstanding the
provisions of Section 9.7, this Agreement does not impose any obligation upon
PHC-SUB to exercise the Option.
SECTION 9.10. CAPTIONS. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
SECTION 9.11. GENDER AND NUMBER. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
SECTION 9.12. REFERENCE TO AGREEMENT. Use of the words "herein", "hereof",
"hereto" and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or provision of
this Agreement, unless otherwise noted.
SECTION 9.13. CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the
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<PAGE>
foregoing shall not prohibit any disclosure (a) by press release, filing or
otherwise that PHC-SUB has determined in its good faith judgment to be required
by federal securities laws or the rules of the National Association of
Securities Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by PHC-SUB in connection with the conduct
of any initial public offering and conducting an examination of the operations
and assets of ASC; provided that PHC-SUB shall reasonably promptly provide
notice to ASC and the Shareholders of any press release made under this Section.
SECTION 9.14. NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to PHC-SUB: PHC Holding Corporation
990 Hammond Drive
Suite 300
Atlanta, Georgia 30328
Attn: Sarah Garvin
Fax No.: (770) 673-1970
with a copy to: Jackson & Walker, L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Fax No.: (214) 953-5822
Attn: James S. Ryan, III
If to ASC: Central Florida Surgical Centers, Inc.
3885 Oakwater Circle
Orlando, Florida 32806
Fax No.: (407) 438-9500
Attn: Antonio Caos, M.D.
with a copy to: Maguire, Voorhis & Wells, P.A.
200 South Orange Avenue, Suite 3000
Orlando, Florida 32801
Fax No.: (407) 872-6207
Attn: Stephen R. Looney, Esquire
If to Shareholders: Robert T. Baker, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
Antonio Caos, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
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<PAGE>
C. Raymond Cottrell, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
Kenneth R. Feuer, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
Alex Menendez, M.D.
Internal Medicine Specialists, Inc.
3885 Oakwater Circle, Suite 2
Orlando, Florida 32806
with a copy to: Maguire, Voorhis & Wells, P.A.
200 South Orange Avenue, Suite 3000
Orlando, Florida 32801
Fax No.: (407) 872-6207
Attn: Stephen R. Looney, Esquire
SECTION 9.15. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 9.16. DEFINED TERMS. Terms used in the attachments hereto with
their initial letter capitalized and not otherwise defined therein shall have
the meanings as assigned to such terms in this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
PHC-SUB:
-------
PHC HOLDING CORPORATION
By:______________________________
Its:_____________________________
ASC:
---
CENTRAL FLORIDA SURGICAL CENTERS, INC.
By:_______________________________
Antonio Caos, M.D., President
SHAREHOLDERS:
------------
_________________________________
C. Raymond Cottrell, M.D.
_________________________________
Antonio Caos, M.D.
_________________________________
Alex Menendez, M.D.
_________________________________
Kenneth R. Feuer, M.D.
_________________________________
Robert T. Baker, M.D.
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ANNEX I
-------
ASSET PURCHASE AGREEMENT
------------------------
<PAGE>
ANNEX II
--------
DUE DILIGENCE QUESTIONNAIRE
---------------------------
<PAGE>
EXHIBIT 10.13
PRACTICE MANAGEMENT AGREEMENT
BY AND AMONG
PHYSICIAN HEALTH CORPORATION,
PHC REGIONAL ONCOLOGY CARE, INC.
AND
PHC-ILLINOIS 1, S.C., PHC-MISSISSIPPI, P.L.L.C.,
AND SOUTHERN DEPENDACARE, INC.
Effective as of September 1, 1997
<PAGE>
TABLE OF CONTENTS
SECTION 1. GENERAL PRACTICE GOVERNANCE AND MUTUAL PLEDGE OF SUPPORT........ 2
SECTION 2. DEFINITIONS..................................................... 2
2.1 "Affiliate"............................................... 2
2.2 "Additional Minimum Management Fee"....................... 3
2.3 "Agent"................................................... 3
2.4 "Alternative Management Fee".............................. 3
2.5 "Annual Budget"........................................... 3
2.6 "Assignee"................................................ 3
2.7 "Bank Documents" ......................................... 3
2.8 "Buyout Amount"........................................... 3
2.9 "CHAMPUS"................................................. 3
2.10 "CHAMPUS Receivable"...................................... 3
2.11 "CHAMPVA"................................................. 3
2.12 "CHAMPVA Receivable"...................................... 4
2.13 "Code".................................................... 4
2.14 "Collateral".............................................. 4
2.15 "Credit Agreement"........................................ 4
2.16 "ERISA"................................................... 4
2.17 "General Management Fee".................................. 4
2.18 "General Management Services"............................. 4
2.19 "Government Receivables".................................. 4
2.20 "HCFA".................................................... 4
2.21 "IL Component"............................................ 4
2.22 "Illinois Lockbox Account"................................ 4
2.23 "Illinois Sweeping Account"............................... 4
2.24 "Lender" ................................................. 4
2.25 "Managed Care Relationships".............................. 4
2.26 "Material Adverse Effect"................................. 5
2.27 "Medicaid"................................................ 5
2.28 "Medicaid Provider Agreement"............................. 5
2.29 "Medicaid Receivable"..................................... 5
2.30 "Medical Office".......................................... 5
2.31 "Medicare"................................................ 5
2.32 "Medicare Provider Agreement"............................. 5
2.33 "Medicare Receivable"..................................... 6
2.34 "Minimum Management Fee".................................. 6
2.35 "Monthly Payment"......................................... 6
2.36 "Mississippi Lockbox Account"............................. 6
2.37 "Mississippi Sweeping Account"............................ 6
2.38 "MS Amount"............................................... 6
2.39 "MS-PLLC Component"....................................... 6
2.40 "MS Physician Practice Expenses".......................... 6
2.41 "Net Practice Revenues"................................... 6
2.42 "New Ancillary Service Expenses".......................... 6
2.43 "New Ancillary Service Revenue"........................... 7
2.44 "New Ancillary Services".................................. 7
2.45 "New Practice Employee"................................... 7
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2.46 "New Practice Employee Expenses".......................... 7
2.47 "Operational Expenses".................................... 7
2.48 "PHC-SUB"................................................. 9
2.49 "PHC-SUB Expense"......................................... 9
2.50 "Physician"............................................... 9
2.51 "Practice Development Services"........................... 9
2.52 "Practice Employee"...................................... 10
2.53 "Practice Expense"....................................... 10
2.54 "Practice Lost Income Amount"............................ 11
2.55 "Public Offering"........................................ 11
2.56 "Purchase Agreement"..................................... 11
2.57 "Real Estate"............................................ 11
2.58 "Receivable"............................................. 11
2.59 "Rules".................................................. 11
2.60 "SDC".................................................... 11
2.61 "SDC Amount"............................................. 11
2.62 "SDC Component".......................................... 11
2.63 "SDC Physician Practice Expenses"........................ 12
2.64 "Secured Party".......................................... 12
2.65 "Security Agreements" ................................... 12
2.66 "Sub Lost Income Amount"................................. 12
2.67 "Third Party Payors" .................................... 12
2.68 "Virginia Division"...................................... 12
2.69 "Virginia Lockbox Account" .............................. 12
2.70 "Virginia Sweeping Account" ............................. 12
SECTION 3. GENERAL MANAGEMENT SERVICES.................................... 12
3.1 PHC-SUB Personnel........................................ 12
3.2. Medical Offices.......................................... 13
3.3. Furniture, Fixtures and Equipment........................ 13
3.4. Business Office Services................................. 14
3.5. Patient and Financial Records............................ 15
3.6. Financial Statements..................................... 16
3.7. Payment of Operational Expenses and PHC-SUB Expenses..... 16
SECTION 4. PRACTICE DEVELOPMENT SERVICES.................................. 16
4.1 Financial Planning and Goals............................. 16
4.2 Recruitment of New Practice Employees.................... 17
4.3 Managed Care Relationships............................... 17
4.4 Expansion of the Practice................................ 17
4.5 Practice Assessment and Consulting Services.............. 17
4.6 Payor Contracting Development Services................... 17
SECTION 5. OBLIGATIONS OF THE PRACTICES................................... 18
5.1 Practice Expenses........................................ 18
5.2 Professional Standards................................... 18
5.3 Physician Powers of Attorney............................. 18
5.4 Restrictive Covenants.................................... 18
5.5 Continuing Professional Education........................ 20
5.6 Contracts with Practice Employees........................ 20
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5.7 Cooperation............................................. 20
5.8 Covenants Relating to Credit Agreement.................. 21
5.9 Formation and Operation of the Compliance Committee..... 21
SECTION 6. JOINT POLICY BOARD............................................ 22
6.1 Formation and Responsibilities of Joint Policy Board.... 22
6.2 Resolution Mechanism for Divided Vote of Joint Policy
Board.................................................. 23
6.3 Annual Budget and Business Plan......................... 24
SECTION 7. FINANCIAL ARRANGEMENTS........................................ 24
7.1 PHC-SUB Compensation. ................................. 24
7.2 Recruitment and Productivity Incentives................. 27
7.3 Review of Financial Arrangements by the Joint Policy
Board and the Practices................................ 27
7.4 Security Agreements; Deposit of Proceeds of Accounts.... 27
7.5 New Ancillary Services.................................. 29
SECTION 8. TERM AND TERMINATION.......................................... 30
8.1 Term; Renewal Terms..................................... 30
8.2 Termination............................................. 30
8.4 Repurchase of Assets.................................... 33
8.5 Procedures Related to Termination....................... 34
SECTION 9. REPRESENTATIONS AND WARRANTIES OF EACH PRACTICE............... 35
9.1 Organization in Good Standing; Licenses................. 35
9.2 No Violations........................................... 35
9.3 Professional Liability.................................. 35
9.4 Litigation.............................................. 35
9.5 No Default.............................................. 36
9.6 Third Party Reimbursement............................... 36
9.7 Certificates............................................ 37
SECTION 10. INSURANCE AND INDEMNITY....................................... 37
10.1 Insurance Maintained by the Practice.................... 37
10.2 Insurance Maintained by PHC-SUB......................... 38
10.3 Continuing Liability Insurance Coverage................. 38
10.4 Key Person Insurance.................................... 38
SECTION 11. COMPLIANCE WITH REGULATIONS - SUBCONTRACTS.................... 38
SECTION 12. RELATIONSHIP OF THE PARTIES................................... 39
12.1 Independent Contractor Status........................... 39
12.2 Referral Arrangements................................... 40
SECTION 13. CONFIDENTIAL INFORMATION AND INSPECTION RIGHTS................ 40
SECTION 14. ARBITRATION................................................... 41
SECTION 15. MISCELLANEOUS................................................. 41
15.1 Assignment and Delegation............................... 41
15.2 Other Contractual Arrangements.......................... 42
15.3 Notices................................................. 42
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15.4 Additional Acts......................................... 43
15.5 Governing Law........................................... 44
15.6 Captions................................................ 44
15.7 Severability............................................ 44
15.8 Entire Agreement........................................ 44
15.9 Waiver of Provisions.................................... 44
15.10 No Rule of Construction................................. 44
15.11 Counterparts............................................ 45
15.12 Binding Effect.......................................... 45
SECTION 16. GUARANTY BY PHC............................................... 45
v
<PAGE>
SCHEDULES
5.3 Forrest Swan, Jr., M.D.
5.4(a) Restrictive Covenants
5.19 Compliance Committee Members
5.20 Initial Joint Policy Board Members
7.5 Forrest Swan, Jr., M.D.
9.4(b) Exceptions to Investigations
9.6 Third Party Reimbursement
EXHIBITS
7.1.1 GUARANTY OF MINIMUM MANAGEMENT FEE
7.1.2 GUARANTY OF ADDITIONAL MANAGEMENT FEE
7.4(a) SECURITY AGREEMENTS
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PRACTICE MANAGEMENT AGREEMENT
THIS PRACTICE MANAGEMENT AGREEMENT (this "Agreement") is made and effective
as of the 1/st/ day of September, 1997 (the "Effective Date"), by and among
Physician Health Corporation, a Delaware corporation ("PHC") as to Section 8.4
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and Section 16 only; PHC Regional Oncology Care, Inc., a Georgia corporation
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("PHC-SUB"); and PHC-Illinois 1, S.C., an Illinois medical corporation ("IL-
SC"), PHC-Mississippi, P.L.L.C., a Mississippi professional limited liability
company ("MS-PLLC"), and Southern Dependacare, Inc., an Alabama business
corporation ("SDC"), operating through its Virginia division (the "Virginia
Division") (each, the "Practice", and collectively, the "Practices").
RECITALS:
A. Pursuant to the terms of that certain Asset Purchase Agreement
effective as of September 1, 1997 (the "Purchase Agreement"), by and among PHC,
PHC-SUB, SDC and Jack G. Hilton, M.D. ("Physician"), PHC-SUB acquired from SDC
substantially all of the tangible and intangible assets of SDC (the "Purchase").
B. Prior to the Purchase, each of the current physician employees of the
Practices is practicing or has practiced medicine as a physician employee of
SDC.
C. PHC-SUB and its Affiliates (as defined herein) are engaged in the
business of providing high quality healthcare management services in the form of
(1) physician practice management, development and administration, and (2)
physician network development, marketing, management and administration.
D. In conjunction with the Purchase, but prior to its effective time,
certain physician employees terminated their employment relationships with SDC
and entered into employment relationships with the Practices, which will
continue to practice medicine and provide medical services to patients at
various medical offices in the areas of Carbondale, Illinois; Abingdon,
Virginia; and Natchez, Mississippi and other areas to which the Practices may
expand, with practice management services being provided by PHC-SUB pursuant to
this Agreement.
E. PHC-SUB and the Practices desire to enter into this Agreement for (1)
the provision of practice management and development services by PHC-SUB to the
Practices and (2) the provision by PHC-SUB of facilities, personnel, equipment
and supplies necessary to operate the Practices, pursuant to the terms and
conditions hereof, to permit the Practices and each of their physician
employees to devote their respective efforts on a concentrated and continuous
basis to the rendering of medical services to their patients.
F. PHC owns all the issued and outstanding capital stock of PHC-SUB and
is a party to this Agreement for the sole purpose of guaranteeing the full and
complete performance by PHC-SUB of the obligations, duties and covenants of PHC-
SUB owed to the Practices hereunder.
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. GENERAL PRACTICE GOVERNANCE AND MUTUAL PLEDGE OF SUPPORT.
(a) As described more fully in this Agreement, the Practices will continue
to operate independently of PHC-SUB with broad control over the day-to-day
operations of the Practices remaining with the directors and officers of, and
the physicians employed by, the Practices. PHC-SUB shall (i) consult with the
Practices and their physician employees as to the method of PHC-SUB's
performance of the General Management Services (as defined herein) and (ii)
follow the reasonable advice thereon of the Practices in a cooperative effort to
promote the future development and success of the Practices.
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(b) The Practices acknowledge that among the reasons they are entering
into this Agreement are to gain access to the strategic planning, financing,
ancillary services development, managed care, purchasing groups, information
systems, consulting and other practice management and development, expertise
that PHC-SUB can make available to the Practices, and the potential greater
efficiencies and economies of scale to be recognized by centralizing certain
management services to be provided by PHC-SUB to the Practices and the formation
of multi-specialty or single specialty physician practice groups within the
Practices. Consistent with the Practices' control and direction over their
respective day-to-day operations, each Practice and PHC-SUB pledge to work
together to identify and take advantage of such opportunities for the
achievement of greater efficiency and economies in the operation of the
Practices. With the support of PHC-SUB through the establishment and operation
of the Joint Policy Board (as described in Section 6 hereof), each Practice and
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PHC-SUB will work together to develop and implement strategic plans related to
expansion of ancillary and other services provided by, and the addition of
medical offices, physicians and other professional personnel to, the Practices.
SECTION 2. DEFINITIONS.
Unless otherwise specified herein, all accounting terms used herein shall
be interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles ("GAAP"), as in effect
from time to time applied on a consistent basis.
As used herein, the following capitalized terms shall have the meanings
ascribed to such terms below:
2.1 "Affiliate" of an entity means (a) any person or entity directly or
indirectly controlled by such entity, (b) any person or entity directly or
indirectly controlling such entity, (c) any subsidiary of such entity if the
entity has a fifty percent (50%) or greater equity ownership interest in the
subsidiary, or (d) such entity's parent if the parent has a fifty percent (50%)
or greater ownership interest in the entity.
2.2 "Additional Minimum Management Fee" shall have the meaning set forth
in Section 7.1(b).
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2.3 "Agent" means such person or entity as may be appointed by PHC-SUB in
writing to the Practices from time to time to serve as Agent hereunder.
2.4 "Alternative Management Fee" shall have the meaning set forth in
Section 7.1(a).
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2.5 "Annual Budget"shall have the meaning set forth in Section 4.1.
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2.6 "Assignee" shall have the meaning set forth in Section 7.4(a).
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2.7 "Bank Documents" shall have the meaning set forth in Section 5.8(a).
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2.8 "Buyout Amount" shall have the meaning set forth in Section 8.4(a).
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2.9 "CHAMPUS" means, collectively, the Civilian Health and Medical Program
of the Uniformed Service, a program of medical benefits covering former and
active members of the uniformed services and certain of their dependents,
financed and administered by the United States Departments of Defense, Health
and Human Services and Transportation, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program including
(a) all federal statutes (whether set forth in 10 U.S.C. (S)(S)1071-1106 or
elsewhere) affecting such program; and (b) all rules, regulations, (including 32
C.F.R. (S)199), manuals, orders and administrative, reimbursement and other
guidelines of all governmental authorities promulgated in connection with such
program (whether or not having the force of law), in each case as the same may
be amended, supplemented or otherwise modified from time to time.
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2.10 "CHAMPUS Receivable" means a Receivable payable pursuant to CHAMPUS.
2.11 "CHAMPVA" means, collectively, the Civilian Health and Medical
Program of the Department of Veteran Affairs, a program of medical benefits
covering retirees and dependents of former members of the armed services
administered by the United States Department of Veteran Affairs, and all laws,
rules, regulations, manuals, orders, guidelines or requirements pertaining to
such program, including (a) all federal statutes (whether set forth in 38 U.S.C.
(S)1713 or elsewhere) affecting such program or, to the extent applicable to
CHAMPVA, CHAMPUS; and (b) all rules, regulations (including 38 C.F.R. (S)17.54),
manuals, orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
2.12 "CHAMPVA Receivable" means a Receivable payable pursuant to CHAMPVA.
2.13 "Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
2.14 "Collateral" shall mean (i) the assets purchased by PHC-SUB under
the Purchase Agreement and (ii) the Collateral under and defined in the Security
Agreements.
2.15 "Credit Agreement" means any loan agreement or security agreement
between PHC or PHC-SUB and a Lender whereby PHC or PHC-SUB grants a lien on
accounts receivable in favor of that Lender.
2.16 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.17 "General Management Fee" shall have the meaning set forth in Section
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7.1(a).
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2.18 "General Management Services" shall have the meaning set forth in
Section 3.
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2.19 "Government Receivables" means, collectively, any and all
Receivables which are (a) Medicare Receivables, (b) Medicaid Receivables, (c)
CHAMPUS Receivables, (d) CHAMPVA Receivables, or (e) any other Receivable
payable by a governmental authority approved by the Agent.
2.20 "HCFA" means the Health Care Financing Administration, an agency of
the United States Department of Health and Human Services, and any successor
thereto.
2.21 "IL Component" shall have the meaning set forth in Section
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7.1(a)(iii).
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2.22 "Illinois Lockbox Account" shall have the meaning set forth in
Section 7.4(b)(ii).
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2.23 "Illinois Sweeping Account" shall have the meaning set forth in
Section 7.4(b)(i).
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2.24 "Lender" shall have the meaning set forth in Section 5.8(a).
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2.25 "Managed Care Relationships" shall have the meaning set forth in
Section 4.3.
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2.26 "Material Adverse Effect" means, with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration, or governmental investigation or proceeding),
whether singly or in conjunction with any other events, act or acts, condition
or conditions, occurrence or occurrences, whether or not related, a material
adverse change in, or a material adverse effect upon, any of the financial
conditions, operations, business, properties or prospects of the Practices.
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2.27 "Medicaid" means, collectively, the healthcare assistance program
established by Title XIX of the Social Security Act (42 USC (S)(S)1396 et. seq.)
and any statutes succeeding thereto, and all laws, rules, regulations, manuals,
orders, guidelines or requirements pertaining to such program including (a) all
federal statutes (whether set forth in Title XIX of the Social Security Act or
elsewhere) affecting such program; (b) all state statutes and plans for medical
assistance enacted in connection with such program and federal rules and
regulations promulgated in connection with such program; and (c) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all government authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
2.28 "Medicaid Provider Agreement" means an agreement entered into
between a state agency or other entity administering Medicaid in such state and
a healthcare facility or physician under which the healthcare facility or
physician agrees to provide services or merchandise for Medicaid patients.
2.29 "Medicaid Receivable" means a Receivable payable pursuant to a
Medicaid Provider Agreement.
2.30 "Medical Office" means any of the medical offices provided by PHC-
SUB that are utilized, in whole or in part, by the Practices in existence on the
Effective Date and throughout the term of this Agreement.
2.31 "Medicare" means, collectively, the health insurance program for the
aged and disabled established by Title XVIII of the Social Security Act (42 USC
(S)(S)1395 et seq.) and any statutes succeeding thereto, and all laws, rules,
regulations, manuals, orders or guidelines pertaining to such program including
(a) all federal statutes (whether set forth in Title XVIII of the Social
Security Act or elsewhere) affecting such program; and (b) all applicable
provisions of all rules, regulations, manuals, orders and administrative,
reimbursement, guidelines and requirements of all governmental authorities
promulgated in connection with such program (whether or not having the force of
law), in each case as the same may be amended, supplemented or otherwise
modified from time to time.
2.32 "Medicare Provider Agreement" means an agreement entered into
between a state agency or other entity administering Medicare in such state and
a healthcare facility or physician under which the healthcare facility or
physician agrees to provide services or merchandise for Medicare patients.
2.33 "Medicare Receivable" means a Receivable payable pursuant to
Medicare Provider Agreement.
2.34 "Minimum Management Fee" shall have the meaning set forth in Section
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7.1(a)(iv).
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2.35 "Monthly Payment" shall have the meaning set forth in Section
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7.4(a).
2.36 "Mississippi Lockbox Account" shall have the meaning set forth in
Section 7.4(b)(ii).
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2.37 "Mississippi Sweeping Account" shall have the meaning set forth in
Section 7.4(b)(i).
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2.38 "MS Amount" shall have the meaning set forth in Section
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7.1(a)(i)(A).
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2.39 "MS-PLLC Component" shall have the meaning set forth in Section
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7.1(a)(i).
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2.40 "MS Physician Practice Expenses" shall have the meaning set forth in
Section 7.1(a)(i)(A).
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2.41 "Net Practice Revenues" means, for any fiscal period, (i) all
revenues recognized by or on behalf of a Practice or any of its Practice
Employees, including New Practice Employees, as a result of professional medical
services furnished to patients, ancillary services furnished to patients,
pharmaceuticals and other items and supplies sold to patients (ii) other fees or
income received by a Practice or its Practice Employees in their capacity
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as Practice Employees of such Practice, whether rendered in an inpatient or
outpatient setting and whether rendered to health maintenance organizations,
preferred provider organizations, Medicare, Medicaid or other patients,
including, but not limited to, payments received under any capitation
arrangement (including, without limitation, monthly capitation payments, bonus
payments, risk pool payments, etc.). For the purposes of this Agreement, only
the professional component of New Ancillary Service Revenue shall be included in
Net Practice Revenues.
2.42 "New Ancillary Service Expenses" means, for any fiscal period, all
expenses paid during such period by PHC-SUB in generating New Ancillary Service
Revenue, including, without limitation, the costs of facilities, equipment,
supplies, staff and technicians directly associated therewith and the direct
capital expenses (not to exceed the sum of interest expense plus depreciation
attributable to the capital expenditure in question) associated therewith.
2.43 "New Ancillary Service Revenue" means, for any fiscal period, all
revenue generated during such period by a Practice as a result of New Ancillary
Services except for the professional medical services revenue component of such
New Ancillary Services, which component shall constitute a portion of Net
Practice Revenue or New Practice Employee Revenue, as applicable, for such
period.
2.44 "New Ancillary Services" shall mean services furnished to patients
related to the rendition of oncological services, but unlike in nature or in
scope to the ancillary services that were provided by a Practice immediately
prior to the Effective Date.
2.45 "New Practice Employee" means any physician Practice Employee who
was not employed by or under contract with a Practice as of the Effective Date.
After the third anniversary of a New Practice's Employee's initial full time
employment or engagement by a Practice, that employee shall be considered a
"Practice Employee" of such Practice for purposes of this Agreement.
2.46 "New Practice Employee Expenses" means, for any fiscal period, the
aggregate amount of salaries, benefits and recruitment expenses paid by a
Practice relating to the employment or engagement by a Practice of each New
Practice Employee.
2.47 "Operational Expenses" means, for any fiscal period, all the
expenses and capitalized costs (other than PHC-SUB Expenses, Practice Expenses,
New Ancillary Service Expenses, and New Practice Employee Expenses) incurred by
PHC-SUB in the provision of the General Management Services and the Practice
Development Services to a Practice pursuant to this Agreement and such other
expenses of a kind set forth in the Annual Budget (as defined in Section 4.1)
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for provision of services by PHC-SUB to a Practice (provided that, with respect
to any Operational Expenses required to be capitalized under GAAP, the
capitalized cost of the item shall not be an Operational Expense, but the
depreciation or amortization of such expense by PHC-SUB shall be an Operational
Expense), including, but not limited to, the following:
(a) salaries, benefits (including any deferred compensation) and other
costs relating to the employment or engagement by PHC-SUB of employees or
independent contractors to provide services for a Practice, including a pro-rata
share of expenses relating to employees or independent contractors who provide
services to a Practice and to other persons or entities;
(b) professional liability insurance premiums and deductibles to the
extent provided in Section 10 hereof, including premiums and deductibles related
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to policies obtained pursuant to Section 10.3 hereof (other than key man life
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insurance policies obtained on the lives of Physician and Donnie E. McDaniel
incurred pursuant to Section 10.4);
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(c) Practice Employee licensure fees, board certification fees, and
hospital staff privilege dues;
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(d) obligations under leases or subleases for the Medical Offices and
equipment used by a Practice;
(e) personal property and intangible taxes assessed against assets used by
a Practice and state and local business taxes, fees and charges of a Practice or
of PHC-SUB and related to a Practice;
(f) charitable contributions approved in the Annual Budgets or by a
unanimous vote of the Joint Policy Board (as defined in Section 6);
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(g) depreciation, amortization and all other expenses related to FF&E (as
defined in Section 3.3 hereof);
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(h) interest expenses or other costs of funds on indebtedness incurred by
PHC-SUB or PHC to finance or refinance any of its obligations hereunder or
services provided under this Agreement, including such expenses related to
salary advances for Practice Employees as approved by the Joint Policy Board;
(i) medical and office supply expenses, including pharmaceutical products;
(j) utility expenses and all other costs relating to the Medical Offices,
including without limitation, costs of repairs, maintenance, telephone, normal
janitorial services, refuse disposal;
(k) insurance premiums for general comprehensive liability insurance
(including without limitation insurance relating to the potential liability of
PHC-SUB arising out of the operation of the Practice) and workers' compensation
insurance for PHC-SUB's employees described in Section 10 hereof;
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(l) expenses related to billing and collecting for payment for services
rendered by the Practices;
(m) expenses relating to the recruitment of physicians and any other
personnel for the Practices;
(n) all costs of membership in professional associations and continuing
professional education expenses for Practice Employees in an amount up to $1,000
per annum in the aggregate for each Practice;
(o) reimbursement for automobile expenses incurred by Practice Employees
in the ordinary course of carrying out their respective duties and job
responsibilities; and
(p) expenses incurred for the provision and maintenance of an automobile
to Donnie E. McDaniel in the performance of his job responsibilities on behalf
of the Practices under that certain Employment Agreement by and among PHC, PHC-
SUB and Donnie E. McDaniel.
2.48 "PHC-SUB" means a corporation duly formed under Georgia law and a
party to this Agreement.
2.49 "PHC-SUB Expense" means any expense paid by PHC-SUB not directly
related to a Practice or the provision by PHC-SUB of the General Management
Services including, but not limited to, the following:
(a) corporate overhead charge of or allocated to PHC-SUB other than the
kind of items listed in Section 2.39, except as may be otherwise agreed upon by
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PHC-SUB and a Practice;
(b) amortization expense resulting from the amortization of organizational
expenses incurred in connection with formation of the Practices
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(c) interest expense or other cost of funds on indebtedness incurred by
PHC or PHC-SUB to finance the purchase price paid or withheld pursuant to any
liabilities assumed by PHC-SUB under the Purchase Agreement;
(d) federal and state income taxes of PHC-SUB, PHC, or any of their
Affiliates and the costs of preparing their respective federal and state income
and employment tax returns and other related filings;
(e) liability judgments assessed against PHC-SUB, PHC or any of the
affiliates or any employees or agents thereof in excess of applicable insurance
policy limits and all liability judgments assessed against PHC-SUB or PHC-SUB
employees or settlements of claims against PHC-SUB or PHC-SUB employees in
excess of policy limits or not covered by insurance policies of PHC-SUB; and
(f) health and welfare insurance, life insurance and/or disability or
business overhead insurance on any Practice Employee in accordance with Section
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10.4 herein.
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PHC-SUB Expense shall not include any New Ancillary Service Expenses and
any New Practices Employee Expenses.
2.50 "Physician" shall have the meaning set forth in paragraph A of the
Recitals of this Agreement.
2.51 "Practice Development Services" shall have the meaning set forth in
Section 4.
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2.52 "Practice Employee" means any individual:
(a) who is (a) duly licensed to practice medicine and (b) an employee or
independent contractor of a Practice, including the physician shareholders or
members of a Practice, or
(b) who is (a) required by contract, law or regulatory authority to be
employed by or whose services are required to be billed through a licensed
physician for purposes of obtaining payment or reimbursement for such services
or otherwise and (b) provides medical services to patients of a Practice,
including, without limitation, nurse practitioners, certified registered nurse
anesthetists, physician assistants, fellows, surgical assistants, individuals
with a masters degree in social work, physical therapists, psychologists, and
any other similar individuals.
Notwithstanding, anything contained here to the contrary, each Practice
may, at its discretion, retain other non-professional employees to provide other
services to such Practice or its Practice Employees, provided that all expenses
related to such non-professional employees shall constitute Practice Expenses
and not Operational Expenses, and such non-professional employees shall not be
considered "Practice Employees" for the purposes of this Agreement.
2.53 "Practice Expense" means any expense of a Practice which is not an
Operational Expense, a PHC-SUB Expense, or a New Ancillary Service Expense.
Practice Expenses shall include, without limitation, the following:
(a) all salaries, bonuses or benefits (including, for example, deferred
compensation benefits and health insurance benefits) payable with respect to
Practice Employees or compensation paid or payable to physician independent
contractors, including New Practice Employee Expenses;
(b) all federal, state or local income and employment taxes of a Practice
and the costs of preparing its federal, state or local income and employment tax
returns;
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(c) all costs of membership in professional associations and continuing
professional education expenses, including subscriptions, for physician Practice
Employees up to $1,000 per annum in the aggregate for each Practice;
(d) all liability judgments assessed against the Practices or Practice
Employees in excess of policy limits or not covered by insurance policies of the
Practice or Practice Employees;
(e) all costs of employees providing personal services to particular
Practice Employees and like expenses personal in nature;
(f) the General Management Fee;
(g) reimbursement for automobile expenses incurred by the physician
Practice Employees in the ordinary course of practicing medicine;
(h) entertainment expense in an amount up to $1,000 per annum for each
Practice;
(i) the New Practice Employee Expense; and
(j) all other expenses to be taken as Practice Expenses as specifically
set forth herein.
2.54 "Practice Lost Income Amount" shall have the meaning set forth in
Section 8.2(d).
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2.55 "Public Offering" means any method or means by which PHC initially
accesses any public capital market for any shares of its capital stock,
including without limitation, an initial public offering of the shares of the
common stock of PHC; provided that as a result thereof, the Physician has
received or has the right to receive PHC voting common stock on conversion of or
in exchange for the shares of PHC prime stock received by them on consummation
of the Purchase Agreement.
2.56 "Purchase Agreement" shall have the meaning set forth in paragraph A
of the Recitals of this Agreement.
2.57 "Real Estate"shall have the meaning set forth in Section 8.4(a).
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2.58 "Receivable" means, as at any date of determination thereof, the
unpaid portion of the obligation, as stated in the receptive invoice, of a
patient of a Practice or any of the Practice Employees in respect of inventory
(as defined in Article 9 of the Uniform Commercial Code of the applicable state)
or services rendered in the ordinary course of business, which amount has been
earned by performance under the terms of the related contract and recognized as
revenue on the books of the applicable Practice, net of any credits, rebates or
offsets owed to such patient or any Third Party Payor in respect thereof and
also net of any commissions payable to any person or entity other than PHC-SUB,
any of its Affiliates, the applicable Practice, or any of their employees.
2.59 "Rules" shall have the meaning set forth in Section 14(a).
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2.60 "SDC" shall have the meaning set forth in the preamble to this
Agreement.
2.61 "SDC Amount" shall have the meaning set forth in Section
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7.1(a)(ii)(A).
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2.62 "SDC Component" shall have the meaning set forth in Section
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7.1(a)(ii).
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2.63 "SDC Physician Practice Expenses" shall have the meaning set forth
in Section 7.1(a)(ii)(A).
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2.64 "Secured Party" means any of the secured parties to the Security
Agreements.
2.65 "Security Agreements" shall have the meaning set forth in Section
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7.4(a).
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2.66 "Sub Lost Income Amount" shall have the meaning set forth in Section
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8.2(b).
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2.67 "Third Party Payors" means any governmental entity, insurance
company, health maintenance organization, preferred provider organization,
employer or other person or similar entity that is obligated to make payments
with respect to a Receivable.
2.68 "Virginia Division" shall have the meaning set forth in the preamble
of this Agreement.
2.69 "Virginia Lockbox Account" shall have the meaning set forth in
Section 7.4(b)(ii).
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2.70 "Virginia Sweeping Account" shall have the meaning set forth in
Section 7.4(b)(i).
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SECTION 3. GENERAL MANAGEMENT SERVICES.
PHC-SUB shall render to each Practice the general management services and
provide personnel, office space, equipment and supplies as set out in this
Section 3 (collectively the "General Management Services").
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3.1 PHC-SUB Personnel.
(a) PHC-SUB shall employ and provide to each Practice, as reasonably
requested by each Practice: (i) all nurses, medical records personnel and other
medical support personnel as shall be reasonably necessary for the operation of
each Practice at the Medical Offices; (ii) all business office personnel (i.e.,
clerical, secretarial, bookkeeping and revenue collection personnel) as shall be
reasonably necessary for the maintenance of patient records, collection of
accounts receivable and upkeep of the financial records of each Practice; and
(iii) an office administrator (the "Administrator") as shall be reasonably
necessary to manage and administer, subject to the terms and conditions hereof,
all of the day-to-day routine business functions and services of the Practices.
(b) As to the personnel provided by PHC-SUB to each Practice under Section
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3.1(a), PHC-SUB shall consult with each Practice as to the salaries of all such
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personnel and shall follow each Practice's reasonable advice thereon. As of the
Effective Date, the Physician shall cause the Former SDC Workforce (as defined
in the Purchase Agreement) to be covered as "leased employees" under any plans,
agreements, arrangements and understandings which each Practice maintains
thereafter from time to time for its common law employees in accordance with the
applicable provisions of state and federal law. Notwithstanding the foregoing,
the Practices shall not maintain a self-insured group health plan after the
Effective Date if such plan would be in violation of any federal or state law.
As requested by the Practices, PHC-SUB shall identify and recommend personnel
candidates for all such positions to perform services at the Medical Offices;
provided, however, that no Practice shall have the right to direct and approve,
based solely on professional competence, the assignment of all non-physician
medical support personnel to provide services at the Medical Offices. PHC-SUB
shall, at each Practice's request, remove from such Practice and reassign or
replace any such personnel who are not, in such Practice's professional
judgment, adequately performing the required services. In providing its
consultation and advice with regard to personnel as provided to a Practice
pursuant to Section 3.1(a) hereof, neither such Practice nor PHC-SUB shall
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discriminate against such personnel on any basis which is in violation of any
applicable federal, state or municipal law. Each Practice's and PHC-SUB's
obligations regarding staff of such Practice shall be governed by the overriding
principle and goal of providing high quality medical care. Employee assignments
shall be made to assure consistent and continued rendering of high quality
medical support services and to ensure prompt availability and accessibility of
individual medical support personnel to physicians in order to develop constant,
familiar and routine working relationships between individual physicians and
individual members of the medical support personnel. Each Practice shall
cooperate with and assist
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PHC-SUB in preparing and filing all instruments or reports necessary to comply
with any requirements arising from the status of PHC-SUB as an employee leasing
company.
3.2. Medical Offices.
PHC-SUB shall provide to each Practice such Medical Offices as PHC-SUB and
the Practices determine are necessary. PHC-SUB shall provide, manage and
maintain the Medical Offices in good condition and repair, including the
provision of routine janitorial services and maintenance services, subject to
the terms of the various leases. PHC-SUB shall pay, as applicable, rent or
mortgage payments, if any, as due, provide utilities and pay other related
expenses, consistent with the Annual Budgets.
3.3. Furniture, Fixtures and Equipment.
PHC-SUB agrees to provide to each Practice those supplies and items of
furniture, fixtures and equipment reasonably determined in each Practice's
discretion to be necessary and/or appropriate for such Practice's operations at
the Medical Offices during the term of this Agreement (all such items of
furniture, fixtures and equipment are collectively referred to hereinafter as
the "FF&E"). Title to the existing, additional and replacement FF&E shall be in
the name of PHC-SUB or its nominee or a leasing company. PHC-SUB shall be
responsible for all repairs and maintenance of the FF&E. The FF&E provided
shall be at least reasonably equivalent to that of the Practices immediately
prior to the Effective Date.
Each Practice acknowledges that PHC-SUB makes no warranties or
representations, express or implied, as to the fitness, suitability or adequacy
of any furniture, fixtures, equipment, inventory, or supplies which are leased
or provided to such Practice pursuant to this Agreement, for the conduct of a
medical practice or for any other particular purpose.
3.4. Business Office Services. PHC-SUB shall provide or cause to be
provided all management and administrative business functions and services
related to each Practice's services during the term of this Agreement as
reasonably requested or approved by such Practice, including but not limited to
all reasonable and necessary computer, bookkeeping, billing and collection
services, accounts receivable and accounts payable management services, laundry,
linen, janitorial and cleaning services and management services. The provision
of all such management and administrative business functions and services shall
be performed in a manner and by such PHC-SUB personnel as shall be reasonably
requested by each Practice. At the reasonable request of or with the approval
of each Practice, certain management and administrative business functions and
services related to the Practices may be centralized in PHC-SUB, PHC or
affiliated sites located outside the Medical Offices. Without limiting the
generality of the foregoing, PHC-SUB shall perform the following functions:
(a) Administer all managed care contracts on behalf of the Practice, all
such managed care contracts being subject to approval by the Joint Policy Board
as set forth in Section 6.1;
------------
(b) Provide ongoing assessment of business activity including product line
analysis, outcomes monitoring and patient satisfaction;
(c) Order and purchase all medical and office supplies reasonably required
in the day-to-day operation of each Practice at the Medical Offices;
(d) Negotiate for and cause premiums to be paid with respect to the
insurance provided for in Section 10 hereof;
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(e) Bill and collect from patients all professional fees for medical
services and for ancillary services performed at or on behalf of each Practice
and its Practice Employees. Each Practice hereby appoints PHC-SUB for the term
of this Agreement as its true and lawful attorney in fact for the following
limited purposes:
(i) To bill patients in the Practice's name and on the Practice's
behalf, and in the name and on behalf of all Practice Employees;
(ii) To collect accounts receivable generated by such billings in the
Practice's name and on the Practice's behalf, and in the name and on behalf of
all Practice Employees;
(iii) To receive, on behalf of the Practice and all Practice
Employees, payments from patients, insurance companies, Medicare, Medicaid and
all other payers with respect to services rendered by the Practice and Practice
Employees, and the Practice hereby covenants to forward such payments to PHC-SUB
for deposit in accordance with Section 7.4(b) herein;
--------------
(f) To take possession of and endorse in the name of the Practice, or in
the name of any Practice Employee, any notes, checks, money orders, insurance
payments and any other instruments received as payment of such accounts
receivable; and
(g) To initiate and pursue legal proceedings in the name of the Practice,
to collect any accounts and moneys owed to the Practice or any Practice
Employee, to enforce the rights of the Practice as creditors under any contract
or in connection with the rendering of any service, and to contest adjustments
and denials by governmental agencies (or its fiscal intermediaries) as third-
party payors.
(h) PHC-SUB agrees that each Practice Employee and only such Practice
Employee will perform the medical functions of its respective Practice. PHC-SUB
will have no authority, directly or indirectly, to perform, and will not
perform, any medical function. PHC-SUB may, however, advise the Practices as to
the relationship (if any) between its performance of medical functions and the
overall administrative and business functioning of their practices. To the
extent that PHC-SUB assists the Practices in performing medical functions, all
clinical personnel provided by PHC-SUB who perform patient care services shall
be subject to the professional direction and supervision of such Practices and,
in the performance of such medical functions, shall not be subject to any
direction or control by, or create any liability on behalf of, PHC-SUB, except
as may be specifically authorized by PHC-SUB.
3.5. Patient and Financial Records.
PHC-SUB shall own and maintain all files and records (other than medical
records) relating to the operation of the Practices in such manner and method as
reasonably directed by each Practice, including, but not limited to, customary
financial records and patient files. PHC-SUB shall use its best efforts to
manage all files and records in compliance with all applicable federal, state
and local statutes and regulations governing the existence and operation of the
Practices, and all files and records shall be located so that they are readily
accessible for patient care, consistent with ordinary records management
practices and statutory requirements, as applicable.
Each Practice shall supervise the preparation of, and direct the contents
of, patient medical records, all of which shall be and remain confidential and
the property of such Practice. Subject to applicable laws, regulations and
accreditation policies, PHC-SUB shall have reasonable access to such records and
shall be permitted to retain true and complete copies of such records.
Each Practice shall maintain all medical records owned by it on the
Effective Date in accordance with applicable law, will provide PHC-SUB with full
access to such medical records and will not relocate or destroy such medical
records without such PHC-SUB's prior written consent to the extent permitted by
applicable law.
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<PAGE>
3.6. Financial Statements.
PHC-SUB shall prepare and deliver to each Practice monthly financial
statements, including any which may be required under applicable law pertaining
to the Practices, within 30 days after the end of each month and a year-end
financial statement within 120 days after the end of each calendar year, in a
form mutually acceptable to PHC-SUB and each Practice, reflecting Net Practice
Revenue, Operational Expenses, the General Management Fee, PHC-SUB Expenses, New
Ancillary Service Expenses, New Ancillary Service Revenue, and New Practice
Employee Expenses, for such period.
3.7. Payment of Operational Expenses and PHC-SUB Expenses.
All Net Practice Revenues for each Practice shall be deposited in
accordance with Section 7.4(b). Proceeds of the foregoing account may be used to
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pay all Practice Expenses, including without limitation, all fees due and
payable to PHC-SUB hereunder and to reimburse itself for all expenses advanced
by PHC-SUB to or on behalf of each Practice, including without limitation,
Operational Expenses.
SECTION 4. PRACTICE DEVELOPMENT SERVICES.
PHC-SUB shall provide to each Practice the practice development services
provided for in this Section 4 which are intended to identify and evaluate for
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each Practice opportunities for: (i) expanding ancillary and other services and
adding Medical Offices and Practice Employees; and (ii) creating greater
efficiency and economy in the operation of each Practice (collectively the
"Practice Development Services") in a manner consistent with the provisions of
this Section 4 and the other provisions of this Agreement.
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4.1 Financial Planning and Goals.
Within 60 days after the Effective Date and during the 60 days prior to the
end of each calendar year, beginning with the 1998 calendar year, PHC-SUB will
prepare, in consultation with each Practice, an annual budget (the "Annual
Budget") for each Practice, reflecting in reasonable detail anticipated
revenues, expenses, sources and uses of capital for growth, personnel staffing,
and anticipated ancillary services. The Annual Budget shall be subject to
review and approval by the Joint Policy Board, in accordance with the limitation
as set forth in Section 6 hereof. Subject to such approval, the access to
---------
needed working capital and capital expenditures provided therein for each
Practice shall be provided by PHC-SUB.
4.2 Recruitment of New Practice Employees.
At the request of each Practice, PHC-SUB shall perform administrative
services relating to the recruitment of Practice Employees. The decision to
retain a New Practice Employee shall be made by the Joint Policy Board in
accordance with the limitation as set forth in Section 6, provided the Practice
---------
shall interview and hire each individual New Practice Employee and all such
personnel shall be employees, independent contractors or agents of such
Practice.
4.3 Managed Care Relationships.
PHC-SUB shall assist each Practice in evaluating and developing
relationships and affiliations with other physicians, physician practices,
physician networks, hospitals, integrated delivery systems and managed care
organizations ("Managed Care Relationships") that may expand or increase the
business or value of each Practice. Each Practice shall cooperate with PHC-SUB
and contribute reasonable efforts to assist PHC-SUB in its efforts to pursue
Managed Care Relationships. All decisions regarding initiating or terminating
Managed Care Relationships shall be subject to the review and approval of the
Joint Policy Board after the first two years of this Agreement.
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<PAGE>
4.4 Expansion of the Practice.
PHC-SUB shall assist each Practice in evaluating and adding additional
office space, new Medical Offices, new office-based procedures and services, and
new ancillary services, as provided for in the Annual Budgets or otherwise
approved by the Joint Policy Board after the first two (2) years of this
Agreement. PHC-SUB and each Practice hereby pledge their mutual intention and
support for such reasonable expansion of each Practice.
4.5 Practice Assessment and Consulting Services.
PHC-SUB shall assess the performance of each respective Practice including
product line analysis, outcomes monitoring and patient satisfaction. PHC-SUB
shall develop systems to track revenues, expenses, utilization, quality
improvement, Practice and physician productivity, and patient satisfaction.
PHC-SUB shall arrange for or provide business and financial management
consultation and advice reasonably requested by each Practice and directly
related to the operations of such Practice pursuant to this Agreement.
4.6 Payor Contracting Development Services.
Directly or through an Affiliate, PHC-SUB shall dedicate reasonable efforts
to develop and foster payor relationships and secure additional and more
favorable managed care contracts on behalf of the Practices, including, but not
limited to, marketing services, physician network development services, and
contract development services on behalf of each Practice (the "Payor Contracting
Development Services").
SECTION 5. OBLIGATIONS OF THE PRACTICES.
5.1 Practice Expenses.
To the extent the Practice Expenses are not paid under Section 3.7, each
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Practice shall be solely responsible for the payment of all of its Practice
Expenses, as herein defined. Each Practice shall pay all of its Practice
Expenses as they fall due; provided, however, each Practice may contest in good
faith any such claimed expense related to it as to which there is any dispute.
5.2 Professional Standards.
The professional services provided by the Practices and their Practice
Employees shall be performed solely by or under the supervision of physicians
licensed to practice medicine and shall at all times be provided in accordance
with applicable ethical standards, laws and regulations applying to the medical
profession. Each Practice shall, with the assistance of PHC-SUB, if so
requested and if legally permissible, resolve any utilization management or
quality improvement issues which may arise in connection with such Practice.
If any disciplinary actions or professional liability actions are initiated
against a Practice or any of its Practice Employee, such Practice shall
immediately inform PHC-SUB of such action and the underlying facts and
circumstances. PHC-SUB shall similarly inform such Practice of any such
disciplinary actions or professional liability actions initiated against such
Practice or any of its Practice Employee of which it first becomes aware.
Each Practice shall establish and maintain procedures to assure the
consistency and quality of all professional medical services provided by such
Practice, and PHC-SUB shall render administrative assistance to each Practice as
requested in furtherance thereof.
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<PAGE>
5.3 Physician Powers of Attorney.
Except with respect to any Practice Employees described in Schedule 5.3,
------------
each Practice shall require its Practice Employees to execute and deliver to
PHC-SUB powers of attorney, satisfactory in form and substance to PHC-SUB,
appointing PHC-SUB as attorney in fact for each such Practice Employee for the
purposes set forth in Section 3.4(e).
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5.4 Restrictive Covenants.
(a) Each Practice acknowledges and agrees that the services to be provided
by PHC-SUB hereunder are feasible only if such Practice operates a vigorous
medical Practice to which the Practice Employees devote their full time and
attention. Accordingly, each Practice agrees that except as set forth on
Schedule 5.4(a) attached hereto, it shall not, without the prior written consent
- ---------------
of PHC-SUB, establish, operate or provide physician services substantially
similar to those professional medical, surgical and related ancillary services
offered by such Practice other than pursuant to this Agreement, during the term
of this Agreement and for a period of two (2) years following this Agreement
within a 70 mile radius of any Medical Office. Each Practice shall obtain,
maintain, update and reasonably enforce agreements with its physician Practice
Employees, satisfactory in form and substance to PHC-SUB, pursuant to which
physician Practice Employees shall agree: (i) not to establish, operate or
provide physician medical or surgical services substantially similar to those
professional medical, surgical and related ancillary services offered by such
Practice other than on behalf of the Practice and pursuant to this Agreement,
without the prior written consent of PHC-SUB during such time that such
physician is a Practice Employee; and (ii) not to provide physician services
substantially similar to those professional medical and surgical services
provided by such physician on behalf of the Practice within a 70 mile radius of
each of the Medical Offices for a period of two (2) years following the
termination of the professional relationship between such physician and the
Practice. PHC-SUB shall be expressly named as a third-party beneficiary to such
agreements between the Practice and each physician Practice Employee.
(b) During the term of this Agreement and for a period of two (2) years
following the termination or expiration of this Agreement, no Practice shall,
without the prior written consent of PHC-SUB, employ, hire or contract for
services with any employee or former employee of PHC-SUB, nor shall any Practice
solicit any such person to leave the employ of PHC-SUB. For purposes of this
Section 5.4(b), a "former employee" shall be any person who was employed by PHC-
- --------------
SUB within the six (6) months prior to the termination or expiration of this
Agreement. Each Practice shall cause its Practice Employees to enter into
written agreements, satisfactory in form and substance to PHC-SUB, pursuant to
which such persons shall agree that during the time in which such Physician is a
Practice Employee and for a period of two (2) years following the termination of
the professional relationship between such Physician and the Practices, no such
Physician shall, without the prior written consent of PHC-SUB, employ, hire or
contract for services with any employee or former employee of PHC-SUB, nor shall
any such Physician solicit any such person to leave the employ of PHC-SUB. With
respect to such Practice and PHC-SUB, PHC-SUB shall be expressly named as a
third-party beneficiary to such agreements between such Practice and each
physician Practice Employee.
(c) If this Agreement is terminated by PHC-SUB pursuant to either Section
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8.2(a) or Section 8.2(b) hereof with respect to a Practice, the terminated
- ------ --------------
Practice shall not, for a period of two (2) years following the effective date
of such termination, engage or contract with any person, firm or entity (or
group of affiliated entities) for the provision of comprehensive management
services of the kind contemplated by this Agreement. If this Agreement is
terminated for any reason, other than by PHC-SUB pursuant to either Section
--------
8.2(a) or Section 8.2(b), then the restrictions of this Section 5.4(c) shall not
- ------ -------------- --------------
apply.
(d) Notwithstanding any provisions of this Agreement providing for
mandatory arbitration, PHC-SUB and each Practice acknowledge and agree that PHC-
SUB's remedy at law for any breach or attempted breach of the foregoing
provisions of this Section 5.4 will be inadequate and that PHC shall be entitled
-----------
to specific performance,
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<PAGE>
injunction or other equitable relief in the event of any such breach or
attempted breach, in addition to any other remedies which might be available at
law or in equity.
(e) Notwithstanding anything contained herein to the contrary, the
provisions of this Agreement shall not apply following the termination of this
Agreement in connection with the expiration of its 40 year term.
5.5 Continuing Professional Education.
Each Practice shall ensure that each of its Practice Employees participates
in such continuing medical education activities as are necessary for such
physicians or other employees to remain current in their respective specialties,
including, but not limited to, the minimum continuing medical education
requirements imposed by applicable laws and policies of applicable specialty
boards.
5.6 Contracts with Practice Employees.
Decisions regarding the addition of a New Practice Employee shall be made
by the Joint Policy Board pursuant to the limitations as set forth in Section
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6.1 hereof after the first two (2) years of this Agreement. In addition, each
- ---
Practice shall use its best efforts to consult with PHC-SUB prior to terminating
the employment by a Practice of any of its Practice Employee. The Practice
shall also, during the term of this Agreement, use its reasonable efforts to
consult with PHC-SUB with regard to the terms and conditions of contracts or
other arrangements entered into between such Practice and its Practice
Employees. Notwithstanding the foregoing, all decisions with respect to
removing Practice Employees, and with respect to the terms and conditions of
contracts or other arrangements in connection therewith, except with regard to
those provisions described in Section 5.4(b) hereof, shall be made by such
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Practice, in its sole and absolute discretion.
5.7 Cooperation.
Each Practice shall cooperate in the obtaining and maintaining of
professional liability insurance coverage on such Practice and its Practice
Employees by assuring that it and its Practice Employees are insurable, and by
participating in an on-going risk management program. Each Practice shall, and
shall cause its Practice Employees to, use their respective good faith efforts
to exercise diligence in assisting PHC-SUB to control costs and expenses of the
Practice without sacrificing professional standards or high quality patient
care. Each Practice shall, and shall require Practice Employees to, exercise
due care to ensure that, when being used by the Practice Employees, medical
equipment utilized by each Practice is being used in a safe and efficient
manner, and shall timely report any unsafe or unsatisfactory equipment of which
a Practice, or any of its Practice Employees, is aware. Each Practice
acknowledges and agrees that on execution of this Agreement, PHC-SUB intends to
implement its own policies and procedures, including, but not limited to,
policies and procedures regarding cash management and revenue controls after the
second year of this Agreement. The implementation of such policies and
procedures then shall be subject to the approval of each Practice, such approval
not to be unreasonably withheld. These policies and procedures will be
implemented as soon as reasonably practicable after the second year of this
Agreement and may be revised or amended by PHC-SUB from time to time thereafter
during the term of this Agreement, subject to the approval of each Practice.
Upon their approval, such Practice agrees to cooperate with any such
implementation, revision, or enactment of PHC-SUB's policies and procedures.
Each Practice also agrees to cooperate with, and participate in, any patient
satisfaction surveys and/or outcome management surveys or programs instituted or
implemented by PHC-SUB, subject to approval by such Practice.
5.8 Covenants Relating to Credit Agreement.
(a) The Practice acknowledges that PHC and PHC-SUB may obtain financing for
the transactions contemplated by the Purchase Agreement and hereby from one or
more third party lenders (each a "Lender") pursuant to a Credit Agreement. In
furtherance of such financing, the Practice will execute such security
15
<PAGE>
agreements, pledges or other agreements (the "Bank Documents") as may be
requested or required by such Lender (or any of them) to grant and perfect a
security interest in the Collateral in favor of such Lender. In addition, the
Practice will cause to be promptly and duly taken, executed, acknowledged, and
delivered all such further acts, documents, and assurances:
(i) as may from time-to-time be necessary or as the Lender (or any
of them) may from time to time reasonably request in order to carry out the
intent and purposes of the Credit Agreement and the Bank Documents and the
transactions contemplated thereby, including all such actions to establish,
preserve, protect, and perfect the estate, right, title, and interest to the
Collateral (including Collateral acquired after the date hereof) including first
priority liens thereon; and
(ii) as the Lender (or any of them) may from time-to-time reasonably
request to establish, preserve, protect, and perfect first priority liens on the
Collateral, the Net Practice Revenues and the Receivables, now owned or
hereafter acquired that are not Collateral on the date hereof.
(b) Each Practice will use its best efforts to assist PHC-SUB in keeping
accurate and complete records of its Receivables.
(c) At the request of a Lender, each Practice will appoint such Lender as
its attorney-in-fact for the purpose of collecting such Practice's Receivables,
including, without limitation, its Governmental Receivables, consistent with any
limitations provided by law and will cooperate with such Lender in signing or
otherwise providing notices to Third Party Payors with respect to this agency.
5.9 Formation and Operation of the Compliance Committee. PHC-SUB and the
Practices shall establish a Compliance Committee (herein so called) which shall
be responsible for advising PHC-SUB and the Practices in connection with the
development and administration of procedures designed to detect and deter
potential violations of the Medicare and Medicaid anti-kickback laws and other
healthcare and federal laws applicable to the conduct of the Practices
business. PHC-SUB and the Practices shall have equal representation on the
Compliance Committee. PHC-SUB shall designate, in its sole discretion, two (2)
members of the Compliance Committee. The Practices shall designate, in their
sole discretion, two (2) members of the Compliance Committee. The act of a
majority of the total number of members of the Compliance Committee shall be the
act of the Compliance Committee. Physicians who are owners of the Practices and
who are not members of the Compliance Committee shall be permitted to attend
Compliance Committee meetings, unless the Compliance Committee otherwise
determines or unless PHC-SUB objects because it reasonably can be expected that
the number of persons in attendance will interfere with the effective
functioning of the Compliance Committee. The initial members of the Compliance
Committee are set forth in Schedule 5.19 hereto.
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SECTION 6. JOINT POLICY BOARD.
6.1 Formation and Responsibilities of Joint Policy Board.
(a) PHC-SUB and the Practices shall establish a Joint Policy Board
consisting of three (3) members. PHC-SUB shall designate, in its sole
discretion, two (2) members to the Joint Policy Board and the Practices shall
select one (1) member. The initial members of the Joint Policy Board are set
forth in Schedule 5.20 hereto. During the first two (2) years of this
-------------
Agreement, the Joint Policy Board shall only consider, review, determine and
approve, by unanimous vote only, the following matters as they relate to the
operation of the Practices:
(i) Annual Budgets of the Practices as jointly developed by PHC-SUB
and the Practices; and
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<PAGE>
(ii) operational, capital expenditures or borrowings not included in
the Annual Budgets of the Practices involving an amount in excess of $25,000 for
each Practice.
(b) After the first two years of this Agreement, the Joint Policy Board
shall consider, review, determine and approve, by unanimous vote only, the
matters set forth in Section 6.1(a) above and the following matters as they
--------------
relate to the Practices:
(i) the long-term strategic planning objectives for the Practices;
(ii) the opening or closing of any Medical Office;
(iii) the addition of a New Practice Employee and the terms of any
contract with such employee which are consistent with the provisions of
this Agreement;
(iv) the establishment or maintenance of Managed Care Relationships;
(v) New Ancillary Services provided by the Practices;
(vi) the establishment of New Ancillary Service fees and collection
policies provided by the Practices and the distribution of New Ancillary
Service Revenues between a Practice and PHC-SUB;
(vii) the purchase, lease or sublease of any real property by PHC-SUB
which will be used, in whole or in part, by each Practice; and
(viii) the establishment of performance and productivity incentives as
provided in Section 7.2 hereof.
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Notwithstanding any provision of this Agreement, it is acknowledged and
agreed that, while the parties to this Agreement shall be obligated to follow
the decisions of the Joint Policy Board as set forth above after the first two
years of this Agreement, the Joint Policy Board does not have the legal
authority or power to bind PHC-SUB or any Practice with respect to any third
party, and no person not a party hereto shall have any right under or by virtue
of any vote taken or decision made by the Joint Policy Board.
6.2 Resolution Mechanism for Divided Vote of Joint Policy Board.
Except as set forth in Section 6.3 below, on any matter on which there is a
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divided vote among the members of the Joint Policy Board, the Joint Policy Board
shall consider the matter for at least 30 days from the date of such divided
vote and make its best good faith efforts to reach a unanimous consensus. If a
unanimous consensus cannot be reached within 30 days, the majority vote of the
Joint Policy Board shall be final. Notwithstanding the foregoing, on matters
related to item (ii) of Section 6.1(a) and items (ii), (iii), and (vi) of
--------------
Section 6.1(b), the Joint Policy Board may, by majority vote, submit such matter
- --------------
for resolution pursuant to this Section 6.2, but shall not be required to do so;
-----------
and no expenditure greater than twenty-five thousand dollars ($25,000), no new
Medical Office, no closure of an existing Medical Office, no addition of a New
Practice Employee, and no purchase, lease or sublease of any real property shall
be undertaken by PHC-SUB on behalf of a Practice without a majority vote of the
Joint Policy Board or resolution of a deadlock pursuant to this Section 6.2.
-----------
In the event of a deadlock that the Joint Policy Board agrees to submit for
resolution, PHC-SUB shall submit to the applicable Practice a list of ten (10)
physicians affiliated with other medical practices managed by PHC or one of its
affiliates. The applicable Practice shall select one (1) of such physicians to
whom complete information related to the subject matter of the deadlock shall be
submitted. That physician shall have the authority to resolve the deadlock in
his sole discretion.
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<PAGE>
6.3 Annual Budget and Business Plan.
PHC-SUB shall be authorized to incur any operational, capital or other
expense approved by the Joint Policy Board pursuant to the Annual Budget or as
reasonably requested by any Practice. PHC-SUB shall be required to seek the
approval of the Joint Policy Board to incur an expense exceeding the budgeted
amounts specified in the annual business plan and budget unless: (i) the expense
is reasonable and does not exceed a line item expense specified in an Annual
Budget by more than twenty percent (20%) for any twelve (12) month period; (ii)
the total expenses for the applicable budget year, on an annualized basis, do
not exceed the total amount budgeted for such year by more than ten percent
(10%); or (iii) the expenditure is consented to by the Joint Policy Board or the
applicable Practice. Notwithstanding the foregoing, PHC-SUB may exceed budgeted
amounts in the event the increase in the expenditure is reasonable and is the
result of an event beyond the control of PHC-SUB (e.g., increases in tax rates
or utility charges, Acts of God, strikes and labor disputes) provided that PHC-
SUB shall provide notice of such a situation to the applicable Practice.
SECTION 7. FINANCIAL ARRANGEMENTS.
7.1 PHC-SUB Compensation. Each Practice and PHC-SUB agree that the
compensation described in this Section 7.1 will be paid by such Practice to PHC-
-----------
SUB in consideration of the substantial commitment made by PHC-SUB hereunder and
that such compensation is fair and reasonable.
(a) As compensation for the provision by PHC-SUB of the General Management
Services during the term of this Agreement, PHC-SUB shall receive a general
management fee (the "General Management Fee") that shall be equal to the greater
of: (i) the Minimum Management Fee, or (ii) the Alternative Management Fee. The
"Alternative Management Fee" shall be equal to the sum of: (i) the MS-PLLC
Component, (ii) the SDC Component and (iii) the IL-SC Component.
(i) The "MS-PLLC Component" shall be equal to the sum of the MS-PLLC
Component A and the MS-PLLC Component B. The MS-PLLC Component A
and the MS-PLLC Component B each shall be determined as follows:
(A) The MS-PLLC Component A shall be equal to twenty percent (20%)
of the MS-Amount.
The "MS-Amount" shall be equal to the difference between (x)
the aggregate annual Net Practice Revenues of MS-PLLC and (y)
the MS Practice Expenses relating to all salaries, bonuses or
benefits (including, for example, deferred compensation
benefits and health insurance benefits) payable with respect
to each of the Physician Practice Employees of MS-PLLC ("MS
Physician Practice Expenses").
(B) The MS-PLLC Component B shall be determined by first
subtracting from eighty percent (80%) of the MS-Amount the
following:
(I) the MS Practices Expenses (other than the MS Physician
Practice Expenses and the General Management Fee
relating to MS-PLLC);
(II) the Operational Expenses of MS-PLLC; and
(III) then further reducing this amount by any portion of
income allocable to any member of MS-PLLC other than
Physician.
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(ii) The "SDC Component" shall be equal to the sum of the SDC
Component A and the SDC Component B. The SDC Component A and the
SDC Component B each shall be determined as follows:
(A) The SDC Component A shall be equal to twenty percent (20%) of
the SDC Amount.
The "SDC Amount" shall be equal to the difference between (x)
the aggregate annual Net Practice Revenues of SDC and (y) the
SDC Practice Expenses relating to all salaries, bonuses or
benefits (including, for example, deferred compensation
benefits and health insurance benefits) payable with respect
to all Physician Practice Employees of SDC ("SDC Physician
Practice Expenses").
(B) The SDC Component B shall be determined by first subtracting
from eighty percent (80%) of the SDC Amount the following:
(I) the SDC Practice Expenses (other than the SDC Physician
Practice Expenses and the General Management Fee
relating to SDC);
(II) the Operational Expenses of SDC; and
(III) then further reducing this amount by any portion of
income allocable to any member or equity owner, as
applicable, of SDC other than Physician.
(iii) The "IL Component" shall be equal to an aggregate annual amount
of $1,600,000, subject to adjustment as set forth in Section
-------
7.1(c).
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(iv) The "Minimum Management Fee" shall be an aggregate annual amount
of $1,800,000.
(b) Collectively, the General Management Fee for all of the Practices for
the first five (5) years of this Agreement shall not be less than $7,000,000 in
the aggregate (the "Additional Minimum Management Fee").
(c) During the sixty (60) day period prior to the second anniversary of the
Effective Date and during the sixty (60) day period ending each bi-annual
anniversary of the Effective Date thereafter, the parties hereto shall negotiate
in good faith to agree upon the IL-SC annual fee for the ensuing two year period
based on the following criteria (in each case comparing the IL-SC practice and
the IL-SC annual fee at the Effective Date to the IL-SC practice at the time of
renegotiation):
(i) the number of persons providing professional medical services
through IL-SC;
(ii) the cost of providing professional medical services through
IL-SC;
(iii) the size, type and number of facilities through which IL-SC
provides services;
(iv) strategic objectives of the IL-SC;
(v) changes in the cost of living index in areas in which the IL-SC
provides medical services; and
(vi) the level of ancillary services provided by the IL-SC.
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In the event that prior to the anniversary date in question the parties
cannot agree on the IL-SC annual fee for the preceding two year period, the
parties shall refer the matter to a partner with substantial healthcare
experience with the Atlanta, Georgia office of Arthur Andersen, LLP (or its
successor). The Arthur Andersen, LLP, partner shall determine the IL-SC annual
fee based on the foregoing criteria and his decision shall be final and binding
on each party to this Agreement.
(d) Contemporaneously with the execution of this Agreement, the Practice
shall cause Physician to execute and deliver to PHC-SUB (i) a guaranty of
payment of the Minimum Management Fee in the form of Exhibit 7.1.1 hereto, and
-------------
(ii) a guaranty of the payment of the Additional Minimum Management Fee in the
form of Exhibit 7.1.2 hereto.
-------------
7.2 Recruitment and Productivity Incentives.
After the first two (2) years of this Agreement, the Joint Policy Board, by
a unanimous vote, may from time to time establish performance and productivity
incentives for each Practice and its Practice Employees in addition to the
financial arrangements set forth in Section 7.1 hereof. At the request of each
-----------
Practice, PHC-SUB will also advise and assist such Practices in establishing its
own productivity incentives for such Practice and its individual Practice
Employees.
7.3 Review of Financial Arrangements by the Joint Policy Board and the
Practices.
Each Practice, for the first two (2) years of this Agreement, and the Joint
Policy Board or any member thereof thereafter, shall have the right to review
PHC-SUB's calculations of all relevant payments, fees and expenses due by any
party to any other party or a third party under this Agreement. In the event a
Practice or the Joint Policy Board desires to review PHC-SUB's calculations or
allocation of any such payments, fees or expenses, the Practice or Joint Policy
Board shall be provided, upon reasonable notice to PHC-SUB, the documents used
in determining such amounts (the "Compensation Documents"). Not later than
twenty (20) business days following the delivery of the Compensation Documents
to a Practice or the Joint Policy Board, the Practice or the Joint Policy Board,
as the case may be, pursuant to a majority determination and vote, may furnish
PHC-SUB with written notification of any dispute concerning any items shown
thereon or omitted therefrom, together with a detailed explanation in support of
the Practice's or Joint Policy Board's position in respect thereof. PHC-SUB and
the Practice or the Joint Policy Board shall consult to resolve any dispute for
a period of fifteen (15) business days following such notification to PHC-SUB.
If such fifteen (15) business day consultation period expires and the dispute
has not been fully resolved, the matter shall be referred to an independent
public accounting firm chosen by the Practice or a unanimous vote of the Joint
Policy Board (the "Accountants"), which shall resolve the dispute and render its
decision (together with a brief explanation of the basis therefor) to the Joint
Policy Board and PHC-SUB not later than twenty (20) business days following
submission of the dispute to it; provided, however, that if the Practice, or the
Joint Policy Board is unable to agree by unanimous vote, upon an independent
public accounting firm, then the Practice or the Joint Policy Board by majority
vote, and PHC-SUB shall each choose an independent public accounting firm and
those firms shall appoint a third independent public accounting firm to act as
the Accountants. The decision of such Accountants shall be a final
determination of such amounts. The fees and expenses of the Accountants shall
be paid 50% by PHC-SUB and 50% by the affected Practice unless the Accountants
determine that there was an error of ten percent (10%) or more in PHC-SUB's
calculations or allocations in the aggregate, in which case all of the
Accountants' fees and expenses shall be paid by PHC-SUB.
7.4 Security Agreements; Deposit of Proceeds of Accounts.
(a) Security. As security for the payment and performance of all of the
obligations and indebtedness of the Practices to PHC-SUB under this Agreement,
each of the Practices hereby agrees to execute a security
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agreement (the "Security Agreements") in the forms as attached hereto as Exhibit
-------
7.4(a). PHC-SUB may specifically assign (collaterally or otherwise) and/or
- ------
pledge all of its rights and interests under this Agreement or the Security
Agreements as security for loans and other financing arrangements obtained by
PHC-SUB from any other person or entity, whether now existing or hereafter
arising (any such person or entity being hereafter referred to as an
"Assignee"). Any such Assignee shall have all of PHC-SUB's rights and remedies,
but none of PHC-SUB's obligations, under this Agreement or the Security
Agreement. In addition, each Practice shall cooperate with PHC-SUB and execute
all necessary documents in connection with the pledge of such accounts
receivable to PHC-SUB or at PHC-SUB's option, any Assignee.
(b) Deposit of Proceeds. In furtherance of the security interest granted
by the Security Agreement, each Practice agrees to deposit all payments on
Accounts (as defined in the Security Agreement) received by such Practice as
follows:
(i) Payments received on any Account payable by Medicare or Medicaid
shall be deposited (A) by IL-SC into Account No. 10001928 maintained by IL-
SC at First National Bank of Carbondale (the "Illinois Sweeping Account"),
which such account shall be "swept" daily into the Illinois Lockbox Account
(hereinafter defined), (B) by MS-PLLC into Account No. 10001937 maintained
by MS-PLLC at First National Bank of Carbondale (the "Mississippi Sweeping
Account"), which such account shall be "swept" daily into the Mississippi
Lockbox Account (hereinafter defined), and (C) by Virginia Division into
Account No. 10001945 maintained by Virginia Division at First National Bank
of Carbondale (the "Virginia Sweeping Account"), which such account shall
be "swept" daily into the Virginia Lockbox Account (hereinafter defined).
The depository agreement for each of the Illinois Sweeping Account, the
Mississippi Sweeping Account and the Virginia Sweeping Account shall
provide that the account balance in such account shall be "swept" daily
into the Illinois Lockbox Account, the Mississippi Lockbox Account and the
Virginia Lockbox Account, respectively;
(ii) Payments received on any Account other than as provided in
Section 7.4(b)(i) shall be deposited (A) by IL-SC into Account No. 10001899
-----------------
maintained by PHC-SUB at First National Bank of Carbondale (the "Illinois
Lockbox Account"), (B) by MS-PLLC into Account No. 10001902 maintained by
PHC-SUB at First National Bank of Carbondale (the "Mississippi Lockbox
Account"), and (C) by VA-PLLC into Account No. 10001910 maintained by PHC-
SUB at First National Bank of Carbondale (the "Virginia Lockbox Account").
(c) Allocation of Proceeds; Monthly Payments. PHC-SUB shall, within
fifteen (15) days after the end of each calendar month, make a payment to each
Practice (the "Monthly Payment") in an amount equal to the difference between
(A) the sum of (i) all amounts deposited directly into the Illinois Lockbox
Account, the Mississippi Lockbox Account and the Virginia Lockbox Account,
respectively by each Practice during the previous calendar month, plus (ii) all
amounts swept from the Illinois Sweeping Account, the Mississippi Sweeping
Account and the Virginia Sweeping Account into the Illinois Lockbox Account,
the Mississippi Lockbox Account and the Virginia Lockbox Account, respectively
during the previous calendar month, minus (iii) an amount equal to all items
deposited into the Illinois Lockbox Account, the Mississippi Lockbox Account and
the Virginia Lockbox Account, respectively (whether by such Practice or as the
result of a sweep) which were returned to PHC-SUB by its depository bank for
insufficient funds, stop payment, or otherwise during the previous calendar
month, and (B) all fees due PHC-SUB from the Practices under this Agreement,
including, without limitation, this Section 7.
---------
(d) Adjustments. Adjustments to the Monthly Payments shall be made to
reconcile actual amounts due under this Section 7 within 45 days after the end
---------
of each calendar quarter during the term of this Agreement. At such quarterly
intervals, PHC-SUB shall determine the actual amounts due PHC-SUB pursuant to
this Section 7 for each such calendar quarter, with such amounts to be
---------
calculated on an annualized basis for such quarters.
21
<PAGE>
PHC-SUB shall notify each Practice of the amount of payments, if any, due
from one party to another as a result of such adjustments within 60 days of the
end of each calendar quarter. If payment is due from one party to the other,
such amount shall be paid in full within ten (10) days of such notification of
the Practice; provided, however, that in the case such amounts are due PHC-SUB
on such calculations, PHC-SUB may, at its discretion, offset such amounts due
from the Practices against the Monthly Payment due the Practices for succeeding
calendar months.
Within 120 days after the end of each calendar year, PHC-SUB will determine
the actual amounts due PHC-SUB pursuant to this Section 7 for such calendar year
---------
(prorated for any calendar year for which this Agreement has been in effect less
than the entire year).
If, after taking into account all Monthly Payments and any quarterly
adjustments for such calendar year, payment is due from one party to the other,
such amount shall be paid in full within ten (10) business days after such
calculations are made final; provided, however, that in the case amounts are due
PHC-SUB on such calculations, PHC-SUB may, at its discretion, offset such
amounts due from the Practices against the Monthly Payment due the Practices
for succeeding calendar months. This year-end reconciliation shall include
reconciliation of any amounts owed by one party to another with respect to any
expenses of any party, as set forth hereunder, paid by any other party.
7.5 New Ancillary Services.
Each Practice and PHC-SUB jointly acknowledge that a primary motivation for
their entering into an affiliation is to expand each Practice and develop New
Ancillary Services for such Practice. In consultation with a Practice, PHC-SUB
will identify and evaluate such New Ancillary Service opportunities, and,
consistent with and subject to all applicable state and federal regulations,
each Practice and PHC-SUB will mutually agree upon and determine the financial
arrangements with respect to the New Ancillary Service Revenue and New Ancillary
Service Expenses related thereto. Except as set forth in Schedule 7.5, the
------------
Practices agree and shall require all Practice Employees to agree that, subject
to all applicable state and federal regulations, each Practice and each such
employee shall develop, invest or participate in New Ancillary Services and
facilities only in partnership or other business arrangement with PHC-SUB.
However, if upon advice of a law firm with nationally recognized expertise in
healthcare law that is acceptable to the parties hereto, a Practice in good
faith determines that a joint partnership or other business relationship between
PHC-SUB and such Practice or its employees is legally impermissible or involves
a high degree of legal risk, such Practice or its employees may pursue the New
Ancillary Services and facilities without the joint participation of PHC-SUB.
SECTION 8. TERM AND TERMINATION.
8.1 Term; Renewal Terms.
This Agreement shall commence on the Effective Date and shall expire on the
40th anniversary of the Effective Date unless earlier terminated as provided for
in Section 8.2 hereof.
------------
8.2 Termination.
(a) By PHC-SUB. Subject to compliance with the procedures set forth in
Section 8.5, PHC-SUB may terminate this Agreement with respect to a particular
- -----------
Practice upon the occurrence of any of the following events without any further
action on the part of PHC-SUB:
(i) Such Practice is involuntarily suspended or terminated (without
right of further appeal) from participation in the Medicare or Medicaid
programs or such Practice withdraws from participation in the Medicare or
Medicaid programs as a result of regulatory investigation.
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<PAGE>
(ii) Such Practice voluntarily files a petition in bankruptcy or makes
an assignment for the benefit of creditors or otherwise seeks relief from
creditors under any federal or state bankruptcy, insolvency, reorganization
or moratorium statute, or such Practice is the subject of an involuntary
petition in bankruptcy which is not set aside within 60 days of its filing.
(iii) Such Practice or any of its physician Practice Employee or
physician New Practice Employee (A) engages in any conduct for which the
physician Practice Employee's or physician New Practice Employee's license
to practice medicine is revoked or suspended or (B) is otherwise
disciplined by any licensing, regulatory or professional entity or
institution, the result of any of which event described in clause (A) or
(B) materially adversely affects such Practice and provided that such
Practice fails to take reasonable action to remedy or correct such
noncompliance or conduct or to remove such physician from such Practice
within thirty (30) days after such Practice obtains knowledge thereof.
(b) Additional Termination Right of PHC-SUB. In the event that a Practice
materially breaches any term or condition of this Agreement (other than as set
forth in Section 8.2(a) hereof) and, such breach remains uncured after a period
--------------
of 60 days after such Practice's receipt of a written notice specifying such
breach, PHC-SUB shall submit the following issues directly to arbitration in
accordance with Section 14 hereof: (i) whether such Practice has materially
----------
breached this Agreement and (ii) the amount of income PHC-SUB has foregone as
the result of such breach exclusive of punitive or consequential damages (the
"Sub Lost Income Amount"). If the final decision under the arbitration set
forth in Section 14 determines that a Practice owes PHC-SUB a Sub Lost Income
----------
Amount and if a Practice fails to pay to PHC-SUB the Sub Lost Income Amount
within 30 days after receipt of written notice specifying the Sub Lost Income
Amount, PHC-SUB may immediately terminate this Agreement with respect to such
Practice by delivery of written notice to such Practice with no further action
required on its behalf to effect such termination.
(c) By a Practice. Subject to compliance with the provisions set forth in
Section 8.5, a Practice may terminate this Agreement with respect to itself upon
- -----------
the occurrence of any of the following events without any further action on the
part of such Practice:
(i) PHC-SUB fails to make any payment to such Practice required
herein, other than a payroll obligation, and (A) such breach remains uncured for
a period of 60 days after such Practice's receipt of a written notice specifying
such breach and (B) such Practice provides Agent with 15 days prior notice of
such breach and of such Practice's intent to terminate this Agreement hereunder.
(ii) PHC-SUB materially breaches any payroll obligation required
herein with respect to a Practice and (A) such breach remains uncured for a
period of 15 days after PHC-SUB's receipt of a written notice specifying such
breach and (B) such Practice provides Agent with 15 days prior notice of such
breach and of such Practice's intent to terminate this Agreement hereunder with
respect to itself.
(iii) PHC-SUB voluntarily files a petition in bankruptcy or makes an
assignment for the benefit of creditors or otherwise seeks relief from creditors
under any federal or state bankruptcy, insolvency, reorganization or moratorium
statute, or PHC-SUB is the subject of an involuntary petition in bankruptcy
which is not set aside within 60 days of its filing.
(iv) If PHC shall not have consummated the Public Offering as of the
end of the seventy-second (72nd) month following the Effective Date; provided
that the Practice notifies PHC-SUB of the decision of the Practice to terminate
this Agreement pursuant to this Section 8.2(c)(iv) within 90 days following the
------------------
end of the seventy-second (72nd) month following the Effective Date.
The rights set forth herein are not subject to any decisions or approvals
by the Joint Policy Board.
23
<PAGE>
(d) Additional Termination Right of a Practice. In the event that PHC-SUB
materially breaches the terms of this Agreement (other than as set forth in
Section 8.2(c) hereof) and such breach remains uncured for a period of 60 days
- --------------
after PHC-SUB's receipt of a written notice specifying such breach, such
Practice shall submit the following issues directly to arbitration in accordance
with Section 14 hereof: (i) whether PHC-SUB has materially breached this
----------
Agreement and (ii) if PHC-SUB has materially breached this Agreement, the amount
of income such Practice has foregone as a result of the breach exclusive of
punitive or consequential damages (the "Practice Lost Income Amount"). If (i)
the final decision under the arbitration set forth in Section 14 determines that
----------
PHC-SUB owes a Practice a Practice Lost Income Amount; (ii) PHC-SUB fails to pay
to such Practice the Practice Lost Income Amount within 30 days after receipt of
written notice specifying the Practice Lost Income Amount and (iii) such
Practice has provided PHC-SUB and Agent with 15 days prior notice of such
Practice's intent to terminate this Agreement hereunder, such Practice may
terminate this Agreement by delivery of written notice to PHC and PHC-SUB.
8.3 Duties and Remedies Upon Expiration or Termination.
Upon expiration or termination of this Agreement with respect to a
Practice, such Practice and PHC-SUB hereby agree to perform, in addition to
their obligations provided for elsewhere in this Agreement and continuing after
such termination or expiration of this Agreement with respect to such Practice,
such steps as are otherwise customarily required to wind up their relationship
under this Agreement in as orderly a manner as possible, including, without
limitation, PHC-SUB's provision to such Practice of patient billing records.
The terminating Practice hereby acknowledges and agrees that, upon termination
or expiration of this Agreement: (a) PHC-SUB shall retain all right, title and
interest in and to all of its proprietary software and systems, including
software and systems licensed by PHC-SUB from others, used in connection with
the General Management Services; and (b) the terminating Practice shall be
responsible for obtaining its own software and systems to take over the General
Management Services from PHC-SUB.
Except as set forth in this Section 8.3 and in Section 5.4 hereof, upon the
----------- -----------
expiration or earlier termination of this Agreement with respect to a Practice,
neither party shall have any further obligation hereunder with the exception of
obligations accruing prior to the date of such expiration or earlier termination
and obligations, promises and covenants contained herein which extend beyond the
terms hereof including, without limitation, any indemnities, restrictive
covenants, and access to books and records. Upon the expiration or earlier
termination of this Agreement with respect to a Practice, the financial
arrangements set forth in Section 7 shall be prorated between the parties to
---------
reflect any partial fiscal year. The funds for settlement of such financial
arrangements shall be disbursed on the closing date of the repurchase of assets
provided for in Section 8.4, but shall in no event occur later than 180 days
------------
from the date of the notice of termination. If this Agreement is terminated
pursuant to Sections 8.2(a)(i), 8.2(b), 8.2(c)(i), 8.2(c)(ii), or 8.2(d) hereof,
-------------------------------------- ---------------------
the non-breaching party may pursue such other legal or equitable relief as may
be available in addition to such proration.
From and after any termination, the terminating Practice and PHC-SUB shall
provide the other with reasonable access to books and records then owned by it
to permit such requesting party to satisfy reporting and contractual obligations
which may be required of it.
8.4 Repurchase of Assets.
(a) Upon termination of this Agreement pursuant to Section 8.1 or Section
----------- -------
8.2 hereof, each Practice shall purchase from PHC, PHC-SUB, or Affiliate of PHC-
- ---
SUB those assets owned by PHC, PHC-SUB, or Affiliate of PHC-SUB that primarily
relate to the operation of such Practice, including all FF&E and all real
property owned by PHC, PHC-SUB, or Affiliate of PHC-SUB and associated primarily
with the operation of such Practice (the "Real Estate"), and the fair market
value of accounts receivable on the date of termination, at a purchase price
(the "Buyout Amount") equal to the greater of:
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<PAGE>
(i) the sum of (A) the total consideration paid by PHC in connection
with the purchase of the assets of SDC, plus liabilities assumed, if any,
pursuant to the Purchase Agreement allocable to such Practice plus (B) the
Sub Lost Income Amount, if any, less an amount equal to the sum of (X) the
aggregate amount of General Management Fees actually collected by PHC-SUB
from such Practice under this Agreement and (Y) the Practice Lost Income
Amount, if any; and
(ii) the aggregate fair market value of the tangible and intangible
assets used in the operation of such Practice that are purchased by PHC,
PHC-SUB, or Affiliate of PHC-SUB pursuant to this Section 8.4(a).
--------------
The Practice may pay all or a portion of the Buyout Amount in the securities of
PHC, valued at fair market value as of the date of termination.
(b) In addition to the payment of the Buyout Amount as set forth in Section
-------
8.4(a), upon termination of this Agreement, such Practice shall pay all debt and
- ------
assume without recourse against PHC-SUB all contracts, payables and leases which
are obligations of PHC-SUB and which relate exclusively to the performance of
its obligations under this Agreement or the properties subleased by PHC-SUB,
other than such contracts, payables and leases that are between such Practice
and PHC-SUB or its affiliates. The Buyout Amount shall be reduced by the amount
of debt and liabilities of PHC-SUB assumed by such Practice, by any payment PHC-
SUB has failed to make under this Agreement (other than any such payments
constituting all or a portion of the Practice Lost Income Amount of such
Practice). Such Practice and any physician owner of such Practice shall execute
such documents as may be required to assume the liabilities set forth in this
Section 8.4 and to remove or indemnify PHC-SUB to its reasonable satisfaction
- -----------
from any liability with respect to such repurchased assets and with respect to
any property leased or subleased by PHC-SUB.
The closing date for the repurchase shall be determined by the purchasing
Practice, but shall in no event occur later than 60 days from the date of the
notice of termination. The termination of this Agreement shall become effective
upon the closing of the sale of the assets and the purchasing Practice and such
Practice Employees shall be released from the restrictive covenants as and to
the extent set forth in Section 8.4(c) on the closing date. PHC-SUB shall have
--------------
the right, in its sole and absolute discretion, to waive the repurchase
requirements of a Practice, in which event, the termination of this Agreement
shall become effective upon the execution and delivery of such waiver.
(c) If the affected Practice remits the Buyout Amount to PHC-SUB in
accordance with Section 8.4(a) hereof within 60 days after determination of such
--------------
Buyout Amount, such Practice and the Practice Employees shall be released from
the restrictive covenants of Sections 5.4. If the affected Practice does not
------------
remit the Buyout Amount to PHC-SUB in accordance with Section 8.4(a) hereof
--------------
within 60 days after determination of such Buyout Amount, the provisions of
Section 5.4 of this Agreement shall survive in their entirety for a period of
- -----------
two (2) years following the date of termination of this Agreement.
(d) Fair market value of (i) any shares of PHC securities, if any, used to
pay all or a portion of the Buyout Amount and (ii) the FF&E and the Real Estate
shall be determined by a nationally recognized independent accounting firm
capable of making such determinations and chosen by the affected Practice from a
list of three such firms submitted by PHC-SUB. The affected Practice shall
submit its choice of such firms in writing no later than five (5) days after
receipt of such list from PHC-SUB. PHC-SUB and the affected Practice shall bear
the cost of such determination equally.
25
<PAGE>
8.5 Procedures Related to Termination.
In taking action to terminate this Agreement the parties shall comply with
the following procedures:
(a) Prior to taking any action to terminate, the party seeking termination
shall provide 15 days' prior written notice to Agent, following the expiration
of any cure periods.
(b) The taking by a Practice of any action with respect to termination of
this Agreement shall require the affirmative vote of the holders of two-thirds
of the equity or membership interests of the owners of the Practice as the case
may be.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF EACH PRACTICE.
Each Practice hereby represents and warrants to PHC as follows:
9.1 Organization in Good Standing; Licenses.
Each Practice is a division of an Alabama business corporation, a medical
corporation or a professional limited liability company, as the case may be,
duly organized, validly existing and in good standing under the laws of its
state of its formation. Each Practice is authorized to transact business in its
state of formation. Additionally, the Virginia Division is duly qualified to
transact business in Virginia. Each Practice has all necessary legal power to
own all of its properties and assets and all material governmental licenses,
authorizations, consents, and approvals to carry on its business as now
conducted and as will be conducted (including, without limitation,
accreditations and certifications as a provider of healthcare services eligible
to receive payment and compensation and to participate under Medicare, Medicaid,
CHAMPUS and CHAMPVA.
9.2 No Violations.
Each Practice has the legal authority to execute, deliver and perform this
Agreement and all agreements executed and delivered by it pursuant to this
Agreement, and has taken all action required by law, its articles or certificate
of formation or organization, regulations or by-laws to authorize the execution,
delivery and performance of this Agreement and such related documents. The
execution and delivery of this Agreement does not and, subject to the
consummation of the transactions contemplated hereby, will not, violate any
provisions of the articles or certificate of formation, regulations, or by-laws
of each Practice or any provisions of, or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree, to which such Practice is a party, or by
which it is bound. This Agreement has been duly executed and delivered by each
Practice.
9.3 Professional Liability.
Each Practice represents that no Practice Employee has ever (a) had his or
her license to Practice medicine or other profession in any state or his or her
drug enforcement agency number suspended, relinquished, terminated, restricted
or revoked; (b) been reprimanded, sanctioned or disciplined by any licensing
board, or any federal, state or local society or agency, governmental body or
specialty board; or (c) had his or her medical staff privileges at any hospital
or medical facility suspended, involuntarily terminated, restricted or revoked.
9.4 Litigation.
(a) Each Practice represents that there is no action, suit, or proceeding
pending against, or to its best knowledge threatened against or affecting the
Practice or any Practice Employee before any court or arbitrator or
26
<PAGE>
any governmental body, agency or official which in any manner draws into
question the validity of the Security Agreements.
(b) Except as provided in Schedule 9.4(b), each Practice represents that
---------------
there is no pending investigation of it or any of its members, partners, or
Practice Employees, or any one or more of them, as the case may be, by HCFA or
any other governmental authority, which investigation is not otherwise conducted
in the ordinary course of business and no criminal, civil or administrative
action, audit, or investigation by a fiscal intermediary or by or on behalf of
any governmental authority exists against the Practice or any of its members,
partners, or Practice Employees, or any one or more of them, as the case may be,
or to the best knowledge of the Practice, is threatened with respect to such
persons or any one of them which could reasonably be expected to materially and
adversely affect the right of such person or persons to receive Medicare,
Medicaid, CHAMPUS or CHAMPVA reimbursement to which such person or persons would
otherwise be entitled, or right to participate in the Medicare, Medicaid,
CHAMPUS or CHAMPVA programs, or otherwise have a Material Adverse Effect on the
receipt of Medicare, Medicaid, CHAMPUS or CHAMPVA reimbursement by such person
or persons.
(c) Each Practice represents that to the best knowledge of the Practice,
neither the Practice nor any of its members, partners or Practice Employees or
any one or more of them, as the case may be, is subject to any pending but
unassessed Medicare, Medicaid, CHAMPUS or CHAMPVA claim payment adjustments,
except to the extent that such person or persons is contesting such assessment
in good faith by appropriate proceedings diligently pursued and has established
or caused to be established by his or her employer, limited liability company,
or partnership, as the case may be, adequate reserves for such adjustments in
accordance with GAAP.
9.5 No Default.
Each Practice represents that neither the Practice nor its members,
partners, Practice Employees, or any one or more of them has received
notification from any governmental authority that any such governmental
authority has taken or intends to take action to revoke, terminate, or adversely
amend any license, certificate, accreditation or permit of such person to
operate a healthcare facility or to participate under Medicare, Medicaid,
CHAMPUS or CHAMPVA.
9.6 Third Party Reimbursement.
If the Practices or any Practice Employee is being audited or has been
audited by Medicare, Medicaid, CHAMPUS or CHAMPVA or similar governmental Third
Party Payors:
(a) none of such audits provides for adjustments in reimbursable costs or
assets, claims for reimbursement or repayment by the Practice or any Practice
Employee of costs and/or payments theretofore made by such governmental Third
Party Payor that, if adversely determined, could reasonably be expected to have
or result in a Material Adverse Effect except as provided in Schedule 9.6; and
------------
(b) neither the Practice nor any Practice Employee has had requests or
assertions of claims for reimbursement or repayment by it, or him or her, as the
case may be, of costs and/or payments heretofore made by any other Third Party
Payor that, if adversely determined, could reasonably be expected to have or
result in a Material Adverse Effect except as provided in Schedule 9.6.
------------
9.7 Certificates.
Each Practice agrees to use its best efforts to provide, and to use its
best efforts to cause each of its Practice Employees to provide, notice to PHC-
SUB if any representation or warranty contained therein becomes untrue as of a
date after the Effective Date because of subsequent events and to provide from
time to time, at the reasonable
27
<PAGE>
request of PHC-SUB, a certificate stating that the representations and
warranties contained herein are true, or, if they are not true, specifying in
reasonable detail the extent to which they are not true.
SECTION 10. INSURANCE AND INDEMNITY.
10.1 Insurance Maintained by the Practice.
During the term of this Agreement, each Practice shall provide, or shall
arrange for the provision of, and maintain comprehensive professional liability
insurance on each Practice and each of the physician Practice Employees and
agents in the minimum amount of Two Million Dollars ($2,000,000) per claim and
Five Million Dollars ($5,000,000) annual aggregate, and in such reasonable
amounts as are agreed upon by PHC-SUB and the Practices for non-physician
Practice Employees; provided, that the premiums paid by PHC-SUB and the costs to
the Practices are no greater than those previously paid by SDC for comprehensive
professional liability insurance in the minimum amounts of One Million Dollars
($1,000,000) per claim and Three Million Dollars ($3,000,000) annual aggregate.
Each Practice shall provide to PHC-SUB written documentation evidencing such
insurance coverage. Each Practice shall have the right to increase any such
coverage with the written approval of the Joint Policy Board after the second
year of this Agreement. All such professional liability insurance premiums and
deductibles related thereto shall be included in Operational Expenses. Each
Practice shall be responsible for all liabilities in excess of the limits of
such policies. Each Practice's obligation to maintain such professional
liability insurance coverage shall survive the expiration or termination of this
Agreement for any reason so as to cover any and all professional liability
claims or causes of action caused or asserted to have been caused as a result of
the performance of medical services by such Practice and its employees or agents
during the term of this Agreement. Each Practice shall provide, or shall
arrange for the provision of, and shall maintain throughout the entire term of
this Agreement, workers' compensation insurance coverage on such Practice and
each of its employees and agents in the amounts required by law. If so
requested by PHC-SUB, each Practice shall provide to PHC-SUB written
documentation evidencing such insurance coverage.
10.2 Insurance Maintained by PHC-SUB.
During the term of this Agreement, PHC-SUB shall provide and maintain
comprehensive professional liability insurance for all professional employees of
the PHC-SUB providing any services related to each Practice pursuant to this
Agreement, and comprehensive general liability and property insurance covering
the Medical Office premises and operations. PHC-SUB shall provide, or shall
arrange for the provision of, and shall maintain throughout the term of this
Agreement, workers' compensation insurance coverage on PHC-SUB and each of its
employees and agents in the amounts required by law. If so requested by a
Practice, PHC-SUB shall provide written documentation evidencing such insurance
coverage.
10.3 Continuing Liability Insurance Coverage.
Each Practice shall obtain, or shall ensure that each of its Practice
Employee or agent obtains, continuing liability insurance coverage under either
a "tail policy" or a "prior acts policy," with the same limits and deductibles
as the insurance coverage provided pursuant to Section 10.1, for each of the
------------
Practice's employees and agents upon the termination of such employee's or
agent's relationship with the Practice for any reason. If so requested by PHC-
SUB, each Practice shall provide to PHC-SUB written documentation evidencing
such insurance coverage. All such professional liability insurance premiums
shall be included in Operational Expenses for the appropriate Practice. In the
event a Practice does not obtain such continuing liability insurance coverage,
PHC-SUB may do so and the cost of such coverage shall be included as an
Operational Expense of such Practice. Such Practice's obligation to obtain, or
ensure that each of its employees and agents obtains, such continuing liability
insurance coverage shall survive the termination of this Agreement for any of
its Practice employees or agents associated with such Practice during the term
of this Agreement.
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<PAGE>
10.4 Key Person Insurance.
Each Practice agrees, and shall cause its Practice Employees to agree, that
PHC-SUB may obtain, as a PHC-SUB Expense and for PHC-SUB's sole benefit, "key
person" life and/or disability insurance policies on any or all Practice
Employees. Neither the Practices nor any Practice Employee shall have any
right, title or interest, in or to the proceeds of any such insurance policies.
Each Practice shall cause its Practice Employees to cooperate with PHC-SUB, as
reasonably requested by PHC-SUB from time to time, in obtaining any such
insurance policies, including, but not limited to, causing such Practice
Employees to submit to such physical examinations and providing such information
relating to insurability as PHC-SUB may reasonably request from time to time.
SECTION 11. COMPLIANCE WITH REGULATIONS - SUBCONTRACTS.
Pursuant to Title 42 of the United States Code and applicable rules and
regulations thereunder, until the expiration of four (4) years after termination
of this Agreement, PHC-SUB shall make available, upon appropriate written
request by the Secretary of the United States Department of Health and Human
Services or the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, a copy of this
Agreement and such books, documents and records as are necessary to certify the
nature and extent of the costs of the services provided by PHC-SUB under this
Agreement. PHC-SUB further agrees that if it carries out any of its duties
under this Agreement through a subcontract with a value or cost of Ten Thousand
Dollars ($10,000.00) or more over a twelve (12) month period with a related
organization, such subcontract shall contain a clause to the effect that until
the expiration of four (4) years after the furnishing of such services pursuant
to such subcontract, the related organization shall make available, upon
appropriate written request by the Secretary of the United States Department of
Health and Human Services or the Comptroller General of the United States
General Accounting Office, or any of their duly authorized representatives, a
copy of such subcontract and such books, documents and records of such
organization as are necessary to verify the nature and extent of such costs.
Disclosure pursuant to this Section shall not be construed as a waiver of any
other legal right to which PHC-SUB or any Practice may be entitled under law or
regulation.
SECTION 12. RELATIONSHIP OF THE PARTIES.
12.1 Independent Contractor Status.
(a) It is acknowledged and agreed that each Practice and PHC-SUB are at
all times acting and performing hereunder as independent contractors. PHC-SUB
shall neither have nor exercise any control or direction over the methods by
which any Practice and its Practice Employees practice medicine. PHC-SUB shall
not, by entering into and performing its obligations under this Agreement,
become liable for any of the existing obligations, liabilities or debts of any
Practice unless otherwise specifically provided for under the terms of this
Agreement or the Purchase Agreement. In its management role, PHC-SUB will have
only an obligation to exercise reasonable care in the performance of the
management services. PHC-SUB shall have no liability whatsoever for damages
suffered on account of the willful misconduct or negligence of any employee,
agent or independent contractor of any Practice. Each party hereto shall be
solely responsible for compliance with all state and federal laws pertaining to
employment taxes, income withholding, unemployment compensation contributions
and other employment related statutes regarding their respective employees,
agents and servants.
(b) In the event any state or federal laws or regulations, now existing
or enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel in such a manner as to indicate
that this Agreement or any provision hereof may be in violation of such laws or
regulations, each Practice and PHC-SUB shall amend this Agreement as necessary
to preserve the underlying economic and financial arrangements between each
Practice and PHC-SUB and without substantial economic detriment to either party.
To the extent any act or service required of PHC-SUB in this Agreement should be
construed or deemed, by any governmental authority, agency or court, to
constitute the unauthorized practice of medicine, the performance of
29
<PAGE>
said act or service by PHC-SUB shall be deemed waived and forever unenforceable
and the provisions of this Section 12.1(b) shall be applicable. None of the
---------------
parties hereto shall claim or assert illegality as a defense to the enforcement
of this Agreement or any provision hereof; instead, any such purported
illegality shall be resolved pursuant to the terms of this Section 12.1(b).
---------------
12.2 Referral Arrangements.
The parties hereby acknowledge and agree that no benefits to any Practice
hereunder require or are in any way contingent upon the admission,
recommendation, referral or any other arrangement for the provision of any item
or service offered by PHC-SUB or any of its Affiliates, to any patients of a
Practice, its Practice's employees or agents.
SECTION 13. CONFIDENTIAL INFORMATION AND INSPECTION RIGHTS.
(a) At no time during the term of this Agreement or the five (5) year
period after any termination or expiration of this Agreement for any reason
shall a Practice or any of its employees or agents, on the one hand, or PHC-SUB
or any of its employees or agents, on the other hand, disclose to anyone, other
than its attorneys, accountants or other financial advisors, the material terms
of this Agreement or any other written agreement between the parties hereto, or
any confidential or secret information concerning (i) the business, affairs or
operations, (ii) any trade secrets, new product developments, special or unique
processes or methods, or (iii) any marketing, sales, advertising or other
concepts or plans, of PHC-SUB or any of its Affiliates, on the one hand, or of
any Practice, its Practice Employees, subsidiaries or Affiliates, on the other
hand.
The covenants contained in this Section 13 shall not apply to any
----------
information which (i) was already known to such party at the time of receipt
thereof, (ii) was readily available to the general public at the time of receipt
thereof, (iii) subsequently becomes known to the general public through no fault
or omission on the part of such party, (iv) is subsequently disclosed by a third
party which has the bona fide right to make such disclosure, or (v) is required
to be disclosed by law or governmental agency.
Each of PHC-SUB and the Practices hereby acknowledges that if it or any of
its employees or agents engage in activities within the limitations of this
Section 13, money damages shall be an inadequate remedy, and each of PHC-SUB and
- ----------
the Practices agrees that the nonbreaching party shall be entitled to obtain, in
addition to any other remedy provided by law or equity, an injunction against
the violation of breaching party's obligation to the nonbreaching party
hereunder.
(b) Each Practice shall have reasonable access to the files and records
relating to such revenue and expenses and the overall operation of such
Practice. Each Practice, at its expense, may have its accountants review such
records, at reasonable intervals, to confirm the accuracy of such records and
fees paid by such Practice to PHC-SUB under this Agreement.
SECTION 14. ARBITRATION.
(a) Any and all disputes arising out of or in connection with the
negotiation, execution, interpretation, performance or nonperformance of this
Agreement shall be solely and finally settled by arbitration, which shall be
conducted in Atlanta, Georgia or at such other location as the parties may agree
in writing. The arbitrator shall conduct the proceedings in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the
"Rules") as such Rules are in effect as of the date of the occurrence of the
events giving rise to such disputes. The arbitration proceeding shall be
initiated in accordance with the Rules. The parties hereby renounce all
recourse to litigation and agree that any arbitration award shall be final and
subject to no judicial review. The arbitration shall be conducted before one or
more arbitrators, chosen in accordance with the Rules. The arbitrator(s) shall
decide the issues submitted in accordance with (i) the language and commercial
purposes of
30
<PAGE>
this Agreement; and (ii) what is just and equitable under the circumstances,
provided that all substantive questions of law (excluding principles of
conflicts of laws) shall be determined under the laws of the State of Georgia.
(b) The parties agree to facilitate the arbitration by: (i) making
available to one another and to the arbitrator for examination, inspection and
extraction all documents, books, records and personnel under their control
determined by the arbitrator to be relevant to the dispute (ii) conducting
arbitration hearings to the greatest extent possible on successive days; and
(iii) observing strictly the time periods established by the Rules, or by the
arbitrator, for submission of evidence or briefs.
(c) Judgment on the award of the arbitrator may be entered in any court
having jurisdiction over the party against which enforcement of the award is
being sought. All deposits and other costs (other than fees of counsel)
incurred in conducting the arbitration shall be borne equally by the parties.
Each party shall be solely responsible for its own attorney's fees incurred in
connection with the arbitration.
(d) This Section 14 shall survive completion or termination of this
----------
Agreement, and shall be specifically enforceable in any court of competent
jurisdiction. In no event shall a demand for arbitration be made after the date
when any applicable statute of limitations, or period for claims under this
Agreement, would bar institution of a legal or equitable proceeding based on
such dispute or subject matter in question.
SECTION 15. MISCELLANEOUS.
15.1 Assignment and Delegation.
PHC-SUB shall have the right to assign its rights hereunder to any
Affiliate of PHC-SUB and to any lending institution, for security purposes or as
collateral, from which PHC, PHC-SUB or such person, firm or corporation obtains
financing, or upon the sale of substantially all of the assets of PHC-SUB.
Except as set forth in this Section 15.1, PHC-SUB shall not have the right to
------------
assign its rights and obligations hereunder without the written consent of the
Practices. No Practice shall have the right to assign its rights and
obligations hereunder without the written consent of PHC-SUB. No Practice may
delegate any of its duties hereunder, except as expressly contemplated herein;
however, PHC-SUB may delegate some or all of its duties hereunder to the extent
it concludes, in its sole discretion, that such delegation is in the mutual
interest of the parties hereto.
15.2 Other Contractual Arrangements.
The parties acknowledge and agree that they have been advised and consent
to the fact that PHC-SUB or its Affiliates (i) may have, prior to the date of
this Agreement, discussed proposals with respect to, or (ii) may, from time to
time hereafter enter into agreements with one or more Practice Employees to
provide consulting, medical direction, advisory or similar services relating to
activities of PHC-SUB or its Affiliates in clinical areas. The parties agree
that such agreements, if any, shall be entered into at the sole discretion of
the parties thereto and subject to such terms and conditions to which such
parties may agree, and any compensation payable to or by PHC-SUB, on the one
hand, and such Practice Employees, on the other hand, shall not constitute Net
Practice Revenues and shall otherwise not be subject to the provisions of this
Agreement. Physician by his execution of this Agreement as provided on the
signature page hereof, agrees that neither the negotiation nor the entry into
any agreement or arrangement of a type described in this Section 15.2 shall
------------
constitute a breach of fiduciary or other duty owed by Physician to any Practice
Employee, or by PHC-SUB, to such Practice, Physician or Practice Employee.
Accordingly, each Practice and Physician hereby waive any right to disclosure of
the negotiations, proposals or terms of any such agreement, arrangement or right
to participate in and/or share revenues derived from any such agreement or
arrangement with Physician or Practice Employee, and hereby forever release and
discharge the Practices, Physician, PHC-SUB, and their respective
representatives (including, but not limited to, their respective attorneys,
accountants, Affiliates, shareholders, officer, directors, employees and agents)
from any and all actions, claims, charges, suits, damages and liabilities of any
kind whatsoever arising from or by reason of the participation
31
<PAGE>
of Physician or Practice Employee in any agreement or arrangement with PHC-SUB
or its Affiliates of a type described in this Section 15.2 above or from or by
------------
reason of the failure of PHC-SUB, Physician or Practice Employee or their
respective representatives to disclose the negotiation, existence or terms of
any such agreement or arrangement. In keeping with the private nature of these
matters, the Physician further agrees that such negotiations, proposals or terms
of agreement are to be kept confidential between Physician on one hand, and PHC-
SUB, on the other hand, and shall not be disclosed by them or their
representatives, except to their attorneys, accountants and professional
advisors or as required by law.
15.3 Notices.
Any notice required or permitted by this Agreement or any agreement or
document executed and delivered in connection with this Agreement shall be
deemed to have been served properly received if hand delivered upon actual
receipt, or if sent by overnight express, one (1) business day after
transmittal, or if mailed by certified mail, return receipt requested, proper
postage prepaid, then five (5) business days after posting, at the following
addresses:
If to the Practices:
1. IL-SC: 202 Jackson Street West
Carbondale, Illinois 62901
Attention: Jack G. Hilton, M.D.
2. MS-P.L.L.C.: 49 Seargent Prentiss Drive
Natchez, Mississippi 39120
Attention: Jack G. Hilton, M.D.
3. Virginia Division: 202 Jackson Street West
Carbondale, Illinois 62901
Attention: Jack G. Hilton, M.D.
with a copy to: Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Latham Williams, Esq.
If to PHC-SUB: PHC Regional Oncology Care, Inc.
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah C. Garvin, Chief
Executive Officer
with a copy to: Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: General Counsel
or such other address as shall be furnished in writing by any party to the other
party.
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<PAGE>
15.4 Additional Acts.
Each party hereby agrees to perform any further acts and to execute and
deliver any documents which may be reasonably necessary to carry out the
provisions of this Agreement.
15.5 Governing Law.
This Agreement shall be interpreted, construed and enforced in accordance
with the laws of the State of Georgia, applied without giving effect to any
conflicts of law principles.
15.6 Captions.
The captions or headings in this Agreement are made for convenience and
general reference only and shall not be construed to describe, define or limit
the scope or intent of the provisions of this Agreement.
15.7 Severability.
The provisions of this Agreement shall be deemed severable and if any
portion shall be held invalid, illegal or unenforceable for any reason, the
remainder of this Agreement shall be effective and binding upon the parties.
15.8 Entire Agreement.
This Agreement, the Purchase Agreement and the documents contemplated
thereby and hereby contain the entire agreement of the parties and supersedes
any and all prior or contemporaneous negotiations, understandings or agreements
between the parties, written or oral, with respect to the transactions
contemplated hereby and thereby. This Agreement may not be changed or terminated
orally, but may only be changed by an agreement in writing signed by a duly
authorized officer of PHC-SUB if PHC-SUB is the party against whom enforcement
of any such waiver, change, modification, extension, discharge or termination is
sought, or by the Practice if the Practice is the party against whom enforcement
of any such waiver, change, modification, extension, discharge or termination is
sought.
15.9 Waiver of Provisions.
Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
15.10 No Rule of Construction.
The parties acknowledge that this Agreement was initially prepared by PHC-
SUB solely as a convenience and that all parties and their counsel have read and
fully negotiated all the language used in this Agreement. The parties
acknowledge and agree that because all parties and their counsel participated in
negotiating and drafting this Agreement, no rule of construction shall apply to
this Agreement which construes any language, whether ambiguous, unclear or
otherwise, in favor of, or against any party by reason of that party's role in
drafting this Agreement.
15.11 Counterparts.
This Agreement may be executed in several counterparts, each of which, when
so executed, shall be deemed to be an original, and such counterparts shall,
together, constitute and be one and the same instrument.
33
<PAGE>
15.12 Binding Effect.
This Agreement shall be binding on and shall inure to the benefit of the
parties hereto, and their successors and permitted assigns. Subject to the
foregoing sentence, no person not a party hereto shall have any right under or
by virtue of this Agreement.
SECTION 16. GUARANTY BY PHC.
PHC hereby absolutely and unconditionally and irrevocably guarantees to
each of the Practices the full, prompt and faithful performance by PHC-SUB of
all covenants and obligations to be performed by PHC-SUB under this Agreement,
including, but not limited to, the payment of all sums to be paid by PHC-SUB
pursuant to this Agreement. If PHC-SUB fails to fully perform any such
covenants and obligations in accordance with their terms or pay all or any part
of such sums when due upon written demand from any Practice, PHC will perform
immediately any such covenants and obligations, which have not been fully
performed or performed at all, in accordance with their terms and immediately
pay to such Practice any amount due and unpaid by PHC-SUB. In the event of
termination, liquidation or dissolution of PHC-SUB, this unconditional guaranty
shall continue in full force and effect.
[Remainder of page intentionally left blank.]
34
<PAGE>
IN WITNESS WHEREOF, PHC, PHC-SUB and the Practices have duly executed this
Agreement on the day and year first above written.
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
----------------------------------------
Name: Sarah C. Garvin
----------------------------------------
Title: President
----------------------------------------
PHC REGIONAL ONCOLOGY CARE, INC.
By: /s/ Sarah C. Garvin
----------------------------------------
Name: Sarah C. Garvin
----------------------------------------
Title: President
----------------------------------------
PHC-ILLINOIS 1, S.C.
By: /s/ Jack G. Hilton, M.D.
----------------------------------------
Name: Jack G. Hilton, M.D.
----------------------------------------
Title: President
----------------------------------------
SOUTHERN DEPENDACARE, INC.
By: /s/ Jack G. Hilton, M.D.
----------------------------------------
Name: Jack G. Hilton
----------------------------------------
Title: President
----------------------------------------
PHC-MISSISSIPPI, P.L.L.C.
By: /s/ Jack G. Hilton, M.D.
----------------------------------------
Name: Jack G. Hilton, M.D.
----------------------------------------
Title: Managing Member
----------------------------------------
35
<PAGE>
EXHIBIT 10.18
FIRST AMENDMENT TO MANAGEMENT SERVICES AGREEMENT
------------------------------------------------
This First Amendment to the Management Services Agreement (this
"Amendment") of Foundation Medical Group, PLLC, is executed as of November ____,
---------
1997, by and among MidSouth Practice Management, Inc., a Tennessee corporation
("MidSouth"), Foundation Medical Group, PLLC, a Tennessee professional limited
--------
liability company (the "Practice"), and the physicians listed on Schedule 1
-------- ----------
attached hereto that are members of the Practice (the "Physician Members").
-----------------
W I T N E S S E T H :
-------------------
WHEREAS, MidSouth, the Practice and the Physician Members entered into that
certain Management Services Agreement (the "Service Agreement") dated as of
-----------------
September 22, 1997 (the "Effective Date") pursuant to which MidSouth agreed, on
--------------
the terms and conditions therein contained, to provide certain management
services to the Practice and the Physician Members (each capitalized term not
expressly defined herein shall have the meaning given to it in the Service
Agreement);
WHEREAS, MidSouth has entered into that certain Agreement and Plan of
Merger dated as of November __, 1997 (the "Merger Agreement"), whereby MidSouth
shall be merged into Physician Health Corporation of MidSouth, a Tennessee
corporation, which is a wholly-owned subsidiary of Physician Health Corporation,
a Delaware corporation;
WHEREAS, MidSouth, the Practice and the Physician Members desire to amend
their respective rights, covenants (restrictive and otherwise) and obligations
under the Service Agreement and the foregoing Practice and the Physician Members
hereby consent to the Merger Agreement;
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, MidSouth, the
Practice and the Physician Members hereby covenant and agree as follows:
ARTICLE I - AMENDMENTS
----------------------
SECTION 1.1. DEFINITIONS. The following definitions are hereby added to
-----------
Article 1 of the Service Agreement:
"Affiliate" of an entity means (a) any person or entity directly or indirectly
controlled by such entity, (b) any person or entity directly or indirectly
controlling such entity, (c) any subsidiary of such entity if the entity has a
fifty percent (50%) or greater equity ownership interest in the subsidiary, or
(d) such entity's parent if the parent has a fifty percent (50%) or greater
ownership interest in the entity.
"Assignee" shall have the meaning set forth in Section 6.2(a).
--------------
"Buyout Amount" shall have the meaning set forth in Section 10.5(a)
---------------
"CHAMPVA" means, collectively, the Civilian Health and Medical Program of the
Department of Veteran Affairs, a program of medical benefits covering retirees
and dependents of former members of the armed services administered by the
United States Department of Veteran Affairs, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program,
including (a) all federal statutes (whether set forth in 38 U.S.C. (S)1713 or
elsewhere) affecting such program or, to the extent applicable to CHAMPVA,
CHAMPUS; and (b) all rules, regulations (including 38 C.F.R. (S)17.54), manuals,
orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
Page 1
<PAGE>
"Depository Bank" shall have the meaning set forth in Section 6.2(b).
--------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FF&E" means furniture, fixtures and equipment.
"Government Advance" shall have the meaning set forth in Section 6.2(c).
--------------
"Government Receivables Payment Amount" shall mean, for any month, the product
of (a) the Practice Government Collection Percentage for the twelve (12) month
period immediately preceding such month, times (b) the total amount of all
Governmental Receivables arising during such month.
"Gross Monthly Payment Amount" means the sum of the Private Receivables Payment
Amount plus the Government Receivables Payment Amount.
"Joint Venture(s)" shall have the meaning set forth in Section 3.11.
------------
"Lockbox Account" shall have the meaning set forth in Section 6.2(b)(ii).
------------------
"MidSouth Lockbox" shall have the meaning set forth in Section 6.2(b).
--------------
"Monthly Payment" shall have the meaning set forth in Section 6.2(c).
--------------
"Payor Instruction Letter" shall have the meaning set forth in Section 6.2(b).
--------------
"PHC" means Physician Health Corporation, a Delaware corporation, and the parent
company of MidSouth upon consummation of the PHC Merger Agreement.
"PHC Merger Agreement" means that certain Agreement and Plan of Merger dated as
of November __, 1997, by and among PHC, PHC Tennessee Acquisition Subsidiary I,
Inc., a Tennessee corporation and MidSouth Practice Management, Inc., a
Tennessee corporation, in which PHC Tennessee Acquisition Subsidiary I, Inc., a
wholly-owned subsidiary of PHC, shall be the surviving corporation and the name
of such corporation shall be changed to Physician Health Corporation of
MidSouth.
"Practice Government Collection Percentage" means the ratio, expressed as a
percentage, of (a) payments received by the Practice or MidSouth on the account
of the Practice's Government Receivables during the twelve (12) month period
immediately preceding any date of determination to (b) the total amount of the
Practice's Government Receivables billed during such twelve (12) month period.
"Practice Lockbox" shall have the meaning set forth in Section 6.2(b).
--------------
"Practice Lost Income Amount" shall have the meaning set forth in Section
-------
10.3(e).
- -------
"Practice Private Collection Percentage" means the ratio, expressed as a
percentage, of (a) payments received by the Practice or MidSouth on the account
of the Practice's Private Receivables during the twelve (12) month period
immediately preceding any date of determination to (b) the total amount of the
Practice's Private Receivables billed during such twelve (12) month period.
"Private Receivable(s)" shall have the meaning given to such term in Section
-------
6.2(a).
- ------
"Private Receivables Payment Amount" means, for any month, the product of (a)
the Practice Private Collection Percentage for the twelve (12) month period
immediately preceding such month, times (b) the total amount of all Private
Receivables arising during such month.
Page 2
<PAGE>
"Public Offering" means any method or means by which PHC initially accesses any
public capital market for any shares of its capital stock, including without
limitation, an initial public offering of the shares of the common stock of PHC,
or a merger by PHC with or into an entity or any Affiliate of an entity that has
a class of equity securities that is registered under the Exchange Act.
"Real Estate"shall have the meaning set forth in Section 10.5(a).
---------------
"Rules" shall have the meaning set forth in Section 15.24(a).
----------------
"Security Agreement" shall have the meaning set forth in Section 6.2(a).
--------------
"Sub Lost Income Amount" shall have the meaning set forth in Section 10.4(e).
---------------
SECTION 1.2. DEFINITIONS. Each of the following definitions is hereby
-----------
deleted and replaced in its entirety in Article 1 of the Service Agreement:
"CHAMPUS" shall mean, collectively, the Civilian Health and Medical Program of
the Uniformed Service, a program of medical benefits covering former and active
members of the uniformed services and certain of their dependents, financed and
administered by the United States Departments of Defense, Health and Human
Services and Transportation, and all laws, rules, regulations, manuals, orders,
guidelines or requirements pertaining to such program including (a) all federal
statutes (whether set forth in 10 U.S.C. (S)(S)1071-1106 or elsewhere) affecting
such program; and (b) all rules, regulations, (including 32 C.F.R. (S)199),
manuals, orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"Governmental Receivables" shall mean the Accounts Receivable of the Practice
that (i) arise in the ordinary course of business of the Practice, (ii) have as
their third party payor the United States of America (the "U.S.") or any state
or any agency or instrumentality of the U.S. or any state that makes any payment
with respect to Medicare, Medicaid or with respect to any other program
(including CHAMPUS OR CHAMPVA) established by Applicable Law and (iii) are
required by federal or state law to be paid to the Practice as a health care
provider. Governmental Receivables shall not, however, refer to amounts payable
by private insurers under contract to provide benefits under the Federal
Employee Health Benefit Program (5 U.S.C. (S)8901 et seq.).
-- ----
"MidSouth" shall mean Physician Health Corporation of MidSouth, a Tennessee
corporation.
"Practice Account" means the bank account maintained by the Practice for payment
of Excluded Expenses, receipt of the Monthly Payment and any other receipts or
disbursements deemed appropriate by the Practice that do not violate the terms
of this Agreement.
"Third Party Payor Programs" shall mean Medicare, Medicaid, CHAMPUS, CHAMPVA,
insurance provided by Blue Cross and/or Blue Shield, managed care plans and any
other private health care insurance programs and employee assistance programs,
as well as any future similar programs.
SECTION 1.3. DEFINITIONS. The following definitions shall be deleted in
-----------
their entirety from Article 1 of the Service Agreement:
1.1.18 "Governmental Lockbox Account"
1.1.23 "Lockbox Agreements"
1.1.35 "Monthly Adjustment"
1.1.37 "Non-Governmental Lockbox Account"
Page 3
<PAGE>
1.1.38 "Non-Governmental Receivables"
1.1.39 "Notification Letter"
1.1.50 "Purchase Price"
1.1.54 "Settlement Date"
1.1.59 "Yearly Adjustments"
SECTION 1.4. BANK ACCOUNTS. Section 3.1(b)(2) of the Service
------------- -----------------
Agreement is hereby deleted in its entirety and replaced with the following
Section 3.1(b)(2):
- -----------------
(b)(2) All cash, checks and credit card purchases paid at the time
that medical services are rendered and all Managed Care
Payments that do not represent payment on a Purchased Accounts
Receivable shall be remitted to the Practice Account. All
payments received by the Practice with respect to the
Purchased Accounts Receivable shall be administered in
accordance with Section 6.2 hereof.
-----------
SECTION 1.5. NEW ANCILLARY SERVICES AND ADDITIONAL PRACTICE OFFICES.
------------------------------------------------------
Section 3.11 of the Service Agreement is hereby deleted and replaced in its
- ------------
entirety with the following:
Section 3.11 NEW ANCILLARY SERVICES AND ADDITIONAL PRACTICE OFFICES.
------------------------------------------------------
MidSouth and Practice jointly acknowledge that a primary motivation for their
entering into an affiliation is to expand the Practice and develop new ancillary
services and establish additional offices for the Practice. MidSouth and
Practice may enter into one or more joint ventures for the construction or
development of new ancillary services, such as surgery centers and other capital
projects (the "Joint Ventures"). MidSouth shall arrange for all financing
required by the Joint Ventures. Net profits generated by each Joint Venture
shall first be used to reimburse MidSouth for the cost of capital invested by
MidSouth in such Joint Venture and MidSouth shall receive 51% of any residual
net profits and the remaining 49% shall be divided between the Practice and the
other investors in the project, if any. MidSouth shall supply or arrange for
all development, design and general contracting services and personnel required
by the Joint Ventures. In the event that any Joint Venture should be unavailable
to the Practice because of MidSouth's prospective interest therein, the Practice
shall not be permitted to participate in such Joint Venture without MidSouth's
prior written consent, which shall not be unreasonably withheld; provided, that
the Practice has used its best efforts to cause MidSouth to be allowed to
participate in such Joint Venture on a 51% basis as aforesaid. However, if upon
advice of a law firm with nationally recognized expertise in healthcare law that
is acceptable to the parties hereto, the Practice in good faith determines that
a Joint Venture between MidSouth and the Practice or its employees is legally
impermissible or involves a high degree of legal risk, the Practice or its
employees may pursue the new ancillary services and facilities without the joint
participation of MidSouth. The Practice shall therefore be entitled to perform
such new ancillary service at the Practice's own expense and revenue therefrom
shall not be Practice Revenue under this Agreement.
SECTION 1.6. PURCHASE OF ACCOUNTS RECEIVABLE AND OTHER PAYMENT.
-------------------------------------------------
Section 6.1 and Section 6.2 of the Service Agreement are hereby deleted in their
- ------- --- -----------
entirety and replaced with the following Section 6.1 and Section 6.2:
----------- -----------
SECTION 6.1 FEES. The Practice shall pay to MidSouth a Service Fee
----
equal to (i) 12% of Practice Net Revenue, plus (ii) the amount of Practice
Expenses incurred by MidSouth.
SECTION 6.2 PURCHASE OF PRIVATE ACCOUNTS RECEIVABLE; SECURITY
-------------------------------------------------
AGREEMENT; DEPOSIT OF PROCEEDS OF ACCOUNTS RECEIVABLE.
- -----------------------------------------------------
(a) Purchase of Private Receivables; Security. On or before the
-----------------------------------------
twentieth (20th) day of each month, MidSouth shall purchase the Accounts
Receivable of the Practice arising during the previous month that are not
Page 4
<PAGE>
Governmental Receivables (the "Private Receivables") for an amount equal to the
-------------------
Private Receivables Payment Amount. MidSouth shall pay the Practice for such
Private Receivables in the manner provided in Section 6.2(c). For purposes of
---------------
determining whether a particular Account Receivable arose during a given month
and is therefore eligible for purchase as provided above, or for inclusion in
the Monthly Payment as provided in Section 6.2(c), Accounts Receivable shall be
--------------
deemed to arise during the month in which such receivable was billed to the
appropriate payor. As security for the payment and performance of all of the
obligations and indebtedness of the Practice to MidSouth under this Agreement,
the Practice hereby agrees to execute a security agreement (the "Security
--------
Agreement") in the form as attached hereto as Exhibit 6.2(a). MidSouth may
- --------- --------------
specifically assign (collaterally or otherwise) and/or pledge (i) the Private
Receivables purchased pursuant to the first sentence of this Section 6.2(a) and
--------------
(ii) all of its rights and interests under this Agreement or the Security
Agreement as security for loans and other financing arrangements obtained by
MidSouth from any other person or entity, whether now existing or hereafter
arising (any such person or entity being hereafter referred to as an
"Assignee"). Any such Assignee shall have all of MidSouth's rights and
--------
remedies, but none of MidSouth's obligations, under this Agreement or the
Security Agreement. In addition, the Practice shall cooperate with MidSouth
and execute all necessary documents in connection with the pledge of such
accounts receivable to MidSouth or at MidSouth's option, any Assignee.
(b) Deposit of Proceeds. In recognition of the fact that MidSouth will
-------------------
have purchased all of the Practice's Private Receivables and to facilitate
repayment of the Government Advances, the Practice agrees, within __ days of
the date of this Agreement, to deliver a letter, in the form as attached hereto
as Exhibit 6.2(b)-1 and Exhibit 6.2(b)-2 to all payors under the Private
---------------- ----------------
Receivables and the Government Receivables, respectively (the "Payor Instruction
-----------------
Letter"). The Payor Instruction Letters shall (i) direct payments on Private
- ------
Receivables to Post Office Box __________ (the "MidSouth Lockbox"), which
----------------
lockbox shall be opened by the Depository Bank and all proceeds of Private
Receivables therein contained shall be deposited by the Depository Bank into the
Lockbox Account, and (ii) direct payments on Governmental Receivables to Post
Office Box __________ (the "Practice Lockbox"), which lockbox shall be opened by
----------------
the Depository Bank and all proceeds of Government Receivables therein contained
shall be deposited by the Depository Bank into the Sweeping Account. The
depository agreement for the Sweeping Account shall provide (i) that the
Depository Bank shall deposit all checks or other forms of payment received in
the Practice Lockbox into the Sweeping Account, and (ii) that the account
balance in the Sweeping Account shall be "swept" daily into the Lockbox Account.
Prior to the effective date of the instructions contained in the Payor
Instruction Letters, and to the extent that the Practice receives any payments
with respect to its Accounts Receivable and contrary to the terms of any Payor
Instruction Letter, the Practice agrees to deposit all such payments received by
the Practice as follows:
(i) payments received on Governmental Receivables shall be deposited
into Account No. _________ (the "Sweeping Account") maintained by the
----------------
Practice at ___________ (the "Depository Bank"), which such account
---------------
shall be "swept" daily into the Lockbox Account.
(ii) payments received on Private Receivables shall be deposited into
Account No. _________ maintained by MidSouth at Depository Bank (the
"Lockbox Account").
----------------
All amounts received by MidSouth as provided above that are proceeds of
Private Receivables shall be owned by MidSouth. All amounts received by
MidSouth as provided above that are proceeds of Governmental Receivables shall
be applied first to the repayment of all Government Advances theretofore made,
and the balance, if any, shall be refunded to the Practice.
(c) Allocation of Proceeds; Monthly Payments. MidSouth shall, within
----------------------------------------
twenty (20) days after the end of each calendar month, make a payment to the
Practice (the "Monthly Payment"), which shall represent (A) the purchase price
---------------
for the Private Receivables that arose during the previous month and (B) an
advance (the "Government Advance") to the Practice in an amount equal to the
------------------
product of the Practice Government Collection Percentage times the Governmental
Receivables that arose during the previous month, in an amount equal to (i) the
difference between (x) the Gross Monthly Payment Amount for such month, minus
(y) an amount equal to all items deposited into the Lockbox Account (whether
directly or as a result of a transfer from the Sweeping Account) that were
returned to MidSouth by its depository bank as a result of insufficient funds,
a stop payment order, or otherwise during such month, less (ii) the Service Fee
due to MidSouth from the Practice under this Agreement for such month,
including, without limitation, this Article 6, based on the Accounts Receivable
---------
that arose during such month.
Page 5
<PAGE>
(d) Adjustments. Adjustments to the Monthly Payments shall be made to
-----------
reconcile actual amounts due under this Article 6 within 45 days after the end
---------
of each six (6) month period during the term of this Agreement. At such semi-
annual intervals, MidSouth shall determine the actual amounts due MidSouth
pursuant to this Article 6 for each such six (6) month period, with such amounts
---------
to be calculated on an annualized basis for such six (6) month period.
MidSouth shall notify the Practice of the amount of payments, if any, due
from one party to another as a result of such adjustments within 60 days of the
end of each six (6) month period. If payment is due from one party to the
other, such amount shall be paid in full within ten (10) days of such
notification of the Practice; provided, however, that in the case such amounts
are due MidSouth on such calculations, MidSouth may, at its discretion, offset
such amounts due from the Practice against the Monthly Payment due the Practice
for succeeding calendar months.
Within 120 days after the end of each calendar year, MidSouth will
determine the actual amounts due MidSouth pursuant to this Article 6 for such
----------
calendar year (prorated for any calendar year for which this Agreement has been
in effect less than the entire year).
If, after taking into account all Monthly Payments and any mid year
adjustments for such calendar year, payment is due from one party to the other,
such amount shall be paid in full within ten (10) business days after such
calculations are made final; provided, however, that in the case amounts are due
MidSouth on such calculations, MidSouth may, at its discretion, offset such
amounts due from the Practice against the Monthly Payment due the Practice for
succeeding calendar months. This year-end reconciliation shall include
reconciliation of any amounts owed by one party to another with respect to any
expenses of any party, as set forth hereunder, paid by any other party.
SECTION 1.7. TERM OF AGREEMENT AND EXTENDED TERM. Section 10.1 and
----------------------------------- ------------
Section 10.2 of the Service Agreement are hereby deleted and replaced in their
- ------------
entirety with the following:
SECTION 10.1 TERM OF AGREEMENT. This Agreement shall commence on the
-----------------
date hereof and shall expire on August 31, 2037, unless earlier terminated
pursuant to the provisions hereof (the "Term").
SECTION 10.2 [Intentionally left blank.]
SECTION 1.8. TERMINATION BY THE PRACTICE. The first sentence of Section
--------------------------- -------
10.3, Section 10.3(b) and Section 10.3(d) of the Service Agreement are hereby
- ---- --------------- ---------------
deleted and replaced in their entirety with the following:
SECTION 10.3 TERMINATION BY THE PRACTICE. Subject to compliance with the
---------------------------
provisions set forth in Section 10.5, a Practice may terminate this Agreement
------------
with respect to itself upon the occurrence of any of the following events
without any further action on the part of such Practice:
(b) If Physician Health Corporation ("PHC") shall not have consummated the
Public Offering as of the end of the seventy-second (72nd) month following the
Effective Date; provided that the Practice notifies MidSouth of the decision of
the Practice to terminate this Agreement pursuant to this Section 10.3(b) within
---------------
90 days following the end of the seventy-second (72nd) month following the
Effective Date.
(d) In the event that MidSouth materially breaches the terms of this
Agreement (other than as set forth in Sections 10.4(a), (c) or (e) hereof) and
----------------------------
such breach remains uncured for a period of 60 days after MidSouth's receipt of
a written notice specifying such breach, the Practice shall submit the following
issues directly to arbitration in accordance with Section 15.24 hereof: (i)
-------------
whether MidSouth has materially breached this Agreement and (ii) if MidSouth has
materially breached this Agreement, the amount of income the Practice has
foregone as a result of the breach exclusive of punitive or consequential
damages (the "Practice Lost Income Amount"). If (i) the final decision under
the arbitration set forth in Section 15.24 determines that there has been a
-------------
material breach and that MidSouth owes the Practice a Practice Lost Income
Amount; (ii) MidSouth fails to pay to the Practice the Practice Lost Income
Amount within 30 days after receipt of written notice specifying the Practice
Lost Income Amount and (iii) the Practice has provided MidSouth with 15 days
prior notice of the Practice's intent to terminate this Agreement hereunder, the
Practice may terminate this Agreement by delivery of written notice to PHC and
MidSouth.
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<PAGE>
(e) In the event that MidSouth shall fail to remit a payment due as
provided in this Agreement and the failure to remit continues for a period of
thirty (30) days after such payment was due and payable to the Practice, the
Practice may terminate this Agreement; provided, however the Practice must use
its best efforts to notify MidSouth in writing of such failure as soon as
practicable after the due date of the payment.
SECTION 1.9. TERMINATION BY MIDSOUTH. The first sentence of Section 10.4
----------------------- ------------
of the Service Agreement is hereby deleted and replaced in its entirety with the
following, as well as the addition of the following provisions to Section 10.4:
------------
SECTION 10.4 TERMINATION BY MIDSOUTH. Subject to compliance with the
-----------------------
procedures set forth in Section 10.5, MidSouth may terminate this Agreement upon
------------
the occurrence of any of the following events without any further action on the
part of MidSouth:
(d) The Practice or any of its Physician Members or Physician Employees
(i) engages in any conduct for which the Physician Member's or Physician
Employee's license to practice medicine is revoked or suspended or (ii) is
otherwise disciplined by any licensing, regulatory or professional entity or
institution, the result of any of which event described in clause (i) or (ii)
materially adversely affects the Practice and provided that the Practice fails
to take reasonable action to remedy or correct such noncompliance or conduct or
to remove such Physician Employee from the Practice within thirty (30) days
after the Practice obtains knowledge thereof.
(e) In the event that the Practice materially breaches any term or
condition of this Agreement (other than as set forth in Sections 10.4(a), (c) or
------------------------
(d) hereof) and, in the opinion of MidSouth, such breach remains uncured after a
- ---
period of 60 days after the Practice's receipt of a written notice specifying
such breach, MidSouth shall submit the issue of whether the Practice has
materially breached this Agreement directly to arbitration in accordance with
Section 15.24 hereof: (i) whether the Practice has materially breached this
- -------------
Agreement and (ii) the amount of income MidSouth has foregone as the result of
such breach exclusive of punitive or consequential damages (the "Sub Lost Income
Amount"). If (i) the final decision under the arbitration set forth in Section
-------
15.24 determines that there has been a material breach and that the Practice
- -----
owes MidSouth a Sub Lost Income Amount and (ii) if the Practice fails to pay to
MidSouth the Sub Lost Income Amount within 30 days after receipt of written
notice specifying the Sub Lost Income Amount and (iii) the MidSouth has provided
the Practice with 15 days prior notice of MidSouth's intent to terminate this
Agreement hereunder, MidSouth may terminate this Agreement by delivery of
written notice to the Practice with no further action required on its behalf to
effect such termination.
SECTION 1.10. ACTIONS AFTER TERMINATION. Section 10.5 of the Service
-------------------------
Agreement is hereby deleted and replaced in its entirety by the following:
SECTION 10.5 ACTIONS AFTER TERMINATION.
-------------------------
(a) Duties and Remedies Upon Termination.
(i) Upon expiration or termination of this Agreement with respect
to the Practice, the Practice and MidSouth hereby agree to perform, in addition
to their obligations provided for elsewhere in this Agreement and continuing
after such termination or expiration of this Agreement with respect to the
Practice, such steps as are otherwise customarily required to wind up their
relationship under this Agreement in as orderly a manner as possible, including,
without limitation, MidSouth's provision to the Practice of patient billing
records. The terminating Practice hereby acknowledges and agrees that, upon
termination or expiration of this Agreement: (a) MidSouth shall retain all
right, title and interest in and to all of its proprietary software and systems,
including software and systems licensed by MidSouth from others, used in
connection with the management services provided under this Agreement; and (b)
the terminating Practice shall be responsible for obtaining its own software and
systems to take over the management of the Practice from MidSouth.
(ii) Except as set forth in this Section 10.5(a), 10.6 and Article 7
--------------------- ---------
hereof, upon the expiration or earlier termination of this Agreement with
respect to the Practice, neither party shall have any further obligation
hereunder with
Page 7
<PAGE>
the exception of obligations accruing prior to the date of such expiration or
earlier termination and obligations, promises and covenants contained herein
which extend beyond the terms hereof including, without limitation, any
indemnities, restrictive covenants, and access to books and records. Upon the
expiration or earlier termination of this Agreement with respect to a Practice,
the financial arrangements set forth in Article 6 shall be prorated between the
---------
parties to reflect any partial fiscal year. The funds for settlement of such
financial arrangements shall be disbursed on the closing date of the repurchase
of assets provided for in Section 10.5(b), but shall in no event occur later
---------------
than 180 days from the date of the notice of termination. If this Agreement is
terminated pursuant to Sections 10.3(c), 10.4(b), or 10.4(c) hereof, the non-
-------------------------------------
breaching party may pursue such other legal or equitable relief as may be
available in addition to such proration.
(iii) From and after any termination, the terminating Practice and
MidSouth shall provide the other with reasonable access to books and records
then owned by it to permit such requesting party to satisfy reporting and
contractual obligations which may be required of it.
(b) Procedures Related to Termination. In taking action to terminate
this Agreement the parties shall comply with the following procedures:
(i) Prior to taking any action to terminate, the party seeking
termination shall provide 15 days' prior written notice to MidSouth and PHC,
following the expiration of any cure periods.
(ii) The taking by the Practice of any action with respect to
termination of this Agreement shall require the affirmative vote of the holders
of two-thirds of the equity or membership interests of the owners of the
Practice as the case may be.
SECTION 1.11. CLOSING OF REPURCHASE BY THE PRACTICE AND EFFECTIVE DATE OF
-----------------------------------------------------------
TERMINATION. Section 10.6 of the Service Agreement is hereby deleted and
- -----------
replaced in its entirety with the following:
SECTION 10.6 REPURCHASE OF ASSETS.
(a) Upon termination of this Agreement pursuant to Section 10.3 or Section
------------ -------
10.4 hereof, the Practice shall purchase from PHC, MidSouth, or an Affiliate of
- ----
MidSouth those assets owned by PHC, MidSouth, or an Affiliate of MidSouth that
primarily relate to the operation of the Practice, including all FF&E and all
real property owned by PHC, MidSouth, or an Affiliate of MidSouth and associated
primarily with the operation of such Practice (the "Real Estate"), and the fair
market value of accounts receivable on the date of termination, at a purchase
price (the "Buyout Amount") equal to the greater of:
(i) the sum of (A) the consideration received by the Physician
Members under the Merger Agreement, assuming a fair market value of the MidSouth
Practice Management, Inc., capital stock to be $5.00 per share, plus (B)
liabilities of the Practice assumed by MidSouth, if any, pursuant to the PHC
Merger Agreement, plus (C) the Sub Lost Income Amount, if any, less an amount
equal to the sum of (X) any payments MidSouth failed to make under this
Agreement and (Y) the Practice Lost Income Amount, if any; or
(ii) the aggregate fair market value of the tangible and intangible
assets used in the operation of such Practice that are purchased from PHC,
MidSouth, or an Affiliate of MidSouth pursuant to this Section 10.6(a).
---------------
(b) The Practice may pay all or a portion of the Buyout Amount in (i) PHC
Voting Common Stock received by the Physician Members under the PHC Merger
Agreement, which shall be valued at $6.25 per share, or (ii) in cash.
(c) The Practice and MidSouth each acknowledge that they contemplate the
reasonable expansion of the Practice in the future through the addition of
physicians and ancillary services. The Practice and MidSouth further
acknowledge that they contemplate that the formula for computing the Buyout
Amount shall be equitably adjusted (as mutually agreed by the parties to this
Agreement) in the future to account for such expansion to the extent expansion
is funded by MidSouth. Any disputes arising from the foregoing adjustment of
the Buyout Amount shall be submitted to arbitration pursuant to Section 15.24 of
-------------
this Agreement.
Page 8
<PAGE>
(d) In addition to the payment of the Buyout Amount as set forth in
Section 10.6(a), upon termination of this Agreement, such Practice shall pay all
- ---------------
debt and assume without recourse against MidSouth all contracts, payables and
leases which are obligations of MidSouth and which relate exclusively to the
performance of its obligations under this Agreement or the properties subleased
by MidSouth, other than such contracts, payables and leases that are between
such Practice and MidSouth or its affiliates. The Buyout Amount shall be reduced
by the amount of debt and liabilities of MidSouth assumed by such Practice, by
any payment MidSouth has failed to make under this Agreement (other than any
such payments constituting all or a portion of the Practice Lost Income Amount
of such Practice). Such Practice and any physician owner of such Practice shall
execute such documents as may be required to assume the liabilities set forth in
this Section 10.6 and to remove or indemnify MidSouth to its reasonable
------------
satisfaction from any liability with respect to such repurchased assets and with
respect to any property leased or subleased by MidSouth.
(e) The closing date for the repurchase shall be determined by the
purchasing Practice, but shall in no event occur later than 60 days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and the purchasing
Practice and such Practice Employees shall be released from the restrictive
covenants as and to the extent set forth in Section 10.6(f) on the closing date.
---------------
MidSouth shall have the right, in its sole and absolute discretion, to waive the
repurchase requirements of a Practice, in which event, the termination of this
Agreement shall become effective upon the execution and delivery of such waiver.
(f) If the Practice remits the Buyout Amount to MidSouth in accordance
with Section 10.6(a) hereof within 60 days after determination of such Buyout
--------------
Amount, such Practice and the Physician Members shall be released from the
restrictive covenants of Article 7. If the affected Practice does not remit the
---------
Buyout Amount to MidSouth in accordance with Section 10.6(a) hereof within 60
---------------
days after determination of such Buyout Amount, the provisions of Article 7 of
---------
this Agreement shall survive in their entirety for a period of two (2) years
following the date of termination of this Agreement, which shall be tolled
during the time period in which any dispute of the Buyout Amount is subject to
arbitration pursuant to Section 15.24.
-------------
(g) The fair market value of the FF&E and the Real Estate shall be
determined by a nationally recognized independent accounting firm capable of
making such determinations and chosen by the affected Practice from a list of
three such firms submitted by MidSouth. The affected Practice shall submit its
choice of such firms in writing no later than five (5) days after receipt of
such list from MidSouth. MidSouth and the affected Practice shall bear the cost
of such determination equally.
SECTION 1.12. Section 15.2 of the Service Agreement is hereby deleted in
its entirety.
SECTION 1.13. ARBITRATION. Section 15.24 of the Service Agreement is
-----------
hereby deleted and replaced in its entirety by the following:
SECTION 15.24 ARBITRATION.
-----------
(a) Any and all disputes arising out of or in connection with the
negotiation, execution, interpretation, performance or nonperformance of this
Agreement shall be solely and finally settled by arbitration, which shall be
conducted in Atlanta, Georgia, or at such other location as the parties may
agree in writing. The arbitrator shall conduct the proceedings in accordance
with the Commercial Arbitration Rules of the American Arbitration Practice (the
"Rules") as such Rules are in effect as of the date of the occurrence giving
rise to such disputes. The arbitration proceeding shall be initiated in
accordance with the Rules. The parties hereby renounce all recourse to
litigation and agree that any arbitration award shall be final and subject to no
judicial review. The arbitration shall be conducted before one or more
arbitrators, chosen in accordance with the Rules. The arbitrator(s) shall
decide the issues submitted in accordance with (i) the language and commercial
purposes of this Agreement; and (ii) what is just and equitable under the
circumstances, provided that all substantive questions of law (excluding
principles of conflicts of laws) shall be determined under the laws of the State
of Georgia.
Page 9
<PAGE>
(b) The parties agree to facilitate the arbitration by: (i) making
available to one another and to the arbitrator for examination, inspection and
extraction all documents, books, records and personnel under their control
determined by the arbitrator to be relevant to the dispute; (ii) conducting
arbitration hearings to the greatest extent possible on successive days; and
(iii) observing strictly the time periods established by the Rules, or by the
arbitrator, for submission of evidence or briefs.
(c) Judgment on the award of the arbitrator may be entered in any court
having jurisdiction over the party against which enforcement of the award is
being sought. All deposits and other costs (other than fees of counsel)
incurred in conducting the arbitration shall be borne equally by the parties.
Each party shall be solely responsible for its own attorney's fees incurred in
connection with the arbitration.
(d) This section shall survive completion or termination of this Agreement,
and shall be specifically enforceable in any court of competent jurisdiction.
In no event shall a demand for arbitration be made after the date when any
applicable statute of limitations, or period for claims under this Agreement,
would bar institution of a legal or equitable proceeding based on such dispute
or subject matter in question.
SECTION 1.14. REPRESENTATIONS AND WARRANTIES IN SERVICE AGREEMENT. The
---------------------------------------------------
Practice and the Physician Members each hereby represents and warrants to
MidSouth that all representations and warranties made by such person or entity
in the Transaction Documents (hereinafter defined) as of the date thereof are
true and correct as of the date hereof, as if such representations and
warranties were recited herein in their entirety.
ARTICLE II - MISCELLANEOUS
--------------------------
SECTION 2.1. BINDING AGREEMENT. This Amendment shall be binding upon,
-----------------
and shall inure to the benefit of, the parties' respective heirs,
representatives, successors and assigns.
SECTION 2.2. NONWAIVER OF EVENTS OF DEFAULT. Neither this Amendment nor
------------------------------
any other document executed in connection herewith constitutes or shall be
deemed (a) a waiver of, or consent by MidSouth to, any default or event of
default which may exist or hereafter occur under the Service Agreement, the PHC
Merger Agreement or any other document executed or delivered in connection
therewith (collectively referred to herein as the "Transaction Documents"), (b)
---------------------
a waiver by MidSouth of any of the Practice's or the Provider's obligations
under the Agreements, or (c) a waiver by MidSouth of any rights, offsets,
claims, or other causes of action that MidSouth may have against either the
Practice or the Physician Members.
SECTION 2.3. NO DEFENSES. Each of the Practice and the Physician Members,
-----------
by its execution of this Amendment, hereby declares that it has no set-offs,
counterclaims, defenses or other causes of action against MidSouth arising out
of the transactions contemplated by the Transaction Documents, any documents
mentioned herein or otherwise; and, to the extent any such setoffs,
counterclaims, defenses or other causes of action may exist, whether known or
unknown, such items are hereby waived by the Practice and the Physician Members,
respectively.
SECTION 2.4. COUNTERPARTS. This Amendment may be executed in several
------------
counterparts, all of which are identical, each of which shall be deemed an
original, and all of which counterparts together shall constitute one and the
same instrument, it being understood and agreed that the signature pages may be
detached from one or more of such counterparts and combined with the signature
pages from any other counterpart in order that one or more fully executed
originals may be assembled.
SECTION 2.5. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA, EXCEPT TO THE
EXTENT FEDERAL LAWS PREEMPT THE LAWS OF THE STATE OF GEORGIA.
SECTION 2.6. ENTIRE AGREEMENT. This Amendment, together with the other
----------------
Transaction Documents, contain the entire agreement between the parties relating
to the subject matter hereof and thereof. This Amendment and
Page 10
<PAGE>
the Transaction Documents may be amended, revised, waived, discharged, released
or terminated only by a written instrument or instruments, executed by the party
against which enforcement of the amendment, revision, waiver, discharge, release
or termination is asserted. Any alleged amendment, revision, waiver, discharge,
release or termination which is not so documented shall not be effective as to
any party.
SECTION 2.7. CONFLICTING PROVISIONS. In the event that any provision of
----------------------
either this Amendment or the Service Agreement conflict with each other, the
provisions of this Amendment shall control.
THIS AMENDMENT AND THE TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT
--------------------------------------------------------------------------
BETWEEN THE PARTIES RELATED TO THE SUBJECT MATTER HEREIN CONTAINED AND MAY NOT
- ------------------------------------------------------------------------------
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
- ------------------------------------------------------------------------
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
- ------------------------------------------------------------------------------
PARTIES.
- -------
[Remainder of page intentionally left blank.]
Page 11
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed effective as of the date
first written above.
MIDSOUTH:
--------
MIDSOUTH PRACTICE MANAGEMENT, INC., a Tennessee
corporation
By: ______________________________________________
Name: ____________________________________________
Title: ___________________________________________
THE PRACTICE:
------------
FOUNDATION MEDICAL GROUP, PLLC, a Tennessee
professional limited liability company
By: ______________________________________________
Name: ____________________________________________
Title: ___________________________________________
THE PHYSICIAN MEMBERS:
----------------------
__________________________________________________
William C. Stewart, Jr., M.D.
__________________________________________________
Beau B. Pittman, M.D.
__________________________________________________
David B. Wright, M.D.
__________________________________________________
Michael Steffan, M.D.
__________________________________________________
Lynda Freeland, M.D.
__________________________________________________
Page 12
<PAGE>
Martha N. Taylor, M.D.
__________________________________________________
Ann D. Brown, M.D.
__________________________________________________
Mark Vlasak, M.D.
Page 13
<PAGE>
SCHEDULE 1
PHYSICIAN MEMBERS
1. William C. Stewart, Jr., M.D.
2. Beau B. Pittman, M.D.
3. David B. Wright, M.D.
4. Michael Steffan, M.D.
5. Lynda Freeland, M.D.
6. Martha N. Taylor, M.D.
7. Ann D. Brown, M.D.
8. Mark Vlasak, M.D.
Page 14
<PAGE>
EXHIBIT 6.2(B)-1
----------------
(Private Payor)
November __, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: Foundation Medical Group, PLLC
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
Please be advised that we have sold our receivables upon which you are obligated
to pay to Physician Health Corporation of MidSouth (the "Purchaser") and such
---------
receivables are owned by Purchaser. Accordingly you are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # _____________________ (Lockbox Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________(MidSouth Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # _________________________(Lockbox Account)
Please be advised that Purchaser is an intended third party beneficiary of
the instructions herein contained, and they are therefore irrevocable without
Purchaser's prior written consent.
Thank you for your cooperation in this matter.
______________________________
Page 15
<PAGE>
EXHIBIT 6.2(B)-2
----------------
(Government Payor)
November __, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: Foundation Medical Group, PLLC
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
Please be advised that we have encumbered the right to receive payments on the
receivables upon which you are obligated to pay to Physician Health Corporation
of MidSouth ("MidSouth") and the proceeds of such receivables are to be held by
--------
us for their account. Accordingly you are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # _____________________ (Sweeping Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________ (Practice Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # _________________________(Sweeping Account)
Please be advised that MidSouth is an intended third party beneficiary of
the instructions herein contained, and they are therefore irrevocable without
MidSouth's prior written consent.
Thank you for your cooperation in this matter.
______________________________
Page 16
<PAGE>
EXHIBIT 10.19
FIRST AMENDMENT TO MANAGEMENT SERVICES AGREEMENT
------------------------------------------------
This First Amendment to the Management Services Agreement (this
"Amendment") of Memphis Children's Clinic, PLLC, is executed as of November
---------
____, 1997, by and among MidSouth Practice Management, Inc., a Tennessee
corporation ("MidSouth"), Memphis Children's Clinic, PLLC, a Tennessee
--------
professional limited liability company (the "Practice"), and the physicians
--------
listed on Schedule 1 attached hereto that are members of the Practice (the
----------
"Physician Members").
-----------------
W I T N E S S E T H :
-------------------
WHEREAS, MidSouth, the Practice and the Physician Members entered into that
certain Management Services Agreement (the "Service Agreement") dated as of
-----------------
September 22, 1997 (the "Effective Date") pursuant to which MidSouth agreed, on
--------------
the terms and conditions therein contained, to provide certain management
services to the Practice and the Physician Members (each capitalized term not
expressly defined herein shall have the meaning given to it in the Service
Agreement);
WHEREAS, MidSouth, the Practice and the Physician Members desire to amend
their respective rights, covenants (restrictive and otherwise) and obligations
under the Service Agreement;
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, MidSouth, the
Practice and the Physician Members hereby covenant and agree as follows:
ARTICLE I - AMENDMENTS
----------------------
SECTION 1.1. DEFINITIONS. The following definitions are hereby added to
-----------
Article 1 of the Service Agreement:
"Affiliate" of an entity means (a) any person or entity directly or indirectly
controlled by such entity, (b) any person or entity directly or indirectly
controlling such entity, (c) any subsidiary of such entity if the entity has a
fifty percent (50%) or greater equity ownership interest in the subsidiary, or
(d) such entity's parent if the parent has a fifty percent (50%) or greater
ownership interest in the entity.
"Assignee" shall have the meaning set forth in Section 6.2(a).
--------------
"Buyout Amount" shall have the meaning set forth in Section 10.5(a)
---------------
"CHAMPVA" means, collectively, the Civilian Health and Medical Program of the
Department of Veteran Affairs, a program of medical benefits covering retirees
and dependents of former members of the armed services administered by the
United States Department of Veteran Affairs, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program,
including (a) all federal statutes (whether set forth in 38 U.S.C. (S)1713 or
elsewhere) affecting such program or, to the extent applicable to CHAMPVA,
CHAMPUS; and (b) all rules, regulations (including 38 C.F.R. (S)17.54), manuals,
orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"Depository Bank" shall have the meaning set forth in Section 6.2(b).
--------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Page 1
<PAGE>
"FF&E" means furniture, fixtures and equipment.
"Government Advance" shall have the meaning set forth in Section 6.2(c).
--------------
"Government Receivables Payment Amount" shall mean, for any month, the product
of (a) the Practice Government Collection Percentage for the twelve (12) month
period immediately preceding such month, times (b) the total amount of all
Governmental Receivables arising during such month.
"Gross Monthly Payment Amount" means the sum of the Private Receivables Payment
Amount plus the Government Receivables Payment Amount.
"Joint Ventures" shall have the meaning set forth in Section 3.11.
------------
"Lockbox Account" shall have the meaning set forth in Section 6.2(b)(ii).
------------------
"MidSouth Expenses" shall mean, pursuant to GAAP applied on a consistent basis:
(a) any corporate overhead charges of MidSouth and other items incurred by
MidSouth that are not incurred specifically for the purpose of providing
services to the Practice or are not directly attributable to the Practice, as
reasonably determined by MidSouth, including, without limitation, salaries and
benefits of the executive officers of MidSouth, except as otherwise provided in
the definition of Practice Expenses; (b) any amortization of any intangible
asset resulting from the Exchange; (c) any depreciation attributable to
increases in the book value of tangible depreciable assets resulting from the
Exchange; (d) any legal and/or accounting expenses incurred by MidSouth in
connection with the Exchange; and (e) all taxes of MidSouth, including but not
limited to, state and federal employee taxes related solely to MidSouth
employees who provide services directly to the Practice at the Practice
Facilities, property taxes on assets used by the Practice and other taxes
specifically included in Practice Expenses.
"MidSouth Lockbox" shall have the meaning set forth in Section 6.2(b).
--------------
"Monthly Payment" shall have the meaning set forth in Section 6.2(c).
--------------
"Payor Instruction Letter" shall have the meaning set forth in Section 6.2(b).
--------------
"PHC" means Physician Health Corporation, a Delaware corporation, and the parent
company of MidSouth upon consummation of the PHC Merger Agreement.
"PHC Merger Agreement" means that certain Agreement and Plan of Merger dated as
of November __, 1997, by and among PHC, PHC Tennessee Acquisition Subsidiary I,
Inc., a Tennessee corporation and MidSouth Practice Management, Inc., a
Tennessee corporation, in which PHC Tennessee Acquisition Subsidiary I, Inc., a
wholly-owned subsidiary of PHC, shall be the surviving corporation and the name
of such corporation shall be changed to Physician Health Corporation of
MidSouth.
"Practice Government Collection Percentage" means the ratio, expressed as a
percentage, of (a) payments received by the Practice or MidSouth on the account
of the Practice's Government Receivables during the twelve (12) month period
immediately preceding any date of determination to (b) the total amount of the
Practice's Government Receivables billed during such twelve (12) month period.
"Practice Lockbox" shall have the meaning set forth in Section 6.2(b).
--------------
"Practice Lost Income Amount" shall have the meaning set forth in Section
-------
10.3(e).
- -------
"Practice Private Collection Percentage" means the ratio, expressed as a
percentage, of (a) payments received by the Practice or MidSouth on the account
of the Practice's Private Receivables during the twelve (12) month period
immediately preceding any date of determination to (b) the total amount of the
Practice's Private Receivables billed during such twelve (12) month period.
Page 2
<PAGE>
"Private Receivable(s)" shall have the meaning given to such term in Section
-------
6.2(a).
- ------
"Private Receivables Payment Amount" means, for any month, the product of (a)
the Practice Private Collection Percentage for the twelve (12) month period
immediately preceding such month, times (b) the total amount of all Private
Receivables arising during such month.
"Public Offering" means any method or means by which PHC initially accesses any
public capital market for any shares of its capital stock, including without
limitation, an initial public offering of the shares of the common stock of PHC,
or a merger by PHC with or into an entity or any Affiliate of an entity that has
a class of equity securities that is registered under the Exchange Act.
"Real Estate"shall have the meaning set forth in Section 10.5(a).
---------------
"Rules" shall have the meaning set forth in Section 15.24(a).
----------------
"Security Agreement" shall have the meaning set forth in Section 6.2(a).
--------------
"Sub Lost Income Amount" shall have the meaning set forth in Section 10.4(e).
---------------
SECTION 1.2. DEFINITIONS. Each of the following definitions is hereby
-----------
deleted and replaced in its entirety in Article 1 of the Service Agreement:
"CHAMPUS" shall mean, collectively, the Civilian Health and Medical Program of
the Uniformed Service, a program of medical benefits covering former and active
members of the uniformed services and certain of their dependents, financed and
administered by the United States Departments of Defense, Health and Human
Services and Transportation, and all laws, rules, regulations, manuals, orders,
guidelines or requirements pertaining to such program including (a) all federal
statutes (whether set forth in 10 U.S.C. (S)(S)1071-1106 or elsewhere) affecting
such program; and (b) all rules, regulations, (including 32 C.F.R. (S)199),
manuals, orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"Disbursement Account" shall mean the bank account maintained by MidSouth for
payment of the Service Fees and the Practice Expenses.
"Governmental Receivables" shall mean the Accounts Receivable of the Practice
that (i) arise in the ordinary course of business of the Practice, (ii) have as
their third party payor the United States of America (the "U.S.") or any state
or any agency or instrumentality of the U.S. or any state that makes any payment
with respect to Medicare, Medicaid or with respect to any other program
(including CHAMPUS OR CHAMPVA) established by Applicable Law and (iii) are
required by federal or state law to be paid to the Practice as a health care
provider. Governmental Receivables shall not, however, refer to amounts payable
by private insurers under contract to provide benefits under the Federal
Employee Health Benefit Program (5 U.S.C. (S)8901, et seq.).
-- ---
"MidSouth" shall mean Physician Health Corporation of MidSouth, a Tennessee
corporation.
"Practice Account" means the bank account maintained by the Practice for payment
of Excluded Expenses, receipt of the Monthly Payment and any other receipts or
disbursements deemed appropriate by the Practice that do not violate the terms
of this Agreement.
"Practice Revenues" shall mean all fees or Managed Care Payments actually
recorded each month by or on behalf of the Practice as a result of professional
medical services personally furnished or to be furnished to patients by
Physician Employees or other professionals under control of the Practice and
other fees or income generated in their capacity as professionals, whether
rendered in an inpatient or outpatient setting, and any revenue generated from
the sale of goods.
Page 3
<PAGE>
Practice Revenue shall not include Excluded Revenue. It is the intent of the
parties that Practice Revenue shall reflect the net realizable value of fees
recorded each month.
"Service Fee" shall mean the monthly fee equal to ten percent (10%) of the
Practice Net Revenue plus the amount of the Practice Expenses paid by MidSouth;
the calculation of the Service Fees shall not include Excluded Revenues,
Excluded Expenses or MidSouth Expenses.
"Third Party Payor Programs" shall mean Medicare, Medicaid, CHAMPUS, CHAMPVA,
insurance provided by Blue Cross and/or Blue Shield, managed care plans and any
other private health care insurance programs and employee assistance programs,
as well as any future similar programs.
SECTION 1.3. DEFINITIONS. The following definitions shall be deleted in
-----------
their entirety from Article 1 of the Service Agreement:
1.1.19 "Governmental Lockbox Account"
1.1.24 "Lockbox Agreements"
1.1.33 "Monthly Adjustments"
1.1.35 "Non-Governmental Lockbox Account"
1.1.36 "Non-Governmental Receivables"
1.1.37 "Notification Letter"
1.1.38 "Offsets"
1.1.39 "Opening Balance Sheet"
1.1.40 "Other Revenue"
1.1.51 "Purchase Price"
1.1.55 "Settlement Date"
1.1.60 "Yearly Adjustments"
SECTION 1.4. BANK ACCOUNTS. Section 3.1(b)(2) of the Service Agreement
------------- -----------------
is hereby deleted in its entirety and replaced with the following Section
-------
3.1(b)(2):
- ---------
(b)(2) All cash, checks and credit card purchases paid at the time that
medical services are rendered and all Managed Care Payments that do
not represent payment on a Purchased Accounts Receivable shall be
remitted to the Practice Account. All payments received by the
Practice with respect to the Purchased Accounts Receivable shall be
administered in accordance with Section 6.2 hereof.
-----------
SECTION 1.5. FINANCIAL STATEMENTS AND AUDITS. Section 3.3 of the Service
------------------------------- -----------
Agreement is hereby deleted in its entirety and replaced with the following
Section 3.3:
- -----------
Page 4
<PAGE>
SECTION 3.3 FINANCIAL STATEMENTS AND AUDITS. MidSouth shall prepare
-------------------------------
annual financial statements for the operations of the Practice and, in its
sole discretion, may cause the financial statements to be audited by a
certified public accountant selected by MidSouth. The Practice shall
cooperate fully in such audit. The cost of such audit shall be a Practice
Expense. If MidSouth elects to have the financial statements audited by a
certified public accountant with a big six accounting firm, the resulting
audited financial statements shall be binding on the Practice and MidSouth.
If MidSouth elects not to have the Practice's financial statements audited
by a big six accounting firm, the Practice shall have the option to obtain
such an audit, by a certified public accountant with a mutually acceptable
big six accounting firm. MidSouth shall fully cooperate in such audit.
The cost of such audit shall be a Practice Expense. In such event,
MidSouth and the Practice shall be bound by the resulting audited financial
statements. All parties shall be entitled to copies of any information
provided to or by the auditors by or to any party. Additionally, MidSouth
shall prepare monthly unaudited financial statements containing a balance
sheet and statements of income from the Practice operations, which shall be
delivered to the Practice within thirty (30) business days after the close
of each calender month.
SECTION 1.6. NEW ANCILLARY SERVICES AND ADDITIONAL PRACTICE OFFICES.
------------------------------------------------------
Section 3.11 of the Service Agreement is hereby deleted in its entirety and
- ------------
replaced with the following Section 3.11:
------------
SECTION 3.11 NEW ANCILLARY SERVICES AND ADDITIONAL PRACTICE OFFICES.
------------------------------------------------------
MidSouth and Practice jointly acknowledge that a primary motivation for
their entering into an affiliation is to expand the Practice and develop
new ancillary services and establish additional offices for the Practice.
MidSouth and Practice may enter into one or more joint ventures for the
construction or development of new ancillary services, such as surgery
centers and other capital projects (the "Joint Ventures"). MidSouth shall
arrange for all financing required by the Joint Ventures. Net profits
generated by each Joint Venture shall first be used to reimburse MidSouth
for the cost of capital invested by MidSouth in such Joint Venture and
MidSouth shall receive 51% of any residual net profits and the remaining
49% shall be divided between the Practice and the other investors in the
project, if any. MidSouth shall supply or arrange for all development,
design and general contracting services and personnel required by the Joint
Ventures. In the event that any Joint Venture should be unavailable to the
Practice because of MidSouth's prospective interest therein, the Practice
shall not be permitted to participate in such Joint Venture without
MidSouth's prior written consent, which shall not be unreasonably withheld;
provided, that the Practice has used its best efforts to cause MidSouth to
be allowed to participate in such Joint Venture on a 51% basis as
aforesaid. However, if upon advice of a law firm with nationally
recognized expertise in healthcare law that is acceptable to the parties
hereto, the Practice in good faith determines that a Joint Venture between
MidSouth and the Practice or its employees is legally impermissible or
involves a high degree of legal risk, the Practice or its employees may
pursue the new ancillary services and facilities without the joint
participation of MidSouth. The Practice shall therefore be entitled to
perform such new ancillary service at the Practice's own expense and
revenue therefrom shall not be Practice Revenue under this Agreement.
SECTION 1.7. PURCHASE OF ACCOUNTS RECEIVABLE AND OTHER PAYMENT. Section
-------------------------------------------------- -------
6.1 and Section 6.2 of the Service Agreement are hereby deleted in their
- --- -----------
entirety and replaced with the following Section 6.1 and Section 6.2:
----------- -----------
SECTION 6.1 FEES. The Practice shall pay to MidSouth a Service Fee equal
----
to (i) 12% of Practice Net Revenue, plus (ii) the amount of Practice Expenses
incurred by MidSouth.
SECTION 6.2 PURCHASE OF PRIVATE ACCOUNTS RECEIVABLE; SECURITY AGREEMENT;
------------------------------------------------------------
DEPOSIT OF PROCEEDS OF ACCOUNTS RECEIVABLE.
- ------------------------------------------
(a) Purchase of Private Receivables; Security. On or before the twentieth
-----------------------------------------
(20th) day of each month, MidSouth shall purchase the Accounts Receivable of the
Practice arising during the previous month that are not Governmental Receivables
(the "Private Receivables") for an amount equal to the Private Receivables
-------------------
Payment Amount. MidSouth shall pay the Practice for such Private Receivables in
the manner provided in Section 6.2(c). For purposes of determining whether a
--------------
particular Account Receivable arose during a given month and is therefore
eligible for
Page 5
<PAGE>
purchase as provided above, or for inclusion in the Monthly Payment as provided
in Section 6.2(c), Accounts Receivable shall be deemed to arise during the month
--------------
in which such receivable was billed to the appropriate payor. As security for
the payment and performance of all of the obligations and indebtedness of the
Practice to MidSouth under this Agreement, the Practice hereby agrees to execute
a security agreement (the "Security Agreement") in the form as attached hereto
------------------
as Exhibit 6.2(a). MidSouth may specifically assign (collaterally or otherwise)
--------------
and/or pledge (i) the Private Receivables purchased pursuant to the first
sentence of this Section 6.2(a) and (ii) all of its rights and interests under
--------------
this Agreement or the Security Agreement as security for loans and other
financing arrangements obtained by MidSouth from any other person or entity,
whether now existing or hereafter arising (any such person or entity being
hereafter referred to as an "Assignee"). Any such Assignee shall have all of
--------
MidSouth's rights and remedies, but none of MidSouth's obligations, under this
Agreement or the Security Agreement. In addition, the Practice shall cooperate
with MidSouth and execute all necessary documents in connection with the pledge
of such accounts receivable to MidSouth or at MidSouth's option, any Assignee.
(b) Deposit of Proceeds. In recognition of the fact that MidSouth will
-------------------
have purchased all of the Practice's Private Receivables and to facilitate
repayment of the Government Advances, the Practice agrees, within __ days of
the date of this Agreement, to deliver a letter, in the form as attached hereto
as Exhibit 6.2(b)-1 and Exhibit 6.2(b)-2 to all payors under the Private
---------------- ----------------
Receivables and the Government Receivables, respectively (the "Payor Instruction
-----------------
Letter"). The Payor Instruction Letters shall (i) direct payments on Private
- ------
Receivables to Post Office Box __________ (the "MidSouth Lockbox"), which
----------------
lockbox shall be opened by the Depository Bank and all proceeds of Private
Receivables therein contained shall be deposited by the Depository Bank into the
Lockbox Account, and (ii) direct payments on Governmental Receivables to Post
Office Box __________ (the "Practice Lockbox"), which lockbox shall be opened by
----------------
the Depository Bank and all proceeds of Government Receivables therein contained
shall be deposited by the Depository Bank into the Sweeping Account. The
depository agreement for the Sweeping Account shall provide (i) that the
Depository Bank shall deposit all checks or other forms of payment received in
the Practice Lockbox into the Sweeping Account, and (ii) that the account
balance in the Sweeping Account shall be "swept" daily into the Lockbox Account.
Prior to the effective date of the instructions contained in the Payor
Instruction Letters, and to the extent that the Practice receives any payments
with respect to its Accounts Receivable and contrary to the terms of any Payor
Instruction Letter, the Practice agrees to deposit all such payments received by
the Practice as follows:
(i) payments received on Governmental Receivables shall be deposited
into Account No. _________ (the "Sweeping Account") maintained by the
----------------
Practice at ___________ (the "Depository Bank"), which such account
---------------
shall be "swept" daily into the Lockbox Account.
(ii) payments received on Private Receivables shall be deposited into
Account No. _________ maintained by MidSouth at Depository Bank (the
"Lockbox Account").
---------------
All amounts received by MidSouth as provided above that are proceeds of
Private Receivables shall be owned by MidSouth. All amounts received by
MidSouth as provided above that are proceeds of Governmental Receivables shall
be applied first to the repayment of all Government Advances theretofore made,
and the balance, if any, shall be refunded to the Practice.
(c) Allocation of Proceeds; Monthly Payments. MidSouth shall, within
----------------------------------------
twenty (20) days after the end of each calendar month, make a payment to the
Practice (the "Monthly Payment"), which shall represent (A) the purchase price
---------------
for the Private Receivables that arose during the previous month and (B) an
advance (the "Government Advance") to the Practice in an amount equal to the
------------------
product of the Practice Government Collection Percentage times the Governmental
Receivables that arose during the previous month, in an amount equal to (i) the
difference between (x) the Gross Monthly Payment Amount for such month, minus
(y) an amount equal to all items deposited into the Lockbox Account (whether
directly or as a result of a transfer from the Sweeping Account) that were
returned to MidSouth by its depository bank as a result of insufficient funds,
a stop payment order, or otherwise during such month, less (ii) the Service Fee
due to MidSouth from the Practice under this Agreement for such month,
including, without limitation, this Article 6, based on the Accounts Receivable
---------
that arose during such month.
(d) Adjustments. Adjustments to the Monthly Payments shall be made to
-----------
reconcile actual amounts due under this Article 6 within 45 days after the end
---------
of each six (6) month period during the term of this Agreement. At
Page 6
<PAGE>
such semi-annual intervals, MidSouth shall determine the actual amounts due
MidSouth pursuant to this Article 6 for each such six (6) month period, with
---------
such amounts to be calculated on an annualized basis for such six (6) month
period.
MidSouth shall notify the Practice of the amount of payments, if any, due
from one party to another as a result of such adjustments within 60 days of the
end of each six (6) month period. If payment is due from one party to the
other, such amount shall be paid in full within ten (10) days of such
notification of the Practice; provided, however, that in the case such amounts
are due MidSouth on such calculations, MidSouth may, at its discretion, offset
such amounts due from the Practice against the Monthly Payment due the Practice
for succeeding calendar months.
Within 120 days after the end of each calendar year, MidSouth will
determine the actual amounts due MidSouth pursuant to this Article 6 for such
---------
calendar year (prorated for any calendar year for which this Agreement has been
in effect less than the entire year).
If, after taking into account all Monthly Payments and any mid year
adjustments for such calendar year, payment is due from one party to the other,
such amount shall be paid in full within ten (10) business days after such
calculations are made final; provided, however, that in the case amounts are due
MidSouth on such calculations, MidSouth may, at its discretion, offset such
amounts due from the Practice against the Monthly Payment due the Practice for
succeeding calendar months. This year-end reconciliation shall include
reconciliation of any amounts owed by one party to another with respect to any
expenses of any party, as set forth hereunder, paid by any other party.
SECTION 1.8. TERM OF AGREEMENT AND EXTENDED TERM. Section 10.1 and
----------------------------------- ------------
Section 10.2 of the Service Agreement are hereby deleted and replaced in their
- ------------
entirety with the following:
SECTION 10.1 TERM OF AGREEMENT. This Agreement shall commence on the
-----------------
date hereof and shall expire on August 31, 2037, unless earlier terminated
pursuant to the provisions hereof (the "Term").
SECTION 10.2 [Intentionally left blank.]
SECTION 1.9. TERMINATION BY THE PRACTICE. The first sentence of Section
--------------------------- -------
10.3, Section 10.3(b), Section 10.3(c) and Section 10.3(d) of the Service
- ---- -------------------------------- ---------------
Agreement are hereby deleted and replaced in their entirety with the following:
SECTION 10.3 TERMINATION BY THE PRACTICE. Subject to compliance with the
---------------------------
provisions set forth in Section 10.5, the Practice may terminate this Agreement
------------
upon the occurrence of any of the following events without any further action on
the part of the Practice:
(b) If Physician Health Corporation ("PHC") shall not have consummated the
Public Offering as of the end of the seventy-second (72nd) month following the
Effective Date; provided that the Practice notifies MidSouth of the decision of
the Practice to terminate this Agreement pursuant to this Section 10.3(b) within
---------------
ninety (90) days following the end of the seventy-second (72nd) month following
the Effective Date.
(c) In the event that MidSouth materially breaches the terms of this
Agreement (other than as set forth in Sections 10.4(a), (b) or (d) hereof) and
----------------------------
such breach remains uncured for a period of sixty (60) days after MidSouth's
receipt of a written notice specifying such breach, the Practice shall submit
the following issues directly to arbitration in accordance with Section 15.28
-------------
hereof: (i) whether MidSouth has materially breached this Agreement and (ii) if
MidSouth has materially breached this Agreement, the amount of income the
Practice has foregone as a result of the breach exclusive of punitive or
consequential damages (the "Practice Lost Income Amount"). If (i) the final
decision under the arbitration set forth in Section 15.28 determines that there
-------------
has been a material breach and that MidSouth owes the Practice a Practice Lost
Income Amount; (ii) MidSouth fails to pay to the Practice the Practice Lost
Income Amount within thirty (30) days after receipt of written notice specifying
the Practice Lost Income Amount and (iii) the Practice has provided MidSouth
with fifteen (15) days prior notice of the Practice's intent to terminate this
Agreement hereunder, the Practice may terminate this Agreement by delivery of
written notice to PHC and MidSouth.
Page 7
<PAGE>
(d) In the event that MidSouth shall fail to remit a payment due as
provided in this Agreement and the failure to remit continues for a period of
thirty (30) days after such payment was due and payable to the Practice, the
Practice may terminate this Agreement; provided, however the Practice must use
its best efforts to notify MidSouth in writing of such failure as soon as
practicable after the due date of the payment.
SECTION 1.10. TERMINATION BY MIDSOUTH. The first sentence of Section
----------------------- -------
10.4 of the Service Agreement is hereby deleted and replaced in its entirety
- ----
with the following, as well as the addition of the following provisions to
Section 10.4:
- ------------
SECTION 10.4 TERMINATION BY MIDSOUTH. Subject to compliance with the
-----------------------
procedures set forth in Section 10.5, MidSouth may terminate this Agreement upon
------------
the occurrence of any of the following events without any further action on the
part of MidSouth:
(d) The Practice or any of its Physician Members or Physician Employees
(i) engages in any conduct for which the Physician Member's or Physician
Employee's license to practice medicine is revoked or suspended or (ii) is
otherwise disciplined by any licensing, regulatory or professional entity or
institution, the result of any of which event described in clause (i) or (ii)
materially adversely affects the Practice and provided that the Practice fails
to take reasonable action to remedy or correct such noncompliance or conduct or
to remove such Physician Employee from the Practice within thirty (30) days
after the Practice obtains knowledge thereof.
(e) In the event that the Practice materially breaches any term or
condition of this Agreement (other than as set forth in Sections 10.4(a), (c) or
------------------------
(d) hereof) and, in the opinion of MidSouth, such breach remains uncured after a
- ---
period of sixty (60) days after the Practice's receipt of a written notice
specifying such breach, MidSouth shall submit the issue of whether the Practice
has materially breached this Agreement directly to arbitration in accordance
with Section 15.28 hereof: (i) whether the Practice has materially breached this
-------------
Agreement and (ii) the amount of income MidSouth has foregone as the result of
such breach exclusive of punitive or consequential damages (the "Sub Lost Income
Amount"). If (i) the final decision under the arbitration set forth in Section
-------
15.28 determines that there has been a material breach and that the Practice
- -----
owes MidSouth a Sub Lost Income Amount and (ii) if the Practice fails to pay to
MidSouth the Sub Lost Income Amount within thirty (30) days after receipt of
written notice specifying the Sub Lost Income Amount and (iii) the MidSouth has
provided the Practice with fifteen (15) days prior notice of MidSouth's intent
to terminate this Agreement hereunder, MidSouth may terminate this Agreement by
delivery of written notice to the Practice with no further action required on
its behalf to effect such termination.
SECTION 1.11. ACTIONS AFTER TERMINATION. Section 10.5 of the Service
-------------------------
Agreement is hereby deleted and replaced in its entirety by the following:
SECTION 10.5 ACTIONS AFTER TERMINATION.
-------------------------
(a) Duties and Remedies Upon Termination.
(i) Upon expiration or termination of this Agreement with respect to
the Practice, the Practice and MidSouth hereby agree to perform, in addition to
their obligations provided for elsewhere in this Agreement and continuing after
such termination or expiration of this Agreement with respect to the Practice,
such steps as are otherwise customarily required to wind up their relationship
under this Agreement in as orderly a manner as possible, including, without
limitation, MidSouth's provision to the Practice of patient billing records.
The terminating Practice hereby acknowledges and agrees that, upon termination
or expiration of this Agreement: (a) MidSouth shall retain all right, title and
interest in and to all of its proprietary software and systems, including
software and systems licensed by MidSouth from others, used in connection with
the management services provided under this Agreement; and (b) the terminating
Practice shall be responsible for obtaining its own software and systems to take
over the management of the Practice from MidSouth.
(ii) Except as set forth in this Sections 10.5(a), 10.6 and Article 7
---------------------- ---------
hereof, upon the expiration or earlier termination of this Agreement with
respect to the Practice, neither party shall have any further obligation
hereunder with the exception of obligations accruing prior to the date of such
expiration or earlier termination and obligations, promises and covenants
contained herein which extend beyond the terms hereof including, without
Page 8
<PAGE>
limitation, any indemnities, restrictive covenants, and access to books and
records. Upon the expiration or earlier termination of this Agreement with
respect to a Practice, the financial arrangements set forth in Article 6 shall
---------
be prorated between the parties to reflect any partial fiscal year. The funds
for settlement of such financial arrangements shall be disbursed on the closing
date of the repurchase of assets provided for in Section 10.5(b), but shall in
---------------
no event occur later than 180 days from the date of the notice of termination.
If this Agreement is terminated pursuant to Sections 10.3(c), 10.4(b), or
-----------------------------
10.4(c) hereof, the non-breaching party may pursue such other legal or
- -------
equitable relief as may be available in addition to such proration.
(iii) From and after any termination, the terminating Practice and
MidSouth shall provide the other with reasonable access to books and records
then owned by it to permit such requesting party to satisfy reporting and
contractual obligations which may be required of it.
(b) Procedures Related to Termination. In taking action to terminate
this Agreement the parties shall comply with the following procedures:
(i) Prior to taking any action to terminate, the party seeking
termination shall provide fifteen (15) days' prior written notice to MidSouth
and PHC, following the expiration of any cure periods.
(ii) The taking by the Practice of any action with respect to
termination of this Agreement shall require the affirmative vote of the holders
of two-thirds of the equity or membership interests of the owners of the
Practice as the case may be.
SECTION 1.12. CLOSING OF REPURCHASE BY THE PRACTICE AND EFFECTIVE DATE OF
-----------------------------------------------------------
TERMINATION. Section 10.6 of the Service Agreement is hereby deleted and
- -----------
replaced in its entirety with the following:
SECTION 10.6 REPURCHASE OF ASSETS.
(a) Upon termination of this Agreement pursuant to Section 10.3 or Section
------------ -------
10.4 hereof, the Practice shall purchase from PHC, MidSouth, or an Affiliate of
- ----
MidSouth those assets owned by PHC, MidSouth, or an Affiliate of MidSouth that
primarily relate to the operation of the Practice, including all FF&E and all
real property owned by PHC, MidSouth, or an Affiliate of MidSouth and associated
primarily with the operation of such Practice (the "Real Estate"), and the fair
market value of accounts receivable on the date of termination, at a purchase
price (the "Buyout Amount") equal to the greater of:
(i) the sum of (A) the consideration received by the Physician
Members under the Merger Agreement, assuming a fair market value of the MidSouth
Practice Management, Inc., capital stock to be $5.00 per share, plus (B)
liabilities of the Practice assumed by MidSouth, if any, pursuant to the PHC
Merger Agreement, plus (C) the Sub Lost Income Amount, if any, less an amount
equal to the sum of (X) any payments MidSouth failed to make under this
Agreement and (Y) the Practice Lost Income Amount, if any; or
(ii) the aggregate fair market value of the tangible and intangible
assets used in the operation of such Practice that are purchased from PHC,
MidSouth, or an Affiliate of MidSouth pursuant to this Section 10.6(a).
---------------
(b) The Practice may pay all or a portion of the Buyout Amount in (i) PHC
Voting Common Stock received by the Physician Members under the PHC Merger
Agreement, which shall be valued at $6.25 per share, or (ii) in cash.
(c) The Practice and MidSouth each acknowledge that they contemplate the
reasonable expansion of the Practice in the future through the addition of
physicians and ancillary services. The Practice and MidSouth further
acknowledge that they contemplate that the formula for computing the Buyout
Amount shall be equitably adjusted (as mutually agreed by the parties to this
Agreement) in the future to account for such expansion to the extent expansion
is funded by MidSouth. Any disputes arising from the foregoing adjustment of
the Buyout Amount shall be submitted to arbitration pursuant to Section 15.28 of
-------------
this Agreement.
Page 9
<PAGE>
(d) In addition to the payment of the Buyout Amount as set forth in
Section 10.6(a), upon termination of this Agreement, such Practice shall pay all
- ---------------
debt and assume without recourse against MidSouth all contracts, payables and
leases which are obligations of MidSouth and which relate exclusively to the
performance of its obligations under this Agreement or the properties subleased
by MidSouth, other than such contracts, payables and leases that are between
such Practice and MidSouth or its affiliates. The Buyout Amount shall be reduced
by the amount of debt and liabilities of MidSouth assumed by such Practice, by
any payment MidSouth has failed to make under this Agreement (other than any
such payments constituting all or a portion of the Practice Lost Income Amount
of such Practice). Such Practice and any physician owner of such Practice shall
execute such documents as may be required to assume the liabilities set forth in
this Section 10.6 and to remove or indemnify MidSouth to its reasonable
------------
satisfaction from any liability with respect to such repurchased assets and with
respect to any property leased or subleased by MidSouth.
(e) The closing date for the repurchase shall be determined by the
purchasing Practice, but shall in no event occur later than sixty (60) days from
the date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and the purchasing
Practice and such Practice Employees shall be released from the restrictive
covenants as and to the extent set forth in Section 10.6(f) on the closing date.
---------------
MidSouth shall have the right, in its sole and absolute discretion, to waive the
repurchase requirements of a Practice, in which event, the termination of this
Agreement shall become effective upon the execution and delivery of such waiver.
(f) If the Practice remits the Buyout Amount to MidSouth in accordance
with Section 10.6(a) hereof within sixty (60) days after determination of such
---------------
Buyout Amount, such Practice and the Physician Members shall be released from
the restrictive covenants of Article 7. If the affected Practice does not remit
---------
the Buyout Amount to MidSouth in accordance with Section 10.6(a) hereof within
---------------
sixty (60) days after determination of such Buyout Amount, the provisions of
Article 7 of this Agreement shall survive in their entirety for a period of two
- ---------
(2) years following the date of termination of this Agreement, which shall be
tolled during the time period in which any dispute of the Buyout Amount is
subject to arbitration pursuant to Section 15.28.
-------------
(g) The fair market value of the FF&E and the Real Estate shall be
determined by a nationally recognized independent accounting firm capable of
making such determinations and chosen by the affected Practice from a list of
three such firms submitted by MidSouth. The affected Practice shall submit its
choice of such firms in writing no later than five (5) days after receipt of
such list from MidSouth. MidSouth and the affected Practice shall bear the cost
of such determination equally.
SECTION 1.13. Section 15.2 of the Service Agreement is hereby deleted in
its entirety.
SECTION 1.14. ARBITRATION. Section 15.28 of the Service Agreement is
-----------
hereby deleted and replaced in its entirety by the following:
SECTION 15.28 ARBITRATION.
-----------
(a) Any and all disputes arising out of or in connection with the
negotiation, execution, interpretation, performance or nonperformance of this
Agreement shall be solely and finally settled by arbitration, which shall be
conducted in Atlanta, Georgia, or at such other location as the parties may
agree in writing. The arbitrator shall conduct the proceedings in accordance
with the Commercial Arbitration Rules of the American Arbitration Practice (the
"Rules") as such Rules are in effect as of the date of the occurrence giving
rise to such disputes. The arbitration proceeding shall be initiated in
accordance with the Rules. The parties hereby renounce all recourse to
litigation and agree that any arbitration award shall be final and subject to no
judicial review. The arbitration shall be conducted before one or more
arbitrators, chosen in accordance with the Rules. The arbitrator(s) shall
decide the issues submitted in accordance with (i) the language and commercial
purposes of this Agreement; and (ii) what is just and equitable under the
circumstances, provided that all substantive questions of law (excluding
principles of conflicts of laws) shall be determined under the laws of the State
of Georgia.
Page 10
<PAGE>
(b) The parties agree to facilitate the arbitration by: (i) making
available to one another and to the arbitrator for examination, inspection and
extraction all documents, books, records and personnel under their control
determined by the arbitrator to be relevant to the dispute; (ii) conducting
arbitration hearings to the greatest extent possible on successive days; and
(iii) observing strictly the time periods established by the Rules, or by the
arbitrator, for submission of evidence or briefs.
(c) Judgment on the award of the arbitrator may be entered in any court
having jurisdiction over the party against which enforcement of the award is
being sought. All deposits and other costs (other than fees of counsel)
incurred in conducting the arbitration shall be borne equally by the parties.
Each party shall be solely responsible for its own attorney's fees incurred in
connection with the arbitration.
(d) This section shall survive completion or termination of this
Agreement, and shall be specifically enforceable in any court of competent
jurisdiction. In no event shall a demand for arbitration be made after the date
when any applicable statute of limitations, or period for claims under this
Agreement, would bar institution of a legal or equitable proceeding based on
such dispute or subject matter in question.
SECTION 1.15. REPRESENTATIONS AND WARRANTIES IN SERVICE AGREEMENT. The
---------------------------------------------------
Practice and the Physician Members each hereby represents and warrants to
MidSouth that all representations and warranties made by such person or entity
in the Transaction Documents (hereinafter defined) as of the date thereof are
true and correct as of the date hereof, as if such representations and
warranties were recited herein in their entirety.
ARTICLE II - MISCELLANEOUS
--------------------------
SECTION 2.1. BINDING AGREEMENT. This Amendment shall be binding upon,
-----------------
and shall inure to the benefit of, the parties' respective heirs,
representatives, successors and assigns.
SECTION 2.2. NONWAIVER OF EVENTS OF DEFAULT. Neither this Amendment nor
------------------------------
any other document executed in connection herewith constitutes or shall be
deemed (a) a waiver of, or consent by MidSouth to, any default or event of
default which may exist or hereafter occur under the Service Agreement, the PHC
Merger Agreement or any other document executed or delivered in connection
therewith (collectively referred to herein as the "Transaction Documents"), (b)
---------------------
a waiver by MidSouth of any of the Practice's or the Provider's obligations
under the Agreements, or (c) a waiver by MidSouth of any rights, offsets,
claims, or other causes of action that MidSouth may have against either the
Practice or the Physician Members.
SECTION 2.3. NO DEFENSES. Each of the Practice and the Physician
-----------
Members, by its execution of this Amendment, hereby declares that it has no set-
offs, counterclaims, defenses or other causes of action against MidSouth arising
out of the transactions contemplated by the Transaction Documents, any documents
mentioned herein or otherwise; and, to the extent any such setoffs,
counterclaims, defenses or other causes of action may exist, whether known or
unknown, such items are hereby waived by the Practice and the Physician Members,
respectively.
SECTION 2.4. COUNTERPARTS. This Amendment may be executed in several
------------
counterparts, all of which are identical, each of which shall be deemed an
original, and all of which counterparts together shall constitute one and the
same instrument, it being understood and agreed that the signature pages may be
detached from one or more of such counterparts and combined with the signature
pages from any other counterpart in order that one or more fully executed
originals may be assembled.
SECTION 2.5. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA, EXCEPT TO THE
EXTENT FEDERAL LAWS PREEMPT THE LAWS OF THE STATE OF GEORGIA.
SECTION 2.6. ENTIRE AGREEMENT. This Amendment, together with the other
----------------
Transaction Documents, contain the entire agreement between the parties relating
to the subject matter hereof and thereof. This
Page 11
<PAGE>
Amendment and the Transaction Documents may be amended, revised, waived,
discharged, released or terminated only by a written instrument or instruments,
executed by the party against which enforcement of the amendment, revision,
waiver, discharge, release or termination is asserted. Any alleged amendment,
revision, waiver, discharge, release or termination which is not so documented
shall not be effective as to any party.
SECTION 2.7. CONFLICTING PROVISIONS. In the event that any provision of
----------------------
either this Amendment or the Service Agreement conflict with each other, the
provisions of this Amendment shall control.
THIS AMENDMENT AND THE TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT
--------------------------------------------------------------------------
BETWEEN THE PARTIES RELATED TO THE SUBJECT MATTER HEREIN CONTAINED AND MAY NOT
- ------------------------------------------------------------------------------
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
- ------------------------------------------------------------------------
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
- ------------------------------------------------------------------------------
PARTIES.
- -------
[REMAINDER OF PAGE INTENTIONALLY BLANK]
Page 12
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed effective as of the date
first written above.
MIDSOUTH:
--------
MIDSOUTH PRACTICE MANAGEMENT, INC., a Tennessee
corporation
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
THE PRACTICE:
------------
MEMPHIS CHILDREN'S CLINIC, PLLC, a Tennessee
professional limited liability company
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
THE PHYSICIAN MEMBERS:
----------------------
_____________________________________
Elizabeth M. Andrew, M.D.
_____________________________________
Dorothy H. Butler, M.D.
_____________________________________
Richard M. Butler, M.D.
_____________________________________
Timothy G. Gillespie, M.D.
_____________________________________
Page 13
<PAGE>
Faranak Motaghian, M.D.
_____________________________________
Harry V. Phillips, III, M.D.
_____________________________________
Kenneth R. Robertson, M.D.
_____________________________________
Charles Van Snider, M.D.
_____________________________________
Robert W. Riikola, M.D.
_____________________________________
Terry Geshke, M.D.
Page 14
<PAGE>
SCHEDULE 1
PHYSICIAN MEMBERS
1. Elizabeth M. Andrew, M.D.
2. Dorothy H. Butler, M.D.
3. Richard M. Butler, M.D.
4. Timothy G. Gillespie, M.D.
5. Faranak Motaghian, M.D.
6. Harry V. Phillips, III, M.D.
7. Kenneth R. Robertson, M.D.
8. Charles Van Snider, M.D.
9. Robert W. Riikola, M.D.
10. Terry Geshke, M.D.
Page 15
<PAGE>
EXHIBIT 6.2(B)-1
----------------
(Private Payor)
November __, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: Memphis Children's Clinic, PLLC
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
Please be advised that we have sold our receivables upon which you are obligated
to pay to Physician Health Corporation of MidSouth (the "Purchaser") and such
---------
receivables are owned by Purchaser. Accordingly you are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Lockbox Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________(MidSouth Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Lockbox Account)
Please be advised that Purchaser is an intended third party beneficiary of
the instructions herein contained, and they are therefore irrevocable without
Purchaser's prior written consent.
Thank you for your cooperation in this matter.
______________________________
Page 16
<PAGE>
EXHIBIT 6.2(B)-2
----------------
(Government Payor)
November __, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: Memphis Children's Clinic, PLLC
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
Please be advised that we have encumbered the right to receive payments on the
receivables upon which you are obligated to pay to Physician Health Corporation
of MidSouth ("MidSouth") and the proceeds of such receivables are to be held by
--------
us for their account. Accordingly you are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Sweeping Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________ (Practice Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Sweeping Account)
Please be advised that MidSouth is an intended third party beneficiary of
the instructions herein contained, and they are therefore irrevocable without
MidSouth's prior written consent.
Thank you for your cooperation in this matter.
______________________________
Page 17
<PAGE>
EXHIBIT 10.20
FIRST AMENDMENT TO MANAGEMENT SERVICES AGREEMENT
------------------------------------------------
This First Amendment to the Management Services Agreement (this
"Amendment") of Bryant Medical Services, P.C., is executed as of November ____,
---------
1997, by and among MidSouth Practice Management, Inc., a Tennessee corporation
("MidSouth"), Bryant Medical Services, P.C., a Tennessee professional
--------
corporation (the "Practice"), and the James W. Bryant, M.D., the sole
--------
shareholder of the Practice (the "Physician Shareholder").
---------------------
W I T N E S S E T H :
-------------------
WHEREAS, MidSouth, the Practice and the Physician Shareholder entered into
that certain Management Services Agreement (the "Service Agreement") dated as of
-----------------
November __, 1997 (the "Effective Date") pursuant to which MidSouth agreed, on
--------------
the terms and conditions therein contained, to provide certain management
services to the Practice and the Physician Shareholder (each capitalized term
not expressly defined herein shall have the meaning given to it in the Service
Agreement);
WHEREAS, MidSouth has entered into that certain Agreement and Plan of
Merger dated as of November __, 1997 (the "Merger Agreement"), whereby MidSouth
shall be merged into Physician Health Corporation of MidSouth, a Tennessee
corporation, which is a wholly-owned subsidiary of Physician Health Corporation,
a Delaware corporation;
WHEREAS, MidSouth, the Practice and the Physician Shareholder desire to
amend their respective rights, covenants (restrictive and otherwise) and
obligations under the Service Agreement and the foregoing Practice and the
Physician Shareholder hereby consent to the Merger Agreement;
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, MidSouth, the
Practice and the Physician Shareholder hereby covenant and agree as follows:
ARTICLE I - AMENDMENTS
----------------------
SECTION 1.1. DEFINITIONS. The following definitions are hereby added to
-----------
Article 1 of the Service Agreement:
"Affiliate" of an entity means (a) any person or entity directly or indirectly
controlled by such entity, (b) any person or entity directly or indirectly
controlling such entity, (c) any subsidiary of such entity if the entity has a
fifty percent (50%) or greater equity ownership interest in the subsidiary, or
(d) such entity's parent if the parent has a fifty percent (50%) or greater
ownership interest in the entity.
"Assignee" shall have the meaning set forth in Section 6.2(a).
--------------
"Buyout Amount" shall have the meaning set forth in Section 10.5(a)
---------------
"CHAMPVA" means, collectively, the Civilian Health and Medical Program of the
Department of Veteran Affairs, a program of medical benefits covering retirees
and dependents of former members of the armed services administered by the
United States Department of Veteran Affairs, and all laws, rules, regulations,
manuals, orders, guidelines or requirements pertaining to such program,
including (a) all federal statutes (whether set forth in 38 U.S.C. (S)1713 or
elsewhere) affecting such program or, to the extent applicable to CHAMPVA,
CHAMPUS; and (b) all rules, regulations (including 38 C.F.R. (S)17.54), manuals,
orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"Depository Bank" shall have the meaning set forth in Section 6.2(b).
--------------
Page 1
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FF&E" means furniture, fixtures and equipment.
"Government Advance" shall have the meaning set forth in Section 6.2(c).
--------------
"Government Receivables Payment Amount" shall mean, for any month, the product
of (a) the Practice Government Collection Percentage for the twelve (12) month
period immediately preceding such month, times (b) the total amount of all
Governmental Receivables arising during such month.
"Gross Monthly Payment Amount" means the sum of the Private Receivables Payment
Amount plus the Government Receivables Payment Amount.
"Joint Ventures" shall have the meaning set forth in Section 3.11.
------------
"Lockbox Account" shall have the meaning set forth in Section 6.2(b)(ii).
------------------
"MidSouth Lockbox" shall have the meaning set forth in Section 6.2(b).
--------------
"Monthly Payment" shall have the meaning set forth in Section 6.2(c).
--------------
"Payor Instruction Letter" shall have the meaning set forth in Section 6.2(b).
--------------
"PHC" means Physician Health Corporation, a Delaware corporation, and the parent
company of MidSouth upon consummation of the PHC Merger Agreement.
"PHC Merger Agreement" means that certain Agreement and Plan of Merger dated as
of November __, 1997, by and among PHC, PHC Tennessee Acquisition Subsidiary I,
Inc., a Tennessee corporation and MidSouth Practice Management, Inc., a
Tennessee corporation, in which PHC Tennessee Acquisition Subsidiary I, Inc., a
wholly-owned subsidiary of PHC, shall be the surviving corporation and the name
of such corporation shall be changed to Physician Health Corporation of
MidSouth.
"Practice Government Collection Percentage" means the ratio, expressed as a
percentage, of (a) payments received by the Practice or MidSouth on the account
of the Practice's Government Receivables during the twelve (12) month period
immediately preceding any date of determination to (b) the total amount of the
Practice's Government Receivables billed during such twelve (12) month period.
"Practice Lockbox" shall have the meaning set forth in Section 6.2(b).
--------------
"Practice Lost Income Amount" shall have the meaning set forth in Section
-------
10.3(e).
- -------
"Practice Private Collection Percentage" means the ratio, expressed as a
percentage, of (a) payments received by the Practice or MidSouth on the account
of the Practice's Private Receivables during the twelve (12) month period
immediately preceding any date of determination to (b) the total amount of the
Practice's Private Receivables billed during such twelve (12) month period.
"Private Receivable(s)" shall have the meaning given to such term in Section
-------
6.2(a).
- ------
"Private Receivables Payment Amount" means, for any month, the product of (a)
the Practice Private Collection Percentage for the twelve (12) month period
immediately preceding such month, times (b) the total amount of all Private
Receivables arising during such month.
"Public Offering" means any method or means by which PHC initially accesses any
public capital market for any shares of its capital stock, including without
limitation, an initial public offering of the shares of the common stock of PHC,
Page 2
<PAGE>
or a merger by PHC with or into an entity or any Affiliate of an entity that has
a class of equity securities that is registered under the Exchange Act.
"Real Estate"shall have the meaning set forth in Section 10.5(a).
---------------
"Rules" shall have the meaning set forth in Section 15.24(a).
----------------
"Security Agreement" shall have the meaning set forth in Section 6.2(a).
--------------
"Sub Lost Income Amount" shall have the meaning set forth in Section 10.4(e).
---------------
SECTION 1.2. DEFINITIONS. Each of the following definitions is hereby
-----------
deleted and replaced in its entirety in Article 1 of the Service Agreement:
"CHAMPUS" shall mean, collectively, the Civilian Health and Medical Program of
the Uniformed Service, a program of medical benefits covering former and active
members of the uniformed services and certain of their dependents, financed and
administered by the United States Departments of Defense, Health and Human
Services and Transportation, and all laws, rules, regulations, manuals, orders,
guidelines or requirements pertaining to such program including (a) all federal
statutes (whether set forth in 10 U.S.C. (S)(S)1071-1106 or elsewhere) affecting
such program; and (b) all rules, regulations, (including 32 C.F.R. (S)199),
manuals, orders and administrative, reimbursement and other guidelines of all
governmental authorities promulgated in connection with such program (whether or
not having the force of law), in each case as the same may be amended,
supplemented or otherwise modified from time to time.
"Governmental Receivables" shall mean the Accounts Receivable of the Practice
that (i) arise in the ordinary course of business of the Practice, (ii) have as
their third party payor the United States of America (the "U.S.") or any state
or any agency or instrumentality of the U.S. or any state that makes any payment
with respect to Medicare, Medicaid or with respect to any other program
(including CHAMPUS OR CHAMPVA) established by Applicable Law and (iii) are
required by federal or state law to be paid to the Practice as a health care
provider. Governmental Receivables shall not, however, refer to amounts payable
by private insurers under contract to provide benefits under the Federal
Employee Health Benefit Program (5 U.S.C. (S)8901 et seq.).
-- ----
"MidSouth" shall mean Physician Health Corporation of MidSouth, a Tennessee
corporation.
"Practice Account" means the bank account maintained by the Practice for payment
of Excluded Expenses, receipt of the Monthly Payment and any other receipts or
disbursements deemed appropriate by the Practice that do not violate the terms
of this Agreement.
"Third Party Payor Programs" shall mean Medicare, Medicaid, CHAMPUS, CHAMPVA,
insurance provided by Blue Cross and/or Blue Shield, managed care plans and any
other private health care insurance programs and employee assistance programs,
as well as any future similar programs.
SECTION 1.3. DEFINITIONS. The following definitions shall be deleted in
-----------
their entirety from Article 1 of the Service Agreement:
1.1.18 "Governmental Lockbox Account"
1.1.23 "Lockbox Agreements"
1.1.35 "Monthly Adjustment"
1.1.37 "Non-Governmental Lockbox Account"
1.1.38 "Non-Governmental Receivables"
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<PAGE>
1.1.39 "Notification Letter"
1.1.50 "Purchase Price"
1.1.54 "Settlement Date"
1.1.59 "Yearly Adjustments"
SECTION 1.4. BANK ACCOUNTS. Section 3.1(b)(2) of the Service Agreement
------------- -----------------
is hereby deleted in its entirety and replaced with the following Section
-------
3.1(b)(2):
- ---------
(b)(2) All cash, checks and credit card purchases paid at the time that
medical services are rendered and all Managed Care Payments that do
not represent payment on a Purchased Accounts Receivable shall be
remitted to the Practice Account. All payments received by the
Practice with respect to the Purchased Accounts Receivable shall be
administered in accordance with Section 6.2 hereof.
-----------
SECTION 1.5. FINANCIAL STATEMENTS AND AUDITS. Section 3.3 of the Service
------------------------------- -----------
Agreement is hereby deleted in its entirety and replaced with the following
Section 3.3:
- -----------
SECTION 3.3 FINANCIAL STATEMENTS AND AUDITS. MidSouth shall
-------------------------------
prepare annual financial statements for the operations of the Practice and,
in its sole discretion, may cause the financial statements to be audited by
a certified public accountant selected by MidSouth. The Practice shall
cooperate fully in such audit. The cost of such audit shall be a Practice
Expense. If MidSouth elects to have the financial statements audited by a
certified public accountant with a big six accounting firm, the resulting
audited financial statements shall be binding on the Practice and MidSouth.
If MidSouth elects not to have the Practice's financial statements audited
by a big six accounting firm, the Practice shall have the option to obtain
such an audit, by a certified public accountant with a mutually acceptable
big six accounting firm. MidSouth shall fully cooperate in such audit. The
cost of such audit shall be a Practice Expense. In such event, MidSouth and
the Practice shall be bound by the resulting audited financial statements.
All parties shall be entitled to copies of any information provided to or
by the auditors by or to any party. Additionally, MidSouth shall prepare
monthly unaudited financial statements containing a balance sheet and
statements of income from the Practice operations, which shall be delivered
to the Practice within thirty (30) business days after the close of each
calender month.
SECTION 1.6. NEW ANCILLARY SERVICES AND ADDITIONAL PRACTICE OFFICES.
------------------------------------------------------
Section 3.11 of the Service Agreement is hereby deleted and replaced in its
- ------------
entirety with the following:
Section 3.11 NEW ANCILLARY SERVICES AND ADDITIONAL PRACTICE OFFICES.
------------------------------------------------------
MidSouth and Practice jointly acknowledge that a primary motivation for their
entering into an affiliation is to expand the Practice and develop new ancillary
services and establish additional offices for the Practice. MidSouth and
Practice may enter into one or more joint ventures for the construction or
development of new ancillary services, such as surgery centers and other capital
projects (the "Joint Ventures"). MidSouth shall arrange for all financing
required by the Joint Ventures. Net profits generated by each Joint Venture
shall first be used to reimburse MidSouth for the cost of capital invested by
MidSouth in such Joint Venture and MidSouth shall receive 51% of any residual
net profits and the remaining 49% shall be divided between the Practice and the
other investors in the project, if any. MidSouth shall supply or arrange for
all development, design and general contracting services and personnel required
by the Joint Ventures. In the event that any Joint Venture should be unavailable
to the Practice because of MidSouth's prospective interest therein, the Practice
shall not be permitted to participate in such Joint Venture without MidSouth's
prior written consent, which shall not be unreasonably withheld; provided, that
the Practice has used its best efforts to cause MidSouth to be allowed to
participate in such Joint Venture on a 51% basis as aforesaid. However, if upon
advice of a law firm with nationally recognized expertise in healthcare law that
is acceptable to the parties hereto, the Practice in good faith determines that
a Joint Venture between MidSouth and the Practice or its employees is legally
impermissible or involves a high degree
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of legal risk, the Practice or its employees may pursue the new ancillary
services and facilities without the joint participation of MidSouth. The
Practice shall therefore be entitled to perform such new ancillary service at
the Practice's own expense and revenue therefrom shall not be Practice Revenue
under this Agreement.
SECTION 1.7. PURCHASE OF ACCOUNTS RECEIVABLE AND OTHER PAYMENT. Section
-------------------------------------------------- -------
6.1 and Section 6.2 of the Service Agreement are hereby deleted in their
- --- -----------
entirety and replaced with the following Section 6.1 and Section 6.2:
----------- -----------
SECTION 6.1 FEES. The Practice shall pay to MidSouth a Service Fee equal
----
to (i) 12% of Practice Net Revenue, plus (ii) the amount of Practice Expenses
incurred by MidSouth. Physician Shareholder hereby guarantees that Practice
shall pay a minimum annual Service Fee of Sixty Thousand and NO/100 Dollars
($60,000.00) for each year up to and including the fifth (5/th/) year from the
date hereof. The minimum annual Service Fee guaranteed shall increase to
Seventy Five Thousand and NO/100 Dollars ($75,000.00) if and when Dr. Rebecca
Rezei, M.D. ("Dr. Rezei") commences full-time employment with the Practice
during the first year of the Term. The guaranteed minimum annual Service Fee
for the first year of the Term shall be the sum of Sixty Thousand Dollars and
NO/100 ($60,000.00), plus One Thousand Two Hundred Fifty Dollars and NO/100
($1,250.00) for each full month during the year in which Dr. Rezei is employed
by the Practice on a full-time basis.
SECTION 6.2 PURCHASE OF PRIVATE ACCOUNTS RECEIVABLE; SECURITY AGREEMENT;
------------------------------------------------------------
DEPOSIT OF PROCEEDS OF ACCOUNTS RECEIVABLE.
- ------------------------------------------
(a) Purchase of Private Receivables; Security. On or before the twentieth
------------------------------------------
(20th) day of each month, MidSouth shall purchase the Accounts Receivable of the
Practice arising during the previous month that are not Governmental Receivables
(the "Private Receivables") for an amount equal to the Private Receivables
-------------------
Payment Amount. MidSouth shall pay the Practice for such Private Receivables in
the manner provided in Section 6.2(c). For purposes of determining whether a
---------------
particular Account Receivable arose during a given month and is therefore
eligible for purchase as provided above, or for inclusion in the Monthly Payment
as provided in Section 6.2(c), Accounts Receivable shall be deemed to arise
--------------
during the month in which such receivable was billed to the appropriate payor.
As security for the payment and performance of all of the obligations and
indebtedness of the Practice to MidSouth under this Agreement, the Practice
hereby agrees to execute a security agreement (the "Security Agreement") in the
------------------
form as attached hereto as Exhibit 6.2(a). MidSouth may specifically assign
--------------
(collaterally or otherwise) and/or pledge (i) the Private Receivables purchased
pursuant to the first sentence of this Section 6.2(a) and (ii) all of its rights
--------------
and interests under this Agreement or the Security Agreement as security for
loans and other financing arrangements obtained by MidSouth from any other
person or entity, whether now existing or hereafter arising (any such person or
entity being hereafter referred to as an "Assignee"). Any such Assignee shall
--------
have all of MidSouth's rights and remedies, but none of MidSouth's obligations,
under this Agreement or the Security Agreement. In addition, the Practice
shall cooperate with MidSouth and execute all necessary documents in connection
with the pledge of such accounts receivable to MidSouth or at MidSouth's option,
any Assignee.
(b) Deposit of Proceeds. In recognition of the fact that MidSouth will
-------------------
have purchased all of the Practice's Private Receivables and to facilitate
repayment of the Government Advances, the Practice agrees, within __ days of
the date of this Agreement, to deliver a letter, in the form as attached hereto
as Exhibit 6.2(b)-1 and Exhibit 6.2(b)-2 to all payors under the Private
---------------- ----------------
Receivables and the Government Receivables, respectively (the "Payor Instruction
-----------------
Letter"). The Payor Instruction Letters shall (i) direct payments on Private
- ------
Receivables to Post Office Box __________ (the "MidSouth Lockbox"), which
----------------
lockbox shall be opened by the Depository Bank and all proceeds of Private
Receivables therein contained shall be deposited by the Depository Bank into the
Lockbox Account, and (ii) direct payments on Governmental Receivables to Post
Office Box __________ (the "Practice Lockbox"), which lockbox shall be opened by
----------------
the Depository Bank and all proceeds of Government Receivables therein contained
shall be deposited by the Depository Bank into the Sweeping Account. The
depository agreement for the Sweeping Account shall provide (i) that the
Depository Bank shall deposit all checks or other forms of payment received in
the Practice Lockbox into the Sweeping Account, and (ii) that the account
balance in the Sweeping Account shall be "swept" daily into the Lockbox Account.
Prior to the effective date of the instructions contained in the Payor
Instruction Letters, and to the extent that the Practice receives any payments
with respect to its Accounts Receivable and contrary to the terms of any Payor
Instruction Letter, the Practice agrees to deposit all such payments received by
the Practice as follows:
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<PAGE>
(i) payments received on Governmental Receivables shall be deposited
into Account No. _________ (the "Sweeping Account") maintained by the
----------------
Practice at ___________ (the "Depository Bank"), which such account
---------------
shall be "swept" daily into the Lockbox Account.
(ii) payments received on Private Receivables shall be deposited into
Account No. _________ maintained by MidSouth at Depository Bank (the
"Lockbox Account").
---------------
All amounts received by MidSouth as provided above that are proceeds of
Private Receivables shall be owned by MidSouth. All amounts received by
MidSouth as provided above that are proceeds of Governmental Receivables shall
be applied first to the repayment of all Government Advances theretofore made,
and the balance, if any, shall be refunded to the Practice.
(c) Allocation of Proceeds; Monthly Payments. MidSouth shall, within
----------------------------------------
twenty (20) days after the end of each calendar month, make a payment to the
Practice (the "Monthly Payment"), which shall represent (A) the purchase price
---------------
for the Private Receivables that arose during the previous month and (B) an
advance (the "Government Advance") to the Practice in an amount equal to the
------------------
product of the Practice Government Collection Percentage times the Governmental
Receivables that arose during the previous month, in an amount equal to (i) the
difference between (x) the Gross Monthly Payment Amount for such month, minus
(y) an amount equal to all items deposited into the Lockbox Account (whether
directly or as a result of a transfer from the Sweeping Account) that were
returned to MidSouth by its depository bank as a result of insufficient funds,
a stop payment order, or otherwise during such month, less (ii) the Service Fee
due to MidSouth from the Practice under this Agreement for such month,
including, without limitation, this Article 6, based on the Accounts Receivable
---------
that arose during such month.
(d) Adjustments. Adjustments to the Monthly Payments shall be made to
-----------
reconcile actual amounts due under this Article 6 within 45 days after the end
---------
of each six (6) month period during the term of this Agreement. At such semi-
annual intervals, MidSouth shall determine the actual amounts due MidSouth
pursuant to this Article 6 for each such six (6) month period, with such amounts
---------
to be calculated on an annualized basis for such six (6) month period.
MidSouth shall notify the Practice of the amount of payments, if any, due
from one party to another as a result of such adjustments within 60 days of the
end of each six (6) month period. If payment is due from one party to the
other, such amount shall be paid in full within ten (10) days of such
notification of the Practice; provided, however, that in the case such amounts
are due MidSouth on such calculations, MidSouth may, at its discretion, offset
such amounts due from the Practice against the Monthly Payment due the Practice
for succeeding calendar months.
Within 120 days after the end of each calendar year, MidSouth will
determine the actual amounts due MidSouth pursuant to this Article 6 for such
----------
calendar year (prorated for any calendar year for which this Agreement has been
in effect less than the entire year).
If, after taking into account all Monthly Payments and any mid year
adjustments for such calendar year, payment is due from one party to the other,
such amount shall be paid in full within ten (10) business days after such
calculations are made final; provided, however, that in the case amounts are due
MidSouth on such calculations, MidSouth may, at its discretion, offset such
amounts due from the Practice against the Monthly Payment due the Practice for
succeeding calendar months. This year-end reconciliation shall include
reconciliation of any amounts owed by one party to another with respect to any
expenses of any party, as set forth hereunder, paid by any other party.
SECTION 1.8. TERM OF AGREEMENT AND EXTENDED TERM. Section 10.1 and
----------------------------------- ------------
Section 10.2 of the Service Agreement are hereby deleted and replaced in their
- ------------
entirety with the following:
SECTION 10.1 TERM OF AGREEMENT. This Agreement shall commence on the
-----------------
date hereof and shall expire on August 31, 2037, unless earlier terminated
pursuant to the provisions hereof (the "Term").
SECTION 10.2 [Intentionally left blank.]
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<PAGE>
SECTION 1.9. TERMINATION BY THE PRACTICE. The first sentence of Section
--------------------------- -------
10.3, Section 10.3(b) and Section 10.3(d) of the Service Agreement are hereby
- ---- --------------- ---------------
deleted and replaced in their entirety with the following:
SECTION 10.3 TERMINATION BY THE PRACTICE. Subject to compliance with the
---------------------------
provisions set forth in Section 10.5, a Practice may terminate this Agreement
------------
with respect to itself upon the occurrence of any of the following events
without any further action on the part of such Practice:
(b) If Physician Health Corporation ("PHC") shall not have consummated the
Public Offering as of the end of the seventy-second (72nd) month following the
Effective Date; provided that the Practice notifies MidSouth of the decision of
the Practice to terminate this Agreement pursuant to this Section 10.3(b) within
---------------
90 days following the end of the seventy-second (72nd) month following the
Effective Date.
(d) In the event that MidSouth materially breaches the terms of this
Agreement (other than as set forth in Sections 10.4(a), (c) or (e) hereof) and
----------------------------
such breach remains uncured for a period of 60 days after MidSouth's receipt of
a written notice specifying such breach, the Practice shall submit the following
issues directly to arbitration in accordance with Section 15.24 hereof: (i)
-------------
whether MidSouth has materially breached this Agreement and (ii) if MidSouth has
materially breached this Agreement, the amount of income the Practice has
foregone as a result of the breach exclusive of punitive or consequential
damages (the "Practice Lost Income Amount"). If (i) the final decision under
the arbitration set forth in Section 15.24 determines that there has been a
-------------
material breach and that MidSouth owes the Practice a Practice Lost Income
Amount; (ii) MidSouth fails to pay to the Practice the Practice Lost Income
Amount within 30 days after receipt of written notice specifying the Practice
Lost Income Amount and (iii) the Practice has provided MidSouth with 15 days
prior notice of the Practice's intent to terminate this Agreement hereunder, the
Practice may terminate this Agreement by delivery of written notice to PHC and
MidSouth.
(e) In the event that MidSouth shall fail to remit a payment due as
provided in this Agreement and the failure to remit continues for a period of
thirty (30) days after such payment was due and payable to the Practice, the
Practice may terminate this Agreement; provided, however the Practice must use
its best efforts to notify MidSouth in writing of such failure as soon as
practicable after the due date of the payment.
SECTION 1.10. TERMINATION BY MIDSOUTH. The first sentence of Section
----------------------- -------
10.4 of the Service Agreement is hereby deleted and replaced in its entirety
- ----
with the following, as well as the addition of the following provisions to
Section 10.4:
- ------------
SECTION 10.4 TERMINATION BY MIDSOUTH. Subject to compliance with the
-----------------------
procedures set forth in Section 10.5, MidSouth may terminate this Agreement upon
------------
the occurrence of any of the following events without any further action on the
part of MidSouth:
(d) The Practice or any of its Physician Shareholder or Physician
Employees (i) engages in any conduct for which the Physician Member's or
Physician Employee's license to practice medicine is revoked or suspended or
(ii) is otherwise disciplined by any licensing, regulatory or professional
entity or institution, the result of any of which event described in clause (i)
or (ii) materially adversely affects the Practice and provided that the Practice
fails to take reasonable action to remedy or correct such noncompliance or
conduct or to remove such Physician Employee from the Practice within thirty
(30) days after the Practice obtains knowledge thereof.
(e) In the event that the Practice materially breaches any term or
condition of this Agreement (other than as set forth in Sections 10.4(a), (c) or
------------------------
(d) hereof) and, in the opinion of MidSouth, such breach remains uncured after a
- ---
period of 60 days after the Practice's receipt of a written notice specifying
such breach, MidSouth shall submit the issue of whether the Practice has
materially breached this Agreement directly to arbitration in accordance with
Section 15.24 hereof: (i) whether the Practice has materially breached this
- -------------
Agreement and (ii) the amount of income MidSouth has foregone as the result of
such breach exclusive of punitive or consequential damages (the "Sub Lost Income
Amount"). If (i) the final decision under the arbitration set forth in Section
-------
15.24 determines that there has been a material breach and that the Practice
- -----
owes MidSouth a Sub Lost Income Amount and (ii) if the Practice fails to pay to
MidSouth the Sub Lost Income Amount within 30 days after receipt of written
notice specifying the Sub Lost Income Amount and (iii) the MidSouth has provided
the Practice with 15 days prior notice of MidSouth's intent to terminate
Page 7
<PAGE>
this Agreement hereunder, MidSouth may terminate this Agreement by delivery of
written notice to the Practice with no further action required on its behalf to
effect such termination.
SECTION 1.11. ACTIONS AFTER TERMINATION. Section 10.5 of the Service
-------------------------
Agreement is hereby deleted and replaced in its entirety by the following:
SECTION 10.5 ACTIONS AFTER TERMINATION.
-------------------------
(a) Duties and Remedies Upon Termination.
(i) Upon expiration or termination of this Agreement with respect to
the Practice, the Practice and MidSouth hereby agree to perform, in addition to
their obligations provided for elsewhere in this Agreement and continuing after
such termination or expiration of this Agreement with respect to the Practice,
such steps as are otherwise customarily required to wind up their relationship
under this Agreement in as orderly a manner as possible, including, without
limitation, MidSouth's provision to the Practice of patient billing records.
The terminating Practice hereby acknowledges and agrees that, upon termination
or expiration of this Agreement: (a) MidSouth shall retain all right, title and
interest in and to all of its proprietary software and systems, including
software and systems licensed by MidSouth from others, used in connection with
the management services provided under this Agreement; and (b) the terminating
Practice shall be responsible for obtaining its own software and systems to take
over the management of the Practice from MidSouth.
(ii) Except as set forth in this Section 10.5(a), 10.6 and Article 7
--------------------- ---------
hereof, upon the expiration or earlier termination of this Agreement with
respect to the Practice, neither party shall have any further obligation
hereunder with the exception of obligations accruing prior to the date of such
expiration or earlier termination and obligations, promises and covenants
contained herein which extend beyond the terms hereof including, without
limitation, any indemnities, restrictive covenants, and access to books and
records. Upon the expiration or earlier termination of this Agreement with
respect to a Practice, the financial arrangements set forth in Article 6 shall
---------
be prorated between the parties to reflect any partial fiscal year. The funds
for settlement of such financial arrangements shall be disbursed on the closing
date of the repurchase of assets provided for in Section 10.5(b), but shall in
---------------
no event occur later than 180 days from the date of the notice of termination.
If this Agreement is terminated pursuant to Sections 10.3(c), 10.4(b), or
-----------------------------
10.4(c) hereof, the non-breaching party may pursue such other legal or
- -------
equitable relief as may be available in addition to such proration.
(iii) From and after any termination, the terminating Practice and
MidSouth shall provide the other with reasonable access to books and records
then owned by it to permit such requesting party to satisfy reporting and
contractual obligations which may be required of it.
(b) Procedures Related to Termination. In taking action to terminate
this Agreement the parties shall comply with the following procedures:
(i) Prior to taking any action to terminate, the party seeking
termination shall provide 15 days' prior written notice to MidSouth and PHC,
following the expiration of any cure periods.
(ii) The taking by the Practice of any action with respect to
termination of this Agreement shall require the affirmative vote of the holders
of two-thirds of the equity or membership interests of the owners of the
Practice as the case may be.
SECTION 1.12. CLOSING OF REPURCHASE BY THE PRACTICE AND EFFECTIVE DATE OF
-----------------------------------------------------------
TERMINATION. Section 10.6 of the Service Agreement is hereby deleted and
- -----------
replaced in its entirety with the following:
SECTION 10.6 REPURCHASE OF ASSETS.
(a) Upon termination of this Agreement pursuant to Section 10.3 or Section
------------ -------
10.4 hereof, the Practice shall purchase from PHC, MidSouth, or an Affiliate of
- ----
MidSouth those assets owned by PHC, MidSouth, or an Affiliate of
Page 8
<PAGE>
MidSouth that primarily relate to the operation of the Practice, including all
FF&E and all real property owned by PHC, MidSouth, or an Affiliate of MidSouth
and associated primarily with the operation of such Practice (the "Real
Estate"), and the fair market value of accounts receivable on the date of
termination, at a purchase price (the "Buyout Amount") equal to the greater of:
(i) the sum of (A) the consideration received by the Physician
Shareholder under the Merger Agreement, assuming a fair market value of the
MidSouth Practice Management, Inc., capital stock to be $5.00 per share, plus
(B) liabilities of the Practice assumed by MidSouth, if any, pursuant to the PHC
Merger Agreement, plus (C) the Sub Lost Income Amount, if any, less an amount
equal to the sum of (X) any payments MidSouth failed to make under this
Agreement and (Y) the Practice Lost Income Amount, if any; or
(ii) the aggregate fair market value of the tangible and intangible
assets used in the operation of such Practice that are purchased from PHC,
MidSouth, or an Affiliate of MidSouth pursuant to this Section 10.6(a).
---------------
(b) The Practice may pay all or a portion of the Buyout Amount in (i) PHC
Voting Common Stock received by the Physician Shareholder under the PHC Merger
Agreement, which shall be valued at $6.25 per share, or (ii) in cash.
(c) The Practice and MidSouth each acknowledge that they contemplate the
reasonable expansion of the Practice in the future through the addition of
physicians and ancillary services. The Practice and MidSouth further
acknowledge that they contemplate that the formula for computing the Buyout
Amount shall be equitably adjusted (as mutually agreed by the parties to this
Agreement) in the future to account for such expansion to the extent expansion
is funded by MidSouth. Any disputes arising from the foregoing adjustment of
the Buyout Amount shall be submitted to arbitration pursuant to Section 15.24 of
-------------
this Agreement.
(d) In addition to the payment of the Buyout Amount as set forth in
Section 10.6(a), upon termination of this Agreement, such Practice shall pay all
- ---------------
debt and assume without recourse against MidSouth all contracts, payables and
leases which are obligations of MidSouth and which relate exclusively to the
performance of its obligations under this Agreement or the properties subleased
by MidSouth, other than such contracts, payables and leases that are between
such Practice and MidSouth or its affiliates. The Buyout Amount shall be reduced
by the amount of debt and liabilities of MidSouth assumed by such Practice, by
any payment MidSouth has failed to make under this Agreement (other than any
such payments constituting all or a portion of the Practice Lost Income Amount
of such Practice). Such Practice and any physician owner of such Practice shall
execute such documents as may be required to assume the liabilities set forth in
this Section 10.6 and to remove or indemnify MidSouth to its reasonable
------------
satisfaction from any liability with respect to such repurchased assets and with
respect to any property leased or subleased by MidSouth.
(e) The closing date for the repurchase shall be determined by the
purchasing Practice, but shall in no event occur later than 60 days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and the purchasing
Practice and such Practice Employees shall be released from the restrictive
covenants as and to the extent set forth in Section 10.6(f) on the closing date.
---------------
MidSouth shall have the right, in its sole and absolute discretion, to waive the
repurchase requirements of a Practice, in which event, the termination of this
Agreement shall become effective upon the execution and delivery of such waiver.
(f) If the Practice remits the Buyout Amount to MidSouth in accordance
with Section 10.6(a) hereof within 60 days after determination of such Buyout
---------------
Amount, such Practice and the Physician Shareholder shall be released from the
restrictive covenants of Article 7. If the affected Practice does not remit the
---------
Buyout Amount to MidSouth in accordance with Section 10.6(a) hereof within 60
---------------
days after determination of such Buyout Amount, the provisions of Article 7 of
---------
this Agreement shall survive in their entirety for a period of two (2) years
following the date of termination of this Agreement, which shall be tolled
during the time period in which any dispute of the Buyout Amount is subject to
arbitration pursuant to Section 15.24.
-------------
(g) The fair market value of the FF&E and the Real Estate shall be
determined by a nationally recognized independent accounting firm capable of
making such determinations and chosen by the affected Practice from a list of
three such firms submitted by MidSouth. The affected Practice shall submit its
choice of such firms in writing no later
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<PAGE>
than five (5) days after receipt of such list from MidSouth. MidSouth and the
affected Practice shall bear the cost of such determination equally.
SECTION 1.13. Section 15.2 of the Service Agreement is hereby deleted in
its entirety.
SECTION 1.14. ARBITRATION. Section 15.24 of the Service Agreement is
-----------
hereby deleted and replaced in its entirety by the following:
SECTION 15.24 ARBITRATION.
-----------
(a) Any and all disputes arising out of or in connection with the
negotiation, execution, interpretation, performance or nonperformance of this
Agreement shall be solely and finally settled by arbitration, which shall be
conducted in Atlanta, Georgia, or at such other location as the parties may
agree in writing. The arbitrator shall conduct the proceedings in accordance
with the Commercial Arbitration Rules of the American Arbitration Practice (the
"Rules") as such Rules are in effect as of the date of the occurrence giving
rise to such disputes. The arbitration proceeding shall be initiated in
accordance with the Rules. The parties hereby renounce all recourse to
litigation and agree that any arbitration award shall be final and subject to no
judicial review. The arbitration shall be conducted before one or more
arbitrators, chosen in accordance with the Rules. The arbitrator(s) shall
decide the issues submitted in accordance with (i) the language and commercial
purposes of this Agreement; and (ii) what is just and equitable under the
circumstances, provided that all substantive questions of law (excluding
principles of conflicts of laws) shall be determined under the laws of the State
of Georgia.
(b) The parties agree to facilitate the arbitration by: (i) making
available to one another and to the arbitrator for examination, inspection and
extraction all documents, books, records and personnel under their control
determined by the arbitrator to be relevant to the dispute; (ii) conducting
arbitration hearings to the greatest extent possible on successive days; and
(iii) observing strictly the time periods established by the Rules, or by the
arbitrator, for submission of evidence or briefs.
(c) Judgment on the award of the arbitrator may be entered in any court
having jurisdiction over the party against which enforcement of the award is
being sought. All deposits and other costs (other than fees of counsel)
incurred in conducting the arbitration shall be borne equally by the parties.
Each party shall be solely responsible for its own attorney's fees incurred in
connection with the arbitration.
(d) This section shall survive completion or termination of this
Agreement, and shall be specifically enforceable in any court of competent
jurisdiction. In no event shall a demand for arbitration be made after the date
when any applicable statute of limitations, or period for claims under this
Agreement, would bar institution of a legal or equitable proceeding based on
such dispute or subject matter in question.
SECTION 1.15. REPRESENTATIONS AND WARRANTIES IN SERVICE AGREEMENT. The
---------------------------------------------------
Practice and the Physician Shareholder each hereby represents and warrants to
MidSouth that all representations and warranties made by such person or entity
in the Transaction Documents (hereinafter defined) as of the date thereof are
true and correct as of the date hereof, as if such representations and
warranties were recited herein in their entirety.
ARTICLE II - MISCELLANEOUS
--------------------------
SECTION 2.1. BINDING AGREEMENT. This Amendment shall be binding
-----------------
upon, and shall inure to the benefit of, the parties' respective heirs,
representatives, successors and assigns.
SECTION 2.2. NONWAIVER OF EVENTS OF DEFAULT. Neither this Amendment
------------------------------
nor any other document executed in connection herewith constitutes or shall be
deemed (a) a waiver of, or consent by MidSouth to,
Page 10
<PAGE>
any default or event of default which may exist or hereafter occur under the
Service Agreement, the PHC Merger Agreement or any other document executed or
delivered in connection therewith (collectively referred to herein as the
"Transaction Documents"), (b) a waiver by MidSouth of any of the Practice's or
---------------------
the Provider's obligations under the Agreements, or (c) a waiver by MidSouth of
any rights, offsets, claims, or other causes of action that MidSouth may have
against either the Practice or the Physician Shareholder.
SECTION 2.3. NO DEFENSES. Each of the Practice and the Physician
-----------
Shareholder, by its execution of this Amendment, hereby declares that it has no
set-offs, counterclaims, defenses or other causes of action against MidSouth
arising out of the transactions contemplated by the Transaction Documents, any
documents mentioned herein or otherwise; and, to the extent any such setoffs,
counterclaims, defenses or other causes of action may exist, whether known or
unknown, such items are hereby waived by the Practice and the Physician
Shareholder, respectively.
SECTION 2.4. COUNTERPARTS. This Amendment may be executed in several
------------
counterparts, all of which are identical, each of which shall be deemed an
original, and all of which counterparts together shall constitute one and the
same instrument, it being understood and agreed that the signature pages may be
detached from one or more of such counterparts and combined with the signature
pages from any other counterpart in order that one or more fully executed
originals may be assembled.
SECTION 2.5. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA, EXCEPT TO THE
EXTENT FEDERAL LAWS PREEMPT THE LAWS OF THE STATE OF GEORGIA.
SECTION 2.6. ENTIRE AGREEMENT. This Amendment, together with the other
----------------
Transaction Documents, contain the entire agreement between the parties relating
to the subject matter hereof and thereof. This Amendment and the Transaction
Documents may be amended, revised, waived, discharged, released or terminated
only by a written instrument or instruments, executed by the party against which
enforcement of the amendment, revision, waiver, discharge, release or
termination is asserted. Any alleged amendment, revision, waiver, discharge,
release or termination which is not so documented shall not be effective as to
any party.
SECTION 2.7. CONFLICTING PROVISIONS. In the event that any provision of
----------------------
either this Amendment or the Service Agreement conflict with each other, the
provisions of this Amendment shall control.
THIS AMENDMENT AND THE TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT
--------------------------------------------------------------------------
BETWEEN THE PARTIES RELATED TO THE SUBJECT MATTER HEREIN CONTAINED AND MAY NOT
- ------------------------------------------------------------------------------
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
- ------------------------------------------------------------------------
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
- ------------------------- --------------------------------------------------
PARTIES.
- -------
Page 11
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed effective as of the date
first written above.
MIDSOUTH:
--------
MIDSOUTH PRACTICE MANAGEMENT, INC., a Tennessee
corporation
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
THE PRACTICE:
------------
BRYANT MEDICAL SERVICES, P.C., a Tennessee
professional corporation
By:_____________________________________________
Name:___________________________________________
Title:__________________________________________
THE PHYSICIAN SHAREHOLDER:
--------------------------
________________________________________
James W. Bryant, M.D.
Page 12
<PAGE>
EXHIBIT 6.2(B)-1
----------------
(Private Payor)
November __, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: Bryant Medical Services, P.C.
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
Please be advised that we have sold our receivables upon which you are obligated
to pay to Physician Health Corporation of MidSouth (the "Purchaser") and such
---------
receivables are owned by Purchaser. Accordingly you are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Lockbox Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________(MidSouth Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Lockbox Account)
Please be advised that Purchaser is an intended third party beneficiary of
the instructions herein contained, and they are therefore irrevocable without
Purchaser's prior written consent.
Thank you for your cooperation in this matter.
______________________________
Page 13
<PAGE>
EXHIBIT 6.2(B)-2
----------------
(Government Payor)
November __, 1997
[NAME OF PAYOR]
_______________________
_______________________
RE: Bryant Medical Services, P.C.
Federal Tax Identification Number: _______________
Medicare Provider Number: _______________
Medicaid Provider Number: _______________
Unique Provider Identification Number: _______________
To Whom It May Concern:
Please be advised that we have encumbered the right to receive payments on the
receivables upon which you are obligated to pay to Physician Health Corporation
of MidSouth ("MidSouth") and the proceeds of such receivables are to be held by
--------
us for their account. Accordingly you are directed to make:
(1) All wire transfers directly to the following account:
[NAME OF DEPOSITORY BANK]
_____________________________
_____________________________
ABA # _______________________
Account # ___________________ (Sweeping Account)
(2) All explanation of benefits, remittance advises, and other forms of
payment, including checks, to the following address:
[DEPOSITORY BANK] as Lockbox Bank
P.O. Box ________ (Practice Lockbox)
__________________________________
__________________________________
Reference: Physician Health Corporation
Account # ________________________ (Sweeping Account)
Please be advised that MidSouth is an intended third party beneficiary of
the instructions herein contained, and they are therefore irrevocable without
MidSouth's prior written consent.
Thank you for your cooperation in this matter.
______________________________
Page 14
<PAGE>
EXHIBIT 10.21
PHYSICIAN HEALTH CORPORATION
AMENDED AND RESTATED 1995 STOCK OPTION PLAN
(Restated as of October 1, 1997)
ARTICLE I
GENERAL
1.1 Purpose of the Plan.
-------------------
The purpose of the Physician Health Corporation Amended and Restated 1995
Stock Option Plan (the "Plan") is to assist Physician Health Corporation
(the "Company") in securing and retaining Key Employees, Directors, and
Consultants of outstanding ability by making it possible to offer them an
increased incentive to advise, join or continue in the service of the
Company and to increase their efforts for its welfare through participation
or increased participation in the ownership and growth of the Company.
1.2 Definitions.
-----------
(a) "Board of Directors" or "Board" means the Board of Directors of the
------------------ -----
Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" means the committee referred to in Section 1.3.
---------
(d) "Common Stock" means the common stock of the Company.
------------
(e) "Consultant" means any person not employed by the Company and not a
-----------
Director, rendering consulting or advisory services to the Company, who
is expected or determined by the Committee to contribute significantly
to the management, growth or direction of some part or all of the
business of the Company or its subsidiaries. The power to determine who
is and who is not a Consultant for purposes of this Plan is reserved
solely for the Committee.
(f) "Director" means a member of the Board of Directors of the Company or a
--------
Subsidiary.
(g) "Fair Market Value" means the closing price of the shares on a national
-----------------
securities exchange on which the Common Stock is primarily traded on
the day on which such value is to be determined or, if no shares were
traded on such day, on the next preceding day on which shares were
traded, as reported by National Quotation Bureau, Inc. or other
national quotation service. If the shares of Common Stock are traded in
the over-the-counter market, "fair market value" means the closing
"asked" price of the shares in the over-the-counter market on the day
on which such value is to be determined or, if such "asked" price is
not available, the last sales price on such day or, if no shares were
traded on such day, on the next preceding day on which the shares were
traded, as reported by the National Association of Securities Dealers
Automatic Quotation System (NASDAQ) or other national quotation
service. Nevertheless, if the Board of Directors determines that the
fair market value of the Common Stock cannot be accurately determined
pursuant to the methodologies described above or if shares of Common
Stock are not traded on an exchange or in the over-the-counter market,
Fair Market Value shall be the value determined by the Board of
Directors or Committee administering the Plan, taking into
consideration those factors affecting or reflecting value which they
deem appropriate.
<PAGE>
(h) "Incentive Stock Option" means an option to purchase shares of Common
----------------------
Stock which is intended to qualify as an incentive stock option as
defined in Section 422 of the Code and which may be granted solely to a
Key Employee.
(i) "Key Employee" means any person, including officers and directors in
------------
the regular employment of the Company or its subsidiaries, who is
designated a Key Employee by the Committee and is or is expected to be
primarily responsible for or to contribute significantly to the
management, growth, or supervision of some part or all of the business
of the Company or its subsidiaries. The power to determine who is and
who is not a Key Employee is reserved solely for the Committee.
(j) "Nonqualified Stock Option" means an option to purchase shares of
-------------------------
Common Stock which is not intended to qualify as an incentive stock
option as defined in Section 422 of the Code and which may be granted
to Key Employees, Directors, and Consultants.
(k) "Option" means an Incentive Stock Option or a Nonqualified Stock
------
Option.
(l) "Optionee" means a Key Employee, Director, or Consultant to whom an
--------
Option is granted under the Plan.
(m) "Parent" means any corporation which qualifies as a parent of a
------
corporation under the definition of "parent corporation" contained in
Section 424(e) of the Code.
(n) "Subsidiary" means any corporation which qualifies as a subsidiary of a
----------
corporation under the definition of "subsidiary corporation" contained
in Section 424(f) of the Code.
(o) "Term" means the period during which a particular Option may be
----
exercised as determined by the Committee and as provided in the option
agreement.
1.3 Administration of the Plan.
--------------------------
The Plan shall be administered by a Committee (the "Committee") appointed
by the Board of Directors consisting of either (a) the entire Board of
Directors or (b) two or more members of the Board of Directors, all of whom
qualify as "Non-Employee Directors" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934. Additionally, in
the event the Board of Directors intends that options granted under the
Plan qualify as performance-based compensation under Section 162(m)(4)(C)
of the Code, the Committee shall be composed solely of two or more persons
who qualify both as "outside directors" within the meaning of that Code
section and as "Non-Employee Directors" within the meaning of the said Rule
16b-3. Subject to the control of the Board, and without limiting the
control over decisions described in Section 1.5, the Committee shall have
the power to interpret and apply the Plan and to make regulations for
carrying out its purpose. More particularly, the Committee shall determine
which Key Employees, Directors, and Consultants shall be granted Options
and the terms of such Options. When granting Options, the Committee shall
designate the Option as either an Incentive Stock Option or a Nonqualified
Stock Option. Determinations by the Committee under the Plan (including,
without limitation, determinations of the person to receive Options, the
form, amount and timing of such Options, and the terms and provisions of
such Options and the agreements evidencing same) need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, Options under the Plan, whether or not such persons are similarly
situated. In serving on the Committee, members thereof shall be considered
to be acting in their capacity as members of the Board of Directors and
shall be entitled to all rights of indemnification provided by the Bylaws
of the Company or otherwise to members of the Board of Directors.
1.4 Shares Subject to the Plan.
--------------------------
-2-
<PAGE>
The total number of shares that may be purchased pursuant to Options under
the Plan shall not exceed 7,000,000 shares of Common Stock prior to
consumation of the Company's initial public offering of Common Stock
("IPO"), subject to increase to 10,000,000 upon consumation of the IPO.
Shares subject to the Options which terminate or expire prior to exercise
shall be available for future Options under the Plan without again being
charged against the limitation of 10,000,000 shares set forth above. For
purposes of Section 162(m) of the Code, the maximum number of shares of
Common Stock with respect to which any individual may receive options under
the Plan during any calendar year shall be 1,000,000 shares. Shares issued
pursuant to the Plan may be either unissued shares of Common Stock or
reacquired shares of Common Stock held in treasury.
1.5 Terms and Conditions of Options.
-------------------------------
All Options shall be evidenced by option agreements in such form as the
Committee shall approve from time to time subject to the provisions of
Article II and Article III, as appropriate, and the following provisions:
(a) Exercise Price. Except as provided in Section 3.1, the exercise price
--------------
of the Option shall not be less than the Fair Market Value (as
determined by the Committee) of the Common Stock at the time the Option
is granted. In making such determination, if the Board of Directors
believes that the Company will engage in an initial public offering
within 90 days of the date an Option is granted, the Board of Directors
may designate the Fair Market Value as the initial offering price in
such public offering after finding that such initial offering price
will reflect an amount no less than the fair market value of the Common
Stock on the date of Option grant. If the anticipated public offering
does not occur within such 90 day period, the Board of Directors shall
determine the Fair Market Value as of the date of the grant in the
manner set forth in Section 1.2 hereof.
(b) Exercise. The Committee shall determine whether the Option shall be
--------
exercisable in full at any time during the Term or in cumulative or
noncumulative installments during the Term.
(c) Termination of Employment. An Optionee's Option shall expire on the
-------------------------
expiration of the Term specified in Section 2.1 or 3.1, as the case may
be, or upon the occurrence of such events as are specified in the
option agreement. If the option agreement permits exercise of the
Option after termination of employment or service as a Director, the
Optionee may exercise the Option only with respect to the shares which
could have been purchased by the Optionee at the date of termination of
employment or service as a Director. However, the Committee may, but is
not required to, waive any requirements made pursuant to Section 1.5(b)
so that some or all of the shares subject to the Option may be
exercised within the time limitation described in this subsection. An
Optionee's employment shall be deemed to terminate on the last date for
which he receives a regular wage or salary payment. Whether military,
government or other service or other leave of absence shall constitute
a termination of employment shall be determined in each case by the
Committee at its discretion, and any determination by the Committee
shall be final and conclusive. A termination of employment or service
as a Director shall not occur where the Optionee transfers from the
Company or its Board of Directors to one of its Subsidiaries or the
Subsidiary's Board of Directors, transfers from a Subsidiary or the
Subsidiary's Board of Directors to the Company or its Board of
Directors, or transfers between Subsidiaries or their respective Boards
of Directors.
(d) Death or Disability. Upon termination of an Optionee's employment or
-------------------
service as a Director by reason of death or disability (as determined
by the Committee consistent with the definition of Section 422(c)(6) of
the Code), the Option shall expire on the earlier of the expiration of
(i) the date specified in the option agreement which in no event shall
be later than 12 months after the date of such termination, or (ii) the
Term specified in Section 2.1 or 3.1, as the case may be. The Optionee
or his successor in interest, as the case may be, may exercise the
Option only as to the shares that could have been purchased by the
Optionee at the date of his termination of employment or service as a
Director. However, the Committee may, but is not required to, waive any
requirements made pursuant to
-3-
<PAGE>
Section 1.5(b) so that some or all of the shares subject to the Option
may be exercised within the time limitation described in this
subsection.
(e) Payment. Payment for shares as to which an Option is exercised shall
-------
be made in such manner and at such time or times as shall be provided
in the option agreement or as otherwise permitted by the Committee,
including cash, Common Stock of the Company which was previously
acquired by the Optionee, or any combination thereof. The Fair Market
Value of the surrendered Common Stock as of the date of exercise shall
be determined in valuing Common Stock used in payment for Options. The
Committee shall have the discretion either to permit or to prohibit the
use of shares of Common Stock owned by the Optionee for a period of
less than six months to pay the purchase price upon exercise of an
Option, depending upon whether, in the Committee's determination, the
use of such shares would be appropriate under APB Opinion No. 25.
(f) Nontransferability. No Option granted under the Plan shall be
------------------
transferable other than by will or by the laws of descent and
distribution. During the lifetime of the Optionee, an Option shall be
exercisable only by the Optionee.
(g) Change in Control. In the discretion of the Committee, an option
-----------------
agreement may contain provisions providing that in the event of a
"change in control" of the Company, such Option shall become
immediately exercisable in full notwithstanding any provisions in the
option agreement to the contrary. For the purposes of this paragraph
(g), a "change in control" of the Company shall be deemed to have
occurred upon any one of the following events: (i) any person (within
the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), other than the Company
(including its Subsidiaries, Directors, and executive officers) has
become the beneficial owner, within the meaning of Rule 13d-3 under the
Exchange Act, of fifty percent (50%) or more of the combined voting
power of the Company's then outstanding Common Stock or equivalent in
voting power of any class or classes of the Company's outstanding
securities ordinarily entitled to vote in elections of Directors
("voting securities"); or (ii) shares representing fifty percent (50%)
or more of the combined voting power of the Company's voting securities
are purchased pursuant to a tender offer or exchange offer (other than
an offer by the Company or its Subsidiaries or affiliates); or (iii) as
a result of, or in connection with, any tender offer or exchange offer,
merger or other business combination, sale of assets, or contested
election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were Directors of the Company before
the Transaction shall cease to constitute a majority of the Board of
Directors of the Company or of any successor to the Company; or (iv)
the Company is merged or consolidated with another corporation and as a
result of such merger or consolidation less than fifty percent (50%) of
the outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former
shareholders of the Company, other than (A) any party to such merger or
consolidation, or (B) any affiliates of any such party; or (v) the
Company transfers more than fifty percent (50%) of its assets, or the
last of a series of transfers results in the transfer of more than
fifty percent (50%) of the assets of the Company, to another entity
that is not wholly-owned by the Company. For purposes of this
subparagraph (v), the determination of what constitutes fifty percent
(50%) of the assets of the Company shall be made by the Board of
Directors of the Company, as constituted immediately prior to the
events that would constitute a change in control if fifty percent (50%)
of the Company's assets were transferred in connection with such
events, in its sole discretion. Notwithstanding anything to the
contrary contained in this paragraph (g), a change in control shall not
be deemed to have occurred for the purposes hereof, upon any of the
following events: (1) the consummation of an initial public offering
(an "IPO") of the Company's Common Stock; or (2) the conversion of
existing classes of Class A Stock and Preferred Stock of the Company
into Common Stock.
-4-
<PAGE>
(h) Additional Provisions. Each option agreement may contain such other
---------------------
terms and conditions not inconsistent with the provisions of the Plan
as the Committee may deem appropriate from time to time, including cash
awards for such purposes as the Committee may determine, including but
not limited to cash awards for the payment of any income or excise tax
directly or indirectly attributable to the exercise or the acceleration
of exercise of an Option (including, without limitation, any tax under
Code Section 280G).
1.6 Stock Adjustments; Mergers.
--------------------------
(a) Generally. Notwithstanding Section 1.4, in the event the outstanding
---------
shares of Common Stock are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities
of the Company or of any other corporation by reason of any merger,
sale of stock, consolidation, liquidation, recapitalization,
reclassification, stock split up, combination of shares, share
exchange, stock dividend, or transaction having similar effect, the
total number of shares of Common Stock set forth in Section 1.4 shall
be proportionately and appropriately adjusted by the Committee.
(b) Options. Following a transaction described in subsection (a) above, if
-------
the Company continues in existence, the number and kind of shares that
are subject to any Option and the option price per share shall be
proportionately and appropriately adjusted without any change in the
aggregate price to be paid therefor upon exercise of the Option. If the
Company will not remain in existence or substantially all of its Common
Stock will be purchased by a single purchaser or group of purchasers
acting together, then the Committee may (i) declare that all Options
shall terminate 30 days after the Committee gives written notice to all
Optionees of their immediate right to exercise all Options then
outstanding (without regard to limitations on exercise otherwise
contained in the Options), or (ii) notify all Optionees that all
Options granted under the Plan shall apply with appropriate adjustments
as determined by the Committee to the securities of the successor
corporation to which holders of the numbers of shares subject to such
Options would have been entitled, or (iii) take action that is some
combination of aspects of (i) and (ii). Except as provided in the last
sentence of this paragraph (b), the determination by the Committee as
to the terms of any of the foregoing adjustments shall be conclusive
and binding. Any fractional shares resulting from any of the foregoing
adjustments under this paragraph shall be disregarded and eliminated.
Notwithstanding anything else contained in this Section 1.6(b), if an
option agreement permits the immediate exercise in full of an Option
upon a change in control as provided in Section 1.5(g) above, the
provisions of such option agreement may not be revised by the Committee
pursuant to this Section 1.6(b) without the consent of the Optionee.
1.7 Notification of Exercise.
------------------------
Options shall be exercised by written notice directed to the Secretary of
the Company at the principal executive offices of the Company. Such
written notice shall be accompanied by any payment required pursuant to
Section 1.5(e) and shall be effective upon receipt by the Secretary of the
Company received during normal business hours or if not so received, such
exercise shall be effective on the next regular business day of the
Company. Exercise by an Optionee's heir or the representative of his
estate shall be accompanied by evidence of his authority to so act in form
reasonably satisfactory to the Company.
-5-
<PAGE>
ARTICLE II
INCENTIVE STOCK OPTIONS
2.1 Terms of Incentive Stock Options.
--------------------------------
Each Incentive Stock Option granted under the Plan to a Key Employee shall
be exercisable only during a Term fixed by the Committee; provided,
however, that the Term shall end no later than 10 years after the date the
Incentive Stock Option is granted.
2.2 Limitation on Options.
---------------------
The aggregate Fair Market Value of Common Stock (determined at the time the
Incentive Stock Option is granted) subject to Incentive Stock Options
granted to a Key Employee under all plans of the Key Employee's employer
corporation and its Parent or Subsidiary corporations and that become
exercisable for the first time by such Key Employee during any calendar
year may not exceed $100,000. An option agreement may provide that the
Option described therein is intended to qualify as an Incentive Stock
Option but that, to the extent it does not so qualify as a result of the
limitation imposed by Section 422(d) of the Code, the Option is intended to
be a Nonqualified Stock Option.
2.3 Special Rule for Ten Percent Stockholder.
----------------------------------------
If at the time an Incentive Stock Option is granted, an employee owns stock
possessing more than 10% of the total combined voting power of all classes
of stock of his employer corporation or of its Parent or any of its
Subsidiaries, as determined using the attribution rules of Section 424(d)
of the Code, then the terms of the Incentive Stock Option shall specify
that the option price shall be at least 110% of the Fair Market Value of
the stock subject to the Incentive Stock Option, and such Incentive Stock
Option shall not be exercisable after the expiration of five years from the
date such Incentive Stock Option is granted.
2.4 Interpretation.
--------------
In interpreting this Article II of the Plan and the provisions of
individual option agreements, the Committee shall be governed by the
principles and requirements of Sections 421, 422 and 424 of the Code, and
applicable Treasury Regulations.
ARTICLE III
NONQUALIFIED STOCK OPTIONS
3.1 Terms and Conditions of Options.
-------------------------------
In addition to the requirements of Section 1.5, each Nonqualified Stock
Option granted under the Plan to a Key Employee, Director, or Consultant
shall be subject to the following provisions:
(a) Term. Each Nonqualified Stock Option granted under the plan shall be
----
exercisable only during a term fixed by the Committee.
(b) Exercise Price. The Company may elect to grant Nonqualified Stock
--------------
Options at a price less than the Fair Market Value of the Common Stock
at the time the Option is granted.
-6-
<PAGE>
3.2 Section 83(b) Election.
----------------------
The Company recognizes that certain persons who receive Nonqualified Stock
Options may be subject to restrictions regarding their right to trade
Common Stock under applicable securities laws. Such restrictions may cause
Optionees exercising such Options not to be taxable under the provisions of
Section 83(c) of the Code. Accordingly, Optionees exercising such
Nonqualified Stock Options may consider making an election to be taxed upon
exercise of the Option under Section 83(b) of the Code and to effect such
election will file such election with the Internal Revenue Service within
thirty (30) days of exercise of the Option and otherwise in accordance with
applicable Treasury Regulations.
ARTICLE IV
ADDITIONAL PROVISIONS
4.1 Stockholder Approval.
--------------------
The Plan shall be submitted for the approval of the stockholders of the
Company as soon as reasonably practicable following the adoption of the
Plan by the Board of Directors or the Compensation Committee and in all
events within one year of its approval by such Board or Committee. If the
stockholders of the Company do not approve the Plan as provided in this
Section 4.1, the Plan shall terminate.
4.2 Compliance with Other Laws and Regulations.
------------------------------------------
The Plan, the grant and exercise of Options hereunder, and the obligation
of the Company to sell and deliver shares under such Options, shall be
subject to all applicable Federal and state laws, rules, and regulations
and to such approvals by any government or regulatory agency as may be
required. The Company shall not be required to issue or deliver any
certificates for shares of Common Stock prior to (a) the listing of such
shares on any stock exchange on which the Common Stock may then be listed
and (b) the completion of any registration or qualification (or
determination of the availability of an exemption therefrom) of such shares
under any Federal or state law, or any ruling or regulation of any
government body which the Company shall, in its sole discretion, determine
to be necessary or advisable.
4.3 Amendments.
----------
The Board of Directors may discontinue the Plan at any time and may amend
it from time to time; provided, however, that the approval of the Company's
stockholders shall be required with respect to an amendment of the Plan if
such approval is required by any applicable law for the continuing validity
or effectiveness of the Plan. Other than as expressly permitted under the
Plan, no outstanding Option may be revoked or altered in a manner
unfavorable to the Optionee without the consent of the Optionee.
4.4 No Rights As Stockholder.
------------------------
No Optionee shall have any rights as a stockholder with respect to any
share subject to his or her Option prior to the date of issuance to him or
her of a certificate or certificates for such shares.
4.5 Withholding.
-----------
Whenever the Company proposes or is required to issue or transfer shares of
Common Stock under the Plan, the Company shall have the right to require
the Optionee to remit to the Company an amount sufficient to satisfy any
Federal, state or local withholding tax liability in such form as the
Company may determine or accept in its sole discretion, including payment
by surrender or retention of shares of Common Stock prior to
-7-
<PAGE>
the delivery of any certificate or certificates for such shares. Whenever
under the Plan payments are to be made in cash, such payments shall be made
net of an amount sufficient to satisfy any Federal, state, or local
withholding tax liability.
4.6 Continued Employment Not Presumed.
---------------------------------
This Plan and any document describing this Plan and the grant of any Option
hereunder shall not give any Optionee or other employee or Director a right
to continued employment by the Company or its Subsidiaries or affect the
right of the Company or its Subsidiaries to terminate the employment of any
such person with or without cause.
4.7 Effective Date; Duration.
------------------------
The Plan shall become effective as of October 7, 1995, subject to
stockholder approval pursuant to Section 4.1, and shall expire at midnight
(eastern standard time) on October 6, 2005. No Options may be granted
under the Plan after October 6, 2005, but Options granted on or before that
date may be exercised according to the terms of the related agreements and
shall continue to be governed by and interpreted consistent with the terms
hereof.
* * *
The foregoing Plan was originally approved and adopted by the Board of
Directors of the Company on October 6, 1995, and subsequently amended and
restated.
-8-
<PAGE>
EXHBIIT 10.29
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PHYSICIAN HEALTH CORPORATION
-----------
STOCK & WARRANT PURCHASE AGREEMENT
-----------
December 29, 1995
-----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PHYSICIAN HEALTH CORPORATION
STOCK & WARRANT PURCHASE AGREEMENT
This Stock & Warrant Purchase Agreement ("Agreement") dated December 29, 1995,
is by and among PHYSICIAN HEALTH CORPORATION, a Delaware corporation (the
"Corporation"); Corporation shareholders and executive officers SARAH C. GARVIN
(the "CEO"), HOWARD E. FAGIN, Ph.D, H. THOMAS SCOTT, JULIE RAWLS MOORE and
SHAMUS HOLT (collectively, together with the CEO, the "Founders"); EGL HOLDINGS,
INC., a Georgia corporation ("EGL"); MERCURY ASSET MANAGEMENT PLC ("MAM"), a
United Kingdom limited company, on behalf of Rowan Nominees Limited ("Rowan");
NATWEST VENTURES INVESTMENTS LIMITED, a limited company registered in England
("NWV"); and those individuals and custodians for individuals listed on Exhibit
-------
2.3 attached hereto (the "Individual Investors") (hereinafter EGL, MAM, NWV,
- ---
and the Individual Investors are collectively referred to as the "Investor";
EGL, MAM, and NWV are referred to collectively as the "Institutional
Investors"). The Founders are executing this Agreement solely for the purpose
of evidencing their agreement to be bound by the provisions of Sections 4.1 and
4.2 hereof.
W I T N E S S E T H:
WHEREAS, the Corporation desires to sell and the Investor desires to purchase
certain securities of the Corporation upon the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the premises, the promises hereinafter set
forth, and other good and valuable consideration, the receipt and sufficiency of
which are hereby confirmed, the undersigned hereby agree as follows:
SECTION 1
---------
Amendment of Certificate of Incorporation
-----------------------------------------
Prior to or contemporaneous with Closing (as defined in Section 3(a)), the
Corporation will file with the Delaware Secretary of State an amendment to its
Certificate of Incorporation (the "Amendment"), the form of which is attached
hereto as Exhibit 1, setting forth the designations, powers, preferences, and
---------
rights and the qualifications, limitations, and restrictions of the
Corporation's Class A Convertible Preferred Stock, $.01 par value (the
"Preferred Stock".)
SECTION 2
---------
Agreement to Sell and Purchase Shares and Warrants
--------------------------------------------------
2.1 Amount of Securities Purchased. At the Closing, the Corporation is
------------------------------
selling to the Investor, and the Investor is purchasing from the Corporation,
upon the terms and conditions hereinafter set forth, (a) 200,000 shares of
Preferred Stock (the "Preferred Shares"), (b) a ten
<PAGE>
year warrant in the form of Exhibit 2.1(b) (the "Warrant") to purchase up to
--------------
190,000 shares (the "Warrant Shares") of the Corporation's Common Stock, $.0025
par value (the "Common Stock") at an exercise price per share as set forth
therein, and (c) 14 contingent share warrants in the form of Exhibit 2.1(c)
--------------
(collectively, the "Contingent Share Warrants") to purchase shares of Preferred
Stock (the "Contingent Shares") at such exercise price per share as is set forth
therein. Exercise of the Contingent Share Warrants is contingent upon redemption
of the Preferred Shares acquired pursuant to Subsection (a), all upon the terms
and conditions set forth in Exhibit 2.1(c).
--------------
2.2 Purchase Price. The aggregate purchase price is $3,000,000 for the
--------------
Preferred Shares, $10 for the Warrant, and $10 for the Contingent Share
Warrants.
2.3 Defined Terms; Several Obligations. The Preferred Shares, Warrant,
----------------------------------
Warrant Shares, Contingent Share Warrants and Contingent Shares are sometimes
collectively referred to as the "Securities." The purchase obligations of each
of the Investors are several and not joint and relate, with respect to each of
the Investors, to the purchase of Securities identified on Exhibit 2.3 as being
-----------
purchased by the Investor.
SECTION 3
---------
Delivery of Securities
----------------------
The closing (the "Closing") of the transactions contemplated in Section 2 is
taking place on December 29, 1995 (the "Closing Date"). At the Closing, the
Corporation is delivering to the Investor (i) 14 stock certificates representing
all of the Preferred Shares, (ii) the Warrant, and (iii) 14 Contingent Share
Warrants. Delivery is being made against receipt by the Corporation of a
certified check payable to the order of the Corporation or by wire transfer of
funds to the account of the Corporation of the full amount of the aggregate
purchase price of the Securities. The Closing shall take place at the offices
of Arnall Golden & Gregory, One Atlantic Center, 1201 West Peachtree Street,
N.W., Atlanta, Georgia 30309.
SECTION 4
---------
Management and Other Agreements
-------------------------------
4.1 Management Agreements. From and after Closing and by their respective
---------------------
signatures below, each of the Founders hereby severally agrees, except as
provided on Exhibit 4.1 attached hereto, to devote his or her full working time
-----------
and best efforts to the business of the Corporation for so long as such Founder
remains employed by the Corporation. Each of the Founders agrees to refrain
from competing with the business of the Corporation by refraining from providing
competitive services within the Territory for a period of two years following
execution of this Agreement. The foregoing agreement of the Founders to devote
their full working time and best efforts and to not compete is granted in
consideration of the Investors' undertaking herein to invest $3,000,000 in the
Corporation. It is intended to be in addition to, and not in lieu of, any other
agreements not to compete and to protect the secrets of the Corporation to which
any or all Founders may be or becomes a party. For purposes of this
-2-
<PAGE>
Section 4.1, the terms "business of the Corporation," "competitive services,"
and "Territory" shall have the meanings ascribed to them on Exhibit 4.1,
-----------
attached hereto.
4.2 Non-Competition Agreement. Each of the Founders and the Corporation agree
-------------------------
to execute a Non-Competition & Non-Disclosure Agreement in the form of Exhibit
-------
4.2 attached hereto (the "Non-Competition Agreement"). The Corporation agrees
- ---
to maintain the Non-Competition Agreement of each of the Founders in full force
and effect.
4.3 Warrant Shares Anti-Dilution. So long as any shares of the Corporation's
----------------------------
Class A Preferred Stock remain outstanding, the Corporation agrees to issue to
the holders of the Warrant Shares additional shares of Common Stock for a
purchase price of $.0025 per share so that after the issuance, the aggregate
number of Warrant Shares plus the number of additional shares of Common Stock
----
issued pursuant to this Section 4.3 will equal no less than the number of shares
of Common Stock into which 19,792 shares of the Corporation's Class A Preferred
Stock would be convertible in accordance with the provisions of Article IV,
Section B, Subsection 5 of the Corporation's Certificate of Incorporation, as
amended. The issuance of additional shares pursuant to this Section 4.3 shall
occur upon any event which would reduce the Class A Conversion Price, as that
term is defined in the Corporation's Certificate of Incorporation, as amended,
below $1.5625.
4.4 Investor Obligation to Contribute Conversion Shares to Capital. Each of
--------------------------------------------------------------
the Investors agrees that, in the event that they exercise their right to
convert Preferred Shares into Common Stock during the last three calendar months
of the 1996, 1997, and 1998 calendar years, they will contribute back to the
capital of the Corporation such shares of common Stock obtained upon conversion
of Preferred Shares (the "Conversion Shares") as determined in this Section 4.4.
The obligation to contribute back shares will only exist in the event that the
Undiluted Conversion Price Number (as that term is defined in Article IV,
Section B, Subsection 5(a) of the Corporation's Certificate of Incorporation, as
Amended) that is applicable to such conversion is lower than the Undiluted
Conversion Price Number which would have applied to such conversion had such
conversion been effected on January 2 of the next succeeding calendar year. In
this event, the number of Conversion Shares to be contributed back to the
capital of the Corporation shall be the total number of Conversion Shares
received by such Investor, less the total number of Conversion Shares that would
----
have been received by the Investor had such conversion been effected on January
2 of the next succeeding calendar year.
SECTION 5
---------
EGL Agreements
--------------
5.1 Engagement. The Corporation hereby engages EGL to act as advisor to the
----------
Corporation, so long as any of Preferred Shares remain outstanding. The fee for
services rendered by EGL pursuant to this engagement shall be $6,000.00 per
month commencing January 1, 1996. In addition, the Corporation shall reimburse
EGL for its reasonable out-of-pocket expenses.
-3-
<PAGE>
SECTION 6
---------
Representations and Warranties of the Corporation
-------------------------------------------------
The Corporation hereby represents and warrants to the Investor that, as of the
date hereof:
6.1 Organization; Corporate Records. (a) The Corporation is a corporation
-------------------------------
duly organized and validly existing under the laws of the State of Delaware.
The Corporation has all requisite corporate power and authority to own, lease,
and operate its properties, to carry on its business as presently conducted and
as proposed to be conducted, and to carry out the transactions contemplated
hereby. The Corporation has provided the Investor with true, correct, and
complete copies of its Certificate of Incorporation certified by the Secretary
of State of Delaware and its Bylaws certified by its Secretary, in each case as
amended to and as in effect on the date hereof (respectively, the "Articles of
Incorporation" and the "Bylaws").
(b) The Corporation has made available to the Investor its complete corporate
minute and stock books, including all formal corporate actions of the
Corporation's Board of Directors and shareholders, whether by meeting or written
consents in lieu of a meeting. Such records are true and correct, contain all
materials necessary to evidence corporate action by a corporation formed within
its jurisdiction, and remain in full force and effect except as expressly
provided therein to the contrary.
6.2 Capitalization. The authorized capital stock and securities of the
--------------
Corporation immediately upon the consummation of the Closing of the transactions
contemplated hereby shall consist of:
(a) 20,000,000 shares of Common Stock, $.0025 par value, of which (i)
3,350,000 shares are validly issued and outstanding, fully paid and
nonassessable; provided that 1,125,000 of such shares are restricted shares
subject to vesting as set forth in the Company's Amended and Restated
Stockholder Agreement dated as of the date hereof, (ii) 190,000 shares are duly
reserved for issuance upon exercise of the Warrant, (iii) 1,920,000 shares are
duly reserved for issuance in connection with the conversion of the Preferred
Shares, and (iv) 1,414,000 shares duly reserved for issuance as contemplated by
Section 10.2(e)(i) hereof;
(b) 200,000 shares of Preferred Stock, $.01 par value, all of which are
owned by the Investor, as more specifically set forth on Exhibit 2.3, and are
-----------
validly issued and outstanding, fully paid and nonassessable;
(c) the Warrants to purchase up to 190,000 shares of Common Stock which
is held of record by the Investor, as more specifically set forth on Exhibit
-------
2.3, and is validly issued and outstanding, fully paid and non-assessable; and,
- ---
-4-
<PAGE>
(d) the Contingent Share Warrants to purchase up to 200,000 shares of
Preferred Stock which is held of record by the Investor, as more specifically
set forth on Exhibit 2.3, and is validly issued and outstanding, fully paid and
-----------
non-assessable.
The shares reserved for issuance pursuant to Section 6.2(a)(ii) and (iii) are
sometimes collectively referred to as the "Reserved Shares." Exhibit 6.2
-----------
attached hereto contains a list of (i) all record holders of capital stock of
the Corporation, including the number of shares of capital stock of the
Corporation held by each such holder and the consideration received therefor by
the Corporation and (ii) all outstanding warrants, options, agreements,
convertible securities or other commitments pursuant to which the Corporation is
or may become obligated to issue any shares of its capital stock or other
securities of the Corporation, which names all persons entitled to receive such
shares or other securities and the shares of capital stock or other securities
required to be issued thereunder as well as the consideration paid and payable
therefore. Except as disclosed on Exhibit 6.2, immediately prior to Closing,
-----------
there were no outstanding warrants, options, agreements, convertible securities,
or other commitments pursuant to which the Corporation is or may become
obligated to issue any shares of its capital stock or other securities of the
Corporation. There are, and immediately upon consummation at the Closing of the
transactions contemplated hereby there will be, no preemptive or similar rights
to purchase or otherwise acquire, shares of capital stock of the Corporation
pursuant to applicable laws, the Certificate of Incorporation or Bylaws, or any
agreement to which the Corporation is a party, or otherwise except as
contemplated by this Agreement; and there is no agreement, restriction, or
encumbrance (such as a right of first refusal, right of first offer, proxy,
voting agreement, etc.) with respect to the sale or voting of any shares of
capital stock of the Corporation (whether outstanding or issuable upon
conversion or exercise of outstanding securities) except as contemplated by this
Agreement. All shares of Common Stock and other securities issued by the
Corporation prior to the Closing have been issued in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and all applicable state securities or "blue sky" laws. The Corporation
has not violated the Securities Act or any applicable state securities or "blue
sky" laws in connection with the issuance of any shares of capital stock or
other securities of the Corporation prior to the Closing. Except as contemplated
by this Agreement, no person has any contractual right to cause the Corporation
to effect the registration under the Securities Act or any foreign securities
laws of any shares of Common Stock or any other securities (including debt
securities) of the Corporation.
6.3 Commencement of Business; Absence of Liability. The Corporation was
----------------------------------------------
incorporated under the laws of the State of Delaware on August 29, 1995. On
November 3, 1995, the Corporation was the surviving corporation to a merger with
a Delaware corporation previously known as Physician Health Corporation (the
"Predecessor") which was a wholly owned subsidiary of Surgical Health
Corporation, which is a wholly owned subsidiary of HEALTHSOUTH Corporation, on
terms and conditions described in the Corporation's Confidential Private
Placement Memorandum dated October 7, 1995 with respect to the solicitation of
subscriptions for the sale of Common Stock of the Corporation (the "PPM"). Prior
to November 3, 1995, the Corporation had no material operations not described in
the PPM. Except as set forth on Exhibit 6.3, the Corporation has never had, nor
-----------
does it presently have, any
-5-
<PAGE>
subsidiaries, nor has it owned, nor does it presently own, any capital stock or
other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
6.4 Agreements. Except as listed on Exhibit 6.4, the Corporation is not a
---------- -----------
party to any written or oral (a) collective bargaining agreement with any labor
union; (b) contract for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of normal operating
requirements; (c) contract for the employment of any officer, individual
employee or other person on a full-time basis or any material contract with any
person on a consulting basis; (d) bonus, pension, profit-sharing, retirement,
stock purchase, stock option plans, in effect with respect to employees or any
of them or the employees of others; (e) agreement or indenture relating to the
borrowing of money or to the mortgaging, pledging or otherwise placing of a lien
on any assets of the Corporation; (f) guaranty of any obligation for borrowed
money or otherwise; (g) lease or agreement under which the Corporation is lessee
of or holds or operates any property, real or personal, owned by any other
party; (h) lease or agreement under which the Corporation is lessor of or
permits any third party to hold or operate any property, real or personal, owned
or controlled by the Corporation; (i) agreement or other commitment for capital
expenditures; (j) contract, agreement or commitment under which the Corporation
is obligated to pay any broker's fees, finder's fees or any such similar fees,
to any third party; (k) contract, agreement or commitment under which the
Corporation has issued, or may become obligated to issue, any shares of capital
stock of the Corporation, or any warrants, options, convertible securities or
other commitments pursuant to which the Corporation is or may become obligated
to issue any shares of its capital stock, other than as contemplated by this
Agreement; (l) contract, agreement, or commitment for the provision of liability
or other insurance; (m) any other contract, agreement, arrangement or
understanding which is material to the business of the Corporation; or (n)
contract, agreement or commitment under which the Corporation or the governing
board of the Corporation is bound to recognize any veto or right to consent to
any activity normally reserved to the discretion of the governing board. The
Corporation has furnished or made available to the Investor true and correct
copies of all such written agreements and any other documents which would be
material in making the decision to invest in the Corporation. For purposes of
this Section 6.4, "material" shall mean those agreements involving payments in
excess of $50,000 per year and those agreements which if terminated or breached
may have a significant adverse effect on the Corporation.
6.5 Intellectual Property Rights. Except as set forth in Exhibit 6.5
---------------------------- -----------
attached hereto:
(a) the Corporation owns or has the right to use, and where necessary,
has made timely and proper application for, all Intellectual Property Rights (as
defined below) that are material and necessary for the conduct of its business
conducted or as specifically proposed to be conducted in the Business Plan (as
defined in Section 6.10), which Intellectual Property Rights are identified in
Exhibit 6.5 (collectively, the "Requisite Rights");
- -----------
(b) no royalties, honorariums or fees are payable by the Corporation to
other persons by reason of the ownership or use of the Requisite Rights;
-6-
<PAGE>
(c) to the Corporation's knowledge, no product or service manufactured,
marketed or sold, or proposed to be manufactured, marketed or sold as set forth
in the Business Plan, by the Corporation violates or will violate any license or
infringes or will infringe any Intellectual Property Rights or assumed name of
another; and
(d) there is no pending or, to the Corporation's knowledge, threatened
claim or litigation against the Corporation (nor does there exist any basis
therefor) contesting the validity of or right to use the Requisite Rights, nor
has the Corporation received any notice that any of the Requisite Rights or the
operation or proposed operation of the Corporation's business conflicts, or will
conflict, with the asserted rights of others, nor, to the Corporation's
knowledge, does there exist any basis for any such conflict.
As used herein, the term "Intellectual Property Rights" means all industrial and
intellectual property rights, including, without limitation, Proprietary
Technology (as hereinafter defined), patents, patent applications, patent
rights, trademarks, trademark applications, trade names, service marks, service
mark applications, copyrights, know-how, certificates of public convenience and
necessity, franchises, licenses, trade secrets, proprietary processes and
formulae. As used herein, "Proprietary Technology" means all source and object
code, algorithms, architecture, structure, display screens, layouts, processes,
inventions, trade secrets, know-how, development tools and other proprietary
rights owned by the Corporation pertaining to any product or service
manufactured, marketed or sold, or proposed to be manufactured, marketed or sold
(as the case may be), by the Corporation or used, employed or exploited in the
development, license, sale, marketing, distribution or maintenance thereof, and
all documentation and media constituting, describing or relating to the above,
including, without limitation, manuals, memoranda, know-how, notebooks, patents
and patent applications, trademarks and trademark applications, copyrights and
copyright applications, records and disclosures.
6.6 Litigation, Etc. There are no (i) actions, suits, arbitrations, claims,
---------------
investigations, or legal or administrative proceedings pending or, to the best
knowledge of the Corporation and the CEO, threatened against the Corporation,
whether at law or in equity, or before or by any Federal, state, municipal, or
other governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, or (ii) judgments, decrees, injunctions or
orders of any court, governmental department, commission, agency,
instrumentality, or arbitrator against the Corporation, nor, to the best
knowledge of the Corporation and the CEO, does there exist any basis for any of
the foregoing.
6.7 No Defaults. The Corporation is not in default (a) under the Certificate
-----------
of Incorporation or Bylaws, or any material indenture, mortgage, lease, purchase
or sales order, or any other material contract, agreement, or instrument to
which the Corporation is a party or by which it or any of its property is bound
or affected, or (b) with respect to any order, writ, injunction, or decree of
any court or any Federal, state, municipal, or other domestic or foreign
governmental department, commission, board, bureau, agency, or instrumentality.
To the Corporation's knowledge, there exists no condition, event, or act which
constitutes, or which after
-7-
<PAGE>
notice, lapse of time, or both, would constitute, a default under any of the
foregoing by the Corporation or, to the best knowledge of the Corporation and
the CEO, by any other party bound by the foregoing.
6.8 Employment of Officers, Employees, and Consultants. To the Corporation's
--------------------------------------------------
knowledge after reasonable inquiry (except that, with Investor's consent, no
separate inquiry has been made of the consultants), there is no third party who
may assert any valid claim against the Corporation or any officer, director, or
key employee or consultant of the Corporation (collectively, the "Designated
Persons") with respect to (a) the continued employment by, or association with,
the Corporation, or (b) the use, in connection with any business conducted by
the Corporation of any information which the Corporation or the Designated
Persons would be prohibited from using under any prior agreements or
arrangements or any legal considerations applicable to unfair competition, trade
secrets, or proprietary information.
6.9 Compliance. The Corporation (a) has complied, and shall to the best of
----------
its ability comply, with all federal, state, local, and foreign laws,
ordinances, regulations, and orders applicable to it, its business, or the
ownership of its assets, and (b) has or will promptly obtain all federal, state,
local, and foreign governmental licenses and permits material to and necessary
in the conduct of its business; any such licenses and permits are in full force
and effect, and no violations have been recorded in respect of any such licenses
or permits and no proceeding is pending or threatened to revoke or limit any
thereof.
6.10 Private Placement Memorandum. The Corporation has previously presented
----------------------------
and delivered to the Investor the PPM which, together with the due diligence
conducted by the Investors, has been used in making the investment decision in
acquiring the Preferred Shares. The description of the business, operations (as
presently conducted and as proposed to be conducted), properties and assets of
the Corporation contained in the PPM as well as all other factual statements
contained therein, taken as a whole, correctly describes the current operation
and status of the Corporation's business in all material respects and, to the
Corporation's knowledge, does not fail to describe a material fact regarding
such business which is necessary to make such description not misleading as of
the date thereof or hereof.
6.11 Insurance. The Corporation has in effect the policies of liability,
---------
theft, life, fire, workmen's compensation, health and other forms of insurance
as are listed on Exhibit 6.11 and as are adequate against risks usually insured
------------
against by comparable persons, businesses and properties. Such policies are in
full force and effect and all premiums with respect to such policies are
currently paid. Except as disclosed on Exhibit 6.11, the Corporation has never
------------
been denied or had revoked or rescinded any policy of insurance.
6.12 Authorization of this Agreement, Etc. The execution, delivery and
------------------------------------
performance by the Corporation of this Agreement and all agreements, and
warrants contemplated by this Agreement (the "Ancillary Agreements") and the
issuance of shares of capital stock pursuant thereto have been duly authorized
by all requisite corporate action by the Corporation and constitutes or will
constitute when issued the valid and binding obligation of the Corporation,
-8-
<PAGE>
enforceable in accordance with its terms, subject as to enforcement of remedies
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and, with respect to the
remedy of specific performance, equitable doctrines applicable thereto. The
Stockholders Agreement (defined in Section 8.5) has been duly executed and
delivered by the signatories thereto, and constitutes the valid and binding
obligations of the signatories thereto, enforceable in accordance with its
terms. The execution, delivery and performance of this Agreement, the Ancillary
Agreements, including, among others, the Stockholders Agreement, and
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof by the Corporation and the signatories
thereto, as the case may be, and the issuance of capital stock pursuant thereto
by the Corporation, will not (a) violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body applicable to the
Corporation or any of its properties or assets or (b) conflict with or result in
any breach of any of the terms, conditions or provisions of, or constitute (with
due notice or lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Corporation under the Certificate of Incorporation or By-laws of
the Corporation, or any note, indenture, mortgage, lease agreement or other
contract, agreement or instrument to which the Corporation is a party or by
which it or any of its property is bound or affected.
6.13 Authorization of Securities, Reserved Shares, Etc. The issuance, sale
--------------------------------------------------
and delivery of the Securities and the reservation, future issuance, sale, and
delivery of the Reserved Shares, have been duly authorized by all requisite
corporate action of the Corporation, and when issued, sold, and delivered in
accordance with this Agreement, the Securities and Reserved Shares will be
validly issued and outstanding, fully paid and nonassessable, and not subject to
preemptive or any other similar rights of the shareholders of the Corporation or
others except as contemplated by this Agreement. The designations, powers,
preferences, and rights and the qualifications, limitations, and restrictions of
the Preferred Shares, are as stated in the Amendment, filed as contemplated
hereby.
6.14 Related Transactions. Except as set forth in Exhibit 6.14 attached
-------------------- ------------
hereto and for the engagement of EGL pursuant to Section 5 and the employment of
the Founders, no director, officer, or "affiliate" (as defined in the rules and
regulations promulgated under the Securities Act) of any director or officer of
the Corporation is presently, or has been, directly or indirectly through her or
its affiliation with any other person or entity, a party to any transaction (a
"Related Transaction") with the Corporation providing for the furnishing of
services by or to, or rental or sale of real or personal property from or to, or
otherwise requiring cash payments to or by any such person except as
contemplated by this Agreement.
6.15 Use of Proceeds. The net proceeds received by the Corporation from the
---------------
sale of the Purchased Shares shall be used for the purposes and substantially in
the respective amounts set forth in Exhibit 6.15 attached hereto.
------------
-9-
<PAGE>
6.16 Offering Exemption. Assuming the accuracy of the warranties and
------------------
representations of the Investor made herein, the offering and sale of the
Preferred Shares, the Warrant, the Contingent Shares, the Contingent Share
Warrants, and the issuance of the Reserved Shares upon conversion of the
Preferred Shares or upon exercise of the Warrant and/or Contingent Share Warrant
are each exempt from registration under the Securities Act pursuant to Section
4(2) thereof. The aforesaid offering and sale is also exempt from registration
under applicable state securities and "blue sky" laws.
6.17 No Governmental Consent or Approval Required. Except for the filing of
--------------------------------------------
any notice subsequent to the Closing that may be required under applicable
federal or state securities laws (which, if required, shall be filed on a timely
basis as may be so required), no consent, approval, or authorization of, or
declaration to, or filing with, any governmental or regulatory authority is
required for the valid authorization, execution, delivery, and performance by
the Corporation of this Agreement or for the valid authorization, issuance,
sale, and delivery of the Preferred Shares, the Warrant, the Contingent Shares
or the Contingent Share Warrant or for the valid authorization, reservation,
issuance, sale and delivery of the Reserved Shares.
6.18 Intentionally Deleted.
6.19 Brokers. Except as disclosed on Exhibit 6.19, neither the Corporation
------- ------------
nor any of the Corporation's officers, directors, employees, or shareholders has
employed any broker or finder in connection with the transactions contemplated
by this Agreement.
6.20 Non-Disclosure and Non-Competition Agreements. Each of the Founders is a
---------------------------------------------
signatory to an agreement(s) with the Corporation relating to non-disclosure and
non-competition, (the form of each of which is attached hereto as Exhibit 6.21),
------------
none of which agreements shall be modified or amended in any respect without the
prior consent of the Investor. Each of Jack Keane and Carl Schramm shall, prior
to obtaining any rights to acquire or obtain securities in the Corporation, be
required to become a signatory to, and become bound by, an agreement(s) with the
Corporation relating to non-disclosure and non-competition, (the form of each of
which is attached hereto as Exhibit 6.21), none of which agreements shall be
------------
modified or amended in any respect without the prior consent of the Investor.
6.21 Financial Information. The Corporation has previously delivered to the
---------------------
Investor the internal balance sheet of the Predecessor as of December 31, 1994,
and October 31, 1995, and of the Corporation as of November 30, 1995
(collectively, the "Balance Sheet") and related internal statements of income,
stockholders' equity, and cash flows for the twelve month, ten month, and one
month period then ended (collectively with the Balance Sheet, the "Financial
Statements"). Except for the accounting changes set forth in Exhibit 6.21
------------
attached hereto relating to the November 30, 1995 Financial Statements, the
Financial Statements (i) fairly present in all material respects the financial
condition of the Predecessor and the Corporation as of the respective dates
indicated and the results of operations, stockholders' equity and changes in the
financial position of the Predecessor and the Corporation for the respective
periods indicated and
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<PAGE>
(ii) except as described on Exhibit 6.21 attached hereto, have been prepared in
------------
accordance with generally accepted accounting principles.
6.22 Absence of Undisclosed Liabilities. Except as disclosed in the
----------------------------------
Financial Statements or on Exhibit 6.22 attached hereto, to the Corporation's
------------
knowledge (a) the Predecessor had and the Corporation has no liability of any
nature (matured or unmatured) which was not provided for or disclosed on the
Balance Sheet other than those incurred in the ordinary course of business since
the date of the Financial Statements, and (b) all liability reserves established
by the Predecessor or the Corporation and set forth on the Balance Sheet were
adequate for the purposes indicated therein. There were no loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5 ("SAS
5") issued by the Financial Accounting Standards Board in March 1975) which were
not adequately provided for on the Balance Sheet (in accordance with SAS 5).
6.23 Absence of Changes. Except as disclosed on Exhibit 6.23, since the date
------------------ ------------
of the internal balance sheet of the Corporation dated November 30, 1995, to the
knowledge of the Corporation, there has not been (a) any material adverse change
in the financial condition, results of operations, assets, liabilities or
business of the Corporation, (b) any material liability or obligation incurred
by the Corporation, other than current liabilities or obligations incurred in
the ordinary course of business, (c) any material asset or property of the
Corporation made subject to a lien of any kind, (d) any waiver of any material
right of the Corporation, or the cancellation of any material debt or claim held
by the Corporation, (e) any payment of dividends on, or other distributions with
respect to, or any direct or indirect redemption or acquisition of, any shares
of the capital stock of the Corporation, or any agreement or commitment
therefor, (f) any issuance of any stock, bonds or other securities of the
Corporation or options, warrants or rights or agreements or commitments to
purchase or issue such securities or grant such options, warrants or rights
other than pursuant to or in connection with the transactions contemplated by
this Agreement, (g) any mortgage, pledge, sale, assignment or transfer of any
tangible or intangible assets of the Corporation, except, with respect to
tangible assets, in the ordinary course of business, (h) any loan by the
Corporation to any officer, director, employee or stockholder of the
Corporation, or any agreement or commitment therefor, (i) any damage,
destruction or loss (whether or not covered by insurance) which is or may
adversely affect the assets, property or business of the Corporation, (j) any
increase, direct or indirect, in the compensation paid or payable to any
officer, director, employee or agent of the Corporation or (k) any change in the
accounting methods or practices followed by the Corporation.
6.24 Tax Matters. All Federal, state and local tax returns and tax reports
-----------
required to be filed by the Corporation or by or on behalf of the Predecessor
have been filed with the appropriate governmental agencies in all jurisdictions
in which such returns and reports are required to be filed and all of the
foregoing are true, correct and complete. All Federal, state, local and foreign
income, profits, franchise, sales, use, occupation, property, excise, payroll,
withholding and other taxes (including interest and penalties) required to have
been paid or accrued by the Corporation or the Predecessor have been fully paid
or are adequately provided for on the Balance Sheet, except for tax liabilities
arising in the ordinary course of business since the date of the Balance
-11-
<PAGE>
Sheet and liabilities being challenged in good faith by the Corporation as set
forth on Exhibit 6.24. To the knowledge of the Corporation, no issues have been
------------
raised (and are currently pending) by the Internal Revenue Service or any other
taxing authority in connection with any of the returns and reports referred to
above, and no waivers of statutes of limitations have been given or requested
with respect to the Corporation. All deficiencies asserted or assessments
(including interest and penalties) made as a result of any examination by the
Internal Revenue Service or by appropriate state or departmental tax authorities
of the Federal, state or local income tax, sales tax or franchise tax returns of
or with respect to the Corporation have been fully paid or are adequately
provided for on the Balance Sheet and no proposed (but unassessed) additional
taxes, interest or penalties have been asserted. The provisions for taxes on the
Balance Sheet are sufficient for the payment of all accrued and unpaid Federal,
state or local and foreign taxes as of such date, except for taxes being
challenged in good faith by the Corporation as set forth on Exhibit 6.24.
------------
6.25 Encumbrances. Except as disclosed on the Balance Sheet or Exhibit 6.25,
------------ ------------
the Corporation owns outright all the property and assets, real, personal or
mixed, tangible or intangible, reflected as assets in the Balance Sheet (other
than assets disposed of in the ordinary course of business), including, but not
limited to, the Requisite Rights, subject to no mortgages, liens, security
interests, pledges, charges or other encumbrances of any kind, except as
reflected in the Financial Statements. The Corporation owns, or has a valid
leasehold interest in, or valid license for, all assets necessary for the
conduct of its business as presently conducted or as proposed to be conducted.
6.26 Intentionally Deleted.
6.27 Disclosure. To the Corporation's knowledge, neither this Agreement nor
----------
any other document, certificate, instrument or statement furnished or made to
the Investor by or on behalf of the Corporation in connection with the
transactions contemplated hereby contains any untrue statements of a material
fact or omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. To the Corporation's knowledge,
there is no fact which materially adversely affects the business, operations,
affairs, prospects, condition, properties or assets of the Corporation which has
not been set forth in this Agreement or in the other documents, certificates,
instruments or statements furnished to the Investor by or on behalf of the
Corporation. The disclosure of any item in any Exhibit or in any attachment to
such Exhibit is disclosure of that item for all purposes for which disclosure is
required under this Agreement, and is disclosure in all appropriate Exhibits.
The inclusion of any item in any Exhibit does not represent a determination by
the Corporation that (i) such item is "material," or (ii) such item did not
arise in the ordinary course of business. The items in the Exhibits may contain
summary descriptions of instruments or brief summaries of certain aspects of the
business of the Corporation and, accordingly, such summaries which, though
accurate and not materially misleading, are necessarily not complete and are
qualified in their entirety by reference the more detailed information in the
documents described on such Exhibits.
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<PAGE>
SECTION 7
---------
Representations, Warranties, and Agreements of the Investor
-----------------------------------------------------------
7.1 Representations of the Individual Investors and Institutional Investors.
-----------------------------------------------------------------------
Each of the Investors, other than MAM and NWV, severally represents and warrants
to the Corporation as follows:
(a) the Securities are being acquired for its own account, for
investment and not with a view to the distribution thereof within
the meaning of the Securities Act.
(b) it understands that none of the Securities have been registered
under the Securities Act and cannot be sold unless they are
subsequently registered under the Securities Act or unless an
exemption from such registration is available.
(c) it understands that Rule 144 (the provisions of which are known
to the Investor) promulgated under the Securities Act is not
currently available as a basis for exemption from registration of
any of the Securities purchased by the Investor and, except as
otherwise expressly provided in this Agreement, the Corporation
is under no obligation to take any actions which may be necessary
in order to render the provisions of Rule 144 available as a
basis for such exemption from registration.
(d) it will not transfer any of the Securities except in compliance
with Section 11 of this Agreement.
(e) it has not employed any broker or finder in connection with the
transactions contemplated by this Agreement.
(f) it is domiciled or located in the state indicated on Exhibit 2.3
-----------
attached hereto.
(g) it (i) has been furnished with a copy of the Corporation's PPM
and such other documents and instruments it has deemed necessary
in connection with its business, legal and accounting due
diligence of the Corporation, (ii) has had a reasonable time and
opportunity prior to the date hereof to ask questions and receive
answers concerning the terms and conditions of the offering of
the Securities contemplated in this Agreement and to obtain any
additional information which the Corporation possessed or could
acquire without unreasonable effort or expense, and (iii) has
generally such knowledge and experience in business and financial
matters and with respect to investments in securities of
privately held companies as to enable it to understand and
evaluate the risks of such investment and form an investment
decision with respect thereto.
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<PAGE>
(h) it has no need for liquidity in its investment in the
Corporation, and is able to bear the economic risk of such
investment for an indefinite period and to afford a complete loss
thereof.
(i) it is an "accredited investor," as such term is defined in Rule
501 (the provisions of which are known to such Investor)
promulgated under the Securities Act of 1933, as amended.
7.2 EGL Representation. EGL further represents and warrants that (i) it has
------------------
been duly formed as a Georgia corporation, (ii) is validly existing as of the
date of this Agreement with full corporate power and authority to enter into and
perform under this Agreement and (iii) it has the right and power under valid
powers of attorney to enter into this Agreement on behalf of each of the
Individual Investors and NWV.
7.3 MAM and NWV Representation. MAM and NWV each severally represents and
--------------------------
warrants that it is not a U.S. person (as defined under the Securities Act and
rules and regulations promulgated thereunder), (ii) the Securities being
acquired by it are not being acquired on behalf of or for the benefit of any
U.S. person and will not be held in the United States, (iii) none of the
Securities being acquired by it, on behalf of itself or others, will be
transferred by it in violation of the Securities Act or any of the rules and
regulations promulgated pursuant thereto, and (iv) it understands that none of
the Securities have been registered under the Securities Act and cannot be sold
within the United States or to a U.S. person unless they are subsequently
registered under the Securities Act or unless an exemption from such
registration is obtained. MAM represents and warrants that it has full power
and authority to enter into this Agreement and the Stockholder's Agreement and
to consummate the transactions contemplated herein (as defined in Section 8.5
below) on behalf of Rowan.
7.4 Power of EGL. MAM and the Individual Investors each represents,
------------
warrants, and agrees that EGL shall be vested with full power to vote and
exercise any other right, power, or privilege with respect to the Securities in
connection with any action taken by the shareholders of the Corporation or any
action sought from MAM, Rowan, or the Individual Investors in their capacity as
shareholders, to receive all shareholder notices and financial reports sent by
virtue of their status as shareholders under this Agreement, to exercise or
waive any and all rights, options, and remedies and execute amendments and
modifications with respect to this Agreement and the Stockholders' Agreement and
with respect to the Securities. If requested, EGL agrees to promptly forward
copies of all such notices to MAM and the Individual Investors. This power and
authority to vote and receive notices shall be coupled with an interest and is
nonterminable without the consent of EGL except with respect to MAM who may, by
notifying both the Corporation and EGL in writing, terminate EGL's right to vote
and receive notices with respect to the Securities held by MAM on behalf of
Rowan. From and after the receipt of such notice by the Corporation and EGL,
MAM or its designated nominee shall thereafter be entitled to vote its
Securities, receive notices and financial reports, exercise or waive any of its
rights, options, or
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<PAGE>
remedies under the Stockholders' Agreement, and otherwise exercise the power
given to EGL under this Agreement.
SECTION 8
---------
Conditions Precedent to Closing by the Investoron the Closing Date
------------------------------------------------------------------
The obligation of the Investor to purchase and pay for the Securities on the
Closing Date is subject to the following conditions precedent:
8.1 Corporate Proceedings; Consents; Etc. All corporate and other
-------------------------------------
proceedings to be taken and all waivers and consents to be obtained in
connection with the transactions contemplated by this Agreement shall have been
taken or obtained. All documents incident thereto and all legal matters
incident to this Agreement and the Closing shall be reasonably satisfactory in
form and substance to the Investor and to its counsel, each of whom shall have
received all such originals or certified or other copies of such documents
either may reasonably request.
8.2 Opinion of Counsel. At the Closing, the Investor shall have received
------------------
from Alston & Bird, counsel for the Corporation, its opinion addressed to the
Investor, dated as of the Closing Date, in the form of Exhibit 8.2 attached
------------
hereto.
8.3 Amendment; Resolutions. The Board of Directors and shareholders of the
----------------------
Corporation shall have duly adopted resolutions setting forth the designations,
rights, and preferences of the Preferred Stock, in the form of the Amendment,
and the Amendment shall have been filed with and accepted by the Delaware
Secretary of State and shall have become effective, and evidence of the
foregoing in form satisfactory to the Investor shall have been delivered to the
Investor.
8.4 Blue Sky Matters. All consents, approvals, qualifications, or
----------------
registrations required to be obtained or effected under any applicable state
securities or "blue sky" laws in connection with the issuance, sale, and
delivery of the Securities shall have been obtained or effected (except for the
filing of any notice subsequent to the Closing which may be required under
applicable state securities laws which, if required, shall be filed on a timely
basis as may be so required) and copies of the same delivered to the Investor.
8.5 Stockholders' Agreement. A stockholders' agreement (the "Stockholders'
-----------------------
Agreement") among the Corporation, the CEO, and the Investor, in the form of
Exhibit 8.5 shall have been executed and delivered by the Corporation and such
- -----------
parties. In addition, the Corporation and the parties shall have complied with
all terms and conditions of the Stockholders' Agreement, including, among other
things, the placement of legends required to be placed on securities owned by
such parties.
8.6 Reconstitution of Board of Directors; Election of Directors.
-----------------------------------------------------------
Simultaneously with the Closing, the Board of Directors of the Corporation shall
be reconstituted with three directors
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<PAGE>
and the following three individuals shall have been elected as members of the
Board of Directors, as reconstituted:
Sarah C. Garvin
Murali Anantharaman
David O. Ellis
The parties agree to cause the Board of Directors of the Corporation to be
expanded to seven directors by the election of two additional directors
acceptable to the CEO and two additional directors acceptable to both the CEO
and the Institutional Investors within 90 days following Closing. Pending the
selection and qualification of the director nominees to be named pursuant to the
immediately preceding sentence, no action shall be taken by the Board of
Directors without the affirmative vote of the CEO provided such selection is
made within 90 days following Closing.
8.7 Secretary's Certificate. The Investor shall have received a certificate,
-----------------------
dated as of the Closing Date, of the Secretary or an Assistant Secretary of the
Corporation to the effect (i) that attached hereto is a true and complete copy
of the Certificate of Incorporation and the Bylaws of the Corporation, as in
effect on the date hereof, (ii) that attached hereto is a true and complete copy
of resolutions adopted by the Board of Directors of the Corporation authorizing
the execution, delivery, and performance of this Agreement and consummation of
the transactions contemplated hereby, (iii) that the Corporation is validly
existing under the laws of the State of Delaware, and (iv) such other matters
as may reasonably be requested by the Investor or its counsel.
8.8 Key Person Insurance. The Corporation shall use commercially reasonable
--------------------
efforts to obtain and have in full effect and good standing a term life
insurance policy on the lives of Sarah C. Garvin in the amount of $2,000,000
designating the Corporation as sole beneficiary (the "Key Person Policy") by
March 31, 1996.
8.9 Non-Compete Agreements. The Founders shall have executed the Non-
----------------------
Competition Agreement.
8.10 Investor Due Diligence. The Investor shall have conducted and received
----------------------
acceptably favorable results from a "due diligence" investigation of the
Corporation, including but not limited to the areas of finance, accounting,
legal, quality control, production, sales, and marketing and shall be satisfied
with such investigation in its sole discretion.
SECTION 9
---------
Management of the Corporation
-----------------------------
The Corporation hereby agrees, for the benefit of the Institutional Investors,
as follows:
9.1 Access to Records. The Corporation shall afford to the Institutional
-----------------
Investors, their employees, counsel, and other authorized representatives, free
and full access, on a
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<PAGE>
reasonable basis during normal business hours on reasonable notice, to all of
the books, records, and properties of the Corporation and to all officers and
employees of the Corporation for any reasonable purpose whatsoever. Each of the
Institutional Investors shall maintain the confidentiality of any confidential
and proprietary information so obtained by it which is not otherwise available
from other sources; provided, however, that the foregoing shall in no way limit
or otherwise restrict the ability of the Institutional Investors or such
authorized representatives to disclose any such information concerning the
Corporation which it may be required to disclose (i) to its partners to the
extent required to satisfy its fiduciary obligations to such persons, or (ii)
otherwise pursuant to or required by law. In the event EGL no longer exercises
the power of MAM to vote and take other actions as set forth in Section 7.5, the
Corporation shall afford full and free access to MAM as is afforded to EGL
pursuant to this Section 9.1. The Corporation may condition the release of any
information constituting a trade secret upon the execution of a reasonable non-
disclosure agreement.
9.2 Financial Reports. The Corporation agrees to furnish the Institutional
-----------------
Investors with the following consolidated statements with respect to the
Corporation and all subsidiaries of the Corporation:
9.2.1 Within 21 days after the end of each month following Closing, an
unaudited financial report, which report shall include the following:
(a) a one page overview of the Corporation's operations during such
month prepared by the President or Chief Executive Officer;
(b) a profit and loss statement for such month, together with a
cumulative profit and loss statement from the first day of the current year to
the last day of such month, which statements shall be prepared in accordance
with generally accepted accounting principles consistently applied;
(c) a balance sheet as of the last day of such month, which balance
sheet shall be prepared in accordance with generally accepted accounting
principles consistently applied;
(d) a statement of changes in cash balances for such month, together
with a cumulative changes in cash balances from the first day of the current
year to the last day of such month; and
(e) a comparison between the actual figures for such month and the
comparable figures (with respect to clauses (b), (c) and (d) only) for the
Budget (as defined in Section 9.4); certified by the chief executive officer or
chief financial officer of the Corporation as being prepared in a manner
consistent with past practice and fairly present in all material respects the
financial condition of the Corporation as of the respective dates indicated.
9.2.2 If requested by the Institutional Investors, and within 15 days before
the end of each quarter, a forecast of income and cash flow for the next 90
days.
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<PAGE>
9.2.3 Within 90 days after the end of each fiscal year of the Corporation,
financial statements of the Corporation which shall include a profit and loss
statement for such fiscal year and a balance sheet as of the last day thereof,
each prepared in accordance with generally accepted accounting principles
consistently applied, and accompanied by the audit report of a nationally
recognized independent certified public accountant firm as shall have been
approved by the Board of Directors of the Corporation.
9.2.4 Promptly upon becoming available:
(a) except to the extent included in materials furnished to all
shareholders, copies of all financial statements, reports, press releases,
notices, proxy statements, and other documents sent by the Corporation to its
stockholders or released to the public and copies of all regular and periodic
reports, if any, filed by the Corporation with the Securities and Exchange
Commission (the "Commission") or any securities exchange, and
(b) any other financial or other non-technical information available to
management of the Corporation as the Institutional Investors shall have
reasonably requested on a timely basis.
9.3 No Default Certificate. With the financial statements referred to in
-----------------------
Section 9.2.3, the Corporation shall deliver to the Institutional Investors a
certificate executed by the chief executive officer or the chief financial
officer of the Corporation to the effect that no knowledge has been obtained of
any violation or default by the Corporation in the material performance of its
agreements or covenants contained herein, in the Certificate of Incorporation,
or in any other material agreement to which the Corporation is a party.
9.4 Budget and Operating Forecast. Within 60 days after Closing and,
-----------------------------
thereafter, at least 30 days prior to the beginning of each fiscal year of the
Corporation, the Corporation will prepare and submit to the Board of Directors
of the Corporation and the Institutional Investors an operating and capital
expenditures plan, including a profit and loss plan, with monthly breakdowns
(the "Budget") for the Corporation. The budget shall be accepted as the Budget
for such fiscal year when it has been approved by the Board of Directors of the
Corporation, which approval the Corporation shall use its best efforts to secure
within such 30-day period. The Budget shall be reviewed by the Corporation
periodically and all changes therein and all material deviations therefrom shall
be resubmitted to the Board of Directors of the Corporation in advance and shall
be accepted when approved by the Board of Directors of the Corporation, and the
Corporation shall not make any such changes or material deviations to or from
the Budget without such prior approval of the Board of Directors of the
Corporation.
9.5 Existence; Maintenance of Property. The Corporation shall, and the
----------------------------------
Investors shall take such action to permit the Corporation to, do or cause to be
done all things necessary to maintain, preserve, and keep in full force and
effect its corporate existence and all rights, licenses, permits, and franchises
necessary to the proper conduct of its business and the ownership, leasing,
-18-
<PAGE>
or operation of its properties. The Corporation shall maintain and operate its
business and properties in accordance with all applicable laws and regulations
and take all reasonable action which may be required to obtain, preserve, renew,
and extend all licenses, permits, authorizations, trade names, trademarks,
copyrights, and patents which may be necessary for the continuance of the
operation of any such property by it. The Corporation shall, and the Investors
shall take such action to permit the Corporation to, at all times maintain and
preserve all property necessary in the conduct of its business and keep the same
in good repair, working order, and condition, and from time to time make, or
cause to be made, all needful and proper repairs, renewals, replacements,
betterments, and improvements thereto so that the business carried on in
connection therewith may properly and advantageously be conducted at all times.
9.6 Insurance. The Corporation shall obtain and maintain adequate insurance
----------
by financially sound and reputable insurers on its properties of a character
customarily insured by companies engaged in the same or a similar business
against liability, loss, or damage resulting from hazards, risks, and other
liabilities, including without limitation extended coverage of the kind
customarily insured against by such companies and public liability insurance
against claims for personal injury, death, or property damage occurring upon,
in, about, or in connection with the use of any of its properties and maintain
such other insurance as may be required by law or other agreements to which the
Corporation is or shall become a party. In fulfilling its obligations under the
immediately preceding sentence, the Corporation may rely on the advise of Potter
Holden & Company or comparable insurance advisory company. The Corporation shall
report at least annually to the Board of Directors on the status of the
Corporation's insurance coverage. The Corporation and CEO will each use their
reasonable best efforts to obtain a term life insurance policy on the life of
the CEO in the amount of $2,000,000 designating the Corporation as sole
beneficiary (the "Key Person Policy") by March 31, 1996, and CEO agrees to
cooperate fully with the acquisition of such policy. Once obtained, the
Corporation shall maintain the Key Person Policy in full force and effect so
long as CEO is employed by the Corporation.
9.7 Payment of Debts, Taxes, Etc. The Corporation shall use commercially
----------------------------
reasonable efforts to pay all indebtedness and obligations promptly and in
accordance with normal terms and pay and discharge promptly all taxes,
assessments, and governmental charges or liens imposed upon them or upon their
income or receipts or in respect of any of their property, before the same shall
become in default, as well as all lawful claims which, if unpaid, might result
in the creation of a lien or charge upon such properties or any part thereof;
provided, however, that the Corporation shall not be required to pay and
discharge or to cause to be paid and discharged any such indebtedness,
obligation, or tax so long as the validity or amount thereof shall be contested
in good faith and the Corporation shall set aside on its books such reserves as
are required by generally accepted accounting principles with respect to any
such indebtedness, obligation, or tax.
9.8 Litigation and Other Notices. The Corporation shall deliver to the
----------------------------
Institutional Investors promptly following the occurrence thereof written notice
of the following:
(a) all events of default or any event that would become an event of
default upon notice or lapse of time or both under any of the terms or
provisions of any note or of any
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<PAGE>
other evidence of indebtedness or agreement or contract governing the borrowing
of money of the Corporation;
(b) levy of an attachment, execution or other process against any of the
property or assets, real or personal, of the Corporation which could represent a
potential liability of or claim against the Corporation in excess of $100,000;
(c) the filing or commencement of any action, suit, or proceeding against
the Corporation by or before any court or any federal, state, municipal, or
other governmental department, commission, instrumentality, or agency which
could represent a potential liability of or claim against the Corporation in
excess of $100,000; and
(d) any matter of non-general effect which has resulted in, or which may
result in, a material adverse change in the financial condition or operations of
the Corporation.
9.9 Compensation. The Board of Directors shall approve all compensation
------------
arrangements for key company employees and consultants.
9.10 System of Accounting. The Corporation shall maintain a system of
--------------------
accounting established and administered in accordance with generally accepted
accounting principles and will set aside on its respective books all such proper
reserves as shall be required by generally accepted accounting principles of the
jurisdiction in which it is incorporated.
9.11 Performance of Obligations. The Corporation shall do and perform every
--------------------------
act and discharge, in all material respects, all of the obligations required to
be performed and discharged under this Agreement at the time or times and in the
manner therein and herein specified.
9.12 Negative Covenants; Approval of Institutional Investors. Until the
-------------------------------------------------------
earlier of such time as (i) the Investors no longer own 20,000 Preferred Shares
or (ii) there is a Liquidity Event, the Corporation shall not, directly or
indirectly, without (A) the affirmative vote of two-thirds of the members of
the Corporation's Board of Directors, and (B) the approval of EGL,(except that a
two-thirds majority shall not be required for a Sale Transaction defined in
Section 6(d) of the Stockholders Agreement) take any of the following actions:
(a) expand the Board of Directors of the Corporation to more than seven
directors;
(b) approve any Budget;
(c) declare or pay any dividend on or make any other distribution
(whether by reduction of capital or otherwise) of cash or property or both with
respect to, or redeem, retire, purchase, or otherwise acquire for value or set
apart any sum for, the reduction, retirement, purchase, or other acquisition of
any shares of its capital stock, except for the repurchase of stock
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<PAGE>
options or shares of its capital stock at cost from employees of the Corporation
terminated from employment and except as expressly prrovided in the Amendment or
this Agreement.
(d) approve or execute any merger, acquisition or business combination
involving the Corporation or any subsidiary of the Corporation;
(e) approve or execute any sale, divestiture, or disposition of a
substantial portion of the assets or stock of the Corporation or its
subsidiaries;
(f) take any action to cause any amendment, alteration, or repeal of any
provision of its Certificate of Incorporation or Bylaws;
(g) voluntarily dissolve, liquidate, or wind-up or carry out any partial
liquidation, distribution, or transaction in the nature of a partial liquidation
or distribution;
(h) authorize or adopt any stock option plan or program with respect to
the employees of the Corporation which relates to shares of equity stock or
instrument convertible or exercisable into equity stock in excess of the shares
referred to in Section 10.2(e)(i);
(i) incur, create, assume, or permit to exist any indebtedness which by
its terms is convertible into capital stock of the Corporation;
(j) in any manner alter or change the designations, powers,
performances, or rights or the qualifications, limitations, or restrictions of
the Preferred Stock;
(k) enter into any Related Transactions other than as disclosed in or
contemplated by this Agreement;
(l) create any committee of the Board of Directors which has the
authority to take any action requiring Board approval pursuant to this
Agreement, unless a director designated by EGL is a member of such committee or
has been offered membership on such committee and has declined such membership;
(m) incur, create, assume, or permit to exist any indebtedness or lease
obligation in excess of the amount of indebtedness approved within the Budget;
(n) authorize any material acquisition or divestiture of assets of the
Corporation, other than acquisitions or divestitures in the ordinary course of
business;
(o) authorize any capital expenditures in excess of that approved in the
Budget;
(p) provide any loans or advances to employees, except in the ordinary
course of business; or,
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<PAGE>
(q) authorize the issuance of any securities or obligations convertible
into securities other than 1,414,000 shares of Common Stock which represent
shares which are currently reserved for issuance pursuant to the Corporation's
employee stock option plan or as contemplated by this Agreement, including,
specifically, Section 10.2(e)(v) hereof.
9.13 Expiration of Article 9 Covenants. Notwithstanding anything to the
---------------------------------
contrary in this Article 9, the covenants contained in this Article 9 shall
expire at such time as the Investor no longer holds 20,000 Preferred Shares.
SECTION 10
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Additional Agreements of the Corporation.
----------------------------------------
10.1 Meetings of the Board of Directors. The Corporation shall call, and use
----------------------------------
its best efforts to have, regular meetings of the Board of Directors of the
Corporation not less often than three times per year and annual meetings of the
shareholders of the Corporation, and, unless more than these four meetings are
held annually, the meetings shall be at least 90 days apart. The Corporation
shall provide each Institutional Investor copies of all written information and
documents disseminated to the Board.
10.2 Preemptive Right. (a) Except in the case of Excluded Securities (as
----------------
defined in Section 10.2(e) below), the Corporation shall not issue, sell, or
exchange, agree to issue, sell, or exchange, or reserve or set aside for
issuance, sale, or exchange, any (i) shares of Common Stock, (ii) other equity
security of the Corporation, (iii) debt security of the Corporation which by its
terms is convertible into or exchangeable for any equity security of the
Corporation, (iv) security of the Corporation that is a combination of debt and
equity, or (v) option, warrant, or other right to subscribe for, purchase, or
otherwise acquire any equity security or any such debt security of the
Corporation, unless in each case the Corporation shall notify the Investor of
the proposed terms of sale including the number, terms, and price of the
security the Corporation desires to offer, and the Corporation shall then offer
(the "Offer") to sell to the Investor its Proportionate Percentage (as defined
in 10.2(g) below) of such securities (the "Offered Securities") at a price and
on such other terms as shall have been specified in the Offer, which Offer by
its terms shall remain open and irrevocable for a period of 30 days from the
date notice is given by the Corporation to the Investor.
(b) Notice of the Investor's intention to accept, in whole or in part, an
Offer shall be evidenced by a writing signed by such Investor and delivered to
the Corporation prior to the end of the 30-day period of such Offer, setting
forth such portion of the Offered Securities as such Investor elects to purchase
(the "Notice of Acceptance"), provided, however, that such Investor shall have
no obligation to make such purchase if no sale is ultimately made by the
Corporation of the security offered.
(c) In the event that Notice of Acceptance is not given by an Investor in
respect of all the Offered Securities, the Corporation shall have 120 days from
the expiration of
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the foregoing 30-day period to sell all or any part of such Offered Securities
as to which a Notice of Acceptance has not been given by such Investor (the
"Refused Securities") to any third party or parties ("New Investor"), but only
upon terms and conditions in all respects, including, without limitation, unit
price and interest rates, which are not more favorable to the New Investor or
less favorable to the Corporation than those set forth in the Offer. Upon the
closing of the sale to the New Investor of the securities covered by the Offer
and not purchased by the Investor, the Investor shall purchase from the
Corporation, and the Corporation shall sell to the Investor, the Offered
Securities in respect of which Notice of Acceptance was delivered to the
Corporation by each respective Investor, at the terms specified in the Offer.
(d) In each case, any Offered Securities not purchased by the Investor or
the New Investor in accordance with Section 10.2(c) may not be sold or otherwise
disposed of until they are again offered to the Investor under the procedures
specified in Sections 10.2(a), (b), and (c).
(e) The rights of the Investor under this Section 10.2 shall not apply to
the following securities (the "Excluded Securities"):
(i) Common Stock issued to officers, employees, or directors of,
or consultants or other persons supplying services to, the
Corporation, pursuant to any agreement, plan, or arrangement
(the "Stock Option Plan") approved by the Board of Directors
of the Corporation, or options to purchase or rights to
subscribe for such Common Stock or securities by their terms
convertible into or exchangeable for such Common Stock or
options to purchase or rights to subscribe for such
convertible or exchangeable securities; provided, however,
that the maximum number of shares of Common Stock heretofore
or hereafter issued or issuable pursuant to all such
agreements, plans, and arrangements shall not exceed
1,414,000 shares (subject to adjustment in connection with
the anti-dilution provisions contained in the Corporation's
1995 Stock Option Plan) of Common Stock.
(ii) Common Stock issued as a stock dividend or upon any stock
split or other subdivision or combination of shares of
Common Stock.
(iii) The Securities or Common Stock issued upon conversion of
any of the Preferred Shares or exercise of the Warrant or
the Contingent Share Warrants.
(iv) Common Stock, options, warrants or other securities of the
Corporation issued (A) with the prior written consent of EGL
(provided that the approval or consent of any Director of
the Corporation who was nominated or elected by EGL or any
holders
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of the Preferred Shares and who is acting in his or her
capacity as a Director shall not constitute consent
hereunder), or (B) in connection with an acquisition or
merger approved by the Corporation's Board of Directors and
EGL.
(v) 626,000 shares of Common Stock (or a lesser number of shares
of Common Stock, coupled with Common Stock warrants, which
when exercised will total 626,000 shares of the
Corporation's Common Stock, when added to the Common Stock
originally issued), to be issued to Mr. Woody Miller or an
entity controlled by Mr. Woody Miller, for cash
consideration of no less than $720,000.
(f) Notwithstanding the foregoing provisions of this Section 10.2, the
rights of the Investor and the obligations of the Corporation under this Section
10.2 shall be inapplicable to the consummation of an offering and sale of
securities of the Corporation as part of a firmly underwritten public offering
registered under the Securities Act with minimum gross proceeds to the
Corporation of $20,000,000 with a Corporation pre-offering equity valuation of
at least $40,000,000 (a "Designated Offering"), and the provisions of Sections 9
and 10 shall terminate upon the consummation of such Designated Offering.
(g) "Proportionate Percentage" shall mean as to each respective Investor,
that percentage figure which expresses the ratio which (x) the number of shares
of outstanding Common Stock then owned by the Investor bears to (y) the
aggregate number of shares of outstanding Common Stock then owned by all
shareholders of the Corporation. For purposes solely of the computation required
under clauses (x) and (y) above, all outstanding Preferred Stock shall be
treated as if it has been converted by the holder thereof into shares of Common
Stock at the rate which such securities are convertible into Common Stock in
effect at the time of delivery by the Corporation of the notice of the Offer
contemplated by Section 10.2(a).
10.3 Filing of Reports Under the Exchange Act. The Corporation shall give
----------------------------------------
prompt notice to the Investor of (a) the filing of any registration statement
(an "Exchange Act Registration Statement") pursuant to the Exchange Act,
relating to any class of equity securities of the Corporation, and (b) the
effectiveness of such Exchange Act Registration Statement and the number of
shares of such class of equity securities outstanding as reported in such
Exchange Act Registration Statement, in order to enable the Investor to comply
with any reporting requirements under the Exchange Act or the Securities Act.
The Corporation shall comply with public information reporting requirements of
the Commission as a condition to the availability of an exemption from the
Securities Act (under Rule 144 thereof, as amended from time to time, or
successor rule thereto or otherwise). The Corporation shall cooperate with the
Investor in supplying such information as may be necessary for the Investor to
complete and file any information reporting forms presently or hereafter
required by the Commission as a condition to the availability of an exemption
from Securities Act, including under Rule 144, for the sale of stock by the
Investor.
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SECTION 11
----------
Transfer of Securities.
----------------------
11.1 Restriction on Transfer. The Restricted Securities (as defined in
-----------------------
Section 11.2 below), any shares of capital stock received in respect thereof,
whether by reason of a stock split or share reclassification thereof, a stock
dividend thereon or otherwise, shall not be transferable except upon compliance
with (i) the terms of this Section 11 and (ii) the provisions of the Securities
Act in respect of the transfer thereof.
11.2 Definitions. As used in this Section 11, the following terms shall have
-----------
the following respective meanings:
"Person" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization, and a government or any
department, agency, or political subdivision thereof.
"Restricted Securities" shall mean the Preferred Stock, the Warrant and
the Contingent Share Warrants together with any Common Stock or other
securities received in respect of any thereof whether by conversion, exercise
or otherwise, in each case which have not been sold to the public (a) pursuant
to registration under the Securities Act, or (b) subsequent to the
Corporation's initial public offering of securities registered under the
Securities Act, pursuant to Rule 144 (or similar or successor rule)
promulgated under the Securities Act.
"Restricted Shares" shall mean the shares of Common Stock constituting
Restricted Securities.
"Transfer" shall include any disposition of any shares of Restricted
Securities or of any interest therein which would constitute a sale thereof
within the meaning of the Securities Act.
11.3 Restrictive Legend. Each certificate for the Restricted Securities and
------------------
any securities received in respect thereof, whether by reason of a stock split
or share reclassification thereof, a stock dividend thereon or otherwise and
each certificate for any such securities issued to subsequent transferees of any
such certificate shall (unless otherwise permitted by the provisions of Sections
11.4 or 11.11) be stamped or otherwise imprinted with legends in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
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SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 11 OF THE STOCK & WARRANT
PURCHASE AGREEMENT DATED DECEMBER 29, 1995 AMONG PHYSICIAN HEALTH
CORPORATION AND CERTAIN OTHER SIGNATORIES THERETO, A COPY OF WHICH IS
MAINTAINED AT THE OFFICES OF THE CORPORATION AND WHICH WILL BE PROVIDED
UPON REASONABLE REQUEST.
11.4 Notice of Transfer. The holder of any Restricted Securities, by
------------------
acceptance thereof agrees, prior to any transfer of any Restricted Securities,
to give written notice to the Corporation of such holder's intention to effect
such transfer and to comply in all other respects with the provisions of this
Section 11.4. Each such notice shall describe the manner and circumstances of
the proposed transfer and shall be accompanied by (a) the written opinion,
addressed to the Corporation, of counsel for the holder of such Restricted
Securities, as to whether in the opinion (which opinion shall be reasonably
satisfactory to the Corporation) of such counsel such proposed transfer involves
a transaction requiring registration of such Restricted Securities under the
Securities Act, and (b) if in the opinion of such counsel such registration is
required, a written request addressed to the Corporation by the holder of
Restricted Securities, describing in detail the proposed method of disposition
and requesting the Corporation to effect the registration of such Restricted
Shares but only if such requested registration is required by the terms and
provisions of Sections 11.5 or 11.6 hereof and also only to the extent allowed
by the terms and provisions of Sections 11.5 or 11.6. If in such opinion of
counsel the proposed transfer of Restricted Securities may be effected without
registration under the Securities Act, the holder of Restricted Securities shall
thereupon be entitled to transfer Restricted Securities in accordance with the
terms of the notice delivered by it to the Corporation. Each certificate or
other instrument evidencing the securities issued upon the transfer of any
Restricted Securities (and each certificate or other instrument evidencing any
untransferred balance of such securities) shall bear the legend set forth in
Section 11.3 unless (a) in the opinion of counsel (which opinion shall be in
form and content reasonably satisfactory to the counsel of the Corporation)
registration of future transfer is not required by the applicable provisions of
the Securities Act and such securities may immediately be sold by the holder
without taking any other actions in order to comply with an applicable exemption
from such registration requirements, or (b) the Corporation shall have waived
the requirements of such legend; provided, however, that such legend shall not
be required (a) on any certificate or other instrument evidencing the securities
issued upon such transfer in the event such transfer shall be made in compliance
with the requirements of Rule 144 (as amended from time to time) promulgated
under the Securities Act (or successor rule thereto which would allow the
purchaser to rely on the exemption provided by Section 4(l) of the Securities
Act), or (b) on any certificate or other instrument which is immediately
resalable (whether or not such resale is proposed) under Rule 144(k) or
successor thereto. The holder of Restricted Securities shall not transfer such
Restricted Securities until such opinion of counsel has been given to the
Corporation (unless waived by the Corporation or unless such opinion is not
required in accordance with the provisions of this Section 11.4) or until
registration of the Restricted Shares involved in the above-mentioned request
has become effective under the Securities Act.
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Notwithstanding the foregoing, so long as NWV is a subsidiary of a bank
holding company subject to Regulation Y under the Bank Holding Company Act of
1956, as amended (the "BHC Act"), NWV may not transfer any Restricted
Securities; provided that NWV may transfer such Restricted Securities (i) to the
--------
Corporation, (ii) to the public in an offering registered under the Securities
Act, (iii) in a transaction pursuant to Rule 144 or Rule 144A (or any successor
provisions) under the Securities Act or otherwise exempt from the registration
requirements of the Securities Act in which no single purchaser receives an
interest (treating any Preferred Stock as converted into the equivalent amount
of Common Stock) equivalent to more than two percent of the outstanding Common
Stock of the Corporation without regard to the transfer of any Restricted
Securities held by NWV. In the event of a Regulatory Change, the effect of
which is to permit NWV to transfer such Restricted Securities in any other
manner, the foregoing proviso shall be deemed modified to permit a transfer of
such Restricted Securities in such other manner. For this purpose, "Regulatory
Change" means (i) any change on or after the date hereof in United States
federal or state or foreign laws or regulations (including the BHC Act and
Regulation Y thereunder); (ii) the adoption on or after the date hereof of any
interpretation or ruling applying to NWV, individually or as a member of a
class, under any United States federal or state or foreign laws or regulations
by any court or governmental or regulatory authority charged with the
interpretation or administration thereof; or (iii) the modification on or after
the date hereof of any agreement or commitment with any such governmental or
regulatory authority that is applicable to or binding upon NWV.
11.5 Required Registration. If at any time the Corporation shall be
---------------------
requested by the Investors holding not less than 30% of the outstanding
Restricted Securities then held by all Investors to effect the registration
under the Securities Act of at least 30% of the Restricted Shares (assuming full
conversion into Common Stock of all Preferred Shares) then held by all
Investors having a market value of at least $1,500,000, the Corporation shall
promptly give written notice of such proposed registration to all holders of
outstanding Restricted Securities, and thereupon the Corporation shall promptly
use its best efforts to effect the registration under the Securities Act of the
Restricted Shares that the Corporation has been requested to register for
disposition described in the request of said holder or holders of Restricted
Securities within 90 days after the giving of the written notice by the
Corporation; provided, however, that the Corporation shall not be obligated to
effect any registration under the Securities Act except in accordance with the
following provisions:
(a) The Corporation shall not be obligated to file and cause to become
effective under this Section 11.5 (i) more than three registration statements in
which Restricted Shares are registered under the Securities Act and effectively
sold thereunder, (ii) any registration prior to the earlier of (A) December
29,1997, or (B) the registration of securities by the Corporation under the
Securities Act, (iii) any registration statement representing the first
registration of the Corporation's Common Stock under the Securities Act except
for registrations under Form S-8, Form S-4, or similar registrations involving a
general public distribution of securities, unless such offering has a market
value of at least $20,000,000, or (iv) a registration where the Investor is able
to sell the Restricted Securities desired to be sold pursuant to Rule 144 (or
any successor provisions) under the Securities Act.
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<PAGE>
(b) Anything contained herein to the contrary notwithstanding, with
respect to each registration requested pursuant to this Section 11.5, the
Corporation may include in such registration any authorized but unissued shares
of Common Stock for sale by the Corporation or any issued and outstanding shares
of Common Stock for sale by others; provided, however, that the inclusion of
such previously authorized but unissued shares by the Corporation or issued and
outstanding shares of Common Stock by others in such registration shall not
prevent the holder or holders of outstanding Restricted Securities requesting
such registration from registering the entire number of Restricted Shares
requested by them and, in the event the registration is, in whole or in part, an
underwritten public offering and the managing underwriter determines and advises
in writing that the inclusion of all Restricted Shares proposed to be included
in such registration and such previously authorized but unissued shares of
Common Stock by the Corporation and/or issued and outstanding shares of Common
Stock by persons other than the holders of Restricted Securities proposed to be
included in such registration would interfere with the successful marketing
(including pricing) of such securities, then the number of Restricted Shares and
such other previously authorized but unissued shares of Common Stock proposed to
be included by the Corporation and issued and outstanding shares of Common Stock
proposed to be included by persons other than the holders of Restricted
Securities shall be reduced, first, pro rata among the Corporation and the
holders of shares of Common Stock other than the holders of Restricted
Securities, and, thereafter, if necessary, pro rata among the holders of
Restricted Securities, based upon the number of Restricted Securities, then
owned by the holders thereof.
(c) The Investors participating in the offering shall agree to
participate upon equal terms with other parties participating in the offering in
any reasonable lock up of unregistered shares required by the underwriter as a
condition to conducting such offering.
11.6 Incidental Registration. If the Corporation at any time proposes for
-----------------------
any reason to register any of its securities under the Securities Act (other
than pursuant to a registrations statement on Form S-8, S-4, or similar or
successor form (collectively, "Excluded Forms")), it shall, at each such time
promptly give written notice to all holders of outstanding Restricted Securities
of its intention so to do, and, upon the written request, given within 30 days
after receipt of any such notice, of the holder of any such Restricted
Securities to register any Restricted Shares (which request shall specify the
holders and shall state the intended method of disposition of such Restricted
Shares by the prospective seller), the Corporation shall use its best efforts to
cause all such Restricted Shares (in minimum aggregate amounts of 5,000 shares
as presently constituted and subject to adjustment for subsequent stock splits,
combinations, and dividends) to be registered under the Securities Act promptly
upon receipt of the written request of such holders for such registration, all
to the extent requisite to permit the sale or other disposition (in accordance
with the intended methods thereof, as aforesaid) by the prospective seller or
sellers of the Restricted Shares so registered. In the event that the proposed
registration by the Corporation is, in whole or in part, an underwritten public
offering of securities of the Corporation, any request pursuant to this Section
11.6 to register Restricted Shares may specify that such shares are to be
included in the underwriting (a) on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
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registration, or (b) on terms and conditions comparable to those normally
applicable to offering of common stock in reasonably similar circumstances in
the event that no shares of Common Stock other than Restricted Shares are being
sold through underwriters under such registration; provided, however, that if
the managing underwriter determines and advises in writing that the inclusion of
all Restricted Shares proposed to be included in the underwritten public
offering and other issued and outstanding shares of Common Stock proposed to be
included therein by persons other than holders of Restricted Securities (the
"Other Shares") would interfere with the successful marketing (including
pricing) of such securities, then the number of Restricted Shares and Other
Shares to be included in such underwritten public offering shall be reduced
first, pro rata among the holders of Other Shares; second, if necessary, pro
rata among the holders of Restricted Shares, based upon the number of shares of
Restricted Shares requested by holders thereof to be registered in such
underwritten public offering; and lastly, if necessary, among the Corporation's
shares requested by the Corporation to be registered in such Section 11.6
underwritten public offering, subject however to Section 11.5(b).
11.7 Timely 1934 Act Filings. The Corporation shall timely file all reports
-----------------------
required to be filed under the Securities Exchange Act of 1934, as amended, in
accordance with the provisions of the Act following the effective date of the
first registration of any of the Corporation's securities under the 1933 Act.
11.8 Preparation and Filing. If and whenever the Corporation is under an
----------------------
obligation pursuant to the provisions of this Section 11 to use its best efforts
to effect the registration of any Restricted Shares, and if, in the opinion of
the Corporation's counsel, the following actions are reasonably necessary or
desirable, the Corporation shall, as expeditiously as practicable:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its reasonable efforts to cause such
registration statement to become and remain effective in accordance with Section
11.8(b), provided that the holders and prospective sellers of Restricted Shares
shall provide the Corporation with such information the latter reasonably deems
necessary in connection with the preparation of the registration statement;
(b) prepare and file with the Commission such amendments and supplements
to such registration statements and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for at least
90 days and to comply with the provisions of the Securities Act with respect to
the sale or other disposition of all Restricted Shares covered by such
registration statements;
(c) furnish to each selling shareholder copies of any prospectus subject
to completion and final prospectus, in conformity with the requirements of the
Securities Act, in order to facilitate the public sale or other disposition of
such Restricted Shares;
(d) use its best efforts to register or qualify the Restricted Shares
covered by such registration statement under the securities or "blue sky" laws
of a reasonable number of jurisdictions as each such seller shall reasonably
request (provided, however, that the Corporation
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shall not be required to consent to general service of process for all purposes
in any jurisdiction where it is not then qualified) and do any and all other
acts or things which may be reasonably necessary to enable such seller to
consummate the public sale or other disposition in such jurisdictions of such
securities;
(e) notify each seller of Restricted Shares covered by such registration
statement, at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 11.8(b), of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances under which such
statements were made not misleading and at the reasonable request of such
seller, prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein in the
light of the circumstances under which such statements were made, not
misleading; and
(f) furnish, at the request of any holder or holders requesting
registration of Restricted Shares pursuant to this Section 11, on the date that
such Restricted Shares are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 11, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective (i) to the underwriter an opinion, dated such date,
of the counsel representing the Corporation for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the holder or holders making such request, or, at the option of the Corporation,
reimburse the holders for the expense of holders' counsel providing such
opinion; and (ii) a letter dated such date, from the independent certified
public accountants of the Corporation, in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and to the
holder or holders making such request.
11.9 Expenses. All expenses incurred by the Corporation in complying with
--------
Section 11.8, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the National Association of
Securities Dealers, Inc.), fees and expenses of complying with securities and
"blue sky" laws, printing expenses and fees, and disbursements of counsel,
including with respect to each registration effected pursuant to Sections 11.5
and 11.6, reasonable fees and disbursements of not more than one counsel for the
holders of Restricted Securities requesting registration hereunder, and of the
independent certified public accountants (but excluding the compensation of
regular employees of the Corporation which shall be paid in any event by the
Corporation) shall be paid by the Corporation to the extent permitted under
applicable federal and state regulations or by federal or state agencies having
jurisdiction over the
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registration. The holders of Restricted Shares included in such registration
shall, if and to the extent required by such applicable regulations and
agencies, pay their proportionate share of expenses of the offering, in
proportion to the number of their shares included in the offering; under no
circumstances shall selling commissions applicable to the Restricted Shares
covered by registrations effected pursuant to Sections 11.5 or 11.6 be borne by
the Corporation; such expenses shall be borne by the seller or sellers, in
proportion to the number of Restricted Shares sold by such seller or sellers.
11.10 Indemnification. In the event of any registration of any Restricted
---------------
Shares under the Securities Act pursuant to this Section 11 or registration or
qualification of any Restricted Shares pursuant to Section 11.8(d), the
Corporation shall indemnify and hold harmless the seller of such shares, each
underwriter of such shares, if any, each broker or any other person acting on
behalf of such seller, and each other person, if any, who controls any of the
foregoing persons, within the meaning of the Securities Act, against any losses,
claims, damages, or liabilities, joint or several, to which any of the foregoing
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any registration statement under which such
Restricted Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or any document furnished to any agency with jurisdiction over
securities laws by the Corporation required for the registration or
qualification of any Restricted Shares pursuant to Section 11.8(d), or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading, or any violation by the Corporation of the Securities Act or state
securities or "blue sky" laws applicable to the Corporation and relating to
action or inaction required of the Corporation in connection with such
registration or qualification under such state securities or blue sky laws; and
shall reimburse such seller, such underwriter, broker, or other person acting on
behalf of such seller, and each such controlling person for any legal or any
other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the Corporation shall not be liable in any such case to
the extent that any such loss, claim, damage, or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, preliminary prospectus, or
prospectus or amendment or supplement or any document incident to the
registration or qualification of any Restricted Shares pursuant to Section
11.8(d) in reliance upon and in conformity with written information furnished to
the Corporation through an instrument duly executed by such seller or such
underwriter for use in the preparation thereof.
Before Restricted Shares held by any prospective seller shall be sold pursuant
to any registration pursuant to Section 11, such prospective seller and any
underwriter acting on its behalf shall have agreed to indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph of this Section 11.10) the Corporation, each director of the
Corporation, each officer of the Corporation who shall sign such registration
statement, any person consenting to be named as a person becoming an officer or
director, and
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any person who controls the Corporation within the meaning of the Securities
Act, with respect to any untrue statement or omission from such registration
statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, if such untrue statement or omission was
made in reliance upon and in conformity with written information furnished to
the Corporation through an instrument duly executed by such seller or such
underwriter for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, or amendment or supplement.
Promptly after receipt by an indemnified party of notice of the commencement
of any action involving a claim referred to in the preceding paragraphs of this
Section 11.10, such indemnified party will, if a claim in respect thereof is
made against an indemnifying party, give written notice to the latter of such
claim or the commencement of such action. In case any such action is brought
against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof, provided that if representation of both the
indemnified and indemnifying parties by the same counsel is inappropriate under
applicable standards of professional conduct due to defenses available to the
indemnified party which conflict with those available to the indemnifying party,
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party and such indemnifying party shall
reimburse such indemnified party and any person controlling such indemnified
party for that portion of the fees and expenses of any counsel retained by the
indemnified party which are reasonably related to the matters covered by the
indemnity agreement provided in this Section 11.10. The indemnifying party
shall not be liable for the expenses of more than one separate counsel
representing the indemnified parties pursuant to this Section 11.10.
The indemnifying party shall not make any settlement of any claims indemnified
against hereunder without the written consent of the indemnified party or
parties, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing provisions of this Section 11.10, if pursuant to
an underwritten public offering of the Common Stock, the Corporation, the
selling shareholders, and the underwriters enter into an underwriting or
purchase agreement relating to such offering which contains provisions covering
indemnification among the parties thereto in connection with such offering, the
indemnification provisions of this Section 11.10 shall be deemed inoperative for
purposes of such offering.
11.11 Removal of Legends, Etc. Notwithstanding the foregoing provisions of
------------------------
this Section 11, the restrictions imposed by this Section 11 upon the
transferability of any Restricted Securities shall cease and terminate when any
such Restricted Securities are sold or otherwise disposed of in accordance with
the intended method of disposition by the seller or sellers thereof set forth in
-32-
<PAGE>
the registration statement or as otherwise contemplated by Section 11.4 which
does not require that the securities transferred bear the legend set forth in
Section 11.3. Whenever the restrictions imposed by this Section 11 shall
terminate as herein provided, the holder of any Restricted Securities as to
which such restrictions have terminated shall be entitled to receive from the
Corporation, without expense, one or more new certificates not bearing the
restrictive legend set forth in Section 11.3 and not containing any other
reference to the restrictions imposed by this Section 11.
11.12 Granting of Registration Rights. The Corporation shall not, without
-------------------------------
the prior written consent of persons holding 51% by voting power of the
Restricted Securities then outstanding, grant any rights to any persons to
register any shares of capital stock or other securities of the Corporation if
such rights could reasonably be expected to conflict or be on a parity with the
rights of the holders of Restricted Securities granted pursuant to this
Agreement.
SECTION 12
----------
Securities Act Registration Statements
--------------------------------------
The Corporation shall not file any registration statement under the Securities
Act covering any securities unless it shall first have given the Investor
written notice thereof. The Corporation further covenants that the Investor
shall have the right, at any time when it may be deemed to be a controlling
person of the Corporation, to participate in the preparation of such
registration statement and to request the insertion therein of material
furnished to the Corporation in writing which in such Investor's judgment should
be included subject to the reasonable approval of the Corporation's counsel. In
connection with any registration statement referred to in this Section 12, the
Corporation will indemnify, to the extent permitted by law, each Investor, its
partners, officers, and directors and each person, if any, who controls such
Investor within the meaning of Section 12 of the Securities Act, against all
losses, claims, damages, liabilities, and expenses caused by any untrue
statement or alleged untrue statements of a material fact contained in any
registration statements or prospectus or any preliminary prospectus or any
amendment thereof or supplement thereto or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities, or expenses are caused by any untrue
statement or alleged untrue statement or omission contained in written
information furnished to the Corporation by such Investor expressly for use in
such registration statement. If, in connection with any such registration
statement, any Investor shall furnish written information to the Corporation
expressly for use in the registration statement, such Investor, as the case may
be, will indemnify to the extent permitted by law, the Corporation, its
directors, each of its officers who sign such registration statement, and each
person, if any, who controls the Corporation within the meaning of the
Securities Act against all losses, claims, damages, liabilities, and expenses
caused by any untrue statement or alleged untrue statement of a material fact or
any omission or alleged omission of a material fact required to be stated in the
registration statements or prospectus or any preliminary prospectus or any
preliminary prospectus or any amendment thereof or supplement thereto or
necessary to make the statement therein not misleading but only to the
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<PAGE>
extent that such untrue statement or alleged untrue statement or such omission
or alleged omission is contained in information so furnished in writing by such
Investor for use therein.
SECTION 13
----------
Fees
----
13.1 EGL Expenses. The Corporation will pay the actual legal fees,
------------
disbursements and expenses incurred by EGL in connection with the negotiation
and consummation of the transactions contemplated herein in an amount not to
exceed $35,000 in the aggregate. Such fees, disbursements, and expenses will be
paid by the Corporation within 30 days following the Closing Date.
13.2 Taxes. The Corporation further agrees that it will pay all issue and
-----
stamp taxes, if any, in respect of the issuance of the Securities and Reserved
Shares to the Investor.
SECTION 14
----------
Exchanges, Lost, Stolen, or Mutilated Certificates
--------------------------------------------------
Upon surrender by an Investor to the Corporation of any certificate
representing any Security purchased or acquired hereunder, the Corporation at
its expense will issue in exchange therefor, and deliver to such Investor, as
the case may be, a new certificate or certificates representing such shares, in
such denominations as may be requested by such Investor. Upon receipt of
evidence satisfactory to the Corporation of the loss, theft, destruction, or
mutilation of any certificate representing any Security purchased or acquired by
an Investor hereunder, and in case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement and bond satisfactory to the Corporation, or
in case of any such mutilation, upon surrender and cancellation of such
certificate, the Corporation at its expense will issue and deliver to the
Investor a new certificate for such Security of like tenor, in lieu of such
lost, destroyed, stolen, or mutilated certificate.
SECTION 15
----------
Survival of Representations, Warranties, and Agreements
-------------------------------------------------------
All representations and warranties hereunder are made on and as of the Closing
Date and shall survive the Closing for a period of two years, or, if earlier,
upon the occurrence of a Liquidity Event (the "Limitations Period"); provided,
however, any representations and warranties which are determined to have been
fraudulently made shall not be subject to the Limitations Period, and provided
further that any representations and warranties as to tax matters set forth in
Section 6.24 hereof shall survive the Closing until the later to occur of the
end of the Limitations Period or the expiration of the statute of limitations
for assessment of any tax, penalty, or interest against the Corporation for the
period(s) covered by such representations and warranties. The agreements and
covenants contained in Sections 9, and 10 (except 10.3) shall terminate upon
consummation of a Designated Offering. All other agreements contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative. Termination of any
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<PAGE>
representation, warranty, agreement, or covenant shall not affect any claim or
action commenced prior to the date of termination.
SECTION 16
----------
Indemnification
---------------
16.1 Indemnification of Investor. The Corporation shall indemnify, defend,
---------------------------
and hold each Investor harmless against all liability, loss, or damage, together
with all reasonable costs and expenses related thereto (including legal and
accounting fees and expenses), arising from the untruth, inaccuracy, or breach
of any representations, warranties, covenants, or agreements of the Corporation
set forth in this Agreement.
16.2 Indemnification of Corporation. Investor severally shall, with respect
------------------------------
to the representations, warranties, covenants, and agreements made by Investor
herein shall indemnify, defend, and hold the Corporation harmless against all
liability, loss, or damage, together with all reasonable costs and expenses
related thereto (including legal and accounting fees and expenses), arising from
the untruth, inaccuracy, or breach of any such representations, warranties,
covenants, or agreements of Investor.
16.3 Notice of Indemnification Claim. Any party claiming indemnification
-------------------------------
pursuant to this Section 16 shall give prompt notice of any claim subject to
indemnification, and the indemnifying party shall have the exclusive right to
litigate or defend any matter in respect of which indemnification is claimed.
16.4 Limitation of Indemnities. No party shall make a claim for
-------------------------
indemnification for damages or losses aggregating less than $300,000 before the
first anniversary of this Agreement or damages or losses aggregating less than
$700,000 after the first anniversary of this Agreement.
SECTION 17
----------
Remedies
--------
In case any one or more of the covenants or agreements set forth in this
Agreement shall have been breached in any material respect, the affected
nonbreaching party shall provide written notice to the party allegedly in breach
stating with specificity the factual basis for such determination and the party
allegedly in breach shall have thirty (30) days within which to cure such breach
or diligently commence corrective action if a cure cannot reasonably be affected
within such thirty (30) day period. In the event the breaching party fails to
either cure such breach or diligently commence corrective action, as the case
may be, the nonbreaching party may proceed to protect and enforce its rights
either by suit in equity or by action at law, including, but not limited to, an
action for damages as a result of any such breach or an action for specific
performance of any such covenant or agreement contained in this Agreement,
including reasonable legal and accounting fees and expenses.
-35-
<PAGE>
SECTION 18
----------
Successors and Assigns
----------------------
This Agreement shall bind and inure to the benefit of the Corporation and the
Investor and (a) each other person who shall become a registered holder of any
certificate representing Preferred Shares, Common Shares, or Reserved Shares
except those who receive them in connection with Rule 144 sales, after any
Designated Offering or offering pursuant to a Securities Act registration
statement, after registration of any of the Corporation's securities under the
Securities Exchange Act of 1934, or in any trade on a recognized trading market
or exchange, and (b) the respective successors and assigns of the Corporation,
the Investor, and each such other person. Notwithstanding the foregoing, the
Corporation may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of EGL.
SECTION 19
----------
Entire Agreement
----------------
This Agreement and the exhibits and schedules which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous agreement or understanding with
respect thereto.
SECTION 20
----------
Notices
-------
All notices, requests, consents, and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument
delivered in person (including delivery by overnight or express courier) or duly
sent by first class registered or certified mail, return receipt requested,
postage prepaid, addressed to such party at the address set forth below or such
other addresses as may hereafter be designated in writing by the addressee to
the addressor listing all parties:
<TABLE>
<CAPTION>
If to the Corporation: If to the Investor: If to CEO or the
Physician Health Corporation c/o EGL Holdings, Inc. other Founders:
<S> <C> <C>
990 Hammond Drive 6600 Peachtree Dunwoody Road c/o Physician Health
Suite 300 300 Embassy Row, Suite 630 Corporation
Atlanta, Georgia 30328 Atlanta, Georgia 30328 990 Hammond Drive
Attention: President Attention: David O. Ellis and Suite 300
Murali Anantharaman Atlanta, Georgia 30328
</TABLE>
If to NWV: If to MAM:
NatWest Ventures Mercury Asset
Investments Limited Management plc
-36-
<PAGE>
135 Bishopsgate 33 King William Street
London EC2M 3UR London EC4R 9AS
Attention: William Jackson Attention: Frances Jacob
All such notices, advices, and communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, and
(b) in the case of mailing, on the third day after the posting thereof.
SECTION 21
----------
Changes
-------
The terms and provisions of this Agreement may not be modified or amended, or
any of the provisions hereof waived, temporarily or permanently, except pursuant
to the written consent of the Corporation and EGL; provided, however, that any
modification, amendment or waiver of the following provision shall also require
the consents indicated below (a) the Institutional Investors with respect to
Sections 4 and 9, (b) the Founders with respect to Section 4, and (c) the
respective Investor making representation with respect to Section 7.1 through
7.4.
SECTION 22
----------
Counterparts
------------
This Agreement may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be original instrument, but all such
counterparts together shall constitute but one agreement.
SECTION 23
----------
Headings
--------
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be a part of this
Agreement.
SECTION 24
----------
Nouns and Pronouns
------------------
Whenever the context may require, any pronouns used herein shall include the
corresponding masculine, feminine, or neuter forms, and the singular form of
names and pronouns shall include the plural and vice versa.
SECTION 25
----------
Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of Georgia.
-37-
<PAGE>
SECTION 26
----------
Severability
------------
Any provision of this Agreement that is prohibited or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof.
SECTION 27
----------
No Waivers
----------
No failure or delay of any party in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. The rights and remedies hereunder are
cumulative and not exclusive of any rights or remedies which a party would
otherwise have. No notice or demand in any case shall entitle a party to any
other or further notice or demand in similar or other circumstances.
SECTION 28
----------
Certain Definitions/Consents of Investor
----------------------------------------
As used in this Agreement the phrase "Corporation's knowledge" means the
knowledge of the Founders and the manager level employees of the Corporation
listed on Exhibit 28 to this Agreement. Whenever the consent or waiver by the
----------
Investor is required, each Investor agrees that such consent or waiver may be
given for the Investor by EGL.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed
and delivered as of the 29th day of December 1995.
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
------------------------------------
Sarah C. Garvin, President
[Signatures continued on next page]
-38-
<PAGE>
EGL HOLDINGS, INC.
By: /s/ Murali Anantharaman
------------------------------------
Murali Anantharaman, Vice President
MERCURY ASSET MANAGEMENT plc,
on behalf of Rowan Nominees Limited
By:
------------------------------------
Title:
---------------------------------
INDIVIDUAL INVESTORS
----------------------------------------
Murali Anantharaman as authorized
signatory for EGL Holdings, Inc.,
acting as attorney-in-fact for the
Individual Investors set forth on
Exhibit 2.3 attached hereto
-----------
NATWEST VENTURES INVESTMENTS LIMITED
By:
------------------------------------
Title:
---------------------------------
-39-
<PAGE>
Each of the undersigned is executing this Agreement solely for the purpose of
evidencing their agreement to be bound by the provisions of Sections 4.1 and 4.2
hereof.
CEO
/s/ Sarah C. Garvin
----------------------------------------
Sarah C. Garvin
OTHER FOUNDERS
/s/ Howard E. Fagin, Ph.D
----------------------------------------
Howard E. Fagin, Ph.D
/s/ H. Thomas Scott
----------------------------------------
H. Thomas Scott
/s/ Julie Rawls Moore
----------------------------------------
Julie Rawls Moore
/s/ Shamus Holt
----------------------------------------
Shamus Holt
-40-
<PAGE>
EXHIBIT 10.30
FORM OF CONTINGENT SHARE WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR
PURPOSES OF INVESTMENT AND IN RELIANCE ON EXEMPTIONS UNDER THE 1933 ACT, AND
UNDER THE SECURITIES LAWS OF ANY OTHER APPLICABLE STATE OR OTHER JURISDICTION.
THESE SECURITIES AND THE SECURITIES ISSUED UPON EXERCISE HEREOF MAY NOT BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED, NOR MAY THIS WARRANT BE EXERCISED, EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS OF THE 1933 ACT AND THE SECURITIES
LAWS OF ALL OTHER APPLICABLE STATES AND OTHER JURISDICTIONS OR PURSUANT TO
EFFECTIVE REGISTRATION STATEMENTS UNDER SUCH LAWS; AND IN THE CASE OF AN
EXEMPTION, UNLESS SECTION 11.4 OF THE STOCK PURCHASE AGREEMENT (DEFINED BELOW)
PROVIDES OTHERWISE, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION
OF ANY SUCH SECURITIES. THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND/OR THE RIGHTS OF THE
HOLDER OF SUCH SECURITIES IN RESPECT OF THE ELECTION OF DIRECTORS ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A STOCK AND WARRANT PURCHASE AGREEMENT DATED
DECEMBER 29, 1995 AMONG PHYSICIAN HEALTH CORPORATION AND CERTAIN OTHER PARTIES
(THE "STOCK PURCHASE AGREEMENT").
THIS WARRANT IS SUBJECT TO CALL BY THE CORPORATION UNDER CIRCUMSTANCES SET
FORTH IN A CERTAIN STOCKHOLDERS AGREEMENT DATED DECEMBER 29, 1995 AMONG THE
CORPORATION AND CERTAIN OTHER PARTIES.
PHYSICIAN HEALTH CORPORATION Warrant to Purchase
Shares of Class A Preferred Stock
WARRANT
For the Purchase of Shares of the Class A Preferred Stock, $.01 par value,
--------------------------------------------------------------------------
of PHYSICIAN HEALTH CORPORATION, a Delaware Corporation (the "Corporation")
---------------------------------------------------------------------------
VOID IN ANY EVENT AFTER FIVE YEARS AFTER REDEMPTION OF ALL 200,000 SHARES OF
THE CORPORATION'S CLASS A PREFERRED STOCK, $.01 PAR VALUE (the "Class A Stock")
OUTSTANDING ON DATE THIS WARRANT ISSUES ("Outstanding Class A Stock"). THIS
WARRANT MAY ONLY BE EXERCISED IN THE EVENT THAT CLASS A STOCK OF THE CORPORATION
OWNED BY THE HOLDER HEREOF IS REDEEMED BY THE CORPORATION PURSUANT TO ARTICLE
IV, SECTION B, SUBSECTION 3(a)(ii)(B) OF THE CERTIFICATE OF INCORPORATION OF THE
CORPORATION, AS AMENDED (a "3(a)(ii)(B) Redemption").
<PAGE>
This is to certify that, for good and valuable consideration received,
("Investor"), or registered assigns, is entitled to purchase 200,000 shares
Class A Stock of the Corporation, all subject to the terms and conditions
hereinafter set forth, including, without limitation, the terms governing
exercise of this Warrant set forth in Section 1 below.
1. Exercise of Warrant.
-------------------
1.1 Exercise Price. The price per share at which shares of Class
--------------
A Stock may be purchased upon the exercise of this Warrant shall be equal to $15
per share.
1.2 Exercise Period; Maximum Number of Shares; Exercise
---------------------------------------------------
Contingent Upon Redemption of Outstanding Class A Stock.
- -------------------------------------------------------
(a) The first exercise period under this Warrant (the "First Exercise
Period") shall commence on the date of the initial 3(a)(ii)(B) Redemption by the
Corporation (the "Initial Redemption Date") of any portion of the Outstanding
Class A Stock owned by Investor and shall expire, as to the shares of Class A
Stock redeemed on the Initial Redemption Date, on the 5th anniversary of the
Initial Redemption Date. The exercise period under this Warrant for any
subsequent 3(a)(ii)(B) Redemption(s) by the Corporation of Outstanding Class A
Stock owned by Investor (the "Subsequent Exercise Period") shall commence on the
date of any subsequent 3(a)(ii)(B) Redemption by the Corporation (the
"Subsequent Redemption Date") and shall expire on the 5th anniversary of such
Subsequent Redemption Date.
(b) During each Exercise Period, Investor shall be entitled to
purchase only that number of shares of Class A Stock equal to the number of
shares of Outstanding Class A Stock which were redeemed on that Exercise
Period's Redemption Date. At any time during which any Exercise Period overlaps
another Exercise Period, Investor may exercise its Warrants for either or both
Exercise Periods.
(c) The series of Class A Stock subject to exercise under this Warrant
shall be the same as the series of Class A Stock redeemed from the Investor.
1.3. Method of Exercise.
------------------
Subject to Section 1.2, the registered owner hereof may exercise its
rights pursuant to this Warrant at any time prior to 3:00 p.m. Atlanta time, on
the last day of the applicable exercise period by presentation of this Warrant
to the Corporation at the office of the Corporation, accompanied by written
notice to the Corporation that the owner elects to exercise this Warrant, in
form attached hereto as Schedule A and such other documentation as is required
----------
pursuant to Section 4 hereof. Such notice shall also state the name or names
(with address) in which the certificate or certificates for shares which shall
be issuable on such exercise shall be issued. As soon as practicable after the
receipt of such notice, the presentation of this Warrant, the receipt by the
Corporation of the full exercise price for such shares in cash or certified bank
check, and compliance with the provisions of Section 4 hereof, the Corporation
shall issue and deliver to the owner a certificate or certificates for the
number of full shares which the owner seeks the Corporation to issue upon that
exercise of this Warrant. Such exercise shall be deemed to have been effected
immediately prior to the close of business on the date on which such notice
shall have been received by the Corporation and this Warrant shall have been
presented as aforesaid, and exercise shall be at the exercise price in effect at
such time, and at such time the rights of the owner of this Warrant as such
-2-
<PAGE>
owner shall cease with respect to that number of shares, and the person or
persons in whose name or names any certificate or certificates for shares, shall
be issuable upon such exercise shall be deemed to have become the owner(s) of
record of the shares represented thereby.
1.4. Notice of Certain Actions.
-------------------------
In case at any time:
(1) the Corporation shall declare any discretionary dividend upon any
class of its capital stock payable in securities or make any special dividend or
other distribution;
(2) the Corporation shall offer for subscription pro rata to the
holders of any class of its capital stock any additional securities of any class
or other rights;
(3) there shall be any capital reorganization, or reclassification of
the capital stock of the Corporation, or consolidation or merger of the
Corporation with, or sale of all or substantially all its assets or stock to,
another corporation;
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Corporation; or
(5) the Corporation shall enter into an agreement or adopt a plan for
the purpose of effecting a consolidation, merger, or sale of all or
substantially all of its assets or stock, other than a merger where the
Corporation is the surviving corporation and the terms of the Corporation's
capital stock remain unchanged;
then, in any one or more of said cases, the Corporation shall give written
notice, by first class mail, postage prepaid, to the registered owner of this
Warrant, of the date on which (a) the books of the Corporation shall close or a
record shall be taken for such dividend, distribution or subscription rights, or
(b) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up shall take place, as the case may be.
Such notice shall also specify the date as of which the owners of any class of
capital stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their capital stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger sale, dissolution, liquidation or
winding-up as the case may be. Such written notice shall be given at least 30
days prior to the action in question if practicable and not less than 30 days
prior to the record date or the date on which the Corporation's transfer books
are closed in respect thereto if practicable.
1.5. Reservation of Shares.
---------------------
The Corporation will at all times reserve and keep available out of
its authorized shares of capital stock, solely for the purpose of issuance upon
the exercise of this Warrant as herein provided, such number of shares of Common
Stock as shall then be issuable upon the exercise of this Warrant. The
Corporation covenants that all shares which shall be so issuable shall, upon the
exercise of this Warrant as herein provided, be duly and validly issued and
fully paid and nonassessable by the Corporation.
1.6. Registration and Listing.
------------------------
-3-
<PAGE>
(a) All persons who acquire shares of capital stock (or other
securities) pursuant to the exercise of this Warrant shall be entitled to the
rights to cause the Corporation to register such securities with the Securities
and Exchange Commission as are set forth in Article XI of the Stock Purchase
Agreement, the terms of which Section are incorporated herein for the purposes
of this Section 1.6.
(b) If any shares required to be reserved for purposes of the exercise
of this Warrant require listing on any national securities exchange before such
shares may be issued upon exercise, the Corporation will, at its expense, as
expeditiously as possible cause such shares to be listed on the relevant
national securities exchange.
1.7 Taxes.
-----
The issuance of certificates for shares upon exercise of this Warrant
shall be made without charge to the owner of this Warrant for any issuance tax
in respect thereto, provided that the Corporation shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than that of the registered
owner of this Warrant.
1.8. Partial Exercise.
----------------
The purchase rights represented by this Warrant are exercisable at the
option of the registered owner hereof in whole at any time, or in part from time
to time, within the period above specified, provided, however, that such
purchase rights shall not be exercisable with respect to a fraction of a share.
In case of the purchase of less than all the shares purchasable under this
Warrant, the Corporation shall cancel this Warrant upon the surrender hereof and
shall execute and deliver a new Warrant of like tenor and date for the balance
of the shares purchasable hereunder.
2. Shareholder Rights. This Warrant shall not entitle the owner
------------------
hereof to any voting rights or other rights as a shareholder of the Corporation,
or to any other rights whatsoever except the rights herein expressly set forth,
and no dividends shall be payable or accrue in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until or unless,
and except to the extent that, this Warrant shall be exercised. No provision
hereof, in the absence of affirmative action by the owner hereof to exercise
this Warrant, and no mere enumeration herein of the rights or privileges of the
owner hereof, shall give rise to any liability of such owner for the exercise
price or as a shareholder of the Corporation, whether such liability is asserted
by the Corporation or by creditors of the Corporation.
3. Exchange of Warrant. This Warrant is exchangeable upon the
-------------------
surrender hereof by the registered owner to the Corporation for a reasonable
number of new Warrants of like tenor and date representing in the aggregate the
right to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the registered owner at the time of such surrender.
4. Transfer and Exercise of Warrant. (1) This Warrant and any
--------------------------------
Warrant Stock may not be sold, transferred, pledged, hypothecated or otherwise
disposed of except as follows: (a) to a person who is a person to whom this
Warrant or the Warrant Stock may legally be transferred without registration and
without the delivery of a current prospectus under the 1933 Act with respect
thereto; or (b) to any person upon delivery of a prospectus then meeting the
requirements of the 1933 Act relating to such securities and the offering
-4-
<PAGE>
thereof for such sale or disposition, and thereafter to all successive
assignees. In the case of subparagraph (a), the Company shall be under no
obligation to transfer this Warrant or any of the Warrant Shares unless and
until the Company shall have received an opinion of counsel to the owner, which
counsel and opinion shall be reasonably satisfactory to the Company, that such
transaction does not require registration of any such securities.
(2) The owner of this Warrant hereby further acknowledges that neither
this Warrant nor any of the securities that may be acquired upon exercise of
this Warrant have been registered under the 1933 Act or under the securities
laws of any state or other jurisdiction. The owner of this Warrant acknowledges
that, upon exercise of this Warrant the securities to be issued upon such
exercise may come under applicable federal, state, or foreign securities (or
other) laws requiring registration, qualification or approval of governmental
authorities before such securities may be validly issued or delivered upon
notice of such exercise. Upon exercise hereof the Company and the owner shall
cooperate in the exercise of their best efforts to obtain exemptions from
registration or qualification for the issuance of such securities under
applicable state and federal securities laws. The restrictions imposed by this
Section 4 upon the exercise of this Warrant shall cease and terminate as to any
particular shares of Warrant Stock (i) when such securities shall have been
effectively registered under the 1933 Act and all applicable state and foreign
securities laws and disposed of in accordance with the registration statement
covering such securities, or (ii) when, in the opinion of counsel for the owner
thereof, which counsel shall be reasonably satisfactory to the Company, such
restrictions are no longer required in order to insure compliance with the 1933
Act or under any applicable state securities laws.
(3) In the event that this Warrant is restricted under federal, state,
or foreign securities laws from being exercised because the underlying shares
are not registered or subject to exemption, then the term for exercise shall be
extended and this Warrant shall be exercisable for an additional period of time
equal to the period during which federal, state or foreign securities laws so
restricted its exercise. The Corporation shall notify Investors in writing when
such registration or exemption becomes effective.
(4) The provisions of this paragraph (4) requiring opinion of counsel
shall not apply to those circumstances not requiring opinions of counsel in
Section 11.4 of the Stock Purchase Agreement.
5. Investment Representation and Legend. The owner of this Warrant,
------------------------------------
by acceptance of this Warrant, represents and warrants to the Corporation that
it is acquiring this Warrant and the shares (or other securities) issuable upon
the exercise hereof for investment purposes only and not with a view towards the
resale or other distribution thereof and agrees that the Corporation may affix
upon this Warrant the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR
PURPOSES OF INVESTMENT AND IN RELIANCE ON EXEMPTIONS UNDER THE 1933 ACT, AND
UNDER THE SECURITIES LAWS OF ANY OTHER APPLICABLE STATE OR OTHER
-5-
<PAGE>
JURISDICTION. THESE SECURITIES AND THE SECURITIES ISSUED UPON EXERCISE
HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED, NOR MAY THIS
WARRANT BE EXERCISED, EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
PROVISIONS OF THE 1933 ACT AND THE SECURITIES LAWS OF ALL OTHER APPLICABLE
STATES AND OTHER JURISDICTIONS OR PURSUANT TO EFFECTIVE REGISTRATION
STATEMENTS UNDER SUCH LAWS; AND IN THE CASE OF AN EXEMPTION, UNLESS SECTION
11.4 OF THE STOCK PURCHASE AGREEMENT (DEFINED BELOW) PROVIDES OTHERWISE, ONLY
IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH SECURITIES.
THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE AND/OR THE RIGHTS OF THE HOLDER OF SUCH
SECURITIES IN RESPECT OF THE ELECTION OF DIRECTORS ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A STOCK AND WARRANT PURCHASE AGREEMENT DATED December 29,
1995, AMONG PHYSICIAN HEALTH CORPORATION AND CERTAIN OTHER PARTIES (THE
"STOCK PURCHASE AGREEMENT")."
The owner of this Warrant, by acceptance of this Warrant, further agrees that
the Corporation may affix the following legend (in addition to any other
legend(s), if any, required by applicable state securities laws) to certificates
for shares (or other securities) issued upon exercise of this Warrant ("Warrant
Shares"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, BUT HAVE BEEN ACQUIRED
BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE
ON EXEMPTIONS UNDER THE 1933 ACT, AND UNDER THE SECURITIES LAWS OF ANY OTHER
APPLICABLE STATE OR OTHER JURISDICTION. THESE SECURITIES MAY NOT BE SOLD,
PLEDGED, TRANSFERRED OR ASSIGNED, EXCEPT IN A TRANSACTION WHICH IS EXEMPT
UNDER PROVISIONS OF THE 1933 ACT AND THE SECURITIES LAWS OF ALL OTHER
APPLICABLE STATES AND OTHER JURISDICTIONS OR PURSUANT TO EFFECTIVE
REGISTRATION STATEMENTS UNDER SUCH LAWS; AND IN THE CASE OF AN EXEMPTION,
UNLESS SECTION 11.4 OF THE STOCK PURCHASE AGREEMENT (DEFINED BELOW) PROVIDES
OTHERWISE, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF ANY SUCH SECURITIES. THE SALE, TRANSFER, ASSIGNMENT, PLEDGE
OR ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND/OR THE
RIGHTS OF THE HOLDER OF SUCH SECURITIES IN RESPECT OF THE ELECTION OF
DIRECTORS ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCK AND WARRANT
-6-
<PAGE>
PURCHASE AGREEMENT DATED DECEMBER 29, 1995, AMONG PHYSICIAN HEALTH
CORPORATION AND CERTAIN OTHER PARTIES."
6. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
--------------------------------------------
lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute a contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
7. Presentment. Prior to due presentment for registration of
-----------
transfer of this Warrant, the Corporation may deem and treat the registered
owner hereof as the absolute owner of this Warrant, notwithstanding any notation
of ownership or other writing thereon, for the purpose of any exercise thereof
and for all other purposes, and the Corporation shall not be affected by any
notice to the contrary.
8. Notice. Notice or demand pursuant to this Warrant shall be
------
sufficiently given or made, if sent by first-class mail, postage prepaid,
addressed, if to the owner of this Warrant, to such owner at its last known
address as it shall appear in the records of the Corporation, and if to the
Corporation, at 990 Hammond Drive, Suite 300, Atlanta, Georgia 30328. The
Corporation may alter the address to which communications are to be sent by
giving notice of such change of address in conformity with the provisions of
this Section 8 for the giving of notice.
9. Governing Law. The validity, interpretation and performance of
-------------
this Warrant shall be governed by the laws of the State of Georgia.
10. Successors, Assigns. All the terms and provisions of this Warrant
-------------------
shall be binding upon inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the Corporation has created this Warrant to be
executed by the signatures of its duly authorized officers and the corporate
seal hereunto affixed.
PHYSICIAN HEALTH CORPORATION
By:
-----------------------
Sarah Garvin, President
Dated: December 29, 1995
Attest:
--------------------
Secretary
[Corporate Seal]
-7-
<PAGE>
SCHEDULE A
----------
PHYSICIAN HEALTH CORPORATION
Suite 300
990 Hammond Drive
Atlanta, Georgia 30328
Re: Warrant dated December 29, 1995 issued to (the
----------------
"Warrant")
Gentlemen:
We hereby exercise the Warrant in [whole/part] for shares of Common Stock,
---
$.0025 par value, at the current exercise price of $ per share.
-----------
Certificates for such shares should be issued in the name of
. Enclosed is a check in the aggregate amount of
- -------------------------
$ and the Warrant. [Please issue a Warrant for the
------------ -------------
remaining unexercised shares to the undersigned.]
-----------------------------
Holder
Dated:
-----------------------
-8-
<PAGE>
EXHIBIT 10.31
WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, BUT HAVE
BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN
RELIANCE ON EXEMPTIONS UNDER THE 1933 ACT, AND UNDER THE SECURITIES LAWS OF ANY
OTHER APPLICABLE STATE OR OTHER JURISDICTION. THESE SECURITIES AND THE
SECURITIES ISSUED UPON EXERCISE HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED, NOR MAY THIS WARRANT BE EXERCISED, EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER PROVISIONS OF THE 1933 ACT AND THE SECURITIES LAWS OF ALL OTHER
APPLICABLE STATES AND OTHER JURISDICTIONS OR PURSUANT TO EFFECTIVE REGISTRATION
STATEMENTS UNDER SUCH LAWS; AND IN THE CASE OF AN EXEMPTION, UNLESS SECTION 11.4
OF THE STOCK PURCHASE AGREEMENT (DEFINED BELOW) PROVIDES OTHERWISE, ONLY IF
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH SECURITIES. THE SALE,
TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE AND/OR THE RIGHTS OF THE HOLDER OF SUCH SECURITIES IN RESPECT
OF THE ELECTION OF DIRECTORS ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCK
AND WARRANT PURCHASE AGREEMENT DATED DECEMBER 29, 1995, AMONG PHYSICIAN HEALTH
CORPORATION, EGL HOLDINGS, INC., AND CERTAIN OTHER PARTIES (THE "STOCK PURCHASE
AGREEMENT").
December 29, 1995 Warrant to Purchase
Shares of Common Stock
WARRANT
For the Purchase of Shares of the Common Stock,
----------------------------------------------
$.0025 par value, of PHYSICIAN HEALTH CORPORATION,
-------------------------------------------------
a Delaware Corporation
----------------------
VOID IN ANY EVENT AFTER 3:00 P.M. ON DECEMBER 29, 2005.
<PAGE>
This is to certify that, for good and valuable consideration received
and subject to the terms and conditions hereinafter set forth, EGL Holdings,
Inc. ("Investor"), or registered assigns, is entitled, at or before 3:00 p.m.
Eastern Time, on December 29, 2005, or any earlier date, but not thereafter, to
purchase a number of Shares of Common Stock, $.0025 par value ("Common
Stock"), of Physician Health Corporation, a Delaware corporation (the
"Corporation"), equal to the greater of (i) 190,000 shares of Common Stock or,
-------
if any stock split, recapitalization, reorganization, consolidation or merger of
the Corporation which affects all holders of Common Stock equally as a class
occurs after December 29, 1995 but before exercise of this Warrant, such number
of shares of Common Stock as 190,000 shares of Common Stock, if outstanding on
December 29, 1995, would convert into as a result of such stock split,
recapitalization, reorganization, consolidation or merger of the Corporation, or
--
(ii) provided any shares of the Corporation's Class A Preferred Stock remain
outstanding, the number of shares of Common Stock, into which 19,792 shares of
the Corporation's Class A Preferred Stock would be convertible into on the date
of exercise in accordance with the provisions of Article IV, Section B,
Subsection 5 of the Corporation's Certificate of Incorporation, as amended.
1. Exercise of Warrant.
-------------------
1.1 Exercise Price.
--------------
The price for each share which may be purchased upon the exercise of
this Warrant shall be an amount equal to (a) $.0025 per share or (b) $475
divided by the number of shares of Common Stock subject to exercise under this
Warrant at the time of exercise.
1.2. Method of Exercise.
------------------
The registered owner hereof may exercise this Warrant at any time
prior to 3:00 p.m. Atlanta time, on December 29, 2005, by presentation of this
Warrant to the Corporation at the office of the Corporation, accompanied by
written notice to the Corporation that the owner elects to exercise this
Warrant, in form attached hereto as Schedule A and such other documentation as
----------
is required pursuant to Section 4 hereof. Such notice shall also state the name
or names (with address) in which the certificate or certificates for shares
which shall be issuable on such exercise shall be issued. As soon as practicable
after the receipt of such notice, the presentation of this Warrant, the receipt
by the Corporation of the full exercise price for such shares in cash or
certified bank check, and compliance with the provisions of Section 4 hereof,
the Corporation shall issue and deliver to the owner a certificate or
certificates for the number of full shares which the owner seeks the Corporation
to issue upon that exercise of this Warrant. Such exercise shall be deemed to
have been effected immediately prior to the close of business on the date on
which such notice shall have been received by the Corporation and this Warrant
shall have been presented as aforesaid, and exercise shall be at the exercise
price in effect at such time, and at such time the rights of the owner of this
Warrant as such owner shall cease with respect to that number of shares, and the
person or persons in whose name or names any certificate or certificates for
shares, shall be issuable upon such exercise shall be deemed to have become the
owner(s) of record of the shares represented thereby.
1.3. Notice of Certain Actions.
-------------------------
In case at any time:
(1) the Corporation shall declare any discretionary dividend upon any
class of its capital stock payable in securities or make any special dividend or
other distribution;
-2-
<PAGE>
(2) the Corporation shall offer for subscription pro rata to the
holders of any class of its capital stock any additional securities of any class
or other rights;
(3) there shall be any capital reorganization, or reclassification of
the capital stock of the Corporation, or consolidation or merger of the
Corporation with, or sale of all or substantially all its assets or stock to,
another corporation;
(4) there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Corporation; or
(5) the Corporation shall enter into an agreement or adopt a plan for
the purpose of effecting a consolidation, merger, or sale of all or
substantially all of its assets or stock, other than a merger where the
Corporation is the surviving corporation and the terms of the Corporation's
capital stock remain unchanged; then, in any one or more of said cases, the
Corporation shall give written notice, by first class mail, postage prepaid, to
the registered owner of this Warrant, of the date on which (a) the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights, or (b) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up shall take place, as the case may be. Such notice shall also specify
the date as of which the owners of any class of capital stock of record shall
participate in such dividend, distribution or subscription rights, or shall be
entitled to exchange their capital stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger
sale, dissolution, liquidation or winding-up as the case may be. Such written
notice shall be given at least 30 days prior to the action in question if
practicable and not less than 30 days prior to the record date or the date on
which the Corporation's transfer books are closed in respect thereto if
practicable.
1.4. Intentionally Deleted.
---------------------
1.5 Reservation of Shares.
---------------------
The Corporation will at all times reserve and keep available out of
its authorized shares of capital stock, solely for the purpose of issuance upon
the exercise of this Warrant as herein provided, such number of shares of Common
Stock as shall then be issuable upon the exercise of this Warrant. The
Corporation covenants that all shares which shall be so issuable shall, upon the
exercise of this Warrant as herein provided, be duly and validly issued and
fully paid and nonassessable by the Corporation.
-3-
<PAGE>
1.6. Registration and Listing.
------------------------
(1) All persons who acquire shares of capital stock (or other
securities) pursuant to the exercise of this Warrant shall be entitled to the
rights to cause the Corporation to register such securities with the Securities
and Exchange Commission as are set forth in Article XI of the Stock Purchase
Agreement, the terms of which Section are incorporated herein for the purposes
of this Section 1.6.
(2) If any shares required to be reserved for purposes of the
exercise of this Warrant require listing on any national securities exchange
before such shares may be issued upon exercise, the Corporation will, at its
expense, as expeditiously as possible cause such shares to be listed on the
relevant national securities exchange.
1.6. Taxes.
-----
The issuance of certificates for shares upon exercise of this Warrant
shall be made without charge to the owner of this Warrant for any issuance tax
in respect thereto, provided that the Corporation shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than that of the registered
owner of this Warrant.
1.7. Partial Exercise.
----------------
The purchase rights represented by this Warrant are exercisable at the
option of the registered owner hereof in whole at any time, or in part from time
to time, within the period above specified, provided, however, that such
purchase rights shall not be exercisable with respect to a fraction of a share.
In case of the purchase of less than all the shares purchasable under this
Warrant, the Corporation shall cancel this Warrant upon the surrender hereof and
shall execute and deliver a new Warrant of like tenor and date for the balance
of the shares purchasable hereunder.
2. Shareholder Rights. This Warrant shall not entitle the owner
------------------
hereof to any voting rights or other rights as a shareholder of the Corporation,
or to any other rights whatsoever except the rights herein expressly set forth,
and no dividends shall be payable or accrue in respect of this Warrant or the
interest represented hereby or the shares purchasable hereunder until or unless,
and except to the extent that, this Warrant shall be exercised. No provision
hereof, in the absence of affirmative action by the owner hereof to exercise
this Warrant, and no mere enumeration herein of the rights or privileges of the
owner hereof, shall give rise to any liability of such owner for the exercise
price or as a shareholder of the Corporation, whether such liability is asserted
by the Corporation or by creditors of the Corporation.
3. Exchange of Warrant. This Warrant is exchangeable upon the
-------------------
surrender hereof by the registered owner to the Corporation for a reasonable
number of new Warrants of like tenor and date representing in the aggregate the
right to purchase the number of shares purchasable hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the registered owner at the time of such surrender.
4. Transfer and Exercise of Warrant. (1) This Warrant and any Warrant
--------------------------------
Stock may not be sold, transferred, pledged, hypothecated or otherwise disposed
of except as follows: (a) to a person who is a person to whom this Warrant or
the Warrant Stock may legally be transferred without registration and without
the delivery of a current prospectus
-4-
<PAGE>
under the 1933 Act with respect thereto; or (b) to any person upon delivery of a
prospectus then meeting the requirements of the 1933 Act relating to such
securities and the offering thereof for such sale or disposition, and thereafter
to all successive assignees. In the case of subparagraph (a), the Company shall
be under no obligation to transfer this Warrant or any of the Warrant Shares
unless and until the Company shall have received an opinion of counsel to the
owner, which counsel and opinion shall be reasonably satisfactory to the
Company, that such transaction does not require registration of any such
securities.
(2) The owner of this Warrant hereby further acknowledges that neither
this Warrant nor any of the securities that may be acquired upon exercise of
this Warrant have been registered under the 1933 Act or under the securities
laws of any state or other jurisdiction. The owner of this Warrant acknowledges
that, upon exercise of this Warrant the securities to be issued upon such
exercise may come under applicable federal, state, or foreign securities (or
other) laws requiring registration, qualification or approval of governmental
authorities before such securities may be validly issued or delivered upon
notice of such exercise. Upon exercise hereof the Company and the owner shall
cooperate in the exercise of their best efforts to obtain exemptions from
registration or qualification for the issuance of such securities under
applicable state and federal securities laws. The restrictions imposed by this
Section 4 upon the exercise of this Warrant shall cease and terminate as to any
particular shares of Warrant Stock (i) when such securities shall have been
effectively registered under the 1933 Act and all applicable state or foreign
securities laws and disposed of in accordance with the registration statement
covering such securities, or (ii) when, in the opinion of counsel for the owner
thereof, which counsel shall be reasonably satisfactory to the Company, such
restrictions are no longer required in order to insure compliance with the 1933
Act or under any applicable state securities laws.
(3) In the event that this Warrant is restricted under federal, state,
or foreign securities laws from being exercised because the underlying shares
are not registered or subject to exemption, then the term for exercise shall be
extended and this Warrant shall be exercisable for an additional period of
time equal to the period during which federal, state, or foreign securities laws
so restricted its exercise. The Corporation shall notify Investors in writing
when such registration or exemption becomes effective.
(4) The provisions of this paragraph (4) requiring opinion of counsel
shall not apply to those circumstances not requiring opinions of counsel in
Section 11.4 of the Stock Purchase Agreement.
-5-
<PAGE>
5. Investment Representation and Legend. The owner of this Warrant,
------------------------------------
by acceptance of this Warrant, represents and warrants to the Corporation that
it is acquiring this Warrant and the shares (or other securities) issuable upon
the exercise hereof for investment purposes only and not with a view towards the
resale or other distribution thereof and agrees that the Corporation may affix
upon this Warrant the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF
FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON EXEMPTIONS UNDER THE 1933
ACT, AND UNDER THE SECURITIES LAWS OF ANY OTHER APPLICABLE STATE OR OTHER
JURISDICTION. THESE SECURITIES AND THE SECURITIES ISSUED UPON EXERCISE
HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED, NOR MAY THIS
WARRANT BE EXERCISED, EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
PROVISIONS OF THE 1933 ACT AND THE SECURITIES LAWS OF ALL OTHER APPLICABLE
STATES AND OTHER JURISDICTIONS OR PURSUANT TO EFFECTIVE REGISTRATION
STATEMENTS UNDER SUCH LAWS; AND IN THE CASE OF AN EXEMPTION, UNLESS SECTION
11.4 OF THE STOCK PURCHASE AGREEMENT (DEFINED BELOW) PROVIDES OTHERWISE,
ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH
SECURITIES. THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE AND/OR THE RIGHTS OF THE HOLDER
OF SUCH SECURITIES IN RESPECT OF THE ELECTION OF DIRECTORS ARE SUBJECT TO
THE TERMS AND CONDITIONS OF A STOCK AND WARRANT PURCHASE AGREEMENT DATED
DECEMBER 29, 1995, AMONG PHYSICIAN HEALTH CORPORATION AND CERTAIN OTHER
PARTIES (THE "STOCK PURCHASE AGREEMENT")."
The owner of this Warrant, by acceptance of this Warrant, further agrees that
the Corporation may affix the following legend (in addition to any other
legend(s), if any, required by applicable state
-6-
<PAGE>
securities laws) to certificates for shares (or other securities) issued upon
exercise of this Warrant ("Warrant Shares"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, BUT HAVE BEEN ACQUIRED
BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE
ON EXEMPTIONS UNDER THE 1933 ACT, AND UNDER THE SECURITIES LAWS OF ANY
OTHER APPLICABLE STATE OR OTHER JURISDICTION. THESE SECURITIES MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED, EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER PROVISIONS OF THE 1933 ACT AND THE SECURITIES LAWS OF ALL
OTHER APPLICABLE STATES AND OTHER JURISDICTIONS OR PURSUANT TO EFFECTIVE
REGISTRATION STATEMENTS UNDER SUCH LAWS; AND IN THE CASE OF AN EXEMPTION,
UNLESS SECTION 11.4 OF THE STOCK PURCHASE AGREEMENT (DEFINED BELOW)
PROVIDES OTHERWISE, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF ANY SUCH SECURITIES. THE SALE, TRANSFER, ASSIGNMENT, PLEDGE
OR ENCUMBRANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND/OR THE
RIGHTS OF THE HOLDER OF SUCH SECURITIES IN RESPECT OF THE ELECTION OF
DIRECTORS ARE SUBJECT TO THE TERMS AND CONDITIONS OF A STOCK AND WARRANT
PURCHASE AGREEMENT DATED DECEMBER 29, 1995, AMONG PHYSICIAN HEALTH
CORPORATION AND CERTAIN OTHER PARTIES."
6. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is
--------------------------------------------
lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute a contractual
obligation of the Corporation, whether or not the allegedly lost, stolen,
mutilated or destroyed Warrant shall be at any time enforceable by anyone.
7. Presentment. Prior to due presentment for registration of
-----------
transfer of this Warrant, the Corporation may deem and treat the registered
owner hereof as the absolute owner of this Warrant, notwithstanding any notation
of ownership or other writing thereon, for the purpose
-7-
<PAGE>
of any exercise thereof and for all other purposes, and the Corporation shall
not be affected by any notice to the contrary.
8. Notice. Notice or demand pursuant to this Warrant shall be
------
sufficiently given or made, if sent by first-class mail, postage prepaid,
addressed, if to the owner of this Warrant, to such owner at its last known
address as it shall appear in the records of the Corporation, and if to the
Corporation, at 990 Hammond Drive, Suite 300, Atlanta, Georgia 30328. The
Corporation may alter the address to which communications are to be sent by
giving notice of such change of address in conformity with the provisions of
this Section 8 for the giving of notice.
9. Governing Law. The validity, interpretation and performance of
-------------
this Warrant shall be governed by the laws of the State of Georgia.
10. Successors, Assigns. All the terms and provisions of this
-------------------
Warrant shall be binding upon inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the Corporation has created this Warrant to be
executed by the signatures of its duly authorized officers and the corporate
seal hereunto affixed.
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah Garvin
-----------------------------------
Sarah Garvin, President
Dated: December 29, 1995 Attest: /s/ H. Thomas Scott
-------------------------------
Secretary
-8-
<PAGE>
SCHEDULE A TO EXHIBIT 2(a)(ii)
------------------------------
PHYSICIAN HEALTH CORPORATION
Suite 300
990 Hammond Drive
Atlanta, Georgia 30328
Re: Warrant dated December 29, 1995 issued to EGL Holdings, Inc.
(the "Warrant")
Gentlemen:
We hereby exercise the Warrant in [whole/part] for _____ shares of Common Stock,
$.0025 par value, at the current exercise price of $_______ per share.
Certificates for such shares should be issued in the name of ___________.
Enclosed is a check in the aggregate amount of $_________ and the Warrant.
[Please issue a Warrant for the _______ remaining unexercised shares to the
undersigned.]
----------------------------------
Holder
----------------------------------
Dated:
-9-
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
EXHIBIT 10.32
SECURITIES PURCHASE AGREEMENT
Among
PHYSICIAN HEALTH CORPORATION
WESTON PRESIDIO CAPITAL II, L.P.
AND CERTAIN OTHER INVESTORS
As of June 16, 1997
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<C> <S> <C>
1. DEFINITIONS..............................................................................................1
2. SALE AND PURCHASE OF SECURITIES..........................................................................8
2.1. Investor Securities.............................................................................8
-------------------
2.2. Agreement to Sell and Purchase..................................................................9
------------------------------
2.3. Initial Closing.................................................................................9
---------------
2.4. Second Closing.................................................................................10
--------------
2.6. Use of Proceeds................................................................................10
---------------
3. CONDITIONS TO PURCHASE..................................................................................11
3.1. Investor Agreements............................................................................11
-------------------
3.2. Investor Securities............................................................................11
-------------------
3.3. Legal Opinion..................................................................................11
-------------
3.4. Representations and Warranties; Officer's Certificate..........................................11
-----------------------------------------------------
3.5. Accountants' Report............................................................................12
-------------------
3.6. SBA Compliance.................................................................................12
--------------
3.7. Key Executive Insurance........................................................................12
-----------------------
3.9. Legality; Governmental Authorization...........................................................13
------------------------------------
3.10. General........................................................................................13
-------
4. REPRESENTATIONS AND WARRANTIES..........................................................................13
4.1. Material Agreements............................................................................13
-------------------
4.2. Organization and Subsidiaries; Business........................................................14
---------------------------------------
4.2.1. The Company............................................................................14
-----------
4.2.2. Subsidiaries...........................................................................15
------------
4.2.3. Conduct of Business....................................................................15
-------------------
4.3. Capitalization.................................................................................15
--------------
4.3.1. Capital Stock of the Company...........................................................15
----------------------------
4.3.2. Options, etc...........................................................................15
------------
4.3.3. Capital Stock of the Subsidiaries......................................................15
---------------------------------
4.3.4. Subsidiary Options, etc................................................................16
-----------------------
4.4. Reports, Financial Statements and Other Documents..............................................16
-------------------------------------------------
4.5. Changes in Condition...........................................................................17
--------------------
4.5.1. Material Adverse Effect................................................................17
-----------------------
4.5.2. Extraordinary Transactions, etc........................................................17
-------------------------------
4.6. Solvency.......................................................................................17
--------
4.7. Contractual Obligations, etc...................................................................17
----------------------------
4.7.1. Certain Contracts......................................................................17
-----------------
4.7.2. Nature of Contracts....................................................................19
-------------------
4.7.3. Charter or By-Laws.....................................................................19
------------------
4.7.4. Insurance..............................................................................19
---------
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
4.7.5. Transactions with Affiliates...................................................................19
----------------------------
4.8. Operations in Conformity With Law, etc.........................................................19
--------------------------------------
4.9. Environmental Matters..........................................................................20
---------------------
4.10. ERISA Matters..................................................................................20
-------------
4.11. Labor Relations................................................................................21
---------------
4.12. Taxes..........................................................................................21
-----
4.13. Litigation.....................................................................................21
----------
4.14. Violation of Other Instruments.................................................................21
------------------------------
4.15. Filings, Broker's Fees, etc....................................................................22
---------------------------
4.16. SBA Matters....................................................................................22
-----------
4.17. Governmental Regulation........................................................................22
-----------------------
4.18. Margin Stock...................................................................................22
------------
4.19. Real Property Holding Corporation..............................................................22
---------------------------------
4.20. Disclosure.....................................................................................22
----------
5. GENERAL COVENANTS. .....................................................................................22
5.1. Covenants Relating to the Company's Board of Directors.........................................23
------------------------------------------------------
5.1.1. Board of Directors.....................................................................23
------------------
5.1.2. Directors Expenses.....................................................................23
------------------
5.1.3. Indemnity..............................................................................23
---------
5.2. Information and Reports to be Furnished........................................................23
---------------------------------------
5.2.1. Annual Statements......................................................................23
-----------------
5.2.2. Quarterly Reports......................................................................24
-----------------
5.2.3. Monthly Reports........................................................................24
---------------
5.2.4. Annual Budgets.........................................................................24
--------------
5.2.5. Officers' Certificates.................................................................24
----------------------
5.2.6. Notice of Litigation, Defaults, etc....................................................24
-----------------------------------
5.2.7. Notices under Material Agreements......................................................25
---------------------------------
5.2.8. Information Provided to Stockholders...................................................25
------------------------------------
5.2.9. Information Furnished under Other Agreements...........................................25
--------------------------------------------
5.2.10. Other Information......................................................................25
-----------------
5.2.11. Interview Rights.......................................................................25
----------------
5.3. Conduct of Business............................................................................26
-------------------
5.3.1. Type of Business.......................................................................26
----------------
5.3.2. Maintenance of Properties, etc.........................................................26
------------------------------
5.3.3. Compliance with Laws and Material Agreements...........................................26
--------------------------------------------
5.3.4. Insurance..............................................................................26
---------
5.3.5. Foreign Qualification..................................................................27
---------------------
5.4. Charter Amendment, etc.........................................................................27
----------------------
5.5. Merger, Consolidation and Sale of Assets.......................................................27
----------------------------------------
5.7. Guarantees.....................................................................................28
----------
5.8. Liens..........................................................................................28
-----
5.9. Investments....................................................................................29
-----------
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
5.10. Distributions..................................................................................30
-------------
5.11. Capital Expenditures...........................................................................30
--------------------
5.12. Replacement of Chairman........................................................................30
-----------------------
5.13. Compensation, etc..............................................................................30
-----------------
5.14. Stock Issuance, etc............................................................................31
-------------------
5.15. Amendment of Material Agreements, etc..........................................................31
-------------------------------------
5.16. Transactions with Affiliates...................................................................32
----------------------------
5.17. Compliance with ERISA, etc.....................................................................32
--------------------------
5.18. SBA Requirements...............................................................................32
----------------
5.18.1. Information...........................................................................32
-----------
5.18.2. Compliance; Rescission Right..........................................................33
----------------------------
5.19. Annual Meeting.................................................................................33
--------------
5.20. Listing of Shares..............................................................................33
-----------------
5.21. Real Property Holding Corporation..............................................................33
---------------------------------
5.22. Regulatory Compliance Cooperation..............................................................33
---------------------------------
5.22.1. Exchange for Nonvoting Securities.....................................................33
---------------------------------
5.22.2. Future Securities Issuances...........................................................34
---------------------------
5.23. Environmental Laws.............................................................................34
5.23.1. Compliance with Law and Permits.......................................................34
-------------------------------
5.23.2. Notice of Claims, etc.................................................................34
---------------------
6. INVESTOR SECURITIES; RESTRICTIONS ON TRANSFER..........................................................35
6.1. Representations and Warranties of the Investors................................................36
-----------------------------------------------
6.2. Home Office Payment............................................................................36
-------------------
6.3. Replacement of Lost Securities.................................................................37
------------------------------
6.4. Transfer, Exchange and Conversion of Investor Securities.......................................37
--------------------------------------------------------
6.5. Restrictions on Transfer.......................................................................37
------------------------
6.5.1. Restrictive Legend......................................................................38
------------------
6.5.2. Notice of Proposed Transfer; Opinions of Counsel........................................38
------------------------------------------------
6.5.3. Termination of Restrictions.............................................................38
---------------------------
7. EXPENSES, ETC...........................................................................................38
7.1. Expenses.......................................................................................39
--------
7.2. Indemnification................................................................................39
---------------
7.3. Environmental Indemnification..................................................................39
-----------------------------
7.4. Survival.......................................................................................39
--------
8. NOTICES.................................................................................................40
9. CONFIDENTIALITY.........................................................................................40
10. AMENDMENTS AND WAIVERS..................................................................................40
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
11. SURVIVAL AND TERMINATION OF COVENANTS...................................................................40
12. SERVICE OF PROCESS......................................................................................41
13. WAIVER OF JURY TRIAL....................................................................................41
14. GENERAL.................................................................................................41
</TABLE>
-iv-
<PAGE>
TABLE OF EXHIBITS
1 Investors, Preferred Stock, Purchase Warrants and Purchase Price
2.1A Warrant
2.1B Certificate of Designation
2.6 Disbursement of Closing Proceeds For Funding of Physician Practices
Acquisitions
3.3 Opinion of Counsel to the Company
4.1 Material Agreements
4.1.1 Stock Option Plan
4.2.2 Subsidiaries
4.3.1 Schedule of Capitalization and Stock Ownership
4.3.3 Capital Stock of Subsidiaries
4.4 Pro Forma Balance Sheet and Projections
4.7 Contracts, etc.
4.10 Employee Benefit Plans
4.15 Required Consents
5.13 Compensation
-v-
<PAGE>
SECURITIES PURCHASE AGREEMENT
This Agreement, dated as of June 16, 1997, is among Physician Health
Corporation, a Delaware corporation (the "Company"), Weston Presidio Capital
-------
II, L.P. and the other Investors set forth in Exhibit 1 hereto (as from time to
time in effect). The parties agree as follows:
1. DEFINITIONS. Certain capitalized terms are used in this Agreement as
specifically defined below in this Section 1. Except as the context otherwise
explicitly requires, (a) the capitalized term "Section" refers to sections of
this Agreement, (b) the capitalized term "Exhibit" refers to exhibits to this
Agreement, (c) references to a particular Section include all subsections
thereof, (d) the word "including" shall be construed as "including without
limitation", (e) accounting terms not otherwise defined herein have the meaning
provided under GAAP, (f) references to a particular statute or regulation
include all rules and regulations thereunder and any successor statute,
regulation or rules, in each case as from time to time in effect and (g)
references to a particular Person include such Person's successors and assigns
to the extent not prohibited by this Agreement and the other Investor
Agreements. References to "the date hereof" mean the date first set forth above.
1.1. "Affiliate" means any Person directly or indirectly controlling,
---------
controlled by or under direct or indirect common control with the Company (or
other specified Person) and shall include (a) any Person who is an officer,
director or beneficial holder of at least 10% of the outstanding capital stock
of the Company (or other specified Person), (b) any Person of which the Company
(or other specified Person) or an Affiliate (as defined in clause (a) above) of
the Company (or other specified Person) shall, directly or indirectly, either
beneficially own at least 10% of the outstanding equity securities or constitute
at least a 10% participant, and (c) in the case of a specified Person who is an
individual, Members of the Immediate Family of such Person; provided, however,
-------- -------
that the Investors shall not be Affiliates of the Company for purposes of this
Agreement.
1.2. "Applicable Health Care Laws" is defined in Section 5.24.
---------------------------
1.3. "Arlington Acquisition Agreement" is defined in Section 4.1.4.
-------------------------------
1.4. "Balance Sheet" is defined in Section 4.4.
-------------
1.5. "By-laws" means all written rules, regulations, procedures and by-
-------
laws and all other similar documents, relating to the management, governance or
internal regulation of a
<PAGE>
Person other than an individual, or interpretive of the Charter of such Person,
each as from time to time amended or modified.
1.6. "Capital Expenditures" means amounts which should in accordance
--------------------
with GAAP be added to the fixed assets account on the consolidated balance sheet
of the Company and its Subsidiaries, in respect of (a) the acquisition,
construction, improvement or replacement of assets or leaseholds, and (b) to the
extent related to and not included in clause (a) above, expenditures on account
of materials, contract labor and direct labor (excluding expenditures properly
chargeable to repairs and maintenance in accordance with generally accepted
accounting principles).
1.7. "Capitalized Lease" means any lease which is or should be
-----------------
capitalized on the balance sheet of the lessee in accordance with GAAP and
Statement No. 13 of the Financial Accounting Standards Board.
1.8. "Certificate of Designation" is defined in Section 2.1.
--------------------------
1.9. "CFR" is defined in Section 4.16.
---
1.10. "Charter" means the articles of organization, certificate of
-------
incorporation, statute, constitution, joint venture or partnership agreement,
management agreement or other charter of any Person other than an individual,
each as from time to time amended or modified.
1.11. "Class A Stock and Warrant Purchase Agreement" is defined in
--------------------------------------------
Section 4.1.5.
1.12. "Closings" means, collectively, the Initial Closing, the Second
--------
Closing and the Third Closing.
1.13. "Closing Dates" means, collectively, the Initial Closing Date, the
-------------
Second Closing Date and the Third Closing Date.
1.14. "Code" means the federal Internal Revenue Code of 1986.
----
1.15. "Common Stock" means the Voting Common Stock, $0.0025 par value, of
------------
the Company.
1.16. "Commission" means the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act, the Exchange
Act or both.
1.17. "Company" is defined in the Preamble.
-------
2
<PAGE>
1.18. "Compensation" as applied to any Person means the aggregate of all
------------
salaries, compensation, remuneration or bonuses of any character, retirement or
pension benefits of any kind, or other payments of any kind whatsoever (other
than health and medical benefits made available to employees generally and
advances and reimbursements of business expenses) made directly or indirectly by
the Company, any of its Subsidiaries or other specified Persons to such Person
and Affiliates of such Person.
1.19. "Consolidated", when used with reference to any term, means that
------------
term as applied to the accounts of the Company or other indicated Person and
each of its respective Subsidiaries, consolidated or combined in accordance with
GAAP after eliminating all inter-company items and with appropriate deductions
for minority interests in Subsidiaries.
1.20. "Contractual Obligation" means, with respect to any Person, any
----------------------
contracts, agreements, deeds, mortgages, leases, licenses, other instruments,
commitments, undertakings, arrangements or understandings, written or oral, or
other documents, including any Charter or By-law provisions and any document or
instrument evidencing Indebtedness, to which any such Person is a party or
otherwise subject to or bound by or to which any asset of any such Person is
subject.
1.21. "Conversion Warrants" means the warrants to purchase Common Stock
-------------------
at the conversion price of the Preferred Stock in substantially the form of
Exhibit 2.1A issuable upon a voluntary prepayment of the Preferred Stock in
accordance with section 6.3 of the Certificate of Designation.
1.22. "Distribution" means (a) the declaration or payment of any dividend
------------
on or in respect of any shares of any class of capital stock of the Company, any
of its Subsidiaries or other specified Person, other than dividends payable
solely in shares of the common stock of the payor; (b) the purchase, redemption
or other retirement of any shares of any class of capital stock of the Company,
any of its Subsidiaries or other specified Person directly, or indirectly
through a Subsidiary or otherwise; or (c) any other distribution on or in
respect of any shares of any class of capital stock of the Company, any of its
Subsidiaries or other specified Person.
1.23. "Employee Benefit Plan" means each "employee benefit plan" as
---------------------
defined in section 3(3) of ERISA, maintained or contributed to by the Company or
any member of an ERISA Group in which the Company is a member, or in which the
Company or any member of an ERISA Group in which the Company is a member
participates or participated and which provides benefits to employees of the
Company or their spouses or covered dependents or with respect to which the
Company has or may have a material liability, including (i) any such plans that
are "employee welfare plans" as defined in section 3(1) of ERISA and (ii) any
such plans that are "employee pension benefit plans" as defined in section 3(2)
of ERISA.
3
<PAGE>
1.24. "Environmental Laws" means all applicable federal, state or local
------------------
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
consent decrees and administrative orders) relating to public health and safety
and protection of the environment.
1.25. "Equity Call Agreement" means the Equity Call Agreement dated as of
---------------------
the date hereof, as from time to time in effect, among the Company, the
Investors and the seller under the Arlington Acquisition Agreement.
1.26. "ERISA" means the federal Employee Retirement Income Security Act
-----
of 1974.
1.27. "ERISA Group", with respect to any entity, means any Person which
-----------
is a member of the same "controlled group" or under "common control", within the
meaning of section 414(b) or (c) of the Code or section 4001(b)(1) of ERISA,
with such entity.
1.28. "Exchange Act" means the federal Securities Exchange Act of 1934.
------------
1.29. "GAAP" means generally accepted accounting principles, as in effect
----
from time to time, applied on a basis consistent with that used in preparation
of the financial statements referred to in Section 4.4, consistently applied.
1.30. "Guarantee" means (a) any guarantee of the payment or performance
---------
of, or any contingent obligation in respect of, any Indebtedness or other
obligation of any other Person, (b) any other arrangement whereby credit is
extended to one obligor on the basis of any promise or undertaking of another
Person (i) to pay the Indebtedness of such obligor, (ii) to purchase any
obligation owed by such obligor, or (iii) to maintain the capital, working
capital, solvency or general financial condition of such obligor, whether or not
such arrangement is disclosed in the balance sheet of such other Person or is
referred to in a footnote thereto, and (c) any liability of the Company or any
of its Subsidiaries as general partner of a partnership or as a venturer in a
joint venture in respect of Indebtedness or other obligations of such
partnership or venture; provided, however, that in no event shall Guarantees
-------- -------
include product warranties given in the ordinary course of business.
1.31. "Hazardous Material" is defined in Section 4.9.
------------------
1.32. "Indebtedness" means (a) all debt for borrowed money and similar
------------
monetary obligations evidenced by bonds, notes, debentures, capitalized lease
obligations, deferred purchase price of property (other than ordinary trade
payables) or otherwise, whether direct or indirect; and (b) all liabilities
secured by any Liens existing on property owned or acquired, whether or not the
liability secured thereby shall have been assumed.
1.33. "Indemnitees" is defined in Section 7.2.
-----------
4
<PAGE>
1.34. "Initial Closing" is defined in Section 2.3.
---------------
1.35. "Initial Closing Date" is defined in Section 2.3.
--------------------
1.36. "Investment" means (a) any share of capital stock, evidence of
----------
Indebtedness or other security issued by any other Person, (b) any loan,
advance, or extension of credit to, or contribution to the capital of, any other
Person, (c) any purchase of the securities or assets constituting a business or
a division or similar portion of the business of any other Person, (d) any
commitment or option to make such an investment if, in the case of an option,
the consideration therefor exceeds $100, and (e) any other investment; provided,
--------
however, that the term "Investment" shall not include (i) current trade and
- -------
customer accounts receivable arising in the ordinary course of business and
payable in accordance with customary trade terms or prepaid assets arising in
the ordinary course of business, (ii) advances to employees for travel expenses,
drawing accounts and similar expenditures, (iii) stock or other securities
acquired in connection with the satisfaction or enforcement of Indebtedness or
claims due to the Company or any of its Subsidiaries or as security for any such
Indebtedness or claim or (iv) demand deposits in banks or trust companies. The
amount of an Investment outstanding at any time shall be determined in
accordance with GAAP; provided, however, that no Investment shall be increased
-------- -------
as a result of an increase in the undistributed retained earnings of the Person
in whom an Investment was made or decreased as a result of an equity in the
losses of any such Person.
1.37. "Investor Agreements" means this Agreement, the Certificate of
-------------------
Designation, the Stockholders Agreement, the Registration Rights Agreement, the
Warrants, the Equity Call Agreement, any other agreement or instrument entered
into between the Company and the Investors and any amendment or modification to
any of the foregoing.
1.38. "Investor Securities" is defined in Section 2.1.
-------------------
1.39. "Investors" means the holders of Investor Securities, the original
---------
holders of which are listed in Exhibit 1.
1.40. "Legal Requirement" means any federal, state, local or foreign law,
-----------------
statute, standard, ordinance, code, order, rule, regulation, resolution,
promulgation or any final order, judgment or decree of any court, arbitrator,
tribunal or governmental authority, or any license, franchise, permit or similar
right granted under any of the foregoing.
1.41. "Lien" means (a) any mortgage, pledge, lien, charge, security
----
interest or other similar encumbrance upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any conditional sale
or other title retention agreement or arrangement (including a Capitalized
Lease); or (c) any sale, assignment, pledge or other
5
<PAGE>
transfer for security of any accounts, general intangibles or chattel paper,
with or without recourse.
1.42. "Liquidity Event" is defined in section 2 of the Certificate of
---------------
Designation.
1.43. "Margin Stock" means "margin stock" within the meaning of any
------------
regulation, interpretation or ruling of the Board of Governors of the Federal
Reserve System, all as from time to time in effect.
1.44. "Material Adverse Effect" means a material adverse effect upon the
-----------------------
business, assets, financial condition or income of the Company and its
Subsidiaries on a Consolidated basis.
1.45. "Material Agreements" is defined in Section 4.1.
-------------------
1.46. "Members of the Immediate Family," as applied to any individual,
-------------------------------
means each parent, spouse, child, brother, sister or the spouse of a child,
brother or sister of the individual, and each trust created for the benefit of
one or more of such persons and each custodian of a property of one or more such
persons.
1.47. "Non-Voting Common Stock" means the Non-Voting Common Stock,
-----------------------
$0.0025 par value, of the Company.
1.48. "Pension Plan" means each pension plan (as defined in section 3(2)
------------
of ERISA) established or maintained, or to which contributions are or were made
since March 1, 1993, by the Company or any of its Subsidiaries or former
Subsidiaries, or any Person which is a member of the same ERISA Group with any
of the foregoing.
1.49. "Person" means an individual, partnership, corporation, company,
------
association, trust, joint venture, unincorporated organization, business trust,
limited liability company and any governmental department or agency or political
subdivision.
1.50. "Preferred Director" is defined in Section 5.1.1.
------------------
1.51. "Preferred Stock" means the Class B Redeemable Convertible
---------------
Preferred Stock, par value $0.01 per share, of the Company.
1.52. "Prime Common Stock" means the Prime Common Stock, $0.0025 par
------------------
value, of the Company.
1.53. "Principal Holder" means each original holder of Preferred Stock
----------------
set forth on Exhibit 1 (and their Affiliates) so long as it holds any Investor
Securities originally
6
<PAGE>
purchased at an aggregate cost of at least $1 million and any other Person
holding Preferred Stock originally purchased at an aggregate cost of $2 million
or more.
1.54. "Projections" is defined in Section 4.4.
-----------
1.55. "Purchase Price Escrow" is defined in Section 2.4.
---------------------
1.56. "Purchase Warrants" mean the warrants to purchase Common Stock at
-----------------
the exercise price set forth below in substantially the form of Exhibit 2.1A,
issuable on the respective Closing Dates hereunder. The Purchase Warrants
issued on the Initial Closing Date and on the Second Closing Date shall have an
exercise price of $0.01 per share and the Purchase Warrants issued on the Third
Closing Date shall have an exercise price of $4.00 per share.
1.57. "Registration Rights Agreement" is defined in Section 3.1.
-----------------------------
1.58. "Regulated Investor" means BancBoston Ventures, Inc. and any other
------------------
Investor subject to regulation by a Regulatory Agency.
1.59. "Regulatory Agency" means the U.S. Small Business Administration
-----------------
(or any successor body or agency), the Board of Governors of the Federal Reserve
System (or any successor body or agency) or any other governmental body or
agency charged with the administration of the Small Business Investment Act of
1958, the Bank Holding Company Act of 1956 or any similar, related or successor
laws regulating banks, bank holding companies, insurance companies, insurance
holding companies, SBICs and their respective subsidiaries
1.60. "Regulatory Problem" means the assertion by any Regulatory Agency
------------------
(or the reasonable belief by a Regulated Investor that a substantial risk of
such assertion exists) that a Regulated Investor is not entitled to hold, or
exercise any significant right with respect to, the Investor Securities.
1.61. "Remedy Event" is defined in section 7 of the Certificate of
------------
Designation.
1.62. "Required Holders" means the holders at the relevant time
----------------
(excluding the Company or any of its Subsidiaries) of at least two-thirds of the
voting power of all classes and types of Investor Securities (calculated to give
pro forma effect to the conversion of all Preferred Stock and the exercise of
all Warrants), voting together as a single class.
1.63. "SBA" is defined in Section 3.6.
---
1.64. "SBIC" means a small business investment company licensed by the
----
SBA pursuant to the Small Business Investment Act.
7
<PAGE>
1.65. "Second Closing" is defined in Section 2.4.
--------------
1.66. "Second Closing Date" is defined in Section 2.4.
-------------------
1.67. "Securities Act" means the federal Securities Act of 1933.
--------------
1.68. "Securities Escrow" is defined in Section 2.3.
-----------------
1.69. "Senior Loan Agreement" is defined in Section 4.1.3.
---------------------
1.70. "Small Business Investment Act" is defined in Section 4.16.
-----------------------------
1.71. "Stockholders Agreement" is defined in Section 3.1.
----------------------
1.72. "Stockholders' Equity" means, at any date, stockholders' equity of
--------------------
the Company and its Subsidiaries determined in accordance with GAAP on a
Consolidated basis, excluding the effect of any foreign currency translation
adjustments.
1.73. "Stock Option Plan" is defined in Section 4.1.1.
-----------------
1.74. "Subsidiary" means any Person of which the Company or other
----------
specified Person now or hereafter shall at the time (a) own directly or
indirectly through a Subsidiary in excess of 50% of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally or (b)
constitute a general partner.
1.75. "Third Closing" is defined in Section 2.5.
-------------
1.76. "Third Closing Date" is defined in Section 2.5
------------------
1.77. "Warrants" mean, collectively, the Conversion Warrants and the
--------
Purchase Warrants.
1.78. "Welfare Plan" means each welfare plan as defined in section 3(1)
------------
of ERISA) established or maintained, or to which any contributions are or were
made since March 1, 1993, by the Company or any of its Subsidiaries or any
Person which is a member of the same ERISA Group with any of the foregoing.
1.79. "WPC" means Weston Presidio Capital II, L.P.
---
2. SALE AND PURCHASE OF SECURITIES.
2.1. Investor Securities. The Preferred Stock and Purchase Warrants
-------------------
being purchased by the Investors hereunder, together with any securities issued
with respect thereto,
8
<PAGE>
upon exercise, conversion or transfer thereof or in exchange therefor, including
the Common Stock issuable upon conversion of the Preferred Stock and the
Conversion Warrants issuable upon a voluntary redemption of the Preferred Stock
(and the Common Stock issuable upon exercise or conversion of the Warrants), are
collectively referred to as "Investor Securities"; provided, however, that once
-------- ---------- -------- -------
any such securities have been sold in a Liquidity Event they shall cease to be
Investor Securities for all purposes of this Agreement. The powers, preferences
and rights of the Preferred Stock are set forth in the Company's Charter as
amended through the date hereof, including the Certificate of Designation,
Preferences and Rights for the Preferred Stock in the form set forth in Exhibit
2.1B (the "Certificate of Designation").
--------------------------
2.2. Agreement to Sell and Purchase. Based on the Investors'
------------------------------
representations and warranties contained in Section 6, the Company agrees to
issue and sell to the Investors and, subject to all of the terms and conditions
hereof and in reliance on the representations and warranties of the Company set
forth or referred to herein, the Investors severally, and not jointly or jointly
and severally, agree to purchase at the respective Closings the number of shares
of Investor Securities specified in Exhibit 1 (as supplemented by WPC in
accordance with Section 14) for each Investor at the purchase price, payable by
wire transfer or Investor check, so specified in such Exhibit. The Company
shall have the right to terminate this Agreement as to any particular Closing
without recourse or liability if the total purchase price set forth in Exhibit 1
is not delivered for any reason at such Closing in the manner set forth in
Sections 2.3, 2.4 or 2.5, as the case may be.
2.3. Initial Closing. The initial closing of the purchase and sale of
---------------
Investor Securities (the "Initial Closing") shall take place in Boston,
---------------
Massachusetts at the offices of Ropes & Gray on June 16, 1997 (the "Initial
-------
Closing Date") or on such other date as the Company and the Required Holders may
- ------------
agree upon. At the Initial Closing the Company will deliver to the Investors
certificates evidencing the respective Investor Securities set forth in Exhibit
1 for the Initial Closing against payment of the purchase price therefor in
immediately available funds. In addition, the Company will deposit into an
escrow account maintained by WPC (the "Securities Escrow") certificates
-----------------
evidencing the respective Investor Securities set forth in Exhibit 1 for the
Third Closing, to be released as provided in Section 2.5, against the Investors'
payment of the purchase price therefor.
2.4. Second Closing. The Second Closing of the purchase and sale of
--------------
Investor Securities (the "Second Closing") shall take place in Boston,
--------------
Massachusetts at the offices of Ropes & Gray on or prior to July 31, 1997 as the
Company and the Required Holders may agree upon (the "Second Closing Date"). At
-------------------
the Second Closing, the Company will deposit into the Securities Escrow
certificates evidencing the respective Investor Securities set forth in Exhibit
1 (as supplemented by WPC in accordance with Section 14) for the Second Closing
against the Investors' deposit of the purchase price therefor into an interest
bearing restricted account with the Company's principal depository bank (the
"Purchase Price Escrow"). Funds will be disbursed to the Company from the
---------------------
Purchase Price Escrow (and Investor Securities of
9
<PAGE>
commensurate value to the disbursed funds will be simultaneously released to the
Investors from the Securities Escrow) in increments of $1,000,000 upon notice
from the Required Holders in their reasonable discretion for the purpose of
funding the acquisition by the Company of (a) physician practices as set forth
in Exhibit 2.6; or (b) other physician practices with an aggregate purchase
price of at least $1,000,000, which are determined by the Required Holders, in
their reasonable discretion, to be commensurate in all material respects with
the physician practices set forth in Exhibit 2.6; or (c) for any other permitted
use of proceeds specified in Section 2.6. Prior to the withdrawal of funds from
the Purchase Price Escrow and the simultaneous release of Investor Securities
from the Securities Escrow, a general partner of the Escrow Agent and an
executive officer of the Company will sign a certificate indicating the amount
of funds being so disbursed and the number of Investor Securities being so
released. Any funds still remaining in the Purchase Price Escrow from the Second
Closing on April 30, 1998 shall be returned (with all amounts of interest
accrued thereon) to the Investors and, simultaneously therewith, any Investor
Securities remaining in the Securities Escrow on such date shall be returned to
the Company.
2.5. Third Closing Date. On any date requested in accordance with the
------------------
Equity Call Agreement (which date shall be between April 1, 1998 and April 13,
1998), the Investors party to the Equity Call Agreement shall pay to the Company
the purchase price for the Investor Securities set forth in Exhibit 1 as
provided in the Equity Call Agreement. Upon such payment, WPC shall release the
certificates for the Investor Securities purchased thereby from the Securities
Escrow to the respective Investors purchasing them. Any Investor Securities
still remaining in the Securities Escrow from the Third Closing on April 14,
1998 shall be returned to the Company.
2.6. Use of Proceeds. The Company covenants that it will apply the cash
---------------
proceeds of the sale of the Investor Securities solely for the following lawful
purposes: (a) funding the acquisitions of physician practices in accordance with
Exhibit 2.6 and clause (b) of Sections 2.3 and 2.4; (b) repayment of its
existing debt, (c) capital expenditures, (d) transaction costs; (e) working
capital and (f) in the case of the Third Closing, paying the deferred payment
obligations due on or about such date under the Arlington Acquisition Agreement.
No portion of such proceeds will be used: (i) to acquire or maintain Margin
Stock, (ii) to provide capital to a corporation licensed under the Small
Business Investment Act, (iii) outside the United States (except (A) to acquire
abroad materials and industrial property rights for a domestic operation or (B)
for transfer to a controlled foreign subsidiary, so long as at least 51% of the
assets and activities of the Company will remain within the United States), or
(iv) for any purpose contrary to the public interest (including activities which
are in violation of law) or inconsistent with free competitive enterprise, in
each case, within the meaning of 13 CFR (S) 107.901. The Company's primary
business activity does not involve, directly or indirectly, providing funds to
others, the purchase or discounting of debt obligations, factoring or long-term
leasing of equipment with no provision for maintenance or repair, and the
Company is not classified under Major Group 65 (Real Estate) of the federal
Standard Industrial Code Manual.
10
<PAGE>
3. CONDITIONS TO PURCHASE. The Investors' several obligations to purchase
the Investor Securities pursuant to this Agreement on each Closing Date are
subject to the satisfaction, on or prior to each Closing Date, of the following
conditions:
3.1. Investor Agreements. The Company and its stockholders (other than
-------------------
the Investors) party thereto shall have duly authorized, executed and delivered
to WPC the following agreements:
(a) Second Amended and Restated Stockholders' Agreement dated as
of the Initial Closing Date among the Company, the Investors and certain
other stockholders of the Company (as from time to time in effect, the
"Stockholders Agreement").
----------------------
(b) Registration Rights Agreement dated as of the Initial Closing
Date among the Company, the Investors and certain other stockholders of
the Company (as from time to time in effect, the "Registration Rights
-------------------
Agreement").
---------
In addition, no later than five days prior to the Second Closing and the
Third Closing, the Company shall have provided to the Investors updated versions
of Exhibits 4.1, 4.2.2, 4.3.1, 4.3.3, 4.4 (which shall refer to the most recent
audited annual and unaudited quarterly financial statements), 4.7 and 4.10,
which updated Exhibits will contain information which is complete and accurate
as of the Second Closing Date and the Third Closing Date, as the case may be.
3.2. Investor Securities. The Company shall have issued to the
-------------------
Investors shown on Exhibit 1 and placed in escrow pursuant to Section 2.3 the
number of shares of Preferred Stock and Purchase Warrants shown opposite their
names in Exhibit 1 for an aggregate consideration as shown in Exhibit 1 with
respect to such Closing Date.
3.3. Legal Opinion. On each Closing Date, the Investors shall have
-------------
received from Jackson & Walker, L.L.P., counsel to the Company and its
Subsidiaries, their opinion in substantially the form of Exhibit 3.3. The
Company hereby authorizes its counsel to deliver such opinion.
3.4. Representations and Warranties; Officer's Certificate. The
-----------------------------------------------------
representations and warranties contained herein shall be true and correct on and
as of each Closing Date with the same force and effect as though made on and as
of such Closing Date; between the Balance Sheet Date and such Closing Date, no
Material Adverse Effect shall have occurred; the Company shall have performed
all obligations required to be performed by it under the Investor Agreements;
and the Investors shall have received on such Closing Date a certificate to
these effects signed by the Chairman and the President of the Company.
11
<PAGE>
3.5. Accountants' Report. On or prior to the Initial Closing Date, the
-------------------
Investors shall have received a report about the Company's financial condition,
the Projections and the Company's internal financial control systems prepared by
independent accountants selected by the Investors, which report shall be
satisfactory in all respects to the Investors.
3.6. SBA Compliance. The Company shall have furnished to the Investors
--------------
that are SBICs all forms which such Investors shall have informed the Company
are required by the Small Business Administration ("SBA") in connection with the
---
transactions contemplated hereby, including a Size Status Declaration on SBA
Form 480, an Assurance of Compliance on SBA Form 652 and a Portfolio Financing
Report on SBA Form 1031, which forms shall be in proper form for filing with the
SBA.
3.7. Key Executive Insurance. The Company will have in full force and
-----------------------
effect as the owner thereof on the Closing Date key executive life insurance
policies with a financially sound and reputable insurer in the aggregate amount
of at least $1,000,000 covering the life of Sarah C. Garvin, the proceeds of
which shall be payable to the Company. Such policy shall not be cancelable
without at least 30 days' written notice from the insurer to WPC.
3.8. Acquisition. Other than as consented to by WPC in writing:
-----------
(a) The provisions of the Arlington Acquisition Agreement shall not
have been amended, modified, waived or terminated in any material respect.
(b) All of the representations and warranties of the sellers set
forth in the Arlington Acquisition Agreement shall be complete and correct in
all material respects on and as of the Initial Closing Date with the same force
and effect as though made on and as of such date.
(c) All of the other conditions to the obligations of the Company
and its Subsidiaries set forth in the Arlington Acquisition Agreement shall have
been satisfied.
(d) Any material consent, authorization, order or approval of any
Person required in connection with the transactions contemplated by the
Arlington Acquisition Agreement shall have been obtained and shall be in full
force and effect.
(e) All of the items required to be delivered under the Arlington
Acquisition Agreement shall have been so delivered.
(f) Contemporaneously with the funding on the Initial Closing Date,
the acquisition by the Company of the assets contemplated by the Arlington
Acquisition Agreement shall have been consummated.
12
<PAGE>
3.9. Legality; Governmental Authorization. The purchase of the Investor
------------------------------------
Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject the Investors to any penalty or special tax
(other than a penalty or special tax that has been reimbursed by the Company).
All necessary consents, approvals, licenses, permits, orders and authorizations
of, or registrations, declarations or filings with, any governmental or
administrative agency or of any other Person, if any, with respect to any of the
transactions contemplated by this Agreement or the other Investor Agreements,
the absence of which could have a Material Adverse Effect, shall have been duly
obtained or made and shall be in full force and effect.
3.10. General. All instruments and legal and corporate proceedings in
-------
connection with the transactions contemplated by this Agreement, the other
Investor Agreements and the Material Agreements shall be reasonably satisfactory
in form and substance to the Required Holders, and the Investors shall have
received copies of all documents, including records of corporate proceedings and
officers certificates, which the Required Holders may have reasonably requested
in connection therewith.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Investors to
enter into this Agreement and to purchase the Investor Securities hereunder, the
Company represents and warrants as follows:
4.1. Material Agreements. The Company has furnished to the Investors
-------------------
correct and complete copies of the documents listed below, as well as the other
documents listed in Exhibit 4.1, all of which have been executed on or prior to
the date hereof and any amendments thereto, modifications thereof or waivers
granted thereunder. All such documents are referred to collectively as the
"Material Agreements". References to any of the Material Agreements mean the
- --------------------
Material Agreements in the form so furnished to the Investors, without regard to
any amendment, modification, waiver or termination of such document which is
made or otherwise becomes effective after the date hereof, unless such
amendment, modification, waiver or termination has been consented to in writing
by the Required Holders, and shall include other documents, exhibits and
schedules which are attached thereto or incorporated therein by reference:
4.1.1. Stock Option Plan and the related form of Stock Option
Agreement in substantially the form of Exhibit 4.1.1 (the "Stock Option Plan").
-----------------
4.1.2. Non-Competition and Non-Disclosure Agreement dated as of
December 28, 1995 between the Company and Sarah Garvin.
4.1.3. Loan and Security Agreements dated as of June 16, 1997 among
Physician Health Corporation, MHOA Texas I, LLC and DVI Financial Services, Inc.
and DVI Business Credit Corporation, as Agent (collectively, as amended from
time to time, the "Senior Loan Agreement").
---------------------
13
<PAGE>
4.1.4. Asset Purchase and Contribution Agreement dated June 16,
1997 by and among Metroplex Hematology/Oncology Associates, L.L.P., a Texas
limited liability partnership, the physicians listed therein, the wholly owned
professional associations of such physicians and the Company (the "Arlington
---------
Acquisition Agreement").
- ---------------------
4.1.5. Stock and Warrant Purchase Agreement dated December 29, 1995
by and among the Company, EGL Holdings, Inc., Mercury Asset Management PLC, on
behalf of Rowan Nominees Limited, NatWest Ventures Investments Limited, and
certain individual investors named therein (the "Class A Stock and Warrant
-------------------------
Purchase Agreement").
- ------------------
4.1.6. Restated and Amended Stockholders' Agreement dated as of
November 1, 1996 by and among the Company, Sarah C. Garvin, Howard E. Fagin,
Ph.D., H. Thomas Scott, Julie Rawls Moore and Shamus Holt.
Other than customary subscription agreements with respect to the issuance
of shares of Common Stock to the stockholders listed in Exhibit 4.3.1 or as
otherwise set forth in Exhibit 4.3.1, neither the Company nor any of its
Subsidiaries is a party to or bound by any agreement or understanding affecting
the capital stock of the Company or its Subsidiaries or the voting thereof which
is not a Material Agreement or an Investor Agreement or specifically
contemplated by or referred to in the Material Agreements or the Investor
Agreements.
4.2. Organization and Subsidiaries; Business.
---------------------------------------
4.2.1. The Company. The Company is a duly organized and validly
-----------
existing corporation in good standing under the laws of Delaware. The Company
has all necessary corporate power and authority to enter into and perform this
Agreement and the other Investor Agreements and Material Agreements to which it
is party, to issue and sell the Investor Securities to be issued and sold by it
hereunder, and to carry on the businesses now conducted or presently proposed to
be conducted by it. The Company has taken all corporate action necessary to
authorize the Investor and Material Agreements to which it is party and the
issuance of the Investor Securities to be issued and sold by it hereunder. The
Investor Agreements and Material Agreements to which the Company is party and
the Investor Securities to be issued and sold by the Company hereunder have been
duly executed and delivered by the Company and are the legal, valid and binding
obligations of the Company, enforceable in accordance with their terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting generally the enforcement of creditors rights and general
principles of equity.
4.2.2. Subsidiaries. The Company does not own or control, directly
------------
or indirectly, or have an interest in, any other corporation, partnership,
association or business entity, except for the Persons described in
Exhibit 4.2.2.
14
<PAGE>
4.2.3. Conduct of Business. The Company has conducted no business
-------------------
other than (a) managing the operations of physician or dental group practices or
other providers of physician or dental services; (b) managing the operations of
lines of diagnostic and treatment businesses ancillary or related to physician
or dental group practices or other providers of physician or dental services;
and (c) negotiating and administrating managed care contracts between insurance
companies or other medical payors and physician or dental group practices or
other providers of physician or dental services; and (d) operating physician
practices through the employment by subsidiaries of physicians and other
ancillary personnel.
4.3. Capitalization.
--------------
4.3.1. Capital Stock of the Company. The authorized capital stock
----------------------------
of the Company is set forth in Exhibit 4.3.1. On the respective Closing Dates,
after giving effect to the issuance of the Investor Securities and the
consummation of the Investor Agreements, the Company will have no outstanding
capital stock except for the shares of Voting Common Stock, Non-Voting Common
Stock, Prime Stock, Class A Stock and Preferred Stock owned beneficially and of
record as set forth in Exhibit 4.3.1, all of which will be validly issued, fully
paid, nonassessable and, to the best knowledge of the Company, subject to no
lien or restriction on transfer, except restrictions on transfer imposed by the
Investor Agreements and applicable securities laws or as otherwise set forth in
Exhibit 4.3.1.
4.3.2. Options, etc. Other than as set forth in Exhibit 4.3.1 or
------------
in the Investor Agreements or Material Agreements, the Company does not have
outstanding (a) any rights (either preemptive or otherwise) or options to
subscribe for or purchase, or any warrants or other agreements providing for or
requiring the issuance of, any capital stock or any securities convertible into
or exchangeable for its capital stock, (b) any obligation to repurchase or
otherwise acquire or retire any of its capital stock, any securities convertible
into or exchangeable for its capital stock or any rights, options or warrants
with respect thereto, (c) any rights to require the Company to register the
offering of any of its securities under the Securities Act or (d) any
restrictions on voting any of the Company's securities.
4.3.3. Capital Stock of the Subsidiaries. The authorized capital
---------------------------------
stock of each Subsidiary of the Company is set forth in Exhibit 4.3.3. Each
such Subsidiary has no outstanding capital stock except for shares of capital
stock owned beneficially and of record as set forth in Exhibit 4.3.3, by the
Company, all of which will be validly issued, fully paid, nonassessable and
subject to no lien or restriction on transfer, except restrictions on transfer
imposed by the Investor Agreements, the Material Agreements and applicable
securities laws and Liens.
4.3.4. Subsidiary Options, etc. Except as set forth in Exhibit
-----------------------
4.3.3 hereto, none of the Company's Subsidiaries has outstanding (a) any rights
(either preemptive or otherwise) or options to subscribe for or purchase, or any
warrants or other agreements providing for or requiring the issuance of, any
capital stock or any securities convertible into
15
<PAGE>
or exchangeable for its capital stock, (b) any obligation to repurchase or
otherwise acquire or retire any of its capital stock, any securities convertible
into or exchangeable for its capital stock or any rights, options or warrants
with respect thereto, (c) any rights to require the Subsidiary to register the
offering of any of its securities under the Securities Act or (d) any
restrictions on voting any of the Subsidiary's securities.
4.4. Reports, Financial Statements and Other Documents. The Investors
-------------------------------------------------
have been furnished with complete and correct copies of the following:
(a) Audited consolidated balance sheet (the "Balance Sheet")
-------------
of the Company and its Subsidiaries as of December 31, 1996 (the "Balance
-------
Sheet Date"), together with the related statements of income, cash flows
----------
and stockholders' equity for the year then ended, accompanied by the
audit report of Arthur Andersen & Co.
(b) Balance sheet of the Company and its Subsidiaries as of
April 30, 1997, together with the related statement of income for the
four months then ended.
(c) Pro forma opening balance sheet, operating budget and
the projections set forth in Exhibit 4.4 (the "Projections") dated April
-----------
1997, for the period beginning on the date hereof and ending on the date
three years after such date.
(d) Audited consolidated balance sheet of the operations
being acquired by the Company under the Arlington Acquisition Agreement
as of December 31, 1996, together with the related statements of income,
cash flows and stockholders' equity for the year then ended, accompanied
by the audit report of Ernst & Young, LLP.
The financial statements referred to in clauses (a) and (b) above
have been prepared in accordance with GAAP and fairly present the financial
condition of the Company and its Subsidiaries at the dates thereof and the
results of their operations for the periods covered thereby, subject to normal
year-end adjustments and the addition of footnotes in the case of the financial
statements referred to in clause (b) above. Except as set forth in Exhibit 4.4,
neither the Company nor any of its Subsidiaries has any material liabilities,
contingent or otherwise, which are not referred to in the Balance Sheet.
The Projections were based on (i) assumptions and accounting
methods consistent with the historical financial statements described in
paragraph (a) above and (ii) the financings contemplated hereby. To the best
knowledge of the Company the Projections constitute a reasonable basis for
assessing the future performance of the Company and its Subsidiaries, but no
representation or warranty is made that the Company and its Subsidiaries can
actually achieve the results set forth in the Projections.
16
<PAGE>
The financial statements referred to in clause (d) above have been
prepared in accordance with GAAP and fairly present the financial condition of
the Persons covered thereby at the date thereof and the results of their
operations for the period covered thereby.
4.5. Changes in Condition. Since the Balance Sheet Date:
--------------------
4.5.1. Material Adverse Effect. No Material Adverse Effect has
-----------------------
occurred.
4.5.2. Extraordinary Transactions, etc. Except as set forth in
-------------------------------
the Exhibits hereto, neither the Company nor any of its Subsidiaries has (a)
declared any dividend or other distribution on any shares of its capital stock,
(b) made any payment (other than compensation of its directors, officers and
employees at rates in effect prior to the Balance Sheet Date or for bonuses
accrued in accordance with normal practice prior to the Balance Sheet Date) to
any of its Affiliates, (c) increased the Compensation, including bonuses,
payable or to be payable to any of its directors, officers, employees or
Affiliates by more than 10%, or (d) entered into any Contractual Obligation, or
entered into or performed any other transaction, not in the ordinary and usual
course of business and consistent with past practice, other than as specifically
contemplated by this Agreement.
4.6. Solvency. After giving effect to the financing contemplated
--------
hereby, the Company is solvent (within the meaning contemplated by section 548
of Title 11 of the United States Code and any similar state statutes which may
be applicable).
4.7. Contractual Obligations, etc.
----------------------------
4.7.1. Certain Contracts. Exhibit 4.7 contains, together with a
-----------------
reference to the subparagraph pursuant to which each item is being disclosed, a
correct and complete list of all Contractual Obligations of the Company and its
Subsidiaries of the types described below:
(a) All collective bargaining agreements; all employment,
profit sharing, profit participation, deferred compensation, bonus,
stock option, stock purchase, pension, retainer, consulting,
retirement, welfare or incentive plans or agreements; and all
plans, agreements or practices which constitute "fringe benefits"
to any of the employees of the Company or its Subsidiaries,
including vacation programs, sick leave programs, group medical
insurance, group life insurance, disability insurance and related
benefits.
(b) All Contractual Obligations under which the Company or
its Subsidiaries are restricted from carrying on any business,
venture or other activities anywhere in the world.
17
<PAGE>
(c) All Contractual Obligations (including options) to
sell or lease (as lessor) any of the properties or assets of the
Company or its Subsidiaries having an aggregate fair market value
(book value, if greater) exceeding $100,000, except in the ordinary
course of business.
(d) All Contractual Obligations pursuant to which the
Company or its Subsidiaries guarantees any liability of any Person,
or pursuant to which any Person guarantees any liability of the
Company or its Subsidiaries in each case in an aggregate amount
exceeding $100,000.
(e) All Contractual Obligations with any Affiliate of the
Company or its Subsidiaries in an aggregate amount exceeding
$100,000.
(f) All Contractual Obligations constituting license
agreements requiring payments exceeding $100,000 per year in the
aggregate.
(g) All Contractual Obligations under which the Company or
any of its Subsidiaries leases real property or is obligated to
lease real property with gross rental payments exceeding $100,000
per year or is obligated to purchase real property for more than
$100,000 in the aggregate.
(h) All Contractual Obligations of the Company or any of
its Subsidiaries relating to the borrowing of money in excess of
$100,000 in the aggregate or to the mortgaging or pledging of, or
otherwise placing a lien on, any asset of the Company or any of its
Subsidiaries (except liens imposed by operation of law in favor of
landlords, suppliers, mechanics or others who provide services to
the Company) to secure indebtedness or other obligations exceeding
$100,000 in the aggregate.
(i) All Contractual Obligations pursuant to which the
Company or any of its Subsidiaries is committed to acquire a
business or the stock (or other equity interests) of any Person or
to merge or consolidate with any Person.
4.7.2. Nature of Contracts. All of the Contractual Obligations of
-------------------
the Company and its Subsidiaries at the Closings are enforceable against the
Company and, to its knowledge, the other parties thereto in accordance with
their terms, except for Contractual Obligations the failure of which to be so
enforceable does not and will not result in a Material Adverse Effect; and no
representation is made as to the enforceability of noncompetition covenants
under state law. To the Company's knowledge, neither the Company nor any of its
Subsidiaries is now in default under, nor are there any liabilities arising from
any breach or default by any Person prior to the date hereof, any provision of
any such Contractual Obligation, except as would not be reasonably likely to
result in a Material Adverse Effect.
18
<PAGE>
4.7.3. Charter or By-Laws. Neither the Company nor any of its
------------------
Subsidiaries is in violation of, or in default under, any provision of its
Charter or By-Laws and the Investors have been furnished with copies of such
Charter and By-Laws.
4.7.4. Insurance. Each of the Company and its Subsidiaries has
---------
insurance policies in full force and effect, written by reputable insurers
licensed to write insurance in the states in which the Company and its
Subsidiaries conduct their business, which insurance contracts provide for
coverages which are usual and customary in their respective businesses as to
amount and scope.
4.7.5. Transactions with Affiliates. To the Company's knowledge,
----------------------------
other than as set forth in Exhibit 4.7, no Affiliate of the Company or its
Subsidiaries is a competitor, customer or supplier of, or is party to any
Contractual Obligation with, the Company or any of its Subsidiaries.
4.8. Operations in Conformity With Law, etc. The operations of the
--------------------------------------
Company and its Subsidiaries as now conducted are not in violation of, nor are
the Company or its Subsidiaries in default under, any Legal Requirements
presently in effect, except for such violations and defaults as do not and will
not, in the aggregate, have a Material Adverse Effect. The Company has received
no notice of any such violation or default and has no knowledge of any basis on
which the operations of the Company or its Subsidiaries, when conducted as
currently proposed to be conducted after the Closing Date, would be held so as
to violate or to give rise to any such violation or default. The Company and
its Subsidiaries have all franchises, licenses, permits or other authority
presently necessary for the conduct of their business as now conducted, except
for such franchises, licenses, permits or other authority the absence of which
would not be reasonably likely to result in a Material Adverse Effect. Based on
the facts presently known to the Company, all future expenditures on the part of
the Company or its Subsidiaries required to meet the provisions of any presently
existing Legal Requirement (including Legal Requirements relating to employment
practices or to occupational or health standards or to environmental
considerations) will not, in the aggregate, have a Material Adverse Effect.
4.9. Environmental Matters. Each of the Company and its Subsidiaries is
---------------------
in compliance in all material respects with all applicable published rules and
regulations of the United States Environmental Protection Agency and similar
agencies in states in which the Company or its Subsidiaries conducts its
business, except for such non-compliance which would not be reasonably likely to
result in a Material Adverse Effect. No suit, claim, action or proceeding is
now pending before any court, governmental agency or board or other forum or
threatened by any Person for, and the Company and its Subsidiaries have received
no written correspondence from any federal, state or local governmental
authority with respect to, (a) noncompliance by the Company or its Subsidiaries
with any environmental law, rule or regulation, (b) personal injury, wrongful
death or other tortious conduct relating to materials,
19
<PAGE>
commodities or products used, sold, transferred or manufactured by the Company
or its Subsidiaries (including products containing or incorporating asbestos,
lead or other hazardous materials) or (c) the release into the environment by
the Company or its Subsidiaries of any pollutant, toxic or hazardous material or
waste (including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended) (collectively, "Hazardous Material")
------------------
generated by the Company or its Subsidiaries whether or not occurring at or on a
site owned, leased or operated by the Company or its Subsidiaries. To the
Company's knowledge, but without having conducted special boring or drilling, no
material amount of Hazardous Material is present in any real property currently
or formerly owned or leased by it or its Subsidiaries.
4.10. ERISA Matters. Exhibit 4.10 sets forth a complete list of all
-------------
Employee Benefit Plans and all Welfare Plans applicable to the Company's and its
Subsidiaries' employees. To the knowledge of the Company, each Employee Benefit
Plan and Welfare Plan has been administered in substantial compliance with its
terms and all applicable laws, including, the Code and ERISA, to the extent that
failure to do so would have a Material Adverse Effect. The Company and its
Subsidiaries have no obligation under any Welfare Plan to provide for the
continuation of benefits (other than disability payments and medical benefits
incurred for illness arising in the course of employment) for more than one year
after retirement or other termination of employment except as may be required
pursuant to Code section 4980B regarding continuation coverage of health
insurance or other similar laws regarding such continuation coverage. No
"reportable events" within the meaning of section 4043 of ERISA have occurred
with respect to any Employee Benefit Plan. No Pension Plan is a "multiemployer
plan" as defined in section 3(37) of ERISA. The present value of benefits
liabilities as described in Title IV of ERISA of Employee Benefit Plans does not
exceed the current value of such Employee Benefit Plans assets allocable to such
benefits liabilities by more than $100,000 determined using actuarial methods
and assumptions consistently applied in the ongoing administration of each such
Employee Benefit Plan.
4.11. Labor Relations. None of the employees of the Company or any of
---------------
its Subsidiaries is presently represented by a labor union, and no petition has
been filed or proceedings instituted by any employee or group of employees with
any labor relations board seeing recognition of a bargaining representative. No
controversies or disputes are pending between the Company or any of its
Subsidiaries and any of its employees, except for such controversies and
disputes as do not and will not, in the aggregate, have a Material Adverse
Effect.
4.12. Taxes. Since March 1, 1993, each of the Company and its
-----
Subsidiaries has filed all material tax and information which are required to be
filed by it and has paid, or made adequate provision for the payment of, all
taxes which have or may become due pursuant to such returns or to any assessment
received by it. Neither the Company nor any of its Subsidiaries has knowledge
of any material additional assessments or any basis therefor. The
20
<PAGE>
Company reasonably believes that the charges, accruals and reserves on the
Financial Statements in respect of taxes or other governmental charges are
adequate.
4.13. Litigation. No litigation or proceeding before, or investigation
----------
by, any foreign, federal, state or municipal board or other governmental or
administrative agency or any arbitrator, is pending or to the knowledge of the
Company threatened (or to the knowledge of the Company does any basis exist
therefor), against the Company or its Subsidiaries or, to the Company's
knowledge, any officer of the Company or its Subsidiaries, which in the
aggregate could result in any material liability or which may otherwise result
in a Material Adverse Effect, or which seeks rescission of, seeks to enjoin the
consummation of, or which questions the validity of, this Agreement or any other
Investor Agreement or any of the transactions contemplated hereby or thereby.
Neither the Company nor its Subsidiaries has been charged, nor to the Company's
knowledge is it threatened to be charged, with infringement of any trademark,
trade name, service mark, copyright, patent, patent right or other proprietary
right of any Person.
4.14. Violation of Other Instruments. After giving effect to all
------------------------------
consents and waivers obtained by the Company on or prior to the date hereof,
neither the execution and delivery of this Agreement or any other Investor
Agreement by the Company or its Subsidiaries party thereto, nor the consummation
of any of the transactions contemplated hereby or thereby, will (a) constitute a
breach of or a default under any Contractual Obligation of the Company or its
Subsidiaries or, to the Company's knowledge, any executive officer of the
Company or any of its Subsidiaries, (b) result in acceleration in the time for
performance of any obligation of the Company or its Subsidiaries under any such
Contractual Obligation, (c) result in the creation of any Lien upon any asset of
the Company or its Subsidiaries, (d) require any consent, waiver or amendment to
any such Contractual Obligation that has not been obtained, (e) give rise to any
severance payment, right of termination, securities repurchase right or other
right under any such Contractual Obligation, or (f) violate or give rise to a
default under any Legal Requirement, except for events or conditions described
in clauses (a) through (f) above which will not in the aggregate be reasonably
likely to result in a Material Adverse Effect.
4.15. Filings, Broker's Fees, etc. Except as provided in Exhibit 4.15,
---------------------------
no approval, consent, authorization or other order of, and no declaration,
filing, registration, qualification or recording with, any governmental
authority or any other Person is required to be made by or on behalf of the
Company or its Subsidiaries in connection with the execution, delivery or
performance of this Agreement or any other Investor Agreement, or any of the
transactions contemplated hereby or thereby, other than filing the Certificate
of Designation with the Delaware Secretary of State. Except as provided in
Exhibit 4.15, neither the Company nor any of its Subsidiaries is obligated to
pay any broker's fee, finder's fee, investment banker's fee or other similar
transaction fee in connection with any Investor Agreement or the transactions
contemplated hereby or thereby.
21
<PAGE>
4.16. SBA Matters. The Company is a "small business concern" within the
-----------
meaning of the federal Small Business Investment Act of 1958, as amended, and
the regulations thereunder (the "Small Business Investment Act"), and Part 121
-----------------------------
of Title 13 of the United States Code of Federal Regulations ("CFR") by virtue
---
of having net worth of less than $18,000,000 as of the end of its last fiscal
year and average net income (after federal taxes) for its last two fiscal years
of less than $6,000,000. The information set forth on SBA Forms 480, 652 and
1031 previously furnished by the Company to the Investors that are SBICs is
complete and correct in all material respects.
4.17. Governmental Regulation. Neither the Company nor its Subsidiaries
-----------------------
is subject to regulation under the Investment Company Act of 1940, or subject to
any statute or regulation which regulates the incurring of indebtedness by the
Company for borrowed money.
4.18. Margin Stock. Neither the Company nor its Subsidiaries owns any
------------
Margin Stock.
4.19. Real Property Holding Corporation. Neither the Company nor its
---------------------------------
Subsidiaries is a "United States real property holding corporation", as defined
in section 897(c)(2) of the Code and Treasury Regulation section 1.897-2(b).
4.20. Disclosure. To the actual knowledge of the Company, neither this
----------
Agreement, nor any agreement, certificate, statement or document furnished in
writing by or on behalf of the Company to the Investors in connection herewith
or therewith, contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in any material respect (except that no representation or
warranty is made as to the Projections).
5. GENERAL COVENANTS. The Company covenants that, until the earlier to
occur of (a) the closing of a Liquidity Event or (b) such time as less than 25%
(adjusted appropriately for subsequent stock splits, stock dividends and similar
events) of the shares of Preferred Stock outstanding on the Initial Closing Date
remain outstanding, it will comply, and will cause each of its Subsidiaries to
comply, with the following provisions:
5.1. Covenants Relating to the Company's Board of Directors.
------------------------------------------------------
5.1.1. Board of Directors. Except to the extent provided to the
------------------
contrary in the Certificate of Designation, the Board of Directors of the
Company shall consist of nine members, including one representative of the
Investors who shall be elected by the holders of a majority of the Preferred
Stock (the "Preferred Director"). The Board of Directors of the Company (a)
--------- --------
shall meet at least once each fiscal quarter and each Principal Holder shall be
notified at least 10 days in advance of such meetings of the Board of Directors
and each Principal Holder shall have the right to have a representative attend
all such meetings in a nonvoting observer capacity, and (b) shall establish and
maintain an Audit Committee and a
22
<PAGE>
Compensation Committee, each of which committees shall include as a member the
Preferred Director. The Company shall have the right to approve all
replacements of the initial Preferred Director who are not general partners of
WPC, such approval not to be unreasonably withheld.
5.1.2. Directors Expenses. The Company will pay all direct out-of-
------------------
pocket expenses reasonably incurred by the Preferred Director in attending each
meeting of the Board of Directors, or any committee thereof. All other Director
fees and incentives shall be subject to the approval of: (a) a majority of the
Board of Directors, which majority shall include the Preferred Director; and (b)
the Required Holders.
5.1.3. Indemnity. The Company and each of its Subsidiaries will
---------
adopt and maintain in their respective Charter or Bylaws provisions indemnifying
the directors of each such Person to the fullest extent permitted by applicable
law.
5.2. Information and Reports to be Furnished. The Company and its
---------------------------------------
Subsidiaries will maintain a system of accounting in which entries that are
correct and complete in all material respects will be made of all material
dealings and material transactions in relation to their business and affairs in
accordance with GAAP. The Company's internal financial control systems will at
all times be reasonably satisfactory to the Required Holders. Until a Liquidity
Event occurs, the Company will furnish the following information to each
Principal Holder:
5.2.1. Annual Statements. As soon as available, and in any event
-----------------
within 90 days after the end of each fiscal year of the Company, the audited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such fiscal year and the audited consolidated statements of income,
stockholders' equity and cash flows for such year of the Company and its
Subsidiaries, together with the consolidated figures for the preceding fiscal
year, if any (all in reasonable detail) such statements being accompanied by the
unqualified reports thereon of independent certified public accountants,
reasonably satisfactory to the Required Holders, to the effect that such
consolidated financial statements have been prepared in accordance with GAAP and
present fairly in all material respects the financial position of the Company
and its Subsidiaries as of the dates specified and the results of their
operations and cash flows with respect to the periods specified.
5.2.2. Quarterly Reports. As soon as available, and in any event
-----------------
within 45 days after the end of each of the first three fiscal quarters in each
fiscal year of the Company, the unaudited consolidated balance sheets of the
Company and its Subsidiaries as of the end of such quarter and the consolidated
statements of income, stockholders' equity and cash flows for such quarter and
the portion of the fiscal year then ended of the Company and its Subsidiaries,
together with comparative consolidated figures for the corresponding periods of
the preceding fiscal year (all in reasonable detail).
23
<PAGE>
5.2.3. Monthly Reports. As soon as practicable, and in any event
---------------
within 30 days after the end of each calendar month, the financial statements of
the Company and its Subsidiaries as of the end of such month in the form
customarily prepared by management for internal use.
5.2.4. Annual Budgets. Not later than the end of each fiscal year
--------------
of the Company a proposed month by month operating and capital budget for the
following fiscal year of the Company, including projected cash flows.
5.2.5. Officers' Certificates. Together with delivery of financial
----------------------
statements of the Company and its Subsidiaries pursuant to Sections 5.2.1 and
5.2.2 above as of the end of each fiscal quarter of the Company, a certificate
of the Chief Executive Officer or the Chief Financial Officer of the Company,
that such statements have been prepared in accordance with GAAP and present
fairly in all material respects the Consolidated financial position of the
Company and its Subsidiaries as of the dates specified and the results of their
operations and cash flows with respect to the periods specified (subject in the
case of interim financial statements only to normal year-end audit adjustments
and the addition of footnotes).
5.2.6. Notice of Litigation, Defaults, etc. The Company will
-----------------------------------
promptly, and in any event within 30 days after the Company has knowledge of
such event, give written notice to each Principal Holder of (a) any litigation
or any administrative proceeding to which it or any of its Subsidiaries may
hereafter become a party which after giving effect to applicable insurance would
reasonably be expected to result in a charge against income in excess of
$100,000, (b) any resignation of or other change in executive management of the
Company or any serious illness of any member of such executive management, and
(c) any offers to purchase a majority (or greater) interest in the Company
(whether by means of purchase of securities or assets or otherwise). The
Company will promptly, and in any event within seven days after any officer of
the Company or any of its Subsidiaries obtains knowledge of any Remedy Event or
material default by the Company under this Agreement, any other Investor
Agreement or any other Contractual Obligation, furnish notice to each Principal
Holder specifying the nature of the Remedy Event or material default and stating
the action the Company has taken or proposes to take with respect thereto.
Promptly after the receipt thereof, the Company will furnish to each Principal
Holder copies of any reports as to inadequacies in accounting controls submitted
by independent accountants.
5.2.7. Notices under Material Agreements. The Company will furnish
---------------------------------
to the Principal Holders copies of all amendments, modifications, notices of
defaults, waivers and consents given to it or to any of its Subsidiaries
pursuant to any Material Agreement within 30 days after its receipt.
5.2.8. Information Provided to Stockholders. Within 10 days after
------------------------------------
its release to stockholders, the Company will furnish the holders of Investor
Securities with
24
<PAGE>
copies of all information, proxy statements, notices, reports and other
stockholder material mailed to stockholders.
5.2.9. Information Furnished under Other Agreements. To the extent
--------------------------------------------
not otherwise provided pursuant to this Section 5.2, all other information and
reports which are furnished by the Company to the lenders in accordance with the
Senior Loan Agreement or to the holders of the Company's Class A Stock pursuant
to the Class A Stock and Warrants Purchase Agreement. In addition, upon request
of any Principal Holder, the Company shall use reasonable efforts to enable such
Principal Holder to meet with the lending officers for the Company at its
principal senior lender.
5.2.10. Other Information. From time to time upon the reasonable
-----------------
request of any authorized officer of any Principal Holder, the Company will
furnish to any such authorized officer such information regarding the business,
assets or financial condition of the Company and its Subsidiaries as such
officer may reasonably request. Each such officer shall have the right during
normal business hours at reasonable intervals and upon reasonable notice to
examine the books and records of the Company and its Subsidiaries, to make
copies and notes therefrom, and to make an independent examination of the books
and records of the Company and its Subsidiaries at the expense of such Principal
Holder and in a manner that does not interfere with the business operations of
the Company and its Subsidiaries.
5.2.11. Interview Rights. For the purpose of conducting independent
----------------
investigations pursuant to Section 5.2.10, the Company shall make available to
an authorized officer of any Principal Holder upon reasonable notice and at
reasonable times (a) the Chief Financial Officer or the Chief Executive Officer
of the Company; and (b) any other officers, accountants and internal control
personnel of the Company. The Company shall use reasonable efforts to make
available for such purpose any directors of the Company who are not officers.
5.2.12. Annual Information Meeting. The Company shall meet each
--------------------------
year with the Principal Holders within 45 days after the release of the annual
operating budget and the audits of the Company for the purpose of discussing the
results of such budgets and audits.
5.3. Conduct of Business.
-------------------
5.3.1. Type of Business. The Company and its Subsidiaries will
----------------
engage only in the business of (a) managing the operations of physician or
dental group practices or other providers of physician or dental services; (b)
managing the operations of lines of diagnostic and treatment businesses
ancillary or related to physician or dental group practices or other providers
of physician or dental services; and of (c) negotiating and administrating
managed care contracts between insurance companies and other medical payors and
physician or dental group practices or other providers of physician or dental
services.
25
<PAGE>
5.3.2. Maintenance of Properties, etc. Each of the Company and its
------------------------------
Subsidiaries (a) will keep its properties and assets in such repair, working
order and condition, and will from time to time make such repairs, renewals,
replacements, additions and improvements thereto, as its management deems
reasonably necessary and appropriate; and (b) will comply at all times in all
material respects with the provisions of all Contractual Obligations (including
its Charter, Bylaws and Material Agreements) applicable to it so as to prevent
any loss or forfeiture thereof or thereunder unless compliance therewith is
being at the time contested in good faith by appropriate proceedings, or unless
the failure so to comply will not result, and is not reasonably likely to
result, in a Material Adverse Effect or any adverse effect on the rights of the
Investors, and (c) will do all things necessary to preserve, renew and keep in
full force and effect and in good standing the corporate existence and authority
of the Company and its Subsidiaries necessary to continue their respective
businesses unless the failure so to comply will not result, and is not
reasonably likely to result, in a Material Adverse Effect.
5.3.3. Compliance with Laws and Material Agreements. Each of the
--------------------------------------------
Company and its Subsidiaries will comply in all material respects with all Legal
Requirements, as in effect from time to time, applicable to it, except where
compliance therewith shall at the time be contested in good faith by appropriate
proceedings. Each of the Company and its Subsidiaries will comply in all
material respects with all of the covenants and other terms of each of the
Material Agreements.
5.3.4. Insurance. Each of the Company and its Subsidiaries will
---------
keep its assets which are of an insurable character insured against loss or
damage by fire, explosion or other hazards which may be insured against by
extended coverage in an amount sufficient to prevent it from becoming a co-
insurer and in any event not less than 80% of the insurable value of the
property insured, and will maintain insurance against liability to persons and
property and other hazards and risks to the extent and in the manner customary
for companies in similar businesses similarly situated. All such insurance shall
be provided by reputable insurers licensed to write insurance in the
jurisdiction where the insured entity is located; provided, however, that the
-------- -------
Company and its Subsidiaries may effect workers' compensation insurance or
similar coverage with respect to operations in any particular state or other
jurisdiction through an insurance fund operated by such state or jurisdiction.
The Company will maintain in effect the key executive life insurance policies
referred to in Section 3.7.
5.3.5. Foreign Qualification. Each of the Company and its
---------------------
Subsidiaries will be qualified as a foreign corporation in each jurisdiction in
which it is required to qualify, except for such jurisdictions in which the
failure to be so qualified could not have a Material Adverse Effect.
5.4. Charter Amendment, etc. The Charter and By-laws of the Company and
----------------------
its Subsidiaries shall not be amended without the express written consent of the
holders of 90% of
26
<PAGE>
the Investor Securities, if such amendment has, or would be reasonably likely to
have, an adverse effect on any Investor Securities.
5.5. Merger, Consolidation and Sale of Assets. Neither the Company nor
----------------------------------------
any of its Subsidiaries will become a party to or authorize any merger or
consolidation, or sell, lease, sublease or otherwise transfer or dispose of a
material portion of its assets, or enter into an agreement therefor, or enter
into or authorize any liquidation, dissolution or recapitalization, except for:
5.5.1. A Liquidity Event.
5.5.2. Any of the following: (a) the merger of a wholly owned
Subsidiary of the Company into the Company or another wholly owned Subsidiary of
the Company; or (b) the merger of a professional practice group into the Company
or into a wholly owned Subsidiary of the Company (or the merger of a wholly
owned Subsidiary of the Company into a professional practice group) which does
not require the approval of the Required Holders pursuant to Section 5.9.2.
5.5.3. Sales of inventory in the normal course of business.
5.5.4. Other transactions receiving the prior written approval of
the Required Holders.
For purposes of this Section a "material portion of its assets" shall
mean assets having an aggregate fair market value of at least 25% of total
assets of the Company and its Subsidiaries after giving effect to the
acquisitions contemplated by Exhibit 2.6 on a pro forma basis which are sold,
leased, subleased, transferred or disposed of after the date hereof.
5.6. Indebtedness. Neither the Company nor any of its Subsidiaries
------------
shall incur or permit Indebtedness to exist or remain outstanding, except for:
5.6.1. Accounts payable for goods, services and taxes incurred in
the ordinary course of business.
5.6.2. Purchase money indebtedness secured by purchase money Liens
(including mortgages, conditional sales, Capitalized Leases and any other title
retention or deferred purchase devices or similar Contractual Obligations)
permitted by Section 5.8.2 in aggregate principal amount (including Indebtedness
in respect of Capitalized Lease obligations) not in excess of $500,000.
5.6.3. Indebtedness specifically contemplated by the Investor
Agreements or Material Agreements as in effect on the date hereof and
indebtedness under the Senior Loan Agreement.
27
<PAGE>
5.6.4. Other Indebtedness not to exceed in the aggregate 200% of
Stockholders' Equity, in each case computed as of the date of incurrence of such
Indebtedness.
5.7. Guarantees. Neither the Company nor any of its Subsidiaries will
----------
make, have outstanding or otherwise become or remain liable with respect to any
Guarantee except for:
5.7.1. Endorsements for collection or deposit in the ordinary
course of business.
5.7.2. Guarantees by the Company of any Indebtedness of its
Subsidiaries, practice groups relating to its Subsidiaries or joint ventures
permitted by this Agreement.
5.7.3. Guarantees specifically contemplated by any of the Material
Agreements.
5.8. Liens. Neither the Company nor any of its Subsidiaries will create
-----
or incur or suffer to be created or incurred or to exist any Lien, except for:
5.8.1. Liens created by the Material Agreements or to secure
Indebtedness refinancing any secured Indebtedness incurred under any Material
Agreement, including in any event Liens securing amounts owing by the Company
and its Subsidiaries under the Senior Loan Agreement.
5.8.2. Purchase money Liens (including mortgages, conditional
sales, Capitalized Leases and any other title retention or deferred purchase
devices or similar Contractual Obligations) on assets of the Company or any of
its Subsidiaries existing or created at the time of acquisition thereof, and
Liens securing the renewal, extension and refunding of Indebtedness secured by
assets subject to such a Lien in an amount not exceeding the amount thereof
remaining unpaid; provided, however, that the aggregate principal amount of
-------- -------
Indebtedness (including Indebtedness in respect of Capitalized Lease
obligations) secured by Liens permitted by this Section 5.8.2 shall not exceed
the amount permitted by Section 5.6.2, Indebtedness secured by each such Lien on
each asset shall not exceed the cost of the asset subject thereto and such Lien
shall attach solely to the particular asset so acquired and any additions or
accessions thereto.
5.8.3. Liens to secure taxes, assessments and other governmental
charges or claims for labor, material or supplies incurred in the ordinary
course of business.
5.8.4. Deposits or pledges made in connection with, or to secure
payment of, workers' compensation, unemployment insurance, old age pensions or
other social security or in connection with bids or contexts to the extent
incurred in the ordinary course of business.
28
<PAGE>
5.8.5. Encumbrances in the nature of zoning restrictions,
easements, rights or restrictions of record on the use of real property and
landlord's and lessor's liens under leases on the premises rented, which do not
materially detract from the value of such property or impair the use thereof in
the business of the Company or any of its Subsidiaries.
5.8.6. Set-off rights and banker's liens for the benefit of
depository institutions.
5.8.7. The purchase of accounts receivable by the Company or any of
its Subsidiaries from its Subsidiaries or practice groups relating to its
Subsidiaries.
5.8.8. Other Liens securing amounts not in excess of $100,000.
5.9. Investments and Acquisitions. Neither the Company nor any of its
----------------------------
Subsidiaries will have outstanding or acquire or commit itself to acquire or
hold any Investment (including the acquisition of any other business) except
for:
5.9.1. Investments of the Company and its Subsidiaries in: (a)
negotiable certificates of deposit, time deposits, money market accounts and
bankers' acceptances issued by any United States bank or trust company, having a
combined capital, surplus and undivided profits of not less than $100,000,000;
(b) short-term corporate obligations rated Prime-1 by Moody's Investors Service
Inc. or A-1 by Standard & Poor's Ratings Group; (c) any direct obligation of the
United States of America or any agency or instrumentality thereof (i) which has
a remaining maturity at the time of purchase of not more than one year or (ii)
which is subject to a repurchase agreement with a bank described in clause (a)
above exercisable within one year from the time of purchase; and (d) any
registered investment company substantially all of the assets of which consists
of Investments described in clauses (a), (b) and (c) above.
5.9.2. Investments of the Company to acquire Subsidiaries or make
other acquisitions or to invest in joint ventures for an aggregate consideration
not exceeding 50% of total assets of the Company and its Subsidiaries after
giving pro forma effect to the acquisitions contemplated by Exhibit 2.6 unless
either (a) any such acquisition of a professional practice group does not
involve an acquisition price exceeding 600% of the net anticipated annual
contribution to the Company from such practice group, or (b) such acquisition
has been approved in writing by the Required Holders.
5.9.3. Loans and advances to employees not in excess $50,000 in
the aggregate at any one time outstanding.
5.9.4. Investments in any of the Company's Subsidiaries listed in
Exhibit 4.2.2 or acquired in accordance with the other provisions of this
Section 5.9.
29
<PAGE>
5.9.5. The purchase of accounts receivable and the extension of
credit by the Company and its Subsidiaries under customary terms in physician
practice management agreements relating to its Subsidiaries.
5.10. Distributions. Neither the Company nor any of its Subsidiaries
-------------
shall make any Distribution except:
5.10.1. Any Subsidiary may make Distributions to the Company or to
any wholly owned Subsidiary which is its immediate parent.
5.10.2. The Company may repurchase shares of Common Stock in
accordance with the Stockholders Agreement.
5.10.3. The Company may pay dividends on, and make required
redemptions of, the Preferred Stock in accordance with its terms.
5.10.4. The Company may repurchase shares of Common Stock from its
employees at cost or fair market value upon termination of employment.
5.10.5. The Company may make mandatory redemptions of Series A
Stock under its Charter, as now in effect, and of warrants held by NationsCredit
Commercial Corporation in accordance with the Material Agreements as now in
effect.
5.11. Capital Expenditures. The Company and its Subsidiaries will not
--------------------
make Capital Expenditures in any fiscal quarter which exceed 125% of the Capital
Expenditures provided in the Projections for such quarter.
5.12. Replacement of Chairman. Upon the death, resignation, retirement
-----------------------
or removal of Sarah Garvin as Chairman of the Company, the Preferred Director
shall have the right to participate in searching for, and to approve, her
replacement.
5.13. Compensation, etc. The aggregate annual Compensation paid by the
-----------------
Company and its Subsidiaries to the five most highly compensated directors,
officers or employees of the Company and its Subsidiaries or their Affiliates
shall not exceed the amounts set forth in Exhibit 5.13, adjusted annually to
provide for cost of living increases corresponding to the Consumer Price Index,
unless such compensation is increased with the approval of the Compensation
Committee of the Board of Directors, including the approval of the Preferred
Director who is a member thereof. At no time shall the annual Compensation paid
to any officer or other employee of the Company or any of its Subsidiaries or to
any of their Affiliates exceed arm's-length Compensation, except with the
approval of the Compensation Committee, including the approval of the Preferred
Director who is a member thereof. Any severance arrangements with respect to
any employee shall in no event exceed one year salary except to the extent
expressly approved by the Compensation Committee,
30
<PAGE>
including the approval of the Preferred Director who is a member thereof, or as
set forth in Exhibit 5.13 or the Material Agreements. The Company and its
Subsidiaries shall not enter into written employment or management contracts
except as set forth on Exhibit 5.13. The Company shall purchase disability
insurance sufficient to cover its obligations to pay disability compensation
under the employment agreements included in the Material Agreements.
5.14. Stock Issuance, etc. Except with the prior written consent of the
-------------------
Required Holders, neither the Company nor any Subsidiary will (a) issue, sell,
give away, transfer, pledge, mortgage, assign or otherwise dispose of, (b) grant
any rights (either preemptive or other) or options to subscribe for or purchase,
or (c) enter into any agreements or issue any warrant providing for the issuance
of any of the capital stock of the Company or any stock or securities
convertible into or exchangeable for any of the capital stock of the Company,
other than as specifically contemplated by the Investor Agreements or the
Material Agreements, including but not limited to (i) issuance of shares of
Common Stock upon conversion of shares of Non-Voting Common Stock, Prime Common
Stock or Class A Stock; (ii) issuance of shares of Non-Voting Common Stock upon
conversion of shares of Common Stock; (iii) issuance of shares of Common Stock
upon exercise or conversion of warrants issued prior to the date hereof to the
lenders under the Senior Loan Agreement and the investors party to the Class A
Stock and Warrant Purchase Agreement and (iv) shares of Common Stock issued in
connection with acquisitions permitted by Section 5.9.2. The Company shall
issue options for, or shares of, Common Stock only upon direction of the
Compensation Committee of the Company's Board of Directors, including the
approval of the Preferred Director who is a member thereof. Except as
specifically contemplated by the Material Agreements, the Company shall not, and
shall not subject itself to any obligation to, repurchase or otherwise acquire
or retire any shares of the capital stock of the Company or any securities
convertible into or exchangeable for any of the capital stock of the Company.
On or before January 31 of each year, the Company shall provide the Principal
Holders with an annual schedule of its authorized capital stock in the form of
Exhibit 4.3.1 as of December 31 of the preceding calendar year.
5.15. Amendment of Material Agreements, etc. Except with the prior
-------------------------------------
written consent of the Required Holders, the Company shall not agree to any
amendment or modification of, or grant any waiver or fail to enforce any of its
rights pursuant to, any of the Material Agreements if such amendment,
modification, waiver or failure has or could have, directly or indirectly, any
Material Adverse Effect or any material adverse effect on any holder of any then
outstanding Investor Securities or on the rights, remedies or interests of such
holder hereunder or under any of the Material Agreements. Except to the extent
prohibited by the Company's principal senior bank credit facility as from time
to time in effect, neither the Company nor any of its Subsidiaries shall remain
or become a party to or be bound by any agreement, deed, lease or other
instrument which imposes any restriction or limitation on Distributions that are
required to be made by the Company on or in respect of the Investor Securities
or which restricts the ability of the Company's Subsidiaries to pay dividends or
to make advances to the Company; provided, however, that the Company and its
-------- -------
Subsidiaries may become and remain party to the Material Agreements as in effect
on the date
31
<PAGE>
hereof, with such changes therein as the Required Holders may agree to in
writing, and may perform their respective obligations thereunder to the extent
not otherwise inconsistent with the Investor Agreements. Except to the extent
required by applicable law, neither the Company nor any of its Subsidiaries
shall transfer any of its surplus to capital if as a result thereof the
Company's ability to perform any of the terms of the Investor Agreements would
be impaired.
5.16. Transactions with Affiliates. Except for transactions expressly
----------------------------
contemplated by the Investor Agreements, neither the Company nor any of its
Subsidiaries shall effect or remain obligated with respect to any transaction
with any Affiliate other than with the Company or any Subsidiary of the Company
except on terms no less favorable to the Company or any of its Subsidiaries than
it could obtain in an arm's-length transaction with an unrelated party.
5.17. Compliance with ERISA, etc. The Company and its Subsidiaries
--------------------------
will meet all minimum funding requirements applicable to the Pension Plans
imposed by ERISA or the Code (without giving effect to any waivers of such
requirements or extensions of the related amortization periods which may be
granted) and will at all times comply in all material respects with all other
provisions of ERISA and the Code which are applicable to the Pension Plans and
the Employee Benefit Plans.
5.18. SBA Requirements.
----------------
5.18.1. Information. The Company will promptly furnish to the
-----------
Investors that are SBICs upon reasonable request all forms that may be required
to be filed with the SBA from time to time in connection with the transactions
contemplated by this Agreement and such Investors' ownership of Investor
Securities and shall provide such Investors and the SBA with such other
information and forms (including all information necessary for the Investors to
prepare SBA Form 468 and an accompanying assessment of economic impact under 13
CFR (S) 107.304(c)) as such Investors, in their reasonable discretion, or the
SBA may from time to time request with respect to the transactions contemplated
by this Agreement and such Investors' ownership of Investor Securities. The
Company shall at all times permit any Investor that is an SBIC and, if
necessary, a representative of the SBA, reasonable access to the Company's
records during normal business hours upon prior notice and the Company shall
provide such information as such Investor or the SBA may reasonably request in
order to verify compliance with this Agreement, including an officer's
certificate indicating such compliance.
5.18.2. Compliance; Rescission Right. The Company will not engage
----------------------------
in any discriminatory activities prohibited by 13 CFR parts 112, 113 and 117.
The Company will not use directly or indirectly the proceeds of the issuance and
sale of the Investor Securities for any purpose for which an SBIC is prohibited
from providing funds under 13 CFR (S) 107.901. The Company shall not change its
business activity in any manner which, by
32
<PAGE>
reason of such change in business activity, would render the Company ineligible
as a "small business concern" under the Small Business Investment Act. The
Company agrees that (a) any diversion of the proceeds from their intended use as
specified in Section 2.6 or (b) the Company's becoming ineligible as a "small
business concern" by reason of a change in the Company's business activity
within one year from the Second Closing Date, shall entitle any Investor that
constitutes an SBIC, upon demand, and in addition to any other remedies that may
exist, to immediate rescission of this Agreement and repayment in full of the
funds invested by it hereunder as contemplated by 13 CFR (S) 107.305 and 13 CFR
(S) 107.706.
5.19. Annual Meeting. Within 90 days after the Company's annual
--------------
financial statements are required to be furnished in accordance with Section
5.2.1 and on not less than 10 days prior written notice, the Company will hold
an annual meeting for the benefit of its stockholders, including the holders of
Investor Securities. At such annual meeting the principal executive, financial
and operations officers of the Company and its Subsidiaries will present a
review of, and will discuss with those in attendance, in reasonable detail, the
general affairs, management, financial condition, results of operations and
business prospects of the Company and its Subsidiaries.
5.20. Listing of Shares. If the shares of Common Stock issuable upon
-----------------
conversion of the Preferred Stock or upon exercise or conversion of the Warrants
require listing on any national securities exchange or quotation system, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be listed or duly approved for listing on such
national securities exchange or quotation system, subject to official notice of
issuance of such shares.
5.21. Real Property Holding Corporation. Neither the Company nor any
---------------------------------
of its Subsidiaries shall become a "United States real property holding
corporation" as defined in section 897(c)(2) of the Code and Treasury Regulation
section 1.897-2(b).
5.22. Regulatory Compliance Cooperation.
---------------------------------
5.22.1. Exchange for Nonvoting Securities. In the event that any
---------------------------------
Regulated Investor determines that it has a Regulatory Problem, the Company
shall use reasonable efforts to take such actions as are reasonably requested by
such Regulated Investor in order (a) to effectuate and facilitate any transfer
by such Regulated Investor of any Investor Securities then held by such
Regulated Investor to any Person designated by such Regulated Investor, and (b)
to permit such Regulated Investor (or any Affiliate of such Regulated Investor)
to exchange all or any portion of the voting Investor Securities then held by
such Person on a share-for-share basis for shares of a class of nonvoting
securities of the Company, which nonvoting securities shall be identical in all
respects to such voting Investor Securities, except that such new securities
shall be nonvoting and shall be convertible into voting securities on such terms
as are reasonably requested by each Regulated Investor in light of
33
<PAGE>
regulatory considerations then prevailing. Such actions may include, but shall
not necessarily be limited to:
(i) entering into such additional agreements as are
requested by each Regulated Investor to permit any Person
designated by such Regulated Investor to exercise any voting
power which is relinquished by such Regulated Investor upon any
exchange of voting Investor Securities for nonvoting securities
of the Company; and
(ii) entering into such additional agreements, adopting
such amendments to the Charter and bylaws of the Company and
taking such additional actions as are reasonably requested by
each Regulated Investor in order to effectuate the intent of the
foregoing.
5.22.2. Future Securities Issuances. In the event a Regulated
---------------------------
Investor has the right to acquire any securities of the Company (as the result
of a preemptive offer, pro rata offer or otherwise), at such Regulated
Investor's request the Company will offer to sell to such Regulated Investor
non-voting securities on the same terms as would have existed had such Regulated
Investor acquired the securities so offered and immediately requested their
exchange for non-voting securities pursuant to Section 5.22.1. The Company
shall grant to any subsequent holder of Investor Securities originally acquired
by any Investor, upon such Person's request, the same rights granted to the
Regulated Investors pursuant to this Section 5.22. In the event that any
Subsidiary of the Company ever offers to sell any of its securities, then the
Company will cause such Subsidiary to enter into agreements with the Regulated
Investors substantially similar to this Section 5.22.
5.23. Environmental Laws.
------------------
5.23.1. Compliance with Law and Permits. Each of the Company and
-------------------------------
its Subsidiaries shall use and operate all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance therewith, and
handle all Hazardous Materials in material compliance with all applicable
Environmental Laws.
5.23.2. Notice of Claims, etc. Each of the Company and its
---------------------
Subsidiaries shall immediately notify the Principal Holders, and provide copies
upon receipt, of all material written claims, complaints, notices or inquiries
from governmental authorities relating to the condition of it facilities and
properties or compliance with Environmental Laws, and shall use reasonable
efforts to promptly cure and have dismissed with prejudice to the reasonable
satisfaction of the Required Holders any actions and proceedings relating to
compliance with Environmental Laws.
34
<PAGE>
5.24. Compliance Program. The Company will implement procedures
------------------
designed to detect and deter potential violations of the Ethics in Patient
Referrals Act, 42 U.S.C. (S) 1395nn et seq., the Medicare and Medicaid Anti-
Kickback Statute, 42 U.S.C. (S) 1320a-7b and other applicable health care and
federal laws (collectively, the "Applicable Health Care Laws"), including:
---------------------------
(a) annual distribution of a comprehensive set of guidelines for
physicians or dentists employed by the Company regarding proper
compliance with the Applicable Health Care Laws;
(b) establishment of a "Compliance Committee" of the board of
directors comprised solely of physician and management
representatives; and
(c) engagement of qualified professional advisers to review
operations and acquisitions by the Company or its Subsidiaries.
5.25. Acquisition Diligence. At least 10 days prior to the acquisition
---------------------
of any physician or dental group practices or assets relating to physician or
dental services, the Company shall deliver to the Investors:
(a) A term sheet summarizing the principal terms of the
acquisition.
(b) A due diligence memorandum which summarizes the billing,
referral and other operational practices of the physician or
dental practices or assets to be acquired and which provides
a thorough legal analysis of the application of the
Applicable Health Care Laws to such practices; and
(c) A memorandum which describes anticipated billing, referral
and other operational practices of the physician or dental
practices or assets to be acquired upon consummation of the
acquisition and which provides a thorough legal analysis of
the application of the Applicable Health Care Laws to such
anticipated practices.
6. INVESTOR SECURITIES; RESTRICTIONS ON TRANSFER.
6.1. Representations and Warranties of the Investors. Each of the
-----------------------------------------------
Investors severally represents and warrants to the Company that:
(a) It is an "accredited investor" for purposes of
Regulation D under the Securities Act and that it is acquiring the
Investor Securities at the Closing
35
<PAGE>
for investment for its own account, and not with a view to selling or
otherwise distributing the Investor Securities in violation of the
Securities Act; provided, however, that nothing shall prevent the
-------- -------
Investors from transferring the Investor Securities in compliance with
this Section 6; and provided, further, that the disposition of the
-------- -------
Investors' property shall at all times remain in the Investors' control.
(b) It has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof.
(c) It has had an opportunity to discuss the Company, business,
management and financial affairs with the Company's management and has
received (or had made available to it) any financial and business
documents requested by it.
(d) It understands that (i) the Investor Securities purchased by
it have not been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of
the Securities Act pursuant to section 4(2) thereof or Rules 505 or 506
under the Securities Act, (ii) such Investor Securities must be held
indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or is exempt from such registration, (iii) such
Investor Securities will bear a legend to such effect and (iv) the
Company will make a notation on its transfer books to such effect.
(e) All offers to purchase the Investor Securities were made to
it in The Commonwealth of Massachusetts.
(f) It has no contract, arrangement or understanding with any
broker, finder or similar agent with respect to the transactions
contemplated by this Agreement.
(g) It has entered into the Equity Call Agreement.
6.2. Home Office Payment. All payments made in respect of the Investor
-------------------
Securities held by the Investors shall be paid by Company check or wired to the
address shown on Exhibit 1, accompanied by sufficient information to identify
the source and application thereof or by such other method or at such other
address as the Investors shall have from time to time given timely notice of to
the Company.
6.3. Replacement of Lost Securities. Upon receipt of evidence
------------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Investor Security and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity
36
<PAGE>
bond in such reasonable amount as the Company may determine (or, in the case of
a security held by any Investor or any institutional holder or by the Investor's
or such institutional holder's nominee, of an unsecured indemnity agreement from
such Investor or such other holder reasonably satisfactory to the Company) or,
in the case of any such mutilation, upon the surrender of the security for
cancellation to the Company at its principal office, the Company at its expense
will execute and deliver in lieu thereof a new security of like tenor. Any
security in lieu of which any such new security has been so executed and
delivered by the Company shall not be deemed to be outstanding for any purpose.
6.4. Transfer, Exchange and Conversion of Investor Securities. The
--------------------------------------------------------
Company shall keep at its principal office a register in which shall be entered
the names and addresses of the holders of the capital stock and other Investor
Securities of the Company and particulars of the respective shares of Common
Stock, Preferred Stock (including the classes thereof), Warrants and other
Investor Securities held by them and of all transfers, exchanges, conversions
and redemptions of such securities. Upon surrender at such office or such other
place as shall be duly specified by the Company of any certificate representing
shares of capital stock or instrument evidencing any other Investor Securities
for exchange, conversion or (subject to compliance with the applicable
provisions of this Agreement, including the conditions set forth in Section 6.5)
transfer, the Company shall as appropriate issue, at its expense, one or more
new certificates or instruments in such denomination or denominations as may be
requested, and registered as such holder may request. Any certificate
representing shares of capital stock or instrument evidencing any other Investor
Securities surrendered for transfer shall be duly endorsed, or accompanied by a
written instrument of transfer duly executed by the holder of such certificate
or instruments or an attorney duly authorized in writing. The Company will pay
shipping and insurance charges, from and to each holder's principal office, upon
any transfer, exchange or conversion provided for in this Section 6.4.
6.5. Restrictions on Transfer. Investor Securities shall be
------------------------
transferable only upon satisfaction of the applicable conditions specified in
this Section 6.5 or unless sold in an offering registered under the Securities
Act or pursuant to an exemption from the registration requirements of the
Securities Act.
6.5.1. Restrictive Legend. Except as otherwise permitted by
------------------
Section 6.5.3, each certificate or instrument representing Investor Securities
shall bear a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
the securities laws of any state, and may not be sold, or
otherwise transferred, in the absence of such registration or an
exemption therefrom under such Act and under any such applicable
state laws. In addition, the shares represented by this
certificate are subject to restrictions on transfer contained in
a Securities
37
<PAGE>
Purchase Agreement dated as of June 16, 1997, a copy of which is
available at the issuer's office and will be furnished free of
charge to the holder hereof."
6.5.2. Notice of Proposed Transfer; Opinions of Counsel. Prior
------------------------------------------------
to any transfer of any Investor Securities other than pursuant to an effective
registration statement under the Securities Act, the holder thereof will give
written notice to the Company of such holder's intention to effect such
transfer, describing in reasonable detail the manner of the proposed transfer.
If any such holder delivers to the Company (a) an opinion of counsel in form and
substance reasonably acceptable to the Company addressed to the Company to the
effect that the proposed transfer may be effected without registration of such
Investor Securities under the Securities Act or applicable state securities laws
(or a certificate of an officer of such holder that the transfer is being made
to a wholly owned Subsidiary of the holder's corporate parent) and (b) the
written agreement of the proposed transferee to be bound by all of the terms and
conditions of this Agreement (including this Section 6.5) applicable to the
Investors, such holder shall thereupon be entitled, within 10 days thereafter,
to transfer such Investor Securities in accordance with the terms of this
Agreement and the notice delivered by such holder to the Company. Each
certificate or instrument issued upon or in connection with such transfer shall
bear the restrictive legend set forth in Section 6.5.1, in each case unless the
restrictions on transfer provided for in Section 6.5 shall have terminated as to
such Investor Securities pursuant to Section 6.5.3.
6.5.3. Termination of Restrictions. The restrictions imposed
---------------------------
by Sections 6.5.1 and 6.5.2 upon the transferability of Investor Securities
shall terminate as to any particular Investor Securities and any securities
issued in exchange therefor or upon transfer thereof when, in the opinion of
counsel reasonably acceptable to the Company, such restrictions are no longer
required in order to assure compliance with the Securities Act. Whenever any of
such restrictions shall terminate as to any Investor Securities, the holder
thereof shall be entitled to receive from the Company, without expense, new
certificates or instruments not bearing the legend set forth in Section 6.5.1.
7. EXPENSES, ETC.
7.1. Expenses. The Company hereby agrees to pay within 15 business
--------
days after receipt of a detailed written invoice all reasonable out-of-pocket
expenses incurred by WPC in connection with the transactions contemplated by
this Agreement and by any Investors in connection with any amendments or waivers
(whether or not the same become effective) hereof and all expenses incurred by
the Investors or any holder of any Investor Securities issued hereunder in
connection with the enforcement in good faith of any rights hereunder or under
any other Investor Agreement, including (a) the reasonable fees, expenses and
disbursements of WPC's special counsel in connection with the transactions
contemplated by this Agreement, which fees will not exceed $75,000 for the
preparation of this Agreement and other actions taken through the First Closing
Date; (b) reasonable expenses not to exceed
38
<PAGE>
$84,000 in the aggregate incurred in connection with the accountant's report as
contemplated by Section 3.5; and (c) all taxes (other than taxes determined with
respect to income), including any recording fees and filing fees and documentary
stamp and similar taxes, at any time payable in respect of this Agreement, any
other Investor Agreement or the issuance of any of the Investor Securities.
7.2. Indemnification. The Company shall indemnify and hold the
---------------
Investors and each of the Investors' partners, stockholders, officers,
directors, employees, attorneys, accountants, consultants and agents
(collectively, the "Indemnitees") free and harmless from and against all
actions, causes of action, suits, litigation, losses, liabilities and damages,
investigations or proceedings instituted by any governmental agency or any other
Person and expenses in connection therewith, including reasonable attorneys'
fees and disbursements, incurred by any Indemnitee as a result of, or arising
out of, or relating to (a) any transaction financed or to be financed in whole
or in part directly or indirectly with proceeds from the sale by the Company of
any of the Investor Securities, or (b) the execution, delivery, performance or
enforcement of this Agreement or any instrument contemplated hereby by any of
the Indemnitees, except in each such case for (i) any such indemnified
liabilities arising on account of any Indemnitee's gross negligence or willful
misconduct, (ii) any claim by one Investor against another Investor.
7.3. Environmental Indemnification. Without limiting Section 7.2,
-----------------------------
the Company covenants and agrees that it will indemnify and hold the Indemnitees
harmless from and against any and all claims, expense, damage, loss or liability
incurred by the Indemnitees (including all costs of legal representation)
relating to (a) any release or threatened release of Hazardous Material; (b) any
violation of any Environmental Laws with respect to the assets of the Company
and its Subsidiaries or the operations conducted by them; or (c) the
investigation or remediation of offsite locations at which the Company, any of
its Subsidiaries or their predecessors are alleged to have directly or
indirectly disposed of Hazardous Materials.
7.4. Survival. The obligations of the Company under this Section
--------
7 shall survive the redemption, repurchase or transfer of any or all of the
Investor Securities.
8. NOTICES. Any notice or other communication in connection with this
Agreement or the Investor Securities shall be deemed to be delivered if in
writing addressed as provided below and if either (a) actually delivered at such
address, (b) in the case of a letter, seven business days shall have elapsed
after the same shall have been deposited in the United States mails, postage
prepaid and registered or certified, return receipt requested or (c) transmitted
to any address outside of the United States, by telecopy and confirmed by
overnight or two-day courier:
If to the Company, to it at 990 Hammond Drive, Suite 300, Atlanta,
Georgia 30328, telecopy: (770) 673-1970, telephone: (770) 673-1964, or at such
other address as the Company shall have specified by notice actually received by
the Principal Holders.
39
<PAGE>
If to the Investors, to the Investors' respective addresses set forth on
Exhibit 1, or at such other address as the Investors shall have specified by
notice actually received by the Company, in each case with a copy to WPC.
If to any other holder of record of any Investor Security, to it at its
address set forth in the securities registers of the Company.
9. CONFIDENTIALITY. Each Investor will maintain the confidential nature of
information obtained from the Company concerning the Company and its
Subsidiaries; provided, however, that such Investor shall not be precluded from
-------- -------
making disclosure regarding such information: (a) to counsel for WPC or any such
Investor, accountants or other professional advisors on a need-to-know basis,
provided that such advisors are advised of the confidential nature of this
information, (b) to any other Investor, (c) as required by law or applicable
regulation, (d) to any participant in or assignee of any Investor Securities
after notice to the Company so long as such participant or assignee has agreed
to be bound by this Section 9 or (e) to the extent such information has become
publicly available other than as a result of the violation of this Section 9.
10. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only with
the written consent of the Required Holders. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each holder of any
Investor Securities and the Company and each of its Subsidiaries.
11. SURVIVAL AND TERMINATION OF COVENANTS. All covenants, agreements,
representations and warranties made herein or in any closing certificate or
other certificate or written report delivered to the Investors pursuant to an
express requirement hereof shall be deemed to have been material and relied on
by the Investors, notwithstanding any investigation made by the Investors or on
the Investors' behalf, shall survive the execution and delivery to the Investors
hereof of the Investor Securities and shall terminate upon the closing of a
Liquidity Event.
12. SERVICE OF PROCESS. Each of the Company and the Investors (a) irrevocably
submits to the non-exclusive jurisdiction of the state courts of The
Commonwealth of Massachusetts and to the non-exclusive jurisdiction of the
United States District Court for the District of Massachusetts, for the purpose
of any suit, action or other proceeding arising out of or based upon this
Agreement, any other Investor Agreement or the subject matter hereof or thereof
brought by any party hereto or such party's successors or assigns, and (b)
waives to the extent not prohibited by law that cannot be waived, and agrees not
to assert, by way of motion, as a defense, or otherwise, in any such proceeding,
any claim that it is not subject personally to the jurisdiction of the above-
named courts, that its property is exempt or immune from attachment or
execution, that any such proceeding brought in one of the above-named
40
<PAGE>
courts is improper, or that this Agreement or the Investor Securities, or the
subject matter hereof or thereof, may not be enforced in or by such court. Each
of the Company and the Investors consents to service of process in any such
proceeding in any manner permitted by Chapter 223A of the General Laws of The
Commonwealth of Massachusetts, and agrees that service of process registered or
certified mail, return receipt requested, at its address specified in or
pursuant to Section 8 is reasonably calculated to give actual notice.
13. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, THE INVESTORS AND THE COMPANY HEREBY WAIVE, AND COVENANT
THAT NEITHER THE COMPANY NOR THE INVESTORS WILL ASSERT, ANY RIGHT TO TRIAL BY
JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER INVESTOR AGREEMENT OR THE
SUBJECT MATTER HEREOF OR THEREOF OR IN ANY WAY CONNECTED WITH, RELATED OR
INCIDENTAL TO THE DEALINGS OF THE INVESTORS AND THE COMPANY HEREUNDER OR
THEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER
IN TORT OR CONTRACT OR OTHERWISE. The Company acknowledges that it has been
informed by WPC that the provisions of this Section 13 constitute a material
inducement upon which the Investors are relying and will rely in entering into
this Agreement and purchasing the Investor Securities pursuant hereto. Any
Investor or the Company may file an original counterpart or a copy of this
Section 13 with any court as written evidence of the consent of the Investors
and the Company to the waiver of its right to trial by jury.
14. GENERAL. The invalidity or unenforceability of any provision hereof
shall not affect the validity or enforceability of any other term or provision
hereof, and any invalid or unenforceable provision shall be modified so as to be
enforced to the maximum extent of its validity or enforceability. The headings
in this Agreement are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof. This Agreement, the other Investor
Agreements and the other items referred to herein or therein constitute the
entire understanding of the parties hereto with respect to the subject matter
hereof and thereof and supersede all present and prior agreements, whether
written or oral. This Agreement is intended to take effect as a sealed
instrument and may be executed in any number of counterparts which together
shall constitute one instrument and shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of The
Commonwealth of Massachusetts, and shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns. Whether or not any
express assignment has been made of this Agreement, provisions of this Agreement
that are for the Investors' benefit as the holder of any Investor Securities are
also for the benefit of, and enforceable by, all subsequent holders of Investor
Securities. WPC may add Investors to this Agreement for the Second Closing and
the Third Closing through the execution by such new Investor of a joinder to
this
41
<PAGE>
Agreement and the other Investor Agreements in form reasonably satisfactory to
the Company and a corresponding supplement to Exhibit 1.
42
<PAGE>
The undersigned have executed this Agreement under seal as of the date
first above written.
PHYSICIAN HEALTH CORPORATION
By
----------------------------------
Title:
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL MANAGEMENT II, L.P.
By:
-----------------------------
General Partner
BANCBOSTON VENTURES, INC.
By:
----------------------------------
Title:
43
<PAGE>
MERCURY ASSET MANAGEMENT plc, on
behalf of ROWAN NOMINEES LIMITED
By:
----------------------------------
Title:
NATWEST VENTURES INVESTMENTS LIMITED
By:
----------------------------------
Title:
44
<PAGE>
EXHIBIT 1 TO SECURITIES
PURCHASE AGREEMENT
INVESTORS, PREFERRED STOCK, PURCHASE
------------------------------------
WARRANTS AND PURCHASE PRICE
---------------------------
<TABLE>
<CAPTION>
Initial Closing Second Closing Third Closing
Number of Shares of Number of Shares of Number of Shares of
Class B Preferred Stock/ Class B Preferred Stock/ Class B Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Weston Presidio 1,529,958 Preferred N/A 970,313 Preferred Shares
Capital II, L.P. Shares (convertible into (convertible into 970,313
One Federal Street 1,529,958 shares of shares of Common Stock) at a
Boston, MA 02210 Common Stock) at a purchase price of
Tel: (617) 988-2500 purchase price of $3,881,252.00
Fax: (617) 988-2515 $6,119,832.00
Purchase Warrants for 509,986 N/A Purchase Warrants for 97,031
shares of Common Stock at an shares of Common Stock at an
exercise price of exercise price of $387,736.00
$4,590.86 and a purchase and a purchase price of
price of $509.00. $388.00.
BancBoston 458,907 Preferred Shares N/A 291,094 Preferred Shares
Ventures, Inc. (convertible into 458,907 (convertible into 291,094
175 Federal Street shares of Common Stock) at shares of Common Stock)
31st Floor a price of $1,835,628.00. at a purchase price of
Boston, MA 02110 $1,164,374.00.
Tel: (617) 434-5917
Fax: (617) 434-1153
Purchase Warrants for 152,969 Purchase Warrants for 29,109
shares of Common Stock shares of Common Stock at an
at an exercise price of exercise price of $116,321.00
$1,377.69 and a purchase and a purchase price of
price of $152.00. $116.00.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Second Closing Third Closing
Number of Shares of Number of Shares of Number of Shares of
Class B Preferred Stock/ Class B Preferred Stock/ Class B Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
Mercury Asset 305,938 Preferred Shares N/A 194,063 Preferred Shares
Management plc, on (convertible into 305,938 (convertible into 194,063
behalf of Rowan shares of Common Stock) at shares of Common Stock)
Nominees Limited a price of $1,223,752. at a purchase price of
c/o EGL Holdings $776,249.32.
6600 Peachtree-Dunwoody Purchase Warrants for 101,979 N/A
Road shares of Common Stock at an Purchase Warrants for 19,406
Building 300, Suite 630 exercise price of $918.46 and a shares of Common Stock at an
Atlanta, GA 30328 purchase price of $101.33 exercise price of $77,547.33
Tel: 770-399-5633 and a purchase price of
Fax: 770-393-4825 $77.33.
NatWest Ventures 152, 969 Preferred Shares N/A 97,031 Preferred Shares
Investments Limited (convertible into 152, 969 (convertible into 97,031
c/o EGL Holdings shares of Common Stock) at shares of Common Stock) at a
6600 Peachtree-Dunwoody a price of $611,876 purchase price of $388,124.68
Road
Building 300, Suite 630 Purchase Warrants for 50,990 N/A Purchase Warrants for 9,703
Atlanta, GA 30328 shares of Common Stock of an shares of Common Stock at an
Tel: 770-399-5633 exercise price of $459.23 and a exercise price of $38,773.67
Fax: 770-393-4825 purchase price of $50.67 and a purchase price of $38.67
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Second Closing Third Closing
Number of Shares of Number of Shares of Number of Shares of
Class B Preferred Stock/ Class B Preferred Stock/ Class B Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
[SECOND CLOSING N/A 458,907 Preferred N/A
INVESTOR NUMBER 1] Shares* (convertible
into 458,907 shares of
Common Stock at a
purchase price of
$1,835,628.00
Purchase Warrants
for 152,969 shares of
Common Stock* at
an exercise price of
$1,377.69 and a
purchase price of
$152.00
[SECOND CLOSING N/A 458,907 Preferred N/A
INVESTOR NUMBER 2] Shares* (convertible
into 458,907 shares of
Common Stock at a
Purchase price of
$1,835,628.00 Purchase
Warrants for 152,969
shares of Common Stock* at
an exercise price of $1,377.69
and a purchase price of
$152.00
[SECOND CLOSING N/A 458,907 Preferred N/A
INVESTOR NUMBER 3] Shares* (convertible
into 458,907 shares of
Common Stock at a
purchase price of
$1,835,628.00
Purchase warrants for
152,969 shares of
Common Stock* at an exercise
price of $1,377.69
and a purchase price of
$152.00
</TABLE>
* Estimated figure. Number to be determined prior to Second Closing.
47
<PAGE>
EXHIBIT 10.33
PHYSICIAN HEALTH CORPORATION
AMENDMENT NO. 1 TO
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS AGREEMENT, dated as of July __, 1997, is among Physician Health
Corporation, a Delaware corporation (the "Company"), Weston Presidio Capital II,
-------
L.P. ("WPC") and the other Investors and Additional Investors signing below.
The parties agree as follows:
1. PURCHASE AGREEMENT; DEFINITIONS. This Agreement amends the Securities
-------------------------------
Purchase Agreement dated as of June 16, 1997 (the "Purchase Agreement"), among
------------------
the Company, WPC, BancBoston Ventures, Inc., Mercury Asset Management plc, on
behalf of Rowan Nominees Limited and NatWest Ventures Investments Limited.
Capitalized terms not otherwise defined in this Agreement are used as defined in
the Purchase Agreement.
2. AMENDMENT OF PURCHASE AGREEMENT. The Purchase Agreement is amended as
-------------------------------
follows, effective as of the date hereof:
2.1 Amendment of Section 1. Section 1 of the Purchase Agreement is
----------------------
amended by:
(a) deleting Sections 1.15, 1.21, 1.51, 1.58 and 1.8 in their
entirety and replacing them with the following, in the order indicated:
1.15 "Common Stock" means the Voting Common Stock and the Non-
------------
Voting Common Stock, collectively.
1.21 "Conversion Warrants" means the warrants to purchase Common
-------------------
Stock at the conversion price of the Preferred Stock in substantially the form
of Exhibit 2.1A issuable upon a mandatory contingent redemption of the Preferred
Stock in accordance with section 6.2 of the Certificate of Designation.
1.51 "Preferred Stock" means Series B Voting Preferred and the
---------------
Series B Non-Voting Preferred, collectively.
1.58 "Regulated Investor" means BancBoston Investments Inc.,
------------------
National City Venture Corporation and any other Investor subject to regulation
by a Regulatory Agency.
1.8 "Certificate of Designation" is defined in Section 2.1."
--------------------------
<PAGE>
(b) adding the following two definitions immediately after Section
1.69:
"1.69A "Series B Non-Voting Preferred" means the Series B Non-Voting
-----------------------------
Redeemable Convertible Preferred Stock of the Company, par value $0.01 per
share.
1.69B "Series B Voting Preferred" means the Series B Redeemable
-------------------------
Convertible Preferred Stock of the Company, par value $0.01 per share."
(c) adding the following definition immediately after Section 1.78:
"1.78A "Voting Common Stock" means the Voting Common Stock of the
-------------------
Company, par value $0.0025 per share."
2.2 Amendment of Section 2.1. The last sentence of Section 2.1 of the
------------------------
Purchase Agreement is amended to read in its entirety as follows: "The powers,
preferences and rights of the Preferred Stock are set forth in the Company's
Charter as amended through the Second Closing, including the Amended and
Restated Certificate of Designation, Preferences and Rights for the Preferred
Stock in the form set forth in Exhibit 2.1B (the "Certificate of Designation.")
--------------------------
2.3 Amendment of Section 5.14. Section 5.14(c)(iv) of the Purchase
-------------------------
Agreement is amended to read in its entirety as follows: "(iv) shares of Common
Stock or Prime Common Stock issued in connection with acquisitions permitted by
Section 5.9.2 (whether or not contemplated by an Investor Agreement or Material
Agreement).
2.5 Amendment of Section 5.10.5 Section 5.10.5 is amended to read in its
---------------------------
entirety as follows:
"5.10.5 The Company may make mandatory redemptions of Class A Stock
and may pay dividends on the Class A Stock in additional shares of Class A
Stock, under its Charter, as now in effect. Prior to January 1, 2003, the
Company may pay cash dividends on the Class A Stock if and only if payment of
such cash dividends is consented to by the Required Holders. After January 1,
2003, the Company may pay cash dividends on the Class A Stock only to the extent
that such dividends accrue after January 1, 2003. The Company may make mandatory
redemptions of warrants held by NationsCredit Commercial Corporation in
accordance with the Material Agreements as now in effect."
2.4 Amendment to Exhibit 1. Exhibit 1 to the Purchase Agreement is
----------------------
amended to read in its entirety as Exhibit 1 attached hereto and made a part
hereof.
2.5 Amendment to Exhibit 2.1A. Exhibit 2.1A to the Purchase Agreement is
-------------------------
amended to read in its entirety as Exhibit 2 attached hereto and made a part
hereof.
-2-
<PAGE>
2.6 Amendment to Exhibit 2.1B. Exhibit 2.1B to the Purchase Agreement is
-------------------------
amended to read in its entirety as Exhibit 3 attached hereto and made a part
hereof.
3. JOINDER OF ADDITIONAL INVESTORS. The parties signing on the
-------------------------------
signature pages below as "Additional Investors" join in and become party to the
Purchase Agreement as Investors.
4. GENERAL. Except to the extent expressly amended hereby, the
-------
provisions of the Purchase Agreement shall remain unmodified and are confirmed
as being in full force and effect. The headings in this Agreement are for
convenience of reference only and shall not alter or otherwise affect the
meaning hereof. This Agreement, the Purchase Agreement and the other items
referred to herein or therein constitute the entire understanding of the parties
hereto with respect to the subject matter hereof and thereof and supersede all
present and prior agreements, whether written or oral. This Agreement is
intended to take effect as a sealed instrument and may be executed in any number
of counterparts, which together shall constitute one instrument and shall be
governed by and construed in accordance with the laws (other than the conflict
of laws rules) of The Commonwealth of Massachusetts, and shall bind and inure to
the benefit of the parties hereto and their respective successors and assigns.
-3-
<PAGE>
The undersigned have executed this Agreement under seal as of the date
first above written.
PHYSICIAN HEALTH CORPORATION
By
------------------------------------
Title:
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By
------------------------------------
General Partner
BANCBOSTON INVESTMENTS INC.
By
------------------------------------
Title:
MERCURY ASSET MANAGEMENT plc, on
behalf of ROWAN NOMINEES LIMITED
By:
-----------------------------------
Title:
NATWEST VENTURES INVESTMENTS LIMITED
By:
-----------------------------------
Title:
-4-
<PAGE>
ST. PAUL VENTURE CAPITAL IV, LLC
By:
-----------------------------------
Title:
PARTECH U.S. PARTNERS III C.V.
By:
-----------------------------------
Title:
U.S. GROWTH FUND PARTNERS C.V.
By:
-----------------------------------
Title:
AXA U.S. GROWTH FUND LLC
By:
-----------------------------------
Title:
DOUBLE BLACK DIAMOND II LLC
By:
-----------------------------------
Title:
ALMANORI LIMITED
By:
-----------------------------------
Title:
-5-
<PAGE>
MULTINVEST LIMITED
By:
-----------------------------------
Title:
NATIONAL CITY VENTURE CORPORATION
By:
-----------------------------------
Title:
-6-
<PAGE>
Exhibit 1
---------
EXHIBIT 1 TO SECURITIES
PURCHASE AGREEMENT
INVESTORS, PREFERRED STOCK, PURCHASE
------------------------------------
WARRANTS AND PURCHASE PRICE
---------------------------
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
WESTON PRESIDIO 1,529,958 shares of Series B N/A 621,000 shares of Series B
CAPITAL II, L.P. Voting Preferred (convertible Voting Preferred
One Federal Street into 1,529,958 shares of (convertible into 621,000
Boston, MA 02210 Voting Common Stock) at a shares of Voting Common
Tel: (617) 988-2500 purchase price of Stock) at a
Fax: (617) 988-2515 $6,119,832.00 purchase price of $2,484,000
Purchase Warrants for 509,986 N/A Purchase Warrants for 62,100
shares of Voting Common shares of Voting Common
Stock at an exercise price of Stock at an exercise price of
$4,590.86 and a purchase $248,151.60 and a purchase
price of $509.00. price of $248.40.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
BANCBOSTON 458,907 shares of Series B N/A 186,300 shares of Series B
INVESTMENTS INC./1/ Non-Voting Preferred Non-Voting Preferred
175 Federal Street (convertible into 458,907 (convertible into 186,300
31st Floor shares of Non-Voting Common shares of Non-Voting
Boston, MA 02110 Stock) at Common Stock)
Tel: (617) 434-5917 a price of $1,835,628.00. at a purchase price of
Fax: (617) 434-1153 N/A $745,200.
Purchase Warrants for 152,969 Purchase Warrants for 18,630
shares of Non-Voting Common shares of Non-Voting
Stock Common Stock at an
at an exercise price of exercise price of $74,445.48
$1,377.69 and a purchase and a purchase price of
price of $152.00. $74.52.
305,938 shares of Series B N/A 124,200 shares of Series B
MERCURY ASSET Voting Preferred Voting Preferred
MANAGEMENT PLC, ON (convertible into 305,938 (convertible into 124,200
BEHALF OF ROWAN shares of Voting Common shares of Voting Common
NOMINEES LIMITED Stock) at Stock)
c/o EGL Holdings a price of $1,223,752. N/A at a purchase price of
6600 Peachtree-Dunwoody $496,800.
Road Purchase Warrants for 101,979
Building 300, Suite 630 shares of Voting Common Purchase Warrants for 12,420
Atlanta, GA 30328 Stock at an exercise price of shares of Voting Common
Tel: 770-399-5633 $918.46 and a purchase price Stock at an exercise price of
Fax: 770-393-4825 of $101.33 $49,630.32 and a purchase
price of $49.68.
</TABLE>
- ------------------
/1/ In accordance with BancBoston Investment Inc.'s status as a
Regulation Y Investor, these figures reflect automatic conversion from Series B
Voting Preferred into Series B NonVoting Preferred and from Purchase Warrants
for Voting Common Stock to Purchase Warrants for Non-Voting Common Stock.
BancBoston Investments Inc. originally received Series B Voting Preferred and
Purchase Warrants for Voting Common Stock in a transfer from BancBoston
Ventures, Inc.
-8-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
NATWEST VENTURES
INVESTMENTS LIMITED 152, 969 shares of Series B N/A 62,100 shares of Series B
c/o EGL Holdings Voting Preferred Voting Preferred
6600 Peachtree-Dunwoody (convertible into 152, 969 (convertible into 62,100
Road shares of Voting Common shares of Voting Common
Building 300, Suite 630 Stock) at Stock)
Atlanta, GA 30328 a price of $611,876 at a purchase price of
Tel: 770-399-5633 N/A $248,400
Fax: 770-393-4825
Purchase Warrants for 50,990 Purchase Warrants for 6,210
shares of Voting Common shares of Voting Common Stock
of an exercise price of Stock at an exercise price of
$459.23 and a purchase price $24,815.16 and
a purchase of $50.67 price of $24.84.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
ST. PAUL VENTURE N/A 458,907 shares of 186,300 shares of Series B
CAPITAL IV, LLC Series B Voting Voting Preferred
c/o St. Paul Venture Capital, Preferred (convertible (convertible into 186,300
Inc. into 458,907 shares of shares of Voting Common
Normandale Office Park, Suite Voting Common Stock)
1940 Stock) at a purchase at a purchase price of
8500 Normandale Lake Blvd. price of $1,835,628.00 $745,200.
Bloomington, MN 55437
Tel: 612-830-7490 N/A
Fax: 612-830-7475 Purchase Warrants for
152,969 shares of Purchase Warrants for 18,630
Voting Common Stock shares of Voting Common
at an exercise price of Stock at an
$1,377.69 and a exercise price of $74,445.48
purchase price of and a purchase price of
$152.00 $74.52.
PARTECH U.S. PARTNERS N/A 244,763 shares of 99,366 shares of Series B
III C.V. Series B Voting Voting Preferred
c/o Partech International Preferred (convertible (convertible into 99,366
50 California Street, Suite into 244,763 shares of shares of Voting Common
3200 Voting Common Stock)
San Francisco, CA 94111 Stock) at a purchase at a purchase price of
Tel: 415-788-2929 price of $979,052.00 $397,464.00
Fax: 415-788-6763
N/A
Purchase Warrants for
81,588 shares of Purchase Warrants for 9,937
Voting Common Stock shares of Voting Common
at an exercise price of Stock at an
$734.81 and a exercise price of $39,708.25
purchase price of and a purchase price of
$81.07 $39.75.
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
U.S. GROWTH FUND N/A 133,507 shares of 54,199 shares of Series B
PARTNERS C.V. Series B Voting Voting Preferred
c/o Partech International Preferred (convertible (convertible into 54,199
50 California Street, Suite into 133,507 shares of shares of Voting Common
3200 Voting Common Stock)
San Francisco, CA 94111 Stock) at a purchase at a purchase price of
Tel: 415-788-2929 price of $534,028 $216,796.00
Fax: 415-788-6763
Purchase Warrants
for 44,502 shares of Purchase Warrant
Voting Common Stock for 5,420 shares
at an exercise of Voting Common
price of $400.80 and a Stock at an exercise
purchase price of $44.22. price of $21,658.32
and a purchase price
of $21.68.
AXA U.S. GROWTH FUND N/A 66,753 shares of Series 27,099 shares of Series B
LLC B Voting Preferred Voting Preferred
c/o Partech International (convertible into (convertible into 27,099
50 California Street, Suite 66,753 shares of shares of Voting Common
3200 Voting Common Stock) at a
San Francisco, CA 94111 Stock) at a purchase purchase price of $108,396.00
Tel: 415-788-2929 price of
Fax: 415-788-6763 $267,012.00
N/A Purchase Warrants for Purchase Warrants for 2,710
22,251 shares of shares of Voting Common
Voting Common Stock Stock at an exercise price of
at an exercise price of $10,829.16 and a purchase
$200.40 and a price of $10.84.
purchase
price of $22.11.
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
DOUBLE BLACK N/A 8,900 shares of Series 3,613 shares of Series B
DIAMOND II, LLC B Voting Preferred Voting Preferred
c/o Partech International (convertible into 8,900 (convertible into 3,613
50 California Street, Suite shares of Voting shares of Voting Common
3200 Common Stock) at a Stock)
San Francisco, CA 94111 price of $35,600.00 at a purchase price of
Tel: 415-788-2929 $14,452.00.
Fax: 415-788-6763 N/A
Purchase Warrants for
2,967 shares of Voting Purchase Warrants for 361
Common Stock shares of Voting Common
at an exercise price of Stock at an
$26.72 and a purchase exercise price of $1,442.56
price of $2.95. and a purchase price of $1.44.
ALMANORI LIMITED N/A 3,382 shares of Series 1,373 shares of Series B
c/o Partech International B Voting Preferred Voting Preferred
50 California Street, Suite (convertible into 3,382 (convertible into 1,373
3200 shares of Voting shares of Voting Common
San Francisco, CA 94111 Common Stock) at a Stock)
Tel: 415-788-2929 purchase price of at a purchase price of
Fax: 415-788-6763 $13,528.00. $5,492.00
N/A
Purchase Warrants for Purchase Warrants for 137
1,127 shares of Voting shares of Voting Common
Common Stock at an Stock at an exercise price of
exercise price of $547.45 and a purchase price
$10.15 and a purchase of $1.55.
price of $1.12
MULTINVEST LIMITED N/A 1,602 shares of Series 650 shares of Series B Voting
c/o Partech International B Voting Preferred Preferred
50 California Street, Suite (convertible into 1,602 (convertible into 650
3200 shares of Voting shares of Voting Common
San Francisco, CA 94111 Common Stock) at a Stock)
Tel: 415-788-2929 purchase price of at a purchase price of
Fax: 415-788-6763 N/A $6,408.00 $2,600.00
Purchase Warrants for Purchase Warrants
534 shares of Voting for 65 shares of
Common Stock of an Voting Common Stock
exercise price of at an exercise
$4.81 and a purchase price of $259.74
price of $0.53 and a purchase
price of
$0.26.
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
NATIONAL CITY N/A 458,907 shares of 186,300 shares of Series B
VENTURE CORPORATION Series B Non-Voting Non-Voting Preferred
1965 E. 6th Street Preferred (convertible (convertible into 186,300
Suite 1010 into 458,907 shares of shares of Non-Voting
Cleveland, OH 44114 Non-Voting Common Common Stock)
Tel: 216-575-9482 Stock) at a purchase at a purchase price of
Fax: 216-575-9965 price of $1,835,628.00 $745,200.
N/A Purchase Warrants for Purchase Warrants for 18,630
152,969 shares of Non- shares of Non-Voting
Voting Common Stock Common Stock at an
at an exercise price of exercise price of $74,445.48
$1,377.69 and a and a purchase price of
purchase price of $74.52.
$152.00
</TABLE>
-13-
<PAGE>
EXHIBIT 10.34
PHYSICIAN HEALTH CORPORATION
AMENDMENT NO. 2 TO
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS AGREEMENT, dated as of October __, 1997, is among Physician Health
Corporation, a Delaware corporation (the "Company"), Weston Presidio Capital II,
-------
L.P. ("WPC"), BancBoston Investments Inc., Mercury Asset Management plc, on
---
behalf of Rowan Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital IV, LLC, Partech U.S. Partners III C.V., U.S. Growth Fund
Partners C.V., Axa U.S. Growth Fund LLC, Double Black Diamond II LLC, Almanori
Limited, Multinvest Limited and National City Venture Corporation (individually
an "Investor" and collectively with WPC, the "Investors"). The parties agree as
------- ---------
follows:
1. PURCHASE AGREEMENT; DEFINITIONS. This Agreement amends the Securities
-------------------------------
Purchase Agreement dated as of June 16, 1997 (the "Purchase Agreement"), as
------------------
amended to date, among the Company, WPC and the other Investors signing below.
Capitalized terms not otherwise defined in this Agreement are used as defined in
the Purchase Agreement.
2. AMENDMENT OF PURCHASE AGREEMENT. Effective upon the date all the
-------------------------------
conditions set forth in Section 3 hereof are satisfied (the "Amendment Date"),
--------------
which conditions must be satisfied no later than November 30, 1997, the Purchase
Agreement is amended as follows:
2.1. Amendment of Section 1.1. The proviso at the end of Section 1.1 of
------------------------
the Purchase Agreement is amended to read in its entirety as follows:
"provided, however, that neither the Investors, nor Banque Paribas
-------- -------
or its affiliates, nor Paribas Capital Funding or its affiliates, nor
any other bank party to the Senior Loan Agreement or the Subordinated
Loan Agreement or its affiliates, shall be Affiliates of the Company
for the purposes of this Agreement."
2.2. Amendment of Section 1.37. The definition of "Investor Agreements"
-------------------------
in Section 1.37 of the Purchase Agreement is amended to read in its entirety as
follows:
"1.3.7. "Investor Agreements" means this Agreement, the
-------------------
Certificate of Designation, the Stockholders Agreement, the
Registration Rights Agreement,
<PAGE>
the Warrants, the Equity Call Agreement, the Warrant and Preferred
Stock Commitment dated as of September 12, 1997 among the Company,
WPC and certain other parties, any other agreement or instrument
entered into between the Company and the Investors and any amendment
or modification to any of the foregoing."
2.3. Amendment of Section 1.62. The definition of "Required Holders" in
-------------------------
Section 1.62 of the Purchase Agreement is amended to read in its entirety as
follows:
"1.62. "Required Holders" means the holders at the relevant
----------------
time (excluding the Company or any of its Subsidiaries) of at least
two-thirds of the voting power of all outstanding Preferred Stock and
Warrants (calculated to give pro forma effect to the conversion of
all Preferred Stock and the exercise of all Warrants) issued pursuant
to this Agreement and the Paribas Purchase Agreement, voting together
as a single class."
2.4. Amendment of Section 1. Section 1 of the Purchase Agreement is
----------------------
amended by:
(a) adding immediately after Section 1.22 a new Section 1.22A to
read in its entirety as follows:
"1.22A. "DVI Senior Loan Agreement" is defined in Section
-------------------------
4.1.3."
(b) adding immediately after Section 1.47 a new Section 1.47A, a
new Section 1.47 B and a new Section 1.47C to read in their entirety as follows:
"1.47A. "Paribas Purchase Agreement" is defined in Section
--------------------------
4.1.8.
1.47B. "Paribas Senior Loan Agreement" is defined in
-----------------------------
Section 4.1.3.
1.47C. "PCF Warrant Agreement" means the Warrant Agreement
---------------------
dated as of October __, 1997 between the Company and Paribas Capital
Funding LLC.
(c) adding immediately after Section 1.74 a new Section 1.74A to
read in its entirety as follows:
"1.74A. "Subordinated Loan Agreement" is defined in Section
---------------------------
4.1.7."
2.5. Amendment of Section 2.4. Section 2.4 of the Purchase Agreement is
------------------------
amended to read in its entirety as follows:
-2-
<PAGE>
"2.4. Second Closing. The Second Closing of the purchase and
--------------
sale of Investor Securities (the "Second Closing") shall take place
--------------
in Boston, Massachusetts at the offices of Ropes & Gray on or prior
to July 31, 1997 or on such other date as the Company and the
Required Holders may agree upon (the "Second Closing Date"). At the
-------------------
Second Closing the Company will deliver to the Investors certificates
evidencing the respective Investor Securities set forth in Exhibit 1
for the Second Closing against the Investors' deposit of the purchase
price therefor into an interest bearing account with the Company's
principal depository bank as specified by the Company."
2.6. Amendment of Section 4.1.3. Section 4.1.3 of the Purchase Agreement
--------------------------
is amended to read in its entirety as follows:
"4.1.3. Loan and Security Agreements dated as of June 16, 1997
among the Company, MHOA Texas I, LLC and DVI Financial Services, Inc.
(the "DVI Senior Loan Agreement"), as well as the Credit Agreement
-------------------------
dated as of October __, 1997 among the Company, the financial
institutions party thereto from time to time and Banque Paribas, as
Agent (the "Paribas Senior Loan Agreement") (collectively, the
-----------------------------
"Senior Loan Agreement")."
---------------------
2.7. Amendment of Section 4.1. Section 4.1 of the Purchase Agreement is
------------------------
amended by adding immediately after Section 4.1.6 a new Section 4.1.7 and a new
Section 4.1.8 to read in their entirety as follows:
"4.1.7. Senior Subordinated Loan Agreement dated as of October
__, 1997, among the Company, PHC Holding Corporation, the lenders
party thereto and Paribas Capital Funding LLC (the "Subordinated Loan
-----------------
Agreement").
---------
"4.1.8. Securities Purchase Agreement dated as of October __,
1997 between the Company and Paribas Principal Incorporated (the
"Paribas Purchase Agreement"). "
--------------------------
2.8. Amendment of Section 5.6.3. Section 5.6.3 of the Purchase Agreement
--------------------------
is amended to read in its entirety as follows:
"5.6.3. Indebtedness specifically contemplated by the Investor
Agreements or Material Agreements as in effect on the date hereof and
indebtedness under the Senior Loan Agreement or the Subordinated Loan
Agreement."
2.9. Amendment of Section 5.14(c)(i). Section 5.14(c)(i) of the Purchase
-------------------------------
Agreement is amended to read in its entirety as follows: "(i) issuance of
shares of Common Stock upon
-3-
<PAGE>
conversion of shares of Non-Voting Common Stock, Prime Common Stock, Class A
Stock or Preferred Stock;"
2.10. Amendment of Section 5.14(c)(iii). Section 5.14(c)(iii) of the
---------------------------------
Purchase Agreement is amended to read in its entirety as follows: "(iii)
issuance of shares of Common Stock upon exercise or conversion of warrants
issued under this Agreement, the DVI Senior Loan Agreement, the Paribas Purchase
Agreement, the PCF Warrant Agreement or the Class A Stock and Warrant Purchase
Agreement and".
2.11. Amendment of Section 5.14(c)(iv). Section 5.14(c)(iv) of the
--------------------------------
Purchase Agreement is amended to read in its entirety as follows: "(iv) shares
of Common Stock or Prime Common Stock issued in connection with acquisitions
permitted by Section 5.9.2."
2.12. Amendment of Section 5.10.1. Section 5.10.1 of the Purchase
---------------------------
Agreement is amended to read in its entirety as follows:
"5.10.1. Any Subsidiary may make Distributions to the
Company or to any wholly owned Subsidiary which is its immediate
parent, or to any other Subsidiary to the extent permitted by the
Senior Loan Agreement."
2.13. Amendment of Section 5.10.5. Section 5.10.5 of the Purchase
---------------------------
Agreement is amended to read in its entirety as follows:
"5.10.5 The Company may make mandatory redemptions of Class
A Stock and may pay dividends on the Class A Stock in additional
shares of Class A Stock, to the extent required by its Charter, as
now in effect. Prior to January 1, 2003, the Company may pay cash
dividends on the Class A Stock if and only if payment of such cash
dividends is consented to by the Required Holders. After January 1,
2003, the Company may pay cash dividends on the Class A Stock only
to the extent that such dividends accrue after January 1, 2003. The
Company may redeem the warrants held by NationsCredit Commercial
Corporation and the Warrants and the Warrant Shares (as such terms
are defined in the PCF Warrant Agreement)."
2.14. Amendment of Section 5.15. Section 5.15 of the Purchase Agreement
-------------------------
is amended so that the second sentence thereof reads in its entirety as follows:
"Except to the extent prohibited by the Company's principal senior
bank facility, the Senior Loan Agreement or the Subordinated Loan
Agreement, each as from time to time in effect, neither the Company
nor any of its Subsidiaries shall remain or become a party to or be
bound by any agreement, deed, lease or other instrument which
imposes any restriction or limitation on Distributions that are
required to be made by the Company on or in respect of the Investor
-4-
<PAGE>
Securities or which restricts the ability of the Company's
Subsidiaries to pay dividends or to make advances to the Company;
provided, however, that the Company and its Subsidiaries may become
-------- -------
and remain party to the Material Agreements as in effect on the date
hereof, with such changes therein as the Required Holders may agree
to in writing, and may perform their respective obligations
thereunder to the extent not otherwise inconsistent with the
Investor Agreements."
2.15. Amendment of Section 5.18.2. The last sentence of Section 5.18.2 of
---------------------------
the Purchase Agreement is amended to read in its entirety as follows:
"The Company agrees that (a) any diversion of the proceeds from
their intended use as specified in Section 2.6 or (b) the Company's
becoming ineligible as a "small business concern" by reason of a
change in the Company's business activity within one year from the
Second Closing Date, shall entitle any Investor that constitutes an
SBIC, upon demand, and in addition to any other remedies that may
exist, upon the Cash Payment Date (as defined in the Certificate of
Designation), to immediate rescission of this Agreement and
repayment in full of the funds invested by it hereunder as
contemplated by 13 CFR (S) 107.305 and 13 CFR (S) 107.706."
2.16. Amendment of Exhibit 1. Exhibit 1 to the Purchase Agreement is
----------------------
amended to read in its entirety as Exhibit 1 attached hereto.
2.17. Amendment of Exhibit 4.3.1. Exhibit 4.3.1 to the Purchase Agreement
--------------------------
is amended to read in its entirety as Exhibit 4.3.1 attached hereto.
3. CONDITIONS. The effectiveness of this Agreement shall be subject to
----------
the satisfaction of the following conditions, which conditions must be satisfied
prior to November 30, 1997 or this Agreement shall terminate:
3.1. Closing Under Paribas Documents. The Company and all other parties
-------------------------------
thereto shall have duly authorized, executed and delivered (in substantially the
form previously furnished by the Company to the Investors), and the Company
shall have received the proceeds contemplated by such agreements:
(a) the Paribas Senior Loan Agreement;
(b) the Subordinated Loan Agreement;
(c) the Paribas Purchase Agreement; and
(d) the PCF Warrant Agreement.
-5-
<PAGE>
3.2. Execution of Other Documents. The Company and all other parties
----------------------------
thereto shall have duly authorized, executed and delivered (in substantially the
form previously furnished by the Company to the Investors):
(a) the Amendment and Joinder to the Second Amended Stockholders
Agreement dated as of October __, 1997, among the Company, PPI,
Paribas Capital Funding LLC, the Investors and certain other
stockholders of the Company;
(b) the Joinder to the Equity Call Agreement dated as of October
__, 1997, among the Company, PPI, the Investors and certain
other stockholders of the Company;
(c) Amendment No. 2 to the Escrow Agreement dated October __, 1997,
among the Company, PPI, the Investors and certain other
stockholders of the Company;
(d) the Amended and Restated Registration Rights Agreement dated as
of October __, 1997, among the Company, the Investors and
certain other stockholders thereof of the Company; and
(e) contemporaneously with the application of proceeds contemplated
by Section 3.1, confirmation that the Continuing Limited
Guaranty Agreement from Western Presidio Capital, L.P. to
Southwest Bank of St. Louis dated as of September 12, 1997 has
been terminated.
3.3. Legal Opinion. On the Amendment Date, the Investors shall have
-------------
received from Jackson & Walker, L.L.P., counsel for the Company and the
Subsidiaries, their opinion with respect to the transactions contemplated by
this Agreement, which opinion shall be in form and substance satisfactory to the
Investors. The Company authorizes and directs its counsel to furnish the
foregoing opinion.
4. GENERAL. Except to the extent expressly amended hereby, the provisions
-------
of the Purchase Agreement shall remain unmodified and are confirmed as being in
full force and effect. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. This
Agreement, the Purchase Agreement and the other items referred to herein or
therein constitute the entire understanding of the parties hereto with respect
to the subject matter hereof and thereof and supersede all present and prior
agreements, whether written or oral. This Agreement is intended to take effect
as a sealed instrument and may be executed in any number of counterparts, which
together shall constitute one instrument and shall be governed by and construed
in accordance with the laws (other than the conflict of laws rules) of The
Commonwealth of Massachusetts, and shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
-6-
<PAGE>
The undersigned have executed this Agreement under seal as of the date
first above written.
PHYSICIAN HEALTH CORPORATION
By
------------------------------------
Title:
WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By
------------------------------------
General Partner
BANCBOSTON INVESTMENTS INC.
By
------------------------------------
Title:
MERCURY ASSET MANAGEMENT plc, on
behalf of ROWAN NOMINEES LIMITED
By:
-----------------------------------
Title:
NATWEST VENTURES INVESTMENTS LIMITED
By:
-----------------------------------
Title:
-7-
<PAGE>
ST. PAUL VENTURE CAPITAL IV, LLC
By:
-----------------------------------
Title:
PARTECH U.S. PARTNERS III C.V.
By:
-----------------------------------
Title:
U.S. GROWTH FUND PARTNERS C.V.
By:
-----------------------------------
Title:
AXA U.S. GROWTH FUND LLC
By:
-----------------------------------
Title:
DOUBLE BLACK DIAMOND II LLC
By:
-----------------------------------
Title:
ALMANORI LIMITED
By:
-----------------------------------
Title:
-8-
<PAGE>
MULTINVEST LIMITED
By:
-------------------------------------
Title:
NATIONAL CITY VENTURE CORPORATION
By:
-------------------------------------
Title:
-9-
<PAGE>
Exhibit 1
---------
EXHIBIT 1 TO SECURITIES
PURCHASE AGREEMENT
INVESTORS, PREFERRED STOCK, PURCHASE
------------------------------------
WARRANTS AND PURCHASE PRICE
---------------------------
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
WESTON PRESIDIO 1,529,958 shares of Series B N/A 542,473 shares of Series B
CAPITAL II, L.P. Voting Preferred (convertible Voting Preferred
One Federal Street into 1,529,958 shares of (convertible into 542,273
Boston, MA 02210 Voting Common Stock) at a shares of Voting Common
Tel: (617) 988-2500 purchase price of Stock) at a
Fax: (617) 988-2515 $6,119,832.00 purchase price of $2,169,892
Purchase Warrants for 509,986 N/A Purchase Warrants for 54,247
shares of Voting Common shares of Voting Common
Stock at an exercise price of Stock at an exercise price of
$4,590.86 and a purchase $216,772.21 and a purchase
price of $509.00. price of $216.99.
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
BANCBOSTON 458,907 shares of Series B N/A 162,742 shares of Series B
INVESTMENTS INC./1/ Non-Voting Preferred Non-Voting Preferred
175 Federal Street (convertible into 458,907 (convertible into 162,742
31st Floor shares of Non-Voting Common shares of Non-Voting
Boston, MA 02110 Stock) at Common Stock)
Tel: (617) 434-5917 a price of $1,835,628.00. at a purchase price of
Fax: (617) 434-1153 $650,957.60.
Purchase Warrants for 152,969 N/A Purchase Warrants for 16,274
shares of Non-Voting Common shares of Non-Voting
Stock Common Stock at an
at an exercise price of exercise price of $65,031.66
$1,377.69 and a purchase and a purchase price of
price of $152.00. $65.10.
MERCURY ASSET 305,938 shares of Series B N/A 108,495 shares of Series B
MANAGEMENT PLC, ON Voting Preferred Voting Preferred
BEHALF OF ROWAN (convertible into 305,938 (convertible into 108,495
NOMINEES LIMITED shares of Voting Common shares of Voting Common
c/o EGL Holdings Stock) at Stock)
6600 Peachtree-Dunwoody a price of $1,223,752. at a purchase price of
Road $433,978.40.
Building 300, Suite 630
Atlanta, GA 30328
Tel: 770-399-5633 Purchase Warrants for 101,979 N/A Purchase Warrants for 10,849
Fax: 770-393-4825 shares of Voting Common shares of Voting Common
Stock at an exercise price of Stock at an exercise price of
$918.46 and a purchase price $43,354.44 and a purchase
of $101.33 price of $43.40
</TABLE>
- ----------------
/1/ In accordance with BancBoston Investment Inc.'s status as a Regulation
Y Investor, these figures reflect automatic conversion from Series B Voting
Preferred into Series B Non-Voting Preferred and from Purchase Warrants for
Voting Common Stock to Purchase Warrants for Non-Voting Common Stock. BancBoston
Investments Inc. originally received Series B Voting Preferred and Purchase
Warrants for Voting Common Stock in a transfer from BancBoston Ventures, Inc.
-11-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
NATWEST VENTURES
INVESTMENTS LIMITED 152,969 shares of Series B N/A 54,247 shares of Series B
c/o EGL Holdings Voting Preferred Voting Preferred
6600 Peachtree-Dunwoody (convertible into 152, 969 (convertible into 54,247
Road shares of Voting Common shares of Voting Common
Building 300, Suite 630 Stock) at Stock)
Atlanta, GA 30328 a price of $611,876 at a purchase price of
Tel: 770-399-5633 $216,989.20
Fax: 770-393-4825
Purchase Warrants for 50,990 N/A Purchase Warrants for 5,425
shares of Voting Common shares of Voting Common
Stock of an exercise price of Stock at an exercise price of
$459.23 and a purchase price $21,677.22 and a purchase
of $50.67 price of $21.70.
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
ST. PAUL VENTURE N/A 458,907 shares of 162,742 shares of Series B
CAPITAL IV, LLC Series B Voting Voting Preferred
c/o St. Paul Venture Capital, Preferred (convertible (convertible into 162,742
Inc. into 458,907 shares of shares of Voting Common
Normandale Office Park, Suite Voting Common Stock)
1940 Stock) at a purchase at a purchase price of
8500 Normandale Lake Blvd. price of $1,835,628.00 $650,967.60.
Bloomington, MN 55437
Tel: 612-830-7490
Fax: 612-830-7475 N/A Purchase Warrants for Purchase Warrants for 16,274
152,969 shares of shares of Voting Common
Voting Common Stock Stock at an
at an exercise price of exercise price of $65,031.66
$1,377.69 and a and a purchase price of
purchase price of $65.10.
$152.00
PARTECH U.S. PARTNERS N/A 244,763 shares of 86,801 shares of Series B
III C.V. Series B Voting Voting Preferred
c/o Partech International Preferred (convertible (convertible into 86,801
50 California Street, Suite into 244,763 shares of shares of Voting Common
3200 Voting Common Stock)
San Francisco, CA 94111 Stock) at a purchase at a purchase price of
Tel: 415-788-2929 price of $979,052.00 $347,203.69
Fax: 415-788-6763
N/A Purchase Warrants for Purchase Warrants for 8,680
81,588 shares of shares of Voting Common
Voting Common Stock Stock at an
at an exercise price of exercise price of $34,685.65
$734.81 and a and a purchase price of
purchase price of $34.72.
$81.07
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
U.S. GROWTH FUND N/A 133,507 shares of 47,345 shares of Series B
PARTNERS C.V. Series B Voting Voting Preferred
c/o Partech International Preferred (convertible (convertible into 47,345
50 California Street, Suite into 133,507 shares of shares of Voting Common
3200 Voting Common Stock)
San Francisco, CA 94111 Stock) at a purchase at a purchase price of
Tel: 415-788-2929 price of $534,028 $189,381.60
Fax: 415-788-6763
N/A Purchase Warrants for Purchase Warrants for 4,735
44,502 shares of shares of Voting Common
Voting Common Stock Stock at an exercise price of
at an exercise price of $18,919.22 and a purchase
$400.80 and a price of $18.94.
purchase price of
$44.22.
AXA U.S. GROWTH FUND N/A 66,753 shares of Series 23,672 shares of Series B
LLC B Voting Preferred Voting Preferred
c/o Partech International (convertible into (convertible into 23,672
50 California Street, Suite 66,753 shares of shares of Voting Common
3200 Voting Common Stock) at a
San Francisco, CA 94111 Stock) at a purchase purchase price of $94,689.06
Tel: 415-788-2929 price of
Fax: 415-788-6763 $267,012.00
N/A Purchase Warrants for Purchase Warrants for 2,367
22,251 shares of shares of Voting Common
Voting Common Stock Stock at an exercise price of
at an exercise price of $9,459.44 and a purchase
$200.40 and a price of $9.47.
purchase
price of $22.11.
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
DOUBLE BLACK N/A 8,900 shares of Series 3,156 shares of Series B
DIAMOND II, LLC B Voting Preferred Voting Preferred
c/o Partech International (convertible into 8,900 (convertible into 3,156
50 California Street, Suite shares of Voting shares of Voting Common
3200 Common Stock) at a Stock)
San Francisco, CA 94111 price of $35,600.00 at a purchase price of
Tel: 415-788-2929 $12,624.51.
Fax: 415-788-6763
N/A Purchase Warrants for Purchase Warrants for 316
2,967 shares of Voting shares of Voting Common
Common Stock Stock at an
at an exercise price of exercise price of $1,261.19
$26.72 and a purchase and a purchase price of $1.26.
price of $2.95.
ALMANORI LIMITED N/A 3,382 shares of Series 1,199 shares of Series B
c/o Partech International B Voting Preferred Voting Preferred
50 California Street, Suite (convertible into 3,382 (convertible into 1,199
3200 shares of Voting shares of Voting Common
San Francisco, CA 94111 Common Stock) at a Stock)
Tel: 415-788-2929 purchase price of at a purchase price of
Fax: 415-788-6763 $13,528.00. $4,797.52
N/A Purchase Warrants for Purchase Warrants for 120
1,127 shares of Voting shares of Voting Common
Common Stock at an Stock at an exercise price of
exercise price of $479.27 and a purchase price
$10.15 and a purchase of $0.48.
price of $1.12
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Initial Closing Third Closing
Number of Shares of Second Closing Number of Number of Shares of
Preferred Stock/ Shares of Preferred Stock/ Preferred Stock/
Purchase Warrants and Purchase Warrants and Purchase Warrants and
Name and Address Respective Purchase Prices Respective Purchase Prices Respective Purchase Prices
- ---------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
MULTINVEST LIMITED N/A 1,602 shares of Series 568 shares of Series B Voting
c/o Partech International B Voting Preferred Preferred
50 California Street, Suite (convertible into 1,602 (convertible into 568
3200 shares of Voting shares of Voting Common
San Francisco, CA 94111 Common Stock) at a Stock)
Tel: 415-788-2929 purchase price of at a purchase price of
Fax: 415-788-6763 $6,408.00 $2,271.22
N/A Purchase Warrants for Purchase Warrants for 57
534 shares of Voting shares of Voting Common
Common Stock of an Stock at an exercise price of
exercise price of $4.81 $226.89 and a purchase price
and a purchase price of of $0.23.
$0.53
NATIONAL CITY N/A 458,907 shares of 162,742 shares of Series B
VENTURE CORPORATION Series B Non-Voting Non-Voting Preferred
1965 E. 6th Street Preferred (convertible (convertible into 162,742
Suite 1010 into 458,907 shares of shares of Non-Voting
Cleveland, OH 44114 Non-Voting Common Common Stock)
Tel: 216-575-9482 Stock) at a purchase at a purchase price of
Fax: 216-575-9965 price of $1,835,628.00 $650,967.60.
N/A Purchase Warrants for Purchase Warrants for 16,274
152,969 shares of Non- shares of Non-Voting
Voting Common Stock Common Stock at an
at an exercise price of exercise price of $65,031.66
$1,377.69 and a and a purchase price of
purchase price of $65.10.
$152.00
</TABLE>
-16-
<PAGE>
EXHIBIT 10.35
PHYSICIAN HEALTH CORPORATION
Equity Call Agreement
---------------------
This Agreement, dated as of June 16, 1997, is among Physician Health
Corporation, a Delaware corporation (the "Company"), Metroplex
-------
Hematology/Oncology Associates, L.L.P., a Texas limited liability partnership
(the "Seller"), and Weston Presidio Capital Partners II, L.P. ("WPC") and the
------ ---
other Investors set forth on the signature pages below (the "Investors").
---------
Recitals
--------
(a) On the date hereof, the Seller is selling substantially all tangible
and intangible assets relating to its medical practice to the Company's
subsidiary MHOA Texas I, LLC ("Texas Sub") pursuant to an Asset Purchase
---------
Agreement dated as of June 16, 1997 (as from time to time in effect, the
"Acquisition Agreement") for cash at the closing and promissory notes of Texas
---------------------
Sub and the Company to the Sellers, including $6,210,000 (the "First Payment")
-------------
due on April 1, 1998 (the "Payment Date"). The Sellers would like credit
------------
assurance that the Company and Texas Sub will have funds available to make the
First Payment on the Payment Date.
(b) The Investors are investing $9,791,901 in the Company's Series B
Redeemable Convertible Preferred Stock, par value $0.01 per share (the "Series B
--------
Stock") and in warrants to purchase Common Stock of the Company (the "Purchase
- ----- --------
Warrants"), on the date hereof pursuant to a Securities Purchase Agreement dated
- --------
as of the date hereof among the Company and the Investors (as from time to time
in effect, the "Securities Purchase Agreement"). Pursuant to the Securities
-----------------------------
Purchase Agreement, the Investors have agreed to invest an additional $6,210,620
in the Company's Series B Stock and Purchase Warrants on the Payment Date
pursuant to this Agreement.
Agreement
---------
In consideration of the foregoing and for other valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties agree as follows:
1. Equity Call. Upon written request by either the Seller or the Company,
-----------
which request may be made no sooner than March 27, 1998 and no later than April
8, 1998, each of the Investors shall severally pay to the Company the amount set
forth on Exhibit 1 hereto (collectively, the "Equity Payment") in exchange for
--------------
the shares of Series B Stock and Purchase Warrants set forth on Exhibit 1
hereto. Upon receipt of a request for an Equity Payment, each
<PAGE>
Investor must pay its portion of the Equity Payment no later than the third
business day after receipt of such request. The Equity Payment shall be made by
wire transfer or bank check in immediately available funds to the Company at the
following account: Account #0102212017 (PHC Maximizer) at NationsBank, Atlanta,
GA, ABA # 061000052. The Company will apply the proceeds of the Equity Payment
to enable Texas Sub to make the First Payment to the extent it has not already
paid such First Payment from other sources. The obligations of the respective
Investors to make the Equity Payment are several and are not joint or joint and
several.
Certificates for the shares of Series B Stock and Purchase Warrants for the
respective Investors have been deposited by the Company into escrow with WPC.
WPC shall release these certificates and Purchase Warrants to the Investors
against confirmation reasonably satisfactory to it that such Investor's Equity
Payment has been made.
Any Series B Stock and Purchase Warrants still being held in escrow by WPC
in connection with this Agreement on April 14, 1998 shall be returned to the
Company.
2. No Mitigating Circumstances. The obligations of the Investors to pay
---------------------------
their several portions of the Equity Payment are absolute. Such payments must
be made notwithstanding any of the following circumstances or any other
circumstance:
2.1. The bankruptcy, insolvency or other financial difficulties of the
Company and its subsidiaries.
2.2. Any breach of a representation, warranty or covenant on the part of
the Company under the Securities Purchase Agreement, the failure of the Company
to satisfy any closing condition in the Securities Purchase Agreement and the
failure of the Company to comply with the Certificate of Designation (as defined
in the Securities Purchase Agreement) or any other Investor Agreement (as
defined in the Securities Purchase Agreement).
2.3. Any material adverse change in the business, operation, assets,
financial condition or prospects of the Company and its subsidiaries.
2.4. Any amendment or modification of the Acquisition Agreement.
Notwithstanding the foregoing provisions of this Section 2, the obligations
of the Company and Texas Sub to pay the First Payment to the Seller, and the
right of the Seller to request the Equity Payment from the Investors, shall be
subject to and reduced by any offset rights of the Company and Texas Sub
pursuant to Section 9.2 the Acquisition Agreement.
3. Representations and Warranties by the Investors. Each of the Investors
-----------------------------------------------
represents and warrants with respect only to itself, and not as to any other
Investor, as follows:
-2-
<PAGE>
3.1. Organization and Authority. Such Investor is a duly organized,
--------------------------
validly existing limited partnership or corporation under the jurisdiction of
its organization. Such Investor has all limited partnership or corporate power
and authority to enter into this Agreement and to perform its obligations as
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of such Investor, enforceable against such Investor in accordance
with its terms, subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors generally and to general principles of equity, regardless of whether
enforcement is sought in proceedings in equity or at law.
3.2. No Conflict. The execution and delivery by such Investor of this
-----------
Agreement does not, and the performance by such Investor of its obligations
hereunder will not, conflict with or result in a default under or violation of
any term or provision of:
(a) its limited partnership agreement or corporate charter or
bylaws;
(b) any agreement, instrument, deed or lease to which it may be
party or by which its properties may be bound;
(c) any statute, law or regulation applicable to it or its
properties; or
(d) any decree or order of any court or governmental authority
applicable to it or its properties.
3.3. Financial Condition. Such Investor is an "accredited investor" for
-------------------
purposes of Regulation D under the Securities Act of 1933, as amended. Such
Investor has furnished to the Sellers copies of its most recent audited
financial statements and annual report. Since the date of such financial
statements and annual report, such Investor has not incurred any material
adverse change in its business, operations, assets or financial condition.
4. Notices. Any notice, request or other communication under this
-------
Agreement shall be furnished in writing to the parties hereto at their addresses
set forth on the signature pages hereof or as such addressee may otherwise have
directed in writing by notice actually received by the addressor. Notices shall
be deemed to be given if actually delivered to the addressee at such address,
received by the addressee by legible telecopy or two days shall have elapsed
after having been delivered to a nationally recognized overnight courier for
delivery at such address, with return receipt requested.
5. Future Investors. From time to time WPC may propose additional
----------------
Persons, who must be reasonably satisfactory to the Sellers, to join into this
Agreement as Investors. Such new Investors will join in this Agreement under a
joinder agreement reasonably satisfactory to the Sellers, and Exhibit 1 hereto
will be modified accordingly.
-3-
<PAGE>
6. Service of Process. Each of the Company and the Investors (a)
------------------
irrevocably submits to the exclusive jurisdiction of the state courts of The
State of Texas and to the exclusive jurisdiction of the United States District
Court for the Northern District of Texas for the purpose of any suit, action or
other proceeding arising out of or based upon this Agreement or the subject
matter hereof or thereof brought by any party hereto or such party's successors
or assigns, and (b) waives to the extent not prohibited by law that cannot be
waived, and agrees not to assert, by way of motion, as a defense, or otherwise,
in any such proceeding, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that any such proceeding brought in one of the
above-named courts is improper, or that this Agreement or the Series B Stock and
Purchase Warrants, or the subject matter hereof or thereof, may not be enforced
in or by such court. Each of the Company and the Investors consents to service
of process in any such proceeding in any manner permitted by the laws of the
State of Texas, and agrees that service of process registered or certified mail,
return receipt requested, at its address specified in or pursuant to Section 4
is reasonably calculated to give actual notice.
7. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
--------------------
WHICH CANNOT BE WAIVED, THE INVESTORS AND THE COMPANY HEREBY WAIVE, AND COVENANT
THAT NEITHER THE COMPANY NOR THE INVESTORS WILL ASSERT, ANY RIGHT TO TRIAL BY
JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN
ANY WAY CONNECTED WITH, RELATED OR INCIDENTAL TO THE DEALINGS OF THE INVESTORS
AND THE COMPANY HEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company acknowledges
that it has been informed by WPC that the provisions of this Section 7
constitute a material inducement upon which the Investors are relying and will
rely in entering into this Agreement and purchasing the Series B Stock and
Purchase Warrants pursuant hereto. Any Investor or the Company may file an
original counterpart or a copy of this Section 7 with any court as written
evidence of the consent of the Investors and the Company to the waiver of its
right to trial by jury.
8. General. This Agreement may be amended or modified only in writing
-------
signed by all parties hereto. This Agreement reflects the entire understanding
of the parties with respect to the subject matter hereof and supersedes all
prior and concurrent understandings and agreements with respect to the subject
matter hereof. The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision hereof, and any
invalid or unenforceable provision shall be modified to be enforceable to the
maximum extent of its validity or enforceability. This Agreement may be executed
in separate counterparts, each of which shall be deemed an original, and all of
which together shall constitute the same agreement. This Agreement shall be
governed by and construed in
-4-
<PAGE>
accordance with the laws (other than the conflict of laws rules) of the
Commonwealth of Massachusetts.
-5-
<PAGE>
Each of the parties has caused this Agreement to be executed and delivered
by its duly authorized officer or other signatory as of the date first written
above.
PHYSICIAN HEALTH CORPORATION
By
----------------------------------
Tile:
Physician Health Corporation
900 Hammond Drive - Suite 300
Atlanta, Georgia 30328
Telephone: (770) 673-1964
Telecopy: (770) 673-1970
METROPLEX HEMATOLOGY/ONCOLOGY
ASSOCIATES, L.L.P.
By
----------------------------------
Title:
Metroplex Hematology/Oncology
Associates, L.L.P.
Arlington Cancer Center
906 West Randol Mill Road
Arlington, Texas 76012
-6-
<PAGE>
WESTON PRESIDIO CAPITAL PARTNERS II, L.P.
By WESTON PRESIDIO CAPITAL II, L.P.
By
---------------------------------------
General Partner
Weston Presidio Capital
One Federal Street
Boston, Massachusetts 02210
Telephone: (617) 988-2500
Telecopy: (617) 988-2515
BANCBOSTON VENTURES, INC.
By
---------------------------------------
Title:
BancBoston Ventures, Inc.
100 Federal Street - 31st Floor
Boston, Massachusetts 02110
Telephone: (617) 434-2442
Telecopy: (617) 434-1153
-7-
<PAGE>
Signature Page to
-----------------
Equity Call Agreement
---------------------
MERCURY ASSET MANAGEMENT plc,
on behalf of ROWAN NOMINEES LIMITED
By
------------------------------------
Title:
Mercury Asset Management plc,
on behalf of Rowan Nominees Limited
------------------------------
------------------------------
Telephone:
-------------------
Telecopy:
--------------------
NATWEST VENTURES INVESTMENTS LIMITED
By
------------------------------------
Title:
NatWest Ventures Investments Limited
------------------------------
------------------------------
Telephone:
-------------------
Telecopy:
--------------------
<PAGE>
Exhibit 1
---------
EXHIBIT 1 TO EQUITY CALL AGREEMENT
----------------------------------
<TABLE>
<CAPTION>
Number of Shares of Number of Purchase
Series B Stock Warrants and Purchase
Name and Address and Purchase Price Price
- ---------------- ------------------- ---------------------
<S> <C> <C>
WESTERN PRESIDIO CAPITAL 542,473 shares of Series B Voting Common Stock Warrants
PARTNERS II, L.P. Voting Preferred (convertible for 54,247 shares of Voting
One Federal Street into 542,473 shares of Voting Common Stock at an exercise
Boston, MA 02210 Common Stock) at a purchase price of $216,772.21 and a
Tel: (617) 988-2500 price of $2,169,892 purchase price of $216.99.
Fax: (617) 988-2515
BANCBOSTON INVESTMENTS 162,742 shares of Series B Non- Voting Common Stock Warrants
INC. Voting Preferred (convertible for 16,274 shares of Voting
175 Federal Street into 162,742 shares of Non- Common Stock at an exercise
31st Floor Voting Common Stock) at a price of $65,031.66 and a
Boston, MA 02110 purchase price of $650,967.60 purchase price of $65.10.
Tel: (617) 434-5917
Fax: (617) 434-1153
MERCURY ASSET 108,495 shares of Series B Non-Voting Common Stock
MANAGEMENT PLC Voting Preferred (convertible Warrants for 10,849 shares of
ON BEHALF OF ROWAN into 108,495 shares of Voting Voting Common Stock at an
NOMINEES Common Stock) at a purchase exercise price of $43,354.44 and
LIMITED price of $433,978.40 a purchase price of $43.40.
c/o EGL Holdings
6600 Peachtree-Dunwoody Road
Building 300, Suite 630
Atlanta, GA 30328
Tel: (770) 339-5633
Fax: (770) 393-4825
NATWEST VENTURE 54,247 shares of Series B Voting Voting Common Stock Warrants
INVESTMENTS LIMITED Preferred (convertible into for 5,425 shares of Voting
c/o EGL Holdings 54,247 shares of Voting Common Stock at an exercise
6600 Peachtree-Dunwoody Road Common Stock) at a purchase price of $21,677.22 and a
Building 300, Suite 630 price of $216,989.20 purchase price of $21.70.
Atlanta, GA 30328
Tel: (770) 339-5633
Fax: (770) 393-4825
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Number of Purchase
Series B Stock Warrants and Purchase
Name and Address and Purchase Price Price
- ---------------- -------------------- ---------------------
<S> <C> <C>
ST. PAUL VENTURE CAPITAL 162,742 shares of Series B Voting Common Stock Warrants
IV, LLC Voting Preferred for 16,274 shares of Voting
c/o St. Paul Venture Capital, Inc. (convertible into 162,742 Common Stock at an
Normandale Office Park, Suite shares of Voting Common Stock) exercise price of $65,031.66
1940 at a purchase price of and a purchase price of $65.10.
8500 Normandale Lake Blvd. $650,967.60
Bloomington, MN 55437
Tel: 612-830-7490
Fax: 612-830-7475
PARTECH U.S. PARTNERS III 86,801 shares of Series B Voting Voting Common Stock Warrants
C.V. Preferred (convertible into for 8,680 shares of Voting
c/o Partech International 86,801 shares of Voting Common Stock at an
50 California Street, Suite 3200 Common Stock) exercise price of $34,685.65
San Francisco, CA 94111 at a purchase price of and a purchase price of $34.72.
Tel: 415-788-2929 $347,203.69
Fax: 415-788-6763
U.S. GROWTH FUND 47,345 shares of Series B Voting Voting Common Stock Warrants
PARTNERS C.V. Preferred (convertible into for 4,735 shares of Voting
c/o Partech International 47,345 shares of Voting Common Stock at an exercise
50 California Street, Suite 3200 Common Stock) at a purchase price of $18,919.22 and a
San Francisco, CA 94111 price of $189,381.60 purchase price of $18.94.
Tel: 415-788-2929
Fax: 415-788-6763
AXA U.S. GROWTH FUND 23,672.265 shares of Series B Voting Common Stock Warrants
LLC Voting Preferred (convertible for 2,367 shares of Voting
c/o Partech International into 23,672.265 shares of Voting Common Stock at an exercise
50 California Street, Suite 3200 Common Stock) at a purchase price of $9,459.44 and a
San Francisco, CA 94111 price of $94,689.06 purchase price of $9.47.
Tel: 415-788-2929
Fax: 415-788-6763
DOUBLE BLACK DIAMOND II, 3,156 shares of Series B Voting Voting Common Stock Warrants
LLC Preferred (convertible into 3,156 for 316 shares of Voting
c/o Partech International shares of Voting Common Stock) Common Stock at an
50 California Street, Suite 3200 at a purchase price of exercise price of $1,261.19
San Francisco, CA 94111 $12,624.51 and a purchase price of $1.26.
Tel: 415-788-2929
Fax: 415-788-6763
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Number of Purchase
Series B Stock Warrants and Purchase
Name and Address and Purchase Price Price
- ---------------- -------------------- ---------------------
<S> <C> <C>
ALMANORI LIMITED 1,199.38 shares of Series B Voting Common Stock Warrants
c/o Partech International Voting Preferred (convertible for 120 shares of Voting
50 California Street, Suite 3200 into 1,199.38 shares of Voting Common Stock at an
Tel: 415-788-2929 Common Stock) exercise price of $479.27
Fax: 415-788-6763 at a purchase price of and a purchase price of $0.48.
$4,797.52
MULTINVEST LIMITED 568 shares of Series B Voting Voting Common Stock Warrants
c/o Partech International Preferred (convertible into 568 for 57 shares of Voting Common
50 California Street, Suite 3200 shares of Voting Common Stock) Stock at an
San Francisco, CA 94111 at a purchase price of exercise price of $226.89
Tel: 415-788-2929 $2,271.22 and a purchase price of $0.23.
Fax: 415-788-6763
PARIBAS PRINCIPAL 196,318 shares of Series B Voting Common Stock Warrants
INCORPORATED Voting Preferred (convertible for 19,632 shares of Voting
[ADDRESS] into 196,318 shares of Voting Common Stock at an
Tel: [ ] Common Stock) exercise price of $78,448.47
Fax: [ ] at a purchase price of and a purchase price of $78.53.
$785,270.00
NATIONAL CITY VENTURE 162,742 shares of Series B Non- Non-Voting Common Stock
CORPORATION Voting Preferred (convertible Warrants for 16,274 shares of
1965 E. 6th Street into 162,742 shares of Non- Non-Voting Common Stock at an
Suite 1010 Voting Common Stock) exercise price of $65,031.66
Cleveland, OH 44114 at a purchase price of and a purchase price of $65.10.
Tel: 216-575-9482 $650,967.60
Fax: 216-575-9965
</TABLE>
11
<PAGE>
EXHIBIT 10.36
AMENDMENT NO. 1 TO EQUITY CALL AGREEMENT
----------------------------------------
THIS AGREEMENT, dated as of July __, 1997, is among Physician Health
Corporation, a Delaware corporation (the "Company"), Weston Presidio Capital II,
-------
L.P. ("WPC"), Metroplex Hematology/Oncology Associates L.L.P., a Texas limited
---
liability partnership ("Metroplex") and the other Investors and Additional
---------
Investors signing below. The parties agree as follows:
1. EQUITY CALL AGREEMENT; DEFINITIONS. This Agreement amends the Equity
----------------------------------
Call Agreement dated as of June 16, 1997 (the "Equity Call Agreement"), among
---------------------
the Company, WPC, Metroplex, BancBoston Ventures, Inc., Mercury Asset Management
plc, on behalf of Rowan Nominees Limited, and NatWest Ventures Investments
Limited. Capitalized terms not otherwise defined in this Agreement are used as
defined in the Equity Call Agreement.
2. AMENDMENT OF EQUITY CALL AGREEMENT. The Equity Call Agreement is
----------------------------------
amended as follows, effective as of the date hereof:
2.1 Amendment of Recital (b). Recital (b) is amended to read in its
------------------------
entirety as follows:
"(b) Certain of the Investors are investing $9,791,901 in the Company's
Series B Redeemable Convertible Preferred Stock (the "Series B Voting
---------------
Preferred") and in warrants to purchase Voting Common Stock of the Company (the
"Voting Common Stock Warrants") on the date hereof pursuant to a Securities
----------------------------
Purchase Agreement dated as of the date hereof among the Company and the
Investors (as from time to time in effect, the "Securities Purchase Agreement").
-----------------------------
Pursuant to the Securities Purchase Agreement, the Investors have agreed to
invest an additional $6,210,620 in the Company's Series B Voting Preferred and
Series B Non-Voting Redeemable Convertible Preferred Stock (the "Series B Non-
------------
Voting Preferred" and together with the Series B Voting Preferred, the "Series B
- ---------------- --------
Stock") and in Voting Common Stock Warrants and warrants to purchase Non-Voting
- -----
Common Stock of the Company (the "Non-Voting Common Stock Warrants" and together
--------------------------------
with the Voting Common Stock Warrants, the "Purchase Warrants") on the Payment
-----------------
Date pursuant to this Agreement."
2.2 Amendment of Exhibit 1. Exhibit 1 to the Equity Call Agreement is
----------------------
amended to read in its entirety as Exhibit 1 attached hereto.
3. JOINDER OF ADDITIONAL INVESTORS. The parties signing on the signature
-------------------------------
pages below as "Additional Investors" join in and become party to the Equity
Call Agreement as Investors.
<PAGE>
4. GENERAL. Except to the extent expressly amended hereby, the provisions
-------
of the Equity Call Agreement shall remain unmodified and are confirmed as being
in full force and effect. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. This
Agreement, the Equity Call Agreement and the other items referred to herein or
therein constitute the entire understanding of the parties hereto with respect
to the subject matter hereof and thereof and supersede all present and prior
agreements, whether written or oral. This Agreement is intended to take effect
as a sealed instrument and may be executed in any number of counterparts, which
together shall constitute one instrument and shall be governed by and construed
in accordance with the laws (other than the conflict of laws rules) of The
Commonwealth of Massachusetts, and shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
-2-
<PAGE>
The undersigned have executed this Agreement under seal as of the date
first above written.
PHYSICIAN HEALTH CORPORATION
By
---------------------------------------
Title:
WESTON PRESIDIO CAPITAL PARTNERS II, L.P.
By: WESTERN PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By
---------------------------------------
General Partner
BANCBOSTON INVESTMENTS INC.
By
---------------------------------------
Title:
MERCURY ASSET MANAGEMENT plc, on
behalf of ROWAN NOMINEES LIMITED
By:
--------------------------------------
Title:
NATWEST VENTURES INVESTMENTS LIMITED
By:
--------------------------------------
Title:
-3-
<PAGE>
Additional Investors: ST. PAUL VENTURE CAPITAL IV, LLC
By:
--------------------------------------
Title:
PARTECH U.S. PARTNERS III C.V.
By:
--------------------------------------
Title:
U.S. GROWTH FUND PARTNERS C.V.
By:
--------------------------------------
Title:
AXA U.S. GROWTH FUND LLC
By:
--------------------------------------
Title:
DOUBLE BLACK DIAMOND II LLC
By:
--------------------------------------
Title:
ALMANORI LIMITED
By:
--------------------------------------
Title:
-4-
<PAGE>
MULTINVEST LIMITED
By:
--------------------------------------
Title:
NATIONAL CITY VENTURE CORPORATION
By:
--------------------------------------
Title:
-5-
<PAGE>
Exhibit 1
---------
EXHIBIT 1 TO EQUITY CALL AGREEMENT
----------------------------------
<TABLE>
<CAPTION>
Number of Shares of Number of Purchase
Series B Stock Warrants and Purchase
Name and Address and Purchase Price Price
- ---------------- -------------------- ---------------------
<S> <C> <C>
WESTERN PRESIDIO CAPITAL 621,000 shares of Series B Voting Common Stock Warrants
PARTNERS II, L.P. Voting Preferred (convertible for 62,100 shares of Voting
One Federal Street into 621,000 shares of Voting Common Stock at an exercise
Boston, MA 02210 Common Stock) at a purchase price of $248,151.60 and a
Tel: (617) 988-2500 price of $2,484,000 purchase price of $248.40.
Fax: (617) 988-2515
BANCBOSTON INVESTMENTS 186,300 shares of Series B Voting Common Stock Warrants
INC. Voting Preferred (convertible for 18,630 shares of Voting
175 Federal Street into 186,300 shares of Voting Common Stock at an exercise
31st Floor Common Stock) at a purchase price of $74,445.48 and a
Boston, MA 02110 price of $745,200. purchase price of $74.52.
Tel: (617) 434-5917
Fax: (617) 434-1153
MERCURY ASSET
MANAGEMENT PLC 124,200 shares of Series B Voting Common Stock Warrants
ON BEHALF OF ROWAN Voting Preferred (convertible for 12,420 shares of Voting
NOMINEES into 124,200 shares of Voting Common Stock at an exercise
LIMITED Common Stock) at a purchase price of $49,630.32 and a
c/o EGL Holdings price of $496,800 purchase price of $49.68
6600 Peachtree-Dunwoody Road
Building 300, Suite 630
Atlanta, GA 30328
Tel: (770) 339-5633
Fax: (770) 393-4825
NATWEST VENTURE
INVESTMENTS LIMITED 62,100 shares of Series B Voting Voting Common Stock Warrants
c/o EGL Holdings Preferred (convertible into for 6,210 shares of Voting
6600 Peachtree-Dunwoody Road 62,100 shares of Voting Common Stock at an exercise
Building 300, Suite 630 Common Stock) at a purchase price of $24,815.16 and a
Atlanta, GA 30328 price of $248,400 purchase price of $24.84.
Tel: (770) 339-5633
Fax: (770) 393-4825
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Number of Purchase
Series B Stock Warrants and Purchase
Name and Address and Purchase Price Price
- ---------------- -------------------- ---------------------
<S> <C> <C>
ST. PAUL VENTURE CAPITAL
IV, LLC 186,300 shares of Series B Voting Common Stock Warrants
c/o St. Paul Venture Capital, Inc. Voting Preferred for 18,630 shares of Voting
Normandale Office Park, Suite (convertible into 186,300 Common Stock at an
1940 shares of Voting Common Stock) exercise price of $74,445.48
8500 Normandale Lake Blvd. at a purchase price of and a purchase price of $74.52.
Bloomington, MN 55437 $745,200.
Tel: 612-830-7490
Fax: 612-830-7475
PARTECH U.S. PARTNERS III
C.V. 99,366 shares of Series B Voting Voting Common Stock Warrants
c/o Partech International Preferred (convertible into for 9,937 shares of Voting
50 California Street, Suite 3200 99,366 shares of Voting Common Stock at an
San Francisco, CA 94111 Common Stock) exercise price of $39,708.25
Tel: 415-788-2929 at a purchase price of and a purchase price of $39.75.
Fax: 415-788-6763 $397,464.00
U.S. GROWTH FUND 54,199 shares of Series B Voting Voting Common Stock Warrants
PARTNERS C.V. Preferred (convertible into for 5,420 shares of Voting
c/o Partech International 54,199 shares of Voting Common Stock at an exercise
50 California Street, Suite 3200 Common Stock) at a purchase price of $21,658.32 and a
San Francisco, CA 94111 price of $216,796.00 purchase price of $21.68.
Tel: 415-788-2929
Fax: 415-788-6763
AXA U.S. GROWTH FUND
LLC 27,099 shares of Series B Voting Voting Common Stock Warrants
c/o Partech International Preferred (convertible into for 2,710 shares of Voting
50 California Street, Suite 3200 27,099 shares of Voting Common Stock at an exercise
San Francisco, CA 94111 Common Stock) at a purchase price of $10,829.16 and a
Tel: 415-788-2929 price of $108,396.00 purchase price of $10.84.
Fax: 415-788-6763
DOUBLE BLACK DIAMOND II,
LLC 3,613 shares of Series B Voting Voting Common Stock Warrants
c/o Partech International Preferred (convertible into 3,613 for 361 shares of Voting
50 California Street, Suite 3200 shares of Voting Common Stock) Common Stock at an
San Francisco, CA 94111 at a purchase price of exercise price of $1,442.56
Tel: 415-788-2929 $14,452.00. and a purchase price of $1.44.
Fax: 415-788-6763
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Number of Purchase
Series B Stock Warrants and Purchase
Name and Address and Purchase Price Price
- ---------------- -------------------- ---------------------
<S> <C> <C>
ALMANORI LIMITED
c/o Partech International
50 California Street, Suite 3200 1,373 shares of Series B Voting Voting Common Stock Warrants
San Francisco, CA 94111 Preferred (convertible into 1,373 for 137 shares of Voting
Tel: 415-788-2929 shares of Voting Common Stock) Common Stock at an exercise
Fax: 415-788-6763 at a purchase price of price of $547.45 and a purchase
$5,492.00 price of $0.55.
MULTINVEST LIMITED 650 shares of Series B Voting Voting Common Stock Warrants
c/o Partech International Preferred (convertible into 650 for 65 shares of Voting Common
50 California Street, Suite 3200 shares of Voting Common Stock) Stock at an exercise price of
San Francisco, CA 94111 at a purchase price of $259.74 and a purchase price of
Tel: 415-788-2929 $2,600.00 $0.26.
Fax: 415-788-6763
NATIONAL CITY VENTURE 186,300 shares of Series B Non- Non-Voting Common Stock
CORPORATION Voting Preferred (convertible Warrants for 18,630 shares of
1965 E. 6th Street into 186,300 shares of Non- Non-Voting Common Stock at an
Suite 1010 Voting Common Stock) exercise price of $74,445.48
Cleveland, OH 44114 at a purchase price of and a purchase price of $74.52.
Tel: 216-575-9482 $745,200.
Fax: 216-575-9965
</TABLE>
-8-
<PAGE>
EXHIBIT 10.37
JOINDER
TO THE
EQUITY CALL AGREEMENT
As of October 27, 1997, Paribas Principal Incorporated ("PPI") is hereby
made a party to the Equity Call Agreement (the "Equity Call Agreement") dated
June 16, 1997 among Physician Health Corporation ("PHC"), Metroplex
Hematology/Oncology Associates, Weston Presidio Capital Partners L.C. ("WPC"),
and the other Investors named therein. PPI is hereby treated as, and shall enjoy
all rights and obligations of, an "Investor," as such term is defined in the
Equity Call Agreement. Exhibit 1 attached hereto shall replace Exhibit 1 to the
Equity Call Agreement.
Notwithstanding anything to the contrary contained herein or in the
Equity Call Agreement, (i) the agent under the Credit Agreement, dated as of
October 27, 1997, by and among PHC, the financial institutions from time to time
party thereto, and Banque Paribas, as agent (the "Credit Agreement"), shall have
the right to request an Equity Payment (as defined in the Equity Call Agreement)
be made pursuant to the terms of Section 1 of the Equity Call Agreement and such
request shall have the same effect as though such request was made by the Seller
(as defined in the Equity Call Agreement) or the Company (as defined in the
Equity Call Agreement); provided however, that the agent under the Credit
Agreement shall only have the right to make such a request in accordance with
and pursuant to, the terms of the Credit Agreement and (ii) the agent under the
Subordinated Loan Agreement, dated as of October 27, 1997, by and among PHC, the
financial institutions from time to time party thereto, and Paribas Capital
Funding LLC, as agent (the "Subordinated Loan Agreement"), shall have the right
to request an Equity Payment (as defined in the Equity Call Agreement) be made
pursuant to the terms of Section 1 of the Equity Call Agreement and such request
shall have the same effect as though such request was made by the Seller (as
defined in the Equity Call Agreement) or the Company (as defined in the Equity
Call Agreement); provided however, that the agent under the Subordinated Loan
Agreement shall only have the right to make such a request in accordance with
and pursuant to, the terms of the Subordinated Loan Agreement.
PHYSICIAN HEALTH CORPORATION
-------------------------------
By:
Title:
<PAGE>
Signature Page
Joinder to Equity
Call Agreement
PARIBAS PRINCIPAL INCORPORATED
-----------------------------------------
By:
Title:
METROPLEX HEMATOLOGY/ONCOLOGY
ASSOCIATES, L.L.P.
-----------------------------------------
By:
Title:
WESTON PRESIDIO CAPITAL PARTNERS II, L.P.
By WESTON PRESIDIO CAPITAL II, L.P.
-----------------------------------------
By:
Title:
BANCBOSTON VENTURES, INC.
-----------------------------------------
By:
Title:
<PAGE>
Signature Page
Joinder to Equity
Call Agreement
MERCURY ASSET MANAGEMENT plc.
on behalf of ROWAN NOMINEES LIMITED
-----------------------------------------
By:
Title:
NATWEST VENTURES INVESTMENTS LIMITED
-----------------------------------------
By:
Title:
ST. PAUL VENTURE CAPITAL IV, LLC
-----------------------------------------
By:
Title:
PARTECH U.S. PARTNERS III C.V.
-----------------------------------------
By:
Title:
U.S. GROWTH FUND PARTNERS C.V.
-----------------------------------------
By:
Title:
<PAGE>
Signature Page
Joinder to Equity
Call Agreement
AXA U.S. GROWTH FUND LLC
-----------------------------------------
By:
Title:
DOUBLE BLACK DIAMOND II LLC
-----------------------------------------
By:
Title:
ALMANORI LIMITED
-----------------------------------------
By:
Title:
MULTINVEST LIMITED
-----------------------------------------
By:
Title:
NATIONAL CITY VENTURE CORPORATION
-----------------------------------------
By:
Title:
<PAGE>
EXHIBIT 10.39
AMENDMENT NO. 1 TO ESCROW AGREEMENT
-----------------------------------
The undersigned Physician Health Corporation, a Delaware corporation (the
"Company"), Weston Presidio Capital II, L.P. (in its capacity only as escrow
-------
agent thereunder, and not as an Investor, the "Escrow Agent"), Weston Presidio
------------
Capital II, L.P., BancBoston Investments Inc., Mercury Asset Management plc, on
behalf of Rowan Nominees Limited, and NatWest Ventures Investments Limited
(individually an "Investor" and collectively, the "Investors") as well as the
-------- ---------
parties signing below as "Additional Investors") hereby agree that the
--------------------
Additional Investors join in and become party to the Escrow Agreement dated as
of June 16, 1997 (the "Escrow Agreement"), among the Company, the Escrow Agent
----------------
and the Investors.
The undersigned have executed this Agreement under seal as of the
------
day of , 1997.
----------
Company: PHYSICIAN HEALTH CORPORATION
By:
----------------------------------
Title:
Escrow Agent: WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By:
----------------------------------
General Partner
Investors: WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By:
----------------------------------
General Partner
<PAGE>
BANCBOSTON INVESTMENTS INC.
By:
----------------------------------
Title:
MERCURY ASSET MANAGEMENT plc, on
behalf of ROWAN NOMINEES LIMITED
By:
----------------------------------
Title:
NATWEST VENTURES INVESTMENTS LIMITED
By:
----------------------------------
Title:
Additional Investors: ST. PAUL VENTURE CAPITAL IV, LLC
By:
----------------------------------
Title:
PARTECH U.S. PARTNERS III C.V.
By:
----------------------------------
Title:
U.S. GROWTH FUND PARTNERS C.V.
By:
----------------------------------
Title:
-2-
<PAGE>
AXA U.S. GROWTH FUND LLC
By:
----------------------------------
Title:
DOUBLE BLACK DIAMOND II LLC
By:
----------------------------------
Title:
ALMANORI LIMITED
By:
----------------------------------
Title:
MULTINVEST LIMITED
By:
----------------------------------
Title:
NATIONAL CITY VENTURE CORPORATION
By:
----------------------------------
Title:
-3-
<PAGE>
EXHIBIT 10.40
PHYSICIAN HEALTH CORPORATION
AMENDMENT NO. 2 TO
ESCROW AGREEMENT
----------------
THIS AGREEMENT, dated as of October , 1997, is among Physician Health
--
Corporation, a Delaware corporation (the "Company"), Weston Presidio Capital II,
-------
L.P. ("WPC") (in its capacity only as escrow agent hereunder, and not as an
---
Investor, the "Escrow Agent"), each of the investors set forth on the signatures
------------
pages below (Weston Presidio Capital II, L.P. and each of the other investors
being hereinafter referred to as the "Investors"), and Paribas Principal
---------
Incorporated (the "Additional Investor").
-------------------
1. ESCROW AGREEMENT; DEFINITIONS. This Agreement amends the Escrow
-----------------------------
Agreement dated as of June 16, 1997 (the "Escrow Agreement"), as amended to
----------------
date, among the Company, WPC, and the Investors. Capitalized terms not otherwise
defined in this Agreement are used as defined in the Escrow Agreement.
2. AMENDMENT OF ESCROW AGREEMENT. The Escrow Agreement is amended as
-----------------------------
follows, effective as of the date hereof:
2.1 Amendment of Recitals. The Recitals to the Escrow Agreement are
---------------------
deleted and replaced in their entirety with the following:
"Recitals: The Company and the Investors have entered into the Purchase
--------
Agreement pursuant to which, among other things, the Investors have agreed
to purchase Investor Securities, on the terms and subject to conditions set
forth in the Purchase Agreement (a) at the Third Closing on the condition
that certificates for such Investor Securities be held in the Securities
Escrow created hereby and (b) at the Second Closing, the proceeds of which
shall be held in the Purchase Price Escrow created hereby."
2.2 Amendment of Section 2. Section 2 of the Escrow Agreement is deleted
----------------------
and replaced in its entirety with the following:
"2. Second Closing Escrow. Pursuant to Section 2.4 of the Purchase
---------------------
Agreement, on the date of the Second Closing under the Purchase Agreement,
(a) the Company shall deliver to the Investors certificates evidencing the
respective Investor Securities set forth in Exhibit 1 of the Purchase
Agreement for the Second Closing, and (b) the Investors shall deposit the
purchase price therefor into an interest-bearing account with the Company's
principal depository bank as specified
<PAGE>
by the Company (the "Purchase Price Escrow"), from which withdrawal of
---------------------
funds shall be made to the Company upon its request for specific
acquisitions permitted by the Purchase Agreement. Investor Securities
contained in the Securities Escrow and cash and other investments contained
in the Purchase Price Escrow are referred to collectively as the "Escrow
------
Assets"."
------
2.3 Amendment of Section 3.1. Section 3.1 of the Escrow Agreement is
------------------------
deleted and replaced in its entirety with the following:
"3.1 Disposition of Escrow Assets in respect of the Second Closing.
-------------------------------------------------------------
Pursuant to Section 2.4 of the Purchase Agreement, immediately upon the
request by the Company to the Escrow Agent for the release to the Company
of all or a portion of the funds held in the Purchase Price Escrow for
acquisitions permitted by the Purchase Agreement, funds from the Purchase
Price Escrow shall be so released to the Company in accordance with such
request."
2.4 Amendment of Section 3.4. Section 3.4 of the Escrow Agreement is
------------------------
deleted and replaced in its entirety with the following:
"3.4 Closing out of Securities Escrow and Purchase Price Escrow.
----------------------------------------------------------
Except to the extent the Escrow Agent has received written notice of a
claim for dispositions from the Securities Escrow or Purchase Price Escrow,
(a) on April 14, 1998, the Escrow Agent shall deliver to the Company any
remaining Investor Securities in the Securities Escrow in respect of the
Third Closing, in accordance with Section 2.5 of the Purchase Agreement;
and (b) upon the earlier of the closing of an underwritten public offering
of Common Stock registered under the federal Securities Act of 1933 and
having aggregate net cash proceeds (or market value of freely tradable
marketable securities with a market float reasonably satisfactory to the
Required Holders) of at least $20,000,000 and June 16, 2000, the Escrow
Agent shall release any funds remaining in the Purchase Price Escrow in
respect of the Second Closing, in accordance with Section 2.4 of the
Purchase Agreement."
3. JOINDER OF ADDITIONAL INVESTOR. The Additional Investor joins in and
------------------------------
becomes a party to the Escrow Agreement as an Investor.
4. GENERAL. Except to the extent expressly amended hereby, the provisions
-------
of the Purchase Agreement shall remain unmodified and are confirmed as being in
full force and effect. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. This
Agreement, the Purchase Agreement and the other items referred to herein or
therein constitute the entire understanding of the parties hereto with respect
to the subject matter hereof and thereof and supersede all present and prior
agreements, whether written or oral. This Agreement is intended to take effect
as a sealed
-2-
<PAGE>
instrument and may be executed in any number of counterparts, which together
shall constitute one instrument and shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of The
Commonwealth of Massachusetts, and shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns.
-3-
<PAGE>
The undersigned have executed this Agreement under seal as of the date
first above written.
Company: PHYSICIAN HEALTH CORPORATION
By
---------------------------------------
Title:
Escrow Agent: WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By
---------------------------------------
General Partner
Investors: WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT II, L.P.
By
---------------------------------------
General Partner
BANCBOSTON INVESTMENTS INC.
By
---------------------------------------
Title:
MERCURY ASSET MANAGEMENT plc, on
behalf of ROWAN NOMINEES LIMITED
By:
--------------------------------------
Title:
-4-
<PAGE>
NATWEST VENTURES INVESTMENTS LIMITED
By:
--------------------------------------
Title:
ST. PAUL VENTURE CAPITAL IV, LLC
By:
--------------------------------------
Title:
PARTECH U.S. PARTNERS III C.V.
By:
--------------------------------------
Title:
U.S. GROWTH FUND PARTNERS C.V.
By:
--------------------------------------
Title:
AXA U.S. GROWTH FUND LLC
By:
--------------------------------------
Title:
DOUBLE BLACK DIAMOND II LLC
By:
--------------------------------------
Title:
-5-
<PAGE>
ALMANORI LIMITED
By:
--------------------------------------
Title:
MULTINVEST LIMITED
By:
--------------------------------------
Title:
NATIONAL CITY VENTURE CORPORATION
By:
--------------------------------------
Title:
Additional Investor: PARIBAS PRINCIPAL INCORPORATED
By:
--------------------------------------
Title:
-6-
<PAGE>
EXHIBIT 10.41
THE ISSUANCE OF THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OR
CONVERSION OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THIS WARRANT AND ANY SHARES ISSUED UPON EXERCISE OR CONVERSION HEREOF ARE
ENTITLED TO CERTAIN REGISTRATION RIGHTS AND TO CERTAIN OTHER BENEFITS SET
FORTH IN A REGISTRATION RIGHTS AGREEMENT AND A STOCKHOLDERS AGREEMENT, EACH
DATED ON OR ABOUT JUNE __, 1997. THE COMPANY WILL FURNISH A COPY OF SUCH
AGREEMENTS TO THE HOLDER OF THIS WARRANT WITHOUT CHARGE UPON WRITTEN
REQUEST.
PHYSICIAN HEALTH CORPORATION
Voting Common Stock Warrant
No. W- [Date]
Physician Health Corporation, a Delaware corporation (the "Company"), for
-------
value received, hereby certifies that , or registered assigns,
----------
is entitled to purchase from the Company duly authorized, validly
----------
issued, fully paid and nonassessable shares of Voting Common Stock, par value
$0.0025 per share (the "Common Stock"), of the
------------
<PAGE>
Company at the purchase price per share of $____/1/ (the "Initial Warrant
---------------
Price"), at any time or from time to time prior to 5:00 p.m., Boston,
- -----
Massachusetts time, on [the earlier of (a) June __, 2007 or (b) the third
anniversary of the closing of the initial public offering of the Company's stock
that constitutes a "Liquidity Event" (as defined in the Certificate of
Designation/2/] [June __, 2007 or such later date as Series B Preferred Stock
remains outstanding/3/] (the "Expiration Date"), all subject to the terms,
---------------
conditions and adjustments set forth below in this Warrant. [The number of
Warrant Shares shall be reduced by an amount equal to 6.25% of the original
number of Warrant Shares on the last day of each March, June, September and
December, commencing in June 2003./3/]
This Warrant is one of the Common Stock Purchase Warrants (the "Warrants",
--------
such term to include any such warrants issued in substitution therefor)
originally issued in connection with the Securities Purchase Agreement dated as
of June 16, 1997 (as from time to time in effect, the "Purchase Agreement")
------------------
among the Company and the Investors named therein (the "Investors").
---------
1. DEFINITIONS. Certain capitalized terms are used in this Warrant as
specifically defined below in this Section 1. Except as the context otherwise
explicitly requires, (a) the capitalized term "Section" refers to sections of
this Warrant, (b) the capitalized term "Exhibit" refers to exhibits to this
Warrant, (c) references to a particular Section include all subsections thereof,
(d) the word "including" shall be construed as "including without limitation",
(e) accounting terms not otherwise defined herein have the meaning provided
under GAAP, (f) references to a particular statute or regulation include all
rules and regulations thereunder and any successor statute, regulation or rules,
in each case as from time to time in effect and (g) references to a particular
Person include such Person's successors and assigns to the extent not prohibited
by this Warrant. References to "the date hereof" mean the date first set forth
above.
"Additional Shares of Common Stock" means Additional Shares of Common
---------------------------------
Stock, as defined in the Certificate of Designation, Preferences and Rights for
the Series B Preferred Stock.
- ----------------------
/1/ Purchase Warrant at Initial Closing and Third Closing - $0.01 Purchase
Warrant at Second Closing - $4.00 Conversion Warrant -Conversion Price
on Series B Preferred Stock
/2/ Applies to Purchase Warrant only.
/3/ Applies to Conversion Warrant only.
-2-
<PAGE>
"Affiliate" means with respect to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under common control with such Person
(for purposes of the above definition, the terms "control", "controlling",
"controlled by" and "under common control with", as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise).
"Book Value" means the Company's consolidated stockholders' equity per
----------
common share on a fully diluted basis, determined in accordance with generally
accepted accounting principles, as of the end of its fiscal quarter most
recently completed prior to the date of determination.
"Business Day" means any day other than a Saturday or a Sunday or a day on
------------
which commercial banking institutions in Boston, Massachusetts or New York, New
York are authorized by law to be closed.
"Certificate of Designation" means the Certificate of Designation,
--------------------------
Preferences And Rights of the Series B Redeemable Convertible Preferred Stock of
the Company filed by the Company with the Delaware Secretary of State as of
June __, 1997.
"Commission" means the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Common Stock" means the Non-Voting Common Stock and Voting Common Stock,
------------
collectively.
"Company" is defined in the preamble, and includes any corporation which
-------
shall succeed to or assume the obligations of the Company hereunder in
compliance with Section 3.
"Convertible Securities" means any indebtedness, shares or other securities
----------------------
convertible into or exchangeable for Common Stock.
"Exchange Act" means the federal Securities Exchange Act of 1934.
------------
"Expiration Date" is defined in the preamble.
---------------
"Initial Warrant Price" is defined in the preamble.
---------------------
"Investors" is defined in the preamble.
---------
"Market Price" means, on any date, the amount per share of Common Stock
------------
equal to (a) the last sale price of Common Stock, regular way, on such date or,
if no such sale takes
-3-
<PAGE>
place on such date, the average of the closing bid and asked prices thereof on
such date, in each case as officially reported on the principal national
securities exchange on which Common Stock is then listed or admitted to trading,
or (b) if Common Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last trading price of Common Stock on such date, or (c) if no
trading occurred on such date or if Common Stock is not so designated, the
average of the closing bid and asked prices of Common Stock on such date as
shown by the NASD automated quotation system, or (d) if Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the higher of (i) Book Value or (ii) the fair value
thereof determined in good faith by the Board of Directors of the Company as of
a date which is within 15 days of the date as of which the determination is to
be made.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Non-Voting Common Stock" means the Non-Voting Common Stock, $0.0025 par
-----------------------
value of the Company.
"Options" means rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Common Stock or Convertible Securities.
"Original Issue Date" means the date on which the Series B Preferred Stock
-------------------
is first issued by the Company.
"Other Securities" means any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person which the holders of the Warrants
at any time shall be entitled to receive, or shall have received, upon the
exercise of the Warrants, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 3 or
otherwise.
"Person" means a corporation, an association, a partnership, a limited
------
partnership, an organization, a business trust, a limited liability company, an
individual, a government or political subdivision thereof or a governmental
agency.
"Preferred Stock" means the Company's Series B Preferred Stock, $0.01 per
---------------
share par value.
"Purchase Agreement" is defined in the preamble.
------------------
-4-
<PAGE>
"Registration Rights Agreement" means the Registration Rights Agreement
-----------------------------
dated on or about June 16, 1997, among the Company and certain of its
stockholders, as from time to time in effect.
"Regulation Y Investor" means (a) any Person that is subject to
---------------------
Regulation Y of the Board of Governors of the Federal Reserve System (12 C.F.R.
Part 225) and which holds shares of Series B Preferred Stock of the Company, so
long as such Person shall hold such shares of Series B Preferred Stock, or
shares issued upon conversion of such shares, (b) any Affiliate of any such
Regulation Y Investor that is a transferee of any shares of Series B Preferred
Stock, so long as such Affiliate shall hold such shares of Series B Preferred
Stock or shares issued upon conversion of such shares.
"Securities Act" means the federal Securities Act of 1933.
--------------
"Series B Non-Voting Preferred" means the Company's Series B Non-Voting
-----------------------------
Redeemable Convertible Preferred Stock, $0.01 per share par value.
"Series B Voting Preferred" means the Company's Series B Voting Redeemable
-------------------------
Convertible Preferred Stock, $0.01 per share par value."
"Voting Common Stock" means the Voting Common Stock, $0.0025 par value, of
-------------------
the Company.
"Warrant Price" is defined in Section 3.1.
-------------
"Warrant Shares" means the shares of Voting Common Stock or Other
--------------
Securities issuable upon exercise or conversion of the Warrant.
"Warrants" is defined in the preamble.
--------
2. EXERCISE OR CONVERSION OF WARRANT.
2.1. Manner of Exercise or Conversion; Payment.
-----------------------------------------
2.1.1. Exercise. This Warrant may be exercised by the holder hereof,
--------
in whole or in part, during normal business hours on any Business Day on or
prior to the Expiration Date, by surrender of this Warrant to the Company
at its office maintained pursuant to Section 6.2(a), accompanied by a
subscription in substantially the form attached to this Warrant duly
executed by such holder and accompanied by payment, in cash or by check
payable to the order of the Company, in the amount obtained by multiplying
(a) the number of shares of Common Stock (without giving effect to any
adjustment thereof) designated in such subscription by (b) the Initial
Warrant Price, and
-5-
<PAGE>
such holder shall thereupon be entitled to receive the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares
determined as provided in Section 3.
2.1.2. Conversion. This Warrant may be converted by the holder hereof,
----------
in whole or in part, into Warrant Shares, during normal business hours on
any Business Day on or prior to the Expiration Date, by surrender of this
Warrant to the Company at its office maintained pursuant to Section 6.2(a),
accompanied by a conversion notice in substantially the form attached to
this Warrant duly executed by such holder, and such holder shall thereupon
be entitled to receive a number of duly authorized, validly issued, fully
paid and nonassessable Warrant Shares equal to:
(a) an amount equal to:
(i) the product of (A) the number of Warrant Shares
determined as provided in Sections 3 through 5
which such holder would be entitled to receive
upon exercise of this Warrant for the number of
shares of Voting Common Stock designated in such
conversion notice multiplied by (B) the Market
-------------
Price of each such Warrant Share so receivable
upon such exercise
minus
-----
(ii) the product of (A) the number of shares of Voting
Common Stock (without giving effect to any
adjustment thereof) designated in such conversion
notice multiplied by (B) the Initial Warrant Price
-------------
divided by
----------
(b) the Market Price of each such Warrant Share.
For all purposes of this Warrant (other than this Section 2.1), any
reference herein to the exercise of this Warrant shall be deemed to include
a reference to the conversion of this Warrant into Warrant Shares in
accordance with the terms of this Section 2.1.2.
2.2. When Exercise Effective. Each exercise of this Warrant shall be deemed
-----------------------
to have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as provided
in Section 2.1, and at such time the Person in whose name any certificate for
Warrant Shares shall be issuable upon such
-6-
<PAGE>
exercise as provided in Section 2.3 shall be deemed to have become the holder of
record thereof.
2.3. Delivery of Stock Certificates, etc. As soon as practicable after each
-----------------------------------
exercise of this Warrant, in whole or in part, and in any event within five
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue or documentary taxes) will cause to be issued in the
name of and delivered to the holder hereof or, subject to Section 5, as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct:
(a) a certificate for the number of duly authorized, validly
issued, fully paid and nonassessable Warrant Shares to which such holder
shall be entitled upon such exercise plus, in lieu of any fractional share
----
to which such holder would otherwise be entitled, cash in an amount equal
to the same fraction of the Market Price per share on the Business Day
immediately preceding the date of such exercise; and
(b) in case such exercise is in part only, a new Warrant of
like tenor, dated the date hereof and calling in the aggregate on the face
thereof for the number of shares of Voting Common Stock equal (without
giving effect to any adjustment thereof) to the number of such shares
called for on the face of this Warrant minus the number of such shares
designated by the holder upon such exercise as provided in Section 2.1.
2.4. Company to Reaffirm Obligations. The Company will, at the time of each
-------------------------------
exercise of this Warrant, upon the request of the holder hereof, acknowledge in
writing its continuing obligation to afford to such holder all rights (including
any rights pursuant to the Registration Rights Agreement of the Warrant Shares
issued upon such exercise) to which such holder shall continue to be entitled
after such exercise in accordance with the terms of this Warrant; provided,
--------
however, that if the holder of this Warrant shall fail to make any such request,
- -------
such failure shall not affect the continuing obligation of the Company to afford
such rights to such holder.
3. ADJUSTMENT OF WARRANT SHARES AND WARRANT PRICE.
3.1. Adjustment of Warrant Shares and Warrant Price due to Additional
----------------------------------------------------------------
Shares. The number of Warrant Shares which the holder of this Warrant shall be
- ------
entitled to receive upon the exercise hereof shall be determined by multiplying
the number of shares of Voting Common Stock which would otherwise (but for the
provisions of this Section 3.1) be issuable upon such exercise, as designated by
the holder hereof pursuant to Section 2.1, by the fraction of which (a) the
numerator is the Initial Warrant Price and (b) the denominator is the Warrant
Price in effect on the date of such exercise. The "Warrant Price" shall
-------------
initially be the Initial Warrant Price, shall be adjusted and readjusted from
time to time as provided in this Section
-7-
<PAGE>
3.1 and, as so adjusted or readjusted, shall remain in effect until a further
adjustment or readjustment thereof is required by this Section 3.1.
3.1.1. No Adjustment of Warrant Price. No adjustment in the Warrant
------------------------------
Price shall be made in respect of the issuance of Additional Shares of
Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Company is less than the
applicable Warrant Price in effect on the date of, and immediately prior
to, such issue.
3.1.2. Adjustment of Warrant Price Upon Issuance of Additional
-------------------------------------------------------
Shares of Common Stock. In the event the Company shall issue Additional
----------------------
Shares of Common Stock (including Additional Shares of Common Stock deemed
to be issued pursuant to Section 3.1.4) for a consideration per share less
than the applicable Warrant Price in effect on the date of and immediately
prior to such issue, then the applicable Warrant Price shall be reduced,
concurrently with such issue (calculated to the nearest one hundredth of a
cent) to a new Warrant Price obtained by dividing (a) an amount equal to
the sum of (i) the number of shares of Common Stock outstanding immediately
prior to such issue multiplied by the then applicable Warrant Price and
(ii) the consideration, if any, deemed received by the Company upon such
issue by (b) the total number of shares of Common Stock deemed to be
outstanding immediately after such issue; provided, however, that, for
-------- -------
purposes of this Section 3.1.2, all shares of Common Stock outstanding and
issuable upon conversion of outstanding Options, Convertible Securities and
the Preferred Stock shall be deemed to be outstanding. In no event will the
Warrant Price be adjusted as the result of any issuance of any Additional
Shares of Common Stock for any amount higher than the Warrant Price in
effect immediately prior to such issuance.
3.1.3. Adjustments for Subdivisions, Stock Dividends, Combinations or
--------------------------------------------------------------
Consolidation of Common Stock. In the event the outstanding shares of
-----------------------------
Common Stock shall be increased by way of stock issued as a dividend for no
consideration or subdivided (by stock split or otherwise) into a greater
number of shares of Common Stock, the Warrant Price then in effect shall,
concurrently with the effectiveness of such increase or subdivision, be
proportionately decreased. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise,
into a lesser number of shares of Common Stock, the Warrant Price then in
effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
3.1.4. Deemed Issue of Additional Shares of Common Stock-Options and
-------------------------------------------------------------
Convertible Securities. Except as provided in Section 3.1.2 or Section
----------------------
3.1.3, in the event the Company at any time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any
-8-
<PAGE>
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date;
provided, however, that Additional Shares of Common Stock shall not be
-------- -------
deemed to have been issued unless the consideration per share (determined
pursuant to Section 3.1.5) of such Additional Shares of Common Stock would
be less than the applicable Warrant Price in effect on the date of, and
immediately prior to, such issue, or such record date, as the case may be;
and provided further that in any such case in which Additional Shares of
-------- -------
Common Stock are deemed to be issued:
(a) no further adjustment in the applicable Warrant Price shall
be made upon the subsequent issue of shares of Common Stock upon the
exercise of such Options or conversion or exchange of such
Convertible Securities or upon the subsequent issue of such
Convertible Securities or Options;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Company, or any increase
or decrease in the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the applicable Warrant
Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(c) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Warrant Price computed upon
the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon
shall, upon such expiration, be recomputed as if such unexercised
portion of such Options or rights of conversion or exchange under
such Convertible Securities had not been issued; and
(d) no readjustment pursuant to clause (b) or (c) above shall
have the effect of increasing the applicable Warrant Price to an
amount which exceeds
-9-
<PAGE>
the lower of (i) the applicable Warrant Price on the original
adjustment date, or (ii) the applicable Warrant Price that resulted
from the issuance or deemed issuance of other Additional Shares of
Common Stock between the original adjustment date and such
readjustment date.
3.1.5. Determination of Consideration. For purposes of this
------------------------------
Section 3.1, the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
-----------------
(i) insofar as it consists of cash, be computed at the
aggregate amount of net cash proceeds received by the Company
excluding amounts paid or payable for accrued interest or
accrued dividends;
(ii) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of
Directors of the Company; and
(iii) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other
assets of the Company for consideration which covers both, be
the proportion of such consideration so received, computed as
provided in clauses (i) and (ii) above, which is allocated to
the Additional Shares of Common Stock as determined in good
faith by the Board of Directors.
(b) Options and Convertible Securities. The consideration per
----------------------------------
share received by the Company for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3.1.3 relating to
Options and Convertible Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by
the Company as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or
in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
-10-
<PAGE>
(ii) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment
of such number) issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
3.1.6. Other Dilutive Events. In case any event shall occur as to
---------------------
which the other provisions of this Section 3.1 are not strictly applicable,
but the failure to make any adjustment in the Warrant Price would not, in
the reasonable judgment of a majority of the directors of the Company,
fairly protect the rights represented by this Warrant in accordance with
the intention of this Section 3, then, upon request of the holders of a
majority of the Warrants, the Board of Directors of the Company shall
appoint a firm of independent public accountants of recognized national
standing (which may be the regular auditors of the Company) to give their
opinion as to the adjustment, if any, on a basis consistent with the
intention of this Section 3, necessary to preserve without dilution the
rights represented by the Warrants. Upon receipt of such opinion, the
Company will promptly furnish a copy thereof to the holders of the Warrants
and the Warrant Price shall be adjusted in accordance therewith to the
extent recommend by such accountants. The fees and expenses of such
accountants shall be paid by the Company; provided, however, that if such
-------- -------
accountants opine that the total adjustment per Warrant Share is less than
10% of the previous per share Warrant Price, such fees and expenses will be
paid by the holders of the Warrants.
3.2. Other Distributions. In the event the Company shall declare a
-------------------
distribution payable in securities of the Company (other than shares of Common
Stock), securities of other entities, securities evidencing indebtedness issued
by the Company or other entities or options or rights (but in no event including
cash dividends), then, in each such case for the purpose of this Section 3, the
holders of the Warrants shall be entitled to a proportionate share of any such
distribution upon exercise or conversion of this Warrant as though they were the
holders of the number of shares of Common Stock into which their Warrants were
exercisable as of the record date fixed for the determination of the holders of
Common Stock entitled to receive such distribution.
3.3. Subsequent Events. In the event of any recapitalization, consolidation
-----------------
or merger of the Company or its successor, the Warrants shall be exercisable for
such shares or other interests as the Warrants would have been entitled if the
Warrants had been exercised for Common Stock immediately prior to such event.
4. Covenants.
---------
4.1. No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, recapitalization, transfer of
all or a substantial
-11-
<PAGE>
portion of its assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed under this
Warrant by the Company, but will at all times in good faith assist in carrying
out all the provisions of this Warrant and in taking all such action as may be
necessary or appropriate in order to protect the rights of the holders of
Warrants against impairment.
4.2. Reservation of Shares. So long as any Warrants shall remain
---------------------
outstanding, the Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized capital stock, for the purpose of
issuance upon exercise of the Warrants, the full number of shares of Voting
Common Stock then issuable upon exercise of all outstanding Warrants. If the
Voting Common Stock shall be listed on any national stock exchange, the Company
at its expense shall include in its listing application all of the shares of
Voting Common Stock reserved for issuance upon exercise of the Warrants (subject
to issuance or notice of issuance to the exchange) and will similarly procure
the listing of any further Voting Common Stock reserved for issuance upon
exercise of the Warrants at any subsequent time as a result of adjustments in
the outstanding Voting Common Stock or otherwise.
4.3. Validity of Shares. The Company will from time to time take all such
------------------
action as may be required to assure that all shares of Voting Common Stock which
may be issued upon exercise of this Warrant will, upon issuance, be legally and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof. Without limiting the generality of
the foregoing, the Company will from time to time take all such action as may be
required to assure that the par value per share, if any, of the Voting Common
Stock is at all times equal to or less than the lowest quotient obtained by
dividing the then current exercise price of this Warrant by the number of shares
of Voting Common Stock into which this Warrant can, from time to time, be
exercised.
4.4. Notice of Certain Events. If at any time:
------------------------
(a) the Company shall declare any dividend or distribution payable
to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or any
other rights;
(c) there shall be any recapitalization of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation or business
organization; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
-12-
<PAGE>
then, in any one or more of such cases, the Company shall give the registered
holder of this Warrant written notice, by registered mail, of the date on which
a record shall be taken for such dividend, distribution or subscription rights
or for determining stockholders entitled to vote upon such recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding up and of the
date when any such transaction shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such recapitalization, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such written notice
shall be given at least 20 days prior to the record date with respect thereto.
5. RESTRICTIONS ON TRANSFER.
Except as otherwise permitted by this Section 5, each certificate for
Warrant Shares issued upon the exercise of any Warrant, each certificate issued
upon the direct or indirect transfer of any Warrant Shares, all Warrants
originally issued in connection with the Purchase Agreement and each Warrant
issued upon direct or indirect transfer or in substitution for any Warrant
pursuant to Section 6 shall be transferable only upon satisfaction of the
conditions specified in Section 10 of the Purchase Agreement and shall be
stamped or otherwise imprinted with legends in substantially the form set forth
on the face of this Warrant or otherwise required by Section 10 of the Purchase
Agreement.
6. OWNERSHIP, TRANSFER, SUBSTITUTION AND AUTOMATIC CONVERSION OF WARRANTS.
6.1. Ownership of Warrants. The Company may treat the Person in whose name
---------------------
any Warrant is registered on the register kept at the office of the Company
maintained pursuant to Section 6.2(a) as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, except that, if and when
any Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Warrant for all
purposes, notwithstanding any notice to the contrary. Subject to Section 5, a
Warrant, if properly assigned, may be exercised by a new holder without a new
Warrant first having been issued.
6.2. Office; Transfer and Exchange of Warrants.
-----------------------------------------
(a) The Company will maintain an office (which may be an agency
maintained at a bank) in the United States of America where notices,
presentations and demands in respect of this Warrant may be made upon it.
Such office shall be maintained at 990 Hammond Drive-Suite 300, Atlanta,
Georgia 30328, until such time as the Company shall notify the holders of
the Warrants of any change of location of such office.
-13-
<PAGE>
(b) The Company shall cause to be kept at its office maintained
pursuant to Section 6.2(a) a register for the registration and transfer of
the Warrants. The names and addresses of holders of Warrants, the transfers
thereof and the names and addresses of transferees of Warrants shall be
registered in such register. The Person in whose name any Warrant shall be
so registered shall be deemed and treated as the owner and holder thereof
for all purposes of this Warrant, and the Company shall not be affected by
any notice or knowledge to the contrary.
(c) Upon the surrender of any Warrant, properly endorsed, for
registration of transfer or for exchange at the office of the Company
maintained pursuant to Section 6.2(a), the Company at its expense will
(subject to compliance with Section 5, if applicable) execute and deliver
to or upon the order of the holder thereof a new Warrant of like tenor, in
the name of such holder or as such holder (upon payment by such holder of
any applicable transfer taxes) may direct, calling in the aggregate on the
face thereof for the number of shares of Common Stock called for on the
face of the Warrant so surrendered.
6.3. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than an Investor or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained pursuant to Section 6.2(a),
the Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor and dated the date hereof.
6.4. Automatic Conversion of Warrants. If at any time this Warrant is held
--------------------------------
or transferred to a Person which constitutes a Regulation Y Investor, then this
Warrant shall automatically convert into a warrant to purchase a number of
shares of Non-Voting Common Stock equivalent to the number of shares of Voting
Common Stock which the holder of this Warrant is entitled herein as of such
time, without any further action by the holder of this warrant and whether or
not this warrant is surrendered to the Company or its transfer agent; provided,
--------
however that the Company shall not be obligated to issue a warrant for the
- -------
purchase of shares of Non-Voting Common Stock issuable upon such automatic
conversion unless this Warrant is either delivered to the Company or its
transfer agent or the holder notifies the Company or its transfer agent that
this Warrant has been lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Warrant. The Company shall, as soon as
practicable after such delivery, or execution of such agreement in the case of a
lost Warrant, issue and deliver at such office to the holder of this Warrant a
warrant for the number of shares of Non-Voting Common Stock to which such holder
shall be entitled as aforesaid.
-14-
<PAGE>
7. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate and that, to the fullest extent permitted by law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
8. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
9. NOTICES. Any notice or other communication in connection with this Warrant
shall be deemed to be delivered if in writing (or in the form of a telex or
telecopy) addressed as hereinafter provided and if either (a) actually delivered
at such address (evidenced in the case of a telex by receipt of the correct
answerback) or (b) in the case of a letter, three Business Days shall have
elapsed after the same shall have been deposited in the United States mails,
postage prepaid and registered or certified: (i) if to any holder of any
Warrant, at the registered address of such holder as set forth in the register
kept at the office of the Company maintained pursuant to Section 6.2(a); or (ii)
if to the Company, to the attention of its President at its office maintained
pursuant to Section 6.2(a); provided, however, that the exercise of any Warrant
-------- -------
shall be effective in the manner provided in Section 2.
10. GENERAL. The section headings in this Warrant are for convenience of
reference only and shall not constitute a part hereof. This Warrant and any term
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant shall be construed and enforced
in accordance with and governed by the laws (other than the conflict of laws
rules) of The Commonwealth of Massachusetts.
PHYSICIAN HEALTH CORPORATION
By:
---------------------------------------
Title:
-15-
<PAGE>
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
TO PHYSICIAN HEALTH CORPORATION:
The undersigned registered holder of the enclosed Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, __________/4/
shares of Voting Common Stock and herewith makes payment of $ ____ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to ________________, whose address is ______________________________.
Dated:
------------------ ----------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
----------------------------------------
(Street Address)
----------------------------------------
(City) (State) (Zip Code)
- -----------------------
/4/Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of a partial exercise, a new Warrant
will be issued and delivered, representing the unexercised portion of the
Warrant, to the holder surrendering the Warrant.
<PAGE>
FORM OF CONVERSION NOTICE
[To be executed only upon conversion of Warrant]
TO PHYSICIAN HEALTH CORPORATION:
The undersigned registered holder of the enclosed Warrant hereby
irrevocably converts such Warrant with respect to __________/1/ shares of Voting
Common Stock which such holder would be entitled to receive upon the exercise
hereof, and requests that the certificates for such shares be issued in the name
of, and delivered to _________________, whose address is ______________________.
Dated:
----------------------- -------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
- -----------------------------
/1/Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial conversion, the portion thereof as to which this
Warrant is being converted), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of a partial conversion, a new
Warrant will be issued and delivered, representing the unconverted portion of
the Warrant, to the holder surrendering the Warrant.
<PAGE>
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the attached
Warrant hereby sells, assigns and transfers unto _____________ the right
represented by such Warrant to purchase __________/1/ shares of Voting Common
Stock of PHYSICIAN HEALTH CORPORATION to which such Warrant relates, and
appoints_________________ Attorney to make such transfer on the books of
PHYSICIAN HEALTH CORPORATION maintained for such purpose, with full power of
substitution in the premises.
Dated:
------------------------- -------------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- -------------------------
- -------------------------
/1/Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial transfer, the portion thereof being transferred),
in either case without making any adjustment for Additional Shares of Common
Stock or any other stock or other securities or property or cash which, pursuant
to the adjustment provisions of this Warrant, may be delivered upon exercise. In
the case of a partial transfer, a new Warrant will be issued and delivered,
representing the untransferred portion of the Warrant, to the holder
surrendering the Warrant.
<PAGE>
EXHIBIT 10.43
SECURITIES PURCHASE AGREEMENT
By and Between
PHYSICIAN HEALTH CORPORATION
and
PARIBAS PRINCIPAL INCORPORATED
As of October __, 1997
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS .................................................. 1
2. SALE AND PURCHASE OF SECURITIES............................... 9
2.1. Investor Securities .................................... 9
2.2. Agreement to Sell and Purchase...................... ... 10
2.3. Closing................................................. 10
2.4. Equity Call Agreement................................... 10
2.5. Use of Proceeds......................................... 10
3. CONDITIONS TO PURCHASE ....................................... 11
3.1. Investor Agreements .................................... 11
3.2. Investor Securities .................................... 11
3.3. Legal Opinion........................................... 11
3.4. Representations and Warranties;
Officer's Certificate ................................. 11
3.5. SBIC Forms ............................................. 11
3.6. Key Executive Insurance................................. 11
3.7. Legality; Governmental Authorization.................... 11
3.8. Certificate of Designation.............................. 12
3.9. General................................................. 12
3.10. Credit Agreement ....................................... 12
4. REPRESENTATIONS AND WARRANTIES ............................... 12
4.1. Credit Agreement ....................................... 12
4.2. Organization and Subsidiaries; Business ................ 12
4.2.1. The Company ................................... 12
4.2.2. Subsidiaries .................................. 13
4.2.3. Conduct of Business ........................... 13
4.3. Capitalization ......................................... 13
4.3.1. Capital Stock of the Company .................. 13
4.3.2. Options, etc .................................. 13
4.3.3. Capital Stock of the Subsidiaries ............. 14
4.3.4. Subsidiary Options, etc........................ 14
4.4. Reports, Financial Statements and Other Documents ...... 14
4.5. Changes in Condition ................................... 15
4.5.1. Material Adverse Effect ....................... 15
(i)
<PAGE>
4.5.2. Extraordinary Transactions, etc. ................... 15
4.6. Solvency ................................................... 15
4.7. Contractual Obligations, etc................................ 15
4.7.1. Nature of Contracts ................................ 15
4.7.2. Charter or By-Laws ................................. 16
4.7.3. Insurance .......................................... 16
4.7.4. Transactions with Affiliates ....................... 16
4.8. Operations in Conformity With Law, etc...................... 16
4.9. Environmental Matters ...................................... 16
4.10. ERISA Matters .............................................. 17
4.11. Labor Relations ............................................ 17
4.12. Taxes ...................................................... 18
4.13. Litigation ................................................. 18
4.14. Violation of Other Instruments ............................. 18
4.15. Filings, Broker's Fees, etc................................. 19
4.16. SBA Matters ................................................ 19
4.17. SBIC Company Awareness ..................................... 19
4.18. SBIC Eligibility ........................................... 19
4.19. Governmental Regulation .................................... 19
4.20. Margin Stock ............................................... 19
4.21. Real Property Holding Corporation........................... 19
4.22. Disclosure ................................................. 20
5. GENERAL COVENANTS ................................................ 20
5.1. Covenants Relating to the Company's Board of Directors ..... 20
5.1.1. Observation Rights ................................. 20
5.2. Information and Reports to be Furnished .................... 20
5.2.1. Annual Statements .................................. 21
5.2.2. Quarterly Reports .................................. 21
5.2.3. Monthly Reports .................................... 21
5.2.4. Annual Budgets ..................................... 21
5.2.5. Officers' Certificates ............................. 21
5.2.6. Notice of Litigation, Defaults, etc. ............... 22
5.2.7. Information Provided to Stockholders ............... 22
5.2.8. Information Furnished under Other Agreements ....... 22
5.2.9. Other Information .................................. 22
5.2.10. Annual Information Meeting.......................... 22
5.3. Conduct of Business ........................................ 23
5.3.1. Type of Business ................................... 23
5.3.2. Maintenance of Properties, etc. .................... 23
5.3.3. Compliance with Laws and Material Contracts......... 23
(ii)
<PAGE>
5.3.4. Insurance ...................................... 23
5.3.5. Foreign Qualification ...........................24
5.4. Charter Amendment, etc ..................................24
5.5. Merger, Consolidation and Sale of Assets.................24
5.6. Indebtedness ............................................25
5.7. Guarantee ...............................................25
5.8. Lien ....................................................26
5.9. Investments and Acquisitions.............................27
5.10. Distributions ...........................................28
5.11. Capital Expenditures ....................................28
5.12. [Intentionally omitted] .................................28
5.13. Stock Issuance, etc ....................................28
5.14. Amendment of Material Contracts, etc.....................29
5.15. Transactions with Affiliates ............................29
5.16. Compliance with ERISA, etc...............................30
5.17. SBA Requirements .......................................30
5.17.1. Inspection ......................................30
5.17.2. Information ....................................30
5.17.3. Non-Discrimination ..............................31
5.17.4. Right of First Offer ............................31
5.18. Annual Meeting ..........................................31
5.19. Listing of Shares .......................................31
5.20. Real Property Holding Corporation........................31
5.21. Regulatory Compliance Cooperation........................32
5.21.1. Exchange for Nonvoting Securities ...............32
5.21.2. Future Securities Issuances .....................32
5.22. Environmental Laws ......................................33
5.22.1. Compliance with Law and Permits .................33
5.22.2. Notice of Claims, etc ...........................33
5.23. Compliance Program ......................................33
5.24. Acquisition Diligence ...................................33
5.25. Shares Reserved .........................................34
6. INVESTOR SECURITIES; RESTRICTIONS ON
TRANSFER ....................................................34
6.1. Representations and Warranties of the Investor...........34
6.2. Home Office Payment .....................................35
6.3. Replacement of Lost Securities ..........................35
6.4. Transfer, Exchange and Conversion of Investor Securities 35
6.5. Restrictions on Transfer ................................36
6.5.1. Restrictive Legend ..............................36
6.5.2. Notice of Proposed Transfer Obligations
of Counsel.....................................36
(iii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6.5.3. Termination of Restrictions.....................................37
7. EXPENSES, ETC ............................................................... 37
7.1. Expenses .............................................................. 37
7.2. Indemnification........................................................ 37
7.3. Environmental Indemnification.......................................... 38
7.4. Survival .............................................................. 38
8. NOTICES ..................................................................... 38
9. CONFIDENTIALITY ............................................................. 39
10. AMENDMENTS AND WAIVERS....................................................... 39
11. SURVIVAL AND TERMINATION OF COVENANTS, REPRESENTATIONS AND WARRANTIES........ 39
12. SERVICE OF PROCESS........................................................... 39
13. WAIVER OF JURY TRIAL......................................................... 40
14. GENERAL...................................................................... 40
</TABLE>
(iv)
<PAGE>
SECURITIES PURCHASE AGREEMENT
This Agreement, dated as of October __, 1997, is by and between Physician
Health Corporation, a Delaware corporation (the "Company") and Paribas
-------
Principal Incorporated, a New York corporation, (the "Investor"). The
parties agree as follows:
1. DEFINITIONS. Certain capitalized terms are used in this Agreement as
specifically defined below in this Section 1. Except as the context
otherwise explicitly requires, (a) the capitalized term "Section" refers to
-------
sections of this Agreement, (b) the capitalized term "Exhibit" refers to
exhibits to this Agreement, (c) references to a particular Section include
all subsections thereof, (d) the word "including" shall be construed as
"including without limitation," (e) accounting terms not otherwise defined
herein have the meaning provided under GAAP, (f) references to a particular
statute or regulation include all rules and regulations thereunder and any
successor statute, regulation or rules, in each case as from time to time in
effect and (g) references to a particular Person include such Person's
successors and assigns to the extent not prohibited by this Agreement and the
other Investor Agreements. References to "the date hereof" mean the date
first set forth above.
1.1. "Affiliate" means any Person directly or indirectly controlling,
---------
controlled by or under direct or indirect common control with the Company (or
other specified person) and shall include (a) any Person who is an officer,
director or beneficial holder of at least 10% of the outstanding capital
stock of the Company (or other specified person), (b) any Person of which the
Company (or other specified Person) or an Affiliate (as defined in clause (a)
above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of the outstanding equity
securities or constitute at least a 10% participant, and (c) in the case of a
specified Person who is an individual, Members of the Immediate Family of
such Person; provided, however, that the Investor and its Affiliates shall
-------- -------
not be Affiliates of the Company for purposes of this Agreement.
1.2. "Applicable Health Care Laws" is defined in Section 5.23.
---------------------------
1.3. "Balance Sheet" is defined in Section 4.4.
-------------
1.4. "Balance Sheet Date" is defined in Section 4.4.
------------------
<PAGE>
1.5. "By-laws" means all written rules, regulations, procedures and by-
-------
laws and all other similar documents, relating to the management, governance
or internal regulation of a Person other than an individual, or interpretive
of the Charter of such Person, each as from time to time amended or modified.
1.6. "Capital Expenditures" means amounts which should in accordance
--------------------
with GAAP be added to the fixed assets account on the consolidated balance
sheet of the Company and its Subsidiaries, in respect of (a) the acquisition,
construction, improvement or replacement of assets or leaseholds, and (b) to
the extent related to and not included in clause (a) above, expenditures on
account of materials, contract labor and direct labor (excluding expenditures
properly chargeable to repairs and maintenance in accordance with generally
accepted accounting principles).
1.7. "Capitalized Lease" means any lease which is or should be
-----------------
capitalized on the balance sheet of the lessee in accordance with GAAP and
Statement No. 13 of the Financial Accounting Standards Board.
1.8. "Certificate of Designation" is defined in Section 2.1.
--------------------------
1.9. "CFR" is defined in Section 4.16.
---
1.10. "Charter" means the articles of organization, certificate of
-------
incorporation, statute, constitution, joint venture or partnership agreement,
management agreement or other charter of any Person other than an individual,
each as from time to time amended or modified.
1.11. "Closing" is defined in Section 2.3.
-------
1.12. "Closing Date" is defined in Section 2.3.
------------
1.13. "Code" means the federal Internal Revenue Code of 1986, as
----
amended.
1.14. "Common Stock" means the Voting Common Stock, $0.0025 par value,
------------
of the Company.
1.15. "Commission" means the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act, the
Exchange Act or both.
1.16. "Company" is defined in the first paragraph of this Agreement.
-------
-2-
<PAGE>
1.17. "Compensation" as applied to any Person means the aggregate of all
------------
salaries, compensation, remuneration or bonuses of any character, retirement
or pension benefits of any kind, or other payments of any kind whatsoever
(other than health and medical benefits made available to employees generally
and advances and reimbursements of business expenses) made directly or
indirectly by the Company, any of its Subsidiaries or other specified Persons
to such Person and Affiliates of such Person.
1.18. "Consolidated", when used with reference to any term, means that
------------
term as applied to the accounts of the Company or other indicated Person and
each of its respective Subsidiaries, consolidated or combined in accordance
with GAAP after eliminating all inter-company items and with appropriate
deductions for minority interests in Subsidiaries.
1.19. "Contractual Obligation" means, with respect to any Person, any
----------------------
contracts, agreements, deeds, mortgages, leases, licenses, other instruments,
commitments, undertakings, arrangements or understandings, written or oral,
or other documents, including any Charter or By-law provisions and any
document or instrument evidencing Indebtedness, to which any such Person is a
party or otherwise subject to or bound by or to which any asset of any such
Person is subject.
1.20. "Conversion Warrants" means the warrants to purchase Common Stock
-------------------
at the conversion price of the Preferred Stock in substantially the form of
Exhibit 2.1A issuable upon a voluntary prepayment of the Preferred Stock in
accordance with section 6.3 of the Certificate of Designation.
1.21. "Credit Agreement" means the Credit Agreement, dated as of October
----------------
__, 1997 among the Company, the financial institutions party thereto, from
time to time, and Banque Paribas, as Agent, as amended, supplemented or
refinanced from time to time.
1.22. "Credit Documents" shall have the meaning provided in the Credit
----------------
Agreement.
1.23. "Distribution" means (a) the declaration or payment of any
------------
dividend on or in respect of any shares of any class of capital stock of the
Company, any of its Subsidiaries or other specified Person, other than
dividends payable solely in shares of the common stock of the payor; (b) the
purchase, redemption or other retirement of any shares of any class of
capital stock of the Company, any of its Subsidiaries or other specified
Person directly, or indirectly through a Subsidiary or otherwise; or (c) any
other distribution on or in respect of any shares of any class of capital
stock of the Company, any of its Subsidiaries or other specified Person.
-3-
<PAGE>
1.24. "Employee Benefit Plan" means each "employee benefit plan" as
---------------------
defined in section 3(3) of ERISA, maintained or contributed to by the Company
or any member of an ERISA Group in which the Company is a member, or in which
the Company or any member of an ERISA Group in which the Company is a member
participates or participated and which provides benefits to employees of the
Company or their spouses or covered dependents or with respect to which the
Company has or may have a material liability, including (i) any such plans
that are "employee welfare plans" as defined in section 3(1) of ERISA and
(ii) any such plans that are "employee pension benefit plans" as defined in
section 3(2) of ERISA.
1.25. "Environmental Laws" means all applicable federal, state or local
------------------
statutes, laws, ordinances, codes, rules, regulations and guidelines
(including consent decrees and administrative orders) relating to public
health and safety and protection of the environment.
1.26. "Equity Call Agreement" means the Equity Call Agreement, dated as
---------------------
of June 16, 1997, among the Company, Metroplex Hematology/Oncology
Associates, L.L.P., Weston Presidio Capital Partners II, L.P. and the other
investors thereto.
1.27. "Equity Call Agreement Joinder" means the Joinder to Equity Call
-----------------------------
Agreement, dated October __, 1997, among the Company, Metroplex
Hematology/Oncology Associates, L.L.P., Weston Presidio Capital Partners II,
L.P., Paribas Principal Incorporated, and the other investors party thereto.
1.28. "ERISA" means the federal Employee Retirement Income Security Act
-----
of 1974, as amended.
1.29. "ERISA Group", with respect to any entity, means any Person which
-----------
is a member of the same "controlled group" or under "common control", within
the meaning of section 414(b) or (c) of the Code or section 4001(b)(1) of
ERISA, with such entity.
1.30. "Exchange Act" means the federal Securities Exchange Act of 1934,
------------
as amended.
1.31. "GAAP" means generally accepted accounting principles, as in
----
effect from time to time, applied on a basis consistent with that used in
preparation of the financial statements referred to in Section 4.4,
consistently applied.
1.32. "Guarantee" means (a) any guarantee of the payment or performance
---------
of, or any contingent obligation in respect of, any Indebtedness or other
-4-
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obligation of any other Person, (b) any other arrangement whereby credit is
extended to one obligor on the basis of any promise or undertaking of another
Person (i) to pay the Indebtedness of such obligor, (ii) to purchase any
obligation owed by such obligor, or (iii) to maintain the capital, working
capital, solvency or general financial condition of such obligor, whether or
not such arrangement is disclosed in the balance sheet of such other Person
or is referred to in a footnote thereto, and (c) any liability of the Company
or any of its Subsidiaries as general partner of a partnership or as a
venturer in a joint venture in respect of Indebtedness or other obligations
of such partnership or venture; provided, however, that in no event shall
-------- -------
Guarantees include product warranties given in the ordinary course of
business.
1.33. "Hazardous Material" is defined in Section 4.9.
------------------
1.34. "Indebtedness" means (a) all debt for borrowed money and similar
------------
monetary obligations evidenced by bonds, notes, debentures, capitalized lease
obligations, deferred purchase price of property (other than ordinary trade
payables) or otherwise, whether direct or indirect; and (b) all liabilities
secured by any Liens existing on property owned or acquired, whether or not
the liability secured thereby shall have been assumed.
1.35. "Indemnitees" is defined in Section 7.2.
-----------
1.36. "Investment" means (a) any share of capital stock, evidence of
----------
Indebtedness or other security issued by any other Person, (b) any loan,
advance, or extension of credit to, or contribution to the capital of, any
other Person, (c) any purchase of the securities or assets constituting a
business or a division or similar portion of the business of any other
Person, (d) any commitment or option to make such an investment if, in the
case of an option, the consideration therefor exceeds $100, and (e) any other
investment; provided, however, that the term "Investment" shall not include
-------- -------
(i) current trade and customer accounts receivable arising in the ordinary
course of business and payable in accordance with customary trade terms or
prepaid assets arising in the ordinary course of business, (ii) advances to
employees for travel expenses, drawing accounts and similar expenditures,
(iii) stock or other securities acquired in connection with the satisfaction
or enforcement of Indebtedness or claims due to the Company or any of its
Subsidiaries or as security for any such Indebtedness or claim or (iv) demand
deposits in banks or trust companies. The amount of an Investment
outstanding at any time shall be determined in accordance with GAAP;
provided, however, that no Investment shall be increased as a result of an
-------- -------
increase in the undistributed retained earnings of the Person in whom an
Investment was made or decreased as a result of an equity in the losses of
any such Person.
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1.37. "Investor Agreements" means this Agreement, the Certificate of
-------------------
Designation, the Stockholders Agreement, the Registration Rights Agreement,
the Warrants, the Equity Call Agreement, any joinders executed with respect
to any such agreements, any other agreement or instrument entered into
between the Company and the Investor and any amendment or modification to any
of the foregoing.
1.38. "Investor Securities" is defined in Section 2.1.
-------------------
1.39. "Investor" shall have the meaning provided in first paragraph of
--------
this Agreement.
1.40. "Legal Requirement" means any federal, state, local or foreign
-----------------
law, statute, standard, ordinance, code, order, rule, regulation, resolution,
promulgation or any final order, judgment or decree of any court, arbitrator,
tribunal or governmental authority, or any license, franchise, permit or
similar right granted under any of the foregoing.
1.41. "Lien" means (a) any mortgage, pledge, lien, charge, security
----
interest or other similar encumbrance upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any conditional
sale or other title retention agreement or arrangement (including a
Capitalized Lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles or chattel paper, with or
without recourse.
1.42. "Liquidity Event" shall have the meaning provided in section 2 of
---------------
the Certificate of Designation.
1.43. "Margin Stock" means "margin stock" within the meaning of any
------------
regulation, interpretation or ruling of the Board of Governors of the Federal
Reserve System, all as from time to time in effect.
1.44. "Material Adverse Effect" means a material adverse effect upon the
-----------------------
business, assets, financial condition or income of the Company and its
Subsidiaries on a Consolidated basis.
1.45. "Material Contracts" shall have the meaning provided in the Credit
------------------
Agreement.
1.46. "Members of the Immediate Family," as applied to any individual,
-------------------------------
means each parent, spouse, child, brother, sister or the spouse of a child,
brother or sister of the individual, and each trust created for the benefit
of one or more of such persons and each custodian of a property of one or
more such persons.
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<PAGE>
1.47. "Non-Voting Common Stock" means the Non-Voting Common Stock,
-----------------------
$0.0025 par value, of the Company.
1.48. "Original Securities Purchase Agreement" is defined in Section
--------------------------------------
2.3.
1.49. "Pension Plan" means each pension plan (as defined in section 3(2)
------------
of ERISA) established or maintained, or to which contributions are or were
made since March 1, 1993, by the Company or any of its Subsidiaries or former
Subsidiaries, or any Person which is a member of the same ERISA Group with
any of the foregoing.
1.50. "Person" means an individual, partnership, corporation, company,
------
association, trust, joint venture, unincorporated organization, business
trust, limited liability company and any governmental department or agency or
political subdivision.
1.51. "Preferred Director" means the member of the Board of Directors of
------------------
the Company who is appointed by the holders of Series B Preferred Stock.
1.52. "Preferred Stock" means the voting and the non-voting Series B
---------------
Redeemable Convertible Preferred Stock, par value $0.01 per share, of the
Company.
1.53. "Prime Common Stock" means the Prime Common Stock, $0.0025 par
------------------
value, of the Company.
1.54. "Principal Holder" shall mean the Investor and any transferee of
----------------
the Investor so long as any such Person owns 25% of the Preferred Stock or
Warrants issued pursuant to this Agreement (as adjusted for stock splits,
stock dividends and reverse stock splits) or 25% of the Common Stock issuable
upon conversion or exercise of the Preferred Stock and the Warrants issued
pursuant to this Agreement (as adjusted for stock splits, stock dividends and
reverse stock splits).
1.55. "Projections" has the meaning provided in the Credit Agreement.
-----------
1.56. "Purchase Price Escrow" is defined in Section 2.4.
---------------------
1.57. "Purchase Warrants" means the warrants to purchase Common Stock
-----------------
issued in substantially the form of Exhibit 2.1B, issuable pursuant to the
terms of this Agreement and the Original Securities Purchase Agreement.
1.58. "Registration Rights Agreement" means the registration rights
-----------------------------
agreement dated as of October __ 1997, by and among the Company, the
Investor, Paribas Capital Funding LLC, and certain other shareholders of the
Company.
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<PAGE>
1.59. "Regulatory Problem" means any event, action or circumstance, the
------------------
occurrence of which is reasonably likely to result in a violation of the
Small Business Investment Act or the Bank Holding Company Act of 1956, as
amended, and the regulations promulgated thereunder or any similar, related
or successor laws regulating banks, bank holding companies, insurance
companies, insurance holding companies, SBICs and the respective
subsidiaries.
1.60. "Remedy Event" is defined in section 7 of the Certificate of
------------
Designation.
1.61. "Required Holders" means the holders at the relevant time
----------------
(excluding the Company or any of its Subsidiaries) of at least two thirds of
the voting power of all outstanding Preferred Stock and Warrants (calculated
to give pro forma effect to the conversion of all Preferred Stock and the
exercise of all Warrants) issued pursuant to this Agreement and the Original
Securities Purchase Agreement, voting together as a single class.
1.62. "Representative" is defined in Section 5.1.1.
--------------
1.63. "Restricted Shares" shall have the meaning provided in the
-----------------
Stockholders Agreement.
1.64. "SBA" is defined in Section 3.5.
---
1.65. "SBA Forms" is defined in Section 3.5.
---------
1.66. "SBIC" means a small business investment company licensed by the
----
SBA pursuant to the Small Business Investment Act.
1.67. "Securities Act" means the federal Securities Act of 1933, as
--------------
amended.
1.68. "Securities Escrow" is defined in Section 2.3.
-----------------
1.69. "Senior Debt Documents" means the Credit Agreement and the other
---------------------
Credit Documents, in each case as amended (including by any amendment and
restatement), supplemented, modified or extended from time to time including
each loan or credit agreement and other related agreements extending the
maturity of, replacing, refinancing, refunding, or otherwise restructuring
(including, without limitation, increasing the amount of the available
borrowings thereunder), in whole or in part, the debt under the Credit
Agreement, whether by the same or any other agent, lender or group of
lenders.
-8-
<PAGE>
1.70. "Small Business Investment Act" is defined in Section 4.16.
-----------------------------
1.71. "Stockholders Agreement" is defined in Section 3.1.
----------------------
1.72. "Stockholders' Equity" means, at any date, stockholders' equity of
--------------------
the Company and its Subsidiaries determined in accordance with GAAP on a
Consolidated basis, excluding the effect of any foreign currency translation
adjustments.
1.73. "Subsidiary" means any Person of which the Company or other
----------
specified Person now or hereafter shall at the time (a) own directly or
indirectly through a Subsidiary in excess of 50% of the outstanding capital
stock (or other shares of beneficial interest) entitled to vote generally or
(b) constitute a general partner.
1.74. "Subordinated Loan Agreement" means the Senior Subordinated Loan
---------------------------
Agreement, dated as of October __, 1997, by and among the Company, Paribas
Capital Funding LLC and the other financial institutions from time to time
party thereto, as amended, supplemented or refinanced from time to time.
1.75. "Warrants" mean, collectively, the Conversion Warrants and the
--------
Purchase Warrants.
1.76. "Welfare Plan" means each welfare plan as defined in section 3(1)
------------
of ERISA established or maintained, or to which any contributions are or were
made since March 1, 1993, by the Company or any of its Subsidiaries or any
Person which is a member of the same ERISA Group with any of the foregoing.
2. SALE AND PURCHASE OF SECURITIES.
2.1. Investor Securities. The Preferred Stock and Purchase Warrants
-------------------
being purchased by the Investor hereunder, together with any securities
issued with respect thereto, upon exercise, conversion or transfer thereof or
in exchange therefor, including the Common Stock issuable upon conversion of
the Preferred Stock and the Conversion Warrants issuable upon a voluntary
redemption of the Preferred Stock (and the Common Stock issuable upon
exercise or conversion of the Warrants), are collectively referred to as
"Investor Securities"; provided, however, that once any such securities have
--------- ---------- -------- -------
been sold in a Liquidity Event they shall cease to be Investor Securities for
all purposes of this Agreement. The powers, preferences and rights of the
Preferred Stock are set forth in the Company's Charter as amended through the
date hereof, including the Certificate of Designation, Preferences and Rights
for the Preferred Stock, as amended through the date hereof, in the form set
forth in Exhibit 2.1C (the "Certificate of Designation").
--------------------------
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<PAGE>
2.2. Agreement to Sell and Purchase. Based on the Investor's
------------------------------
representations and warranties contained in Section 6, the Company agrees to
issue and sell to the Investor and, subject to all of the terms and
conditions hereof and in reliance on the representations and warranties of
the Company set forth or referred to herein, the Investor agrees to purchase
at the Closing the number of shares of Investor Securities specified in
Exhibit 1 at the purchase price, payable by wire transfer or Investor check,
so specified in such Exhibit.
2.3. Closing. The closing of the purchase and sale of Investor
-------
Securities (the "Closing") shall take place in New York, New York at the
-------
offices of White & Case on October __, 1997 (the "Closing Date") or on such
------------
other date as the Company and the Investor may agree upon. At the Closing
the Company will deliver to the Investor certificates evidencing the
respective Investor Securities set forth in Exhibit 1 for the Closing against
payment of the purchase price therefor in immediately available funds.
The shares of capital stock of the Company held pursuant to the
Securities Escrow (the "Securities Escrow") established pursuant to Section
2.3 of the Securities Purchase Agreement, dated as of June 16, 1997, among
the Company, Weston Presidio Capital II, L.P. and certain other investors
(the "Original Securities Purchase Agreement"), shall be held for the benefit
of the Investor and each of the investors under the Original Securities
Purchase Agreement.
2.4. Equity Call Agreement. On any date requested in accordance with
---------------------
the Equity Call Agreement (which date shall be between April 1, 1998 and
April 13, 1998), the Investor shall pay to the Company the purchase price for
the Investor Securities set forth opposite its name in Exhibit 1 to the
Equity Call Agreement Joinder, as provided in the Equity Call Agreement and
the Equity Call Agreement Joinder. Upon such payment, Weston Presidio
Capital II, L.P. shall release the certificates representing the number of
Investor Securities as is set forth in Exhibit 1 to the Equity Call
Agreement, as amended by the Equity Call Agreement Joinder, from the
Securities Escrow to the Investor. Any Investor Securities still remaining
in the Securities Escrow on April 14, 1998 shall be returned to the Company.
2.5. Use of Proceeds. The Company agrees that it will use the proceeds
---------------
from the sale of the shares for general corporate and working capital
purposes (including to effect the acquisition of physician practices) and not
for any purpose that would be a violation of 13 CFR 107.720.
3. CONDITIONS TO PURCHASE. The Investor's obligation to purchase the
Investor Securities pursuant to this Agreement on the Closing Date is subject
to the satisfaction, on or prior to the Closing Date, of the following
conditions:
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<PAGE>
3.1. Investor Agreements. The Company and its stockholders party
-------------------
thereto shall have duly authorized, executed and delivered to the Investor
each of the Investor Agreements, in form and substance satisfactory to the
Investor.
3.2. Investor Securities. The Company shall have issued to the
-------------------
Investor the number of shares of Preferred Stock and Purchase Warrants shown
in Exhibit 1 for an aggregate consideration as shown in Exhibit 1.
3.3. Legal Opinion. On the Closing Date, the Investor shall have
-------------
received from Jackson & Walker, L.L.P., counsel to the Company and its
Subsidiaries, their opinion in substantially the form of Exhibit 3.3. The
Company hereby authorizes its counsel to deliver such opinion.
3.4. Representations and Warranties; Officer's Certificate. The
-----------------------------------------------------
representations and warranties contained herein shall be true and correct on
and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date; between the Balance Sheet Date and the Closing
Date, no Material Adverse Effect shall have occurred; the Company shall have
performed all obligations required to be performed by it under the Investor
Agreements; and the Investor shall have received on the Closing Date a
certificate to these effects signed by the Chairman and the President of the
Company.
3.5. SBIC Forms. On the date hereof, the Investor shall have received
----------
from the Company fully executed Small Business Administration ("SBA") Forms,
480, 652 and 1031 (the "SBA Forms").
3.6. Key Executive Insurance. The Company will have in full force and
-----------------------
effect as the owner thereof on the Closing Date key executive life insurance
policies with a financially sound and reputable insurer in the aggregate
amount of at least $1,000,000 covering the life of Sarah C. Garvin, the
proceeds of which shall be payable to the Company.
3.7. Legality; Governmental Authorization. The purchase of the
------------------------------------
Investor Securities shall not be prohibited by any law or governmental order
or regulation, and shall not subject the Investor to any penalty or special
tax (other than a penalty or special tax that has been reimbursed by the
Company). All necessary consents, approvals, licenses, permits, orders and
authorizations of, or registrations, declarations or filings with, any
governmental or administrative agency or of any other Person, if any, with
respect to any of the transactions contemplated by this Agreement or the
other Investor Agreements, the absence of which could have a Material Adverse
Effect, shall have been duly obtained or made and shall be in full force and
effect.
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<PAGE>
3.8. Certificate of Designation. The amended Certificate of
--------------------------
Designation shall have been filed with the Secretary of State of the State of
Delaware.
3.9. General. All instruments and legal and corporate proceedings in
-------
connection with the transactions contemplated by this Agreement, the other
Investor Agreements and the Material Contracts shall be reasonably
satisfactory in form and substance to the Investor, and the Investor shall
have received copies of all documents, including records of corporate
proceedings and officers certificates, which the Investor may have reasonably
requested in connection therewith.
3.10. Credit Agreement. All conditions to the incurrence of the initial
----------------
loans under the Credit Agreement shall have been satisfied and the initial
borrowing thereunder shall have occurred.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Investor to enter
into this Agreement and to purchase the Investor Securities hereunder, the
Company represents and warrants as follows:
4.1. Credit Agreement. The Company hereby makes each of the
----------------
representations and warranties contained in the Credit Agreement and each
such representation and warranty contained in the Credit Agreement shall be
deemed incorporated herein by reference.
4.2. Organization and Subsidiaries; Business.
---------------------------------------
4.2.1. The Company. The Company is a duly organized and validly
-----------
existing corporation in good standing under the laws of Delaware. The
Company has all necessary corporate power and authority to enter into and
perform this Agreement and the other Investor Agreements to which it is
party, to issue and sell the Investor Securities to be issued and sold by it
hereunder, and to carry on the businesses now conducted or presently proposed
to be conducted by it. The Company has taken all corporate action necessary
to authorize the Investor Agreements to which it is party and the issuance of
the Investor Securities to be issued and sold by it hereunder. The Investor
Agreements to which the Company is party and the Investor Securities to be
issued and sold by the Company hereunder have been duly executed and
delivered by the Company and are the legal, valid and binding obligations of
the Company, enforceable in accordance with their terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting generally the enforcement of creditors rights and
general principles of equity.
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<PAGE>
4.2.2. Subsidiaries. The Company does not own or control,
------------
directly or indirectly, or have an interest in, any other corporation,
partnership, association or business entity, except for the Persons described
in Exhibit 4.2.2.
4.2.3. Conduct of Business. The Company has conducted no business
-------------------
other than (a) managing the operations of physician or dental group practices
or other providers of physician or dental services; (b) managing the
operations of lines of diagnostic and treatment businesses ancillary or
related to physician or dental group practices or other providers of
physician or dental services; and (c) negotiating and administrating managed
care contracts between insurance companies or other medical payors and
physician or dental group practices or other providers of physician or dental
services; and (d) operating physician practices through the employment by
subsidiaries of physicians and other ancillary personnel.
4.3. Capitalization.
--------------
4.3.1. Capital Stock of the Company. The authorized capital stock
----------------------------
of the Company is set forth in Exhibit 4.3.1. On the Closing Date, after
giving effect to the issuance of the Investor Securities and the consummation
of the Investor Agreements, the Company will have no outstanding capital
stock except for the shares of Voting Common Stock, Non-Voting Common Stock,
Prime Stock, Class A Stock and Preferred Stock owned beneficially and of
record as set forth in Exhibit 4.3.1, all of which will be validly issued,
fully paid, nonassessable and, to the best knowledge of the Company, subject
to no lien or restriction on transfer, except restrictions on transfer
imposed by the Investor Agreements and applicable securities laws or as
otherwise set forth in Exhibit 4.3.1. As of the date hereof, sufficient
shares of the Company's Common Stock have been authorized and duly reserved
for issuance upon conversion of the Series B Preferred Stock and Warrants.
4.3.2. Options, etc. Other than as set forth in Exhibit 4.3.1 or
------------
in the Investor Agreements or Material Contracts, the Company does not have
outstanding (a) any rights (either preemptive or otherwise) or options to
subscribe for or purchase, or any warrants or other agreements providing for
or requiring the issuance of, any capital stock or any securities convertible
into or exchangeable for its capital stock, (b) any obligation to repurchase
or otherwise acquire or retire any of its capital stock, any securities
convertible into or exchangeable for its capital stock or any rights, options
or warrants with respect thereto, (c) any rights to require the Company to
register the offering of any of its securities under the Securities Act or
(d) any restrictions on voting any of the Company's securities.
4.3.3. Capital Stock of the Subsidiaries. The authorized capital
---------------------------------
stock of each Subsidiary of the Company is set forth in Exhibit 4.3.3. Each
such
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<PAGE>
Subsidiary has no outstanding capital stock except for shares of capital
stock owned beneficially and of record, as set forth in Exhibit 4.3.3, by the
Company, all of which will be validly issued, fully paid, nonassessable and
subject to no lien or restriction on transfer, except restrictions on
transfer imposed by the Investor Agreements and applicable securities laws
and Liens.
4.3.4. Subsidiary Options, etc. Except as set forth in Exhibit
-----------------------
4.3.3 hereto, none of the Company's Subsidiaries has outstanding (a) any
rights (either preemptive or otherwise) or options to subscribe for or
purchase, or any warrants or other agreements providing for or requiring the
issuance of, any capital stock or any securities convertible into or
exchangeable for its capital stock, (b) any obligation to repurchase or
otherwise acquire or retire any of its capital stock, any securities
convertible into or exchangeable for its capital stock or any rights, options
or warrants with respect thereto, (c) any rights to require the Subsidiary to
register the offering of any of its securities under the Securities Act or
(d) any restrictions on voting any of the Subsidiary's securities.
4.4. Reports, Financial Statements and Other Documents. The Investor
-------------------------------------------------
has been furnished with complete and correct copies of the following:
(a) Audited consolidated balance sheet of the Company and its
Subsidiaries as of June 30, 1997, together with the related statements
of income, cash flows and stockholders' equity for the year then
ended, accompanied by the audit report of Arthur Andersen & Co.
(b) Unaudited consolidated balance sheet (the "Balance Sheet") of
the Company and its Subsidiaries as of August 30, 1997 (the "Balance
Sheet Date"), together with related statements of income, cash flows
and stockholders' equity for the period then ended.
(c) The Projections.
The financial statements referred to in clause (a) above have been
prepared in accordance with GAAP and fairly present the financial condition
of the Company and its Subsidiaries at the dates thereof and the results of
their operations for the periods covered thereby. Except as set forth in
Exhibit 4.4 or the Material Contracts, neither the Company nor any of its
Subsidiaries has any material liabilities, contingent or otherwise, which are
not referred to in the Balance Sheet.
The Projections were based on (i) assumptions and accounting methods
consistent with the historical financial statements described in paragraph
(a) above and (ii) the financings contemplated hereby. To the best knowledge
of the Company the
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<PAGE>
Projections constitute a reasonable basis for assessing the future
performance of the Company and its Subsidiaries, but no representation or
warranty is made that the Company and its Subsidiaries can actually achieve
the results set forth in the Projections.
4.5. Changes in Condition. Since the Balance Sheet Date:
--------------------
4.5.1. Material Adverse Effect. No Material Adverse Effect has
-----------------------
occurred.
4.5.2. Extraordinary Transactions, etc. Except as set forth in
-------------------------------
the Material Contracts or Exhibit 4.5.2, since the Balance Sheet Date neither
the Company nor any of its Subsidiaries has (a) declared any dividend or
other distribution on any shares of its capital stock, (b) made any payment
(other than compensation of its directors, officers and employees at rates in
effect prior to the Balance Sheet Date or for bonuses accrued in accordance
with normal practice prior to the Balance Sheet Date) to any of its
Affiliates, (c) increased the Compensation, including bonuses, payable or to
be payable to any of its directors, officers, employees or Affiliates, or (d)
entered into any Contractual Obligation, or entered into or performed any
other transaction, not in the ordinary and usual course of business and
consistent with past practice, other than as specifically contemplated by
this Agreement.
4.6. Solvency. After giving effect to the financing contemplated
--------
hereby, the Company is solvent (within the meaning contemplated by section
548 of Title 11 of the United States Code and any similar state statutes
which may be applicable).
4.7. Contractual Obligations, etc.
----------------------------
4.7.1. Nature of Contracts. All of the Contractual Obligations of
-------------------
the Company and its Subsidiaries at the Closing are enforceable against the
Company and, to its knowledge, the other parties thereto in accordance with
their terms, except for Contractual Obligations the failure of which to be so
enforceable does not and will not result in a Material Adverse Effect;
provided, however, that no representation is made as to the enforceability of
noncompetition covenants under state law. To the Company's knowledge,
neither the Company nor any of its Subsidiaries is now in default under, nor
are there any liabilities arising from any breach or default by any Person
prior to the date hereof, any provision of any such Contractual Obligation,
except as would not be reasonably likely to result in a Material Adverse
Effect.
4.7.2. Charter or By-Laws. Neither the Company nor any of its
------------------
Subsidiaries is in violation of, or in default under, any provision of its
Charter or By-Laws and the Investor has been furnished with copies of such
Charter and By-Laws.
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<PAGE>
4.7.3. Insurance. Each of the Company and its material
---------
Subsidiaries has insurance policies in full force and effect, written by
reputable insurers licensed to write insurance in the states in which the
Company and its Subsidiaries conduct their business, which insurance
contracts provide for coverages which are usual and customary in their
respective businesses as to amount and scope.
4.7.4. Transactions with Affiliates. To the Company's knowledge,
----------------------------
other than as set forth in Exhibit 4.7, no Affiliate of the Company or its
Subsidiaries is a competitor, customer or supplier of, or is party to any
Contractual Obligation with, the Company or any of its Subsidiaries.
4.8. Operations in Conformity With Law, etc. The operations of the
--------------------------------------
Company and its Subsidiaries as now conducted are not in violation of, nor
are the Company or its Subsidiaries in default under, any Legal Requirements
presently in effect, except for such violations and defaults as do not and
will not, in the aggregate, have a Material Adverse Effect. The Company has
received no notice of any such violation or default and has no knowledge of
any basis on which the operations of the Company or its Subsidiaries, when
conducted as currently proposed to be conducted after the Closing Date, would
be held so as to violate or to give rise to any such violation or default.
The Company and its Subsidiaries have all franchises, licenses, permits or
other authority presently necessary for the conduct of their business as now
conducted, except for such franchises, licenses, permits or other authority
the absence of which would not be reasonably likely to result in a Material
Adverse Effect. Based on the facts presently known to the Company, all
future expenditures on the part of the Company or its Subsidiaries required
to meet the provisions of any presently existing Legal Requirement (including
Legal Requirements relating to employment practices or to occupational or
health standards or to environmental considerations) will not, in the
aggregate, have a Material Adverse Effect.
4.9. Environmental Matters. Each of the Company and its Subsidiaries
---------------------
is in compliance in all material respects with all applicable published rules
and regulations of the United States Environmental Protection Agency and
similar agencies in states in which the Company or its Subsidiaries conducts
its business, except for such non-compliance which would not be reasonably
likely to result in a Material Adverse Effect. No suit, claim, action or
proceeding is now pending before any court, governmental agency or board or
other forum or threatened by any Person for, and the Company and its
Subsidiaries have received no written correspondence from any federal, state
or local governmental authority with respect to, (a) noncompliance by the
Company or its Subsidiaries with any environmental law, rule or regulation,
(b) personal injury, wrongful death or other tortious conduct relating to
materials, commodities or products used, sold, transferred or manufactured by
the Company or its Subsidiaries (including products containing or
incorporating asbestos, lead or other
-16-
<PAGE>
hazardous materials) or (c) the release into the environment by the Company
or its Subsidiaries of any pollutant, toxic or hazardous material or waste
(including any "hazardous substance" or "pollutant" or "contaminant" as
defined in section 101(14) of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended) (collectively, "Hazardous
---------
Material") generated by the Company or its Subsidiaries whether or not
--------
occurring at or on a site owned, leased or operated by the Company or its
Subsidiaries. To the Company's knowledge, but without having conducted
special boring or drilling, no material amount of Hazardous Material is
present in any real property currently or formerly owned or leased by it or
its Subsidiaries.
4.10. ERISA Matters. Exhibit 4.10 sets forth a complete list of all
-------------
Employee Benefit Plans and all Welfare Plans applicable to the Company's and
its Subsidiaries' employees. To the knowledge of the Company, each Employee
Benefit Plan and Welfare Plan has been administered in substantial compliance
with its terms and all applicable laws, including, the Code and ERISA, to the
extent that failure to do so would have a Material Adverse Effect. The
Company and its Subsidiaries have no obligation under any Welfare Plan to
provide for the continuation of benefits (other than disability payments and
medical benefits incurred for illness arising in the course of employment)
for more than one year after retirement or other termination of employment
except as may be required pursuant to Code section 4980B regarding
continuation coverage of health insurance or other similar laws regarding
such continuation coverage. No "reportable events" within the meaning of
section 4043 of ERISA have occurred with respect to any Employee Benefit
Plan. No Pension Plan is a "multiemployer plan" as defined in section 3(37)
of ERISA. The present value of benefits liabilities as described in Title IV
of ERISA of Employee Benefit Plans does not exceed the current value of such
Employee Benefit Plans assets allocable to such benefits liabilities by more
than $100,000 determined using actuarial methods and assumptions consistently
applied in the ongoing administration of each such Employee Benefit Plan.
4.11. Labor Relations. None of the employees of the Company or any of
---------------
its Subsidiaries is presently represented by a labor union, and to the best
knowledge of the Company no petition has been filed or proceedings instituted
by any employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. No controversies or disputes are
pending between the Company or any of its Subsidiaries and any of its
employees, except for such controversies and disputes as do not and will not,
in the aggregate, have a Material Adverse Effect.
4.12. Taxes. Since March 1, 1993, each of the Company and its
-----
Subsidiaries has filed all material tax and information which are required to
be filed by
-17-
<PAGE>
it and has paid, or made adequate provision for the payment of, all taxes
which have or may become due pursuant to such returns or to any assessment
received by it. Neither the Company nor any of its Subsidiaries has
knowledge of any material additional assessments or any basis therefor. The
Company reasonably believes that the charges, accruals and reserves on the
financial statements in respect of taxes or other governmental charges are
adequate.
4.13. Litigation. No litigation or proceeding before, or investigation
----------
by, any foreign, federal, state or municipal board or other governmental or
administrative agency or any arbitrator, is pending or to the knowledge of
the Company threatened (or to the knowledge of the Company does any basis
exist therefor), against the Company or its Subsidiaries or, to the Company's
knowledge, any officer of the Company or its Subsidiaries, which in the
aggregate could result in any material liability or which may otherwise
result in a Material Adverse Effect, or which seeks rescission of, seeks to
enjoin the consummation of, or which questions the validity of, this
Agreement or any other Investor Agreement or any of the transactions
contemplated hereby or thereby. Neither the Company nor its Subsidiaries has
been charged, nor to the Company's knowledge is it threatened to be charged,
with infringement of any trademark, trade name, service mark, copyright,
patent, patent right or other proprietary right of any Person.
4.14. Violation of Other Instruments. After giving effect to all
------------------------------
consents and waivers obtained by the Company on or prior to the date hereof,
neither the execution and delivery of this Agreement or any other Investor
Agreement by the Company or its Subsidiaries party thereto, nor the
consummation of any of the transactions contemplated hereby or thereby, will
(a) constitute a breach of or a default under any Contractual Obligation of
the Company or its Subsidiaries or, to the Company's knowledge, any executive
officer of the Company or any of its Subsidiaries, (b) result in acceleration
in the time for performance of any obligation of the Company or its
Subsidiaries under any such Contractual Obligation, (c) result in the
creation of any Lien upon any asset of the Company or its Subsidiaries, (d)
require any consent, waiver or amendment to any such Contractual Obligation
that has not been obtained, (e) give rise to any severance payment, right of
termination, securities repurchase right or other right under any such
Contractual Obligation, or (f) violate or give rise to a default under any
Legal Requirement, except for events or conditions described in clauses (a)
through (f) above which will not in the aggregate be reasonably likely to
result in a Material Adverse Effect.
4.15. Filings, Broker's Fees, etc. Except as provided in Exhibit 4.15,
---------------------------
no approval, consent, authorization or other order of, and no declaration,
filing, registration, qualification or recording with, any governmental
authority or any other Person is required to be made by or on behalf of the
Company or its Subsidiaries in
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<PAGE>
connection with the execution, delivery or performance of this Agreement or
any other Investor Agreement, or any of the transactions contemplated hereby
or thereby, other than filing the Amended Certificate of Designation and the
Charter of the Company with the Delaware Secretary of State. Except as
provided in Exhibit 4.15, neither the Company nor any of its Subsidiaries is
obligated to pay any broker's fee, finder's fee, investment banker's fee or
other similar transaction fee in connection with any Investor Agreement or
the transactions contemplated hereby or thereby.
4.16. SBA Matters. The Company is a "small business concern" within the
-----------
meaning of the federal Small Business Investment Act of 1958, as amended, and
the regulations thereunder (the "Small Business Investment Act"), and Part
-----------------------------
121 of Title 13 of the United States Code of Federal Regulations ("CFR") by
---
virtue of having tangible net worth together with its affiliates of less than
$18,000,000 as of the end of its last fiscal year and average net income
(after federal taxes) for its last two fiscal years of less than $6,000,000.
All information set forth in the SBA Forms regarding the Company and its
affiliates is accurate and complete. Copies of the SBA Forms have been, on
or prior to the date hereof, completed and executed by the Company and
delivered to the Investor.
4.17. SBIC Company Awareness. The Company acknowledges its awareness
----------------------
that the Investor is a Federal licensee under the Small Business Investment
Act.
4.18. SBIC Eligibility. The Company and its subsidiaries do not engage
----------------
in any activity which would render the Company ineligible to receive
financing assistance from an SBIC as provided in 13 CFR 107.720.
4.19. Governmental Regulation. Neither the Company nor its Subsidiaries
-----------------------
is subject to regulation under the Investment Company Act of 1940, or subject
to any statute or regulation which regulates the incurring of indebtedness by
the Company for borrowed money.
4.20. Margin Stock. Neither the Company nor its Subsidiaries owns any
------------
Margin Stock.
4.21. Real Property Holding Corporation. Neither the Company nor its
---------------------------------
Subsidiaries is a "United States real property holding corporation", as
defined in section 897(c)(2) of the Code and Treasury Regulation section
1.897-2(b).
4.22. Disclosure. To the actual knowledge of the Company, neither this
----------
Agreement, nor any agreement, certificate, statement or document furnished in
writing by or on behalf of the Company to the Investor in connection herewith
or therewith,
-19-
<PAGE>
contains any untrue statement of material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein
not misleading in any material respect (except that no representation or
warranty is made as to the Projections).
5. GENERAL COVENANTS. The Company covenants that, with respect to each of
the items set forth in Sections 5.1.1, 5.17, 5.21 and 5.25, which shall
survive for so long as the Investor or any of its Affiliates holds any
Investor Securities, and with respect to each of the other items set forth in
this Section 5, which shall survive until the closing of a Liquidity Event,
it will comply, and will cause each of its Subsidiaries to comply, with the
following provisions:
5.1. Covenants Relating to the Company's Board of Directors.
------------------------------------------------------
5.1.1. Observation Rights. The Company hereby covenants and
------------------
agrees that it shall provide the Investor or its Affiliates with reasonable
notice of all meetings of the Board of Directors of the Company and meetings
of committees which have been delegated any decision making authority by the
Board of Directors of the Company. The Company shall invite or cause to be
invited a representative of the Investor or its Affiliates (a
"Representative") to attend (in person or by telephone, at the
Representative's option if the meeting is not a telephone meeting) each such
Board meeting or such committee meeting. The Representative shall be
provided with all advance materials provided to Board members and such
committee members. At the reasonable request of the Investor, the Company
will allow a Representative to participate in any such meeting by telephone.
Following any such meeting, the Company shall provide the Investor or its
Affiliates with copies of the agenda and minutes with respect thereto,
whether or not a Representative participated in or attended such meeting.
Notwithstanding the foregoing and Section 5.14 of the Subordinated Loan
Agreement, as in effect on the date hereof, the Investor agrees that the
Investor and Paribas Capital Funding LLC shall together be entitled to
designate only one Representative, as shall be mutually agreed upon by them
from time to time.
5.2. Information and Reports to be Furnished. The Company and its
---------------------------------------
Subsidiaries will maintain a system of accounting in which entries that are
correct and complete in all material respects will be made of all material
dealings and material transactions in relation to their business and affairs
in accordance with GAAP. The Company's internal financial control systems
will at all times be reasonably satisfactory to the Required Holders. Until
a Liquidity Event occurs, the Company will furnish the following information
to each Principal Holder:
5.2.1. Annual Statements. As soon as available, and in any event
-----------------
within 90 days after the end of each fiscal year of the Company, the audited
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<PAGE>
consolidated balance sheet of the Company and its Subsidiaries as of the end
of such fiscal year and the audited consolidated statements of income,
stockholders' equity and cash flows for such year of the Company and its
Subsidiaries, together with the consolidated figures for the preceding fiscal
year, if any (all in reasonable detail) such statements being accompanied by
the unqualified reports thereon of independent certified public accountants,
reasonably satisfactory to the Required Holders, to the effect that such
consolidated financial statements have been prepared in accordance with GAAP
and present fairly in all material respects the financial position of the
Company and its Subsidiaries as of the dates specified and the results of
their operations and cash flows with respect to the periods specified.
5.2.2. Quarterly Reports. As soon as available, and in any event
-----------------
within 45 days after the end of each of the first three fiscal quarters in
each fiscal year of the Company, the unaudited consolidated balance sheets of
the Company and its Subsidiaries as of the end of such quarter and the
consolidated statements of income, stockholders' equity and cash flows for
such quarter and the portion of the fiscal year then ended of the Company and
its Subsidiaries, together with comparative consolidated figures for the
corresponding periods of the preceding fiscal year (all in reasonable
detail).
5.2.3. Monthly Reports. As soon as practicable, and in any event
---------------
within 30 days after the end of each calendar month, the financial statements
of the Company and its Subsidiaries as of the end of such month in the form
customarily prepared by management for internal use.
5.2.4. Annual Budgets. Not later than the end of each fiscal year
--------------
of the Company a proposed month by month operating and capital budget for the
following fiscal year of the Company, including projected cash flows.
5.2.5. Officers' Certificates. Together with delivery of
----------------------
financial statements of the Company and its Subsidiaries pursuant to Sections
5.2.1 and 5.2.2 above as of the end of each fiscal quarter of the Company, a
certificate of the Chief Executive Officer or the Chief Financial Officer of
the Company, that such statements have been prepared in accordance with GAAP
and present fairly in all material respects the Consolidated financial
position of the Company and its Subsidiaries as of the dates specified and
the results of their operations and cash flows with respect to the periods
specified (subject in the case of interim financial statements only to normal
year-end audit adjustments and the addition of footnotes).
5.2.6. Notice of Litigation, Defaults, etc. The Company will
-----------------------------------
promptly, and in any event within 30 days after the Company has knowledge of
such event, give written notice to each Principal Holder of (a) any
litigation or any
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<PAGE>
administrative proceeding to which the Company or any of its Subsidiaries may
hereafter become a party which after giving effect to applicable insurance
would reasonably be expected to result in a charge against income in excess
of $100,000, (b) any resignation of or other change in executive management
of the Company or any serious illness of any member of such executive
management, and (c) any offers to purchase a majority (or greater) interest
in the Company (whether by means of purchase of securities or assets or
otherwise). The Company will promptly, and in any event within seven days
after any officer of the Company or any of its Subsidiaries obtains knowledge
of any Remedy Event or material default by the Company under this Agreement,
any other Investor Agreement or any other Material Contract, furnish notice
to each Principal Holder specifying the nature of the Remedy Event or
material default and stating the action the Company has taken or proposes to
take with respect thereto. Promptly after the receipt thereof, the Company
will furnish to each Principal Holder copies of any reports as to
inadequacies in accounting controls submitted by independent accountants.
5.2.7. Information Provided to Stockholders. Within 10 days after
------------------------------------
its release to stockholders, the Company will furnish the holders of Investor
Securities with copies of all information, proxy statements, notices, reports
and other stockholder material mailed to stockholders.
5.2.8. Information Furnished under Other Agreements. To the
--------------------------------------------
extent not otherwise provided pursuant to this Section 5.2, all other
information and reports which are furnished by the Company to the lenders in
accordance with the Senior Debt Documents (whether or not still in effect) or
to the holders of the Company's Class A Stock or to the other holders of the
Series B Preferred Stock pursuant to the Original Securities Purchase
Agreement.
5.2.9. Other Information. From time to time upon the reasonable
-----------------
request of any authorized officer of any Principal Holder, the Company will
furnish to any such authorized officer such information regarding the
business, assets or financial condition of the Company and its Subsidiaries
as such officer may reasonably request.
5.2.10. Annual Information Meeting. The Company shall meet each
--------------------------
year with each Principal Holder within 45 days after the release of the
annual operating budget and the audits of the Company for the purpose of
discussing the results of such budgets and audits.
5.3. Conduct of Business. Without the prior written consent of the
-------------------
Required Holders:
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<PAGE>
5.3.1. Type of Business. The Company and its Subsidiaries will
----------------
engage only in the business of (a) managing the operations of physician or
dental group practices or other providers of physician or dental services;
(b) managing the operations of lines of diagnostic and treatment businesses
ancillary or related to physician or dental group practices or other
providers of physician or dental services; (c) negotiating and administrating
managed care contracts between insurance companies and other medical payors
and physician or dental group practices or other providers of physician or
dental services; and (d) operating physician practices through the employment
by subsidiaries of physicians and other ancillary personnel. For a period of
one year following the date hereof, the Company will not change its business
activity if such change would render the Company ineligible to receive
financial assistance from a Small Business Investment Company under the Small
Business Investment Act and the regulations thereunder.
5.3.2. Maintenance of Properties, etc. Each of the Company and
------------------------------
its Subsidiaries (a) will keep its properties and assets in such repair,
working order and condition, and will from time to time make such repairs,
renewals, replacements, additions and improvements thereto, as its management
deems reasonably necessary and appropriate; and (b) will comply at all times
in all material respects with the provisions of all Material Contracts
(including its Charter, Bylaws and Material Contracts) applicable to it so as
to prevent any loss or forfeiture thereof or thereunder unless compliance
therewith is being at the time contested in good faith by appropriate
proceedings, or unless the failure so to comply will not result, and is not
reasonably likely to result, in a Material Adverse Effect or any adverse
effect on the rights of the Investor, and (c) will do all things necessary to
preserve, renew and keep in full force and effect and in good standing the
corporate existence and authority of the Company and its Subsidiaries
necessary to continue their respective businesses unless the failure so to
comply will not result, and is not reasonably likely to result, in a Material
Adverse Effect.
5.3.3. Compliance with Laws and Material Contracts. Each of the
-------------------------------------------
Company and its Subsidiaries will comply in all material respects with all
Legal Requirements, as in effect from time to time, applicable to it, except
where compliance therewith shall at the time be contested in good faith by
appropriate proceedings. Each of the Company and its Subsidiaries will
comply in all material respects with all of the covenants and other terms of
each of the Material Contracts.
5.3.4. Insurance. Each of the Company and its Subsidiaries will
---------
keep its assets which are of an insurable character insured against loss or
damage by fire, explosion or other hazards which may be insured against by
extended coverage in an amount sufficient to prevent it from becoming a co-
insurer and in any event not less than 80% of the insurable value of the
property insured, and will maintain insurance against liability to persons
and property and other hazards and risks to the extent and
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<PAGE>
in the manner customary for companies in similar businesses similarly
situated. All such insurance shall be provided by reputable insurers
licensed to write insurance in the jurisdiction where the insured entity is
located; provided, however, that the Company and its Subsidiaries may effect
-------- -------
workers' compensation insurance or similar coverage with respect to
operations in any particular state or other jurisdiction through an insurance
fund operated by such state or jurisdiction. The Company will maintain in
effect the key executive life insurance policies referred to in Section 3.6.
5.3.5. Foreign Qualification. Each of the Company and its
---------------------
Subsidiaries will be qualified as a foreign corporation in each jurisdiction
in which it is required to qualify, except for such jurisdictions in which
the failure to be so qualified could not have a Material Adverse Effect.
5.4. Charter Amendment, etc. The Charter and By-laws of the Company
----------------------
and its Subsidiaries shall not be amended without the prior written consent
of the holders of 90% of the Preferred Stock issued pursuant to this
Agreement and the Original Securities Purchase Agreement, if such amendment
has, or would be reasonably likely to have, an adverse effect on any Investor
Securities.
5.5. Merger, Consolidation and Sale of Assets. Neither the Company nor
----------------------------------------
any of its Subsidiaries will become a party to or authorize any merger or
consolidation, or sell, lease, sublease or otherwise transfer or dispose of a
material portion of its assets, or enter into an agreement therefor, or enter
into or authorize any liquidation, dissolution or recapitalization, except
for:
5.5.1. A Liquidity Event.
5.5.2. Any of the following: (a) the merger of a wholly owned
Subsidiary of the Company into the Company or another wholly owned Subsidiary
of the Company; or (b) the merger of a professional practice group into the
Company or into a wholly owned Subsidiary of the Company (or the merger of a
wholly owned Subsidiary of the Company into a professional practice group)
which does not require the approval of the Required Holders pursuant to
Section 5.9.2.
5.5.3. Sales of inventory in the normal course of business.
5.5.4. Other transactions receiving the prior written approval of
the Required Holders.
For purposes of this Section a "material portion of its assets" shall
mean assets having an aggregate fair market value of at least 25% of total
assets of the
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<PAGE>
Company and its Subsidiaries on a pro forma basis which are sold, leased,
subleased, transferred or disposed of after the date hereof.
5.6. Indebtedness. Without the prior written consent of the Required
------------
Holders, neither the Company nor any of its Subsidiaries shall incur or
permit Indebtedness to exist or remain outstanding, except for:
5.6.1. Accounts payable for goods, services and taxes incurred in
the ordinary course of business.
5.6.2. Purchase money indebtedness secured by purchase money Liens
(including mortgages, conditional sales, Capitalized Leases and any other
title retention or deferred purchase devices or similar Contractual
Obligations) permitted by Section 5.8.2 in aggregate principal amount
(including Indebtedness in respect of Capitalized Lease obligations) not in
excess of $500,000.
5.6.3. Indebtedness specifically contemplated by the Investor
Agreements or Material Contracts as in effect on the date hereof and
indebtedness outstanding on the date hereof after giving effect to the
transactions contemplated hereby.
5.6.4. Other Indebtedness not to exceed in the aggregate 200% of
Stockholders' Equity, in each case computed as of the date of incurrence of
such Indebtedness.
5.7. Guarantees. Without the prior written consent of the Required
----------
Holders, neither the Company nor any of its Subsidiaries will make, have
outstanding or otherwise become or remain liable with respect to any
Guarantee except for:
5.7.1. Endorsements for collection or deposit in the ordinary
course of business.
5.7.2. Guarantees by the Company of any Indebtedness of its
Subsidiaries, practice groups relating to its Subsidiaries or joint ventures
permitted by this Agreement.
5.7.3. Guarantees specifically contemplated by any of the Material
Contracts, or Guarantees in effect on the date hereof after giving effect to
the transactions contemplated hereby.
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<PAGE>
5.8. Liens. Without the prior written consent of the Required Holders,
-----
neither the Company nor any of its Subsidiaries will create or incur or
suffer to be created or incurred or to exist any Lien, except for:
5.8.1. Liens created by the Material Contracts or to secure
Indebtedness refinancing any secured Indebtedness incurred under any Material
Contract, including in any event Liens securing amounts owing by the Company
and its Subsidiaries under the Credit Agreement.
5.8.2. Purchase money Liens (including mortgages, conditional
sales, Capitalized Leases and any other title retention or deferred purchase
devices or similar Contractual Obligations) on assets of the Company or any
of its Subsidiaries existing or created at the time of acquisition thereof,
and Liens securing the renewal, extension and refunding of Indebtedness
secured by assets subject to such a Lien in an amount not exceeding the
amount thereof remaining unpaid; provided, however, that the aggregate
-------- -------
principal amount of Indebtedness (including Indebtedness in respect of
Capitalized Lease obligations) secured by Liens permitted by this Section
5.8.2 shall not exceed the amount permitted by Section 5.6.2, Indebtedness
secured by each such Lien on each asset shall not exceed the cost of the
asset subject thereto and such Lien shall attach solely to the particular
asset so acquired and any additions or accessions thereto.
5.8.3. Liens to secure taxes, assessments and other governmental
charges or claims for labor, material or supplies incurred in the ordinary
course of business.
5.8.4. Deposits or pledges made in connection with, or to secure
payment of, workers' compensation, unemployment insurance, old age pensions
or other social security or in connection with bids or contexts to the extent
incurred in the ordinary course of business.
5.8.5. Encumbrances in the nature of zoning restrictions,
easements, rights or restrictions of record on the use of real property and
landlord's and lessor's liens under leases on the premises rented, which do
not materially detract from the value of such property or impair the use
thereof in the business of the Company or any of its Subsidiaries.
5.8.6. Set-off rights and banker's liens for the benefit of
depository institutions.
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<PAGE>
5.8.7. The purchase of accounts receivable by the Company or any
of its Subsidiaries from its Subsidiaries or practice groups relating to its
Subsidiaries.
5.8.8. Other Liens securing amounts not in excess of $100,000.
5.9. Investments and Acquisitions. Except as set forth on Schedule __
----------------------------
to the Credit Agreement, without the prior written consent of the Required
Holders, neither the Company nor any of its Subsidiaries will have
outstanding or acquire or commit itself to acquire or hold any Investment
(including the acquisition of any other business) except for:
5.9.1. Investments of the Company and its Subsidiaries in: (a)
negotiable certificates of deposit, time deposits, money market accounts and
bankers' acceptances issued by any United States bank or trust company,
having a combined capital, surplus and undivided profits of not less than
$100,000,000; (b) short-term corporate obligations rated Prime-1 by Moody's
Investors Service Inc. or A-1 by Standard & Poor's Ratings Group; (c) any
direct obligation of the United States of America or any agency or
instrumentality thereof (i) which has a remaining maturity at the time of
purchase of not more than one year or (ii) which is subject to a repurchase
agreement with a bank described in clause (a) above exercisable within one
year from the time of purchase; and (d) any registered investment company
substantially all of the assets of which consists of Investments described in
clauses (a), (b) and (c) above.
5.9.2. Investments of the Company to acquire Subsidiaries or make
other acquisitions or to invest in joint ventures for an aggregate
consideration not exceeding 50% of total assets of the Company and its
Subsidiaries on the date hereof unless any such acquisition of a professional
practice group does not involve an acquisition price exceeding 600% of the
net anticipated annual contribution to the Company from such practice group.
5.9.3. Loans and advances to employees not in excess of $50,000 in
the aggregate at any one time outstanding.
5.9.4. Investments in any of the Company's Subsidiaries listed in
Exhibit 4.2.2 or acquired in accordance with the other provisions of this
Section 5.9.
5.9.5. The purchase of accounts receivable and the extension of
credit by the Company and its Subsidiaries under customary terms in physician
practice management agreements relating to its Subsidiaries.
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<PAGE>
5.10. Distributions. Without the prior written consent of the Required
-------------
Holders, neither the Company nor any of its Subsidiaries shall make any
Distribution except:
5.10.1. Any Subsidiary may make Distributions to the Company or to
any wholly owned Subsidiary which is its immediate parent, or to any other
Subsidiary to the extent permitted by the Credit Agreement.
5.10.2. The Company may repurchase shares of Common Stock in
accordance with the Stockholders Agreement.
5.10.3. The Company may pay dividends on, and make required
redemptions of, the Preferred Stock in accordance with its terms.
5.10.4. The Company may repurchase shares of Common Stock from its
employees at cost or fair market value upon termination of employment.
5.10.5. The Company may make redemptions of Class A Stock pursuant
to the terms of its Charter, as now in effect, in accordance with the
Material Contracts as now in effect.
5.11. Capital Expenditures. Without the prior written consent of the
--------------------
Required Holders, the Company and its Subsidiaries will not make Capital
Expenditures in any fiscal quarter which exceed 125% of the Capital
Expenditures provided in the Projections for such quarter.
5.12. [Intentionally omitted]
5.13. Stock Issuance, etc. Except with the prior written consent of the
-------------------
Required Holders, neither the Company nor any Subsidiary will (a) issue,
sell, give away, transfer, pledge, mortgage, assign or otherwise dispose of,
(b) grant any rights (either preemptive or other) or options to subscribe for
or purchase, or (c) enter into any agreements or issue any warrant providing
for the issuance of any of the capital stock of the Company or any stock or
securities convertible into or exchangeable for any of the capital stock of
the Company, other than as specifically contemplated by the Investor
Agreements or the Material Contracts, including but not limited to (i)
issuance of shares of Common Stock upon conversion of shares of Non-Voting
Common Stock, Prime Common Stock or Class A Stock; (ii) issuance of shares of
Non-Voting Common Stock upon conversion of shares of Common Stock; (iii)
issuance of shares of Common Stock upon exercise or conversion of warrants
issued on or prior to the date hereof to the lenders under the Subordinated
Loan Agreement and the investors party to the Class A Stock and Warrant
Purchase Agreement, dated December 29, 1995 by and among
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the Company, EGL Holdings, Inc., Mercury Asset Management PLC, NatWest
Ventures Investments Limited and certain stockholders of the Company, the
Original Securities Purchase Agreement and this Agreement and (iv) shares of
Common Stock and Prime Common Stock issued in connection with acquisitions
permitted by Section 5.9.2. The Company shall issue options for, or shares
of, Common Stock only upon direction of the Compensation Committee of the
Company's Board of Directors, including the approval of the Preferred
Director who is a member thereof. Except as specifically contemplated by the
Material Contracts, the Company shall not, and shall not subject itself to
any obligation to, repurchase or otherwise acquire or retire any shares of
the capital stock of the Company or any securities convertible into or
exchangeable for any of the capital stock of the Company. On or before
January 31 of each year, the Company shall provide the Principal Holders with
an annual schedule of its authorized capital stock in the form of Exhibit
4.3.1 as of December 31 of the preceding calendar year.
5.14. Amendment of Material Contracts, etc. Except with the prior
------------------------------------
written consent of the Required Holders, the Company shall not agree to any
amendment or modification of, or grant any waiver or fail to enforce any of
its rights pursuant to, any of the Material Contracts if such amendment,
modification, waiver or failure has or could have, directly or indirectly,
any Material Adverse Effect or any material adverse effect on any holder of
any then outstanding Investor Securities or on the rights, remedies or
interests of such holder hereunder or under any of the Material Contracts.
Except to the extent prohibited by the Company's principal senior bank credit
facility as from time to time in effect, neither the Company nor any of its
Subsidiaries shall remain or become a party to or be bound by any agreement,
deed, lease or other instrument which imposes any restriction or limitation
on Distributions that are required to be made by the Company on or in respect
of the Investor Securities or which restricts the ability of the Company's
Subsidiaries to pay dividends or to make advances to the Company; provided,
--------
however, that the Company and its Subsidiaries may become and remain party to
-------
the Material Contracts as in effect on the date hereof, with such changes
therein as the Required Holders may agree to in writing, and may perform
their respective obligations thereunder to the extent not otherwise
inconsistent with the Investor Agreements. Except to the extent required by
applicable law, neither the Company nor any of its Subsidiaries shall
transfer any of its surplus to capital if as a result thereof the Company's
ability to perform any of the terms of the Investor Agreements would be
impaired.
5.15. Transactions with Affiliates. Except for transactions expressly
----------------------------
contemplated by the Investor Agreements, without the prior written consent of
the Required Holders, neither the Company nor any of its Subsidiaries shall
effect or remain obligated with respect to any transaction with any Affiliate
other than with the Company or any Subsidiary of the Company except on terms
no less favorable to the
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Company or any of its Subsidiaries than it could obtain in an arm's-length
transaction with an unrelated party.
5.16. Compliance with ERISA, etc. Except with the prior written consent
--------------------------
of the Required Holders, the Company and its Subsidiaries will meet all
minimum funding requirements applicable to the Pension Plans imposed by ERISA
or the Code (without giving effect to any waivers of such requirements or
extensions of the related amortization periods which may be granted) and will
at all times comply in all material respects with all other provisions of
ERISA and the Code which are applicable to the Pension Plans and the Employee
Benefit Plans.
5.17. SBA Requirements. To the extent required, in the reasonable
----------------
judgment of the Investor, to avoid a Regulatory Problem:
5.17.1. Inspection. The Company covenants and agrees that it will
----------
permit the Investor and its permitted transferees and its and their
representatives (including without limitation, examiners from the Small
Business Administration) to inspect the properties of the Company and to
examine and make extracts and copies from the books and records of the
Company during normal business hours (including, without limitation, for
purposes of verifying the certifications and representations made by the
Company in the SBA Forms and this Agreement and verifying compliance with the
covenants contained in this Agreement). For the purpose of conducting
independent investigations pursuant to this Section, the Company shall make
available to an authorized officer of the Investor upon reasonable notice and
at reasonable times (a) the Chief Financial Officer or the Chief Executive
Officer of the Company; and (b) any other officers, accountants and internal
control personnel of the Company. The Company shall use reasonable efforts
to make available for such purpose any directors of the Company who are not
officers.
5.17.2. Information. In addition, the Company covenants and agrees
-----------
to provide to the Investor any other information which the Investor
reasonably requests, including without limitation, at least annually,
sufficient financial and other information necessary to allow the Investor to
evaluate the financial condition of the Company for the purpose of valuing
the Investor's interest in the Company, to determine the continued
eligibility of the Company under the Small Business Investment Act and the
regulations thereunder, including 13 CFR 121.301, and to verify the use of
the proceeds received by the Company from the purchase of the Investor
Securities. All such information shall be certified by the President, Chief
Executive Officer, Treasurer or Chief Financial Officer of the Company.
Promptly after the end of each fiscal year of the Company (and in any event
prior to February 28 of each year), the Company shall provide to the Investor
a written assessment in form and substance satisfactory to the Investor of
the economic impact of the financing assistance provided
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to the Company by the Investor, specifying the full time equivalent jobs
created or retained, and the impact of the financing on the revenues and
profits of the business and on taxes paid by the business and its employees.
Upon the request of the Investor the Company will also provide all
information requested by the Investor in order for it prepare and file SBA
Form 468 and any other information requested or required by any governmental
agency asserting jurisdiction over the Investor.
5.17.3. Non-Discrimination. The Company will at all times comply
------------------
with the nondiscrimination requirements of 13 CFR, Parts 112, 113 and 117.
5.17.4. Right of First Offer. In the event the Investor has the
--------------------
right to purchase any Restricted Shares pursuant to Section 2 of the
Stockholders' Agreement, but is prohibited from exercising such right under
the Small Business Investment Act, or the regulations promulgated thereunder,
the Investor may assign such right to the Company and upon such assignment
the Company shall, subject to any legal or contractual restrictions, purchase
such Restricted Shares and promptly sell to the Investor such Restricted
Shares, or if requested by the Investor, securities that do not have voting
rights but otherwise have the same terms as such Restricted Shares and which
are convertible or exercisable into voting securities on such conditions as
are requested by the Investor in light of the regulatory considerations
prevailing, for the purchase price upon which such Restricted Shares were
purchased by the Company.
5.18. Annual Meeting. Except with the prior written consent of the
--------------
Required Holders, within 90 days after the Company's annual financial
statements are required to be furnished in accordance with Section 5.2.1 and
on not less than 10 days prior written notice, the Company will hold an
annual meeting for the benefit of its stockholders, including each holder of
Investor Securities. At such annual meeting the principal executive,
financial and operations officers of the Company and its Subsidiaries will
present a review of, and will discuss with those in attendance, in reasonable
detail, the general affairs, management, financial condition, results of
operations and business prospects of the Company and its Subsidiaries.
5.19. Listing of Shares. If the shares of Common Stock issuable upon
-----------------
conversion of the Preferred Stock or upon exercise or conversion of the
Warrants require listing on any national securities exchange or quotation
system, except with the prior written consent of the Required Holders, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be listed or duly approved for listing on
such national securities exchange or quotation system, subject to official
notice of issuance of such shares.
5.20. Real Property Holding Corporation. Without the prior written
---------------------------------
consent of the Required Holders, neither the Company nor any of its
Subsidiaries shall
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become a "United States real property holding corporation" as defined in
section 897(c)(2) of the Code and Treasury Regulation section 1.897-2(b).
5.21. Regulatory Compliance Cooperation.
---------------------------------
5.21.1. Exchange for Nonvoting Securities. In the event that the
---------------------------------
Investor determines that it has a Regulatory Problem, the Company shall use
reasonable efforts to take such actions as are reasonably requested by the
Investor in order (a) to effectuate and facilitate any transfer by the
Investor of any Investor Securities then held by the Investor to any Person
designated by the Investor, and (b) to permit the Investor (or any affiliate
of the Investor) to exchange all or any portion of the voting Investor
Securities then held by such Person on a share-for-share basis for shares of
a class of nonvoting securities of the Company, which nonvoting securities
shall be identical in all respects to such voting Investor Securities, except
that such new securities shall be nonvoting and shall be convertible into
voting securities on such terms as are reasonably requested by the Investor
in light of regulatory considerations then prevailing. Such actions may
include, but shall not necessarily be limited to:
(i) entering into such additional agreements as are
requested by the Investor to permit any Person designated by
the Investor to exercise any voting power which is relinquished
by the Investor upon any exchange of voting Investor Securities
for nonvoting securities of the Company; and
(ii) entering into such additional agreements, adopting
such amendments to the Charter and bylaws of the Company and
taking such additional actions as are reasonably requested by
the Investor in order to effectuate the intent of the
foregoing.
5.21.2. Future Securities Issuances. In the event the Investor has
---------------------------
the right to acquire any securities of the Company (as the result of a
preemptive offer, pro rata offer or otherwise), at the Investor's request the
Company will offer to sell to the Investor non-voting securities on the same
terms as would have existed had the Investor acquired the securities so
offered and immediately requested their exchange for non-voting securities
pursuant to Section 5.21.1. The Company shall grant to any subsequent holder
of Investor Securities originally acquired by any Investor, upon such
Person's request, the same rights granted to the Investor pursuant to this
Section 5.21. In the event that any Subsidiary of the Company ever offers to
sell any of its securities, then the Company will cause such Subsidiary to
enter into agreements with the Investor substantially similar to this Section
5.21.
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5.22. Environmental Laws. Except with the prior written consent of the
------------------
Required Holders:
5.22.1. Compliance with Law and Permits. Each of the Company and
-------------------------------
its Subsidiaries shall use and operate all of its facilities and properties
in material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations relating
to environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with all
applicable Environmental Laws.
5.22.2. Notice of Claims, etc. Each of the Company and its
---------------------
Subsidiaries shall immediately notify each Principal Holder, and provide
copies upon receipt, of all material written claims, complaints, notices or
inquiries from governmental authorities relating to the condition of its
facilities and properties or compliance with Environmental Laws, and shall
use reasonable efforts to promptly cure and have dismissed with prejudice to
the reasonable satisfaction of the Required Holders any actions and
proceedings relating to compliance with Environmental Laws.
5.23. Compliance Program. Except with the prior written consent of the
------------------
Required Holders, the Company will implement procedures designed to detect
and deter potential violations of the Ethics in Patient Referrals Act, 42
U.S.C. (S) 1395nn et seq., the Medicare and Medicaid Anti-Kickback Statute,
42 U.S.C. (S) 1320a-7b and other applicable health care and federal laws
(collectively, the "Applicable Health Care Laws"), including:
---------------------------
(a) annual distribution of a comprehensive set of guidelines for
physicians or dentists employed by the Company regarding proper
compliance with the Applicable Health Care Laws;
(b) establishment of a "Compliance Committee" of the board of
directors comprised solely of physician and management
representatives; and
(c) engagement of qualified professional advisers to review
operations and acquisitions by the Company or its Subsidiaries.
5.24. Acquisition Diligence. Except with the prior written consent of
---------------------
the Required Holders, at least 10 days prior to the acquisition of any
physician or dental group practices or assets relating to physician or dental
services, the Company shall deliver to each Principal Holder:
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(a) A term sheet summarizing the principal terms of the
acquisition.
(b) A due diligence memorandum which summarizes the billing,
referral and other operational practices of the physician or dental
practices or assets to be acquired and which provides a thorough legal
analysis of the application of the Applicable Health Care Laws to such
practices; and
(c) A memorandum which describes anticipated billing, referral
and other operational practices of the physician or dental practices
or assets to be acquired upon consummation of the acquisition and
which provides a thorough legal analysis of the application of the
Applicable Health Care Laws to such anticipated practices.
5.25. Shares Reserved. The Company shall at all times keep authorized
---------------
and duly reserved sufficient shares of the Company's Common Stock for
issuance upon conversion of the Series B Preferred Stock and Warrants. The
Company shall take any and all actions necessary to remain in compliance with
this Section 5.25.
6. INVESTOR SECURITIES; RESTRICTIONS ON TRANSFER.
6.1. Representations and Warranties of the Investor. The Investor
----------------------------------------------
represents and warrants to the Company that:
(a) It is an "accredited investor" for purposes of Regulation D
under the Securities Act and that it is acquiring the Investor
Securities at the Closing for investment for its own account, and not
with a view to selling or otherwise distributing the Investor
Securities in violation of the Securities Act; provided, however, that
-------- -------
nothing shall prevent the Investor from transferring the Investor
Securities in compliance with this Section 6; and provided, further,
-------- -------
that the disposition of the Investor's property shall at all times
remain in the Investor's control.
(b) It has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof.
(c) It has had an opportunity to discuss the Company, business,
management and financial affairs with the Company's management and has
received (or had made available to it) any financial and business
documents requested by it.
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<PAGE>
(d) It understands that (i) the Investor Securities purchased by
it have not been registered under the Securities Act by reason of
their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to section 4(2) thereof or
Rules 505 or 506 under the Securities Act, (ii) such Investor
Securities must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration, (iii) such Investor Securities will bear a legend to
such effect and (iv) the Company will make a notation on its transfer
books to such effect.
(e) All offers to purchase the Investor Securities were made to
it in the State of New York.
(f) It has no contract, arrangement or understanding with any
broker, finder or similar agent with respect to the transactions
contemplated by this Agreement.
6.2. Home Office Payment. All payments made in respect of the Investor
-------------------
Securities held by the Investor shall be paid by Company check or wired to
the address of the Investor given in Section 8 hereof, accompanied by
sufficient information to identify the source and application thereof or by
such other method or at such other address as the Investor shall have from
time to time given timely notice of to the Company.
6.3. Replacement of Lost Securities. Upon receipt of evidence
------------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Investor Security and, in the case of any such loss, theft
or destruction, upon delivery of an unsecured indemnity agreement from the
Investor or such other holder reasonably satisfactory to the Company or, in
the case of any such mutilation, upon the surrender of the security for
cancellation to the Company at its principal office, the Company at its
expense will execute and deliver in lieu thereof a new security of like
tenor. Any security in lieu of which any such new security has been so
executed and delivered by the Company shall not be deemed to be outstanding
for any purpose.
6.4. Transfer, Exchange and Conversion of Investor Securities. The
--------------------------------------------------------
Company shall keep at its principal office a register in which shall be
entered the names and addresses of the holders of the capital stock and other
Investor Securities of the Company and particulars of the respective shares
of Common Stock, Preferred Stock (including the classes thereof), Warrants
and other Investor Securities held by them and of all transfers, exchanges,
conversions and redemptions of such securities. Upon surrender at such
office or such other place as shall be duly specified by the Company of any
certificate representing shares of capital stock or instrument evidencing any
other
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<PAGE>
Investor Securities for exchange, conversion or (subject to compliance with
the applicable provisions of this Agreement, including the conditions set
forth in Section 6.5) transfer, the Company shall as appropriate issue, at
its expense, one or more new certificates or instruments in such denomination
or denominations as may be requested, and registered as such holder may
request. Any certificate representing shares of capital stock or instrument
evidencing any other Investor Securities surrendered for transfer shall be
duly endorsed, or accompanied by a written instrument of transfer duly
executed by the holder of such certificate or instruments or an attorney duly
authorized in writing. The Company will pay shipping and insurance charges,
from and to each holder's principal office, upon any transfer, exchange or
conversion provided for in this Section 6.4.
6.5. Restrictions on Transfer. Investor Securities shall be
------------------------
transferable only upon satisfaction of the applicable conditions specified in
this Section 6.5 or unless sold in an offering registered under the
Securities Act or pursuant to an exemption from the registration requirements
of the Securities Act.
6.5.1. Restrictive Legend. Except as otherwise permitted by
------------------
Section 6.5.3, each certificate or instrument representing Investor
Securities shall bear a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under the securities laws of any state, and may not be sold, or
otherwise transferred, in the absence of such registration or
an exemption therefrom under such Act and under any such
applicable state laws. In addition, the shares represented by
this certificate are subject to restrictions on transfer
contained in a Securities Purchase Agreement dated as of
October __, 1997, a copy of which is available at the issuer's
office and will be furnished free of charge to the holder
hereof."
6.5.2. Notice of Proposed Transfer Obligations of Counsel. Prior
--------------------------------------------------
to any transfer of any Investor Securities other than pursuant to an
effective registration statement under the Securities Act, the holder thereof
will give written notice to the Company of such holder's intention to effect
such transfer, describing in reasonable detail the manner of the proposed
transfer. If any such holder delivers to the Company (a) an opinion of
counsel in form and substance reasonably acceptable to the Company addressed
to the Company to the effect that the proposed transfer may be effected
without registration of such Investor Securities under the Securities Act or
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applicable state securities laws (or a certificate of an officer of such
holder that the transfer is being made to a wholly owned Subsidiary of the
holder's corporate parent) and (b) the written agreement of the proposed
transferee to be bound by all of the terms and conditions of this Agreement
(including this Section 6.5) applicable to the Investor, such holder shall
thereupon be entitled, within 10 days thereafter, to transfer such Investor
Securities in accordance with the terms of this Agreement and the notice
delivered by such holder to the Company. Each certificate or instrument
issued upon or in connection with such transfer shall bear the restrictive
legend set forth in Section 6.5.1, in each case unless the restrictions on
transfer provided for in Section 6.5 shall have terminated as to such
Investor Securities pursuant to Section 6.5.3.
6.5.3. Termination of Restrictions. The restrictions imposed by
---------------------------
Sections 6.5.1 and 6.5.2 upon the transferability of Investor Securities
shall terminate as to any particular Investor Securities and any securities
issued in exchange therefor or upon transfer thereof when, in the opinion of
counsel reasonably acceptable to the Company, such restrictions are no longer
required in order to assure compliance with the Securities Act. Whenever any
of such restrictions shall terminate as to any Investor Securities, the
holder thereof shall be entitled to receive from the Company, without
expense, new certificates or instruments not bearing the legend set forth in
Section 6.5.1.
7. EXPENSES, ETC.
7.1. Expenses. The Company hereby agrees to pay within 15 business
--------
days after receipt of a detailed written invoice all reasonable out-of-pocket
expenses incurred by the Investor in connection with the transactions
contemplated by the Investor Agreements and by the Investor in connection
with any amendments or waivers (whether or not the same become effective)
hereof and all expenses incurred by the Investor or any holder of any
Investor Securities issued hereunder in connection with the enforcement in
good faith of any rights hereunder or under any other Investor Agreement,
including the reasonable fees, expenses and disbursements of the Investor's
special counsel in connection with the transactions contemplated by this
Agreement, and all taxes (other than taxes determined with respect to
income), including any recording fees and filing fees and documentary stamp
and similar taxes, at any time payable in respect of this Agreement, any
other Investor Agreement or the issuance of any of the Investor Securities.
7.2. Indemnification. The Company shall indemnify and hold the
---------------
Investor and the Investor's partners, stockholders, officers, directors,
employees, attorneys, accountants, consultants and agents (collectively, the
"Indemnitees") free and harmless from and against all actions, causes of
-----------
action, suits, litigation, losses, liabilities and damages, investigations or
proceedings instituted by any governmental
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<PAGE>
agency or any other Person and expenses in connection therewith, including
reasonable attorneys' fees and disbursements, incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any transaction financed or
to be financed in whole or in part directly or indirectly with proceeds from
the sale by the Company of any of the Investor Securities, or (b) the
execution, delivery, performance or enforcement of this Agreement or any
instrument contemplated hereby by any of the Indemnitees, except in each such
case for any such indemnified liabilities arising on account of any
Indemnitee's gross negligence or willful misconduct.
7.3. Environmental Indemnification. Without limiting Section 7.2, the
-----------------------------
Company covenants and agrees that it will indemnify and hold the Indemnitees
harmless from and against any and all claims, expense, damage, loss or
liability incurred by the Indemnitees (including all costs of legal
representation) relating to (a) any release or threatened release of
Hazardous Material; (b) any violation of any Environmental Laws with respect
to the assets of the Company and its Subsidiaries or the operations conducted
by them; or (c) the investigation or remediation of offsite locations at
which the Company, any of its Subsidiaries or their predecessors are alleged
to have directly or indirectly disposed of Hazardous Materials.
7.4. Survival. The obligations of the Company under this Section 7
--------
shall survive the redemption, repurchase or transfer of any or all of the
Investor Securities.
8. NOTICES. Any notice or other communication in connection with this
Agreement or the Investor Securities shall be deemed to be delivered if in
writing addressed as provided below and if either (a) actually delivered at
such address, (b) in the case of a letter, seven business days shall have
elapsed after the same shall have been deposited in the United States mails,
postage prepaid and registered or certified, return receipt requested or (c)
transmitted to any address outside of the United States, by telecopy and
confirmed by overnight or two-day courier: telecopy:
If to the Company, to it at 990 Hammond Drive, Suite 300, Atlanta,
Georgia 30328, Attention: CEO, telecopy: (770) 673-1970, telephone: (770)
673-1964, or at such other address as the Company shall have specified by
notice actually received by the Investor.
If to the Investor, to it at Paribas Principal Incorporated, 787 Seventh
Avenue, New York, New York 10019, Attention: Jeff Youle, telecopy: (212)
841-2502, telephone: (212) 841-2000, or at such other address as the Investor
shall have specified by notice actually received by the Company.
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If to any other holder of record of any Investor Security, to it at its
address set forth in the securities registers of the Company.
9. CONFIDENTIALITY. The Investor will maintain the confidential nature of
information obtained from the Company concerning the Company and its
Subsidiaries; provided, however, that the Investor shall not be precluded
-------- -------
from making disclosure regarding such information: (a) to counsel for the
Investor, accountants or other professional advisors on a need-to-know
basis, provided that such advisors are advised of the confidential nature of
this information, (b) to any other holder of Preferred Stock, (c) as required
by law or applicable regulation, (d) to any participant in or assignee of any
Investor Securities after notice to the Company so long as such participant
or assignee has agreed to be bound by this Section 9 or (e) to the extent
such information has become publicly available other than as a result of the
violation of this Section 9.
10. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only
with the written consent of the Investor. Any amendment or waiver effected
in accordance with this Section 10 shall be binding upon each holder of any
Investor Securities and the Company and each of its Subsidiaries.
11. SURVIVAL AND TERMINATION OF COVENANTS, REPRESENTATIONS AND WARRANTIES.
All covenants, agreements, representations and warranties made herein or in
any closing certificate or other certificate or written report delivered to
the Investor pursuant to an express requirement hereof shall be deemed to
have been material and relied on by the Investor, notwithstanding any
investigation made by the Investor or on the Investor's behalf, shall survive
the Closing Date and shall terminate upon the closing of a Liquidity Event,
except as specifically provided otherwise herein.
12. SERVICE OF PROCESS. Each of the Company and the Investor (a) irrevocably
submits to the non-exclusive jurisdiction of the state courts of The State of
New York and to the non-exclusive jurisdiction of the United States District
Court for the Southern District of New York, for the purpose of any suit,
action or other proceeding arising out of or based upon this Agreement, any
other Investor Agreement or the subject matter hereof or thereof brought by
any party hereto or such party's successors or assigns, and (b) waives to the
extent not prohibited by law that cannot be waived, and agrees not to assert,
by way of motion, as a defense, or otherwise, in any such proceeding, any
claim that it is not subject personally to the jurisdiction of the above-
named courts, that its property is exempt or immune from attachment or
execution, that any such proceeding brought in one of the above-named courts
is
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<PAGE>
improper, or that this Agreement or the Investor Securities, or the subject
matter hereof or thereof, may not be enforced in or by such court. Each of
the Company and the Investor consents to service of process in any such
proceeding in any manner permitted under the Laws of The State of New York,
and agrees that service of process registered or certified mail, return
receipt requested, at its address specified in or pursuant to Section 8 is
reasonably calculated to give actual notice.
13. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, THE INVESTOR AND THE COMPANY HEREBY WAIVE, AND
COVENANT THAT NEITHER THE COMPANY NOR THE INVESTOR WILL ASSERT, ANY RIGHT TO
TRIAL BY JURY ON ANY ISSUE IN ANY PROCEEDING, WHETHER AS PLAINTIFF, DEFENDANT
OR OTHERWISE, IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, ANY OTHER INVESTOR
AGREEMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR IN ANY WAY CONNECTED
WITH, RELATED OR INCIDENTAL TO THE DEALINGS OF THE INVESTOR AND THE COMPANY
HEREUNDER OR THEREUNDER, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER IN TORT OR CONTRACT OR OTHERWISE. The Company
acknowledges that it has been informed by the Investor that the provisions of
this Section 13 constitute a material inducement upon which the Investor is
relying and will rely in entering into this Agreement and purchasing the
Investor Securities pursuant hereto. The Investor or the Company may file an
original counterpart or a copy of this Section 13 with any court as written
evidence of the consent of the Investor and the Company to the waiver of its
right to trial by jury.
14. GENERAL. The invalidity or unenforceability of any provision hereof
shall not affect the validity or enforceability of any other term or
provision hereof, and any invalid or unenforceable provision shall be
modified so as to be enforced to the maximum extent of its validity or
enforceability. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.
This Agreement, the other Investor Agreements and the other items referred to
herein or therein constitute the entire understanding of the parties hereto
with respect to the subject matter hereof and thereof and supersede all
present and prior agreements, whether written or oral. This Agreement is
intended to take effect as a sealed instrument and may be executed in any
number of counterparts which together shall constitute one instrument and
shall be governed by and construed in accordance with the laws (other than
the conflict of laws rules) of The State of New York, and shall bind and
inure to the benefit of the parties hereto and their respective successors
and assigns. Whether or not any express assignment has been made of this
Agreement, provisions of this Agreement that are for the Investor's benefit
as the holder of any
-40-
<PAGE>
Investor Securities are also for the benefit of, and enforceable by, all
subsequent holders of Investor Securities. Notwithstanding anything to the
contrary contained herein, the Investor acknowledges and agrees that the
Senior Debt Documents and all of the agreements relating to and including the
Subordinated Loan Agreement shall be executed and delivered by the parties
thereto, and the Company shall be deemed to be in compliance with each
representation and warranty contained in this Agreement which is otherwise
breached solely as a result of the execution of such agreements or the
existence of the Liens created thereby.
-41-
<PAGE>
Signature Page to
-----------------
Securities Purchase Agreement
-----------------------------
The undersigned have executed this Agreement under seal as of the date
first above written.
PHYSICIAN HEALTH CORPORATION
By
-------------------------------------------
Title:
PARIBAS PRINCIPAL INCORPORATED
By:
-------------------------------------------
Title:
WESTON PRESIDIO CAPITAL II, L.P., as custodian
of the Securities Escrow
By:
-------------------------------------------
Title:
-42-
<PAGE>
EXHIBIT 10.44
THE ISSUANCE OF THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OR
CONVERSION OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD
OR OTHER WISE DISPOSED OF UNLESS REGISTERED UNDER SUCH ACT OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THIS WARRANT AND ANY SHARES ISSUED UPON EXERCISE OR CONVERSION HEREOF ARE
ENTITLED TO CERTAIN REGISTRATION RIGHTS AND TO CERTAIN OTHER BENEFITS SET
FORTH IN A REGISTRATION RIGHTS AGREEMENT AND A STOCKHOLDERS AGREEMENT, EACH
DATED ON OR ABOUT OCTOBER 27, 1997, AS AMENDED. THE COMPANY WILL FURNISH A
COPY OF SUCH AGREEMENTS TO THE HOLDER OF THIS WARRANT WITHOUT CHARGE UPON
WRITTEN REQUEST.
PHYSICIAN HEALTH CORPORATION
VOTING COMMON STOCK WARRANT
No. W-__ October __, 1997
Physician Health Corporation, a Delaware corporation (the "Company"), for
-------
value received, hereby certifies that Paribas Principal Incorporated ("PPI"), or
registered assigns, is entitled to purchase from the Company 184,561 duly
authorized, validly issued, fully paid and nonassessable shares of Voting Common
Stock, par value $0.0025 per share (the "Common Stock"), of the Company at the
------------
purchase price per share of $.01 (the "Initial Warrant Price"), at any time or
---------------------
from time to time prior to 5:00 p.m., New York, New York time, on the earlier of
(a) October 27, 2007 or (b) the third anniversary of the closing of the initial
public offering of the Company's stock that constitutes a "Liquidity Event" (as
defined in the Certificate of Designation) (the
<PAGE>
"Expiration Date"), all subject to the terms, conditions and adjustments set
---------------
forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants (the "Warrants",
--------
such term to include any such warrants issued in substitution therefor)
originally issued in connection with the Securities Purchase Agreement dated as
of October __, 1997 (as from time to time in effect, the "Purchase Agreement")
------------------
among the Company and PPI.
1. DEFINITIONS. Certain capitalized terms are used in this Warrant as
specifically defined below in this Section 1. Except as the context otherwise
explicitly requires, (a) the capitalized term "Section" refers to sections of
this Warrant, (b) the capitalized term "Exhibit" refers to exhibits to this
Warrant, (c) references to a particular Section include all subsections thereof,
(d) the word "including" shall be construed as "including without limitation",
(e) accounting terms not otherwise defined herein have the meaning provided
under GAAP, (f) references to a particular statute or regulation include all
rules and regulations thereunder and any successor statute, regulation or rules,
in each case as from time to time in effect and (g) references to a particular
Person include such Person's successors and assigns to the extent not prohibited
by this Warrant. References to "the date hereof" mean the date first set forth
above.
"Additional Shares of Common Stock" means Additional Shares of Common Stock,
---------------------------------
as defined in the Certificate of Designation, Preferences and Rights for the
Series B Preferred Stock.
"Affiliate" means with respect to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under common control with such Person
(for purposes of the above definition, the terms "control", "controlling",
"controlled by" and "under common control with", as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise).
"Book Value" means the Company's consolidated stockholders' equity per common
----------
share on a fully diluted basis, determined in accordance with generally accepted
accounting principles, as of the end of its fiscal quarter most recently
completed prior to the date of determination.
-2-
<PAGE>
"Business Day" means any day other than a Saturday or a Sunday or a day on
------------
which commercial banking institutions in New York, New York are authorized by
law to be closed.
"Certificate of Designation" means the Certificate of Designation, Preferences
--------------------------
and Rights of the Series B Redeemable Convertible Preferred Stock of the Company
filed by the Company with the Delaware Secretary of State as of June 16, 1997,
as amended.
"Commission" means the Securities and Exchange Commission or any other federal
----------
agency at the time administering the Securities Act.
"Common Stock" means the Non-Voting Common Stock and Voting Common Stock,
------------
collectively.
"Company" is defined in the preamble, and includes any corporation which shall
-------
succeed to or assume the obligations of the Company hereunder in compliance with
Section 3.
"Convertible Securities" means any indebtedness, shares or other securities
----------------------
convertible into or exchangeable for Common Stock.
"Exchange Act" means the federal Securities Exchange Act of 1934.
------------
"Expiration Date" is defined in the preamble.
---------------
"Initial Warrant Price" is defined in the preamble.
---------------------
"Market Price" means, on any date, the amount per share of Common Stock equal
------------
to (a) the last sale price of Common Stock, regular way, on such date or, if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof on such date, in each case as officially reported on the
principal national securities exchange on which Common Stock is then listed or
admitted to trading, or (b) if Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security by the NASD, the last trading price of Common Stock on
such date, or (c) if no trading occurred on such date or if Common Stock is not
so designated, the average of the closing bid and asked prices of Common Stock
on such date as shown by the NASD automated quotation system, or (d) if Common
Stock is not then listed or admitted to trading on any national exchange or
quoted in the over-the-counter market, the higher of (i) Book Value or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
-3-
<PAGE>
Company as of a date which is within 15 days of the date as of which the
determination is to be made.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Non-Voting Common Stock" means the Non-Voting Common Stock, $0.0025 par value
-----------------------
of the Company.
"Options" means rights, options or warrants to subscribe for, purchase or
-------
otherwise acquire either Common Stock or Convertible Securities.
"Original Issue Date" means the date on which the Series B Preferred Stock is
-------------------
first issued by the Company.
"Other Securities" means any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person which the holders of the Warrants
at any time shall be entitled to receive, or shall have received, upon the
exercise of the Warrants, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 3 or
otherwise.
"Person" means a corporation, an association, a partnership, a limited
------
partnership, an organization, a business trust, a limited liability company, an
individual, a government or political subdivision thereof or a governmental
agency.
"Preferred Stock" means the Company's Series B Preferred Stock, $0.01 per
---------------
share par value.
"Purchase Agreement" is defined in the preamble.
------------------
"Registration Rights Agreement" means the Registration Rights Agreement dated
-----------------------------
on or about _________, 1997, among the Company and certain of its stockholders,
as from time to time in effect.
"Regulation Y Investor" means (a) any Person that is subject to Regulation Y
---------------------
of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 225) and
which holds shares of Series B Preferred Stock of the Company, so long as such
Person shall hold such shares of Series B Preferred Stock, or shares issued upon
conversion of such shares, (b) any Affiliate of any such Regulation Y Investor
that is a transferee of any shares of Series B Preferred Stock, so long as such
Affiliate shall hold such shares of Series B Preferred Stock or shares issued
upon conversion of such shares.
-4-
<PAGE>
"Securities Act" means the federal Securities Act of 1933.
--------------
"Series B Non-Voting Preferred" means the Company's Series B Non-Voting
-----------------------------
Redeemable Convertible Preferred Stock, $0.01 per share par value.
"Series B Voting Preferred" means the Company's Series B Voting Redeemable
-------------------------
Convertible Preferred Stock, $0.01 per share par value.
"Voting Common Stock" means the Voting Common Stock, $0.0025 par value, of the
-------------------
Company.
"Warrant Price" is defined in Section 3.1.
-------------
"Warrant Shares" means the shares of Voting Common Stock or Other Securities
--------------
issuable upon exercise or conversion of the Warrant.
"Warrants" is defined in the preamble.
--------
2. EXERCISE OR CONVERSION OF WARRANT.
2.1. Manner of Exercise or Conversion; Payment.
-----------------------------------------
2.1.1. Exercise. This Warrant may be exercised by the holder hereof, in
--------
whole or in part, during normal business hours on any Business Day on or
prior to the Expiration Date, by surrender of this Warrant to the Company
at its office maintained pursuant to Section 6.2(a), accompanied by a
subscription in substantially the form attached to this Warrant duly
executed by such holder and accompanied by payment, in cash or by check
payable to the order of the Company, in the amount obtained by multiplying
(a) the number of shares of Common Stock (without giving effect to any
adjustment thereof) designated in such subscription by (b) the Initial
Warrant Price, and such holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable
Warrant Shares determined as provided in Section 3.
2.1.2. Conversion. This Warrant may be converted by the holder hereof,
----------
in whole or in part, into Warrant Shares, during normal business hours on
any Business Day on or prior to the Expiration Date, by surrender of this
Warrant to the Company at its office maintained pursuant to Section 6.2(a),
accompanied by a conversion notice in substantially the form attached to
this Warrant duly executed by such holder, and such holder shall thereupon
be
-5-
<PAGE>
entitled to receive a number of duly authorized, validly issued, fully paid
and nonassessable Warrant Shares equal to:
(a) an amount equal to:
(i) the product of (A) the number of Warrant Shares determined
as provided in Sections 3 through 5 which such holder would
be entitled to receive upon exercise of this Warrant for the
number of shares of Voting Common Stock designated in such
conversion notice multiplied by (B) the Market Price of each
-------------
such Warrant Share so receivable upon such exercise
minus
-----
(ii) the product of (A) the number of shares of Voting Common
Stock (without giving effect to any adjustment thereof)
designated in such conversion notice multiplied by (B) the
-------------
Initial Warrant Price
divided by
----------
(b) the Market Price of each such Warrant Share.
For all purposes of this Warrant (other than this Section 2.1), any
reference herein to the exercise of this Warrant shall be deemed to include
a reference to the conversion of this Warrant into Warrant Shares in
accordance with the terms of this Section 2.1.2.
2.2. When Exercise Effective. Each exercise of this Warrant shall be deemed
-----------------------
to have been effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the Company as provided
in Section 2.1, and at such time the Person in whose name any certificate for
Warrant Shares shall be issuable upon such exercise as provided in Section 2.3
shall be deemed to have become the holder of record thereof.
2.3. Delivery of Stock Certificates, etc. As soon as practicable after each
-----------------------------------
exercise of this Warrant, in whole or in part, and in any event within five
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue or documentary taxes) will cause to be issued in the
name of and
-6-
<PAGE>
delivered to the holder hereof or, subject to Section 5, as such holder (upon
payment by such holder of any applicable transfer taxes) may direct:
(a) a certificate for the number of duly authorized, validly issued,
fully paid and nonassessable Warrant Shares to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to which
----
such holder would otherwise be entitled, cash in an amount equal to the
same fraction of the Market Price per share on the Business Day immediately
preceding the date of such exercise; and
(b) in case such exercise is in part only, a new Warrant of like tenor,
dated the date hereof and calling in the aggregate on the face thereof for
the number of shares of Voting Common Stock equal (without giving effect to
any adjustment thereof) to the number of such shares called for on the face
of this Warrant minus the number of such shares designated by the holder
upon such exercise as provided in Section 2.1.
2.4. Company to Reaffirm Obligations. The Company will, at the time of each
-------------------------------
exercise of this Warrant, upon the request of the holder hereof, acknowledge in
writing its continuing obligation to afford to such holder all rights (including
any rights pursuant to the Registration Rights Agreement of the Warrant Shares
issued upon such exercise) to which such holder shall continue to be entitled
after such exercise in accordance with the terms of this Warrant; provided,
--------
however, that if the holder of this Warrant shall fail to make any such request,
- -------
such failure shall not affect the continuing obligation of the Company to afford
such rights to such holder.
3. ADJUSTMENT OF WARRANT SHARES AND WARRANT PRICE.
3.1. Adjustment of Warrant Shares and Warrant Price due to Additional Shares.
-----------------------------------------------------------------------
The number of Warrant Shares which the holder of this Warrant shall be entitled
to receive upon the exercise hereof shall be determined by multiplying the
number of shares of Voting Common Stock which would otherwise (but for the
provisions of this Section 3.1) be issuable upon such exercise, as designated by
the holder hereof pursuant to Section 2.1, by the fraction of which (a) the
numerator is the Initial Warrant Price and (b) the denominator is the Warrant
Price in effect on the date of such exercise. The "Warrant Price" shall
-------------
initially be the Initial Warrant Price, shall be adjusted and readjusted from
time to time as provided in this Section 3.1 and, as so adjusted or readjusted,
shall remain in effect until a further adjustment or readjustment thereof is
required by this Section 3.1.
-7-
<PAGE>
3.1.1. No Adjustment of Warrant Price. No adjustment in the Warrant
------------------------------
Price shall be made in respect of the issuance of Additional Shares of
Common Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Company is less than the
applicable Warrant Price in effect on the date of, and immediately prior
to, such issue.
3.1.2. Adjustment of Warrant Price Upon Issuance of Additional Shares of
-----------------------------------------------------------------
Common Stock. In the event the Company shall issue Additional Shares of
------------
Common Stock (including Additional Shares of Common Stock deemed to be
issued pursuant to Section 3.1.4) for a consideration per share less than
the applicable Warrant Price in effect on the date of and immediately prior
to such issue, then the applicable Warrant Price shall be reduced,
concurrently with such issue (calculated to the nearest one hundredth of a
cent) to a new Warrant Price obtained by dividing (a) an amount equal to
the sum of (i) the number of shares of Common Stock outstanding immediately
prior to such issue multiplied by the then applicable Warrant Price and
(ii) the consideration, if any, deemed received by the Company upon such
issue by (b) the total number of shares of Common Stock deemed to be
outstanding immediately after such issue; provided, however, that, for
-------- -------
purposes of this Section 3.1.2, all shares of Common Stock outstanding and
issuable upon conversion of outstanding Options, Convertible Securities and
the Preferred Stock shall be deemed to be outstanding. In no event will
the Warrant Price be adjusted as the result of any issuance of any
Additional Shares of Common Stock for any amount higher than the Warrant
Price in effect immediately prior to such issuance.
3.1.3. Adjustments for Subdivisions, Stock Dividends, Combinations or
--------------------------------------------------------------
Consolidation of Common Stock. In the event the outstanding shares of
-----------------------------
Common Stock shall be increased by way of stock issued as a dividend for no
consideration or subdivided (by stock split or otherwise) into a greater
number of shares of Common Stock, the Warrant Price then in effect shall,
concurrently with the effectiveness of such increase or subdivision, be
proportionately decreased. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise,
into a lesser number of shares of Common Stock, the Warrant Price then in
effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
3.1.4. Deemed Issue of Additional Shares of Common Stock - Options and
---------------------------------------------------------------
Convertible Securities. Except as provided in Section 3.1.2 or Section
----------------------
3.1.3, in the event the Company at any time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix a record
date
-8-
<PAGE>
for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such
number) of Common Stock issuable upon the exercise of such Options or, in
the case of Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or, in case such
a record date shall have been fixed, as of the close of business on such
record date; provided, however, that Additional Shares of Common Stock
-------- -------
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 3.1.5) of such Additional Shares of Common
Stock would be less than the applicable Warrant Price in effect on the date
of, and immediately prior to, such issue, or such record date, as the case
may be; and provided further, that in any such case in which Additional
----------------
Shares of Common Stock are deemed to be issued:
(a) no further adjustment in the applicable Warrant Price shall be
made upon the subsequent issue of shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible
Securities or upon the subsequent issue of such Convertible Securities
or Options;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Company, or any increase
or decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the applicable Warrant Price
computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange
under such Convertible Securities;
(c) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall
not have been exercised, the applicable Warrant Price computed upon
the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon
shall, upon such expiration, be recomputed as if such unexercised
portion of
-9-
<PAGE>
such Options or rights of conversion or exchange under such
Convertible Securities had not been issued; and
(d) no readjustment pursuant to clause (b) or (c) above shall have
the effect of increasing the applicable Warrant Price to an amount
which exceeds the lower of (i) the applicable Warrant Price on the
original adjustment date, or (ii) the applicable Warrant Price that
resulted from the issuance or deemed issuance of other Additional
Shares of Common Stock between the original adjustment date and such
readjustment date.
3.1.5. Determination of Consideration. For purposes of this Section
------------------------------
3.1, the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
-----------------
(i) insofar as it consists of cash, be computed at the
aggregate amount of net cash proceeds received by the Company
excluding amounts paid or payable for accrued interest or accrued
dividends;
(ii) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of the
Company; and
(iii) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets
of the Company for consideration which covers both, be the
proportion of such consideration so received, computed as
provided in clauses (i) and (ii) above, which is allocated to the
Additional Shares of Common Stock as determined in good faith by
the Board of Directors.
(b) Options and Convertible Securities. The consideration per
----------------------------------
share received by the Company for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 3.1.3 relating to
Options and Convertible Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options or
-10-
<PAGE>
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration)
payable to the Company upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or exchange
of such Convertible Securities by
(ii) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
3.1.6. Other Dilutive Events. In case any event shall occur as to which
---------------------
the other provisions of this Section 3.1 are not strictly applicable, but
the failure to make any adjustment in the Warrant Price would not, in the
reasonable judgment of a majority of the directors of the Company, fairly
protect the rights represented by this Warrant in accordance with the
intention of this Section 3, then, upon request of the holders of a
majority of the Warrants, the Board of Directors of the Company shall
appoint a firm of independent public accountants of recognized national
standing (which may be the regular auditors of the Company) to give their
opinion as to the adjustment, if any, on a basis consistent with the
intention of this Section 3, necessary to preserve without dilution the
rights represented by the Warrants. Upon receipt of such opinion, the
Company will promptly furnish a copy thereof to the holders of the Warrants
and the Warrant Price shall be adjusted in accordance therewith to the
extent recommend by such accountants. The fees and expenses of such
accountants shall be paid by the Company; provided, however, that if such
-------- -------
accountants opine that the total adjustment per Warrant Share is less than
10% of the previous per share Warrant Price, such fees and expenses will be
paid by the holders of the Warrants.
3.2. Other Distributions. In the event the Company shall declare a
-------------------
distribution payable in securities of the Company (other than shares of Common
Stock), securities of other entities, securities evidencing indebtedness issued
by the Company or other entities or options or rights (but in no event including
cash dividends), then, in each such case for the purpose of this Section 3, the
holders of the Warrants shall be entitled to a proportionate share of any such
distribution upon exercise or conversion of this
-11-
<PAGE>
Warrant as though they were the holders of the number of shares of Common Stock
into which their Warrants were exercisable as of the record date fixed for the
determination of the holders of Common Stock entitled to receive such
distribution.
3.3. Subsequent Events. In the event of any recapitalization, consolidation
-----------------
or merger of the Company or its successor, the Warrants shall be exercisable for
such shares or other interests as the Warrants would have been entitled if the
Warrants had been exercised for Common Stock immediately prior to such event.
4. Covenants.
---------
4.1. No Impairment. The Company will not, by amendment of its Certificate of
-------------
Incorporation or through any reorganization, recapitalization, transfer of all
or a substantial portion of its assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed under this Warrant by the Company, but will at all times in good faith
assist in carrying out all the provisions of this Warrant and in taking all such
action as may be necessary or appropriate in order to protect the rights of the
holders of Warrants against impairment.
4.2. Reservation of Shares. So long as any Warrants shall remain
---------------------
outstanding, the Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized capital stock, for the purpose of
issuance upon exercise of the Warrants, the full number of shares of Voting
Common Stock then issuable upon exercise of all outstanding Warrants. If the
Voting Common Stock shall be listed on any national stock exchange, the Company
at its expense shall include in its listing application all of the shares of
Voting Common Stock reserved for issuance upon exercise of the Warrants (subject
to issuance or notice of issuance to the exchange) and will similarly procure
the listing of any further Voting Common Stock reserved for issuance upon
exercise of the Warrants at any subsequent time as a result of adjustments in
the outstanding Voting Common Stock or otherwise.
4.3. Validity of Shares. The Company will from time to time take all such
------------------
action as may be required to assure that all shares of Voting Common Stock which
may be issued upon exercise of this Warrant will, upon issuance, be legally and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof. Without limiting the generality
of the foregoing, the Company will from time to time take all such action as may
be required to assure that the par value per share, if any, of the Voting Common
Stock is at all times equal to or less than the lowest quotient obtained by
dividing the then current exercise price of this
-12-
<PAGE>
Warrant by the number of shares of Voting Common Stock into which this Warrant
can, from time to time, be exercised.
4.4. Notice of Certain Events. If at any time:
------------------------
(a) the Company shall declare any dividend or distribution payable to
the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the holders of
Common Stock any additional shares of stock of any class or any other
rights;
(c) there shall be any recapitalization of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of its
assets to, another corporation or business organization; or
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give the registered
holder of this Warrant written notice, by registered mail, of the date on which
a record shall be taken for such dividend, distribution or subscription rights
or for determining stockholders entitled to vote upon such recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding up and of the
date when any such transaction shall take place, as the case may be. Such
notice shall also specify the date as of which the holders of Common Stock of
record shall participate in such dividend, distribution or subscription rights,
or shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such recapitalization, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such written notice
shall be given at least 20 days prior to the record date with respect thereto.
5. RESTRICTIONS ON TRANSFER.
Except as otherwise permitted by this Section 5, each certificate for Warrant
Shares issued upon the exercise of any Warrant, each certificate issued upon the
direct or indirect transfer of any Warrant Shares, all Warrants originally
issued in connection with the Purchase Agreement and each Warrant issued upon
direct or indirect transfer or in substitution for any Warrant pursuant to
Section 6 shall be transferable only upon satisfaction of the conditions
specified in Section 10 of the Purchase Agreement and shall be stamped or
otherwise imprinted with legends in substantially the form set forth on the face
of this Warrant or otherwise required by Section 10 of the Purchase Agreement.
-13-
<PAGE>
6. OWNERSHIP, TRANSFER, SUBSTITUTION AND AUTOMATIC CONVERSION OF WARRANTS.
6.1. Ownership of Warrants. The Company may treat the Person in whose name
---------------------
any Warrant is registered on the register kept at the office of the Company
maintained pursuant to Section 6.2(a) as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, except that, if and when
any Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Warrant for all
purposes, notwithstanding any notice to the contrary. Subject to Section 5, a
Warrant, if properly assigned, may be exercised by a new holder without a new
Warrant first having been issued.
6.2. Office; Transfer and Exchange of Warrants.
-----------------------------------------
(a) The Company will maintain an office (which may be an agency
maintained at a bank) in the United States of America where notices,
presentations and demands in respect of this Warrant may be made upon it.
Such office shall be maintained at 990 Hammond Drive - Suite 300, Atlanta,
Georgia 30328, until such time as the Company shall notify the holders of
the Warrants of any change of location of such office.
(b) The Company shall cause to be kept at its office maintained pursuant
to Section 6.2(a) a register for the registration and transfer of the
Warrants. The names and addresses of holders of Warrants, the transfers
thereof and the names and addresses of transferees of Warrants shall be
registered in such register. The Person in whose name any Warrant shall be
so registered shall be deemed and treated as the owner and holder thereof
for all purposes of this Warrant, and the Company shall not be affected by
any notice or knowledge to the contrary.
(c) Upon the surrender of any Warrant, properly endorsed, for
registration of transfer or for exchange at the office of the Company
maintained pursuant to Section 6.2(a), the Company at its expense will
(subject to compliance with Section 5, if applicable) execute and deliver
to or upon the order of the holder thereof a new Warrant of like tenor, in
the name of such holder or as such holder (upon payment by such holder of
any applicable transfer taxes) may direct, calling in the aggregate on the
face thereof for the number of shares of Common Stock called for on the
face of the Warrant so surrendered.
-14-
<PAGE>
6.3. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than an Investor or any institutional investor, upon
delivery of indemnity reason ably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained pursuant to Section 6.2(a),
the Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor and dated the date hereof.
6.4. Automatic Conversion of Warrants. If at any time this Warrant is held
--------------------------------
or transferred to a Person which constitutes a Regulation Y Investor, then this
Warrant shall automatically convert into a warrant to purchase a number of
shares of Non-Voting Common Stock equivalent to the number of shares of Voting
Common Stock which the holder of this Warrant is entitled herein as of such
time, without any further action by the holder of this warrant and whether or
not this warrant is surrendered to the Company or its transfer agent; provided,
--------
however that the Company shall not be obligated to issue a warrant for the
- -------
purchase of shares of Non-Voting Common Stock issuable upon such automatic
conversion unless this Warrant is either delivered to the Company or its
transfer agent or the holder notifies the Company or its transfer agent that
this Warrant has been lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection with this Warrant. The Company shall, as soon as
practi cable after such delivery, or execution of such agreement in the case of
a lost Warrant, issue and deliver at such office to the holder of this Warrant a
warrant for the number of shares of Non-Voting Common Stock to which such holder
shall be entitled as aforesaid.
7. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the per formance of or compliance with any of the terms of this Warrant are not
and will not be adequate and that, to the fullest extent permitted by law, such
terms may be speci fically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
8. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
-15-
<PAGE>
9. NOTICES. Any notice or other communication in connection with this Warrant
shall be deemed to be delivered if in writing (or in the form of a telex or
telecopy) addressed as hereinafter provided and if either (a) actually delivered
at such address (evidenced in the case of a telex by receipt of the correct
answerback) or (b) in the case of a letter, three Business Days shall have
elapsed after the same shall have been deposited in the United States mails,
postage prepaid and registered or certified: (i) if to any holder of any
Warrant, at the registered address of such holder as set forth in the register
kept at the office of the Company maintained pursuant to Section 6.2(a); or (ii)
if to the Company, to the attention of its President at its office maintained
pursuant to Section 6.2(a); provided, however, that the exercise of any Warrant
-------- -------
shall be effective in the manner provided in Section 2.
10. GENERAL. The section headings in this Warrant are for convenience of
reference only and shall not constitute a part hereof. This Warrant and any
term hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant shall be
construed and enforced in accordance with and governed by the laws (other than
the conflict of laws rules) of The State of New York.
PHYSICIAN HEALTH CORPORATION
By:
------------------------------
Title:
-16-
<PAGE>
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
TO PHYSICIAN HEALTH CORPORATION:
The undersigned registered holder of the enclosed Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, __________/1/ shares of
Voting Common Stock and herewith makes payment of $________ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to __________________, whose address is ____________________________.
Dated:
------------------------- --------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
- --------
/1/ Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of a partial exercise, a new
Warrant will be issued and delivered, representing the unexercised portion of
the Warrant, to the holder surrendering the Warrant.
-i-
<PAGE>
FORM OF CONVERSION NOTICE
[To be executed only upon conversion of Warrant]
TO PHYSICIAN HEALTH CORPORATION:
The undersigned registered holder of the enclosed Warrant hereby irrevocably
converts such Warrant with respect to __________/1/ shares of Voting Common
Stock which such holder would be entitled to receive upon the exercise hereof,
and requests that the certificates for such shares be issued in the name of, and
delivered to _______________, whose address is ________________________________.
Dated:
------------------------- --------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
- --------
/1/ Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial conversion, the portion thereof as to which this
Warrant is being converted), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of a partial conversion, a new
Warrant will be issued and delivered, representing the unconverted portion of
the Warrant, to the holder surrendering the Warrant.
-i-
<PAGE>
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the attached Warrant
hereby sells, assigns and transfers unto ____________________ the right
represented by such Warrant to purchase __________/1/ shares of Voting Common
Stock of PHYSICIAN HEALTH CORPORATION to which such Warrant relates, and
appoints _______________________ Attorney to make such transfer on the books of
PHYSICIAN HEALTH CORPORATION maintained for such purpose, with full power of
substitution in the premises.
Dated:
------------------------- --------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- -------------------------------
- --------
/1/ Insert here the number of shares called for on the face of this
Warrant (or, in the case of a partial transfer, the portion thereof being
transferred), in either case without making any adjustment for Additional Shares
of Common Stock or any other stock or other securities or property or cash
which, pursuant to the adjustment provisions of this Warrant, may be delivered
upon exercise. In the case of a partial transfer, a new Warrant will be issued
and delivered, representing the untransferred portion of the Warrant, to the
holder surrendering the Warrant.
-i-
<PAGE>
Exhibit 10.46
WARRANT PURCHASE AGREEMENT
This WARRANT PURCHASE AGREEMENT (this "Agreement") is made as of
October 27, 1997 by and between PHYSICIAN HEALTH CORPORATION, a Delaware
corporation (the "Company"), and PARIBAS CAPITAL FUNDING LLC (the "Purchaser").
R E C I T A L S
- - - - - - - -
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, certain common stock purchase
warrants (the "Warrants") pursuant to a Warrant Agreement in the form of Exhibit
A attached hereto (the "Warrant Agreement"). The Warrants will initially entitle
the holder to purchase an aggregate of 1,200,000 shares of non-voting common
stock, par value $.0025 per share, of the Company (the "Non-Voting Common
Stock"), subject to adjustment as set forth in the Warrant Agreement and the
Warrant Certificates (as hereinafter defined);
WHEREAS, in connection with the sale of the Warrants, the parties are
entering into the Joinder to Second Amended and Restated Stockholders Agreement
dated as of October 27, 1997 by and among the Company and the Stockholders
listed therein (the "Joinder Agreement") and the amended and restated
registration rights agreement dated as of October 27, 1997 by and among the
Company and the investors listed therein (the "Registration Rights Agreement");
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants contained herein, the parties agree as follows:
1. Sale and Purchase of Warrants.
-----------------------------
The Company hereby agrees to sell to the Purchaser and the Purchaser
hereby agrees to purchase from the Company, subject to the conditions and
restrictions contained in this Agreement and in reliance on the representations
and warranties of the Company and the Purchaser contained herein, the Warrants
for good and valuable consideration, receipt of which is hereby acknowledged.
The Company shall issue and deliver certificates to the Purchaser evidencing the
Warrants in the form of Exhibit B attached hereto (the "Warrant Certificates")
concurrently with the Purchaser's execution of this Agreement and the Warrant
Agreement.
<PAGE>
2. Restrictions on Transfer of Warrants.
------------------------------------
The transfer of the Warrants shall be limited as provided in the
Warrant Certificate and Warrant Agreement.
3. Company Representations.
-----------------------
The Company represents and warrants to the Purchaser as follows:
(a) The Company (i) is a duly organized and validly existing
corporation in good standing under the laws of the jurisdiction of its
incorporation, (ii) has the power and authority to own its property and assets
and to transact the business in which it is engaged and presently proposes to
engage and (iii) is duly qualified as a foreign corporation and is in good
standing in each jurisdiction where the ownership, leasing or operation of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified could not reasonably be expected to have a
material adverse effect on the business, operations, property, assets, condition
(financial or otherwise) or prospects of the Company and its subsidiaries taken
as a whole.
(b) The authorized capital stock of the Company is set forth on
Schedule 1 hereto. After giving effect to the transactions on the date hereof,
the outstanding shares of common stock are held by the parties and substantially
in the amounts listed on Schedule 1 attached hereto. Except as set forth on
Schedule 1 hereto, there are no existing options, warrants (other than the
Warrants), calls, subscriptions or other rights or other agreements or
commitments obligating the Company to issue, transfer or sell any shares of its
(or any of its subsidiary's) capital stock or any other securities convertible
into or evidencing the right to subscribe for any such shares.
(c) This Agreement, the Warrant Certificates, the Warrant Agreement
and the Registration Rights Agreement have been duly authorized, executed and
delivered by the Company and are the valid and binding obligation of the
Company, enforceable against the Company in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance and transfer, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(regardless of whether the issue of enforceability is considered in a proceeding
in equity or at law).
(d) As of the date hereof, sufficient shares of the Company's Common
Stock have been authorized and duly reserved for issuance pursuant to the
Warrants and conversion of the
2
<PAGE>
Warrant Shares. The shares of Common Stock issuable upon the exercise of the
Warrants, when issued in accordance with the terms thereof, will be validly
issued, fully paid and nonassessable.
(e) Except for required consents that are being obtained, neither the
execution, delivery or performance by the Company of this Agreement, the Warrant
Certificate, the Warrant Agreement, the Joinder Agreement and the Registration
Rights Agreement, nor compliance by it with the terms and provisions thereof,
(i) will contravene any provision of any law, statute, rule or regulation or any
order, writ, injunction or decree of any court or governmental instrumentality
applicable to it, (ii) will conflict with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any lien upon any of the property or assets of the Company or any of its
subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
credit agreement, loan agreement or any other agreement, contract or instrument
to which the Company or any of its subsidiaries is a party or by which it or any
of its property or assets is bound or to which it may be subject or (iii) will
violate any provision of the articles of incorporation or by-laws or partnership
agreements (or analogous organizational documents) or any amendments thereto of
the Company or any of its subsidiaries.
(f) No authorizations, consents or approvals of or filings with any
governmental agencies or authorities are required in connection with the
execution, delivery and performance of this Agreement, the Warrant Certificates,
the Warrant Agreement, the Joinder Agreement or the Registration Rights
Agreement by the Company.
(g) The representations and warranties contained in Section 4 of the
Subordinated Loan Agreement (as defined in the Warrant Agreement), Section 7 of
the Senior Credit Agreement (as defined in the Warrant Agreement) are hereby
confirmed and restated, each such representation and warranty, together with all
related definitions and ancillary provisions, being hereby incorporated into
this Agreement by reference as though specifically set forth in this Section.
4. Purchaser Representations.
-------------------------
The Purchaser represents and warrants to the Company as follows:
(a) The Purchaser is acquiring the Warrants for investment for its
own account and not with a view to, or for the resale in connection with, the
distribution or other disposition thereof.
(b) The Purchaser will not, during the term of the Warrants, directly
or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of the Warrants except in
3
<PAGE>
accordance with the terms of this Agreement, the Warrant Certificates, the
Warrant Agreement, [the Stockholders' Agreement,] or the Registration Rights
Agreement.
(c) The Purchaser understands that the offer and sale of the Warrants
and any Common Stock issuable thereunder have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and that the same
cannot be sold, pledged, assigned or otherwise disposed of unless the same is
subsequently registered under the Securities Act or an exemption from such
registration is available.
(d) The Purchaser is an "accredited investor" within the meaning of
Regulation D under the Securities Act.
5. Miscellaneous.
-------------
(a) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any document which may be reasonably
necessary to carry out the intent of this Agreement.
(b) Binding Agreement. This Agreement shall bind and inure to the
-----------------
benefit of the successors and assigns of the Company and the Purchaser.
(c) Amendments. This Agreement may be amended at any time by the
----------
written agreement and consent of the parties hereto.
(d) Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of New York, without
regard to such state's conflict of laws provisions.
(e) Entire Agreement. This Agreement, including the agreements
----------------
referred to herein, constitutes the entire agreement and understanding between
the parties pertaining to the subject matter hereof and supersedes any and all
prior agreements, whether written or oral, relating thereto.
(f) Headings. Introductory headings at the beginning of each section
--------
of this Agreement are solely for the convenience of the parties and shall not be
deemed to be a limitation upon or description of the contents of any such
section.
(g) Conditions. Concurrently with the execution of this Agreement,
----------
(i) the Company shall deliver to the Purchaser an opinion of Jackson Walker
L.L.P. dated the date hereof, in the
4
<PAGE>
form set forth in Exhibit C hereto and (ii) the Purchaser shall execute the
Registration Rights Agreement and the Joinder Agreement.
(h) Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which, when taken together, shall constitute one and the
same instrument.
* * * * *
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Warrant Purchase Agreement as of the day and year first written above.
PHYSICIAN HEALTH CORPORATION
By
--------------------------------------
Name:
Title:
PARIBAS CAPITAL FUNDING LLC
By
--------------------------------------
Name:
Title:
By
--------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.47
WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON OCTOBER
27, 1997, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE (AND THE SHARES ISSUABLE
UPON EXERCISE OF SUCH SECURITIES) ARE SUBJECT TO A WARRANT AGREEMENT, DATED
OCTOBER 27, 1997, BY AND BETWEEN THE ISSUER OF SUCH SECURITIES AND THE PURCHASER
REFERRED TO THEREIN. THE TRANSFER OF THIS CERTIFICATE IS SUBJECT TO THE
CONDITIONS SPECIFIED IN SUCH WARRANT AGREEMENT AND THE COMPANY RESERVES THE
RIGHT TO REFUSE THE TRANSFER OF THIS CERTIFICATE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH AGREEMENTS WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST.
Warrants to Purchase by the Holder:
Common Stock,
par value $.0025 per share of
Physician Health Corporation (the "Company")
No. W-_________
1,200,000 Warrants
October 27, 1997
Registered Holder: Paribas Capital Funding LLC
WARRANT CERTIFICATE
This certificate (the "Warrant Certificate") is issued pursuant to a
warrant agreement by and between the Company and Paribas Capital Funding LLC
(the
<PAGE>
"Purchaser"), dated as of October 27, 1997 (the "Warrant Agreement"). Unless
otherwise defined herein, all capitalized terms used herein shall have the
meaning provided in the Warrant Agreement. This Warrant Certificate certifies
that the Purchaser or its registered assigns is the registered owner of
1,200,000 Warrants, each Warrant entitling such owner to purchase initially,
subject to the provisions of Section 9 of the Warrant Agreement, one share of
Non-Voting Common Stock, par value $.0025 per share of the Company (or, upon the
election of the Purchaser, or any transferee of the Purchaser, to receive Voting
Common Stock, par value $.0025 of the Company, in accordance with the provisions
of the Company's certificate of incorporation governing the conversion of
Non-Voting Common Stock into Voting Common Stock, one share of Voting Common
Stock) at the price of $.0025 per share (the "Exercise Price"), subject to the
terms and conditions hereof and of the Warrant Agreement. The number of Warrant
Shares issuable upon exercise of the Warrants is subject to adjustment upon the
occurrence of certain events, as set forth in the Warrant Agreement. As further
set forth in, and subject to, the Warrant Agreement, the expiration date of this
Warrant Certificate is 5:00 p.m. Eastern time on October 27, 2007.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants, and are issued or to be issued pursuant to the
Warrant Agreement which is hereby incorporated by reference and made a part of
this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the Holders of the Warrants. A copy of the Warrant Agreement may be
obtained by the Holder hereof upon written request to the Company.
The Holder of Warrants evidenced by this Warrant Certificate may
exercise such Warrants under and pursuant to the terms and conditions of the
Warrant Agreement by surrendering this Warrant Certificate, with the purchase
form attached hereto as Exhibit A (and by this reference made a part hereof)
properly completed and executed, together with payment of the Exercise Price in
accordance with the terms of the Warrant Agreement. In the event that upon any
exercise of Warrants evidenced hereby, the number of Warrants exercised shall be
less than the total number of Warrants evidenced hereby, there shall be issued
by the Company to the Holder hereof or its registered assignee a new Warrant
Certificate evidencing the number of Warrants not exercised.
Warrant Certificates, when surrendered with the assignment form
attached hereto as Exhibit B (and by this reference made a part hereof) properly
completed and
2
<PAGE>
executed at the office of the Company by the registered Holder thereof in person
or by a legal representative or attorney duly authorized in writing, may be
exchanged, in the manner and subject to the limitations provided in the Warrant
Agreement, but without payment of any service charge, for another Warrant
Certificate or Warrant Certificates of like tenor evidencing in the aggregate a
like number of Warrants.
The Company may deem and treat the registered Holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone) for the purpose of any
exercise hereof, any distribution to the Holder(s) hereof and for all other
purposes. The Company shall not be affected by any notice to the contrary.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED BY ARTICLE 8 OF THE NEW YORK
UNIFORM COMMERCIAL CODE AND THE LAWS OF THE STATE OF NEW YORK.
[Remainder of page intentionally left blank]
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its Chairman of the Board, President or Vice President and attested
to by its Secretary or Assistant Secretary.
PHYSICIAN HEALTH CORPORATION
By
---------------------------------------
Name:
Title:
By
---------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.48
-------------
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is dated as of October __, 1997
and entered into by and between PHYSICIAN HEALTH CORPORATION, a Delaware
corporation (the "Company") and PARIBAS CAPITAL FUNDING LLC (the "Purchaser").
WITNESSETH:
----------
WHEREAS, the Company has agreed to issue and sell to the Purchaser certain
common stock purchase warrants, as hereinafter described (the "Warrants"), to
purchase, subject to the terms of Section 8 hereof, 1,200,000 shares of the
Company's non-voting common stock, par value $.0025 per share (the "Non-Voting
Common Stock"), pursuant to that certain warrant purchase agreement of even date
herewith by and between the Purchaser and the Company (the "Warrant Purchase
Agreement");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
SECTION 1.
DEFINED TERMS
(a) The following terms when used in this Agreement, including its
preamble and recitals, shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Affiliate" shall mean, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
<PAGE>
"Agreement" shall have the meaning provided in the preamble of this
Agreement.
"Applicable Law" shall mean all provisions of laws, statutes, ordinances,
rules, regulations, permits or certificates of any Governmental Authority
applicable to such Person or any of its assets or property, and all judgments,
injunctions, orders and decrees of all courts, arbitrators or Governmental
Authorities in proceedings or actions in which such Person is a party or by
which any of its assets or properties are bound.
"Business Day" shall mean any day except Saturday, Sunday and any day which
in New York shall be a legal holiday or a day on which banking institutions are
authorized or required by law or other government action to close.
"Certificate" shall mean the Certificate of Incorporation of the Company,
as amended.
"Closing Date" shall mean the initial date of issuance of Warrants under
this Agreement.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the 1933 Act.
"Common Stock" shall mean the common stock of the Company, par value
$.0025, including, without limitation, the Non-Voting Common Stock.
"Common Stock Per Share Market Value" means the price per share of Common
Stock obtained by dividing (A) the Market Value by (B) the number of shares of
Common Stock outstanding (on a Fully-Diluted Basis) at the time of
determination.
"Company" shall have the meaning provided in the preamble of this
Agreement.
"Credit Event" shall mean the first to occur of (A) an initial Public
Offering with net proceeds to the Company (net of underwriting discounts and
offering expenses) of at least $50 million or (B) the date on which (i) the
Consolidated EBITDA of the Company and its subsidiaries is at least $25 million,
and (ii) the ratio of the total Indebtedness of the Company and its subsidiaries
to Consolidated EBITDA of the Company and its subsidiaries is less than 3.5:1
(as such terms are defined in the Senior Subordinated Loan Agreement).
"Equity Securities" shall mean all shares of capital stock of the Company,
all securities convertible into or exchangeable for shares of capital stock of
the Company, and all options, warrants, and other rights to purchase or
otherwise acquire from the Company shares of such capital stock, or securities
convertible into or exchangeable for shares of such capital stock.
2
<PAGE>
"Equivalent Nonvoting Security" means, with respect to any security issued
or to be issued by any Person, a security of such Person that is identical in
rights and benefits to such security, except that (a) the equivalent security
shall not be entitled to vote on any matter on which holders of voting
securities of such Person are entitled to vote, other than as required by
Applicable Law or with respect to any amendment or repeal of any provision of
the Organizational Documents of such Person or any other agreement or instrument
pursuant to which the equivalent security was issued which provision
specifically affects such equivalent security, (b) subject to such reasonable
restrictions as any affected Regulated Holder may request (including any
restriction necessary to prevent the violation by such Regulated Holder of any
provision of Applicable Law with respect to its ownership of voting securities),
the equivalent security shall be convertible in a one-to-one ratio into the
first security and (c) the terms of the equivalent security shall include such
provisions requested by any affected Regulated Holder as are reasonable and
equitable to ensure that (i) the equivalent security is treated comparably to
the first security with respect to dividends, distributions, stock splits,
reclassifications, capital reorganizations, mergers, consolidations and other
similar events and transactions, (ii) the conversion right provided in clause
(b) above is equitably protected and (iii) the acquisition of the equivalent
security will not cause such Regulated Holder to violate Applicable Law.
"Exercise Price" shall have the meaning provided in Section 5.
"Expiration Date" shall have the meaning provided in Section 5.
"Fully-Diluted Basis" means, as applied to the calculation of the total
number of shares of Common Stock outstanding at any time, after giving effect to
(a) all shares of Common Stock outstanding at the time of determination, (b) all
shares of Common Stock issuable upon the exercise of Equity Securities to
purchase Common Stock outstanding at the time of determination and then so
convertible or exchangeable at a conversion or exchange price equal to or less
than the Market Price per share of Common Stock at such time.
"Governmental Authority" means any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
or any court, in each case whether of the United States of America or foreign.
"Holder" or "Holders" means the Purchaser (so long as it holds any Warrants
or Warrant Shares) and any other holder of any of the Warrants or Warrant
Shares.
"Independent Financial Expert" means a nationally recognized investment
banking firm (a) that does not (and whose directors, officers, employees and
Affiliates do not) have a direct or indirect material financial interest in the
Company, the Purchaser or any Holder, (b) that
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has not been, and, at the time it is called upon to serve as an Independent
Financial Expert under this Agreement is not (and none of whose directors,
officers, employees or Affiliates is) a promoter, director or officer of the
Company, the Purchaser or any Holder, (c) that has not been retained during the
preceding two years by the Company, the Purchaser or any Holder for any purpose,
and (d) that is otherwise qualified to serve as an independent financial
advisor. Any such Person may receive customary compensation and indemnification
by the Company for opinions or services it provides as an Independent Financial
Expert.
"Market Price" means, with respect to a share of Common Stock on any
Business Day:
(a) if the Common Stock is Publicly Traded at the time of
determination, the average of the closing prices on such day of the Common
Stock on all domestic securities exchanges or NASDAQ National Market System
(NASDAQ-NMS") on which the Common Stock is then listed, or, if there have
been no sales on any such exchange or NASDAQ-NMS on such day, the average
of the highest bid and lowest asked prices on all such exchanges at the end
of such day or, if on any such day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted on NASDAQ as of
4:00 P.M., New York time, on such day, or if on any day such security is
not quoted on NASDAQ, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 20 days
consisting of the day as of which "Market Price" is being determined and
the nineteen consecutive Business Days prior to such day, provided that, if
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Market Price is being determined as of the date of a Public Offering,
Market Price as of such date shall be the offering price for the Common
Stock subject to such Public Offering; or
(b) if the Common Stock is not Publicly Traded at the time of
determination, the Common Stock Per Share Market Value.
"Market Value" means the highest price that would be paid for the entire
common equity of the Company on a going-concern basis in an arm's-length
transaction between a willing buyer and a willing seller (neither acting under
compulsion), using valuation techniques then prevailing in the securities
industry (but without giving effect to any discount in respect of a minority
interest and giving effect to any value attributed to the rights of the Holders
to receive dividends and distributions as provided in Section 10 hereof) and
determined in accordance with the Valuation Procedure, and assuming full
disclosure and understanding of all relevant information and a reasonable period
of time for effectuating such sale. For the purposes of determining the Market
Value, (a) the exercise price of options or warrants to acquire Common Stock
which are deemed to have been exercised for the purpose of
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determining the number of shares of Common Stock outstanding on a Fully-Diluted
Basis, shall be deemed to have been received by the Company and (b)(i) the
liquidation preference or indebtedness, as the case may be, represented by
securities which are deemed exercised for or converted into Common Stock for the
purpose of determining the number of shares of Common Stock outstanding on a
Fully-Diluted Basis and (ii) any contractual limitation in respect of the shares
of Common Stock relating to voting rights, shall be deemed to have been
eliminated or cancelled.
"NASDAQ" means the National Association of Securities Dealers, Inc.,
Automated Quotation System.
"Non-Voting Common Stock" shall have the meaning provided in the recitals
to this Agreement.
"Organizational Documents" means, with respect to any Person, each
instrument or other document that (a) defines the existence of such Person,
including its articles or certificate of incorporation, as filed or recorded
with an applicable Governmental Authority or (b) governs the internal affairs of
such Person, including its bylaws, in each case as amended, supplemented or
restated.
"Permitted Transferee" shall mean any Affiliate of any Holder and any
purchaser of the notes issued by the Company pursuant to the terms of the Senior
Subordinated Loan Agreement.
"Person" or "Persons" means and includes natural persons, corporations,
limited partnerships, general partnerships, limited liability companies, joint
stock companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Publicly Traded" means, with respect to any security, that such security
is (a) listed on a domestic securities exchange, (b) quoted on NASDAQ or (c)
traded in the domestic over-the-counter market, which trades are reported by the
National Quotation Bureau, Incorporated.
"Public Offering" means any sale of the Common Stock of the Company to the
public pursuant to an offering registered under the 1933 Act.
"Purchaser" shall have the meaning provided in the Preamble of this
Agreement.
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"Put Effective Date" shall mean the first to occur of (i) the fifth (5th)
anniversary of the Closing Date and (ii) a Change of Control (as defined in the
Senior Subordinated Loan Agreement).
"Put Notice" shall have the meaning provided in Section 11.1.
"Put Option Purchase Price" shall mean, with respect to the exercise of any
option to sell any Warrants or Warrant Shares pursuant to any Put Notice
delivered under Section 11 hereof by any Holder of Warrants or Warrant Shares
the Market Price of a share of Common Stock (plus, in the event the Common Stock
is Publicly Traded, the value attributed, on a per share basis, to the rights of
the Holders to receive dividends and distributions as provided in Section 10
hereof determined in accordance with the Valuation Procedure) as of the Put
Repurchase Date, multiplied by the number of Warrant Shares subject to the Put
Notice.
"Put Repurchase Date" shall mean, with respect to the exercise of any put
option pursuant to Section 11 of this Agreement, a date designated by the
Company which is not more than ninety (90) days after the date of receipt by the
Company of the Put Notice relating to the exercise of such put option.
"Qualified IPO" shall mean an initial Public Offering, with net proceeds to
the Company (net of underwriting discounts and offering expenses) of at least
$35 million.
"Regulated Holder" shall have the meaning provided in Section 8.
"Regulation Y" shall have the meaning provided in Section 8.
"Reorganization" shall have the meaning provided in Section 9(d).
"Requisite Holders" means Holders holding Warrants and/or Warrant Shares
representing at least a majority of all Warrant Shares issued or issuable upon
exercise of Warrants outstanding on the date of determination.
"Section 13(e) Transaction" shall have the meaning provided in Section
13(e).
"Senior Credit Agreement" shall mean the credit agreement, dated as of the
date hereof, among the Company, PHC Holding Corporation, the financial
institutions from time to time party thereto and Banque Paribas, as agent, as
amended, amended and restated, supplemented, restructured or otherwise modified
from time to time (in whole or in part and without limitation as to terms,
conditions or covenants and without regard to the principal amount thereof) and
in effect, including all related notes, collateral documents, guaranties,
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<PAGE>
instruments and agreements entered into in connection therewith, and any
successive restructurings, renewals, extensions or refundings thereof.
"Senior Subordinated Loan Agreement" means the senior subordinated loan
agreement, dated as of the date hereof, among the Company, PHC Holding
Corporation, the financial institutions from time to time party thereto and
Paribas Capital Funding LLC, as agent, as amended, amended and restated,
supplemented, restructured or otherwise modified from time to time (in whole or
in part and without limitation as to terms, conditions or covenants and without
regard to the principal amount thereof) and in effect, including all related
notes, collateral documents, guaranties, instruments and agreements entered into
in connection therewith, and any successive restructurings, renewals, extensions
or refundings thereof.
"Valuation Procedure" means, with respect to the determination of any
amount or value required to be determined in accordance with such procedure, a
determination (which shall be final and binding on the Company and the Holders)
made (i) by agreement among the Company and the Requisite Holders within 20 days
following the event requiring such determination or (ii) in the absence of such
an agreement, by an Independent Financial Expert selected in accordance with the
further provisions of this definition. If required, an Independent Financial
Expert shall be selected within five days following the expiration of the 20-day
period referred to above, either by agreement among the Company and the
Requisite Holders or, in the absence of such agreement, by lot from a list of
four potential Independent Financial Experts remaining after the Company
nominates three, the Requisite Holders nominate three, and each side eliminates
one potential Independent Financial Expert. The Independent Financial Expert
shall be instructed by the Company and the Requisite Holders to make its
determination within 20 days of its selection. The fees and expenses of an
Independent Financial Expert selected hereunder shall be paid by the Company
unless the Independent Financial Expert's determination pursuant to the
Valuation Procedure is within 5% of the amount proposed by the Company in
connection with the Valuation Procedure and not agreed to by the Requisite
Holders, in which case such fees and expenses shall be paid 50% by the Holders
(on a pro rata basis) participating in the transaction to which the
--- ----
determination relates and 50% by the Company.
"Voting Common Stock" shall mean the voting Common Stock of the Company,
par value $.0025 per share.
"Warrant Certificates" shall have the meaning provided in Section 2.
"Warrant Documents" means this Agreement, the Warrant Purchase Agreement
and the Warrant Certificates.
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"Warrant Number" shall have the meaning provided in Section 9.
"Warrant Purchase Agreement" shall have the meaning provided in the
recitals to this Agreement.
"Warrant Shares" means (a) the shares of Non-Voting Common Stock (or, upon
the election of any Holder to receive Voting Common Stock in accordance with the
provisions of the Certificate governing the conversion of Non-Voting Common
Stock into Voting Common Stock, the shares of Voting Common Stock) issued or
issuable upon exercise of a Warrant in accordance with Section 5 or upon
exchange of a Warrant in accordance with Section 5, (b) all other securities or
other property issued or issuable upon any such exercise or exchange in
accordance with this Agreement and (c) any securities of the Company distributed
with respect to, or issued upon the conversion of, the securities referred to in
the preceding clauses (a) and (b). As used in this Agreement, the phrase
"Warrant Shares then held" by any Holder or Holders shall mean Warrant Shares
held at the time of determination by such Holder or Holders, and shall include
Warrant Shares issuable upon exercise of Warrants held at the time of
determination by such Holder or Holders.
"Warrants" shall have the meaning provided in the recitals of this
Agreement.
SECTION 2.
WARRANT CERTIFICATES
The Company will issue and deliver a certificate or certificates evidencing
the Warrants (the "Warrant Certificates") in accordance with Section 1 of the
Warrant Purchase Agreement. Warrant Certificates shall be dated the date of
issuance by the Company.
SECTION 3.
EXECUTION OF WARRANT CERTIFICATES;
MUTILATION OR MISSING WARRANT CERTIFICATES
Warrant Certificates shall be signed on behalf of the Company by its
Chairman of the Board or its President or a Vice President. Each Warrant
Certificate shall also be manually signed on behalf of the Company by its
Secretary or an Assistant Secretary.
In case any of the Warrant Certificates shall be mutilated, lost, stolen or
destroyed, the Company shall, upon request of the Holder of any such Warrant
Certificate, issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of
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<PAGE>
and substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also satisfactory to the Company. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
SECTION 4.
REGISTRATION/RESERVATION OF WARRANT SHARES
The Company shall number and register the Warrant Certificates in a
register as they are issued. The Company may deem and treat the registered
Holders of the Warrant Certificates as the absolute owners thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone) for all purposes and shall not be affected by any notice to the
contrary. The Warrants shall be registered initially in such name or names as
the Purchaser shall designate.
The Company shall at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Stock, for the purpose of enabling it to satisfy any obligation to issue Warrant
Shares upon exercise of Warrants, the maximum number of shares of Common Stock
which may then be deliverable upon the exercise of all outstanding options,
warrants (including the Warrants) or other securities convertible into or
exchangeable for Common Stock.
The Company covenants that all Warrant Shares and other capital stock
issued upon exercise of Warrants will, upon payment of the Exercise Price
therefor and issue thereof, be validly authorized and issued, fully paid,
nonassessable, free of preemptive rights (except as may be granted by this
Agreement) and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
If and so long as the outstanding Common Stock may be listed on any
securities exchange in the United States, the Company shall use its reasonable
best efforts to cause all reserved Warrant Shares to be listed on each such
exchange upon official notice of issuance upon such exercise.
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<PAGE>
SECTION 5.
WARRANTS; EXERCISE OF WARRANTS
Subject to the terms of this Agreement, each Holder shall have the right,
which may be exercised at any time or from time to time until 5:00 p.m., New
York time, on October __, 2007 (the "Expiration Date") to receive from the
Company the number of fully paid and nonassessable Warrant Shares which the
Holder may at the time be entitled to receive on exercise of such Warrants and
payment of the Exercise Price then in effect for such Warrant Shares. Each
Warrant not exercised prior to 5:00 p.m., New York time, on the Expiration Date
shall become void and all rights thereunder and all rights in respect thereof
under this Agreement shall cease as of such time; provided that the occurrence
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of the Expiration Date shall not relieve the Company of any obligation to any
Holder which arose pursuant to the terms of this Agreement prior to such date.
The price at which each Warrant shall be exercisable (as such price may be
adjusted from time to time, in accordance with the terms hereof, the "Exercise
Price") shall initially be $.0025 per share. The Common Stock shall have a par
value of no greater than $.0025 per share. In the event that the amount obtained
by dividing the Exercise Price by the Warrant Number is less than the par value
per share of Common Stock, the Company shall take all necessary actions to
ensure that all Warrant Shares issued pursuant to this Agreement are fully paid.
A Warrant may be exercised upon surrender to the Company at its address set
forth on the signature pages hereto of the Warrant Certificate or Warrant
Certificates to be exercised with the form of election to purchase attached
thereto duly completed and signed, and upon payment to the Company of the
Exercise Price for the number of Warrant Shares in respect of which such
Warrants are then exercised. Payment of the aggregate Exercise Price may be
made, at the option of the applicable Holder, (i) by cash, certified or bank
cashier's check or wire transfer, (ii) by surrendering to the Company the number
of Warrants which, when exercised, would entitle the Holder thereof to that
number of Warrant Shares which is equal to (A) such aggregate Exercise Price
divided by (B) the excess of (x) the product of the number of Warrant Shares
which may be purchased with one Warrant, multiplied by the Market Price per
share of Common Stock over (y) the Exercise Price, (iii) by surrendering to the
Company the number of shares of Common Stock which is equal to (A) such
aggregate Exercise Price divided by (B) the Market Price per share of Common
Stock or (iv) any combination of the foregoing.
Subject to the provisions of Section 6, upon such surrender of Warrants and
payment of the Exercise Price the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Holder and in
such name or names as such Holder
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may designate a certificate or certificates for the number of full Warrant
Shares issuable upon the exercise of such Warrants (and such other consideration
as may be deliverable upon exercise of such Warrants) together with, at the sole
option of the Company, cash for fractional Warrant Shares as provided in Section
7. Such certificate or certificates shall be deemed to have been issued and the
Person so named therein shall be deemed to have become a holder of record of
such Warrant Shares as of the date of the surrender of such Warrants and payment
of the Exercise Price, irrespective of the date of delivery of such certificate
or certificates for Warrant Shares.
Each Warrant shall be exercisable, at the election of the Holder thereof,
either in full or from time to time in part and, in the event that a Warrant
Certificate is exercised in respect of fewer than all of the Warrant Shares
issuable on such exercise at any time prior to the date of expiration of the
Warrants, a new certificate evidencing the remaining Warrant or Warrants will be
issued and delivered pursuant to the provisions of this Section 5 and of Section
2.
All Warrant Certificates surrendered upon exercise of Warrants shall be
cancelled and disposed of by the Company. The Company shall keep copies of this
Agreement and any notices given or received hereunder available for inspection
by the Holders during normal business hours at its office.
SECTION 6.
PAYMENT OF TAXES
The Company will pay all taxes and other governmental charges (including
all documentary stamp taxes, but excluding all foreign, federal, state or local
income taxes payable by a Holder) in connection with the issuance or delivery of
the Warrants hereunder, including all such taxes attributable to the initial
issuance or delivery of Warrant Shares upon the exercise of Warrants and payment
of the Exercise Price. The company shall not, however, be required to pay any
tax that may be payable in respect of any subsequent transfer of the Warrants or
any transfer involved in the issuance and delivery of Warrant Shares in a name
other than that in which the Warrants to which such issuance relates were
registered, and, if any such tax would otherwise be payable by the Company, no
such issuance or delivery shall be made unless and until the Person requesting
such issuance has paid to the Company the amount of any such tax, or it is
established to the reasonable satisfaction of the Company that any such tax has
been paid.
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SECTION 7.
FRACTIONAL INTERESTS
The Company shall not issue fractional Warrant Shares on the exercise of
Warrants; provided, that in the event the Market Price of the fractional
interests of such Warrant Shares is less than $100, the Company may issue
fractional Warrant Shares. If more than one Warrant shall be presented for
exercise in full at the same time by the same Holder, the number of full Warrant
Shares which shall be issuable upon the exercise thereof shall be computed on
the basis of the aggregate number of Warrant Shares purchasable on exercise of
the Warrants so presented. If any fraction of a Warrant Share would, except for
the provisions of this Section 7, be issuable on the exercise of any Warrants
(or specified portion thereof), the Company may, at its sole option, pay an
amount in cash equal to the Market Price of the Warrant Share so issuable
multiplied by such fraction.
SECTION 8.
LIMITATIONS ON CERTAIN HOLDERS
Notwithstanding anything in this Agreement or any Warrant Certificate to
the contrary, no Holder which is subject to the provisions of Regulation Y
promulgated by the Board of Governors of the Federal Reserve, or any successor
regulation thereto ("Regulation Y"), or which is affiliated with any entity
subject to the provisions of Regulation Y (if such Affiliate holds securities of
the Company (any such Holder being referred to herein as a "Regulated Holder"))
and no transferee of such Regulated Holder may exercise the Warrants for a
number of Warrant Shares which would permit such Regulated Holder, together with
its Affiliates and transferees, to own or control a number of Warrant Shares
greater than that permitted by Applicable Law including, without limitation,
Regulation Y.
SECTION 9.
ADJUSTMENT OF NUMBER OF WARRANT SHARES ISSUABLE
AND EXERCISE PRICE
The number of shares of Common Stock issuable upon the exercise of each
Warrant (the "Warrant Number") is initially one. The Warrant Number is subject
to adjustment from time to time upon the occurrence of any event enumerated in,
or as otherwise provided in this Section 9.
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(a) Adjustment for Change in Capital Stock. If the Company:
--------------------------------------
(i) Subdivides or reclassifies its outstanding shares of Common
Stock into a greater number of shares;
(ii) combines or reclassifies its outstanding shares of Common
Stock into a smaller number of shares; or
(iii) issues by reclassification of its Common Stock any shares
of its capital stock;
then the Warrant Number in effect immediately prior to such action shall be
adjusted so that the Holder of any Warrant thereafter exercised may receive the
aggregate number and kind of shares of capital stock of the Company which it
would have owned immediately following such action if such Warrant had been
exercised immediately prior to such action. The adjustment shall become
effective immediately after the effective date thereof. Such adjustment shall be
made successively whenever any event listed above shall occur.
(b) When De Minimis Adjustment Deferred. No adjustment in the Warrant
-----------------------------------
Number need be made unless the adjustment would require an increase or decrease
of at least one-tenth of one percent in the Warrant Number. Any adjustments that
are not made shall be carried forward and taken into account in any subsequent
adjustment, provided that no such adjustment shall be deferred beyond the date
on which a Warrant is exercised. All calculations under this Section 9 shall be
made to the nearest 1/10th of a share.
(c) Notice of Adjustment. Whenever the Warrant Number is adjusted, the
--------------------
Company shall provide the notices required by subsection 13(a) hereof. Whenever
the Warrant Number is required to be adjusted, as herein provided, the Company
shall mail by first class, postage prepaid, to each Holder, notice of such
adjustment or adjustments and a certificate of a firm of nationally recognized
independent public accountants selected by the board of directors of the Company
(who may be the regular accountants employed by the Company) setting forth the
Warrant Number after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
(d) Reorganizations. In case of any capital reorganization, other than
---------------
in the cases referred to in subsection 9(a) hereof, or the consolidation or
merger of the Company with or into another Person (other than a merger or
consolidation in which the Company is the surviving entity and which does not
result in any reclassification of the outstanding shares of Common Stock into
shares of other stock or other securities or property), or the sale of the
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property of the Company as an entirety or substantially as an entirety other
than in the cases referred to in Subsection 9(a) hereof (collectively, such
actions being hereinafter referred to as "Reorganizations"), there shall
thereafter be deliverable upon exercise of any Warrant (in lieu of the number of
shares or securities theretofore deliverable) the number of shares of stock or
other securities or property to which a holder, of the number of shares of
Common Stock that would otherwise have been deliverable upon the exercise of
such Warrant, would have been entitled upon such Reorganization if such Warrant
had been exercised in full immediately prior to such Reorganization. In case of
any Reorganization, appropriate adjustment, as determined in good faith by the
board of directors of the Company, whose determination shall be described in a
duly adopted resolution certified by the Company's Secretary or Assistant
Secretary, shall be made in the application of the provisions herein set forth
with respect to the rights and interests of Holders so that the provisions set
forth herein shall thereafter be applicable, as nearly as possible, in relation
to any shares or other property thereafter deliverable upon exercise of
Warrants.
The Company shall not effect or permit any such Reorganization unless
(i) the successor entity resulting from such Reorganization or the Person
purchasing such assets is a corporation duly organized and validly existing
under the laws of a state of the United States and (ii) prior to or
simultaneously with the consummation of such Reorganization the successor entity
(if other than the Company) resulting from such Reorganization or the Person
purchasing such assets shall expressly assume, by a supplemental Warrant
Agreement or other acknowledgement executed and delivered to the Holder(s) in
form and substance satisfactory to the Requisite Holders, the obligation to
deliver to each such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase, and all other obligations and liabilities under this Agreement.
(e) Form of Warrants. Irrespective of any adjustments in the number or
----------------
kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrant Certificates initially
issuable pursuant to this Agreement.
(f) Exercise Price Adjustment. Whenever the Warrant Number is adjusted
-------------------------
as herein provided, the Exercise Price payable upon exercise of this Warrant
shall be adjusted by multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the Warrant Number
immediately prior to such adjustment, and of which the denominator shall be the
Warrant Number immediately thereafter; provided, however, that the Exercise
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Price shall in no event be less than the current par value of the Common Stock.
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(g) Dissolution, Liquidation or Winding Up. Notwithstanding any other
--------------------------------------
provision of this Agreement, in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, each Holder shall be
entitled to share, with respect to the Warrant Shares issuable upon exercise of
the Holder's Warrants, equally and ratably in any cash or non-cash distributions
payable to holders of Common Stock, less the aggregate Exercise Price payable
upon the exercise of such Warrants. The Company shall give notice to each Holder
at the earliest practicable time (and, in any event, not less than 20 days
before the date of such dissolution, liquidation or winding-up, as the case may
be) and each Holder of outstanding Warrants shall be entitled to share equally
and ratably in any cash or noncash distributions payable to holders of Common
Stock. In case of any such voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company shall hold in escrow any funds or other
property which a Holder is entitled to receive in respect of such Holder's
Warrant Shares at the time of any distribution. No such Holder will be entitled
to receive payment of any such distribution until such Holder has surrendered
the Warrant Certificates evidencing such Warrant to the Company. From and after
such voluntary or involuntary dissolution, liquidation or winding up with
respect to the Company, all rights of the Holders, except the right to receive
such distribution, without interest, upon the surrender of the Warrant
Certificates, shall cease and terminate and such Warrants shall not thereafter
be transferred (except with the consent of the Company) and such Warrants shall
not be deemed to be outstanding for any other purpose whatsoever. For the
purposes of this Agreement, neither the voluntary sale, lease, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Company, nor the consolidation or merger of the Company with one or more other
corporations, shall be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary, with respect to the Company.
(h) Miscellaneous. In the event that at any time, as a result of an
-------------
adjustment made pursuant to this Section 9, the Holders shall become entitled to
purchase any securities of the Company other than, or in addition to, shares of
Common Stock, thereafter the number or amount of such other securities so
purchasable upon exercise of each Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Warrant Shares contained in this Section 9, and
the provisions of Sections 5, 6, 7 and 8 with respect to the Warrant Shares or
the Common Stock shall apply on like terms to any such other securities.
(i) Occurrence of a Credit Event. If the Commitment (as defined in the
----------------------------
Senior Subordinated Loan Agreement) is terminated upon the occurrence of a
Credit Event on or before February 28, 1998, then 360,000 Warrants, or 360,000
of the then issued Warrant Shares will be canceled.
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(j) Repayment of Senior Subordinated Debt. (i) If the number of
-------------------------------------
Warrants or Warrant Shares has not been reduced pursuant to Section 9(k) and the
Loan outstanding under the Senior Subordinated Loan Agreement is repaid in full
from the proceeds of an initial Public Offering of Common Stock at a price per
share of $6.00 or more and the Commitment (as defined in the Senior Subordinated
Loan Agreement) is terminated (A) on or before the six (6) month anniversary of
the Closing Date then 600,000 Warrants, or 600,000 of the then issued Warrant
Shares will be canceled, (B) after the six (6) month anniversary but on or
before the one (1) year anniversary of the Closing Date then 300,000 Warrants,
or 300,000 of the then issued Warrant Shares, will be canceled or (C) after the
one (1) year anniversary but on or before the 18 month anniversary of the
Closing Date, then 150,000 Warrants, or 150,000 of the then issued Warrant
Shares, will be canceled.
(ii) If the number of Warrants or Warrant Shares has been
reduced pursuant to Section 9(k) and the Loan outstanding under the Senior
Subordinated Loan Agreement is repaid in full from the proceeds of an initial
Public Offering of Common Stock at a price per share of $6.00 or more and the
Commitment (as defined in the Senior Subordinated Loan Agreement) is terminated
(A) on or before the six (6) month anniversary of the Closing Date then 360,000
shares, or 360,000 of the then issued Warrant Shares will be canceled, (B) after
the six (6) month anniversary but on or before the one (1) year anniversary of
the Closing Date then 180,000 shares, or 180,000 of the then issued Warrant
Shares, will be canceled or (C) after the one (1) year anniversary but on or
before the 18 month anniversary of the Closing Date, then 90,000 shares, or
90,000 of the then issued Warrant Shares, will be canceled.
(iii) All such cancellations shall be applied pro rata among
all Holders and, as to each Holder, to its Warrant first.
SECTION 10.
PAYMENTS IN RESPECT OF DIVIDENDS AND DISTRIBUTIONS
If the Company pays any dividend or makes any distribution (whether in
cash, property, evidences of indebtedness or securities of the Company) on its
Common Stock, then the Company shall simultaneously pay to the Holders a portion
of such dividend or distribution in the same form as such dividend or
distribution was paid, based on the number of Warrant Shares issuable upon
exercise of the Warrants.
16
<PAGE>
SECTION 11.
HOLDERS' PUT RIGHTS
11.1 Granting of Put, Put Option Purchase Price. Subject to the
------------------------------------------
limitations set forth in Section 11.5 hereof, at any time or from time to time
after the Put Effective Date but on or before the earlier of (A) the
consummation of a Qualified IPO or (B) the later of (x) the Expiration Date and
(y) the date 10 business days after the date on which there are no limitations
on the Company's obligation to purchase shares of Common Stock pursuant to this
Section 11.1 of the type described in Section 11.5, any Holder of Warrants
and/or Warrant Shares, upon written notice to the Company (a "Put Notice"),
shall be entitled to sell, and the Company shall be obligated to purchase from
such Holder, all or any portion of the Warrants and/or Warrant Shares held by
such Holder at the Put Option Purchase Price.
11.2 Put Notice. Each Put Notice delivered pursuant to Section 11.1
----------
shall specify:
(a) the name of the Holder of Warrants and/or Warrant Shares
delivering such Put Notice;
(b) that such Holder is exercising its option, pursuant to this
Section 11, to sell the Warrants and/or Warrant Shares held by such Holder; and
(c) the number of, and a description of, the Warrants and/or Warrant
Shares being tendered, including a statement, to the extent relevant, of:
(i) the number of Warrants and/or Warrant Shares sought to be
sold by such Holder that were issued upon the exercise of any Warrant; and
(ii) the total number of Warrants and/or Warrant Shares sought
to be sold by such Holder that have not been exercised or cancelled
11.3 Company Notices.
---------------
(a) The Company, within thirty (30) days of receipt of such Put
Notice, shall deliver to the Holder or Holders exercising its or their put
option pursuant to this Section 11, a notice (i) specifying the Put Repurchase
Date and (ii) stating the type and number of the Warrants and/or Warrant Shares
held by each such other Holder.
(b) The Company, not less than ten (10) days prior to the Put
Repurchase Date, shall deliver to the Holder or Holders exercising its or their
put option pursuant to this Section
17
<PAGE>
11, a notice containing a detailed calculation of the Put Option Purchase Price
with respect to the Warrants and/or Warrant Shares which are to be so
repurchased from such Holder.
11.4 Obligation to Purchase Warrant Shares. The Company shall be
-------------------------------------
obligated, subject to Section 11.5 hereof, to purchase all of such Holder's or
Holders' Warrants and/or Warrant Shares which are the subject of such Put
Notice, and shall pay the Put Option Purchase Price with respect to the exercise
of the put option which is the subject of each such Put Notice payable to such
Holder or Holders in immediately available funds, on the Put Repurchase Date
with respect to such Put Notice, against delivery by such Holder or Holders of
any and all certificates or other instruments evidencing the Warrants and/or
Warrant Shares which are the subject of such Put Notice, together with
appropriate stock powers or other instruments of transfer or assignment duly
endorsed in blank.
11.5 Limitations on Right of Repurchase. Notwithstanding anything
----------------------------------
contained in this Section 11 to the contrary, the Company shall not be obligated
to purchase Warrants and/or Warrant Shares which are the subject of a Put Notice
or be obligated to pay the Put Option Purchase Price in respect of a Put Notice,
if, at any time:
(a) payment of the Put Option Purchase Price at such time would result
in a breach of, or default or event of default in respect of, the Senior Credit
Agreement or the Senior Subordinated Loan Agreement; or
(b) payment of the Put Option Purchase Price is, at such time,
prohibited by Applicable Law;
provided, however, with respect to (a) and (b) above, if such breach, event of
- -------- -------
default, default or violation would not result from the purchase of any number
of Warrant Shares which is less than the total number of shares the Company is
obligated to purchase on the Put Repurchase Date, the Company shall purchase on
the Put Repurchase Date the maximum number of shares it may so purchase,
allocated among the Holders which have elected to have their Warrant Shares so
repurchased ratably according to the number of Warrant Shares so tendered;
provided further, however, with respect to (a) and (b) above, the Company shall
use its reasonable best efforts to cure such default or violation in a timely
matter and remove any associated restrictions or limitations which are
applicable to the rights of the holders contained in this Section 11.
18
<PAGE>
SECTION 12.
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the Holders that the
representations and warranties contained in Article 4 of the Senior Subordinated
Loan Agreement, are hereby confirmed and restated, each such representation and
warranty, together with all related definitions and ancillary provisions, being
hereby incorporated into this Agreement by reference as though specifically set
forth in this Section.
SECTION 13.
COVENANTS
(a) Notices of Certain Actions. (i) In the event that, prior to the
--------------------------
consummation of an initial Public Offering, the Company:
(A) shall have authorized the issuance of rights or warrants
to subscribe for or purchase more than 400,000 shares of capital stock of the
Company since the last notice delivered pursuant to this Section 13(a) or the
date hereof, whichever is later, or of any other subscription rights or warrants
to purchase more than 400,000 shares of capital stock to holders of any type of
capital stock of the Company since the last notice delivered pursuant to this
Section 13(a)(l) or the date hereof, whichever is later; or
(B) shall authorize a dividend or other distribution of
evidences of its indebtedness, cash or other property or assets to holders of
any type of capital stock of the Company; or
(C) proposes to become a party to any consolidation or merger
for which approval of any stockholders of the Company will be required, or to a
conveyance or transfer of the properties and assets of the Company substantially
as an entirety, or of any capital reorganization or reclassification or change
of any type of capital stock of the Company; or
(D) commences a voluntary or involuntary dissolution,
liquidation or winding up; or
(E) commences a Public Offering; or
(F) fails to comply with the provisions of this Agreement; or
19
<PAGE>
(G) proposes to take any other action which would require an
adjustment pursuant to Section 9;
then the Company shall provide a written notice to each Holder stating (i) the
date as of which the holders of record of capital stock to be entitled to
receive any such rights, warrants or distribution are to be determined, (ii) the
material terms of any such consolidation or merger and the expected effective
date thereof, (iii) the material terms of any such conveyance or transfer, and
the date on which any such conveyance, transfer, dissolution, liquidation or
winding up is expected to become effective or consummated, and the date as of
which it is expected that holders of record of capital stock will be entitled to
exchange their shares for securities or other property, if any, deliverable upon
such reclassification, conveyance, transfer, dissolution, liquidation or winding
up, (iv) the material terms of any such Public Offering (including a copy of any
prospectus, registration statement or offering statement) and the expected
effective date thereof, (v) the nature of the lack of compliance, any corrective
action taken and any rights or remedies which such lack of compliance has
bestowed on the Holders or (vi) the information required by Section 9(c). Such
notice shall be given not later than 3 Business Days prior to the effective date
(or the applicable record date, if earlier) of such event.
(ii) From and after the consummation of an initial Public Offering, the
Company shall provide to each Holder (A) all notices or other documents that are
provided generally to the holders of Common Stock and (B) if the Company
proposes to take any action which would require an adjustment pursuant to
Section 9, the information required by Section 9(c).
(iii) The failure to give the notice required by this subsection 13(a)
or any defect therein shall not affect the legality or validity of any
distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any action.
(b) Financial Statements and Reports. The Company shall furnish to
--------------------------------
each Holder such information relating to the Company and its Subsidiaries and
their operations and financial condition as any Holder shall reasonably request,
including the financial statements required by Sections 5.1(b) and (c) of the
Senior Subordinated Loan Agreement.
(c) Information Rights and Access Rights. Each Holder shall have the
------------------------------------
right, upon its reasonable request, whether or not such Holder has exercised or
exchanged any Warrants, to receive lists of stockholders or other information
respecting the Company, to inspect the books and records of the Company and to
visit the properties of the Company. Nothing contained in this Agreement shall
be construed as conferring upon any Holder, prior to its exercise of any
Warrant, the right to vote or to consent or to receive notice as stockholders in
20
<PAGE>
respect of meetings of stockholders or the election of directors of the Company
or any other matter, or any rights whatsoever as stockholders of the Company,
except as expressly provided hereunder or under Applicable Law.
(d) Observation Rights of the Purchaser. The Company hereby covenants
-----------------------------------
and agrees that, for so long as the Purchaser and Paribas Principal Incorporated
in the aggregate owns at least 5.0% of the outstanding capital stock of the
Company, the Company shall provide the Purchaser with reasonable notice of all
meetings of the Board of Directors of the Company and meetings of committees
which have been delegated any decision making authority by the board of
Directors of the Company. The Company shall invite or cause to be invited a
representative of the Purchaser (an "Observer") to attend (in person or by
telephone, at the Observer's option if the meeting is not a telephone meeting)
each such board meeting or committee meeting. The Observer shall be provided
with all advance materials provided to Board members and such committee members.
Following any such meeting, the Company shall provide the Purchaser with copies
of the agenda and minutes with respect thereto, whether or not an Observer
participated in or attended such meeting. Notwithstanding the foregoing, Section
5.14 of the Senior Subordinated Loan Agreement and Section 5.1.1 of the
Securities Purchase Agreement between the Company and Paribas Principal
Incorporated, the Purchaser agrees that the Purchaser and Paribas Principal
Incorporated shall together be entitled to designate only one Observer, as shall
be mutually agreed upon by them from time to time.
(e) Regulated Holders.
-----------------
(i) Notwithstanding any other provision of this Agreement to
the contrary, except as provided in this subsection 13(e), without the prior
written consent of any Regulated Holder, the Company shall not, directly or
indirectly, redeem, purchase or otherwise acquire, convert or take any action
(including any amendment to its Certificate) with respect to the voting rights
of, or undertake any other action or transaction (including any merger,
consolidation or recapitalization) affecting, any shares of its capital stock or
other voting securities if the result of the foregoing would be to cause the
ownership of the capital stock of the Company by such Regulated Holder, or the
ownership of voting securities of the Company (or any class thereof) by such
Regulated Holder, to exceed the quantity of such capital stock or voting
securities (or any class thereof) that such Regulated Holder is permitted under
Applicable Law to own. Any action or transaction referred to in the preceding
sentence shall be referred to herein as a "Section 13(e) Transaction". If the
Company proposes to undertake any action or transaction which could constitute a
Section 13(e) Transaction, it shall provide the Holders at least 15 days prior
written notice thereof. If, in the written opinion of counsel to any Regulated
Holder (which may be internal counsel) delivered within 10 days following
receipt of such notice, such action or transaction constitutes a Section 13(e)
Transaction with
21
<PAGE>
respect to such Regulated Holder, then the Company shall delay undertaking such
Section 13(e) Transaction for the purpose of using its best efforts to agree on
a manner in which to restructure such action or transaction in a manner
reasonably satisfactory to the Company and such Regulated Holder so that it no
longer would constitute a Section 13(e) Transaction. Notwithstanding anything to
the contrary contained herein, the Company shall be permitted to undertake any
Section 13(e) Transaction which would otherwise result in the ownership by any
Regulated Holder of voting securities (or any class thereof in excess of the
quantity permitted by Applicable Law) if, in a manner reasonably satisfactory to
such Regulated Holder, the Company shall provide or cause to be provided for
such Regulated Holder (i) to receive in connection with any such action or
transaction a number of shares or other units of Equivalent Nonvoting Securities
equal to such excess in lieu of the same number of shares or other units of the
voting securities it would otherwise have received or (ii) if it would not
otherwise have received voting securities in connection with such action or
transaction to exchange a number of shares or other units of voting securities
then held by such Regulated Holder equal to such excess for the same number of
shares or other units of Equivalent Nonvoting Securities.
(ii) If it becomes unlawful for any Regulated Holder to
continue to hold some or all of the Warrants or Warrant Shares held by it, or
restrictions are imposed on any Regulated Holder by Applicable Law which, in the
reasonable judgment of such Regulated Holder, make it unduly burdensome to
continue to hold such Warrants or Warrant Shares, the Company shall (i)
cooperate with such Regulated Holder in any efforts by such Regulated Holder to
dispose of some or all of such Warrants or Warrant Shares in a prompt and
orderly manner, including providing (and authorizing such Regulated Holder to
provide) financial and other information concerning the Company to any
prospective purchaser of such Warrants or Warrant Shares and (ii) at the request
of such Regulated Holder, take all steps (including using its best efforts to
cause its Certificate to be amended) necessary to create an Equivalent Nonvoting
Security with respect to the Warrant Shares then held by such Regulated Holder
and permit such Regulated Holder to exchange Warrant Shares for the same number
of shares or other units of such Equivalent Nonvoting Security; provided, that
--------
nothing in this subsection 13(e) shall require the Company to register or
qualify such Warrants or Warrant Shares under any federal or state securities
laws.
(f) Current Public Information. At all times after the Company has
--------------------------
filed a registration statement with the Commission pursuant to the requirements
of either the 1933 Act or the 1934 Act, the Company will file all reports
required to be filed by it under the 1933 Act and the 1934 Act and the rules and
regulations adopted by the Commission thereunder, and will take such further
action as any Holder may reasonably request, all to the extent required to
enable such Holder to sell Warrant Shares pursuant to Rule 144 or Rule 144A
adopted by the Commission under the 1933 Act. Upon request, the Company will
deliver to any such Holder a written statement as to whether it has complied
with such requirements.
22
<PAGE>
(g) Public Disclosures. The Company will not disclose any Holder's
------------------
name or identity as an investor in the Company in any press release or other
public announcement or in any written consent of such Holder, unless such
disclosure is required by Applicable Law or governmental regulations or by order
of a court of competent jurisdiction in which case prior to making such
disclosure the Company will give written notice to such Holder describing in
reasonable detail the proposed content of such disclosure and will permit the
Holder to review and comment upon the form and substance of such disclosure.
(h) Certain Restrictions. The Company will not without the consent of
--------------------
the Requisite Holders, take any action, corporate or otherwise, the effect of
which would be to alter, impair or affect adversely either the rights of the
Holders or the duties and obligations of the Company under the Warrant
Documents.
(i) Specific Performance. Each Holder shall have the right to specific
--------------------
performance by the Company of the provisions of this Agreement, in addition to
any other remedies it may have at law or in equity. The Company hereby
irrevocably waives, to the extent that it may do so under Applicable Law, any
defense based on the adequacy of a remedy at law which may be asserted as a bar
to the remedy of specific performance in any action brought against the Company
for specific performance of this Agreement by any Holder of the Warrants or
Warrant Shares.
SECTION 14.
AMENDMENTS AND WAIVERS
(a) Consent of Holders. No amendment, modification, termination or
------------------
waiver of any provision of this Agreement and the Warrant Certificates or
consent to any departure by the Company therefrom, shall in any event be
effective without the written concurrence of the Requisite Holders; provided,
--------
however, that without the consent of each Holder affected, no amendment,
- -------
modification, termination or waiver may:
(i) make any change to the definition of "Requisite Holders";
(ii) make any change to the transfer provisions of Section 15
that adversely affects the ability of a Holder to make any transfer described
therein;
(iii) make any change in the foregoing amendment and waiver
provisions; or
(iv) make any change to Section 11 hereof and the definitions
relating thereto.
23
<PAGE>
After an amendment, modification, termination or waiver under this
Section 14 becomes effective, the Company shall mail to the Holders affected
thereby a notice briefly describing such amendment, modification, termination or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
amendment, modification, termination or waiver.
In connection with any amendment, modification, termination or waiver
under this Section 14, the Company may offer, but shall not be obligated to
offer, to any Holder who consents to such amendment, modification, termination
or waiver, consideration for such Holder's consent, so long as such
consideration is offered to all Holders.
(b) Solicitation of Holders. The Company will not effect any proposed
-----------------------
amendment, modification, termination or waiver of any of the provisions of this
Agreement or the Warrant Certificates unless each Holder (irrespective of the
amount of Warrants or Warrant Shares then owned by it) shall be informed thereof
by the Company prior to the effectuation thereof (but only to the extent the
Company has been provided with addresses for the Holders) and shall be afforded
the opportunity of considering the same and shall be supplied by the Company
with sufficient information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any amendment,
modification, termination or waiver effected pursuant to the provisions of this
Section 14 shall be delivered by the Company to each Holder of outstanding
Warrants or Warrant Shares forthwith following the date on which the same shall
have been executed and delivered by the Holder or Holders of the requisite
percentage of outstanding Warrant Shares (but only to the extent the Company has
been provided with the addresses for the Holders).
(c) Revocation and Effect of Consents. Until an amendment,
---------------------------------
modification, termination or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Warrant or Warrant Shares, even if notation of the consent is not made on any
Warrant Certificate or stock certificate. However, any such Holder or subsequent
Holder may revoke any such consent by notice to the Company received before the
date on which the Requisite Holders have consented (and not theretofore revoked
such consent) to such amendment, modification, termination or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
modification, termination or waiver, which record date shall be at least 10 days
prior to the first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
24
<PAGE>
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
SECTION 15.
TRANSFERS
(a) Each Holder, subject to the provisions of subsection 15(c) below,
shall be permitted to transfer any Warrant or Warrant Share (and the rights
relating thereto under this Agreement and the other Warrant Documents) to any
Permitted Transferee.
(b) In addition to the rights of transfer under Section 15(a), each
Holder, subject to the provisions of subsection 15(c) below, shall be permitted
to transfer any Warrant or Warrant Share (and the rights relating thereto under
this Agreement and the other Warrant Documents) to any other Person; provided
--------
that:
(i) such transfer is made pursuant to a registration statement
under the 1933 Act (it being acknowledged that the Company shall not be
obligated to assist in any manner in any such registration except as provided by
the Registration Rights Agreement dated as of the date hereof, between the
Company and the Purchaser) or pursuant to an exemption from the registration
requirements of the 1933 Act;
(ii) if such transfer is being made pursuant to an exemption
from such registration requirements and if requested by the Company, counsel for
such Holder (which counsel may be internal counsel) furnishes to the Company an
opinion reasonably acceptable to the Company to the effect that such transfer is
being made pursuant such an exemption;
(iii) the applicable transferee (or, in the case of an account
manager, the managed account on behalf of which the account manager is acting)
is an "accredited investor" as defined in Regulation D promulgated under the
1933 Act; and
(iv) such transferee represents to the Company in writing that
it is acquiring such Warrant or Warrant Share solely for its own account (or in
the case of account managers, on behalf of managed accounts) and not as nominee
or agent for any other Person (other than for such managed accounts, if
applicable) and not with a view to, or for offer or sale in connection with, any
distribution thereof (within the meaning of the 1933 Act) that would be in
violation of the securities laws of the United States of America or any state
thereof, without prejudice, however, to its right at all times to sell or
otherwise dispose of all or any part of said Warrant or Warrant Share pursuant
to a registration statement under the 1933 Act or
25
<PAGE>
pursuant to an exemption from the registration requirements of the 1933 Act, and
subject, nevertheless, to the disposition of its property being at all times
within its control.
(c) The Company shall promptly register the transfer of any
outstanding Warrants in the Warrant register and any outstanding Warrant Shares
in a Common Stock register to be maintained by the Company upon surrender
thereof accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company, duly executed by the registered Holder or Holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, a new Warrant or
Warrant Share, as the case may be, shall be issued and delivered with all
reasonable dispatch to the transferee(s) and such transferee(s) shall be deemed
to have become the Holder(s) of record of such Warrant or Warrant Share, as the
case may be, and the surrendered Warrant or Warrant Share, as the case may be,
shall be canceled and disposed of by the Company.
SECTION 16.
MISCELLANEOUS
(a) Notices. Unless otherwise specifically provided herein, any notice
-------
or other communication herein required or permitted to be given shall be in
writing and shall be made by personal service, telecopy, United States mail or
reputable courier service:
(i) if to the Purchaser or subsequent Holder, at the address
or telecopy number set forth on the signature pages to this Agreement, or such
other address as shall be designated in a written notice delivered to the
Company; and
(ii) if to the Company, at the address or telecopy number set
forth on the signature pages to this Agreement, or such other address as shall
be designated in a written notice delivered to the other parties hereto with a
copy to Jackson Walker LLP, 901 Main Street, Suite 6000, Dallas, Texas 75202,
Attention: James S. Ryan.
Unless otherwise specifically provided herein, any notice or other
communication shall be deemed to have been given when delivered in person or by
courier service, upon receipt of telecopy, or three Business Days after
depositing it in the United States mail with postage prepaid and properly
addressed.
(b) Failure or Indulgence Not Waiver: Remedies Cumulative. No failure
-----------------------------------------------------
or delay on the part of any Holder in the exercise of any power, right or
privilege hereunder or under any other Warrant Document shall impair such power
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any
26
<PAGE>
such power, right or privilege preclude other or further exercise thereof or of
any other power, right or privilege. All rights and remedies existing under this
Agreement and the other Warrant Documents are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
(c) Severability. In case any provision in or obligation under this
------------
Agreement or the Warrant Certificates shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
(d) Headings. Section and subsection headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
(e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
--------------
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(f) Successors and Assigns. This Agreement shall be binding on the
----------------------
parties hereto and their respective successors and assigns and shall insure to
the benefit of the parties hereto and the successors and assigns of the
Purchaser (including each Holder and its successors and assigns).
(g) Counterparts. This Agreement and any amendments, waivers, consents
------------
or supplements hereto or in connection herewith may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
(h) Survival of Representation and Warranties, Entire Agreement. All
-----------------------------------------------------------
representations and warranties contained herein or made in writing or on behalf
of the Company in connection herewith shall survive the execution and delivery
of this Agreement and the Warrant Shares and the transfer by the Purchaser of
any Warrant Shares or any portion thereof on interest therein, and may be relied
upon by the Purchaser regardless of any
27
<PAGE>
investigation made at any time by or on behalf of the Purchaser. The Warrant
Documents embody the entire agreement and understanding between the parties
hereto relating and supersede all prior agreements and understandings, if any,
relating thereto to the subject matter hereof.
* * * * *
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
Notice Address: PHYSICIAN HEALTH CORPORATION
- --------------
900 Hammond Drive
Atlanta, Georgia 30328-5582 By
Tel: ----------------------------------
Fax: Name:
Attention: Title:
Notice Address: PARIBAS CAPITAL FUNDING LLC
- --------------
By
----------------------------------
Name:
Title:
Paribas Capital Funding LLC
787 Seventh Avenue
New York, New York 10019 By
Tel: 212/841-2535 ----------------------------------
Fax: 212/841-2144 Name:
Attention: Eric Green Title:
<PAGE>
EXHIBIT 10.52
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of October 27, 1997 by and among Physician Health
Corporation, a Delaware corporation ("PHC") and each person who executes this
Agreement on the signature page hereof (each a "Stockholder" and collectively
the "Stockholders").
WHEREAS, PHC and the Stockholders entered into the Registration Rights
Agreement dated June 16, 1997 (the "Registration Rights Agreement"), which,
among other things, superseded the then existing registration rights provided
for in various registration rights agreements (the "Existing Registration Rights
Documents") entered into by PHC and the holders of such rights (the "Existing
Holders");
WHEREAS, PHC and the Stockholders desire to amend and restate such
Registration Rights Agreement as set forth herein; and
WHEREAS, PHC and the Stockholders contemplate that other persons may become
parties to this Agreement from time to time in the future;
NOW, THEREFORE, the parties hereto agree as follows:
1. STOCKHOLDERS' PIGGYBACK REGISTRATION RIGHTS. (a) At any time following the
date hereof, whenever PHC proposes to register any of its Common Stock for its
own or others' account under the Securities Act of 1933, as amended (the
"Securities Act") for a public offering for cash but specifically excluding
registrations relating to (i) employee benefit plans, (ii) securities issued as
consideration for an acquisition, or resales thereof by the sellers in the
acquisition, registered on Form S-4 or a successor form under the Securities
Act, (iii) an underwritten initial public offering of PHC's Common Stock (an
"IPO") and (iv) an offering (including without limitation an offering related to
a Demand Registration (as hereinafter defined)) pursuant to which PHC reasonably
expects to receive less than $5,000,000 in gross proceeds, PHC will give each
Stockholder prompt written notice of its intent to do so (a "Registration
Notice") at least thirty (30) days prior to the filing of the related
registration statement with the Securities and Exchange Commission (the "SEC").
Such notice shall specify the approximate date on which PHC proposes to file
such registration statement and shall contain a statement that the Stockholders
are entitled to participate in such offering and shall set forth the number of
shares of Registrable Common (as hereinafter defined) that represents the best
estimate of the lead managing underwriter (or if not known or applicable, PHC)
that will be available for sale by the holders of Registrable Common in the
proposed offering. If PHC shall have delivered a Registration Notice, each
Stockholder shall be entitled to participate on the same terms and conditions as
PHC (or, as may be applicable, the other selling stockholders) in the public
offering to which such Registration Notice relates and to offer and sell shares
of Registrable Common therein only to the extent provided in this Section 1.
---------
Each Stockholder desiring to participate in such offering shall notify PHC no
later than ten
<PAGE>
(10) days following the date the Registration Notice is sent of the aggregate
number of shares of Registrable Common that such Stockholder then desires to
sell in the offering. If the lead managing underwriter or financial advisor for
the public offering determines that marketing factors require a limitation on
the number of shares of Registrable Common to be offered and sold as aforesaid
and so notifies PHC in writing, the number of shares of Registrable Common to be
offered and sold by holders desiring to participate in the offering shall be
allocated as follows:
(A) First, if the registration relates to a Demand Registration, to the
Stockholders requesting that their shares be included in such Demand
Registration pursuant to Sections 2 or 3.
---------------
(B) Second, to PHC for shares requested to be sold by it in such offering.
(C) Third, to Stockholders requesting registration in such offering pro
rata in accordance with the number of shares of Registrable Common
requested by the Stockholders to be included in such offering.
(b) In addition to the rights set forth in the preceding paragraph (a) and
notwithstanding the exclusionary language contained in clauses (iii) and (iv) of
the preceding paragraph (a), the Financier Holders (as hereinafter defined) also
shall be entitled to register their shares of Registrable Common for resale in
connection with a registration relating to PHC's IPO and in connection with a
registration relating to an offering pursuant to which PHC reasonably expects to
receive less than $5,000,000 in gross proceeds, subject to the other terms and
conditions hereof (including but not limited to the pro rata allocation of the
number of shares of Registrable Common to be offered and sold by Financier
Holders in the offering in the event of a limitation on the number of shares to
be registered) and only to the extent that the Financier Holders would otherwise
be eligible to register such shares of Registrable Common hereunder. As used
herein, the "Financier Holders" means (i) Paribas Capital Funding LLC (the
"Subordinated Debtholder") to whom PHC issued certain warrants pursuant to the
Warrant Agreement dated on or about October 22, 1997 (the "Warrant Agreement")
and the transferees of the Subordinated Debtholder; (ii) the various persons
(the "EGL Holders") to whom PHC issued its securities in connection with the
Stock and Warrant Purchase Agreement dated December 29, 1995 among EGL Holdings,
Inc., PHC and certain other persons and (iii) the various persons and their
respective transferees (the "Weston Holders") to whom PHC issued its securities
in connection with any of (A) the Securities Purchase Agreement dated June 16,
1997 among Weston Presidio Capital II, L.P., PHC and certain other persons, (B)
the Warrant and Preferred Stock Commitment dated September 12, 1997, among
Weston Presidio Capital II, L.P., PHC and certain other persons (the
"Commitment"); and (C) the Securities Purchase Agreement (together with the
Securities Purchase Agreement described in clause (A), the "Securities Purchase
Agreements") dated on or about October 22, 1997, between PHC and Paribas
Principal Incorporated.
(c) As used herein, "Registrable Common" means shares of PHC's Common
Stock
2
<PAGE>
that were issued to Stockholders that, as of the time of determination, have
presently exercisable registration rights pursuant to the terms of this
Agreement and shall include any shares of Common Stock issuable upon the
conversion of warrants and additional shares of Common Stock issued or
distributed in respect of any such shares by way of stock dividend or
distribution or stock split or in connection with a combination of shares,
recapitalization, reorganization, merger, consolidation or otherwise.
"Registrable Common" includes, with respect to the Subordinated Debtholders
only, shares of Common Stock issuable upon the conversion, exercise or exchange
of warrants (the "Subordinated Warrants") originally issued to the Subordinated
Debtholder in conjunction with the Warrant Agreement, as such Subordinated
Warrants may be transferred or otherwise assigned, but only to the extent not
heretofore exercised, redeemed or expired in accordance with their respective
terms. "Registrable Common" also includes, with respect to the Weston Holders
only, shares of Common Stock issuable upon the conversion, exercise or exchange
of (i) PHC's Class B Redeemable Convertible Preferred Stock, par value $.01 per
share, issued to the Weston Holders and (ii) Warrants (the "Weston Warrants")
originally issued to the Weston Holders in conjunction with any of the
Securities Purchase Agreements or the Commitment, as such Weston Warrants may be
transferred or otherwise assigned, but only to the extent not heretofore
exercised, redeemed or expired in accordance with their respective terms.
For purposes of this Agreement, shares of Registrable Common other than
shares of Registrable Common held by the Financier Holders will cease to be
Registrable Common when and to the extent that (i) a registration statement
covering such shares has been declared effective under the Securities Act and
such shares have been disposed of pursuant to such effective registration
statement, (ii) such shares are eligible to be distributed to the public
pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act ("Rule 144(k)") or (iii) such shares have been otherwise
transferred to another party and new certificates for such shares of Registrable
Common not bearing a legend restricting further transfer shall have been
delivered by PHC.
Notwithstanding anything to the contrary contained herein (including,
without limitation, Section 7 hereof), shares of Registrable Common held by
---------
Financier Holders shall not cease to be Registrable Common for purposes of this
Agreement until the first to occur of (i) October 28, 2004, (ii) such time as
the shares of Registrable Common held by the Financier Holders constitute, in
the aggregate, less than one and one-half percent (1-1/2%) of the shares of
Common Stock then outstanding on a fully diluted basis, (iii) such time as a
registration statement covering such shares has been declared effective under
the Securities Act and such shares have been disposed of pursuant to such
effective registration statement, (iv) such shares have been distributed to the
public pursuant to Rule 144(k) or (v) such shares have been otherwise
transferred to another party in a sale involving less than 50,000 shares and new
certificates for such shares of Registrable Common not bearing a legend
restricting further transfer shall have been delivered by PHC.
2. SUBORDINATED DEBTHOLDER DEMAND REGISTRATION RIGHTS.
At any time after the earlier of (i) the date that is ninety (90) days
following the date of
3
<PAGE>
the consummation of PHC's IPO, if any, and (ii) June 16, 2001, upon the written
request of the holder or holders (the "Initiating Subordinated Debtholders") of
twenty-five percent (25%) of the shares of the Registrable Common held by the
Subordinated Debtholder and its assigns (together with the Subordinated
Debtholder, the "Subordinated Debtholders"), requesting that PHC effect the
registration under the Securities Act of all or part of such Initiating
Subordinated Debtholders' shares of Registrable Common and specifying the
intended method of disposition thereof, PHC shall promptly give written notice
of such request to all other Subordinated Debtholders and to the WPC/EGL Holders
(defined below) and thereupon PHC shall use its best efforts to effect as soon
as practicable the registration under the Securities Act of:
(i) first, the shares of Registrable Common with respect to which the
Subordinated Debtholders and the WPC/EGL Holders shall have made a written
request to PHC for registration within 30 days after the giving of such
written notice by PHC (which request shall specify the intended method of
disposition of such Registrable Common); provided, however, that in any
event the Subordinated Debtholders requesting registration shall be
entitled to registration of a minimum number of shares of the Registrable
Common held by them equal to sixty percent (60%) of the number of shares to
be included in such registration; and provided further that in any event
the WPC/EGL Holders requesting registration shall be entitled to
registration of a minimum number of shares of the Registrable Common held
by them equal to forty percent (40%) of the number of shares to be included
in such registration;
(ii) second, all shares of Common Stock which PHC may elect to
register in connection with the offering of Registrable Common pursuant to
this Section 2, whether for its own account or for the account of a
---------
Stockholder pursuant to Section 1,
---------
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Common and the
additional shares of Common Stock, if any, to be registered; provided, however,
that PHC shall be obligated to effect only two registrations pursuant to this
Section 2 and PHC shall not be obligated to effect more than one registration
- ---------
pursuant to this Section 2 in any 12-month period. The proposed offering to be
---------
registered under this Section 2, if underwritten, must have as a managing
---------
underwriter a regionally or nationally recognized firm approved by a
disinterested majority of PHC's Board of Directors and by the Subordinated
Debtholders owning at least two thirds of the shares of Registrable Common then
held by all the Subordinated Debtholders on an as converted basis, whose
approval shall not be unreasonably withheld. PHC shall not be obligated to
effect a registration under this Section 2 if (i) less than 250,000 shares of
---------
Registrable Common are requested to be registered and (ii) such shares are
eligible to be distributed to the public pursuant to Rule 144(k).
3. WESTON HOLDERS AND EGL HOLDERS REGISTRATION RIGHTS.
(a) If PHC shall receive at any time after the earlier of (i) June 16,
2001 or (ii) the
4
<PAGE>
date six months after the effective date of the first registration statement for
a public offering of the securities of PHC, a written request from the Weston
Holders and the EGL Holders (the Weston Holders and the EGL Holders together,
the "WPC/EGL Holders") owning at least 25% of the shares of Registrable Common
then held by all the WPC/EGL Holders that PHC effect the registration under the
Securities Act of at least 25% of the shares of Registrable Common then held by
the WPC/EGL Holders, then PHC shall, within five days after the receipt thereof,
give written notice of such request to all WPC/EGL Holders and to the
Subordinated Debtholders. Subject to the limitations of this Section 3, PHC
---------
shall use its best efforts to effect such a registration as soon as practicable,
and in any event to file within 90 days after the receipt of such request a
registration statement under the Securities Act covering all the Registrable
Common held by the WPC/EGL Holders and the Subordinated Debtholders which the
WPC/EGL Holders and the Subordinated Debtholders shall request in writing to be
included in the Registration Statement within 20 days after the receipt of such
notice and any shares that PHC may wish to include, subject to any limitation
imposed by the managing underwriters as set forth in Section 3(b). PHC shall use
------------
its best efforts to cause such registration statement to become effective. PHC
shall not be obligated to effect a registration under this Section 3 if the
---------
shares of Registrable Common requested to be registered have an expected
aggregate public offering price of less than $10,000,000.
(b) The proposed offering to be registered under this Section 3 must have
---------
as a managing underwriter a regionally or nationally recognized firm approved by
a disinterested majority of PHC's Board of Directors and by the WPC/EGL Holders
owning at least two thirds of the shares of Registrable Common then held by all
the WPC/EGL Holders on an as converted basis, whose approval shall not be
unreasonably withheld. The right of any WPC/EGL Holder and/or Subordinated
Debtholder to include its shares of Registrable Common in such registration
shall be conditioned upon such WPC/EGL Holder's or Subordinated Debtholder's
participation in such underwriting and the inclusion of such WPC/EGL Holder's or
such Subordinated Debtholder's shares of Registrable Common in the underwriting.
Notwithstanding any other provision of this Section 3, if the managing
---------
underwriter for the offering advises PHC in writing that marketing factors
require a limitation of the number of shares to be underwritten, then PHC shall
so advise all WPC/EGL Holders and Subordinated Debtholders holding shares of
Registrable Common that would otherwise be underwritten, and the number of
shares of Registrable Common that may be included in the underwriting shall be
allocated: first, to the WPC/EGL Holders requesting registration in such
offering pro rata in accordance with the number of shares of Registrable Common
requested by the WPC/EGL Holders included in the offering, and second, to PHC
(whether for its own account or for one or more Stockholders) for the shares
requested to be sold by it in such offering. Notwithstanding the foregoing, in
any event (i) the WPC/EGL Holders requesting registration shall be entitled to
registration of a minimum number of shares of the Registrable Common held by
them equal to sixty percent (60%) of the shares of Registrable Common to be
included in such registration and (ii) the Subordinated Debtholders requesting
registration shall be entitled to registration of a minimum number of shares of
the Registrable Common held by them equal to forty percent (40%) of the shares
of Registrable Common to be included in such registration. To the extent that
PHC is permitted to effect registration of the
5
<PAGE>
proposed offering under this Section 3 on Form S-3, PHC may elect not to use
---------
underwriters for such offering.
(c) Subject to the further provisions of this paragraph, PHC is obligated
to effect only two registrations on Form S-1 pursuant to this Section 3 and only
---------
one such registration in any 12-month period. For purposes of this paragraph, a
registered offering on Form S-1 made pursuant to this Section 3 will not count
---------
as a registration described above in the event that (i) less than 25% of the
stock sold in such offering are shares of Registrable Common owned by WPC/EGL
Holders or Subordinated Debtholders after the WPC/EGL Holders and/or
Subordinated Debtholders requested that such shares of Registrable Common
constitute at least 25% of the stock to be included in such offering or (ii) the
WPC/EGL Holders and Subordinated Debtholders selling in such offering pay all
the expenses of such offering otherwise payable by PHC under Section 11.
----------
(d) Except as otherwise set forth in this Agreement, in the event that PHC
shall receive at any time after the earlier of (i) June 16, 2001 or (ii) the
date six months after the effective date of the first registration statement for
a public offering of the securities of PHC, a written request from a WPC/EGL
Holder that PHC effect a registration on Form S-3 or any comparable or successor
form or forms (and any related qualification or compliance with respect to all
or a part of the Registrable Common owned by the WPC/EGL Holder(s) making such
request), PHC shall:
(i) Give written notice of the proposed registration, and any related
qualification or compliance, to all other Stockholders in accordance with
the terms of this Agreement, and
(ii) Use its best efforts to effect, as soon as practicable, such
registration, qualification or compliance as may be so requested and as
would permit or facilitate the sale and distribution of all of such
Registrable Common as are specified in such written request given within 30
days after mailing of such written notice by PHC;
provided, however, that PHC shall not be obligated to effect any such
- -------- -------
registration, qualification or compliance if (A) Form S-3 is not available for
such offering; (B) the aggregate offering price, minus underwriting discounts
and commissions, of the Registrable Common specified in such request is not
reasonably expected by PHC to be at least $1,000,000; or (C) PHC shall furnish
to the requesting WPC/EGL Holders a certificate signed by the President of PHC
stating that in the good faith judgment of the Board of Directors of PHC, it
would not be in the best interests of PHC and its stockholders for such Form S-3
registration to be effected at such time, in which event PHC shall have the
right to defer the filing of the Form S-3 registration for a period of not more
than 90 days after receipt of the request of the WPC/EGL Holder under this
Section 3(d); provided, however, that PHC shall not utilize this right more than
- ------------ -------- -------
once in any 12-month period.
4. [RESERVED]
6
<PAGE>
5. REGISTRATION PROCEDURES. Except as set forth to the contrary in Sections 2
----------
and 3:
- -----
(a) In connection with a registration pursuant to Sections 2 or 3 hereof
---------------
(a "Demand Registration"), the holders of a majority of shares of Registrable
Common (excluding Stockholders participating in the Demand Registration solely
pursuant to Section 1) included in such Demand Registration, in their sole
---------
discretion, shall determine whether (a) to proceed with, withdraw from or
terminate such offering, (b) to enter into an underwriting agreement for such
offering and (c) to take such actions as may be necessary to close the sale of
Registrable Common contemplated by such offering, including, without limitation,
waiving any conditions to closing such sale that may not have been fulfilled.
In the event such holders exercise their discretion under this paragraph to
terminate a proposed Demand Registration, the terminated Demand Registration
shall not constitute a Demand Registration (i) if the determination to terminate
such Demand Registration follows the exercise by PHC of any of its rights
provided by the next two paragraphs of this Section 5, (ii) if the determination
---------
to terminate such Demand Registration is related to a material adverse change in
the business, properties, condition (financial or otherwise) or results of
operations of PHC or (iii) if, promptly upon such termination, such holders pay
the expenses that PHC would otherwise be obligated to pay pursuant to Section 11
----------
that relate solely to the terminated Demand Registration.
(b) Notwithstanding the foregoing paragraph, if PHC shall furnish to the
Stockholders requesting a Demand Registration a certificate signed by the
President of PHC stating that in the good faith judgment of the Board of
Directors of PHC, it would be seriously detrimental to PHC and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, PHC shall have the right to
defer such filing for a period of not more than ninety (90) days after receipt
of the request of the Stockholders; provided, however, that the PHC may not
utilize this right more than once with respect to each of (i) the Subordinated
Debtholders and (ii) the WPC/EGL Holders in any twelve month period. PHC shall
promptly give notice to the applicable holders of Registrable Common at the end
of any delay period under this paragraph.
(c) Notwithstanding the foregoing two paragraphs, if at the time of any
request by the Stockholders for a Demand Registration, PHC has fixed plans, as
evidenced by resolutions previously adopted by PHC's Board of Directors, to file
within ninety (90) days after such request for the sale of any of its securities
in a public offering under the Securities Act, no Demand Registration shall be
initiated until ninety (90) days after the effective date of such registration
unless PHC is no longer proceeding diligently to effect such registration;
provided that PHC shall provide the Stockholders the right to participate in
such public offering pursuant to, and subject to, the terms of this Section 5.
---------
(d) In connection with Demand Registrations, PHC shall (a) use its best
efforts to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the Registrable Common and use its best
efforts to cause such registration to promptly become and remain effective for a
period of at least nine months (or such shorter
7
<PAGE>
period during which holders shall have sold all Registrable Common which they
requested to be registered) provided, however, that (i) such nine month period
shall be extended for a period equal to the period that a Stockholder agrees to
refrain from selling any securities included in such registration in accordance
with Section 9 hereof and (ii) in the case of any registration of a
---------
Stockholder's shares of Registrable Common on Form S-3 which is intended to be
offered on a continuous or delayed basis, such nine month period shall be
extended, if necessary, to keep the registration statement effective until all
such shares of Registrable Common are sold; (b) prepare and file with the SEC
such amendments (including post-effective amendments) to such registration
statement and supplements to the related prospectus to appropriately reflect the
plan of distribution of the securities registered thereunder until the
completion of the distribution contemplated by such registration statement or
for so long thereafter as a dealer is required by law to deliver a prospectus in
connection with the offer and sale of the shares of Registrable Common covered
by such registration statement and/or as shall be necessary so that neither such
registration statement nor the related prospectus shall 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 therein not misleading and so
that such registration statement and the related prospectus will otherwise
comply with applicable legal requirements; (c) provide to any Stockholder
entitled to and requesting to include shares of Registrable Common in such
registration statement and a single counsel (if any) for all holders of
Registrable Common requesting to include shares of Registrable Common in such
registration statement, which counsel shall be selected by the holders of a
majority of shares of Registrable Common requested to be included in such
registration statement and shall be reasonably satisfactory to PHC, an
opportunity to review and provide comments with respect to such registration
statement (and any post-effective amendment thereto) and each prospectus
included therein or filed with the SEC prior to such registration statement (or
post-effective amendment) becoming effective; (d) use its best efforts to
register and qualify the shares of Registrable Common covered by such
registration statement under applicable securities or "Blue Sky" laws of such
jurisdictions as the Stockholders shall reasonably request for the distribution
of the Registrable Common and do all other reasonable acts which may be
necessary or advisable to enable such Stockholders to consummate the disposition
in such jurisdictions of their Registrable Common covered by such registration
statement; (e) take such other actions as are reasonable and necessary to comply
with the requirements of the Securities Act and the rules and regulations
thereunder; (f) furnish such number of prospectuses (including preliminary
prospectuses), registration statements and documents incident thereto as a
Stockholder from time to time may reasonably request; (g) provide to any
Stockholder requesting to include Registrable Common in such registration
statement and any managing underwriter participating in any distribution
thereof, and to any attorney, accountant or other agent retained by such
Stockholder or managing underwriter, reasonable access to appropriate officers
and directors of PHC to ask questions and to obtain information reasonably
requested by any such Stockholder, managing underwriter, attorney, accountant or
other agent in connection with a reasonable investigation within the meaning of
the Securities Act to protect themselves from liability thereunder arising from
such registration statement or any amendment thereto, provided, however, that
(i) in connection with any such access or request, any such requesting persons
shall cooperate to the extent reasonably practicable to minimize
8
<PAGE>
any disruption to the operation by PHC of its business and (ii) any records,
information or documents shall be kept confidential by such requesting persons,
unless (A) such records, information or documents are in the public domain or
otherwise publicly available or (B) disclosure of such records, information or
documents is required by court or administrative order or by applicable law
(including, without limitation, the Securities Act); (h) list or include such
Registrable Common on any securities exchange on which any stock of PHC is then
listed or included, if the listing or inclusion of such Registrable Common is
then permitted under the rules of such exchange or, if PHC does not have a class
of equity securities listed on a national securities exchange, PHC shall apply
for qualification and shall use its best efforts to qualify the Registrable
Common being registered for inclusion on the automated quotation system of the
National Association of Securities Dealers, Inc. or an exchange; (i) use its
best efforts to keep the Stockholders informed of PHC's best estimate of the
earliest date on which such registration statement or any post-effective
amendment thereto will become effective and will notify each Stockholder and the
managing underwriters participating in the distribution pursuant to such
registration statement promptly (i) when PHC is informed that such registration
statement or any post-effective amendment to such registration statement becomes
effective, (ii) of any request by the SEC for an amendment or any supplement to
such registration statement or any related prospectus, (iii) of the issuance by
the SEC of any stop order suspending the effectiveness of such registration
statement or of any order preventing or suspending the use of any related
prospectus or the initiation or threat of any proceeding for that purpose, (iv)
of the suspension of the qualification of any shares of Registrable Common
included in such registration statement for sale in any jurisdiction or the
initiation or threat of a proceeding for that purpose, (v) of any determination
by PHC that an event has occurred which makes untrue any statement of a material
fact made in such registration statement or any related prospectus or which
requires the making of a change in such registration statement or any related
prospectus in order that the same will 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 therein not misleading and (vi) of the
completion of the distribution contemplated by such registration statement if it
relates to an offering by PHC; and (j) in the event of the issuance of any stop
order suspending the effectiveness of such registration statement or of any
order suspending or preventing the use of any related prospectus or suspending
the qualification of any shares of Registrable Common included in such
registration statement for sale in any jurisdiction, use its best efforts
promptly to obtain its withdrawal.
6. UNDERWRITING AGREEMENT. In connection with each registration pursuant to
Sections 1, 2 and 3 covering an underwritten registered public offering, PHC and
- -------------------
each participating Stockholder agree to enter into a written agreement with the
managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of PHC's size and investment stature, including
provisions for indemnification by PHC, and, whether or not an underwriting
agreement is entered into, PHC shall on the date that Registrable Common held by
participating Stockholders are delivered to the underwriters, if any, for sale
in connection with a registration pursuant to this Agreement or otherwise
offered for such sale:
(a) make such representations and warranties to the Stockholders
participating in
9
<PAGE>
such registration and the underwriters, if any, in form, substance and scope as
are customarily made by issuers to underwriters in comparable underwritten
offerings;
(b) obtain opinions of counsel to PHC and updates thereof (which counsel
and opinions (in form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, if any, and the holders of a majority in number of
the shares Registrable Common being sold) addressed to such holders and the
underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders and the underwriters, if any;
(c) obtain "cold comfort" letters and updates thereof from PHC's
independent certified public accountants addressed to the selling holders of
Registrable Common and the underwriters, if any, such letters to be in customary
form and covering matters of the type customarily covered in "cold comfort"
letters by independent accountants in connection with underwritten offerings on
such date or dates as may be reasonably requested by the managing underwriter
and the holders of a majority in number of the shares of Registrable Common
being sold;
(d) deliver such documents and certificates as may be reasonably requested
by the holders of a majority in number of shares of the Registrable Common being
sold and the managing underwriters, if any, to evidence compliance with any
customary conditions contained in the underwriting agreement, if any; and
(e) provide a transfer agent and registrar for such Registrable Common not
later than the effective date of the associated registration statement.
7. AVAILABILITY OF RULE 144(K). Notwithstanding anything contained herein to
the contrary, PHC shall not be obligated to register shares of Registrable
Common held by any Stockholder (other than the Financier Holders) at any time
(a) following the second annual anniversary of the date on which such
Stockholder executed this Agreement or (b) for any Stockholder then owning less
than 1% of PHC's then outstanding Common Stock when the resale provisions of
Rule 144(k) promulgated under the Securities Act are available to such
Stockholder or such Stockholder is otherwise entitled to sell the shares of
Registrable Common held by him or her without registration under the Securities
Act and without limitation as to volume or manner of sale or both.
8. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC which may permit the sale of the shares
of Registrable Common held by the Stockholders to the public without
registration, PHC agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144 promulgated under the Securities Act, at all
times from and after ninety (90) days following the effective date of the
Registration Statement;
10
<PAGE>
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of PHC under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements;
(c) take such action, including any voluntary registration of its Common
Stock under Section 12 of the Exchange Act, as is reasonably necessary to enable
the Stockholders to utilize Form S-3 for the sale of their Registrable Common,
such action to be taken as soon as practicable (but not later than 90 days)
after the end of the fiscal year in which the first registration statement filed
by PHC for the offering of its securities to the general public is declared
effective; and
(d) so long as a Stockholder owns any shares of Registrable Common,
furnish to the Stockholder forthwith upon request a written statement by PHC as
to its compliance with the reporting requirements of Rule 144, the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report of
PHC, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such securities without registration.
9. MARKET STANDOFF. In consideration of the granting to Stockholders of the
registration rights pursuant to this Agreement, each Stockholder agrees that,
for so long as such Stockholder holds shares of Registrable Common, except as
permitted by Section 1 hereof, such Stockholder will not sell, transfer or
---------
otherwise dispose of, including without limitation through put or short sale
arrangements, shares of Common Stock in the ten days prior to the effectiveness
of any registration (other than pursuant to a registration statement on Form S-8
or Form S-4 or any successor forms) of Common Stock for sale to the public and
for up to 90 days following the effectiveness of such registration, provided
that (i) the underwriters for such offering reasonably request that the
Stockholders be bound by such restrictions and (ii) all directors, executive
officers and holders of more than five percent of the outstanding Common Stock
agree to the same restrictions.
10. REGISTRATION ON FORM S-3. PHC shall use its best efforts to qualify for a
registration on Form S-3 or any comparable or successor form or forms.
11. REGISTRATION EXPENSES. Except as otherwise indicated in this Section 11,
----------
all expenses incurred in connection with any registration, qualification and
compliance under this Agreement (including, without limitation, all
registration, filing, qualification, legal, printing and accounting fees) shall
be borne by PHC. All underwriting commissions and discounts applicable to
shares of Registrable Common included in the registrations under this Agreement
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of shares so registered. Subject to the foregoing, all
expenses incident to PHC's performance of or compliance with this Agreement,
including, without limitation, all filing fees, fees and expenses of compliance
with securities or blue sky laws (including, without limitation, fees and
disbursements of counsel in connection with blue sky qualifications of the
Registrable
11
<PAGE>
Common), printing expenses, messenger and delivery expenses, internal expenses
(including, without limitation, all salaries and expenses of PHC's officers and
employees performing legal or accounting duties), the fees and expenses
applicable to shares of Registrable Common included in connection with the
listing of the securities to be registered on each securities exchange on which
similar securities issued by PHC are then listed, registrar and transfer agents'
fees and fees and disbursements of counsel for PHC and its independent certified
public accountants (including, without limitation, the expenses of any "cold
comfort" letters required by or incident to such performance and the fees and
expenses of any special audit required or incident to a registration hereunder),
reasonable fees and disbursements of one law firm acting as counsel for the
selling Stockholders, securities act liability insurance of PHC and its officers
and directors (if PHC elects to obtain such insurance), the fees and expenses of
any special experts retained by PHC in connection with such registration and
fees and expenses of other persons retained by PHC incurred in connection with
each registration hereunder (but not including, without limitation, any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Common, fees and expenses of counsel and any other special experts
retained by the holders of Registrable Common in connection with a registration
required hereunder, and transfer taxes, if any), will be borne by PHC.
12. INDEMNIFICATION; CONTRIBUTION.
(b) Indemnification by PHC. PHC agrees to indemnify and hold harmless each
----------------------
Stockholder, its officers, directors, partners, agents, employees,
representatives and each person or entity who controls such Stockholder (within
the meaning of the Securities Act) with respect to which registration,
qualification or compliance has been effected hereunder, against all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement (or alleged
untrue statement) of material fact contained in any registration statement, any
amendment or supplement thereto, any prospectus or preliminary prospectus or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading, or any violation (or
alleged violation) by PHC of the Securities Act, the Exchange Act, any state
securities law, or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law applicable to PHC and relating to action or
inaction required of PHC in connection with such registration, qualification or
compliance, except insofar as the same arise out of or are based upon any such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
based upon information with respect to such Stockholder furnished in writing to
PHC by such Stockholder expressly for use therein. In connection with an
underwritten offering, PHC will indemnify the underwriters thereof, their
officers and directors and each person who controls such underwriters (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Common.
(c) Indemnification by Stockholders. In connection with any registration
-------------------------------
statement in which a Stockholder is participating, each such Stockholder will
furnish to PHC in writing such information with respect to the name and address
of such Stockholder, the amount of
12
<PAGE>
PHC securities held by such Stockholder and the nature of such holdings, and
such other information as is required by PHC for use in connection with any such
registration statement or prospectus. Each such participating Stockholder
severally agrees to indemnify and hold harmless PHC, its directors, officers,
agents, employees, representatives and each person or entity who controls PHC
(within the meaning of the Securities Act) and any other Stockholder selling
securities in such registration statement or any of its directors, officers,
partners, agents or employees or any person who controls such Stockholder or
underwriter, against any losses, claims, damages or liabilities (joint or
several) and expenses (including reasonable costs of investigation) arising out
of or based upon any untrue statement of material fact contained in any
registration statement, any amendment or supplement thereto, any prospectus or
preliminary prospectus or any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
to the extent, but only to the extent, that such untrue statement or omission is
contained in any information with respect to such holder so furnished in writing
by such holder specifically for inclusion in or for use in the preparation of
any prospectus or registration statement. In no event shall the liability of any
selling holder of Registrable Common hereunder be greater in amount than the
dollar amount of the net proceeds received by such holder upon the sale of the
Registrable Common giving rise to such indemnification obligation. A Stockholder
shall not be liable to PHC in any such case in which such untrue statement or
alleged untrue statement or omission or alleged omission was contained in a
preliminary prospectus and corrected in a final or amended prospectus, and PHC
failed to deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the securities to the person asserting any such
loss, claim, damage or liability in any case where such delivery is required by
the Securities Act.
(d) Conduct of Indemnification Proceedings. Any person entitled to
--------------------------------------
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such person will claim indemnification or contribution
pursuant to this Agreement; provided, however, that the failure to notify the
indemnifying party shall not relieve it from its indemnification obligations to
the indemnified party under this Agreement unless the resulting delay is
materially prejudicial to the defense of such claim; provided, further, that the
failure to deliver any such notice shall not relieve an indemnifying party of
any liability or obligation that it may have to an indemnified party otherwise
than pursuant to this Section 12. Unless in the reasonable judgment of counsel
----------
to such indemnified party (i) a conflict of interest may exist between such
indemnified party and the indemnifying party with respect to such claim or (ii)
the named parties to any such action, suit, proceeding or investigation
(including any impleaded parties) include both an indemnifying party and an
indemnified party, and such indemnified party shall have been advised by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party, the indemnified
party shall permit the indemnifying party to assume the defense of such claim
with counsel reasonably satisfactory to such indemnified party. Whether or not
such defense is assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No
13
<PAGE>
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the indemnified party of a release from all
liability in respect of such claim or litigation. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel with respect to
such claim; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the reasonable fees and expenses of such counsel to
be paid by the indemnifying party, if the indemnified party, based on the advice
of counsel, reasonably believes that representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding.
(e) Contribution. If the indemnification provided for in this Section 12
------------ ----------
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any untrue statement (or alleged untrue statement) of a material
fact or omission (or alleged omission) to state a material fact has been made
by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 12(c), any legal or other fees or expenses
-------------
reasonably incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 12(d) were determined by pro rata
-------------
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 12(d), no underwriter shall be
-------------
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Common underwritten by it and distributed to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission, and no selling holder shall be required to
contribute any amount in excess of the amount by which the total price at which
shares of the Registrable Common of such selling holder were offered to the
public (net of any underwriter discounts and commissions) exceeds the amount of
any damages which such selling holder has otherwise been required to pay by
reason of such untrue statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who
14
<PAGE>
was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 12, the indemnifying
----------
parties shall indemnify each indemnified party to the full extent provided in
Sections 12(a) and 12(b) without regard to the relative fault of said
- -------------- -----
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 12(d). The provisions of this Section 12 shall
------------- ----------
survive the termination of any or all of the other provisions of this Agreement
and the completion of any offering of Registrable Common in a registration
statement whether pursuant to this Agreement or otherwise.
13. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of Registrable
Common may participate in any underwritten registration hereunder unless such
holder (a) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
14. TRANSFER OF REGISTRATION RIGHTS. The registration rights provided to the
holders of Registrable Common hereunder may not be transferred to any other
person or entity, except (a) pursuant to the laws of descent and distribution
and (b) as permitted by such other agreements as may be entered into between the
any Stockholders and PHC from time to time; provided that any such transferees
shall be bound by and subject to the terms and conditions contained herein. PHC
may not transfer its rights and obligations under this Agreement to any other
person or entity without the prior written consent of the holders of two-thirds
of the shares of Registrable Common then outstanding.
15. MISCELLANEOUS.
(a) Waiver of Registration Rights. The registration rights provided to the
-----------------------------
Stockholders under this Agreement are in substitution of, and not in addition
to, the registration rights and ancillary rights of the Existing Holders under
the Existing Registration Rights Documents. The Existing Holders hereby waive
any and all registration rights they may have with respect to the registration
of PHC securities as set forth in the Existing Registration Rights Documents.
The Existing Holders acknowledge that they have no registration rights
whatsoever with respect to PHC securities except as set forth in this Agreement.
(b) Additional Future Stockholders. The parties acknowledge that PHC
------------------------------
contemplates granting additional registration rights to various persons from
time to time in the future. Any such person who executes a counterpart of this
Agreement shall be deemed a Stockholder hereunder, with all the appurtenant
rights, preferences, duties and responsibilities. PHC shall not be required to
obtain the consent of the Stockholders, or any of them, to join additional
persons to this Agreement as Stockholders; provided, however, that without the
prior written consent of a majority in interest of the Financier Holders, PHC
will not grant any
15
<PAGE>
additional demand registration rights.
(c) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless PHC has obtained the written consent of holders of at least a majority of
the shares of Registrable Common then outstanding and affected by such
amendment, modification, supplement, waiver or departure; provided, however,
that no such amendment, modification, supplement, waiver or departure that
adversely affects the rights of the Subordinated Debtholders or the WPC/EGL
Holders shall be effected without the consent of (i) two-thirds (2/3) of the
holders of the shares of Registrable Common who are Subordinated Debtholders (if
such change adversely affects the rights of the Subordinated Debtholders) and/or
(ii) two-thirds (2/3) of the holders of the shares of Registrable Common who are
WPC/EGL Holders (if such change adversely affects the rights of the WPC/EGL
Holders).
(d) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telex or telecopies, registered or
certified mail (return receipt requested), postage prepaid, or courier to the
parties at the following addresses (or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof). Notices sent by mail shall be
effective when answered back, notices sent by telecopier shall be effective when
receipt is acknowledged, and notices sent by courier guaranteeing next day
delivery shall be effective on the next business day after timely delivery by
the courier. Notices shall be sent to the following addresses:
(i) if to a Stockholder, at the most current address given by such
Stockholder to PHC in writing;
(ii) if to PHC, at 990 Hammond Drive, Suite 300, Atlanta, Georgia
30328, with a copy to Jackson & Walker, 901 Main Street, Suite 6000,
Dallas, Texas 75202, Attention: James S. Ryan, III.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the permitted successors and assigns of each of the parties.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
-------------
16
<PAGE>
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN THAT STATE.
(i) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the
Stockholders shall be enforceable to the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(k) Remedies. In addition to being entitled to exercise all rights granted
--------
by law, including recovery of damages, each Stockholder will be entitled to
specific performance of its rights under this Agreement.
17
<PAGE>
EXECUTED as of the date first above written.
PHC:
---
PHYSICIAN HEALTH CORPORATION
By:_______________________________
STOCKHOLDERS:
------------
Date Executed ___________________ __________________________________
Printed Name:
Date Executed ___________________ __________________________________
Printed Name:
Date Executed ___________________ __________________________________
Printed Name:
Date Executed ___________________ __________________________________
Printed Name:
18
<PAGE>
WESTON PRESIDIO CAPITAL II, L.P.
By: Weston Presidio Capital Management II, L.P.
By:______________________________________
Name (Print):____________________________
Title:___________________________________
MERCURY ASSET MANAGEMENT PLC, ON BEHALF OF ROWAN
NOMINEES LIMITED
By:______________________________________
Name (Print):____________________________
Title:___________________________________
NATWEST VENTURES INVESTMENTS LIMITED
By:______________________________________
Name (Print):____________________________
Title:___________________________________
NATIONAL CITY VENTURE CORPORATION
By:______________________________________
Name (Print):____________________________
Title:___________________________________
19
<PAGE>
BANCBOSTON INVESTMENTS INC.
By:______________________________________
Name (Print):____________________________
Title:___________________________________
ST. PAUL VENTURE CAPITAL IV, LLC
By:______________________________________
Name (Print):____________________________
Title:___________________________________
PARTECH U.S. PARTNERS III C.V.
By:______________________________________
Name (Print):____________________________
Title:___________________________________
U.S. GROWTH FUND PARTNERS C.V.
By:______________________________________
Name (Print):____________________________
Title:___________________________________
20
<PAGE>
AXA U.S. GROWTH FUND LLC
By:______________________________________
Name (Print):____________________________
Title:___________________________________
DOUBLE BLACK DIAMOND II LLC
By:______________________________________
Name (Print):____________________________
Title:___________________________________
ALMANORI LIMITED
By:______________________________________
Name (Print):____________________________
Title:___________________________________
MULTINVEST LIMITED
By:_____________________________________
Name (Print):____________________________
Title:___________________________________
PARIBAS PRINCIPAL INCORPORATED
21
<PAGE>
By:_____________________________________
Name (Print):____________________________
Title:___________________________________
PARIBAS CAPITAL FUNDING LLC
By:_____________________________________
Name (Print):____________________________
Title:___________________________________
22
<PAGE>
EXHIBIT 10.53
JOINDER TO THE AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
-----------------------------
The undersigned is made a party to the Amended and Restated Registration
Rights Agreement (the "Agreement") dated October ___, 1997 among Physician
Health Corporation ("PHC") and the stockholders named therein, as a
"Stockholder" (as such term is defined in the Agreement) with respect to (i)
350,000 shares of the prime common stock of PHC and (ii) 243,000 shares of the
common stock of PHC issuable pursuant to the exercise of a stock option as set
forth in the Stock Option Agreement dated _________, 1997 between PHC and the
undersigned.
October ____, 1997 STOCKHOLDER:
____________________________________
Thomas Rodgers, Jr.
<PAGE>
EXHIBIT 10.54
September 16, 1997
Physician Health Corporation
990 Hammond Drive
Suite 300
Atlanta, Georgia 30328-5582
Re: Credit Agreement, dated as of December 31, 1996, among Physician
Health Corporation (the "Company"), the Lenders referred to therein,
and NationsCredit Commercial Corporation ("NationsCredit"), as Agent
(as amended from time to time to and including the date hereof, the
"Credit Agreement")
Ladies/Gentlemen:
Capitalized terms used in this letter and not otherwise defined herein
have the meanings ascribed to them in the Credit Agreement.
NationsCredit hereby certifies to the Company that NationsCredit is
the holder of the Credit Agreement described above.
NationsCredit further certifies to the Company that the total amount
necessary to pay in full all of the outstanding liabilities and indebtedness
(collectively, the "LIABILITIES") of the Company to NationsCredit under the
Credit Agreement and the other Financing Documents (other than the Warrant) is
as follows:
(i) Aggregate outstanding principal
balance of the Liabilities..... $100,000.00
(ii) Fees and Disbursements
of Kilpatrick Stockton LLP..... $ 51,299.77
(iii) Total pay-off amount on the
Liabilities (sum of (i)-(ii)).. $151,299.77
-----------
1
<PAGE>
Physician Health Corporation
September 16, 1997
Page 2
Payment of the foregoing sums due to NationsCredit should be made to
NationsCredit by way of a wire transfer of immediately available funds, by no
later than 5:00 p.m. (EST) on September 19, 1997 (the "Settlement Date"),
directed as follows:
Bank Name: First National Bank of Chicago
City & State: Chicago, Illinois
ABA Routing No.: 071000013
For Credit to: NationsCredit Commercial Corporation
Account No.: 52-56933
Ref: Physician Health Corporation
Payment of the foregoing sums due to Kilpatrick Stockton LLP should be
made to Kilpatrick Stockton LLP by way of a wire transfer of immediately
available funds, by no later than 5:00 p.m. (EST) on the Settlement Date,
directed as follows:
Bank Name: Wachovia Bank, N.A.
City & State: Atlanta, Georgia
ABA Routing No.: 061000010
For Credit to: Kilpatrick Stockton Operating Account
Account No: 12659288
Ref: N0051/098034
NationsCredit hereby agrees that, upon delivery by the Company to
NationsCredit on or before the Settlement Date of one or more certificates
representing 40,000 shares of the Company's Common Stock issued in the name of
NationsCredit together with the officer's certificate attached hereto as
Exhibit A, NationsCredit will return to the Company its Warrant for
- ---------
cancellation. The Company acknowledges that the return of the Warrant
constitutes payment in full for the shares of Common Stock being issued to
NationsCredit hereunder.
NationsCredit hereby further agrees with the Company and each
Subsidiary (collectively, the "Credit Parties") that, upon payment to
NationsCredit and Kilpatrick Stockton LLP on or before the Settlement Date of
the foregoing sums in immediately available funds and delivery on or before the
Settlement Date of the 40,000 shares of Common Stock in accordance with the
preceding paragraphs, (i) the Credit Parties will not be indebted to
NationsCredit for any reason under the Credit Agreement or the other Financing
Documents with respect to any amounts owing under the Credit Agreement
(including without limitation the fees and expenses of NationsCredit's counsel
in connection with negotiating and consummating this agreement), and any and all
such indebtedness shall be deemed paid and satisfied in full, except for the
indemnities provided to NationsCredit in Section 8.05 of the Credit Agreement
which shall survive the
2
<PAGE>
Physician Health Corporation
September 16, 1997
Page 3
execution, delivery and performance hereof, (ii) the Credit Agreement, the other
Financing Documents and all of NationsCredit's security interests in, security
titles to and other liens on all real and personal property assets and fixtures
of the Credit Parties will be automatically terminated and released, except for
the indemnities provided to NationsCredit in Section 8.05 of the Credit
Agreement which shall survive the execution, delivery and performance hereof,
and (iii) NationsCredit will execute any and all Uniform Commercial Code
financing statement terminations, mortgage releases, deed of trust releases and
other such lien release documents as the Company may reasonably request in order
to evidence or otherwise give public notice of such collateral terminations and
releases (provided, however, that any and all such termination statements,
mortgage releases, trademark releases and other such documents must be prepared
and recorded at the Company's expense).
The Company hereby agrees that NationsCredit (or any affiliate of
NationsCredit then holding the Common Stock issued to NationsCredit pursuant to
this Agreement) may, at any time within thirty (30) days after the date on which
the Company shall complete an underwritten initial public offering (an "IPO") of
its Common Stock, by notice to the Company, demand redemption of the Common
Stock issued to NationsCredit pursuant to this agreement, at the price per share
to public of the Company's Common Stock as set forth in the final prospectus for
such IPO (the "Redemption Price"), whereupon the Company shall redeem such
Common Stock by payment of the Redemption Price for such shares on or before the
fifth (5th) Business Day after receipt of notice of such demand, in immediately
available funds, by wire transfer to NationsCredit (or its affiliate holding
such shares) at its account specified in the notice of redemption, and
NationsCredit (or such affiliate) shall thereupon promptly surrender the
redeemed stock to the Company for cancellation. The Company further agrees that
it shall promptly notify NationsCredit in writing of the completion of its
initial IPO.
In consideration of NationsCredit's agreements set forth above and
NationsCredit's release set forth below, each Credit Party, for itself and on
behalf of its successors, heirs, legal representatives, officers, directors,
agents, shareholders, employees and assigns and including without limitation any
trustee, receiver, custodian or conservator who may be hereafter appointed for
such person or all or any portion of such person's assets (collectively, the
"Derivative Claimants"), hereby releases and forever discharges NationsCredit
- ---------------------
and its officers, directors, shareholders, employees, affiliates, attorneys,
agents, successors and assigns (NationsCredit and such other persons being
hereinafter collectively referred to as the "Released Parties"), of and from any
----------------
and all claims, defenses, counterclaims or other liabilities, whether known or
unknown, and whether in contract or in tort or arising under any statute or
otherwise, which any Credit Party, or any Derivative Claimant, may have against
NationsCredit or any of the other Released Parties and which arise out of or in
any way relate to any actions or inactions taken or omitted by NationsCredit or
any of the other Released Parties on or prior to the
3
<PAGE>
Physician Health Corporation
September 16, 1997
Page 4
Settlement Date in connection with the negotiation, execution, delivery,
performance, administration, operation or enforcement of any of the Financing
Documents, any of the Loans or any of the Collateral, and including without
limitation any and all such claims, defenses, counterclaims or other liabilities
which may be based on allegations of breach of contract, fraud, promissory
estoppel, libel, slander, usury, negligence, misrepresentation, breach of
fiduciary duty, bad faith, lender malpractice, undue influence, duress, economic
coercion, tortious interference with contractual relations, misuse of control,
or interference with management. Nothing contained in this paragraph, however,
shall be deemed to be an admission of any liability by NationsCredit or any of
the other Released Parties to any Credit Party, any Derivative Claimant or any
other Person or a release of NationsCredit from any of its obligations under
this Release. In furtherance and not in limitation of the first sentence of
this paragraph, each Credit Party also hereby covenants and agrees, on behalf of
itself and all of its Derivative Claimants, not to sue or prosecute any action
against NationsCredit or any other Released Party with respect to any of the
matters contemplated within the scope of the release provided in the first
sentence of this paragraph.
In consideration of the releases granted by the Credit Parties above,
and subject to NationsCredit's and Kilpatrick Stockton LLP's prior receipt of
the payments and other items referred to above on or before the Settlement Date
provided above, NationsCredit (for itself and on behalf of its Derivative
Claimants) hereby releases and forever discharges the Credit Parties and the
Credit Parties' respective Derivative Claimants of and from any and all claims,
defenses, counterclaims or other liabilities, whether known or unknown and
whether in contract or in tort or arising under any statute or otherwise, which
NationsCredit may have against the Credit Parties and which arise out of or in
any way relate to any actions or inactions taken or omitted by the Credit
Parties on or prior to the Settlement Date in connection with the negotiation,
execution, delivery, performance, administration, operation or enforcement of
any of the Financing Documents or any of the Loans or the Collateral. Nothing
contained in this paragraph, however, shall be deemed to be an admission of any
liability by any Credit Party to the NationsCredit or any other Person or a
release of any Credit Party from such Credit Party's obligations under this
Release. In furtherance and not in limitation of the first sentence of this
paragraph, but subject to NationsCredit's prior receipt of the aforesaid items
by the deadline set forth above, NationsCredit also hereby covenants and agrees,
on behalf of itself and all of its Derivative Claimants, not to sue or prosecute
any action against any Credit Party with respect to any of the matters
contemplated within the scope of the release provided in the first sentence of
this paragraph. Notwithstanding anything herein to the contrary, however, this
paragraph shall not become effective unless and until the items referred to
above are paid and/or provided to NationsCredit and Kilpatrick Stockton LLP on
or before the Settlement Date provided above.
4
<PAGE>
Physician Health Corporation
September 16, 1997
Page 5
To evidence your agreement with the provisions hereof, please cause
each of the Credit Parties to sign the copies of this letter in the places
provided below and return two executed originals to NationsCredit at the above
address, together with the certificate(s) for the 40,000 shares of Common Stock
and the other items set forth herein (other than the payments which should be
made by wire transfer as provided above). Once NationsCredit has confirmed
timely receipt of all items required herein, it will return the canceled Warrant
to the Company, together with all original notes and guaranties delivered to and
held by NationsCredit as a part of the Financing Documents, marked "paid", all
share certificates evidencing pledged stock and all other items of Collateral
held by NationsCredit, and UCC-3 terminations statements for each of the
financing statements filed by NationsCredit in connection with the Credit
Agreement.
This letter shall inure to the benefit of and shall be binding upon
the successors, assigns and affiliates of the parties hereto, and this letter
may not be modified or amended except by a written agreement executed by the
parties hereto. This letter is executed and delivered in, and shall be
governed, construed and enforced according to the laws of, the State of Georgia,
without regard to its conflict of laws principles. This letter may be executed
in counterparts, all of which shall constitute one and the same instrument.
5
<PAGE>
Physician Health Corporation
September 16, 1997
Page 6
Each Credit Party and NationsCredit acknowledge that they have fully
read and examined this letter, have consulted their respective attorneys in
connection therewith, and are entering into this letter voluntarily, with full
knowledge of the effect and consequences of the terms and conditions of this
letter.
Very truly yours,
NATIONSCREDIT COMMERCIAL
CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
ACCEPTED AND AGREED
this __ day of September, 1997:
PHYSICIAN HEALTH CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
PHC PHYSICIAN NETWORKS, INC.
By:
--------------------------------
Title:
-----------------------------
PHC PALM BEACH, INC.
By:
--------------------------------
Title:
-----------------------------
6
<PAGE>
Physician Health Corporation
September 16, 1997
Page 7
PHC CENTRAL FLORIDA, INC.
By:
--------------------------------
Title:
-----------------------------
PRIMARY CARE SPECIALISTS OF
CENTRAL FLORIDA, INC.
By:
--------------------------------
Title:
-----------------------------
PRIMARY CARE SPECIALISTS
OF GEORGIA, INC.
By:
--------------------------------
Title:
-----------------------------
PHC - ST. LOUIS ACQUISITION
SUBSIDIARY I, INC.
By:
--------------------------------
Title:
-----------------------------
PHC - ORLANDO ACQUISITION
SUBSIDIARY II, INC.
By:
--------------------------------
Title:
-----------------------------
7
<PAGE>
Physician Health Corporation
September 16, 1997
Page 8
PHC - ACQUISITION SUBSIDIARY II, INC.
By:
--------------------------------
Title:
-----------------------------
PHC - MIDWEST, INC.
By:
--------------------------------
Title:
-----------------------------
METROPOLITAN PLASTIC &
RECONSTRUCTIVE SURGERY, LTD.
By:
--------------------------------
Title:
-----------------------------
JOHN W. DAAKE, INC.
By:
--------------------------------
Title:
-----------------------------
SURGICAL GROUP SOUTH, L.L.C.
By:
--------------------------------
Title:
-----------------------------
EYE CARE SERVICES OF MISSOURI,
INC.
By:
--------------------------------
Title:
-----------------------------
8
<PAGE>
Physician Health Corporation
September 16, 1997
Page 9
GREATER CINCINNATI GASTROENTROLOGY
ASSOCIATES, INC.
By:
--------------------------------
Title:
-----------------------------
MHOA TEXAS I, INC.
By:
--------------------------------
Title:
-----------------------------
9
<PAGE>
EXHIBIT 10.55
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT
AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER.
PHYSICIAN HEALTH CORPORATION
WARRANT CERTIFICATE
-------------------
June 16, 1997
THIS WARRANT CERTIFICATE (this "Warrant Certificate"), certifies that DVI
Financial Services Inc., or the registered assigns thereof ("Holder"), is the
owner of 50,000 warrants (the "Warrants"), each of which entitles Holder to
purchase, as and when described herein, one share of Voting Common Stock,
$0.0025 par value (collectively, the "Shares" or individually a "Share") of
Physician Health Corporation, a Delaware corporation (the "Company"), at a
purchase price of $5.00 per Share, during the term of this Warrant Certificate,
subject to adjustment as provided in Section 6 hereof.
1. The Warrants. Each of the Warrants entitles Holder to purchase one (1)
------------
fully paid and nonassessable share of Voting Common Stock, $0.0025 par value, of
the Company ("Common Stock") (such number being subject to adjustment as
provided in Section 6 hereof) on the terms and conditions herein set forth.
2. Purchase Price. The purchase price (the "Purchase Price") of the
--------------
Shares covered by the Warrant shall be $5.00 per share.
3. Term of the Warrants. The term of the Warrants shall commence on the
--------------------
date hereof and all rights to purchase any of the Shares hereunder shall cease
at 11:59 P.M. on June 15, 2004 (the "Expiration Date"), subject to earlier
termination as provided herein. Except as may otherwise be provided in this
Warrant Certificate, the Warrants granted hereunder may be exercised at any time
preceding the Expiration Date or expiration pursuant to Section 5 hereof. Holder
shall not have any rights of a holder of any of the Shares covered by the
Warrants with respect to any shares of the Company's Common Stock not actually
issued and delivered to Holder.
4. Transferability.
---------------
4.1 Permitted Transfers. The warrants shall be freely transferable,
-------------------
allowing Holder to Transfer any or all of the Warrants, provided that prior to
----------------------
such Transfer, the Company receives an opinion of counsel reasonably
- -------------
satisfactory to the Company to the effect that the Transfer is in compliance
with applicable federal and state securities laws. Any transferee under this
Section 4.1
<PAGE>
shall take the Warrant(s) transferred to such transferee subject to the
restrictions set forth in this Section.
4.2 Prohibited Transfers Null and Void. Any attempt to Transfer in
----------------------------------
violation of this Section 4 shall be null and void, and neither the Company nor
any transfer agent shall give any effect in the Company's records to any such
attempt to Transfer.
5. Expiration.
----------
(a) Generally. In addition to any other event causing an expiration
or termination of this Warrant Certificate (including without limitation
expiration pursuant to Section 5(b)), these Warrants shall expire and all rights
to purchase any or all of the Shares shall cease upon the effective date of the
dissolution or liquidation of the Company. The Company shall cause written
notice to be given to Holder of any such proposed transaction not less than
thirty (30) days prior to the anticipated effective date thereof, and Holder
shall have the right to exercise these Warrants at any time prior to the
effective date of the termination of the Warrants.
(b) Expiration upon Failure to Exercise in Certain Circumstance.
Notwithstanding anything to the contrary contained herein, in the event that, at
any time following the consummation of the initial public offering of the Common
Stock of the Company, the price per share of the Company's Common Stock as
reported on a national securities exchange on which the Common Stock is listed
equals or exceeds $10 per share for 90 consecutive days, Holder shall be
obligated to exercise all of the theretofore unexercised Warrants within 30 days
after the mailing by the Company of a notice certificate indicating that such
condition has occurred. In the event that Holder has not exercised all of the
Warrants upon the conclusion of such 30-day period, all theretofore unexercised
Warrants shall automatically expire, and all rights to purchase any or all of
the Shares shall cease, without further action by the Company.
(c) Assumption of the Obligation on the Warrants. The Company will
not allow to occur (a) a merger, consolidation, acquisition of property or
shares, separation or reorganization of the Company, with one or more entities,
corporate or otherwise, as a result of which the Company is not the surviving
entity, or (b) a sale of substantially all of the property or shares of the
Company to another entity, corporate or otherwise, unless the acquiring entity
or the corporation resulting from such merger or consolidation shall expressly
assume, by supplemental agreement satisfactory in form to the majority of
Holders (if more than one) and executed and delivered to the Holders, the
performance and observance of each and every covenant and obligation of the
Warrant Certificate to be performed by the Company.
6. Adjustments for Stock Splits, Consolidations, etc. The number, class
-------------------------------------------------
of shares and Purchase Price subject to this Warrant Certificate shall all be
proportionately adjusted in the event of any change or increase or decrease in
the number of issued shares of the Company's Common Stock, without a receipt of
consideration equal to the fair market value of the shares by the Company, which
result from a split-up or consolidation of shares, payment of a share dividend,
a recapitalization, combination of shares or other like capital adjustment, so
that, upon exercise of this Warrant Certificate, Holder shall receive the number
and class of shares it would have received had
-2-
<PAGE>
it been the holder of the number of shares of Common Stock in the Company, for
which this Warrant Certificate is being exercised, on the date of such change or
increase or decrease in the number of issued shares of Common Stock in the
Company. In case the Company shall at any time prior to the exercise or
termination of any of the Warrants distribute to the holders of its Common Stock
evidences of indebtedness, or other securities or assets, other than as
dividends or distributions payable out of current or accumulated earnings, then,
in any such case, the Holders of the Warrants shall be entitled to receive, upon
exercise thereof, with respect to each share of Common Stock issuable upon such
exercise, the amount of cash or evidences of indebtedness or other securities or
assets that such Holder would have been entitled to receive with respect to the
Common Stock as a result of the happening of such event, had the Warrants been
exercised immediately prior to the record date or other date fixing stockholders
to be affected by such event (without giving effect to any restriction upon such
exercise). If the Company shall be a surviving entity in any reorganization,
merger or consolidation, this Warrant Certificate shall be proportionately
adjusted so as to apply to the securities to which the holder of the number of
shares of Common Stock in the Company subject to this Warrant Certificate would
have been entitled upon the effectiveness of such reorganization, merger or
consolidation. Adjustments under this Section 6 shall be made by the Board of
Directors of the Company in good faith. No fractional share shall be issued
under this Warrant Certificate or upon any such adjustment and such securities
shall be rounded to the nearest whole share. The Company shall provide to Holder
notice of any adjustment pursuant to this Section 6 not less than thirty (30)
days prior to the anticipated effective date thereof.
7. Method of Exercising Warrants. Subject to the terms and conditions of
-----------------------------
this Warrant Certificate, this Warrant Certificate may be exercised, in whole or
in part, by Holder (a) by giving written notice to the Secretary of the Company
in the form attached as Exhibit A hereto (the "Notice of Exercise"), and (b)
tendering payment of the Purchase Price for each of the Shares to be purchased.
The Purchase Price for all of the Shares to be purchased upon any exercise under
this Warrant Certificate must be paid in full upon such exercise. Payment shall
be made in cash. Holder's Notice of Exercise shall be accompanied by (i) this
Warrant Certificate (for appropriate endorsement by the Company to reflect such
exercise), (ii) a completed and executed Investor's Certificate in substantially
the form attached hereto as Exhibit B, and (iii) such other agreements and
documents as may be reasonably requested by the Company. Promptly upon
compliance in full by Holder with this Section 7, Holder shall be entitled to
receive a stock certificate evidencing ownership of the Shares purchased. The
certificate or certificates for the shares an to which the Warrants shall have
been so exercised shall be registered in the name of the person so exercising
the Warrants and shall be delivered, as provided above, to or upon the written
order of the person exercising the Warrants. In the event the Warrants shall be
exercised by any person other than the Holder in accordance with the terms
hereof, the Notice of Exercise shall be accompanied by appropriate proof of the
right of such person to exercise the Warrants. All of the Shares that shall be
issued upon the exercise of the Warrants as provided herein shall be fully paid
and nonassessable and free from all taxes (other than taxes based on the income
of the Holder, if any), liens and charges with respect to the issue thereof.
Holder shall not be entitled to the privileges of share ownership as to any
shares of the Company's Common Stock not actually issued and delivered to
Holder.
8. Representations and Warranties of Holder. Holder hereby represents and
----------------------------------------
warrants that:
-3-
<PAGE>
8.1 Purchase Entirely for Own Account. This Warrant Certificate is
---------------------------------
issued to Holder in reliance upon Holder's representation to the Company, which
by Holder's execution of this Warrant Certificate Holder hereby confirms, that
the Warrants are being acquired and the Common Stock that Holder may purchase
upon exercise of the Warrants will be acquired for investment for Holder's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that Holder has no present intention of
selling, granting any participation in, or otherwise distributing the same.
8.2 Investment Experience. Holder acknowledges that it is able to
---------------------
bear the economic risk of his investment and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Warrants and the Common Stock of the Company that
Holder may purchase upon exercise of the Warrants.
8.3 Restricted Securities. Holder understands that the warrants and
---------------------
the Common Stock of the Company that Holder may purchase upon exercise of the
Warrants are "restricted securities" under the federal securities laws inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act of 1933,
as amended (the "Act") only in certain limited circumstances and only in the
event counsel for the Company is then of the opinion that such registration
under the Act or under any other applicable law, regulation or rule is not
required. In this connection, Holder represents that it is familiar with Rule
144 promulgated under the Act, as presently in effect, and understands the
resale limitations imposed thereby and by the Act.
9. Legends. It is understood that the certificates evidencing the Common
-------
Stock of the Company that Holder may purchase upon exercise of this Warrant
Certificate may bear one or all of the following legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY
HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF
1933 AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER."
(b) Any legend required by the laws of the State of Delaware or
by any other applicable state.
10. General. The Company shall at all times during the term of the
-------
Warrants reserve and keep available such number of shares of Common Stock as
will be sufficient to satisfy the requirements of this Warrant Certificate,
shall pay all original issue and transfer taxes with respect to the issue and
transfer of shares pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith, and will use its best efforts
to comply with all laws and regulations, which, in the opinion of counsel for
the Company, shall be applicable thereto.
-4-
<PAGE>
11. Miscellaneous.
-------------
(a) Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered, if personally delivered, or five (5) days after the
date mailed, if mailed within the United States by certified or registered mail,
prepaid, return receipt requested, to the party intended at the appropriate
address set forth below their signature to this Warrant Certificate. Any party
may change its address by giving written notice thereof to the other party
hereto in accordance with the provisions hereof.
(b) Entire Agreement. This Warrant Certificate constitutes the
----------------
entire agreement between the parties hereto with regard to the subject matter
hereof and supersedes all previous negotiations, agreements (written or oral)
and commitments with regard to the subject matter hereof, and shall not be
released, discharged, changed or modified in any manner, except by an instrument
signed by the parties hereto. No oral explanation or oral information by any of
the parties hereto shall alter the meaning or interpretation of this Warrant
Certificate. In construing this Warrant Certificate, none of the parties hereto
shall have any term or provision construed against such party solely by reason
of such party having drafted the same.
(c) Governing Law. This Warrant Certificate shall be governed
-------------
by and interpreted in accordance with the laws of the State of Delaware
(excluding principles of conflicts of laws).
(d) Successors. Except as otherwise provided in this Warrant
----------
Certificate, this Warrant Certificate shall inure to the benefit of and be
binding upon the parties hereto and their legal representatives, heirs and
permitted successors and assigns.
(e) Counterparts. This Warrant Certificate may be executed in
------------
any number of counterparts, each of which shall be deemed an original and all of
which together shall be deemed one and the same instrument.
(f) Waiver. The waiver by any party hereto, express or implied,
------
of any right under this Warrant Certificate or any failure to perform under this
Warrant Certificate, shall not constitute or be deemed a waiver of any other
right under this Warrant Certificate or of any other failure to perform under
this Warrant Certificate.
(g) Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant Certificate are for reference purposes only and shall
not in any way affect the meaning or interpretation of this Warrant Certificate.
(h) Severability. If any term, provision, covenant or condition
------------
of this Warrant Certificate is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the provisions hereof shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated.
-5-
<PAGE>
(i) Attorneys' Fees. In the event of any dispute between the parties
---------------
hereto relating to the subject matter hereof, the out-of-pocket costs and
attorneys' fees of the prevailing party shall be paid by the other party in
addition to any other relief.
[Intentionally left blank.]
-6-
<PAGE>
IN WITNESS WHEREOF, the Company and Holder, agreeing to the terms hereof,
have duly executed this Warrant Certificate as of the day and year first above
written.
"COMPANY"
PHYSICIAN HEALTH CORPORATION
By: [SIGNATURE APPEARS HERE]
-------------------------------------
Its:
------------------------------------
"HOLDER"
DVI FINANCIAL SERVICES INC.
By: [SIGNATURE APPEARS HERE]
-------------------------------------
Its:
------------------------------------
-7-
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE OF WARRANT
-----------------------------
To: Board of Directors of Physician Health Corporation
The undersigned hereby elects to purchase _______ shares of Common Stock of
Physician Health Corporation (the "Company") pursuant to the Warrant issued to
the undersigned in that certain Warrant Certificate dated June 16, 1997. The
aggregate purchase price of such Shares is $_______________, which amount is
being tendered herewith. The effective date of this election shall be
___________________ or the date of receipt of this Notice by the Company, if
later.
Executed this _______ day of __________________________, ___________, at
_______________________________________.
Holder:
----------------------------------
-----------------------------------------
(Social Security Number
or Employer Identification Number)
By:
--------------------------------------
Its:
-------------------------------------
-8-
<PAGE>
EXHIBIT B
INVESTOR'S CERTIFICATE
----------------------
Date:
-----------------------------
I, the undersigned, hereby certify that all of the shares of common stock
of Physician Health Corporation (the "Company") being purchased by me pursuant
to the exercise on this date of certain warrants granted to me by the Company
(evidenced by the Warrant Certificate issued to me by the Company as of June 16,
1997 (the "Warrant Certificate")) are being acquired by me for investment and
not with a view to the distribution thereof. I hereby reconfirm the
representations and warranties contained in Section 8 of the Warrant Certificate
with respect to all such shares of the Company's Common Stock.
Holder:
By:
-------------------------------------
Its:
------------------------------------
-9-
<PAGE>
EXHIBIT 10.56
LOAN AND SECURITY AGREEMENT NO. 1
among
MHOA TEXAS I, L.L.C.
Borrower
PHYSICIAN HEALTH CORPORATION
Guarantor
and
DVI FINANCIAL SERVICES INC.
Lender
Dated as of June 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1
DEFINITIONS .......................................................... 1
Section 1.1. Specific Definitions ................................... 1
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code ..................................................... 6
Section 1.3. Construction ........................................... 6
Section 2
LOAN ................................................................. 6
Section 2.1. The Loan ............................................... 6
Section 2.2. Term and Repayment of Loan ............................. 6
Section 2.3. Prepayment ............................................. 7
Section 2.4. Late Payments .......................................... 7
Section 2.5. Conditions to the Closing .............................. 7
Section 3
SECURITY INTEREST .................................................... 9
Section 3.1. Grant of Security Interest ............................. 9
Section 4
SPECIFIC REPRESENTATIONS ............................................. 10
Section 4.1. Name of Borrower ....................................... 10
Section 4.2. Mergers and Consolidations ............................. 10
Section 4.3. Purchase of Assets ..................................... 11
Section 4.4. Change of Name or Identity ............................. 11
Section 4.5. Corporate Structure .................................... 11
Section 5
PROVISIONS CONCERNING COLLATERAL ..................................... 11
Section 5.1. Title .................................................. 11
Section 5.2. No Warranties .......................................... 11
Section 5.3. Further Assurances ..................................... 11
Section 5.4. Intentionally Deleted .................................. 12
Section 5.5. Lender's Duty of Care .................................. 12
Section 5.6. Borrower's Contracts .................................. 12
Section 5.7. Reinstatement of Liens ................................. 12
i
<PAGE>
Section 5.8. Lender Expenses ........................................ 12
Section 5.9. Inspection of Collateral and Records ................... 13
Section 5.10. Waivers ............................................... 13
Section 6
REPRESENTATIONS AND WARRANTIES ....................................... 13
Section 6.1. Corporate Status ....................................... 13
Section 6.2. Authorization .......................................... 14
Section 6.3. No Breach .............................................. 14
Section 6.4. Taxes .................................................. 14
Section 6.5. Deferred Compensation Plans ............................ 14
Section 6.6. Litigation and Proceedings ............................. 14
Section 6.7. Business ............................................... 14
Section 6.8. Laws and Agreements .................................... 14
Section 6.9. Financial Condition .................................... 15
Section 6.10. Environmental Laws .................................... 15
Section 6.11. Insurance ............................................. 15
Section 6.12. Ownership of Property ................................. 15
Section 6.13. Health Care Laws ...................................... 16
Section 6.14. Cumulative Representations ............................ 16
Section 6.15. Full Disclosure ....................................... 16
Section 7
COVENANTS ............................................................ 16
Section 7.1. Encumbrance of Collateral .............................. 16
Section 7.2. Business ............................................... 16
Section 7.3. Condition and Repair ................................... 16
Section 7.4. Taxes .................................................. 17
Section 7.5. Insurance .............................................. 17
Section 7.6. Accounting System ...................................... 17
Section 7.7. Financial Statements ................................... 17
Section 7.8. Further Information .................................... 17
Section 7.9. ERISA Covenants ........................................ 18
Section 7.10. Environmental Covenants ............................... 18
Section 7.11. Restrictions on Merger, Consolidation,Sale of Assets,
Issuance of Stock, etc .............................................. 18
Section 7.12. Health Care Covenants ................................. 19
Section 7.13. Distributions ......................................... 19
Section 7.14. Capital Expenditures .................................. 19
Section 7.15. Other Debt. ........................................... 19
Section 7.16. Debt Service Coverage. ................................ 19
Section 7.17. Termination of Covenants. ............................. 20
ii
<PAGE>
Section 8
EVENTS OF DEFAULT .................................................... 20
Section 9
REMEDIES ............................................................. 22
Section 9.1. Specific Remedies ...................................... 22
Section 9.2. Power of Attorney ...................................... 23
Section 9.3. Expenses Secured ....................................... 24
Section 9.4. Equitable Relief ....................................... 24
Section 9.5. Remedies Are Cumulative ................................ 24
Section 10
INDEMNITY ............................................................ 24
Section 10.1. General Indemnity ..................................... 24
Section 10.2. Specific Environmental Indemnity ...................... 25
Section 11
MISCELLANEOUS ........................................................ 25
Section 11.1. Delay and Waiver ...................................... 25
Section 11.2. Complete Agreement .................................... 25
Section 11.3. Severability; Headings ................................ 25
Section 11.4. Binding Effect ........................................ 25
Section 11.5. Notices ............................................... 26
Section 11.6. Governing Law ......................................... 26
Section 11.7. Jurisdiction .......................................... 27
Section 11.8. Waiver of Trial by Jury ............................... 27
SCHEDULES
1.1. Permitted Liens
3.1 Personal Property
5.6 Material Contracts
6.6. Litigation and Proceedings
6.11 Insurance
6.13. Health Care Permits
7.13. Permitted Distributions
iii
<PAGE>
LOAN AND SECURITY AGREEMENT NO. 1
THIS LOAN AND SECURITY AGREEMENT NO. 1 (this "Agreement") is entered
into as of June 16, 1997, by and between DVI Financial Services Inc., a Delaware
corporation ("Lender"), MHOA Texas I, L.L.C., a Texas limited liability company
("Borrower"), and Physician Health Corporation ("Guarantor").
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties agree as
follows:
Section 1
DEFINITIONS
Section 1.1. Specific Definitions. The following definitions apply:
"Account Debtors" mean all customers and other persons who are
obligated or indebted in any manner, whether directly or indirectly, primarily
or secondarily, contingently or otherwise, with respect to Accounts.
"Accounts" mean all accounts, contract rights, instruments, documents,
chattel paper and obligations in any form owing to or owned by Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
Seller or the Metroplex Providers whether or not earned by performance; all
credit insurance, guaranties, letters of credit, advises of credit and other
security for any of the above; all merchandise returned to or reclaimed by
Borrower, Seller or the Metroplex Providers and Borrower's Books relating to any
of the foregoing.
"Advance" means an advance of loan proceeds constituting all or a part
of the Loan.
"Affiliate" means with respect to any Person any other Person which
directly or indirectly Controls, is Controlled by or is under common Control
with that Person.
"Asset Purchase Agreement" means that certain Asset Purchase and
Contribution Agreement dated June 16, 1997 among Seller, certain physicians and
their professional associations, Borrower and Guarantor.
"Assignment of Acquisition Instruments" means that certain Assignment
of Acquisition Instruments dated as of the date hereof collaterally assigning
Borrower's rights under the Asset Purchase Agreement and the other documents
delivered to Borrower by Seller pursuant to the Asset Purchase Agreement as
security for the Loan, and consented to by Seller.
1
<PAGE>
"Assignment of Management Services Agreement" means that certain
Assignment of Management Services Agreement dated as of the date hereof
collaterally assigning Borrower's rights under the Management Services
Agreement, including Borrower's security interest in the Accounts as security
for the Loan, and consented to by Seller and the Metroplex Providers.
"Assumption Agreement" means the Assumption Agreement dated as of the
date hereof by and between Lender and Seller pursuant to which Seller agrees to
assume operations of the assets purchased by Borrower and the Obligations, and
consented to by Borrower.
"Borrower's Books" means all of Borrower's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records are not included therein,
except to the extent otherwise permitted by law.
"Closing Date" means the date of the first Advance of the Loan.
"Collateral" has the meaning specified in Section 3.1 hereof.
"Control" means (i) the ownership of a majority of the voting power of
all classes of voting stock of a corporation, or (ii) the ownership of a
majority of the beneficial interest in income and capital of a person other than
a corporation.
"Distribution" means, with respect to any shares of capital stock or
any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
"DVIBC" means DVI Business Credit Corporation, a Delaware corporation.
"Environmental Laws" means all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including, ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes, and any and
all regulations, codes, plans, orders, decrees, judgments, injunctions, notices,
or demand letters issued, entered, promulgated, or approved thereunder.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof include such sections and any
predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
"Event of Default" has the meaning specified in Section 8 hereof.
"Governmental Authority" means any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
"Guaranty" means the Unconditional Continuing Guaranty executed by
Guarantor unconditionally guaranteeing Borrower's Obligations under this
Agreement.
"Health Care Laws" mean all federal, state and local laws relating to
health care providers and health care services, including, Section 1877(a) of
the Social Security Act as amended by the Omnibus Budget Reconciliation Act of
1993, 42 USC (S) 1395nn.
"Indebtedness" of a Person means (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby have been
assumed; and (iii) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (otherwise than for the collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock or equity purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable.
"Lender Expenses" means (i) all costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under this Agreement or
under any of the other Loan Documents that are paid or advanced by Lender; (ii)
filing, recording, publication and reasonable search fees paid or incurred by
Lender in connection with Lender's transactions with Borrower; (iii) costs and
expenses incurred by Lender to correct any Event of Default or enforce any
provision of the Loan Documents or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, and preparing for sale or
advertising to sell the Collateral, whether or not a sale is consummated, after
the occurrence of an Event of Default; (iv) costs and expenses of suit incurred
by Lender in enforcing or defending the Loan Documents or any portion thereof;
(v) all costs or expenses paid by Lender to third parties to convert any data
submitted to Lender by Borrower to an
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acceptable form; and (vi) Lender's reasonable attorneys' fees and expenses
incurred (before or after execution of this Agreement) in advising Lender with
respect to, or in structuring, drafting, reviewing, negotiating, amending,
terminating, enforcing, defending or otherwise concerning, the Loan Documents or
any portion thereof, irrespective of whether suit is brought.
"Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including any interest of a vendor under a
conditional sale contract or consignment and any interest of a lessor under a
capital lease.
"Loan" means the loan made by Lender to Borrower pursuant to this
Agreement.
"Loan Documents" mean (i) this Agreement; (ii) the Note; (iii) the
Security Documents; (iv) the Lock Box Agreement; (v) the Subordination
Agreement; and (vi) any other certificates, documents or instruments delivered
by Borrower to Lender pursuant to the terms of this Agreement.
"Lock Box Accounts" means the deposit accounts with NationsBank, or
any subsequent lockbox bank, established and maintained pursuant to either Lock
Box Agreement.
"Lock Box Agreement" means those two (2) certain Lock Box Agreements
dated on or about the date hereof among Borrower, NationsBank and DVIBC or its
assignee, and any amendments, renewals or replacements thereof.
"Management Services Agreement" means the Management Services
Agreement dated as of June 1, 1997 among Seller, Borrower and the Metroplex
Providers.
"Metroplex Providers" has the meaning set forth in the Management
Services Agreement.
"Note" means the Secured Promissory Note executed by Borrower pursuant
to the terms of this Agreement.
"Obligations" mean (i) the due and punctual payment of all amounts due
or become due under the Note; (ii) the performance of all obligations of
Borrower under this Agreement, the Note and the Other Loan Documents; (iii) all
extensions, renewals, modifications, amendments and refinancings of any of the
foregoing; (iv) all Lender Expenses; and (v) all loans, advances, indebtedness
and other obligations owed by Borrower to DVIBC or Lender under the Other Loan
Documents.
"Other Loan Documents" means those five certain Loan and Security
Agreements among Borrower, Guarantor and Lender and that certain Loan and
Security Agreement among Borrower, Guarantor and DVIBC, dated on or about the
date hereof.
"Permitted Liens" means (i) Liens for property taxes and assessments
or governmental charges or levies and Liens securing claims or demands of
mechanics and
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materialmen, provided that payment thereof is not yet due or is being contested
as permitted in this Agreement; (ii) Liens of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which has not
expired, or in respect of which Borrower is in good faith prosecuting an appeal
or proceeding for a review and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured; (iii) Liens and priority
claims incidental to the conduct of business or the ownership of properties and
assets (including warehouse's and attorney's Liens and statutory landlord's
Liens); deposits, pledges or Liens to secure the performance of bids, tenders,
or trade contracts, or to secure statutory obligations; and surety or appeal
bonds or other Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided that in
each case the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings; and further
provided that any such warehouse's or statutory landlord's Liens are subordinate
or have been subordinated to the Liens of Lender in a manner satisfactory to
Lender; (iv) Liens granted to DVI or its Affiliates; and (v) Liens existing on
the date of this Agreement that are disclosed on Schedule 1.1 hereto.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
"Pledge Agreement" means that certain Pledge Agreement (Member
Interests) dated on or about the date hereof among Guarantor, Seller, the other
members who become a party to the Agreement and Lender.
"Proceeds" mean all proceeds and products of Collateral and all
additions and accessions to, replacements of, insurance or condemnation proceeds
of, and documents covering Collateral; all property received wholly or partly in
trade or exchange for Collateral; all claims against third parties arising out
of damage, destruction, or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
"Security Documents" means the Guaranty, the Pledge Agreement, the
Assignment of Acquisition Agreement, the Assignment of Management Services
Agreement and any agreement or instrument entered into between Borrower and
Lender or executed by Borrower or Guarantor and delivered to Lender in
connection with this Agreement to secure repayment of the Loan.
"Seller" means Metroplex Hematology/Oncology Associates, L.L.P., a
Texas limited liability partnership.
"Stated Rate" means Twelve and 25/100 percent (12.25%) per annum
computed on the basis of a 360-day year and actual days elapsed.
"Subordination Agreement" means the Subordination Agreement dated on
or about the date hereof between Lender, Borrower, Guarantor and Seller.
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"Unmatured Default" means any event or condition that, with notice,
passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
"Securities Purchase Agreement" means the Security Purchase Agreement
dated on or about the date hereof, among Guarantor, Weston Presidio Capital II,
L.P. and the other Investors set forth in Exhibit I thereto.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under generally
accepted accounting principles. All other terms used in this Agreement, other
than those defined in this Section 1, have the meanings accorded to them in the
Uniform Commercial Code as is enacted in any applicable jurisdiction.
Section 1.3. Construction.
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein may
be construed or resolved against any party hereto, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and their respective counsel and is entitled to be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
Section 2
LOAN
Section 2.1. The Loan. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender shall
advance to Borrower, and Borrower shall borrow from Lender, a senior secured
term loan in the amount of One Million and No/100 Dollars ($1,000,000) which is
evidenced by the Note. The proceeds of the Loan must be used by Borrower for
part of the purchase price paid by Borrower to acquire the assets of Seller
pursuant to the Asset Purchase Agreement and to fund the closing costs incurred
in connection with the transactions contemplated in this Agreement.
Section 2.2. Term and Repayment of Loan. The "Term" of the Loan is
seventy-two (72) months and is payable in (i) a single payment on the first day
of August of interest accrued on the unpaid principal balance at the Stated Rate
from the date of the initial Advance to July 31, (ii) two (2) payments of
interest only on the first day of the following two calendar months of interest
accrued on the unpaid principal balance at the Stated Rate for the preceding
calendar
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month, (iii) sixty-nine (69) consecutive monthly installments of Twenty Thousand
Fifty-One and 03/100 Dollars ($20,051.03) on the first day of each calendar
month thereafter, with all unpaid principal and interest due and payable in full
on the final installment date. All payments of principal and interest must be
paid in full without setoff, deduction or counterclaim. Lender will debit the
Lock Box Accounts maintained pursuant to the Lock Box Agreement for payment of
each monthly installment of amounts due and payable pursuant to this Agreement.
Borrower shall satisfy any Obligations not paid by such deductions by direct
payment to Lender at 500 Hyde Park, Doylestown, PA 18901.
Section 2.3. Prepayment. The Loan is not subject to prepayment or
redemption in whole or in part prior to the expiration of the Term.
Section 2.4. Late Payments. If Borrower fails to make any payment of
interest or principal, including the payment due upon maturity, when the same is
due and payable and such payment can not be made by debit from the Lock Box
Accounts and such failure continues for five (5) business days after
nonpayment, a late charge by way of damages to the extent provided in this
Section 2.4 is immediately due and payable. Borrower recognizes that default by
Borrower in making the payments herein agreed to be paid when due will result in
the Lender incurring additional expenses, in loss to the Lender of the use of
the money due and in frustration to the Lender in meeting its other commitments.
Lender is entitled to damages for the detriment caused thereby, but it is
extremely difficult and impractical to ascertain the extent of such damages.
Borrower shall pay on demand a sum equal to five cents ($.05) for each one
dollar ($1.00) of each payment which is not received within five (5) business
days after the date it is due and payable is a reasonable estimate of the
damages to the Lender. If any part of the principal or interest is not paid
when due, it thereafter bears interest at the rate of eighteen percent (18%) per
annum from and as of the date of delinquency until paid, provided, however, that
any amount due pursuant to the preceding sentence must be deducted from the
amount due pursuant to this sentence. If the specified interest rate at any
time exceeds the maximum rate allowed by law, then the applicable interest rate
is reduced to the maximum rate allowed by law.
Section 2.5. Conditions to the Closing. The obligation of Lender to
make an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement and
in the Other Loan Documents are true and correct on and as of the date hereof
and are true and correct in all material respects as of the Closing Date and
Borrower has performed all obligations required to have been performed by it
hereunder prior to Closing Date.
(b) Borrower has executed and delivered to Lender (or caused to be
executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Subordination Agreement;
(vi) the Pledge Agreement;
(vii) the Lock Box Agreement;
(viii) the Assignment of Management Services Agreement;
(ix) the Assignment of Acquisition Instruments;
(x) the Assumption Agreement;
(xi) evidence satisfactory to Lender that the transactions
contemplated by the Asset Purchase Agreement and the Venture Capital Agreement
have been consummated in accordance with the terms of such agreements;
(xii) evidence satisfactory to Lender that Borrower is a
limited liability company and Guarantor is a corporation duly formed, validly
existing and in good standing in the state in which it was formed and in each
state in which it is authorized to do business;
(xiii) certificates of insurance that evidence the insurance
coverage and policy provisions required by this Agreement and in the Loan
Documents;
(xiv) pay-off letters, UCC Termination Statement and Lien
Releases as required to grant Lender a first priority security interest, other
than Permitted Liens, in Collateral pledged as security for repayment of the
Loan;
(xv) signature and incumbency certificate of Borrower and
Guarantor;
(xvi) certified copies of resolutions of the members of
Borrower and the Board of Directors of Guarantor authorizing the execution and
delivery of the Loan Documents to be executed by Borrower and Guarantor;
(xvii) copies of the Articles of Organization of Borrower and
Articles of Incorporation of Guarantor certified by the applicable Secretary of
State;
(xviii) copies of the Regulations of Borrower and Bylaws of
Guarantor certified by an officer thereof;
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(xix) certified copies of the Asset Purchase Agreement and all
documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xx) certified copies of the Venture Capital Agreement and all
other documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xxi) certified copy of the Management Services Agreement
satisfactory in form and substance to Lender;
(xxii) the consent of Western Presidio Capital II, L.P. and the
other Investors set forth in Exhibit I to the Venture Capital Agreement to the
terms of this transaction;
(xxiii) the written opinion of counsel to Borrower and Guarantor
issued on the Closing Date and satisfactory to Lender in scope and substance;
and
(xxiv) a certificate from an officer of Borrower indicating that
the representations and warranties contained herein are true and correct as of
the Closing Date.
(c) Borrower has paid closing fees to Lender including Lender's
reasonable legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default has occurred
and is continuing.
(e) None of Borrower, Seller nor Guarantor has suffered a material
adverse change in its business, operations or financial condition from that
reflected in the Financial Statements of Borrower and Guarantor or Seller
delivered to Lender or otherwise.
(f) Lender has received such additional supporting documents,
certificates and assurances as Lender reasonably requests which are satisfactory
to Lender in form and substance.
Section 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest. In order to secure prompt
payment and performance of the Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the following property
of Borrower (the "Collateral"), whether now owned or existing or hereafter
acquired or arising and regardless of where located, subject only to Permitted
Liens. This security interest in the Collateral attaches to all Collateral
without further action on the part of Lender or Borrower. Borrower shall keep
the Collateral at 906 West Randol Mill Road, Arlington, Texas 76012.
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The Collateral consists of the following, together with such third-
party consents, lien waivers and estoppel certificates as Lender reasonably
requires:
(a) all of Borrower's equipment and machinery listed on Schedule 3.1
and all machine tools, motors, tools, parts, attachments, accessories,
accessions, replacements, upgrades, substitutions, additions and improvements
related thereto, wherever located, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds;
(b) all of Borrower's right, title and interest in and to the
Accounts, whether presently existing or hereafter arising, and all contract
rights, instruments, notes, securities, drafts, documents, chattel paper and all
other forms of obligations owing to Borrower or Seller arising out of the sale
or lease of goods or the rendition of services, whether or not earned by
performance, and any and all credit insurance, guarantees and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower or
Seller and all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including the pledge to it of the Borrower's
interest in the Accounts, cash and non-cash Proceeds. Notwithstanding the
foregoing or any other provision hereof, Lender's Lien on and security interest
in the Collateral described in this clause (b) will be released if the Other
Loan Agreement with DVIBC has been terminated and the conditions contained in
Section 7.17 have been satisfied;
(c) all of Borrower's presently existing and hereafter acquired
general intangibles (including, Borrower's rights and interest under the
Management Services Agreement, and any and all choices in action, goodwill,
patents, trade names, trademarks, blueprints, drawings, purchase orders,
computer programs, computer discs, computer tapes, literature, reports,
catalogues, deposit accounts and tax refunds) other than goods and accounts, as
well as all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including cash and non-cash Proceeds; and
(d) all of Borrower's presently existing and hereafter acquired
inventory including, without limitation, goods held for sale or lease or to be
furnished under a contract of service, wherever located, and any documents of
title representing any of the above, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds.
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower. The exact name of Borrower is MHOA
Texas I, L.L.C. Borrower was formed under the laws of the State of Texas. The
following are all previous legal names of Borrower: None. Borrower uses the
following trade names: None. The following are all other trade names used by
Borrower in the past: None.
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Section 4.2. Mergers and Consolidations. Other than the merger with
MHOA Texas I, Inc., a Texas corporation, no entity has merged into Borrower or
been consolidated with Borrower.
Section 4.3. Purchase of Assets. Other than pursuant to the Asset
Purchase Agreement, no entity has sold substantially all of its assets to
Borrower or sold assets to Borrower outside the ordinary course of such seller's
business at any time in the past.
Section 4.4. Change of Name or Identity. Borrower shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
Section 4.5. Corporate Structure. Guarantor, Seller and the Metroplex
Providers hold one hundred percent (100%) of the member interests in Borrower.
Such member interests are the sole authorized and outstanding security interests
in Borrower.
Section 5
PROVISIONS CONCERNING COLLATERAL
Section 5.1. Title. Borrower has good and marketable title to the
Collateral, and the Liens granted to Lender pursuant to this Agreement are fully
perfected first-priority Liens, in and to the Collateral with priority over the
rights of every person in the Collateral, free, clear and unencumbered by any
Liens in favor of any person other than Lender except for Permitted Liens.
Section 5.2. No Warranties. This Agreement is solely a financing
agreement. Borrower acknowledges that with respect to the appropriate
Collateral: the Collateral has or will have been selected and acquired solely
by Borrower for Borrower's purposes; Lender is not the manufacturer, dealer,
vendor or supplier of the Collateral; the Collateral is of a size, design,
capacity, description and manufacturer selected by Borrower; Borrower is
satisfied that the Collateral is suitable and fit for its purposes; and LENDER
HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER
EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR
OPERATION OF THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE
OF THE COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE COLLATERAL OR
WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER.
Section 5.3. Further Assurances. Borrower shall execute and deliver
to Lender, concurrent with Borrower's execution of this Agreement and at any
time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens
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in the Collateral and in order to consummate fully all of the transactions
contemplated under the Loan Documents. Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender's officers, employees or
agents designated by Lender) as Borrower's true and lawful attorney with power
to sign the name of Borrower on any of the above-described documents or on any
other similar documents that need to be executed, recorded, or filed in order to
perfect or continue perfected Lender's Liens in the Collateral. The appointment
of Lender as Borrower's attorney is irrevocable as long as any Obligations are
outstanding. Any person dealing with Lender is entitled to rely conclusively on
any written or oral statement of Lender that this power of attorney is in
effect.
Section 5.4. Intentionally Deleted.
Section 5.5. Lender's Duty of Care. Lender has no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender will be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as the Borrower requests or agrees to in
writing, provided that no failure to comply with any such request nor any
omission to do any such act requested by the Borrower may be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property may not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
loss, damage or destruction of the Collateral is borne by Borrower except to the
extent Lender breaches the standard of care set forth in this Section 5.5.
Section 5.6. Borrower's Contracts. Schedule 5.6 attached hereto is a
true and complete list of all material contracts and agreements to which
Borrower is a party or will become a party pursuant to the assumption of
Seller's rights and obligations under the terms of the Asset Purchase Agreement.
Borrower remains liable to perform its Obligations under any contracts and
agreements included in the Collateral to the same extent as though this
Agreement had not been entered into and Lender does not have any obligation or
liability under such contracts and agreements by reason of this Agreement or
otherwise.
Section 5.7. Reinstatement of Liens. If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for any reason whatsoever (including, the insolvency,
bankruptcy, or reorganization of Borrower or such other Person), this Agreement
and then Lender's Liens granted hereunder are reinstated as to all disgorged
payments as though such payments had not been made, and Borrower shall sign and
deliver to Lender all documents and things necessary to perfect all terminated
Liens.
Section 5.8. Lender Expenses. If Borrower fails to pay any moneys
(whether taxes, assessments, insurance premiums or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit or fails to discharge any Lien not permitted hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's
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interest in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof; provided, however,
Lender shall make a reasonable attempt to make a prior notification of Borrower
if a delay in making such payment would not have a material advise impact on
Lender's interest in the Collateral. Any amounts paid or deposited by Lender
constitute Lender Expenses, become part of the Obligations, bear interest at the
rate of eighteen percent (18%) per annum, and are secured by the Collateral. Any
payments made by Lender do not constitute (a) an agreement by Lender to make
similar payments in the future or (b) a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance or Lien, and the receipt
of the usual official notice for the payment of moneys to a governmental entity
is conclusive evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 5.9. Inspection of Collateral and Records. During usual
business hours, Lender may inspect and examine the Collateral and check and test
the same as to quality, quantity, value and condition and Borrower shall
reimburse Lender for its reasonable costs and expenses in so doing. Lender also
has the right at any time or times hereafter, during usual business hours to
inspect and verify Borrower's Books in order to verify the amount or condition
of, or any other matter relating to, the Collateral and Borrower's financial
condition and to copy and make extracts therefrom. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Lender
pursuant to this Agreement. Lender may directly contact any such accounting
firm or service bureau in order to obtain such information.
Section 5.10. Waivers. Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby warrants and
represents to Lender the following:
Section 6.1. Corporate Status. Borrower is a limited liability
company validly existing and in good standing under the laws of the State of
Texas; Guarantor is a corporation validly existing and in good standing under
the laws of the State of Delaware; and each of such entities is qualified and
licensed to do business and is in good standing in any state in which the
conduct of its
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business or its ownership of property requires that it be so qualified or
licensed, and has the power and authority (corporate and otherwise) to execute
and carry out the terms of the Loan Documents to which it is a party, to own its
assets and to carry on its business as currently conducted.
Section 6.2. Authorization. The execution, delivery, and performance
by Borrower and Guarantor of this Agreement and each Loan Document have been
duly authorized by all necessary company action. Borrower and Guarantor have
duly executed and delivered this Agreement and each Loan Document to which they
are a party, and each such Loan Document constitutes a valid and binding
obligation of Borrower and Guarantor.
Section 6.3. No Breach. The execution, delivery and performance by
Borrower and Guarantor of this Agreement and each Loan Document to which they
are a party (a) will not contravene any law or any governmental rule or order
binding on Collateral; (b) will not violate any provision of the articles of
organization or regulations of Borrower or the articles of incorporation or
bylaws of Guarantor; (c) will not violate any agreement or instrument by which
Borrower or Guarantor or their assets, is bound; (d) do not require any notice
to consent by any Governmental Authority; and (e) will not result in the
creation of a Lien on any assets of Borrower except the Lien to Lender granted
herein.
Section 6.4. Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against Borrower,
or its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
Section 6.5. Deferred Compensation Plans. Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any single-
employer or multi-employer plans. Neither Borrower nor any ERISA Affiliate is
or at any time has been a sponsor of, provided, or maintained for any employees
any defined benefit plan.
Section 6.6. Litigation and Proceedings. Except as set forth on
Schedule 6.6 attached hereto, there are no outstanding judgments against
Borrower or its assets and there are no actions or proceedings pending by or
against Borrower before any court or administrative agency. Borrower has no
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and except as set forth in Schedule 6.6 hereto.
Section 6.7. Business. Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or
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subject to any agreement or restriction that is so unusual or burdensome that it
might have a material adverse effect on Borrower's business, properties or
prospects.
Section 6.8. Laws and Agreements. Borrower is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Borrower is in material compliance with all laws applicable to it.
Section 6.9. Financial Condition. All financial statements and
information relating to Borrower, Guarantor, Seller or their assets that have
been or may hereafter be delivered by Borrower to Lender are accurate and
complete in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied. Borrower and
Guarantor have no material obligations or liabilities of any kind not disclosed
in that financial information, and there has been no material adverse change in
the financial condition of Borrower, Guarantor or Seller since the date of the
most recent financial statements submitted to Lender.
Section 6.10. Environmental Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Environmental Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and are also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Environmental
Laws, or may give rise to any material common law or legal liability, or
otherwise form the basis of any material claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous substance or waste.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Environmental
Laws.
Section 6.11. Insurance. Schedule 6.11 sets forth a complete and
accurate list of all policies of fire, liability, product liability, workers'
compensation, health, business interruption and other forms of insurance
currently in effect with respect to Borrower's business, true copies of which
have heretofore been delivered to Lender. All such policies are valid,
outstanding and enforceable policies and, to the best knowledge of Borrower,
each will remain in full force and effect at least through the respective dates
set forth on Schedule 6.11.
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Section 6.12. Ownership of Property. Borrower has good and marketable
title to all of its properties and assets, free and clear of all liens, security
interests and encumbrances, except Permitted Liens. Borrower has the exclusive
right to use all such assets.
Section 6.13. Health Care Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and is in compliance in all material respects with all terms and conditions of
the required permits, licenses and authorizations, and are also in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Health Care Laws.
Section 6.14. Cumulative Representations. The warranties,
representations and agreements set forth herein are cumulative and in addition
to any and all other warranties, representations and agreements that Borrower
gives, or cause to be given, to Lender, either now or hereafter.
Section 6.15. Full Disclosure. No representation, warranty or
statement by Borrower or Guarantor contained in this Agreement, any Schedule or
any document, instrument or certificate furnished by or on behalf of any of them
pursuant to this Agreement contains any untrue, incorrect, incomplete or
misleading statement of material fact, or knowingly omits to state a material
fact necessary to make the statements contained therein not misleading.
Section 7
COVENANTS
Section 7.1. Encumbrance of Collateral. Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower except for Liens to Lender and Permitted Liens.
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Section 7.2. Business. Borrower shall engage primarily in business of
physician practice management and related services.
Section 7.3. Condition and Repair. Borrower shall maintain in good
repair and working order all material properties used in its business and from
time to time shall make all appropriate repairs and replacements thereof.
Section 7.4. Taxes. Borrower shall pay all taxes, assessments and
other governmental charges imposed upon it or any of its assets or in respect of
any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by generally accepted accounting principles. Borrower shall
make timely payment or deposit of all FICA payments and withholding taxes
required of it by applicable laws and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower has made such payments or
deposits.
Section 7.5. Insurance. Borrower shall maintain, with financially
sound and reputable insurers, insurance with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily
insured against by corporations of established reputation engaged in the same or
similar businesses. Each such policy must name Lender as an additional insured
and, where applicable, as loss payee under a lender loss payable endorsement
satisfactory to Lender and must provide for thirty (30) days' written notice to
Lender before such policy is altered or canceled.
Section 7.6. Accounting System. Borrower and Guarantor at all times
hereafter shall maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles consistently applied,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower and Guarantor shall not modify or change their
method of accounting or enter into any agreement hereafter with any third-party
accounting firm or service bureau for the preparation or storage of their
accounting records without the accounting firm's or service bureau's agreeing to
provide to Lender information regarding the Collateral and Borrower's and
Guarantor's financial condition.
Section 7.7. Financial Statements. Borrower shall submit monthly
financial statements, showing a comparison of actual expenditures to budgeted
amounts, with respect to Borrower and Guarantor, to Lender as soon as available,
and in any event within thirty (30) days of the end of each month.
Additionally, Borrower shall submit audited financial statements with respect to
Borrower and Guarantor to Lender as soon as available, and in any event within
one hundred twenty (120) days of the end of each fiscal year. With all
financial statements, Borrower
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shall deliver a certificate of its chief financial officer attesting that to the
best of such officer's knowledge no Event of Default or Unmatured Default under
this Agreement has occurred and is continuing.
Section 7.8. Further Information. Borrower and Guarantor shall
promptly supply Lender with such other information concerning its affairs as
Lender may reasonably request from time to time hereafter and shall promptly
notify Lender of any material adverse change in Borrower's or Guarantor's
financial condition and any condition or event that constitutes an Event of
Default or Unmatured Default under this Agreement. In addition, Borrower and
Guarantor authorize Lender to contact credit reporting agencies concerning their
credit standing.
Section 7.9. ERISA Covenants. Borrower shall, and shall cause each
ERISA Affiliate to, comply with all applicable provisions of ERISA and all other
laws applicable to any deferred compensation plans with which Borrower or any
ERISA Affiliate is associated, the failure with which to comply would have a
material adverse effect on Borrower's business or financial condition and shall
promptly notify Lender of the occurrence of any event that could result in any
material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
Section 7.10. Environmental Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
Governmental Authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower or
a Subsidiary would be required to notify any Governmental Authority with
jurisdiction over Environmental Laws.
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower may not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets having an
aggregate value of greater than $100,000 in any twelve month period in any
transaction or series of related transactions other than (i) sales in the
ordinary course of business, (ii) if being replaced by items of comparable or
greater value, provided, Borrower receives the consent of Lender, which will not
be unreasonably withheld, to any such transfer having a value greater than
$100,000, and (iii) a transfer of assets to Seller pursuant to the terms of the
Assumption Agreement;
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
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(d) acquire interests in any other entity in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(e) become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents;
(f) authorize or issue any additional member interests or equity
interest; or
(g) own, hold, lease or operate with any real property nor any other
property not necessary or useful to the operation of Borrower's business as it
is presently proposed to be conducted.
Section 7.12. Health Care Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Health Care Laws applicable to it.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
Section 7.13. Distributions. Except as set forth on Schedule 7.13
hereto, Borrower may not make any Distributions nor pay any management fee,
consulting fee or any similar fee without the prior written consent of Lender,
which may be withheld in its sole discretion.
Section 7.14. Capital Expenditures. Borrower may not spend nor incur
obligations, including the total amount of any capital leases, to acquire fixed
or capital assets exceeding One Million Dollars ( $1,000,000) in any fiscal
year.
Section 7.15. Other Debt. (a) Borrower may not incur any direct or
contingent liabilities, including capital leases, in an aggregate amount
exceeding $100,000 in any twelve month period without Lender's prior written
consent, which may not be unreasonably withheld, provided however that Borrower
shall provide Lender written notice of its intention to incur any such liability
and if such financing can be provided by a third party source such as Lender,
offer Lender a right of first offer to provide such financing. In order to
comply with the right of first offer contained in this Section, Borrower shall
provide Lender with the terms of the proposed financing, including interest
rate, term, amount and collateral for the financing. If Lender declines to
provide the financing on such terms, or does not respond to Borrower's notice
within ten Business Days of receipt thereof, then Borrower can seek alternative
financing on such terms, provided Borrower continues to comply with the first
sentence of this Section. Lender's decision not to provide any such financing
does not waive its right of first offer with respect to any subsequent
financing.
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(b) Nothing contained in this Section 7.15 prohibits Borrower from:
(i) acquiring goods, supplies or merchandise on normal trade
credit;
(ii) endorsing negotiable instruments, received in the usual course
of business; or
(iii) obtaining surety bonds in the usual course of business.
Section 7.16. Debt Service Coverage. Borrower shall maintain as of
the last day of each calendar month, beginning September 30, 1997, a debt
service coverage ratio of no less than 1.5:1 for the previous twelve calendar
month period; provided, that such ratio is calculated on an annualized basis
during the first twelve months following the Closing Date.
"Debt service coverage" means (i) the sum of net income plus
depreciation plus amortization plus interest expense, divided by (ii) the sum of
capitalized lease payments plus loan payments plus interest expense.
Section 7.17. Termination of Covenants. If Guarantor (i) successfully
completes a public offering of its common stock and other securities registered
under the Securities Exchange Act of 1933, as amended, which results in
Guarantor receiving net proceeds of Thirty-Five Million Dollars ($35,000,000) or
more, or (ii) at the end of any fiscal quarter Guarantor or its successor, by
merger or otherwise, attains a net worth of Fifty Million Dollars or more, then
the covenants contained in Sections 7.13, 7.14 and 7.15 will no longer apply to
the Loan and thereafter will be considered deleted from the Agreement.
Section 8
EVENTS OF DEFAULT
An Event of Default is deemed to exist if any of the following events
have occurred and is continuing:
(a) Borrower fails to make any payment of principal or interest or
any other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure continues for five (5) business days
after the payment is due;
(b) Borrower fails to observe or perform any material covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any Loan Document to which it is a party and such failure is not cured as
soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender;
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(c) Borrower fails to keep its assets insured as required herein, or
material uninsured damage to or loss, theft or destruction of the Collateral
occurs and such assets are not repaired or replaced with five (5) days;
(d) A court enters a decree or order for relief in respect of Borrower
in an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in excess of
$100,000 is rendered against Borrower and remains undischarged for thirty (30)
days during which execution is not effectively stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any of the
Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant, condition or agreement to be performed under
any Loan Document to which it is a party;
(h) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise, other than as permitted
pursuant to Section 7.11(b);
(i) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $100,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(j) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(k) Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs and such court order is not revoked or overturned within five (5) days;
(l) A judgment or other claim in excess of $100,000 becomes a Lien
upon any or all of Borrower's assets, other than a Permitted Lien;
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(m) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets by any
Governmental Authority or any tax or debt owing at any time hereafter to any one
or more of such entities becomes a Lien upon any or all of Borrower's assets and
the same is not paid on the payment date thereof, except to the extent such tax
or debt is being contested by Borrower as permitted in Section 6.4;
(n) There is a material impairment of the value of the Collateral
which is not insured or priority of Lender's Liens on the Collateral;
(o) Any of Borrower's assets in excess of $100,000 or any Collateral
are seized, subjected to a distress warrant, levied upon or come into the
possession of any judicial officer;
(p) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is materially incorrect when made;
(q) Guarantor is in default under the Guaranty or this Loan Agreement
or an Event of Default occurs under the Other Loan Documents; or
(r) If the aggregate dollar value of all judgments, defaults, demands,
claims and notices of Liens under clauses (f), (i), (j), (l), (m) and (o) hereof
exceeds $250,000.
Section 9
REMEDIES
Section 9.1. Specific Remedies. Upon the occurrence of any Event of
Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(c) Lender may enter any premises of Borrower, with or without
judicial process, and take possession of the Collateral; provided however, that
Lender may only exercise such remedy if it may do so without a breach of the
peace. Lender may remove the Collateral and may remove or copy all records
pertaining thereto, or Lender may remain on such premises and use the premises
for the purpose of collecting, preparing and disposing of the Collateral,
without any liability for rent or occupancy charges. Borrower shall, upon
request of Lender, assemble the Collateral and any records pertaining thereto
and make them available at a place designated by Lender that is reasonably
convenient to both parties.
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(d) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease, and insure the Collateral. Lender may use and operate
equipment of Borrower in order to process or finish inventory included in the
Collateral. If any Collateral consists of documents, Lender may proceed either
as to the documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any encumbrance,
charge or Lien that, in the opinion of Lender, appears to be prior or superior
to its Lien and pay all reasonable expenses incurred in connection therewith.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders or other forms of payment of or security for Accounts or
other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors
or issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
(g) Lender may sell the Collateral at public or private sale and is
not required to repossess Collateral before selling it. Any requirement of
reasonable notice of any disposition of the Collateral is satisfied if such
notice is sent to Borrower, ten (10) days prior to such disposition by any of
the methods provided in Section 11.5 hereof. Borrower will be credited with the
net proceeds of such sale only when they are actually received by Lender, and
Borrower continues to be liable for any deficiency remaining after the
Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give notice
of the time and place by publishing a notice one time at least five (5) days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender may be
the purchaser of any or all of the Collateral at any public sale and is
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
Section 9.2. Power of Attorney. Borrower hereby appoints Lender (and
any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power after the occurrence of an Event of Default:
(a) to endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and assignments of Accounts, on verifications of Accounts, and on
notices to Account Debtors; (c) to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
to receive and open all mail addressed to Borrower and to retain all mail
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relating to the Collateral and forward all other mail to Borrower; (d) to send
requests for verification of Accounts; (e) to execute UCC Financing Statements;
and (f) to do all things necessary to carry out this Agreement. The appointment
of Lender as Borrower's attorney and each and every one of Lender's rights and
powers, being coupled with an interest, are irrevocable as long as any
Obligations are outstanding. Lender shall not exercise the power granted in
clauses 9.2(a) through 9.2(c) prior to the occurrence of an Event of Default and
shall not exercise the power granted in clause 9.2(d) prior to notification of
Borrower of its intent to do so, but such limitations do not limit the
effectiveness of such power of attorney at any time. Any person dealing with
Lender is entitled to rely conclusively on any written or oral statement of
Lender that this power of attorney is in effect. Lender may also use Borrower's
stationery in connection with exercising its rights and remedies and performing
the Obligations of Borrower.
Section 9.3. Expenses Secured. All expenses, including reasonable
attorney fees, incurred by Lender in the exercise of its rights and remedies
provided in this Agreement, in the Other Loan Documents or by law shall be
payable by Borrower to Lender, are part of the Obligations, and are secured by
the Collateral.
Section 9.4. Equitable Relief. Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, in certain cases no remedy of law will provide
adequate relief to Lender, and Lender is entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 9.5. Remedies Are Cumulative. No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or Guarantor or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
may be deemed to be an election. No delay by Lender constitutes a waiver,
election, or acquiescence by it. Borrower on its behalf waives any rights to
require Lender to proceed against Guarantor or any other party; or proceed
against or exhaust any security held from Guarantor or any other party. Lender
may at any time and from time to time, without notice to, or consent of,
Borrower, and without affecting or impairing the obligation of Borrower
hereunder do any of the following: (i) renew or extend any obligations of
Guarantor, or of any other party at any time directly or contingently liable for
payment of any of the obligations of Guarantor; (ii) accept partial payments of
the obligations of Guarantor; (iii) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the obligations of
Guarantor and the security therefor in any manner; or (iv) consent to the
transfer or sale of any security or bid and purchase at any sale of any security
of Guarantor. The validity of this Agreement and the Obligations of Borrower
are not terminated, affected or impaired by reason of the waiving, delaying,
exercising or non-exercising, of any of Lender's rights against Guarantor or as
a result of the substitution, release, repossession, sale, disposition or
destruction of any Collateral securing any obligations of Guarantor. Borrower
is not released or discharged, either in whole or in part, by Lender's failure
or delay to perfect or continue the perfection of any security interest in any
Collateral which secures the obligations of Guarantor or to protect the property
covered by such security interest.
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Section 10
INDEMNITY
Section 10.1. General Indemnity. BORROWER SHALL UNCONDITIONALLY
PROTECT, INDEMNIFY, DEFEND AND HOLD HARMLESS LENDER AND ITS DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS FROM AND AGAINST ANY LOSS, COST, LIABILITY (INCLUDING
NEGLIGENCE, TORT AND STRICT LIABILITY), EXPENSE, DAMAGE, SUITS, DEMANDS OR
CLAIMS (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) ON ACCOUNT OF ANY SUIT OR
PROCEEDING BEFORE ANY GOVERNMENTAL AUTHORITY WHICH ARISES FROM THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT OR OTHERWISE ARISING IN CONNECTION WITH OR
RELATING TO THE LOAN AND ANY SECURITY THEREFOR, UNLESS SUCH SUIT, CLAIM OR
DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MALFEASANCE OF LENDER
OR ITS DIRECTORS, OFFICER, AGENTS OR EMPLOYEES. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower survives the
termination of this Agreement and the repayment of the Note.
Section 10.2. Specific Environmental Indemnity. Borrower shall
unconditionally protect, indemnify, defend and hold harmless Lender, its
directors, officers, employees and agents against any loss, cost, liability
(including negligence, tort and strict liability), expense, damage, suits,
demands or claim (including fees and disbursements of counsel) arising under any
Environmental Laws having jurisdiction over the property or assets of Borrower
or any portion thereof or its use.
Section 11
MISCELLANEOUS
Section 11.1. Delay and Waiver. No delay or omission to exercise any
right impairs any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion is limited to that particular occasion.
Section 11.2. Complete Agreement. This Agreement and the Schedules
are the complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
25
<PAGE>
Section 11.3. Severability; Headings. If any part of this Agreement
or the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement is unaffected thereby. The section headings herein
are included for convenience only and may not be deemed to be a part of this
Agreement.
Section 11.4. Binding Effect. This Agreement is binding upon and
inures to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; provided however, Borrower may not assign any of
its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who thereupon has all of the rights of Lender; and
Lender (or such subsequent assignee who in turn assigns as aforesaid) is then
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 11.5. Notices. Any notices under or pursuant to this
Agreement are deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, facsimile, or similar electronic medium to
the following addresses:
To Borrower: MHOA Texas I, L.L.C.
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Thomas Rodgers
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Guarantor: Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah Garvins
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Lender: DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
Attention: Michael A. O'Hanlon
Telephone: (215) 345-6600
Facsimile: (215) 230-8108
26
<PAGE>
Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
Any party may change such address by sending notice of the change to
the other parties; such change of address is effective only upon actual receipt
of the notice by the other parties.
Section 11.6. Governing Law. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO ARE GOVERNED, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.
Section 11.7. Jurisdiction. The state and federal courts in Orange
County, California or any other court in which Lender initiates proceedings have
jurisdiction over all matters arising out of this Agreement and that service of
process in any such proceeding are effective if mailed to Borrower at its
address described in the Notices section of this Agreement. Borrower waives any
right it may have to assert the defense of forum non conveniens or to object to
such venue and hereby consents to any court-ordered relief.
Section 11.8. Waiver of Trial by Jury. LENDER, GUARANTOR AND
BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF
THIS AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN LENDER, GUARANTOR AND BORROWER.
27
<PAGE>
IN WITNESS WHEREOF, Borrower, Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
BORROWER: LENDER:
MHOA TEXAS I, L.L.C. DVI FINANCIAL SERVICES INC.
By: /s/ Sarah C. Garvin By: /s/ Raymond Fear
------------------------------- ----------------------------------
Sarah C. Garvin Raymond Fear
President Vice President
GUARANTOR:
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
-------------------------------
Sarah C. Garvin
President
<PAGE>
Schedule 1.1
Permitted Liens
1. Those liens listed on Schedule 3.16 of that certain Asset Purchase and
Contribution Agreement dated as of June 16, 1997, executed by and between
Borrower, Seller and certain other parties (the "Purchase Agreement"), and all
other Permitted Encumbrances, as defined therein.
2. Lien and security interest created in favor of DVIBC on the Collateral
described in Section 3.1(b) pursuant to a Loan and Security Agreement dated as
of the date of this Agreement, which Lien and security interest are intended by
all parties to be prior to the Liens and security interests of this Agreement.
<PAGE>
SCHEDULE 3.1
LOAN NO. 1
----------
1. Siemens Mevatron 67 linear accelerator
2. Bruel & Kjaer Mammography system & various medical equipment
3. Labthermics Hyperthermia system
And all equipment and assets listed as Personal Property in Schedule 3.12 of the
Purchase Agreement.
<PAGE>
Schedule 5.6
Material Contracts
1. The Management Agreement.
2. The Benefit Agreements, Employee/Contract Labor Agreements, Real Property
Leases (for business space only) and Services Contracts listed on Schedule 3.20
of the Purchase Agreement and assumed by Borrower thereunder.
<PAGE>
Schedule 6.6
Litigation and Proceedings
None
<PAGE>
Schedule 6.11
Insurance
Those insurance policies described in the certificates attached hereto.
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
Schedule 7.13
Permitted Distributions
Borrower is permitted to make Distributions to Guarantor provided after
such payment Borrower continues to satisfy the debt service coverage ratio set
forth in Section 7.16.
<PAGE>
EXHIBIT 10.57
LOAN AND SECURITY AGREEMENT NO. 2
among
MHOA TEXAS I, L.L.C.
Borrower
PHYSICIAN HEALTH CORPORATION
Guarantor
and
DVI FINANCIAL SERVICES INC.
Lender
Dated as of June 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1
DEFINITIONS .......................................................... 1
Section 1.1. Specific Definitions ................................... 1
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code ..................................................... 6
Section 1.3. Construction ........................................... 6
Section 2
LOAN ................................................................. 6
Section 2.1. The Loan ............................................... 6
Section 2.2. Term and Repayment of Loan ............................. 6
Section 2.3. Prepayment ............................................. 7
Section 2.4. Late Payments .......................................... 7
Section 2.5. Conditions to the Closing .............................. 7
Section 3
SECURITY INTEREST .................................................... 9
Section 3.1. Grant of Security Interest ............................. 9
Section 4
SPECIFIC REPRESENTATIONS ............................................. 10
Section 4.1. Name of Borrower ....................................... 10
Section 4.2. Mergers and Consolidations ............................. 10
Section 4.3. Purchase of Assets ..................................... 11
Section 4.4. Change of Name or Identity ............................. 11
Section 4.5. Corporate Structure .................................... 11
Section 5
PROVISIONS CONCERNING COLLATERAL ..................................... 11
Section 5.1. Title .................................................. 11
Section 5.2. No Warranties .......................................... 11
Section 5.3. Further Assurances ..................................... 11
Section 5.4. Intentionally Deleted .................................. 12
Section 5.5. Lender's Duty of Care .................................. 12
Section 5.6. Borrower's Contracts ................................... 12
Section 5.7. Reinstatement of Liens ................................. 12
i
<PAGE>
Section 5.8. Lender Expenses ........................................ 12
Section 5.9. Inspection of Collateral and Records ................... 13
Section 5.10. Waivers ............................................... 13
Section 6
REPRESENTATIONS AND WARRANTIES ....................................... 13
Section 6.1. Corporate Status ....................................... 13
Section 6.2. Authorization .......................................... 14
Section 6.3. No Breach .............................................. 14
Section 6.4. Taxes .................................................. 14
Section 6.5. Deferred Compensation Plans ............................ 14
Section 6.6. Litigation and Proceedings ............................. 14
Section 6.7. Business ............................................... 14
Section 6.8. Laws and Agreements .................................... 14
Section 6.9. Financial Condition .................................... 15
Section 6.10. Environmental Laws .................................... 15
Section 6.11. Insurance ............................................. 15
Section 6.12. Ownership of Property ................................. 15
Section 6.13. Health Care Laws ...................................... 16
Section 6.14. Cumulative Representations ............................ 16
Section 6.15. Full Disclosure ....................................... 16
Section 7
COVENANTS ............................................................ 16
Section 7.1. Encumbrance of Collateral .............................. 16
Section 7.2. Business ............................................... 16
Section 7.3. Condition and Repair ................................... 16
Section 7.4. Taxes .................................................. 17
Section 7.5. Insurance .............................................. 17
Section 7.6. Accounting System ...................................... 17
Section 7.7. Financial Statements ................................... 17
Section 7.8. Further Information .................................... 17
Section 7.9. ERISA Covenants ........................................ 18
Section 7.10. Environmental Covenants ............................... 18
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc .............................................. 18
Section 7.12. Health Care Covenants ................................. 19
Section 7.13. Distributions ......................................... 19
Section 7.14. Capital Expenditures .................................. 19
Section 7.15. Other Debt. ........................................... 19
Section 7.16. Debt Service Coverage. ................................ 19
Section 7.17. Termination of Covenants. ............................. 20
ii
<PAGE>
Section 8
EVENTS OF DEFAULT .................................................... 20
Section 9
REMEDIES ............................................................. 22
Section 9.1. Specific Remedies ...................................... 22
Section 9.2. Power of Attorney ...................................... 23
Section 9.3. Expenses Secured ...................................... 24
Section 9.4. Equitable Relief ...................................... 24
Section 9.5. Remedies Are Cumulative ................................ 24
Section 10
INDEMNITY ............................................................ 24
Section 10.1. General Indemnity ..................................... 24
Section 10.2. Specific Environmental Indemnity ...................... 25
Section 11
MISCELLANEOUS ........................................................ 25
Section 11.1. Delay and Waiver ...................................... 25
Section 11.2. Complete Agreement .................................... 25
Section 11.3. Severability; Headings ................................ 25
Section 11.4. Binding Effect ........................................ 25
Section 11.5. Notices ............................................... 26
Section 11.6. Governing Law ......................................... 26
Section 11.7. Jurisdiction .......................................... 27
Section 11.8. Waiver of Trial by Jury ............................... 27
SCHEDULES
1.1. Permitted Liens
3.1. Personal Property
5.6. Material Contracts
6.6. Litigation and Proceedings
6.11. Insurance
6.13 Health Care Permits
7.13. Permitted Distributions
iii
<PAGE>
LOAN AND SECURITY AGREEMENT NO. 2
THIS LOAN AND SECURITY AGREEMENT NO. 2 (this "Agreement") is entered
into as of June 16, 1997, by and between DVI Financial Services Inc., a Delaware
corporation ("Lender"), MHOA Texas I, L.L.C., a Texas limited liability company
("Borrower"), and Physician Health Corporation ("Guarantor").
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties agree as
follows:
Section 1
DEFINITIONS
Section 1.1. Specific Definitions. The following definitions apply:
"Account Debtors" mean all customers and other persons who are
obligated or indebted in any manner, whether directly or indirectly, primarily
or secondarily, contingently or otherwise, with respect to Accounts.
"Accounts" mean all accounts, contract rights, instruments, documents,
chattel paper and obligations in any form owing to or owned by Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
Seller or the Metroplex Providers whether or not earned by performance; all
credit insurance, guaranties, letters of credit, advises of credit and other
security for any of the above; all merchandise returned to or reclaimed by
Borrower, Seller or the Metroplex Providers and Borrower's Books relating to any
of the foregoing.
"Advance" means an advance of loan proceeds constituting all or a part
of the Loan.
"Affiliate" means with respect to any Person any other Person which
directly or indirectly Controls, is Controlled by or is under common Control
with that Person.
"Asset Purchase Agreement" means that certain Asset Purchase and
Contribution Agreement dated June 16, 1997 among Seller, certain physicians and
their professional associations, Borrower and Guarantor.
"Assignment of Acquisition Instruments" means that certain Assignment
of Acquisition Instruments dated as of the date hereof collaterally assigning
Borrower's rights under the Asset Purchase Agreement and the other documents
delivered to Borrower by Seller pursuant to the Asset Purchase Agreement as
security for the Loan, and consented to by Seller.
1
<PAGE>
"Assignment of Management Services Agreement" means that certain
Assignment of Management Services Agreement dated as of the date hereof
collaterally assigning Borrower's rights under the Management Services
Agreement, including Borrower's security interest in the Accounts as security
for the Loan, and consented to by Seller and the Metroplex Providers.
"Assumption Agreement" means the Assumption Agreement dated as of the
date hereof by and between Lender and Seller pursuant to which Seller agrees to
assume operations of the assets purchased by Borrower and the Obligations, and
consented to by Borrower.
"Borrower's Books" means all of Borrower's books and records including
but not limited to: minute books, ledgers; records indicating, summarizing or
evidencing Borrower's assets, liabilities and the Accounts; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs and other computer-
prepared information and the equipment containing such information; provided,
however, that confidential patient records are not included therein, except to
the extent otherwise permitted by law.
"Closing Date" means the date of the first Advance of the Loan.
"Collateral" has the meaning specified in Section 3.1 hereof.
"Control" means (i) the ownership of a majority of the voting power of
all classes of voting stock of a corporation, or (ii) the ownership of a
majority of the beneficial interest in income and capital of a person other than
a corporation.
"Distribution" means, with respect to any shares of capital stock or
any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
"DVIBC" means DVI Business Credit Corporation, a Delaware corporation.
"Environmental Laws" means all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including, ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes, and any and
all regulations, codes, plans, orders, decrees, judgments, injunctions, notices,
or demand letters issued, entered, promulgated, or approved thereunder.
2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof include such sections and any
predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
"Event of Default" has the meaning specified in Section 8 hereof.
"Governmental Authority" means any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
"Guaranty" means the Unconditional Continuing Guaranty executed by
Guarantor unconditionally guaranteeing Borrower's Obligations under this
Agreement.
"Health Care Laws" mean all federal, state and local laws relating to
health care providers and health care services, including, Section 1877(a) of
the Social Security Act as amended by the Omnibus Budget Reconciliation Act of
1993, 42 USC (S) 1395nn.
"Indebtedness" of a Person means (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby have been
assumed; and (iii) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (otherwise than for the collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock or equity purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable.
"Lender Expenses" means (i) all costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under this Agreement or
under any of the other Loan Documents that are paid or advanced by Lender; (ii)
filing, recording, publication and reasonable search fees paid or incurred by
Lender in connection with Lender's transactions with Borrower; (iii) costs and
expenses incurred by Lender to correct any Event of Default or enforce any
provision of the Loan Documents or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, and preparing for sale or
advertising to sell the Collateral, whether or not a sale is consummated, after
the occurrence of an Event of Default; (iv) costs and expenses of suit incurred
by Lender in enforcing or defending the Loan Documents or any portion thereof;
(v) all costs or expenses paid by Lender to third parties to convert any data
submitted to Lender by Borrower to an
3
<PAGE>
acceptable form; and (vi) Lender's reasonable attorneys' fees and expenses
incurred (before or after execution of this Agreement) in advising Lender with
respect to, or in structuring, drafting, reviewing, negotiating, amending,
terminating, enforcing, defending or otherwise concerning, the Loan Documents or
any portion thereof, irrespective of whether suit is brought.
"Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including any interest of a vendor under a
conditional sale contract or consignment and any interest of a lessor under a
capital lease.
"Loan" means the loan made by Lender to Borrower pursuant to this
Agreement.
"Loan Documents" mean (i) this Agreement; (ii) the Note; (iii) the
Security Documents; (iv) the Lock Box Agreement; (v) the Subordination
Agreement; and (vi) any other certificates, documents or instruments delivered
by Borrower to Lender pursuant to the terms of this Agreement.
"Lock Box Accounts" means the deposit accounts with NationsBank, or
any subsequent lockbox bank, established and maintained pursuant to either Lock
Box Agreement.
"Lock Box Agreement" means those two (2) certain Lock Box Agreements
dated on or about the date hereof among Borrower, NationsBank and DVIBC or its
assignee, and any amendments, renewals or replacements thereof.
"Management Services Agreement" means the Management Services
Agreement dated as of June 1, 1997 among Seller, Borrower and the Metroplex
Providers.
"Metroplex Providers" has the meaning set forth in the Management
Services Agreement.
"Note" means the Secured Promissory Note executed by Borrower pursuant
to the terms of this Agreement.
"Obligations" mean (i) the due and punctual payment of all amounts due
or become due under the Note; (ii) the performance of all obligations of
Borrower under this Agreement, the Note and the Other Loan Documents; (iii) all
extensions, renewals, modifications, amendments and refinancings of any of the
foregoing; (iv) all Lender Expenses; and (v) all loans, advances, indebtedness
and other obligations owed by Borrower to DVIBC or Lender under the Other Loan
Documents.
"Other Loan Documents" means those five certain Loan and Security
Agreements among Borrower, Guarantor and Lender and that certain Loan and
Security Agreement among Borrower, Guarantor and DVIBC, dated on or about the
date hereof.
"Permitted Liens" means (i) Liens for property taxes and assessments
or governmental charges or levies and Liens securing claims or demands of
mechanics and
4
<PAGE>
materialmen, provided that payment thereof is not yet due or is being contested
as permitted in this Agreement; (ii) Liens of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which has not
expired, or in respect of which Borrower is in good faith prosecuting an appeal
or proceeding for a review and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured; (iii) Liens and priority
claims incidental to the conduct of business or the ownership of properties and
assets (including warehouse's and attorney's Liens and statutory landlord's
Liens); deposits, pledges or Liens to secure the performance of bids, tenders,
or trade contracts, or to secure statutory obligations; and surety or appeal
bonds or other Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided that in
each case the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings; and further
provided that any such warehouse's or statutory landlord's Liens are subordinate
or have been subordinated to the Liens of Lender in a manner satisfactory to
Lender; (iv) Liens granted to DVI or its Affiliates; and (v) Liens existing on
the date of this Agreement that are disclosed on Schedule 1.1 hereto.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
"Pledge Agreement" means that certain Pledge Agreement (Member
Interests) dated on or about the date hereof among Guarantor, Seller, the other
members who become a party to the Agreement and Lender.
"Proceeds" mean all proceeds and products of Collateral and all
additions and accessions to, replacements of, insurance or condemnation proceeds
of, and documents covering Collateral; all property received wholly or partly in
trade or exchange for Collateral; all claims against third parties arising out
of damage, destruction, or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
"Security Documents" means the Guaranty, the Pledge Agreement, the
Assignment of Acquisition Agreement, the Assignment of Management Services
Agreement and any agreement or instrument entered into between Borrower and
Lender or executed by Borrower or Guarantor and delivered to Lender in
connection with this Agreement to secure repayment of the Loan.
"Seller" means Metroplex Hematology/Oncology Associates, L.L.P., a
Texas limited liability partnership.
"Stated Rate" means Twelve and 25/100 percent (12.25%) per annum
computed on the basis of a 360-day year and actual days elapsed.
"Subordination Agreement" means the Subordination Agreement dated on
or about the date hereof between Lender, Borrower, Guarantor and Seller.
5
<PAGE>
"Unmatured Default" means any event or condition that, with notice,
passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
"Securities Purchase Agreement" means the Security Purchase Agreement
dated on or about the date hereof, among Guarantor, Weston Presidio Capital II,
L.P. and the other Investors set forth in Exhibit I thereto.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under generally
accepted accounting principles. All other terms used in this Agreement, other
than those defined in this Section 1, have the meanings accorded to them in the
Uniform Commercial Code as is enacted in any applicable jurisdiction.
Section 1.3. Construction.
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein
may be construed or resolved against any party hereto, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and their respective counsel and is entitled to be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
Section 2
LOAN
Section 2.1. The Loan. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender shall
advance to Borrower, and Borrower shall borrow from Lender, a senior secured
term loan in the amount of One Million Two Hundred Fifty Thousand and No/100
Dollars ($1,250,000) which is evidenced by the Note. The proceeds of the Loan
must be used by Borrower for part of the purchase price paid by Borrower to
acquire the assets of Seller pursuant to the Asset Purchase Agreement and to
fund the closing costs incurred in connection with the transactions contemplated
in this Agreement.
Section 2.2. Term and Repayment of Loan. The "Term" of the Loan is
seventy-two (72) months and is payable in (i) a single payment on the first day
of August of interest accrued on the unpaid principal balance at the Stated Rate
from the date of the initial Advance to July 31, (ii) two (2) payments of
interest only on the first day of the following two calendar months of interest
accrued on the unpaid principal balance at the Stated Rate for the preceding
calendar
6
<PAGE>
month, (iii) sixty-nine (69) consecutive monthly installments of Twenty-Five
Thousand Sixty-Three and 79/100 Dollars ($25,063.79) on the first day of each
calendar month thereafter, with all unpaid principal and interest due and
payable in full on the final installment date. All payments of principal and
interest must be paid in full without setoff, deduction or counterclaim. Lender
will debit the Lock Box Accounts maintained pursuant to the Lock Box Agreement
for payment of each monthly installment of amounts due and payable pursuant to
this Agreement. Borrower shall satisfy any Obligations not paid by such
deductions by direct payment to Lender at 500 Hyde Park, Doylestown, PA 18901.
Section 2.3. Prepayment. The Loan is not subject to prepayment or
redemption in whole or in part prior to the expiration of the Term.
Section 2.4. Late Payments. If Borrower fails to make any payment of
interest or principal, including the payment due upon maturity, when the same is
due and payable and such payment can not be made by debit from the Lock Box
Accounts and such failure continues for five (5) business days after nonpayment,
a late charge by way of damages to the extent provided in this Section 2.4 is
immediately due and payable. Borrower recognizes that default by Borrower in
making the payments herein agreed to be paid when due will result in the Lender
incurring additional expenses, in loss to the Lender of the use of the money due
and in frustration to the Lender in meeting its other commitments. Lender is
entitled to damages for the detriment caused thereby, but it is extremely
difficult and impractical to ascertain the extent of such damages. Borrower
shall pay on demand a sum equal to five cents ($.05) for each one dollar ($1.00)
of each payment which is not received within five (5) business days after the
date it is due and payable is a reasonable estimate of the damages to the
Lender. If any part of the principal or interest is not paid when due, it
thereafter bears interest at the rate of eighteen percent (18%) per annum from
and as of the date of delinquency until paid, provided, however, that any amount
due pursuant to the preceding sentence must be deducted from the amount due
pursuant to this sentence. If the specified interest rate at any time exceeds
the maximum rate allowed by law, then the applicable interest rate is reduced to
the maximum rate allowed by law.
Section 2.5. Conditions to the Closing. The obligation of Lender to
make an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement
and in the Other Loan Documents are true and correct on and as of the date
hereof and are true and correct in all material respects as of the Closing Date
and Borrower has performed all obligations required to have been performed by it
hereunder prior to Closing Date.
(b) Borrower has executed and delivered to Lender (or caused to be
executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Subordination Agreement;
(vi) the Pledge Agreement;
(vii) the Lock Box Agreement;
(viii) the Assignment of Management Services Agreement;
(ix) the Assignment of Acquisition Instruments;
(x) the Assumption Agreement;
(xi) evidence satisfactory to Lender that the transactions
contemplated by the Asset Purchase Agreement and the Venture Capital Agreement
have been consummated in accordance with the terms of such agreements;
(xii) evidence satisfactory to Lender that Borrower is a
limited liability company and Guarantor is a corporation duly formed, validly
existing and in good standing in the state in which it was formed and in each
state in which it is authorized to do business;
(xiii) certificates of insurance that evidence the insurance
coverage and policy provisions required by this Agreement and in the Loan
Documents;
(xiv) pay-off letters, UCC Termination Statement and Lien
Releases as required to grant Lender a first priority security interest, other
than Permitted Liens, in Collateral pledged as security for repayment of the
Loan;
(xv) signature and incumbency certificate of Borrower and
Guarantor;
(xvi) certified copies of resolutions of the members of
Borrower and the Board of Directors of Guarantor authorizing the execution and
delivery of the Loan Documents to be executed by Borrower and Guarantor;
(xvii) copies of the Articles of Organization of Borrower
and Articles of Incorporation of Guarantor certified by the applicable Secretary
of State;
(xviii) copies of the Regulations of Borrower and Bylaws of
Guarantor certified by an officer thereof;
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(xix) certified copies of the Asset Purchase Agreement and
all documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xx) certified copies of the Venture Capital Agreement and
all other documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xxi) certified copy of the Management Services Agreement
satisfactory in form and substance to Lender;
(xxii) the consent of Western Presidio Capital II, L.P. and
the other Investors set forth in Exhibit I to the Venture Capital Agreement to
the terms of this transaction;
(xxiii) the written opinion of counsel to Borrower and
Guarantor issued on the Closing Date and satisfactory to Lender in scope and
substance; and
(xxiv) a certificate from an officer of Borrower indicating
that the representations and warranties contained herein are true and correct as
of the Closing Date.
(c) Borrower has paid closing fees to Lender including Lender's
reasonable legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default has
occurred and is continuing.
(e) None of Borrower, Seller nor Guarantor has suffered a material
adverse change in its business, operations or financial condition from that
reflected in the Financial Statements of Borrower and Guarantor or Seller
delivered to Lender or otherwise.
(f) Lender has received such additional supporting documents,
certificates and assurances as Lender reasonably requests which are satisfactory
to Lender in form and substance.
Section 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest. In order to secure prompt
payment and performance of the Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the following property
of Borrower (the "Collateral"), whether now owned or existing or hereafter
acquired or arising and regardless of where located, subject only to Permitted
Liens. This security interest in the Collateral attaches to all Collateral
without further action on the part of Lender or Borrower. Borrower shall keep
the Collateral at 906 West Randol Mill Road, Arlington, Texas 76012.
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The Collateral consists of the following, together with such third-
party consents, lien waivers and estoppel certificates as Lender reasonably
requires:
(a) all of Borrower's equipment and machinery listed on Schedule 3.1
and all machine tools, motors, tools, parts, attachments, accessories,
accessions, replacements, upgrades, substitutions, additions and improvements
related thereto, wherever located, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds;
(b) all of Borrower's right, title and interest in and to the
Accounts, whether presently existing or hereafter arising, and all contract
rights, instruments, notes, securities, drafts, documents, chattel paper and all
other forms of obligations owing to Borrower or Seller arising out of the sale
or lease of goods or the rendition of services, whether or not earned by
performance, and any and all credit insurance, guarantees and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower or
Seller and all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including the pledge to it of the Borrower's
interest in the Accounts, cash and non-cash Proceeds. Notwithstanding the
foregoing or any other provision hereof, Lender's Lien on and security interest
in the Collateral described in this clause (b) will be released if the Other
Loan Agreement with DVIBC has been terminated and the conditions contained in
Section 7.17 have been satisfied;
(c) all of Borrower's presently existing and hereafter acquired
general intangibles (including, Borrower's rights and interest under the
Management Services Agreement, and any and all choices in action, goodwill,
patents, trade names, trademarks, blueprints, drawings, purchase orders,
computer programs, computer discs, computer tapes, literature, reports,
catalogues, deposit accounts and tax refunds) other than goods and accounts, as
well as all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including cash and non-cash Proceeds; and
(d) all of Borrower's presently existing and hereafter acquired
inventory including, without limitation, goods held for sale or lease or to be
furnished under a contract of service, wherever located, and any documents of
title representing any of the above, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds.
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower. The exact name of Borrower is MHOA
Texas I, L.L.C. Borrower was formed under the laws of the State of Texas. The
following are all previous legal names of Borrower: None. Borrower uses the
following trade names: None. The following are all other trade names used by
Borrower in the past: None.
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Section 4.2. Mergers and Consolidations. Other than the merger with
MHOA Texas I, Inc., a Texas corporation, no entity has merged into Borrower or
been consolidated with Borrower.
Section 4.3. Purchase of Assets. Other than pursuant to the Asset
Purchase Agreement, no entity has sold substantially all of its assets to
Borrower or sold assets to Borrower outside the ordinary course of such seller's
business at any time in the past.
Section 4.4. Change of Name or Identity. Borrower shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
Section 4.5. Corporate Structure. Guarantor, Seller and the
Metroplex Providers hold one hundred percent (100%) of the member interests in
Borrower. Such member interests are the sole authorized and outstanding security
interests in Borrower.
Section 5
PROVISIONS CONCERNING COLLATERAL
Section 5.1. Title. Borrower has good and marketable title to the
Collateral, and the Liens granted to Lender pursuant to this Agreement are fully
perfected first-priority Liens, in and to the Collateral with priority over the
rights of every person in the Collateral, free, clear and unencumbered by any
Liens in favor of any person other than Lender except for Permitted Liens.
Section 5.2. No Warranties. This Agreement is solely a financing
agreement. Borrower acknowledges that with respect to the appropriate
Collateral: the Collateral has or will have been selected and acquired solely
by Borrower for Borrower's purposes; Lender is not the manufacturer, dealer,
vendor or supplier of the Collateral; the Collateral is of a size, design,
capacity, description and manufacturer selected by Borrower; Borrower is
satisfied that the Collateral is suitable and fit for its purposes; and LENDER
HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER
EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR
OPERATION OF THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE
OF THE COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE COLLATERAL OR
WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER.
Section 5.3. Further Assurances. Borrower shall execute and deliver
to Lender, concurrent with Borrower's execution of this Agreement and at any
time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens
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in the Collateral and in order to consummate fully all of the transactions
contemplated under the Loan Documents. Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender's officers, employees or
agents designated by Lender) as Borrower's true and lawful attorney with power
to sign the name of Borrower on any of the above-described documents or on any
other similar documents that need to be executed, recorded, or filed in order to
perfect or continue perfected Lender's Liens in the Collateral. The appointment
of Lender as Borrower's attorney is irrevocable as long as any Obligations are
outstanding. Any person dealing with Lender is entitled to rely conclusively on
any written or oral statement of Lender that this power of attorney is in
effect.
Section 5.4. Intentionally Deleted.
Section 5.5. Lender's Duty of Care. Lender has no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender will be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as the Borrower requests or agrees to in
writing, provided that no failure to comply with any such request nor any
omission to do any such act requested by the Borrower may be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property may not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
loss, damage or destruction of the Collateral is borne by Borrower except to the
extent Lender breaches the standard of care set forth in this Section 5.5.
Section 5.6. Borrower's Contracts. Schedule 5.6 attached hereto is a
true and complete list of all material contracts and agreements to which
Borrower is a party or will become a party pursuant to the assumption of
Seller's rights and obligations under the terms of the Asset Purchase Agreement.
Borrower remains liable to perform its Obligations under any contracts and
agreements included in the Collateral to the same extent as though this
Agreement had not been entered into and Lender does not have any obligation or
liability under such contracts and agreements by reason of this Agreement or
otherwise.
Section 5.7. Reinstatement of Liens. If, at any time after payment
in full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for any reason whatsoever (including, the insolvency,
bankruptcy, or reorganization of Borrower or such other Person), this Agreement
and then Lender's Liens granted hereunder are reinstated as to all disgorged
payments as though such payments had not been made, and Borrower shall sign and
deliver to Lender all documents and things necessary to perfect all terminated
Liens.
Section 5.8. Lender Expenses. If Borrower fails to pay any moneys
(whether taxes, assessments, insurance premiums or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit or fails to discharge any Lien not permitted hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's
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interest in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof; provided, however,
Lender shall make a reasonable attempt to make a prior notification of Borrower
if a delay in making such payment would not have a material advise impact on
Lender's interest in the Collateral. Any amounts paid or deposited by Lender
constitute Lender Expenses, become part of the Obligations, bear interest at the
rate of eighteen percent (18%) per annum, and are secured by the Collateral. Any
payments made by Lender do not constitute (a) an agreement by Lender to make
similar payments in the future or (b) a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance or Lien, and the receipt
of the usual official notice for the payment of moneys to a governmental entity
is conclusive evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 5.9. Inspection of Collateral and Records. During usual
business hours, Lender may inspect and examine the Collateral and check and test
the same as to quality, quantity, value and condition and Borrower shall
reimburse Lender for its reasonable costs and expenses in so doing. Lender also
has the right at any time or times hereafter, during usual business hours to
inspect and verify Borrower's Books in order to verify the amount or condition
of, or any other matter relating to, the Collateral and Borrower's financial
condition and to copy and make extracts therefrom. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Lender
pursuant to this Agreement. Lender may directly contact any such accounting
firm or service bureau in order to obtain such information.
Section 5.10. Waivers. Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby warrants and
represents to Lender the following:
Section 6.1. Corporate Status. Borrower is a limited liability
company validly existing and in good standing under the laws of the State of
Texas; Guarantor is a corporation validly existing and in good standing under
the laws of the State of Delaware; and each of such entities is qualified and
licensed to do business and is in good standing in any state in which the
conduct of its
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business or its ownership of property requires that it be so qualified or
licensed, and has the power and authority (corporate and otherwise) to execute
and carry out the terms of the Loan Documents to which it is a party, to own its
assets and to carry on its business as currently conducted.
Section 6.2. Authorization. The execution, delivery, and performance
by Borrower and Guarantor of this Agreement and each Loan Document have been
duly authorized by all necessary company action. Borrower and Guarantor have
duly executed and delivered this Agreement and each Loan Document to which they
are a party, and each such Loan Document constitutes a valid and binding
obligation of Borrower and Guarantor.
Section 6.3. No Breach. The execution, delivery and performance by
Borrower and Guarantor of this Agreement and each Loan Document to which they
are a party (a) will not contravene any law or any governmental rule or order
binding on Collateral; (b) will not violate any provision of the articles of
organization or regulations of Borrower or the articles of incorporation or
bylaws of Guarantor; (c) will not violate any agreement or instrument by which
Borrower or Guarantor or their assets, is bound; (d) do not require any notice
to consent by any Governmental Authority; and (e) will not result in the
creation of a Lien on any assets of Borrower except the Lien to Lender granted
herein.
Section 6.4. Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against Borrower,
or its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
Section 6.5. Deferred Compensation Plans. Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any single-
employer or multi-employer plans. Neither Borrower nor any ERISA Affiliate is
or at any time has been a sponsor of, provided, or maintained for any employees
any defined benefit plan.
Section 6.6. Litigation and Proceedings. Except as set forth on
Schedule 6.6 attached hereto, there are no outstanding judgments against
Borrower or its assets and there are no actions or proceedings pending by or
against Borrower before any court or administrative agency. Borrower has no
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and except as set forth in Schedule 6.6 hereto.
Section 6.7. Business. Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or
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subject to any agreement or restriction that is so unusual or burdensome that it
might have a material adverse effect on Borrower's business, properties or
prospects.
Section 6.8. Laws and Agreements. Borrower is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Borrower is in material compliance with all laws applicable to it.
Section 6.9. Financial Condition. All financial statements and
information relating to Borrower, Guarantor, Seller or their assets that have
been or may hereafter be delivered by Borrower to Lender are accurate and
complete in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied. Borrower and
Guarantor have no material obligations or liabilities of any kind not disclosed
in that financial information, and there has been no material adverse change in
the financial condition of Borrower, Guarantor or Seller since the date of the
most recent financial statements submitted to Lender.
Section 6.10. Environmental Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Environmental Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and are also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Environmental
Laws, or may give rise to any material common law or legal liability, or
otherwise form the basis of any material claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous substance or waste.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Environmental
Laws.
Section 6.11. Insurance. Schedule 6.11 sets forth a complete and
accurate list of all policies of fire, liability, product liability, workers'
compensation, health, business interruption and other forms of insurance
currently in effect with respect to Borrower's business, true copies of which
have heretofore been delivered to Lender. All such policies are valid,
outstanding and enforceable policies and, to the best knowledge of Borrower,
each will remain in full force and effect at least through the respective dates
set forth on Schedule 6.11.
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Section 6.12. Ownership of Property. Borrower has good and marketable
title to all of its properties and assets, free and clear of all liens, security
interests and encumbrances, except Permitted Liens. Borrower has the exclusive
right to use all such assets.
Section 6.13. Health Care Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and is in compliance in all material respects with all terms and conditions of
the required permits, licenses and authorizations, and are also in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Health Care Laws.
Section 6.14. Cumulative Representations. The warranties,
representations and agreements set forth herein are cumulative and in addition
to any and all other warranties, representations and agreements that Borrower
gives, or cause to be given, to Lender, either now or hereafter.
Section 6.15. Full Disclosure. No representation, warranty or
statement by Borrower or Guarantor contained in this Agreement, any Schedule or
any document, instrument or certificate furnished by or on behalf of any of them
pursuant to this Agreement contains any untrue, incorrect, incomplete or
misleading statement of material fact, or knowingly omits to state a material
fact necessary to make the statements contained therein not misleading.
Section 7
COVENANTS
Section 7.1. Encumbrance of Collateral. Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower except for Liens to Lender and Permitted Liens.
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Section 7.2. Business. Borrower shall engage primarily in business of
physician practice management and related services.
Section 7.3. Condition and Repair. Borrower shall maintain in good
repair and working order all material properties used in its business and from
time to time shall make all appropriate repairs and replacements thereof.
Section 7.4. Taxes. Borrower shall pay all taxes, assessments and
other governmental charges imposed upon it or any of its assets or in respect of
any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by generally accepted accounting principles. Borrower shall
make timely payment or deposit of all FICA payments and withholding taxes
required of it by applicable laws and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower has made such payments or
deposits.
Section 7.5. Insurance. Borrower shall maintain, with financially
sound and reputable insurers, insurance with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily
insured against by corporations of established reputation engaged in the same or
similar businesses. Each such policy must name Lender as an additional insured
and, where applicable, as loss payee under a lender loss payable endorsement
satisfactory to Lender and must provide for thirty (30) days' written notice to
Lender before such policy is altered or canceled.
Section 7.6. Accounting System. Borrower and Guarantor at all times
hereafter shall maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles consistently applied,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower and Guarantor shall not modify or change their
method of accounting or enter into any agreement hereafter with any third-party
accounting firm or service bureau for the preparation or storage of their
accounting records without the accounting firm's or service bureau's agreeing to
provide to Lender information regarding the Collateral and Borrower's and
Guarantor's financial condition.
Section 7.7. Financial Statements. Borrower shall submit monthly
financial statements, showing a comparison of actual expenditures to budgeted
amounts, with respect to Borrower and Guarantor, to Lender as soon as available,
and in any event within thirty (30) days of the end of each month. Additionally,
Borrower shall submit audited financial statements with respect to Borrower and
Guarantor to Lender as soon as available, and in any event within one hundred
twenty (120) days of the end of each fiscal year. With all financial statements,
Borrower
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shall deliver a certificate of its chief financial officer attesting that to the
best of such officer's knowledge no Event of Default or Unmatured Default under
this Agreement has occurred and is continuing.
Section 7.8. Further Information. Borrower and Guarantor shall
promptly supply Lender with such other information concerning its affairs as
Lender may reasonably request from time to time hereafter and shall promptly
notify Lender of any material adverse change in Borrower's or Guarantor's
financial condition and any condition or event that constitutes an Event of
Default or Unmatured Default under this Agreement. In addition, Borrower and
Guarantor authorize Lender to contact credit reporting agencies concerning their
credit standing.
Section 7.9. ERISA Covenants. Borrower shall, and shall cause each
ERISA Affiliate to, comply with all applicable provisions of ERISA and all other
laws applicable to any deferred compensation plans with which Borrower or any
ERISA Affiliate is associated, the failure with which to comply would have a
material adverse effect on Borrower's business or financial condition and shall
promptly notify Lender of the occurrence of any event that could result in any
material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
Section 7.10. Environmental Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
Governmental Authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower or
a Subsidiary would be required to notify any Governmental Authority with
jurisdiction over Environmental Laws.
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower may not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets having an
aggregate value of greater than $100,000 in any twelve month period in any
transaction or series of related transactions other than (i) sales in the
ordinary course of business, (ii) if being replaced by items of comparable or
greater value, provided, Borrower receives the consent of Lender, which will not
be unreasonably withheld, to any such transfer having a value greater than
$100,000, and (iii) a transfer of assets to Seller pursuant to the terms of the
Assumption Agreement;
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
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(d) acquire interests in any other entity in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(e) become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents;
(f) authorize or issue any additional member interests or equity
interest; or
(g) own, hold, lease or operate with any real property nor any other
property not necessary or useful to the operation of Borrower's business as it
is presently proposed to be conducted.
Section 7.12. Health Care Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Health Care Laws applicable to it.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
Section 7.13. Distributions. Except as set forth on Schedule 7.13
hereto, Borrower may not make any Distributions nor pay any management fee,
consulting fee or any similar fee without the prior written consent of Lender,
which may be withheld in its sole discretion.
Section 7.14. Capital Expenditures. Borrower may not spend nor incur
obligations, including the total amount of any capital leases, to acquire fixed
or capital assets exceeding One Million Dollars ( $1,000,000) in any fiscal
year.
Section 7.15. Other Debt. (a) Borrower may not incur any direct or
contingent liabilities, including capital leases, in an aggregate amount
exceeding $100,000 in any twelve month period without Lender's prior written
consent, which may not be unreasonably withheld, provided however that Borrower
shall provide Lender written notice of its intention to incur any such liability
and if such financing can be provided by a third party source such as Lender,
offer Lender a right of first offer to provide such financing. In order to
comply with the right of first offer contained in this Section, Borrower shall
provide Lender with the terms of the proposed financing, including interest
rate, term, amount and collateral for the financing. If Lender declines to
provide the financing on such terms, or does not respond to Borrower's notice
within ten Business Days of receipt thereof, then Borrower can seek alternative
financing on such terms, provided Borrower continues to comply with the first
sentence of this Section. Lender's decision not to provide any such financing
does not waive its right of first offer with respect to any subsequent
financing.
19
<PAGE>
(b) Nothing contained in this Section 7.15 prohibits Borrower from:
(i) acquiring goods, supplies or merchandise on normal trade credit;
(ii) endorsing negotiable instruments, received in the usual course
of business; or
(iii) obtaining surety bonds in the usual course of business.
Section 7.16 Debt Service Coverage. Borrower shall maintain as of
the last day of each calendar month, beginning September 30, 1997, a debt
service coverage ratio of no less than 1.5:1 for the previous twelve calendar
month period; provided, that such ratio is calculated on an annualized basis
during the first twelve months following the Closing Date.
"Debt service coverage" means (i) the sum of net income plus
depreciation plus amortization plus interest expense, divided by (ii) the sum of
capitalized lease payments plus loan payments plus interest expense.
Section 7.17 Termination of Covenants. If Guarantor (i) successfully
completes a public offering of its common stock and other securities registered
under the Securities Exchange Act of 1933, as amended, which results in
Guarantor receiving net proceeds of Thirty-Five Million Dollars ($35,000,000) or
more, or (ii) at the end of any fiscal quarter Guarantor or its successor, by
merger or otherwise, attains a net worth of Fifty Million Dollars or more, then
the covenants contained in Sections 7.13, 7.14 and 7.15 will no longer apply to
the Loan and thereafter will be considered deleted from the Agreement.
Section 8
EVENTS OF DEFAULT
An Event of Default is deemed to exist if any of the following events
have occurred and is continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure continues for five (5) business days
after the payment is due;
(b) Borrower fails to observe or perform any material covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any Loan Document to which it is a party and such failure is not cured as
soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender;
20
<PAGE>
(c) Borrower fails to keep its assets insured as required herein, or
material uninsured damage to or loss, theft or destruction of the Collateral
occurs and such assets are not repaired or replaced with five (5) days;
(d) A court enters a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency, or
other similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in excess
of $100,000 is rendered against Borrower and remains undischarged for thirty
(30) days during which execution is not effectively stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any of
the Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant, condition or agreement to be performed under
any Loan Document to which it is a party;
(h) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise, other than as permitted
pursuant to Section 7.11(b);
(i) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $100,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(j) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(k) Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs and such court order is not revoked or overturned within five (5) days;
(l) A judgment or other claim in excess of $100,000 becomes a Lien
upon any or all of Borrower's assets, other than a Permitted Lien;
21
<PAGE>
(m) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets by any
Governmental Authority or any tax or debt owing at any time hereafter to any one
or more of such entities becomes a Lien upon any or all of Borrower's assets and
the same is not paid on the payment date thereof, except to the extent such tax
or debt is being contested by Borrower as permitted in Section 6.4;
(n) There is a material impairment of the value of the Collateral
which is not insured or priority of Lender's Liens on the Collateral;
(o) Any of Borrower's assets in excess of $100,000 or any Collateral
are seized, subjected to a distress warrant, levied upon or come into the
possession of any judicial officer;
(p) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is materially incorrect when made;
(q) Guarantor is in default under the Guaranty or this Loan
Agreement or an Event of Default occurs under the Other Loan Documents; or
(r) If the aggregate dollar value of all judgments, defaults,
demands, claims and notices of Liens under clauses (f), (i), (j), (l), (m) and
(o) hereof exceeds $250,000.
Section 9
REMEDIES
Section 9.1. Specific Remedies. Upon the occurrence of any Event of
Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(c) Lender may enter any premises of Borrower, with or without
judicial process, and take possession of the Collateral; provided however, that
Lender may only exercise such remedy if it may do so without a breach of the
peace. Lender may remove the Collateral and may remove or copy all records
pertaining thereto, or Lender may remain on such premises and use the premises
for the purpose of collecting, preparing and disposing of the Collateral,
without any liability for rent or occupancy charges. Borrower shall, upon
request of Lender, assemble the Collateral and any records pertaining thereto
and make them available at a place designated by Lender that is reasonably
convenient to both parties.
22
<PAGE>
(d) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease, and insure the Collateral. Lender may use and operate
equipment of Borrower in order to process or finish inventory included in the
Collateral. If any Collateral consists of documents, Lender may proceed either
as to the documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any
encumbrance, charge or Lien that, in the opinion of Lender, appears to be prior
or superior to its Lien and pay all reasonable expenses incurred in connection
therewith.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders or other forms of payment of or security for Accounts or
other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors
or issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
(g) Lender may sell the Collateral at public or private sale and is
not required to repossess Collateral before selling it. Any requirement of
reasonable notice of any disposition of the Collateral is satisfied if such
notice is sent to Borrower, ten (10) days prior to such disposition by any of
the methods provided in Section 11.5 hereof. Borrower will be credited with the
net proceeds of such sale only when they are actually received by Lender, and
Borrower continues to be liable for any deficiency remaining after the
Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give
notice of the time and place by publishing a notice one time at least five (5)
days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender may be
the purchaser of any or all of the Collateral at any public sale and is
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
Section 9.2. Power of Attorney. Borrower hereby appoints Lender (and
any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power after the occurrence of an Event of Default:
(a) to endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and assignments of Accounts, on verifications of Accounts, and on
notices to Account Debtors; (c) to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
to receive and open all mail addressed to Borrower and to retain all mail
23
<PAGE>
relating to the Collateral and forward all other mail to Borrower; (d) to send
requests for verification of Accounts; (e) to execute UCC Financing Statements;
and (f) to do all things necessary to carry out this Agreement. The appointment
of Lender as Borrower's attorney and each and every one of Lender's rights and
powers, being coupled with an interest, are irrevocable as long as any
Obligations are outstanding. Lender shall not exercise the power granted in
clauses 9.2(a) through 9.2(c) prior to the occurrence of an Event of Default and
shall not exercise the power granted in clause 9.2(d) prior to notification of
Borrower of its intent to do so, but such limitations do not limit the
effectiveness of such power of attorney at any time. Any person dealing with
Lender is entitled to rely conclusively on any written or oral statement of
Lender that this power of attorney is in effect. Lender may also use Borrower's
stationery in connection with exercising its rights and remedies and performing
the Obligations of Borrower.
Section 9.3. Expenses Secured. All expenses, including reasonable
attorney fees, incurred by Lender in the exercise of its rights and remedies
provided in this Agreement, in the Other Loan Documents or by law shall be
payable by Borrower to Lender, are part of the Obligations, and are secured by
the Collateral.
Section 9.4. Equitable Relief. Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, in certain cases no remedy of law will provide
adequate relief to Lender, and Lender is entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 9.5. Remedies Are Cumulative. No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or Guarantor or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
may be deemed to be an election. No delay by Lender constitutes a waiver,
election, or acquiescence by it. Borrower on its behalf waives any rights to
require Lender to proceed against Guarantor or any other party; or proceed
against or exhaust any security held from Guarantor or any other party. Lender
may at any time and from time to time, without notice to, or consent of,
Borrower, and without affecting or impairing the obligation of Borrower
hereunder do any of the following: (i) renew or extend any obligations of
Guarantor, or of any other party at any time directly or contingently liable for
payment of any of the obligations of Guarantor; (ii) accept partial payments of
the obligations of Guarantor; (iii) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the obligations of
Guarantor and the security therefor in any manner; or (iv) consent to the
transfer or sale of any security or bid and purchase at any sale of any security
of Guarantor. The validity of this Agreement and the Obligations of Borrower
are not terminated, affected or impaired by reason of the waiving, delaying,
exercising or non-exercising, of any of Lender's rights against Guarantor or as
a result of the substitution, release, repossession, sale, disposition or
destruction of any Collateral securing any obligations of Guarantor. Borrower
is not released or discharged, either in whole or in part, by Lender's failure
or delay to perfect or continue the perfection of any security interest in any
Collateral which secures the obligations of Guarantor or to protect the property
covered by such security interest.
24
<PAGE>
Section 10
INDEMNITY
Section 10.1. General Indemnity. BORROWER SHALL UNCONDITIONALLY
PROTECT, INDEMNIFY, DEFEND AND HOLD HARMLESS LENDER AND ITS DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS FROM AND AGAINST ANY LOSS, COST, LIABILITY (INCLUDING
NEGLIGENCE, TORT AND STRICT LIABILITY), EXPENSE, DAMAGE, SUITS, DEMANDS OR
CLAIMS (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) ON ACCOUNT OF ANY SUIT OR
PROCEEDING BEFORE ANY GOVERNMENTAL AUTHORITY WHICH ARISES FROM THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT OR OTHERWISE ARISING IN CONNECTION WITH OR
RELATING TO THE LOAN AND ANY SECURITY THEREFOR, UNLESS SUCH SUIT, CLAIM OR
DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MALFEASANCE OF LENDER
OR ITS DIRECTORS, OFFICER, AGENTS OR EMPLOYEES. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower survives the
termination of this Agreement and the repayment of the Note.
Section 10.2. Specific Environmental Indemnity. Borrower shall
unconditionally protect, indemnify, defend and hold harmless Lender, its
directors, officers, employees and agents against any loss, cost, liability
(including negligence, tort and strict liability), expense, damage, suits,
demands or claim (including fees and disbursements of counsel) arising under any
Environmental Laws having jurisdiction over the property or assets of Borrower
or any portion thereof or its use.
Section 11
MISCELLANEOUS
Section 11.1. Delay and Waiver. No delay or omission to exercise any
right impairs any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion is limited to that particular occasion.
Section 11.2. Complete Agreement. This Agreement and the Schedules
are the complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
25
<PAGE>
Section 11.3. Severability; Headings. If any part of this Agreement
or the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement is unaffected thereby. The section headings herein
are included for convenience only and may not be deemed to be a part of this
Agreement.
Section 11.4. Binding Effect. This Agreement is binding upon and
inures to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; provided however, Borrower may not assign any of
its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who thereupon has all of the rights of Lender; and
Lender (or such subsequent assignee who in turn assigns as aforesaid) is then
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 11.5. Notices. Any notices under or pursuant to this
Agreement are deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, facsimile, or similar electronic medium to
the following addresses:
To Borrower: MHOA Texas I, L.L.C.
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Thomas Rodgers
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Guarantor: Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah Garvins
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Lender: DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
Attention: Michael A. O'Hanlon
Telephone: (215) 345-6600
Facsimile: (215) 230-8108
26
<PAGE>
Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
Any party may change such address by sending notice of the change to
the other parties; such change of address is effective only upon actual receipt
of the notice by the other parties.
Section 11.6. Governing Law. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO ARE GOVERNED, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.
Section 11.7. Jurisdiction. The state and federal courts in Orange
County, California or any other court in which Lender initiates proceedings have
jurisdiction over all matters arising out of this Agreement and that service of
process in any such proceeding are effective if mailed to Borrower at its
address described in the Notices section of this Agreement. Borrower waives any
right it may have to assert the defense of forum non conveniens or to object to
such venue and hereby consents to any court-ordered relief.
Section 11.8. Waiver of Trial by Jury. LENDER, GUARANTOR AND BORROWER
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE RELATIONSHIP
BETWEEN LENDER, GUARANTOR AND BORROWER.
27
<PAGE>
IN WITNESS WHEREOF, Borrower, Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
BORROWER: LENDER:
MHOA TEXAS I, L.L.C. DVI FINANCIAL SERVICES INC.
By: /s/ Sarah C. Garvin
-------------------------------
Sarah C. Garvin By: /s/ Raymond Fear
President --------------------------------
Raymond Fear
Vice President
GUARANTOR:
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
-------------------------------
Sarah C. Garvin
President
<PAGE>
Schedule 1.1
Permitted Liens
1. Those liens listed on Schedule 3.16 of that certain Asset Purchase and
Contribution Agreement dated as of June 16, 1997, executed by and between
Borrower, Seller and certain other parties (the "Purchase Agreement"), and all
other Permitted Encumbrances, as defined therein.
2. Lien and security interest created in favor of DVIBC on the Collateral
described in Section 3.1(b) pursuant to a Loan and Security Agreement dated as
of the date of this Agreement, which Lien and security interest are intended by
all parties to be prior to the Liens and security interests of this Agreement.
<PAGE>
Schedule 3.1
LOAN NO. 2
----------
1. Varian Ximatron 5 Simulator
2. Picker Priam 2000 XP nuclear camera
3. Picker Voxel VQ system & other medical equipment
And all equipment and assets listed as Personal Property in Schedule 3.12 of the
Purchase Agreement.
<PAGE>
Schedule 5.6
Material Contracts
1. The Management Agreement.
2. The Benefit Agreements, Employee/Contract Labor Agreements, Real Property
Leases (for business space only) and Services Contracts listed on Schedule 3.20
of the Purchase Agreement and assumed by Borrower thereunder.
<PAGE>
Schedule 6.6
Litigation and Proceedings
None
<PAGE>
Schedule 6.11
Insurance
Those insurance policies described in the certificates attached hereto.
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
Schedule 7.13
Permitted Distributions
Borrower is permitted to make Distributions to Guarantor provided after
such payment Borrower continues to satisfy the debt service coverage ratio set
forth in Section 7.16.
36
<PAGE>
EXHIBIT 10.58
LOAN AND SECURITY AGREEMENT NO. 3
among
MHOA TEXAS I, L.L.C.
Borrower
PHYSICIAN HEALTH CORPORATION
Guarantor
and
DVI FINANCIAL SERVICES INC.
Lender
Dated as of June 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
------
Section 1
DEFINITIONS .......................................................... 1
Section 1.1. Specific Definitions ................................... 1
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code ..................................................... 6
Section 1.3. Construction ........................................... 6
Section 2
LOAN ................................................................. 6
Section 2.1. The Loan ............................................... 6
Section 2.2. Term and Repayment of Loan ............................. 6
Section 2.3. Prepayment ............................................. 7
Section 2.4. Late Payments .......................................... 7
Section 2.5. Conditions to the Closing .............................. 7
Section 3
SECURITY INTEREST .................................................... 9
Section 3.1. Grant of Security Interest ............................. 9
Section 4
SPECIFIC REPRESENTATIONS ............................................. 10
Section 4.1. Name of Borrower ....................................... 10
Section 4.2. Mergers and Consolidations ............................. 10
Section 4.3. Purchase of Assets ..................................... 11
Section 4.4. Change of Name or Identity ............................. 11
Section 4.5. Corporate Structure .................................... 11
Section 5
PROVISIONS CONCERNING COLLATERAL ..................................... 11
Section 5.1. Title .................................................. 11
Section 5.2. No Warranties .......................................... 11
Section 5.3. Further Assurances ..................................... 11
Section 5.4. Intentionally Deleted .................................. 12
Section 5.5. Lender's Duty of Care .................................. 12
Section 5.6. Borrower's Contracts ................................... 12
Section 5.7. Reinstatement of Liens ................................. 12
i
<PAGE>
Section 5.8. Lender Expenses ........................................ 12
Section 5.9. Inspection of Collateral and Records ................... 13
Section 5.10. Waivers ............................................... 13
Section 6
REPRESENTATIONS AND WARRANTIES ....................................... 13
Section 6.1. Corporate Status ....................................... 13
Section 6.2. Authorization .......................................... 14
Section 6.3. No Breach .............................................. 14
Section 6.4. Taxes .................................................. 14
Section 6.5. Deferred Compensation Plans ............................ 14
Section 6.6. Litigation and Proceedings ............................. 14
Section 6.7. Business ............................................... 14
Section 6.8. Laws and Agreements .................................... 14
Section 6.9. Financial Condition .................................... 15
Section 6.10. Environmental Laws .................................... 15
Section 6.11. Insurance ............................................. 15
Section 6.12. Ownership of Property ................................. 15
Section 6.13. Health Care Laws ...................................... 16
Section 6.14. Cumulative Representations ............................ 16
Section 6.15. Full Disclosure ....................................... 16
Section 7
COVENANTS ............................................................ 16
Section 7.1. Encumbrance of Collateral .............................. 16
Section 7.2. Business ............................................... 16
Section 7.3. Condition and Repair ................................... 16
Section 7.4. Taxes .................................................. 17
Section 7.5. Insurance .............................................. 17
Section 7.6. Accounting System ...................................... 17
Section 7.7. Financial Statements ................................... 17
Section 7.8. Further Information .................................... 17
Section 7.9. ERISA Covenants ........................................ 18
Section 7.10. Environmental Covenants ............................... 18
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc .............................................. 18
Section 7.12. Health Care Covenants ................................. 19
Section 7.13. Distributions ......................................... 19
Section 7.14. Capital Expenditures .................................. 19
Section 7.15. Other Debt. ........................................... 19
Section 7.16. Debt Service Coverage. ................................ 19
Section 7.17. Termination of Covenants. ............................. 20
ii
<PAGE>
Section 8
EVENTS OF DEFAULT .................................................... 20
Section 9
REMEDIES ............................................................. 22
Section 9.1. Specific Remedies ...................................... 22
Section 9.2. Power of Attorney ...................................... 23
Section 9.3. Expenses Secured ...................................... 24
Section 9.4. Equitable Relief ...................................... 24
Section 9.5. Remedies Are Cumulative ................................ 24
Section 10
INDEMNITY ............................................................ 24
Section 10.1. General Indemnity ..................................... 24
Section 10.2. Specific Environmental Indemnity ...................... 25
Section 11
MISCELLANEOUS ........................................................ 25
Section 11.1. Delay and Waiver ...................................... 25
Section 11.2. Complete Agreement .................................... 25
Section 11.3. Severability; Headings ................................ 25
Section 11.4. Binding Effect ........................................ 25
Section 11.5. Notices ............................................... 26
Section 11.6. Governing Law ......................................... 26
Section 11.7. Jurisdiction .......................................... 27
Section 11.8. Waiver of Trial by Jury ............................... 27
SCHEDULES
1.1. Permitted Liens
3.1. Personal Property
5.6. Material Contracts
6.6. Litigation and Proceedings
6.11. Insurance
6.13. Health Care Permits
7.13. Permitted Distributions
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LOAN AND SECURITY AGREEMENT NO. 3
THIS LOAN AND SECURITY AGREEMENT NO. 3 (this "Agreement") is entered
into as of June 16, 1997, by and between DVI Financial Services Inc., a Delaware
corporation ("Lender"), MHOA Texas I, L.L.C., a Texas limited liability company
("Borrower"), and Physician Health Corporation ("Guarantor").
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties agree as
follows:
Section 1
DEFINITIONS
Section 1.1. Specific Definitions. The following definitions apply:
"Account Debtors" mean all customers and other persons who are
obligated or indebted in any manner, whether directly or indirectly, primarily
or secondarily, contingently or otherwise, with respect to Accounts.
"Accounts" mean all accounts, contract rights, instruments, documents,
chattel paper and obligations in any form owing to or owned by Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
Seller or the Metroplex Providers whether or not earned by performance; all
credit insurance, guaranties, letters of credit, advises of credit and other
security for any of the above; all merchandise returned to or reclaimed by
Borrower, Seller or the Metroplex Providers and Borrower's Books relating to any
of the foregoing.
"Advance" means an advance of loan proceeds constituting all or a part
of the Loan.
"Affiliate" means with respect to any Person any other Person which
directly or indirectly Controls, is Controlled by or is under common Control
with that Person.
"Asset Purchase Agreement" means that certain Asset Purchase and
Contribution Agreement dated June 16, 1997 among Seller, certain physicians and
their professional associations, Borrower and Guarantor.
"Assignment of Acquisition Instruments" means that certain Assignment
of Acquisition Instruments dated as of the date hereof collaterally assigning
Borrower's rights under the Asset Purchase Agreement and the other documents
delivered to Borrower by Seller pursuant to the Asset Purchase Agreement as
security for the Loan, and consented to by Seller.
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"Assignment of Management Services Agreement" means that certain
Assignment of Management Services Agreement dated as of the date hereof
collaterally assigning Borrower's rights under the Management Services
Agreement, including Borrower's security interest in the Accounts as security
for the Loan, and consented to by Seller and the Metroplex Providers.
"Assumption Agreement" means the Assumption Agreement dated as of the
date hereof by and between Lender and Seller pursuant to which Seller agrees to
assume operations of the assets purchased by Borrower and the Obligations, and
consented to by Borrower.
"Borrower's Books" means all of Borrower's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records are not included therein,
except to the extent otherwise permitted by law.
"Closing Date" means the date of the first Advance of the Loan.
"Collateral" has the meaning specified in Section 3.1 hereof.
"Control" means (i) the ownership of a majority of the voting power of
all classes of voting stock of a corporation, or (ii) the ownership of a
majority of the beneficial interest in income and capital of a person other than
a corporation.
"Distribution" means, with respect to any shares of capital stock or
any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
"DVIBC" means DVI Business Credit Corporation, a Delaware corporation.
"Environmental Laws" means all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including, ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes, and any and
all regulations, codes, plans, orders, decrees, judgments, injunctions, notices,
or demand letters issued, entered, promulgated, or approved thereunder.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof include such sections and any
predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
"Event of Default" has the meaning specified in Section 8 hereof.
"Governmental Authority" means any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
"Guaranty" means the Unconditional Continuing Guaranty executed by
Guarantor unconditionally guaranteeing Borrower's Obligations under this
Agreement.
"Health Care Laws" mean all federal, state and local laws relating to
health care providers and health care services, including, Section 1877(a) of
the Social Security Act as amended by the Omnibus Budget Reconciliation Act of
1993, 42 USC (S) 1395nn.
"Indebtedness" of a Person means (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby have been
assumed; and (iii) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (otherwise than for the collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock or equity purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable.
"Lender Expenses" means (i) all costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under this Agreement or
under any of the other Loan Documents that are paid or advanced by Lender; (ii)
filing, recording, publication and reasonable search fees paid or incurred by
Lender in connection with Lender's transactions with Borrower; (iii) costs and
expenses incurred by Lender to correct any Event of Default or enforce any
provision of the Loan Documents or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, and preparing for sale or
advertising to sell the Collateral, whether or not a sale is consummated, after
the occurrence of an Event of Default; (iv) costs and expenses of suit incurred
by Lender in enforcing or defending the Loan Documents or any portion thereof;
(v) all costs or expenses paid by Lender to third parties to convert any data
submitted to Lender by Borrower to an
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acceptable form; and (vi) Lender's reasonable attorneys' fees and expenses
incurred (before or after execution of this Agreement) in advising Lender with
respect to, or in structuring, drafting, reviewing, negotiating, amending,
terminating, enforcing, defending or otherwise concerning, the Loan Documents or
any portion thereof, irrespective of whether suit is brought.
"Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including any interest of a vendor under a
conditional sale contract or consignment and any interest of a lessor under a
capital lease.
"Loan" means the loan made by Lender to Borrower pursuant to this
Agreement.
"Loan Documents" mean (i) this Agreement; (ii) the Note; (iii) the
Security Documents; (iv) the Lock Box Agreement; (v) the Subordination
Agreement; and (vi) any other certificates, documents or instruments delivered
by Borrower to Lender pursuant to the terms of this Agreement.
"Lock Box Accounts" means the deposit accounts with NationsBank, or
any subsequent lockbox bank, established and maintained pursuant to either Lock
Box Agreement.
"Lock Box Agreement" means those two (2) certain Lock Box Agreements
dated on or about the date hereof among Borrower, NationsBank and DVIBC or its
assignee, and any amendments, renewals or replacements thereof.
"Management Services Agreement" means the Management Services
Agreement dated as of June 1, 1997 among Seller, Borrower and the Metroplex
Providers.
"Metroplex Providers" has the meaning set forth in the Management
Services Agreement.
"Note" means the Secured Promissory Note executed by Borrower pursuant
to the terms of this Agreement.
"Obligations" mean (i) the due and punctual payment of all amounts due
or become due under the Note; (ii) the performance of all obligations of
Borrower under this Agreement, the Note and the Other Loan Documents; (iii) all
extensions, renewals, modifications, amendments and refinancings of any of the
foregoing; (iv) all Lender Expenses; and (v) all loans, advances, indebtedness
and other obligations owed by Borrower to DVIBC or Lender under the Other Loan
Documents.
"Other Loan Documents" means those five certain Loan and Security
Agreements among Borrower, Guarantor and Lender and that certain Loan and
Security Agreement among Borrower, Guarantor and DVIBC, dated on or about the
date hereof.
"Permitted Liens" means (i) Liens for property taxes and assessments
or governmental charges or levies and Liens securing claims or demands of
mechanics and
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materialmen, provided that payment thereof is not yet due or is being contested
as permitted in this Agreement; (ii) Liens of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which has not
expired, or in respect of which Borrower is in good faith prosecuting an appeal
or proceeding for a review and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured; (iii) Liens and priority
claims incidental to the conduct of business or the ownership of properties and
assets (including warehouse's and attorney's Liens and statutory landlord's
Liens); deposits, pledges or Liens to secure the performance of bids, tenders,
or trade contracts, or to secure statutory obligations; and surety or appeal
bonds or other Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided that in
each case the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings; and further
provided that any such warehouse's or statutory landlord's Liens are subordinate
or have been subordinated to the Liens of Lender in a manner satisfactory to
Lender; (iv) Liens granted to DVI or its Affiliates; and (v) Liens existing on
the date of this Agreement that are disclosed on Schedule 1.1 hereto.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
"Pledge Agreement" means that certain Pledge Agreement (Member
Interests) dated on or about the date hereof among Guarantor, Seller, the other
members who become a party to the Agreement and Lender.
"Proceeds" mean all proceeds and products of Collateral and all
additions and accessions to, replacements of, insurance or condemnation proceeds
of, and documents covering Collateral; all property received wholly or partly in
trade or exchange for Collateral; all claims against third parties arising out
of damage, destruction, or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
"Security Documents" means the Guaranty, the Pledge Agreement, the
Assignment of Acquisition Agreement, the Assignment of Management Services
Agreement and any agreement or instrument entered into between Borrower and
Lender or executed by Borrower or Guarantor and delivered to Lender in
connection with this Agreement to secure repayment of the Loan.
"Seller" means Metroplex Hematology/Oncology Associates, L.L.P., a
Texas limited liability partnership.
"Stated Rate" means Twelve and 25/100 percent (12.25%) per annum
computed on the basis of a 360-day year and actual days elapsed.
"Subordination Agreement" means the Subordination Agreement dated on
or about the date hereof between Lender, Borrower, Guarantor and Seller.
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"Unmatured Default" means any event or condition that, with notice,
passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
"Securities Purchase Agreement" means the Security Purchase Agreement
dated on or about the date hereof, among Guarantor, Weston Presidio Capital II,
L.P. and the other Investors set forth in Exhibit I thereto.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under generally
accepted accounting principles. All other terms used in this Agreement, other
than those defined in this Section 1, have the meanings accorded to them in the
Uniform Commercial Code as is enacted in any applicable jurisdiction.
Section 1.3. Construction.
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein may
be construed or resolved against any party hereto, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and their respective counsel and is entitled to be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
Section 2
LOAN
Section 2.1. The Loan. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender shall
advance to Borrower, and Borrower shall borrow from Lender, a senior secured
term loan in the amount of One Million Two Hundred Fifty Thousand and No/100
Dollars ($1,250,000) which is evidenced by the Note. The proceeds of the Loan
must be used by Borrower for part of the purchase price paid by Borrower to
acquire the assets of Seller pursuant to the Asset Purchase Agreement and to
fund the closing costs incurred in connection with the transactions contemplated
in this Agreement.
Section 2.2. Term and Repayment of Loan. The "Term" of the Loan is
seventy-two (72) months and is payable in (i) a single payment on the first day
of August of interest accrued on the unpaid principal balance at the Stated Rate
from the date of the initial Advance to July 31, (ii) two (2) payments of
interest only on the first day of the following two calendar months of interest
accrued on the unpaid principal balance at the Stated Rate for the preceding
calendar
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month, (iii) sixty-nine (69) consecutive monthly installments of Twenty-Five
Thousand Sixty-Three and 79/100 Dollars ($25,063.79) on the first day of each
calendar month thereafter, with all unpaid principal and interest due and
payable in full on the final installment date. All payments of principal and
interest must be paid in full without setoff, deduction or counterclaim. Lender
will debit the Lock Box Accounts maintained pursuant to the Lock Box Agreement
for payment of each monthly installment of amounts due and payable pursuant to
this Agreement. Borrower shall satisfy any Obligations not paid by such
deductions by direct payment to Lender at 500 Hyde Park, Doylestown, PA 18901.
Section 2.3. Prepayment. The Loan is not subject to prepayment or
redemption in whole or in part prior to the expiration of the Term.
Section 2.4. Late Payments. If Borrower fails to make any payment of
interest or principal, including the payment due upon maturity, when the same is
due and payable and such payment can not be made by debit from the Lock Box
Accounts and such failure continues for five (5) business days after
nonpayment, a late charge by way of damages to the extent provided in this
Section 2.4 is immediately due and payable. Borrower recognizes that default by
Borrower in making the payments herein agreed to be paid when due will result in
the Lender incurring additional expenses, in loss to the Lender of the use of
the money due and in frustration to the Lender in meeting its other commitments.
Lender is entitled to damages for the detriment caused thereby, but it is
extremely difficult and impractical to ascertain the extent of such damages.
Borrower shall pay on demand a sum equal to five cents ($.05) for each one
dollar ($1.00) of each payment which is not received within five (5) business
days after the date it is due and payable is a reasonable estimate of the
damages to the Lender. If any part of the principal or interest is not paid
when due, it thereafter bears interest at the rate of eighteen percent (18%) per
annum from and as of the date of delinquency until paid, provided, however, that
any amount due pursuant to the preceding sentence must be deducted from the
amount due pursuant to this sentence. If the specified interest rate at any
time exceeds the maximum rate allowed by law, then the applicable interest rate
is reduced to the maximum rate allowed by law.
Section 2.5. Conditions to the Closing. The obligation of Lender to
make an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement and
in the Other Loan Documents are true and correct on and as of the date hereof
and are true and correct in all material respects as of the Closing Date and
Borrower has performed all obligations required to have been performed by it
hereunder prior to Closing Date.
(b) Borrower has executed and delivered to Lender (or caused to be
executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Subordination Agreement;
(vi) the Pledge Agreement;
(vii) the Lock Box Agreement;
(viii) the Assignment of Management Services Agreement;
(ix) the Assignment of Acquisition Instruments;
(x) the Assumption Agreement;
(xi) evidence satisfactory to Lender that the transactions
contemplated by the Asset Purchase Agreement and the Venture Capital Agreement
have been consummated in accordance with the terms of such agreements;
(xii) evidence satisfactory to Lender that Borrower is a
limited liability company and Guarantor is a corporation duly formed, validly
existing and in good standing in the state in which it was formed and in each
state in which it is authorized to do business;
(xiii) certificates of insurance that evidence the insurance
coverage and policy provisions required by this Agreement and in the Loan
Documents;
(xiv) pay-off letters, UCC Termination Statement and Lien
Releases as required to grant Lender a first priority security interest, other
than Permitted Liens, in Collateral pledged as security for repayment of the
Loan;
(xv) signature and incumbency certificate of Borrower and
Guarantor;
(xvi) certified copies of resolutions of the members of
Borrower and the Board of Directors of Guarantor authorizing the execution and
delivery of the Loan Documents to be executed by Borrower and Guarantor;
(xvii) copies of the Articles of Organization of Borrower and
Articles of Incorporation of Guarantor certified by the applicable Secretary of
State;
(xviii) copies of the Regulations of Borrower and Bylaws of
Guarantor certified by an officer thereof;
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(xix) certified copies of the Asset Purchase Agreement and all
documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xx) certified copies of the Venture Capital Agreement and all
other documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xxi) certified copy of the Management Services Agreement
satisfactory in form and substance to Lender;
(xxii) the consent of Western Presidio Capital II, L.P. and the
other Investors set forth in Exhibit I to the Venture Capital Agreement to the
terms of this transaction;
(xxiii) the written opinion of counsel to Borrower and Guarantor
issued on the Closing Date and satisfactory to Lender in scope and substance;
and
(xxiv) a certificate from an officer of Borrower indicating that
the representations and warranties contained herein are true and correct as of
the Closing Date.
(c) Borrower has paid closing fees to Lender including Lender's
reasonable legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default has occurred
and is continuing.
(e) None of Borrower, Seller nor Guarantor has suffered a material
adverse change in its business, operations or financial condition from that
reflected in the Financial Statements of Borrower and Guarantor or Seller
delivered to Lender or otherwise.
(f) Lender has received such additional supporting documents,
certificates and assurances as Lender reasonably requests which are satisfactory
to Lender in form and substance.
Section 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest. In order to secure prompt
payment and performance of the Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the following property
of Borrower (the "Collateral"), whether now owned or existing or hereafter
acquired or arising and regardless of where located, subject only to Permitted
Liens. This security interest in the Collateral attaches to all Collateral
without further action on the part of Lender or Borrower. Borrower shall keep
the Collateral at 906 West Randol Mill Road, Arlington, Texas 76012.
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The Collateral consists of the following, together with such third-
party consents, lien waivers and estoppel certificates as Lender reasonably
requires:
(a) all of Borrower's equipment and machinery listed on Schedule 3.1
and all machine tools, motors, tools, parts, attachments, accessories,
accessions, replacements, upgrades, substitutions, additions and improvements
related thereto, wherever located, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds;
(b) all of Borrower's right, title and interest in and to the
Accounts, whether presently existing or hereafter arising, and all contract
rights, instruments, notes, securities, drafts, documents, chattel paper and all
other forms of obligations owing to Borrower or Seller arising out of the sale
or lease of goods or the rendition of services, whether or not earned by
performance, and any and all credit insurance, guarantees and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower or
Seller and all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including the pledge to it of the Borrower's
interest in the Accounts, cash and non-cash Proceeds. Notwithstanding the
foregoing or any other provision hereof, Lender's Lien on and security interest
in the Collateral described in this clause (b) will be released if the Other
Loan Agreement with DVIBC has been terminated and the conditions contained in
Section 7.17 have been satisfied;
(c) all of Borrower's presently existing and hereafter acquired
general intangibles (including, Borrower's rights and interest under the
Management Services Agreement, and any and all choices in action, goodwill,
patents, trade names, trademarks, blueprints, drawings, purchase orders,
computer programs, computer discs, computer tapes, literature, reports,
catalogues, deposit accounts and tax refunds) other than goods and accounts, as
well as all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including cash and non-cash Proceeds; and
(d) all of Borrower's presently existing and hereafter acquired
inventory including, without limitation, goods held for sale or lease or to be
furnished under a contract of service, wherever located, and any documents of
title representing any of the above, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds.
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower. The exact name of Borrower is MHOA
Texas I, L.L.C. Borrower was formed under the laws of the State of Texas. The
following are all previous legal names of Borrower: None. Borrower uses the
following trade names: None. The following are all other trade names used by
Borrower in the past: None.
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Section 4.2. Mergers and Consolidations. Other than the merger with
MHOA Texas I, Inc., a Texas corporation, no entity has merged into Borrower or
been consolidated with Borrower.
Section 4.3. Purchase of Assets. Other than pursuant to the Asset
Purchase Agreement, no entity has sold substantially all of its assets to
Borrower or sold assets to Borrower outside the ordinary course of such seller's
business at any time in the past.
Section 4.4. Change of Name or Identity. Borrower shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
Section 4.5. Corporate Structure. Guarantor, Seller and the Metroplex
Providers hold one hundred percent (100%) of the member interests in Borrower.
Such member interests are the sole authorized and outstanding security interests
in Borrower.
Section 5
PROVISIONS CONCERNING COLLATERAL
Section 5.1. Title. Borrower has good and marketable title to the
Collateral, and the Liens granted to Lender pursuant to this Agreement are fully
perfected first-priority Liens, in and to the Collateral with priority over the
rights of every person in the Collateral, free, clear and unencumbered by any
Liens in favor of any person other than Lender except for Permitted Liens.
Section 5.2. No Warranties. This Agreement is solely a financing
agreement. Borrower acknowledges that with respect to the appropriate
Collateral: the Collateral has or will have been selected and acquired solely
by Borrower for Borrower's purposes; Lender is not the manufacturer, dealer,
vendor or supplier of the Collateral; the Collateral is of a size, design,
capacity, description and manufacturer selected by Borrower; Borrower is
satisfied that the Collateral is suitable and fit for its purposes; and LENDER
HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER
EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR
OPERATION OF THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE
OF THE COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE COLLATERAL OR
WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER.
Section 5.3. Further Assurances. Borrower shall execute and deliver
to Lender, concurrent with Borrower's execution of this Agreement and at any
time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens
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in the Collateral and in order to consummate fully all of the transactions
contemplated under the Loan Documents. Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender's officers, employees or
agents designated by Lender) as Borrower's true and lawful attorney with power
to sign the name of Borrower on any of the above-described documents or on any
other similar documents that need to be executed, recorded, or filed in order to
perfect or continue perfected Lender's Liens in the Collateral. The appointment
of Lender as Borrower's attorney is irrevocable as long as any Obligations are
outstanding. Any person dealing with Lender is entitled to rely conclusively on
any written or oral statement of Lender that this power of attorney is in
effect.
Section 5.4. Intentionally Deleted.
Section 5.5. Lender's Duty of Care. Lender has no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender will be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as the Borrower requests or agrees to in
writing, provided that no failure to comply with any such request nor any
omission to do any such act requested by the Borrower may be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property may not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
loss, damage or destruction of the Collateral is borne by Borrower except to the
extent Lender breaches the standard of care set forth in this Section 5.5.
Section 5.6. Borrower's Contracts. Schedule 5.6 attached hereto is a
true and complete list of all material contracts and agreements to which
Borrower is a party or will become a party pursuant to the assumption of
Seller's rights and obligations under the terms of the Asset Purchase Agreement.
Borrower remains liable to perform its Obligations under any contracts and
agreements included in the Collateral to the same extent as though this
Agreement had not been entered into and Lender does not have any obligation or
liability under such contracts and agreements by reason of this Agreement or
otherwise.
Section 5.7. Reinstatement of Liens. If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for any reason whatsoever (including, the insolvency,
bankruptcy, or reorganization of Borrower or such other Person), this Agreement
and then Lender's Liens granted hereunder are reinstated as to all disgorged
payments as though such payments had not been made, and Borrower shall sign and
deliver to Lender all documents and things necessary to perfect all terminated
Liens.
Section 5.8. Lender Expenses. If Borrower fails to pay any moneys
(whether taxes, assessments, insurance premiums or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit or fails to discharge any Lien not permitted hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's
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interest in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof; provided, however,
Lender shall make a reasonable attempt to make a prior notification of Borrower
if a delay in making such payment would not have a material advise impact on
Lender's interest in the Collateral. Any amounts paid or deposited by Lender
constitute Lender Expenses, become part of the Obligations, bear interest at the
rate of eighteen percent (18%) per annum, and are secured by the Collateral. Any
payments made by Lender do not constitute (a) an agreement by Lender to make
similar payments in the future or (b) a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance or Lien, and the receipt
of the usual official notice for the payment of moneys to a governmental entity
is conclusive evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 5.9. Inspection of Collateral and Records. During usual
business hours, Lender may inspect and examine the Collateral and check and test
the same as to quality, quantity, value and condition and Borrower shall
reimburse Lender for its reasonable costs and expenses in so doing. Lender also
has the right at any time or times hereafter, during usual business hours to
inspect and verify Borrower's Books in order to verify the amount or condition
of, or any other matter relating to, the Collateral and Borrower's financial
condition and to copy and make extracts therefrom. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Lender
pursuant to this Agreement. Lender may directly contact any such accounting
firm or service bureau in order to obtain such information.
Section 5.10. Waivers. Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby warrants and
represents to Lender the following:
Section 6.1. Corporate Status. Borrower is a limited liability
company validly existing and in good standing under the laws of the State of
Texas; Guarantor is a corporation validly existing and in good standing under
the laws of the State of Delaware; and each of such entities is qualified and
licensed to do business and is in good standing in any state in which the
conduct of its
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business or its ownership of property requires that it be so qualified or
licensed, and has the power and authority (corporate and otherwise) to execute
and carry out the terms of the Loan Documents to which it is a party, to own its
assets and to carry on its business as currently conducted.
Section 6.2. Authorization. The execution, delivery, and performance
by Borrower and Guarantor of this Agreement and each Loan Document have been
duly authorized by all necessary company action. Borrower and Guarantor have
duly executed and delivered this Agreement and each Loan Document to which they
are a party, and each such Loan Document constitutes a valid and binding
obligation of Borrower and Guarantor.
Section 6.3. No Breach. The execution, delivery and performance by
Borrower and Guarantor of this Agreement and each Loan Document to which they
are a party (a) will not contravene any law or any governmental rule or order
binding on Collateral; (b) will not violate any provision of the articles of
organization or regulations of Borrower or the articles of incorporation or
bylaws of Guarantor; (c) will not violate any agreement or instrument by which
Borrower or Guarantor or their assets, is bound; (d) do not require any notice
to consent by any Governmental Authority; and (e) will not result in the
creation of a Lien on any assets of Borrower except the Lien to Lender granted
herein.
Section 6.4. Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against Borrower,
or its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
Section 6.5. Deferred Compensation Plans. Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any single-
employer or multi-employer plans. Neither Borrower nor any ERISA Affiliate is
or at any time has been a sponsor of, provided, or maintained for any employees
any defined benefit plan.
Section 6.6. Litigation and Proceedings. Except as set forth on
Schedule 6.6 attached hereto, there are no outstanding judgments against
Borrower or its assets and there are no actions or proceedings pending by or
against Borrower before any court or administrative agency. Borrower has no
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and except as set forth in Schedule 6.6 hereto.
Section 6.7. Business. Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or
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subject to any agreement or restriction that is so unusual or burdensome that it
might have a material adverse effect on Borrower's business, properties or
prospects.
Section 6.8. Laws and Agreements. Borrower is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Borrower is in material compliance with all laws applicable to it.
Section 6.9. Financial Condition. All financial statements and
information relating to Borrower, Guarantor, Seller or their assets that have
been or may hereafter be delivered by Borrower to Lender are accurate and
complete in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied. Borrower and
Guarantor have no material obligations or liabilities of any kind not disclosed
in that financial information, and there has been no material adverse change in
the financial condition of Borrower, Guarantor or Seller since the date of the
most recent financial statements submitted to Lender.
Section 6.10. Environmental Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Environmental Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and are also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Environmental
Laws, or may give rise to any material common law or legal liability, or
otherwise form the basis of any material claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous substance or waste.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Environmental
Laws.
Section 6.11. Insurance. Schedule 6.11 sets forth a complete and
accurate list of all policies of fire, liability, product liability, workers'
compensation, health, business interruption and other forms of insurance
currently in effect with respect to Borrower's business, true copies of which
have heretofore been delivered to Lender. All such policies are valid,
outstanding and enforceable policies and, to the best knowledge of Borrower,
each will remain in full force and effect at least through the respective dates
set forth on Schedule 6.11.
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Section 6.12. Ownership of Property. Borrower has good and marketable
title to all of its properties and assets, free and clear of all liens, security
interests and encumbrances, except Permitted Liens. Borrower has the exclusive
right to use all such assets.
Section 6.13. Health Care Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and is in compliance in all material respects with all terms and conditions of
the required permits, licenses and authorizations, and are also in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Health Care Laws.
Section 6.14. Cumulative Representations. The warranties,
representations and agreements set forth herein are cumulative and in addition
to any and all other warranties, representations and agreements that Borrower
gives, or cause to be given, to Lender, either now or hereafter.
Section 6.15. Full Disclosure. No representation, warranty or
statement by Borrower or Guarantor contained in this Agreement, any Schedule or
any document, instrument or certificate furnished by or on behalf of any of them
pursuant to this Agreement contains any untrue, incorrect, incomplete or
misleading statement of material fact, or knowingly omits to state a material
fact necessary to make the statements contained therein not misleading.
Section 7
COVENANTS
Section 7.1. Encumbrance of Collateral. Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower except for Liens to Lender and Permitted Liens.
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Section 7.2. Business. Borrower shall engage primarily in business of
physician practice management and related services.
Section 7.3. Condition and Repair. Borrower shall maintain in good
repair and working order all material properties used in its business and from
time to time shall make all appropriate repairs and replacements thereof.
Section 7.4. Taxes. Borrower shall pay all taxes, assessments and
other governmental charges imposed upon it or any of its assets or in respect of
any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by generally accepted accounting principles. Borrower shall
make timely payment or deposit of all FICA payments and withholding taxes
required of it by applicable laws and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower has made such payments or
deposits.
Section 7.5. Insurance. Borrower shall maintain, with financially
sound and reputable insurers, insurance with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily
insured against by corporations of established reputation engaged in the same or
similar businesses. Each such policy must name Lender as an additional insured
and, where applicable, as loss payee under a lender loss payable endorsement
satisfactory to Lender and must provide for thirty (30) days' written notice to
Lender before such policy is altered or canceled.
Section 7.6. Accounting System. Borrower and Guarantor at all times
hereafter shall maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles consistently applied,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower and Guarantor shall not modify or change their
method of accounting or enter into any agreement hereafter with any third-party
accounting firm or service bureau for the preparation or storage of their
accounting records without the accounting firm's or service bureau's agreeing to
provide to Lender information regarding the Collateral and Borrower's and
Guarantor's financial condition.
Section 7.7. Financial Statements. Borrower shall submit monthly
financial statements, showing a comparison of actual expenditures to budgeted
amounts, with respect to Borrower and Guarantor, to Lender as soon as available,
and in any event within thirty (30) days of the end of each month.
Additionally, Borrower shall submit audited financial statements with respect to
Borrower and Guarantor to Lender as soon as available, and in any event within
one hundred twenty (120) days of the end of each fiscal year. With all
financial statements, Borrower
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shall deliver a certificate of its chief financial officer attesting that to the
best of such officer's knowledge no Event of Default or Unmatured Default under
this Agreement has occurred and is continuing.
Section 7.8. Further Information. Borrower and Guarantor shall
promptly supply Lender with such other information concerning its affairs as
Lender may reasonably request from time to time hereafter and shall promptly
notify Lender of any material adverse change in Borrower's or Guarantor's
financial condition and any condition or event that constitutes an Event of
Default or Unmatured Default under this Agreement. In addition, Borrower and
Guarantor authorize Lender to contact credit reporting agencies concerning their
credit standing.
Section 7.9. ERISA Covenants. Borrower shall, and shall cause each
ERISA Affiliate to, comply with all applicable provisions of ERISA and all other
laws applicable to any deferred compensation plans with which Borrower or any
ERISA Affiliate is associated, the failure with which to comply would have a
material adverse effect on Borrower's business or financial condition and shall
promptly notify Lender of the occurrence of any event that could result in any
material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
Section 7.10. Environmental Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
Governmental Authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower or
a Subsidiary would be required to notify any Governmental Authority with
jurisdiction over Environmental Laws.
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower may not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets having an
aggregate value of greater than $100,000 in any twelve month period in any
transaction or series of related transactions other than (i) sales in the
ordinary course of business, (ii) if being replaced by items of comparable or
greater value, provided, Borrower receives the consent of Lender, which will not
be unreasonably withheld, to any such transfer having a value greater than
$100,000, and (iii) a transfer of assets to Seller pursuant to the terms of the
Assumption Agreement;
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
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(d) acquire interests in any other entity in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(e) become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents;
(f) authorize or issue any additional member interests or equity
interest; or
(g) own, hold, lease or operate with any real property nor any other
property not necessary or useful to the operation of Borrower's business as it
is presently proposed to be conducted.
Section 7.12. Health Care Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Health Care Laws applicable to it.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
Section 7.13. Distributions. Except as set forth on Schedule 7.13
hereto, Borrower may not make any Distributions nor pay any management fee,
consulting fee or any similar fee without the prior written consent of Lender,
which may be withheld in its sole discretion.
Section 7.14. Capital Expenditures. Borrower may not spend nor incur
obligations, including the total amount of any capital leases, to acquire fixed
or capital assets exceeding One Million Dollars ( $1,000,000) in any fiscal
year.
Section 7.15. Other Debt. (a) Borrower may not incur any direct or
contingent liabilities, including capital leases, in an aggregate amount
exceeding $100,000 in any twelve month period without Lender's prior written
consent, which may not be unreasonably withheld, provided however that Borrower
shall provide Lender written notice of its intention to incur any such liability
and if such financing can be provided by a third party source such as Lender,
offer Lender a right of first offer to provide such financing. In order to
comply with the right of first offer contained in this Section, Borrower shall
provide Lender with the terms of the proposed financing, including interest
rate, term, amount and collateral for the financing. If Lender declines to
provide the financing on such terms, or does not respond to Borrower's notice
within ten Business Days of receipt thereof, then Borrower can seek alternative
financing on such terms, provided Borrower continues to comply with the first
sentence of this Section. Lender's decision not to provide any such financing
does not waive its right of first offer with respect to any subsequent
financing.
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(b) Nothing contained in this Section 7.15 prohibits Borrower from:
(i) acquiring goods, supplies or merchandise on normal trade
credit;
(ii) endorsing negotiable instruments, received in the usual course
of business; or
(iii) obtaining surety bonds in the usual course of business.
Section 7.16. Debt Service Coverage. Borrower shall maintain as of
the last day of each calendar month, beginning September 30, 1997, a debt
service coverage ratio of no less than 1.5:1 for the previous twelve calendar
month period; provided, that such ratio is calculated on an annualized basis
during the first twelve months following the Closing Date.
"Debt service coverage" means (i) the sum of net income plus
depreciation plus amortization plus interest expense, divided by (ii) the sum of
capitalized lease payments plus loan payments plus interest expense.
Section 7.17. Termination of Covenants. If Guarantor (i) successfully
completes a public offering of its common stock and other securities registered
under the Securities Exchange Act of 1933, as amended, which results in
Guarantor receiving net proceeds of Thirty-Five Million Dollars ($35,000,000) or
more, or (ii) at the end of any fiscal quarter Guarantor or its successor, by
merger or otherwise, attains a net worth of Fifty Million Dollars or more, then
the covenants contained in Sections 7.13, 7.14 and 7.15 will no longer apply to
the Loan and thereafter will be considered deleted from the Agreement.
Section 8
EVENTS OF DEFAULT
An Event of Default is deemed to exist if any of the following events
have occurred and is continuing:
(a) Borrower fails to make any payment of principal or interest or
any other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure continues for five (5) business days
after the payment is due;
(b) Borrower fails to observe or perform any material covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any Loan Document to which it is a party and such failure is not cured as
soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender;
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(c) Borrower fails to keep its assets insured as required herein, or
material uninsured damage to or loss, theft or destruction of the Collateral
occurs and such assets are not repaired or replaced with five (5) days;
(d) A court enters a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency, or
other similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in excess
of $100,000 is rendered against Borrower and remains undischarged for thirty
(30) days during which execution is not effectively stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any of
the Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant, condition or agreement to be performed under
any Loan Document to which it is a party;
(h) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise, other than as permitted
pursuant to Section 7.11(b);
(i) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $100,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(j) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(k) Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs and such court order is not revoked or overturned within five (5) days;
(l) A judgment or other claim in excess of $100,000 becomes a Lien
upon any or all of Borrower's assets, other than a Permitted Lien;
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(m) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets by any
Governmental Authority or any tax or debt owing at any time hereafter to any one
or more of such entities becomes a Lien upon any or all of Borrower's assets and
the same is not paid on the payment date thereof, except to the extent such tax
or debt is being contested by Borrower as permitted in Section 6.4;
(n) There is a material impairment of the value of the Collateral
which is not insured or priority of Lender's Liens on the Collateral;
(o) Any of Borrower's assets in excess of $100,000 or any Collateral
are seized, subjected to a distress warrant, levied upon or come into the
possession of any judicial officer;
(p) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is materially incorrect when made;
(q) Guarantor is in default under the Guaranty or this Loan
Agreement or an Event of Default occurs under the Other Loan Documents; or
(r) If the aggregate dollar value of all judgments, defaults,
demands, claims and notices of Liens under clauses (f), (i), (j), (l), (m) and
(o) hereof exceeds $250,000.
Section 9
REMEDIES
Section 9.1. Specific Remedies. Upon the occurrence of any Event of
Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(c) Lender may enter any premises of Borrower, with or without
judicial process, and take possession of the Collateral; provided however, that
Lender may only exercise such remedy if it may do so without a breach of the
peace. Lender may remove the Collateral and may remove or copy all records
pertaining thereto, or Lender may remain on such premises and use the premises
for the purpose of collecting, preparing and disposing of the Collateral,
without any liability for rent or occupancy charges. Borrower shall, upon
request of Lender, assemble the Collateral and any records pertaining thereto
and make them available at a place designated by Lender that is reasonably
convenient to both parties.
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(d) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease, and insure the Collateral. Lender may use and operate
equipment of Borrower in order to process or finish inventory included in the
Collateral. If any Collateral consists of documents, Lender may proceed either
as to the documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any
encumbrance, charge or Lien that, in the opinion of Lender, appears to be prior
or superior to its Lien and pay all reasonable expenses incurred in connection
therewith.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders or other forms of payment of or security for Accounts or
other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors
or issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
(g) Lender may sell the Collateral at public or private sale and is
not required to repossess Collateral before selling it. Any requirement of
reasonable notice of any disposition of the Collateral is satisfied if such
notice is sent to Borrower, ten (10) days prior to such disposition by any of
the methods provided in Section 11.5 hereof. Borrower will be credited with the
net proceeds of such sale only when they are actually received by Lender, and
Borrower continues to be liable for any deficiency remaining after the
Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give
notice of the time and place by publishing a notice one time at least five (5)
days before the date of the sale in a newspaper of general circulation in the
county in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender may be
the purchaser of any or all of the Collateral at any public sale and is
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
Section 9.2. Power of Attorney. Borrower hereby appoints Lender (and
any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power after the occurrence of an Event of Default:
(a) to endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and assignments of Accounts, on verifications of Accounts, and on
notices to Account Debtors; (c) to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
to receive and open all mail addressed to Borrower and to retain all mail
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relating to the Collateral and forward all other mail to Borrower; (d) to send
requests for verification of Accounts; (e) to execute UCC Financing Statements;
and (f) to do all things necessary to carry out this Agreement. The appointment
of Lender as Borrower's attorney and each and every one of Lender's rights and
powers, being coupled with an interest, are irrevocable as long as any
Obligations are outstanding. Lender shall not exercise the power granted in
clauses 9.2(a) through 9.2(c) prior to the occurrence of an Event of Default and
shall not exercise the power granted in clause 9.2(d) prior to notification of
Borrower of its intent to do so, but such limitations do not limit the
effectiveness of such power of attorney at any time. Any person dealing with
Lender is entitled to rely conclusively on any written or oral statement of
Lender that this power of attorney is in effect. Lender may also use Borrower's
stationery in connection with exercising its rights and remedies and performing
the Obligations of Borrower.
Section 9.3. Expenses Secured. All expenses, including reasonable
attorney fees, incurred by Lender in the exercise of its rights and remedies
provided in this Agreement, in the Other Loan Documents or by law shall be
payable by Borrower to Lender, are part of the Obligations, and are secured by
the Collateral.
Section 9.4. Equitable Relief. Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, in certain cases no remedy of law will provide
adequate relief to Lender, and Lender is entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 9.5. Remedies Are Cumulative. No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or Guarantor or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
may be deemed to be an election. No delay by Lender constitutes a waiver,
election, or acquiescence by it. Borrower on its behalf waives any rights to
require Lender to proceed against Guarantor or any other party; or proceed
against or exhaust any security held from Guarantor or any other party. Lender
may at any time and from time to time, without notice to, or consent of,
Borrower, and without affecting or impairing the obligation of Borrower
hereunder do any of the following: (i) renew or extend any obligations of
Guarantor, or of any other party at any time directly or contingently liable for
payment of any of the obligations of Guarantor; (ii) accept partial payments of
the obligations of Guarantor; (iii) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the obligations of
Guarantor and the security therefor in any manner; or (iv) consent to the
transfer or sale of any security or bid and purchase at any sale of any security
of Guarantor. The validity of this Agreement and the Obligations of Borrower
are not terminated, affected or impaired by reason of the waiving, delaying,
exercising or non-exercising, of any of Lender's rights against Guarantor or as
a result of the substitution, release, repossession, sale, disposition or
destruction of any Collateral securing any obligations of Guarantor. Borrower
is not released or discharged, either in whole or in part, by Lender's failure
or delay to perfect or continue the perfection of any security interest in any
Collateral which secures the obligations of Guarantor or to protect the property
covered by such security interest.
24
<PAGE>
Section 10
INDEMNITY
Section 10.1. General Indemnity. BORROWER SHALL UNCONDITIONALLY
PROTECT, INDEMNIFY, DEFEND AND HOLD HARMLESS LENDER AND ITS DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS FROM AND AGAINST ANY LOSS, COST, LIABILITY (INCLUDING
NEGLIGENCE, TORT AND STRICT LIABILITY), EXPENSE, DAMAGE, SUITS, DEMANDS OR
CLAIMS (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) ON ACCOUNT OF ANY SUIT OR
PROCEEDING BEFORE ANY GOVERNMENTAL AUTHORITY WHICH ARISES FROM THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT OR OTHERWISE ARISING IN CONNECTION WITH OR
RELATING TO THE LOAN AND ANY SECURITY THEREFOR, UNLESS SUCH SUIT, CLAIM OR
DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MALFEASANCE OF LENDER
OR ITS DIRECTORS, OFFICER, AGENTS OR EMPLOYEES. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower survives the
termination of this Agreement and the repayment of the Note.
Section 10.2. Specific Environmental Indemnity. Borrower shall
unconditionally protect, indemnify, defend and hold harmless Lender, its
directors, officers, employees and agents against any loss, cost, liability
(including negligence, tort and strict liability), expense, damage, suits,
demands or claim (including fees and disbursements of counsel) arising under any
Environmental Laws having jurisdiction over the property or assets of Borrower
or any portion thereof or its use.
Section 11
MISCELLANEOUS
Section 11.1. Delay and Waiver. No delay or omission to exercise any
right impairs any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion is limited to that particular occasion.
Section 11.2. Complete Agreement. This Agreement and the Schedules
are the complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
25
<PAGE>
Section 11.3. Severability; Headings. If any part of this Agreement
or the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement is unaffected thereby. The section headings herein
are included for convenience only and may not be deemed to be a part of this
Agreement.
Section 11.4. Binding Effect. This Agreement is binding upon and
inures to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; provided however, Borrower may not assign any of
its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who thereupon has all of the rights of Lender; and
Lender (or such subsequent assignee who in turn assigns as aforesaid) is then
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 11.5. Notices. Any notices under or pursuant to this
Agreement are deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, facsimile, or similar electronic medium to
the following addresses:
To Borrower: MHOA Texas I, L.L.C.
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Thomas Rodgers
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Guarantor: Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah Garvins
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Lender: DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
Attention: Michael A. O'Hanlon
Telephone: (215) 345-6600
Facsimile: (215) 230-8108
26
<PAGE>
Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
Any party may change such address by sending notice of the change to
the other parties; such change of address is effective only upon actual receipt
of the notice by the other parties.
Section 11.6. Governing Law. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO ARE GOVERNED, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.
Section 11.7. Jurisdiction. The state and federal courts in Orange
County, California or any other court in which Lender initiates proceedings have
jurisdiction over all matters arising out of this Agreement and that service of
process in any such proceeding are effective if mailed to Borrower at its
address described in the Notices section of this Agreement. Borrower waives any
right it may have to assert the defense of forum non conveniens or to object to
such venue and hereby consents to any court-ordered relief.
Section 11.8. Waiver of Trial by Jury. LENDER, GUARANTOR AND BORROWER
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE RELATIONSHIP
BETWEEN LENDER, GUARANTOR AND BORROWER.
27
<PAGE>
IN WITNESS WHEREOF, Borrower, Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
BORROWER: LENDER:
MHOA TEXAS I, L.L.C. DVI FINANCIAL SERVICES INC.
By: /s/ Sarah C. Garvin
----------------------------------
Sarah C. Garvin By: /s/ Raymond Fear
President ----------------------------------
Raymond Fear
Vice President
GUARANTOR:
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
----------------------------------
Sarah C. Garvin
President
<PAGE>
Schedule 1.1
Permitted Liens
1. Those liens listed on Schedule 3.16 of that certain Asset Purchase and
Contribution Agreement dated as of June 16, 1997, executed by and between
Borrower, Seller and certain other parties (the "Purchase Agreement"), and all
other Permitted Encumbrances, as defined therein.
2. Lien and security interest created in favor of DVIBC on the Collateral
described in Section 3.1(b) pursuant to a Loan and Security Agreement dated as
of the date of this Agreement, which Lien and security interest are intended by
all parties to be prior to the Liens and security interests of this Agreement.
<PAGE>
Schedule 3.1
LOAN NO. 3
----------
1. Picker ACQSIM Simulator
2. ROCS Planning computer
3. ATL ultrasound system & various other medical equipment
And all equipment and assets listed as Personal Property in Schedule 3.12 of the
Purchase Agreement.
<PAGE>
Schedule 5.6
Material Contracts
1. The Management Agreement.
2. The Benefit Agreements, Employee/Contract Labor Agreements, Real Property
Leases (for business space only) and Services Contracts listed on Schedule 3.20
of the Purchase Agreement and assumed by Borrower thereunder.
<PAGE>
Schedule 6.6
Litigation and Proceedings
None
<PAGE>
Schedule 6.11
Insurance
Those insurance policies described in the certificates attached hereto.
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
Schedule 7.13
Permitted Distributions
Borrower is permitted to make Distributions to Guarantor provided after
such payment Borrower continues to satisfy the debt service coverage ratio set
forth in Section 7.16.
<PAGE>
EXHIBIT 10.59
LOAN AND SECURITY AGREEMENT NO. 4
among
MHOA TEXAS I, L.L.C.
Borrower
PHYSICIAN HEALTH CORPORATION
Guarantor
and
DVI FINANCIAL SERVICES INC.
Lender
Dated as of June 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
------
Section 1
DEFINITIONS .......................................................... 1
Section 1.1. Specific Definitions ................................... 1
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code ..................................................... 6
Section 1.3. Construction ........................................... 6
Section 2
LOAN ................................................................. 6
Section 2.1. The Loan ............................................... 6
Section 2.2. Term and Repayment of Loan ............................. 6
Section 2.3. Prepayment ............................................. 7
Section 2.4. Late Payments .......................................... 7
Section 2.5. Conditions to the Closing .............................. 7
Section 3
SECURITY INTEREST .................................................... 9
Section 3.1. Grant of Security Interest ............................. 9
Section 4
SPECIFIC REPRESENTATIONS ............................................. 10
Section 4.1. Name of Borrower ....................................... 10
Section 4.2. Mergers and Consolidations ............................. 10
Section 4.3. Purchase of Assets ..................................... 11
Section 4.4. Change of Name or Identity ............................. 11
Section 4.5. Corporate Structure .................................... 11
Section 5
PROVISIONS CONCERNING COLLATERAL ..................................... 11
Section 5.1. Title .................................................. 11
Section 5.2. No Warranties .......................................... 11
Section 5.3. Further Assurances ..................................... 11
Section 5.4. Intentionally Deleted .................................. 12
Section 5.5. Lender's Duty of Care .................................. 12
Section 5.6. Borrower's Contracts ................................... 12
Section 5.7. Reinstatement of Liens ................................. 12
i
<PAGE>
Section 5.8. Lender Expenses ........................................ 12
Section 5.9. Inspection of Collateral and Records ................... 13
Section 5.10. Waivers ............................................... 13
Section 6
REPRESENTATIONS AND WARRANTIES ....................................... 13
Section 6.1. Corporate Status ....................................... 13
Section 6.2. Authorization .......................................... 14
Section 6.3. No Breach .............................................. 14
Section 6.4. Taxes .................................................. 14
Section 6.5. Deferred Compensation Plans ............................ 14
Section 6.6. Litigation and Proceedings ............................. 14
Section 6.7. Business ............................................... 14
Section 6.8. Laws and Agreements .................................... 14
Section 6.9. Financial Condition .................................... 15
Section 6.10. Environmental Laws .................................... 15
Section 6.11. Insurance ............................................. 15
Section 6.12. Ownership of Property ................................. 15
Section 6.13. Health Care Laws ...................................... 16
Section 6.14. Cumulative Representations ............................ 16
Section 6.15. Full Disclosure ....................................... 16
Section 7
COVENANTS............................................................. 16
Section 7.1. Encumbrance of Collateral .............................. 16
Section 7.2. Business ............................................... 16
Section 7.3. Condition and Repair ................................... 16
Section 7.4. Taxes .................................................. 17
Section 7.5. Insurance .............................................. 17
Section 7.6. Accounting System ...................................... 17
Section 7.7. Financial Statements ................................... 17
Section 7.8. Further Information .................................... 17
Section 7.9. ERISA Covenants ........................................ 18
Section 7.10. Environmental Covenants ............................... 18
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc .............................................. 18
Section 7.12. Health Care Covenants ................................. 19
Section 7.13. Distributions ......................................... 19
Section 7.14. Capital Expenditures .................................. 19
Section 7.15. Other Debt. ........................................... 19
Section 7.16. Debt Service Coverage. ................................ 19
Section 7.17. Termination of Covenants. ............................. 20
ii
<PAGE>
Section 8
EVENTS OF DEFAULT .................................................... 20
Section 9
REMEDIES ............................................................. 22
Section 9.1. Specific Remedies ...................................... 22
Section 9.2. Power of Attorney ...................................... 23
Section 9.3. Expenses Secured ....................................... 24
Section 9.4. Equitable Relief ....................................... 24
Section 9.5. Remedies Are Cumulative ................................ 24
Section 10
INDEMNITY ............................................................ 24
Section 10.1. General Indemnity ..................................... 24
Section 10.2. Specific Environmental Indemnity ...................... 25
Section 11
MISCELLANEOUS ........................................................ 25
Section 11.1. Delay and Waiver ...................................... 25
Section 11.2. Complete Agreement .................................... 25
Section 11.3. Severability; Headings ................................ 25
Section 11.4. Binding Effect ........................................ 25
Section 11.5. Notices ............................................... 26
Section 11.6. Governing Law ......................................... 26
Section 11.7. Jurisdiction .......................................... 27
Section 11.8. Waiver of Trial by Jury ............................... 27
SCHEDULES
1.1. Permitted Liens
3.1 Personal Property
5.6 Material Contracts
6.6. Litigation and Proceedings
6.11. Insurance
6.13. Health Care Permits
7.13. Permitted Distributions
iii
<PAGE>
LOAN AND SECURITY AGREEMENT NO. 4
THIS LOAN AND SECURITY AGREEMENT NO. 4 (this "Agreement") is entered
into as of June 16, 1997, by and between DVI Financial Services Inc., a Delaware
corporation ("Lender"), MHOA Texas I, L.L.C., a Texas limited liability company
("Borrower"), and Physician Health Corporation ("Guarantor").
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties agree as
follows:
Section 1
DEFINITIONS
Section 1.1. Specific Definitions. The following definitions apply:
"Account Debtors" mean all customers and other persons who are
obligated or indebted in any manner, whether directly or indirectly, primarily
or secondarily, contingently or otherwise, with respect to Accounts.
"Accounts" mean all accounts, contract rights, instruments, documents,
chattel paper and obligations in any form owing to or owned by Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
Seller or the Metroplex Providers whether or not earned by performance; all
credit insurance, guaranties, letters of credit, advises of credit and other
security for any of the above; all merchandise returned to or reclaimed by
Borrower, Seller or the Metroplex Providers and Borrower's Books relating to any
of the foregoing.
"Advance" means an advance of loan proceeds constituting all or a part
of the Loan.
"Affiliate" means with respect to any Person any other Person which
directly or indirectly Controls, is Controlled by or is under common Control
with that Person.
"Asset Purchase Agreement" means that certain Asset Purchase and
Contribution Agreement dated June 16, 1997 among Seller, certain physicians and
their professional associations, Borrower and Guarantor.
"Assignment of Acquisition Instruments" means that certain Assignment
of Acquisition Instruments dated as of the date hereof collaterally assigning
Borrower's rights under the Asset Purchase Agreement and the other documents
delivered to Borrower by Seller pursuant to the Asset Purchase Agreement as
security for the Loan, and consented to by Seller.
1
<PAGE>
"Assignment of Management Services Agreement" means that certain
Assignment of Management Services Agreement dated as of the date hereof
collaterally assigning Borrower's rights under the Management Services
Agreement, including Borrower's security interest in the Accounts as security
for the Loan, and consented to by Seller and the Metroplex Providers.
"Assumption Agreement" means the Assumption Agreement dated as of the
date hereof by and between Lender and Seller pursuant to which Seller agrees to
assume operations of the assets purchased by Borrower and the Obligations, and
consented to by Borrower.
"Borrower's Books" means all of Borrower's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records are not included therein,
except to the extent otherwise permitted by law.
"Closing Date" means the date of the first Advance of the Loan.
"Collateral" has the meaning specified in Section 3.1 hereof.
"Control" means (i) the ownership of a majority of the voting power of
all classes of voting stock of a corporation, or (ii) the ownership of a
majority of the beneficial interest in income and capital of a person other than
a corporation.
"Distribution" means, with respect to any shares of capital stock or
any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
"DVIBC" means DVI Business Credit Corporation, a Delaware corporation.
"Environmental Laws" means all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including, ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes, and any and
all regulations, codes, plans, orders, decrees, judgments, injunctions, notices,
or demand letters issued, entered, promulgated, or approved thereunder.
2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof include such sections and any
predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
"Event of Default" has the meaning specified in Section 8 hereof.
"Governmental Authority" means any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
"Guaranty" means the Unconditional Continuing Guaranty executed by
Guarantor unconditionally guaranteeing Borrower's Obligations under this
Agreement.
"Health Care Laws" mean all federal, state and local laws relating to
health care providers and health care services, including, Section 1877(a) of
the Social Security Act as amended by the Omnibus Budget Reconciliation Act of
1993, 42 USC (S) 1395nn.
"Indebtedness" of a Person means (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby have been
assumed; and (iii) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (otherwise than for the collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock or equity purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable.
"Lender Expenses" means (i) all costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under this Agreement or
under any of the other Loan Documents that are paid or advanced by Lender; (ii)
filing, recording, publication and reasonable search fees paid or incurred by
Lender in connection with Lender's transactions with Borrower; (iii) costs and
expenses incurred by Lender to correct any Event of Default or enforce any
provision of the Loan Documents or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, and preparing for sale or
advertising to sell the Collateral, whether or not a sale is consummated, after
the occurrence of an Event of Default; (iv) costs and expenses of suit incurred
by Lender in enforcing or defending the Loan Documents or any portion thereof;
(v) all costs or expenses paid by Lender to third parties to convert any data
submitted to Lender by Borrower to an
3
<PAGE>
acceptable form; and (vi) Lender's reasonable attorneys' fees and expenses
incurred (before or after execution of this Agreement) in advising Lender with
respect to, or in structuring, drafting, reviewing, negotiating, amending,
terminating, enforcing, defending or otherwise concerning, the Loan Documents or
any portion thereof, irrespective of whether suit is brought.
"Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including any interest of a vendor under a
conditional sale contract or consignment and any interest of a lessor under a
capital lease.
"Loan" means the loan made by Lender to Borrower pursuant to this
Agreement.
"Loan Documents" mean (i) this Agreement; (ii) the Note; (iii) the
Security Documents; (iv) the Lock Box Agreement; (v) the Subordination
Agreement; and (vi) any other certificates, documents or instruments delivered
by Borrower to Lender pursuant to the terms of this Agreement.
"Lock Box Accounts" means the deposit accounts with NationsBank, or
any subsequent lockbox bank, established and maintained pursuant to either Lock
Box Agreement.
"Lock Box Agreement" means those two (2) certain Lock Box Agreements
dated on or about the date hereof among Borrower, NationsBank and DVIBC or its
assignee, and any amendments, renewals or replacements thereof.
"Management Services Agreement" means the Management Services
Agreement dated as of June 1, 1997 among Seller, Borrower and the Metroplex
Providers.
"Metroplex Providers" has the meaning set forth in the Management
Services Agreement.
"Note" means the Secured Promissory Note executed by Borrower pursuant
to the terms of this Agreement.
"Obligations" mean (i) the due and punctual payment of all amounts due
or become due under the Note; (ii) the performance of all obligations of
Borrower under this Agreement, the Note and the Other Loan Documents; (iii) all
extensions, renewals, modifications, amendments and refinancings of any of the
foregoing; (iv) all Lender Expenses; and (v) all loans, advances, indebtedness
and other obligations owed by Borrower to DVIBC or Lender under the Other Loan
Documents.
"Other Loan Documents" means those five certain Loan and Security
Agreements among Borrower, Guarantor and Lender and that certain Loan and
Security Agreement among Borrower, Guarantor and DVIBC, dated on or about the
date hereof.
"Permitted Liens" means (i) Liens for property taxes and assessments
or governmental charges or levies and Liens securing claims or demands of
mechanics and
4
<PAGE>
materialmen, provided that payment thereof is not yet due or is being contested
as permitted in this Agreement; (ii) Liens of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which has not
expired, or in respect of which Borrower is in good faith prosecuting an appeal
or proceeding for a review and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured; (iii) Liens and priority
claims incidental to the conduct of business or the ownership of properties and
assets (including warehouse's and attorney's Liens and statutory landlord's
Liens); deposits, pledges or Liens to secure the performance of bids, tenders,
or trade contracts, or to secure statutory obligations; and surety or appeal
bonds or other Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided that in
each case the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings; and further
provided that any such warehouse's or statutory landlord's Liens are subordinate
or have been subordinated to the Liens of Lender in a manner satisfactory to
Lender; (iv) Liens granted to DVI or its Affiliates; and (v) Liens existing on
the date of this Agreement that are disclosed on Schedule 1.1 hereto.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
"Pledge Agreement" means that certain Pledge Agreement (Member
Interests) dated on or about the date hereof among Guarantor, Seller, the other
members who become a party to the Agreement and Lender.
"Proceeds" mean all proceeds and products of Collateral and all
additions and accessions to, replacements of, insurance or condemnation proceeds
of, and documents covering Collateral; all property received wholly or partly in
trade or exchange for Collateral; all claims against third parties arising out
of damage, destruction, or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
"Security Documents" means the Guaranty, the Pledge Agreement, the
Assignment of Acquisition Agreement, the Assignment of Management Services
Agreement and any agreement or instrument entered into between Borrower and
Lender or executed by Borrower or Guarantor and delivered to Lender in
connection with this Agreement to secure repayment of the Loan.
"Seller" means Metroplex Hematology/Oncology Associates, L.L.P., a
Texas limited liability partnership.
"Stated Rate" means Twelve and 25/100 percent (12.25%) per annum
computed on the basis of a 360-day year and actual days elapsed.
"Subordination Agreement" means the Subordination Agreement dated on
or about the date hereof between Lender, Borrower, Guarantor and Seller.
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"Unmatured Default" means any event or condition that, with notice,
passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
"Securities Purchase Agreement" means the Security Purchase Agreement
dated on or about the date hereof, among Guarantor, Weston Presidio Capital II,
L.P. and the other Investors set forth in Exhibit I thereto.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under generally
accepted accounting principles. All other terms used in this Agreement, other
than those defined in this Section 1, have the meanings accorded to them in the
Uniform Commercial Code as is enacted in any applicable jurisdiction.
Section 1.3. Construction.
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein
may be construed or resolved against any party hereto, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and their respective counsel and is entitled to be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
Section 2
LOAN
Section 2.1. The Loan. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender shall
advance to Borrower, and Borrower shall borrow from Lender, a senior secured
term loan in the amount of One Million Two Hundred Fifty Thousand and No/100
Dollars ($1,250,000) which is evidenced by the Note. The proceeds of the Loan
must be used by Borrower for part of the purchase price paid by Borrower to
acquire the assets of Seller pursuant to the Asset Purchase Agreement and to
fund the closing costs incurred in connection with the transactions contemplated
in this Agreement.
Section 2.2. Term and Repayment of Loan. The "Term" of the Loan is
seventy-two (72) months and is payable in (i) a single payment on the first day
of August of interest accrued on the unpaid principal balance at the Stated Rate
from the date of the initial Advance to July 31, (ii) two (2) payments of
interest only on the first day of the following two calendar months of interest
accrued on the unpaid principal balance at the Stated Rate for the preceding
calendar
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month, (iii) sixty-nine (69) consecutive monthly installments of Twenty-Five
Thousand Sixty-Three and 79/100 Dollars ($25,063.79) on the first day of each
calendar month thereafter, with all unpaid principal and interest due and
payable in full on the final installment date. All payments of principal and
interest must be paid in full without setoff, deduction or counterclaim. Lender
will debit the Lock Box Accounts maintained pursuant to the Lock Box Agreement
for payment of each monthly installment of amounts due and payable pursuant to
this Agreement. Borrower shall satisfy any Obligations not paid by such
deductions by direct payment to Lender at 500 Hyde Park, Doylestown, PA 18901.
Section 2.3. Prepayment. The Loan is not subject to prepayment or
redemption in whole or in part prior to the expiration of the Term.
Section 2.4. Late Payments. If Borrower fails to make any payment of
interest or principal, including the payment due upon maturity, when the same is
due and payable and such payment can not be made by debit from the Lock Box
Accounts and such failure continues for five (5) business days after
nonpayment, a late charge by way of damages to the extent provided in this
Section 2.4 is immediately due and payable. Borrower recognizes that default by
Borrower in making the payments herein agreed to be paid when due will result in
the Lender incurring additional expenses, in loss to the Lender of the use of
the money due and in frustration to the Lender in meeting its other commitments.
Lender is entitled to damages for the detriment caused thereby, but it is
extremely difficult and impractical to ascertain the extent of such damages.
Borrower shall pay on demand a sum equal to five cents ($.05) for each one
dollar ($1.00) of each payment which is not received within five (5) business
days after the date it is due and payable is a reasonable estimate of the
damages to the Lender. If any part of the principal or interest is not paid
when due, it thereafter bears interest at the rate of eighteen percent (18%) per
annum from and as of the date of delinquency until paid, provided, however, that
any amount due pursuant to the preceding sentence must be deducted from the
amount due pursuant to this sentence. If the specified interest rate at any
time exceeds the maximum rate allowed by law, then the applicable interest rate
is reduced to the maximum rate allowed by law.
Section 2.5. Conditions to the Closing. The obligation of Lender to
make an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement
and in the Other Loan Documents are true and correct on and as of the date
hereof and are true and correct in all material respects as of the Closing Date
and Borrower has performed all obligations required to have been performed by it
hereunder prior to Closing Date.
(b) Borrower has executed and delivered to Lender (or caused to be
executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Subordination Agreement;
(vi) the Pledge Agreement;
(vii) the Lock Box Agreement;
(viii) the Assignment of Management Services Agreement;
(ix) the Assignment of Acquisition Instruments;
(x) the Assumption Agreement;
(xi) evidence satisfactory to Lender that the transactions
contemplated by the Asset Purchase Agreement and the Venture Capital Agreement
have been consummated in accordance with the terms of such agreements;
(xii) evidence satisfactory to Lender that Borrower is a
limited liability company and Guarantor is a corporation duly formed, validly
existing and in good standing in the state in which it was formed and in each
state in which it is authorized to do business;
(xiii) certificates of insurance that evidence the insurance
coverage and policy provisions required by this Agreement and in the Loan
Documents;
(xiv) pay-off letters, UCC Termination Statement and Lien
Releases as required to grant Lender a first priority security interest, other
than Permitted Liens, in Collateral pledged as security for repayment of the
Loan;
(xv) signature and incumbency certificate of Borrower and
Guarantor;
(xvi) certified copies of resolutions of the members of
Borrower and the Board of Directors of Guarantor authorizing the execution and
delivery of the Loan Documents to be executed by Borrower and Guarantor;
(xvii) copies of the Articles of Organization of Borrower and
Articles of Incorporation of Guarantor certified by the applicable Secretary of
State;
(xviii) copies of the Regulations of Borrower and Bylaws of
Guarantor certified by an officer thereof;
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(xix) certified copies of the Asset Purchase Agreement and
all documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xx) certified copies of the Venture Capital Agreement and
all other documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xxi) certified copy of the Management Services Agreement
satisfactory in form and substance to Lender;
(xxii) the consent of Western Presidio Capital II, L.P. and
the other Investors set forth in Exhibit I to the Venture Capital Agreement to
the terms of this transaction;
(xxiii) the written opinion of counsel to Borrower and
Guarantor issued on the Closing Date and satisfactory to Lender in scope and
substance; and
(xxiv) a certificate from an officer of Borrower indicating
that the representations and warranties contained herein are true and correct as
of the Closing Date.
(c) Borrower has paid closing fees to Lender including Lender's
reasonable legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default has
occurred and is continuing.
(e) None of Borrower, Seller nor Guarantor has suffered a material
adverse change in its business, operations or financial condition from that
reflected in the Financial Statements of Borrower and Guarantor or Seller
delivered to Lender or otherwise.
(f) Lender has received such additional supporting documents,
certificates and assurances as Lender reasonably requests which are satisfactory
to Lender in form and substance.
Section 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest. In order to secure prompt
payment and performance of the Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the following property
of Borrower (the "Collateral"), whether now owned or existing or hereafter
acquired or arising and regardless of where located, subject only to Permitted
Liens. This security interest in the Collateral attaches to all Collateral
without further action on the part of Lender or Borrower. Borrower shall keep
the Collateral at 906 West Randol Mill Road, Arlington, Texas 76012.
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The Collateral consists of the following, together with such third-
party consents, lien waivers and estoppel certificates as Lender reasonably
requires:
(a) all of Borrower's equipment and machinery listed on Schedule 3.1
and all machine tools, motors, tools, parts, attachments, accessories,
accessions, replacements, upgrades, substitutions, additions and improvements
related thereto, wherever located, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds;
(b) all of Borrower's right, title and interest in and to the
Accounts, whether presently existing or hereafter arising, and all contract
rights, instruments, notes, securities, drafts, documents, chattel paper and all
other forms of obligations owing to Borrower or Seller arising out of the sale
or lease of goods or the rendition of services, whether or not earned by
performance, and any and all credit insurance, guarantees and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower or
Seller and all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including the pledge to it of the Borrower's
interest in the Accounts, cash and non-cash Proceeds. Notwithstanding the
foregoing or any other provision hereof, Lender's Lien on and security interest
in the Collateral described in this clause (b) will be released if the Other
Loan Agreement with DVIBC has been terminated and the conditions contained in
Section 7.17 have been satisfied;
(c) all of Borrower's presently existing and hereafter acquired
general intangibles (including, Borrower's rights and interest under the
Management Services Agreement, and any and all choices in action, goodwill,
patents, trade names, trademarks, blueprints, drawings, purchase orders,
computer programs, computer discs, computer tapes, literature, reports,
catalogues, deposit accounts and tax refunds) other than goods and accounts, as
well as all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including cash and non-cash Proceeds; and
(d) all of Borrower's presently existing and hereafter acquired
inventory including, without limitation, goods held for sale or lease or to be
furnished under a contract of service, wherever located, and any documents of
title representing any of the above, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds.
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower. The exact name of Borrower is MHOA
Texas I, L.L.C. Borrower was formed under the laws of the State of Texas. The
following are all previous legal names of Borrower: None. Borrower uses the
following trade names: None. The following are all other trade names used by
Borrower in the past: None.
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Section 4.2. Mergers and Consolidations. Other than the merger with
MHOA Texas I, Inc., a Texas corporation, no entity has merged into Borrower or
been consolidated with Borrower.
Section 4.3. Purchase of Assets. Other than pursuant to the Asset
Purchase Agreement, no entity has sold substantially all of its assets to
Borrower or sold assets to Borrower outside the ordinary course of such seller's
business at any time in the past.
Section 4.4. Change of Name or Identity. Borrower shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
Section 4.5. Corporate Structure. Guarantor, Seller and the Metroplex
Providers hold one hundred percent (100%) of the member interests in Borrower.
Such member interests are the sole authorized and outstanding security interests
in Borrower.
Section 5
PROVISIONS CONCERNING COLLATERAL
Section 5.1. Title. Borrower has good and marketable title to the
Collateral, and the Liens granted to Lender pursuant to this Agreement are fully
perfected first-priority Liens, in and to the Collateral with priority over the
rights of every person in the Collateral, free, clear and unencumbered by any
Liens in favor of any person other than Lender except for Permitted Liens.
Section 5.2. No Warranties. This Agreement is solely a financing
agreement. Borrower acknowledges that with respect to the appropriate
Collateral: the Collateral has or will have been selected and acquired solely
by Borrower for Borrower's purposes; Lender is not the manufacturer, dealer,
vendor or supplier of the Collateral; the Collateral is of a size, design,
capacity, description and manufacturer selected by Borrower; Borrower is
satisfied that the Collateral is suitable and fit for its purposes; and LENDER
HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER
EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR
OPERATION OF THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE
OF THE COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE COLLATERAL OR
WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER.
Section 5.3. Further Assurances. Borrower shall execute and deliver
to Lender, concurrent with Borrower's execution of this Agreement and at any
time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens
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in the Collateral and in order to consummate fully all of the transactions
contemplated under the Loan Documents. Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender's officers, employees or
agents designated by Lender) as Borrower's true and lawful attorney with power
to sign the name of Borrower on any of the above-described documents or on any
other similar documents that need to be executed, recorded, or filed in order to
perfect or continue perfected Lender's Liens in the Collateral. The appointment
of Lender as Borrower's attorney is irrevocable as long as any Obligations are
outstanding. Any person dealing with Lender is entitled to rely conclusively on
any written or oral statement of Lender that this power of attorney is in
effect.
Section 5.4. Intentionally Deleted.
Section 5.5. Lender's Duty of Care. Lender has no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender will be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as the Borrower requests or agrees to in
writing, provided that no failure to comply with any such request nor any
omission to do any such act requested by the Borrower may be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property may not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
loss, damage or destruction of the Collateral is borne by Borrower except to the
extent Lender breaches the standard of care set forth in this Section 5.5.
Section 5.6. Borrower's Contracts. Schedule 5.6 attached hereto is a
true and complete list of all material contracts and agreements to which
Borrower is a party or will become a party pursuant to the assumption of
Seller's rights and obligations under the terms of the Asset Purchase Agreement.
Borrower remains liable to perform its Obligations under any contracts and
agreements included in the Collateral to the same extent as though this
Agreement had not been entered into and Lender does not have any obligation or
liability under such contracts and agreements by reason of this Agreement or
otherwise.
Section 5.7. Reinstatement of Liens. If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for any reason whatsoever (including, the insolvency,
bankruptcy, or reorganization of Borrower or such other Person), this Agreement
and then Lender's Liens granted hereunder are reinstated as to all disgorged
payments as though such payments had not been made, and Borrower shall sign and
deliver to Lender all documents and things necessary to perfect all terminated
Liens.
Section 5.8. Lender Expenses. If Borrower fails to pay any moneys
(whether taxes, assessments, insurance premiums or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit or fails to discharge any Lien not permitted hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's
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interest in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof; provided, however,
Lender shall make a reasonable attempt to make a prior notification of Borrower
if a delay in making such payment would not have a material advise impact on
Lender's interest in the Collateral. Any amounts paid or deposited by Lender
constitute Lender Expenses, become part of the Obligations, bear interest at the
rate of eighteen percent (18%) per annum, and are secured by the Collateral. Any
payments made by Lender do not constitute (a) an agreement by Lender to make
similar payments in the future or (b) a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance or Lien, and the receipt
of the usual official notice for the payment of moneys to a governmental entity
is conclusive evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 5.9. Inspection of Collateral and Records. During usual
business hours, Lender may inspect and examine the Collateral and check and test
the same as to quality, quantity, value and condition and Borrower shall
reimburse Lender for its reasonable costs and expenses in so doing. Lender also
has the right at any time or times hereafter, during usual business hours to
inspect and verify Borrower's Books in order to verify the amount or condition
of, or any other matter relating to, the Collateral and Borrower's financial
condition and to copy and make extracts therefrom. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Lender
pursuant to this Agreement. Lender may directly contact any such accounting
firm or service bureau in order to obtain such information.
Section 5.10. Waivers. Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby warrants and
represents to Lender the following:
Section 6.1. Corporate Status. Borrower is a limited liability
company validly existing and in good standing under the laws of the State of
Texas; Guarantor is a corporation validly existing and in good standing under
the laws of the State of Delaware; and each of such entities is qualified and
licensed to do business and is in good standing in any state in which the
conduct of its
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business or its ownership of property requires that it be so qualified or
licensed, and has the power and authority (corporate and otherwise) to execute
and carry out the terms of the Loan Documents to which it is a party, to own its
assets and to carry on its business as currently conducted.
Section 6.2. Authorization. The execution, delivery, and performance
by Borrower and Guarantor of this Agreement and each Loan Document have been
duly authorized by all necessary company action. Borrower and Guarantor have
duly executed and delivered this Agreement and each Loan Document to which they
are a party, and each such Loan Document constitutes a valid and binding
obligation of Borrower and Guarantor.
Section 6.3. No Breach. The execution, delivery and performance by
Borrower and Guarantor of this Agreement and each Loan Document to which they
are a party (a) will not contravene any law or any governmental rule or order
binding on Collateral; (b) will not violate any provision of the articles of
organization or regulations of Borrower or the articles of incorporation or
bylaws of Guarantor; (c) will not violate any agreement or instrument by which
Borrower or Guarantor or their assets, is bound; (d) do not require any notice
to consent by any Governmental Authority; and (e) will not result in the
creation of a Lien on any assets of Borrower except the Lien to Lender granted
herein.
Section 6.4. Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against Borrower,
or its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
Section 6.5. Deferred Compensation Plans. Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any single-
employer or multi-employer plans. Neither Borrower nor any ERISA Affiliate is
or at any time has been a sponsor of, provided, or maintained for any employees
any defined benefit plan.
Section 6.6. Litigation and Proceedings. Except as set forth on
Schedule 6.6 attached hereto, there are no outstanding judgments against
Borrower or its assets and there are no actions or proceedings pending by or
against Borrower before any court or administrative agency. Borrower has no
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and except as set forth in Schedule 6.6 hereto.
Section 6.7. Business. Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or
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subject to any agreement or restriction that is so unusual or burdensome that it
might have a material adverse effect on Borrower's business, properties or
prospects.
Section 6.8. Laws and Agreements. Borrower is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Borrower is in material compliance with all laws applicable to it.
Section 6.9. Financial Condition. All financial statements and
information relating to Borrower, Guarantor, Seller or their assets that have
been or may hereafter be delivered by Borrower to Lender are accurate and
complete in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied. Borrower and
Guarantor have no material obligations or liabilities of any kind not disclosed
in that financial information, and there has been no material adverse change in
the financial condition of Borrower, Guarantor or Seller since the date of the
most recent financial statements submitted to Lender.
Section 6.10. Environmental Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Environmental Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and are also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Environmental
Laws, or may give rise to any material common law or legal liability, or
otherwise form the basis of any material claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous substance or waste.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Environmental
Laws.
Section 6.11. Insurance. Schedule 6.11 sets forth a complete and
accurate list of all policies of fire, liability, product liability, workers'
compensation, health, business interruption and other forms of insurance
currently in effect with respect to Borrower's business, true copies of which
have heretofore been delivered to Lender. All such policies are valid,
outstanding and enforceable policies and, to the best knowledge of Borrower,
each will remain in full force and effect at least through the respective dates
set forth on Schedule 6.11.
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Section 6.12. Ownership of Property. Borrower has good and marketable
title to all of its properties and assets, free and clear of all liens, security
interests and encumbrances, except Permitted Liens. Borrower has the exclusive
right to use all such assets.
Section 6.13. Health Care Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and is in compliance in all material respects with all terms and conditions of
the required permits, licenses and authorizations, and are also in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Health Care Laws.
Section 6.14. Cumulative Representations. The warranties,
representations and agreements set forth herein are cumulative and in addition
to any and all other warranties, representations and agreements that Borrower
gives, or cause to be given, to Lender, either now or hereafter.
Section 6.15. Full Disclosure. No representation, warranty or
statement by Borrower or Guarantor contained in this Agreement, any Schedule or
any document, instrument or certificate furnished by or on behalf of any of them
pursuant to this Agreement contains any untrue, incorrect, incomplete or
misleading statement of material fact, or knowingly omits to state a material
fact necessary to make the statements contained therein not misleading.
Section 7
COVENANTS
Section 7.1. Encumbrance of Collateral. Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower except for Liens to Lender and Permitted Liens.
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Section 7.2. Business. Borrower shall engage primarily in business of
physician practice management and related services.
Section 7.3. Condition and Repair. Borrower shall maintain in good
repair and working order all material properties used in its business and from
time to time shall make all appropriate repairs and replacements thereof.
Section 7.4. Taxes. Borrower shall pay all taxes, assessments and
other governmental charges imposed upon it or any of its assets or in respect of
any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by generally accepted accounting principles. Borrower shall
make timely payment or deposit of all FICA payments and withholding taxes
required of it by applicable laws and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower has made such payments or
deposits.
Section 7.5. Insurance. Borrower shall maintain, with financially
sound and reputable insurers, insurance with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily
insured against by corporations of established reputation engaged in the same or
similar businesses. Each such policy must name Lender as an additional insured
and, where applicable, as loss payee under a lender loss payable endorsement
satisfactory to Lender and must provide for thirty (30) days' written notice to
Lender before such policy is altered or canceled.
Section 7.6. Accounting System. Borrower and Guarantor at all times
hereafter shall maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles consistently applied,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower and Guarantor shall not modify or change their
method of accounting or enter into any agreement hereafter with any third-party
accounting firm or service bureau for the preparation or storage of their
accounting records without the accounting firm's or service bureau's agreeing to
provide to Lender information regarding the Collateral and Borrower's and
Guarantor's financial condition.
Section 7.7. Financial Statements. Borrower shall submit monthly
financial statements, showing a comparison of actual expenditures to budgeted
amounts, with respect to Borrower and Guarantor, to Lender as soon as available,
and in any event within thirty (30) days of the end of each month.
Additionally, Borrower shall submit audited financial statements with respect to
Borrower and Guarantor to Lender as soon as available, and in any event within
one hundred twenty (120) days of the end of each fiscal year. With all
financial statements, Borrower
17
<PAGE>
shall deliver a certificate of its chief financial officer attesting that to the
best of such officer's knowledge no Event of Default or Unmatured Default under
this Agreement has occurred and is continuing.
Section 7.8. Further Information. Borrower and Guarantor shall
promptly supply Lender with such other information concerning its affairs as
Lender may reasonably request from time to time hereafter and shall promptly
notify Lender of any material adverse change in Borrower's or Guarantor's
financial condition and any condition or event that constitutes an Event of
Default or Unmatured Default under this Agreement. In addition, Borrower and
Guarantor authorize Lender to contact credit reporting agencies concerning their
credit standing.
Section 7.9. ERISA Covenants. Borrower shall, and shall cause each
ERISA Affiliate to, comply with all applicable provisions of ERISA and all other
laws applicable to any deferred compensation plans with which Borrower or any
ERISA Affiliate is associated, the failure with which to comply would have a
material adverse effect on Borrower's business or financial condition and shall
promptly notify Lender of the occurrence of any event that could result in any
material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
Section 7.10. Environmental Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
Governmental Authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower or
a Subsidiary would be required to notify any Governmental Authority with
jurisdiction over Environmental Laws.
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower may not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets having an
aggregate value of greater than $100,000 in any twelve month period in any
transaction or series of related transactions other than (i) sales in the
ordinary course of business, (ii) if being replaced by items of comparable or
greater value, provided, Borrower receives the consent of Lender, which will not
be unreasonably withheld, to any such transfer having a value greater than
$100,000, and (iii) a transfer of assets to Seller pursuant to the terms of the
Assumption Agreement;
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
18
<PAGE>
(d) acquire interests in any other entity in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(e) become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents;
(f) authorize or issue any additional member interests or equity
interest; or
(g) own, hold, lease or operate with any real property nor any other
property not necessary or useful to the operation of Borrower's business as it
is presently proposed to be conducted.
Section 7.12. Health Care Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Health Care Laws applicable to it.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
Section 7.13. Distributions. Except as set forth on Schedule 7.13
hereto, Borrower may not make any Distributions nor pay any management fee,
consulting fee or any similar fee without the prior written consent of Lender,
which may be withheld in its sole discretion.
Section 7.14. Capital Expenditures. Borrower may not spend nor incur
obligations, including the total amount of any capital leases, to acquire fixed
or capital assets exceeding One Million Dollars ( $1,000,000) in any fiscal
year.
Section 7.15. Other Debt. (a) Borrower may not incur any direct or
contingent liabilities, including capital leases, in an aggregate amount
exceeding $100,000 in any twelve month period without Lender's prior written
consent, which may not be unreasonably withheld, provided however that Borrower
shall provide Lender written notice of its intention to incur any such liability
and if such financing can be provided by a third party source such as Lender,
offer Lender a right of first offer to provide such financing. In order to
comply with the right of first offer contained in this Section, Borrower shall
provide Lender with the terms of the proposed financing, including interest
rate, term, amount and collateral for the financing. If Lender declines to
provide the financing on such terms, or does not respond to Borrower's notice
within ten Business Days of receipt thereof, then Borrower can seek alternative
financing on such terms, provided Borrower continues to comply with the first
sentence of this Section. Lender's decision not to provide any such financing
does not waive its right of first offer with respect to any subsequent
financing.
19
<PAGE>
(b) Nothing contained in this Section 7.15 prohibits Borrower from:
(i) acquiring goods, supplies or merchandise on normal trade
credit;
(ii) endorsing negotiable instruments, received in the usual course
of business; or
(iii) obtaining surety bonds in the usual course of business.
Section 7.16. Debt Service Coverage. Borrower shall maintain as of
the last day of each calendar month, beginning September 30, 1997, a debt
service coverage ratio of no less than 1.5:1 for the previous twelve calendar
month period; provided, that such ratio is calculated on an annualized basis
during the first twelve months following the Closing Date.
"Debt service coverage" means (i) the sum of net income plus
depreciation plus amortization plus interest expense, divided by (ii) the sum of
capitalized lease payments plus loan payments plus interest expense.
Section 7.17. Termination of Covenants. If Guarantor (i)
successfully completes a public offering of its common stock and other
securities registered under the Securities Exchange Act of 1933, as amended,
which results in Guarantor receiving net proceeds of Thirty-Five Million Dollars
($35,000,000) or more, or (ii) at the end of any fiscal quarter Guarantor or its
successor, by merger or otherwise, attains a net worth of Fifty Million Dollars
or more, then the covenants contained in Sections 7.13, 7.14 and 7.15 will no
longer apply to the Loan and thereafter will be considered deleted from the
Agreement.
Section 8
EVENTS OF DEFAULT
An Event of Default is deemed to exist if any of the following events
have occurred and is continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure continues for five (5) business days
after the payment is due;
(b) Borrower fails to observe or perform any material covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any Loan Document to which it is a party and such failure is not cured as
soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender;
20
<PAGE>
(c) Borrower fails to keep its assets insured as required herein, or
material uninsured damage to or loss, theft or destruction of the Collateral
occurs and such assets are not repaired or replaced with five (5) days;
(d) A court enters a decree or order for relief in respect of Borrower
in an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in excess of
$100,000 is rendered against Borrower and remains undischarged for thirty (30)
days during which execution is not effectively stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any of the
Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant, condition or agreement to be performed under
any Loan Document to which it is a party;
(h) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise, other than as permitted
pursuant to Section 7.11(b);
(i) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $100,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(j) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(k) Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs and such court order is not revoked or overturned within five (5) days;
(l) A judgment or other claim in excess of $100,000 becomes a Lien
upon any or all of Borrower's assets, other than a Permitted Lien;
21
<PAGE>
(m) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets by any
Governmental Authority or any tax or debt owing at any time hereafter to any one
or more of such entities becomes a Lien upon any or all of Borrower's assets and
the same is not paid on the payment date thereof, except to the extent such tax
or debt is being contested by Borrower as permitted in Section 6.4;
(n) There is a material impairment of the value of the Collateral
which is not insured or priority of Lender's Liens on the Collateral;
(o) Any of Borrower's assets in excess of $100,000 or any Collateral
are seized, subjected to a distress warrant, levied upon or come into the
possession of any judicial officer;
(p) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is materially incorrect when made;
(q) Guarantor is in default under the Guaranty or this Loan Agreement
or an Event of Default occurs under the Other Loan Documents; or
(r) If the aggregate dollar value of all judgments, defaults, demands,
claims and notices of Liens under clauses (f), (i), (j), (l), (m) and (o) hereof
exceeds $250,000.
Section 9
REMEDIES
Section 9.1. Specific Remedies. Upon the occurrence of any Event of
Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(c) Lender may enter any premises of Borrower, with or without
judicial process, and take possession of the Collateral; provided however, that
Lender may only exercise such remedy if it may do so without a breach of the
peace. Lender may remove the Collateral and may remove or copy all records
pertaining thereto, or Lender may remain on such premises and use the premises
for the purpose of collecting, preparing and disposing of the Collateral,
without any liability for rent or occupancy charges. Borrower shall, upon
request of Lender, assemble the Collateral and any records pertaining thereto
and make them available at a place designated by Lender that is reasonably
convenient to both parties.
22
<PAGE>
(d) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease, and insure the Collateral. Lender may use and operate
equipment of Borrower in order to process or finish inventory included in the
Collateral. If any Collateral consists of documents, Lender may proceed either
as to the documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any encumbrance,
charge or Lien that, in the opinion of Lender, appears to be prior or superior
to its Lien and pay all reasonable expenses incurred in connection therewith.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders or other forms of payment of or security for Accounts or
other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors
or issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
(g) Lender may sell the Collateral at public or private sale and is
not required to repossess Collateral before selling it. Any requirement of
reasonable notice of any disposition of the Collateral is satisfied if such
notice is sent to Borrower, ten (10) days prior to such disposition by any of
the methods provided in Section 11.5 hereof. Borrower will be credited with the
net proceeds of such sale only when they are actually received by Lender, and
Borrower continues to be liable for any deficiency remaining after the
Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give notice
of the time and place by publishing a notice one time at least five (5) days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender may be
the purchaser of any or all of the Collateral at any public sale and is
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
Section 9.2. Power of Attorney. Borrower hereby appoints Lender (and
any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power after the occurrence of an Event of Default:
(a) to endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and assignments of Accounts, on verifications of Accounts, and on
notices to Account Debtors; (c) to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
to receive and open all mail addressed to Borrower and to retain all mail
23
<PAGE>
relating to the Collateral and forward all other mail to Borrower; (d) to send
requests for verification of Accounts; (e) to execute UCC Financing Statements;
and (f) to do all things necessary to carry out this Agreement. The appointment
of Lender as Borrower's attorney and each and every one of Lender's rights and
powers, being coupled with an interest, are irrevocable as long as any
Obligations are outstanding. Lender shall not exercise the power granted in
clauses 9.2(a) through 9.2(c) prior to the occurrence of an Event of Default and
shall not exercise the power granted in clause 9.2(d) prior to notification of
Borrower of its intent to do so, but such limitations do not limit the
effectiveness of such power of attorney at any time. Any person dealing with
Lender is entitled to rely conclusively on any written or oral statement of
Lender that this power of attorney is in effect. Lender may also use Borrower's
stationery in connection with exercising its rights and remedies and performing
the Obligations of Borrower.
Section 9.3. Expenses Secured. All expenses, including reasonable
attorney fees, incurred by Lender in the exercise of its rights and remedies
provided in this Agreement, in the Other Loan Documents or by law shall be
payable by Borrower to Lender, are part of the Obligations, and are secured by
the Collateral.
Section 9.4. Equitable Relief. Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, in certain cases no remedy of law will provide
adequate relief to Lender, and Lender is entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 9.5. Remedies Are Cumulative. No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or Guarantor or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
may be deemed to be an election. No delay by Lender constitutes a waiver,
election, or acquiescence by it. Borrower on its behalf waives any rights to
require Lender to proceed against Guarantor or any other party; or proceed
against or exhaust any security held from Guarantor or any other party. Lender
may at any time and from time to time, without notice to, or consent of,
Borrower, and without affecting or impairing the obligation of Borrower
hereunder do any of the following: (i) renew or extend any obligations of
Guarantor, or of any other party at any time directly or contingently liable for
payment of any of the obligations of Guarantor; (ii) accept partial payments of
the obligations of Guarantor; (iii) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the obligations of
Guarantor and the security therefor in any manner; or (iv) consent to the
transfer or sale of any security or bid and purchase at any sale of any security
of Guarantor. The validity of this Agreement and the Obligations of Borrower
are not terminated, affected or impaired by reason of the waiving, delaying,
exercising or non-exercising, of any of Lender's rights against Guarantor or as
a result of the substitution, release, repossession, sale, disposition or
destruction of any Collateral securing any obligations of Guarantor. Borrower
is not released or discharged, either in whole or in part, by Lender's failure
or delay to perfect or continue the perfection of any security interest in any
Collateral which secures the obligations of Guarantor or to protect the property
covered by such security interest.
24
<PAGE>
Section 10
INDEMNITY
Section 10.1. General Indemnity. BORROWER SHALL UNCONDITIONALLY
PROTECT, INDEMNIFY, DEFEND AND HOLD HARMLESS LENDER AND ITS DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS FROM AND AGAINST ANY LOSS, COST, LIABILITY (INCLUDING
NEGLIGENCE, TORT AND STRICT LIABILITY), EXPENSE, DAMAGE, SUITS, DEMANDS OR
CLAIMS (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) ON ACCOUNT OF ANY SUIT OR
PROCEEDING BEFORE ANY GOVERNMENTAL AUTHORITY WHICH ARISES FROM THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT OR OTHERWISE ARISING IN CONNECTION WITH OR
RELATING TO THE LOAN AND ANY SECURITY THEREFOR, UNLESS SUCH SUIT, CLAIM OR
DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MALFEASANCE OF LENDER
OR ITS DIRECTORS, OFFICER, AGENTS OR EMPLOYEES. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower survives the
termination of this Agreement and the repayment of the Note.
Section 10.2. Specific Environmental Indemnity. Borrower shall
unconditionally protect, indemnify, defend and hold harmless Lender, its
directors, officers, employees and agents against any loss, cost, liability
(including negligence, tort and strict liability), expense, damage, suits,
demands or claim (including fees and disbursements of counsel) arising under any
Environmental Laws having jurisdiction over the property or assets of Borrower
or any portion thereof or its use.
Section 11
MISCELLANEOUS
Section 11.1. Delay and Waiver. No delay or omission to exercise any
right impairs any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion is limited to that particular occasion.
Section 11.2. Complete Agreement. This Agreement and the Schedules
are the complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
25
<PAGE>
Section 11.3. Severability; Headings. If any part of this Agreement
or the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement is unaffected thereby. The section headings herein
are included for convenience only and may not be deemed to be a part of this
Agreement.
Section 11.4. Binding Effect. This Agreement is binding upon and
inures to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; provided however, Borrower may not assign any of
its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who thereupon has all of the rights of Lender; and
Lender (or such subsequent assignee who in turn assigns as aforesaid) is then
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 11.5. Notices. Any notices under or pursuant to this
Agreement are deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, facsimile, or similar electronic medium to
the following addresses:
To Borrower: MHOA Texas I, L.L.C.
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Thomas Rodgers
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Guarantor: Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah Garvins
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Lender: DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
Attention: Michael A. O'Hanlon
Telephone: (215) 345-6600
Facsimile: (215) 230-8108
26
<PAGE>
Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
Any party may change such address by sending notice of the change to
the other parties; such change of address is effective only upon actual receipt
of the notice by the other parties.
Section 11.6. Governing Law. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO ARE GOVERNED, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.
Section 11.7. Jurisdiction. The state and federal courts in Orange
County, California or any other court in which Lender initiates proceedings have
jurisdiction over all matters arising out of this Agreement and that service of
process in any such proceeding are effective if mailed to Borrower at its
address described in the Notices section of this Agreement. Borrower waives any
right it may have to assert the defense of forum non conveniens or to object to
such venue and hereby consents to any court-ordered relief.
Section 11.8. Waiver of Trial by Jury. LENDER, GUARANTOR AND
BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF
THIS AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN LENDER, GUARANTOR AND BORROWER.
27
<PAGE>
IN WITNESS WHEREOF, Borrower, Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
<TABLE>
<CAPTION>
BORROWER: LENDER:
<S> <C>
MHOA TEXAS I, L.L.C. DVI FINANCIAL SERVICES INC.
By: /s/Sarah C. Garvin By: /s/Raymond Fear
---------------------------- ------------------------------
Sarah C. Garvin Raymond Fear
President Vice President
GUARANTOR:
PHYSICIAN HEALTH CORPORATION
By: /s/Sarah C. Garvin
----------------------------
Sarah C. Garvin
President
</TABLE>
<PAGE>
Schedule 1.1
Permitted Liens
1. Those liens listed on Schedule 3.16 of that certain Asset Purchase and
Contribution Agreement dated as of June 16, 1997, executed by and between
Borrower, Seller and certain other parties (the "Purchase Agreement"), and all
other Permitted Encumbrances, as defined therein.
2. Lien and security interest created in favor of DVIBC on the Collateral
described in Section 3.1(b) pursuant to a Loan and Security Agreement dated as
of the date of this Agreement, which Lien and security interest are intended by
all parties to be prior to the Liens and security interests of this Agreement.
<PAGE>
SCHEDULE 3.1
LOAN NO.4
---------
1. Siemens Mevatron 77 Linear Accelerator
2. Siemens Rad/Flouro System
3. BSD Hyperthermia system & various other medical equipment
And all equipment and assets listed as Personal Property in Schedule 3.12 of the
Purchase Agreement.
<PAGE>
Schedule 5.6
Material Contracts
1. The Management Agreement.
2. The Benefit Agreements, Employee/Contract Labor Agreements, Real Property
Leases (for business space only) and Services Contracts listed on Schedule 3.20
of the Purchase Agreement and assumed by Borrower thereunder.
<PAGE>
Schedule 6.6
Litigation and Proceedings
None
<PAGE>
Schedule 6.11
Insurance
Those insurance policies described in the certificates attached hereto.
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
Schedule 7.13
Permitted Distributions
Borrower is permitted to make Distributions to Guarantor provided after
such payment Borrower continues to satisfy the debt service coverage ratio set
forth in Section 7.16.
<PAGE>
EXHIBIT 10.60
LOAN AND SECURITY AGREEMENT NO. 5
among
MHOA TEXAS I, L.L.C.
Borrower
PHYSICIAN HEALTH CORPORATION
Guarantor
and
DVI FINANCIAL SERVICES INC.
Lender
Dated as of June 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
------
Section 1
DEFINITIONS .......................................................... 1
Section 1.1. Specific Definitions ................................... 1
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code ..................................................... 6
Section 1.3. Construction ........................................... 6
Section 2
LOAN ................................................................. 6
Section 2.1. The Loan ............................................... 6
Section 2.2. Term and Repayment of Loan ............................. 6
Section 2.3. Prepayment ............................................. 7
Section 2.4. Late Payments .......................................... 7
Section 2.5. Conditions to the Closing .............................. 7
Section 3
SECURITY INTEREST .................................................... 9
Section 3.1. Grant of Security Interest ............................. 9
Section 4
SPECIFIC REPRESENTATIONS ............................................. 10
Section 4.1. Name of Borrower ....................................... 10
Section 4.2. Mergers and Consolidations ............................. 10
Section 4.3. Purchase of Assets ..................................... 11
Section 4.4. Change of Name or Identity ............................. 11
Section 4.5. Corporate Structure .................................... 11
Section 5
PROVISIONS CONCERNING COLLATERAL ..................................... 11
Section 5.1. Title .................................................. 11
Section 5.2. No Warranties .......................................... 11
Section 5.3. Further Assurances ..................................... 11
Section 5.4. Intentionally Deleted .................................. 12
Section 5.5. Lender's Duty of Care .................................. 12
Section 5.6. Borrower's Contracts .................................. 12
Section 5.7. Reinstatement of Liens ................................. 12
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Section 5.8. Lender Expenses ....................................... 12
Section 5.9. Inspection of Collateral and Records .................. 13
Section 5.10. Waivers ............................................... 13
Section 6
REPRESENTATIONS AND WARRANTIES ....................................... 13
Section 6.1. Corporate Status ...................................... 13
Section 6.2. Authorization ......................................... 14
Section 6.3. No Breach ............................................. 14
Section 6.4. Taxes ................................................. 14
Section 6.5. Deferred Compensation Plans ........................... 14
Section 6.6. Litigation and Proceedings ............................ 14
Section 6.7. Business .............................................. 14
Section 6.8. Laws and Agreements ................................... 14
Section 6.9. Financial Condition ................................... 15
Section 6.10. Environmental Laws .................................... 15
Section 6.11. Insurance ............................................. 15
Section 6.12. Ownership of Property ................................. 15
Section 6.13. Health Care Laws ...................................... 16
Section 6.14. Cumulative Representations ............................ 16
Section 6.15. Full Disclosure ....................................... 16
Section 7
COVENANTS ............................................................ 16
Section 7.1. Encumbrance of Collateral ............................. 16
Section 7.2. Business .............................................. 16
Section 7.3. Condition and Repair .................................. 16
Section 7.4. Taxes ................................................. 17
Section 7.5. Insurance ............................................. 17
Section 7.6. Accounting System ..................................... 17
Section 7.7. Financial Statements .................................. 17
Section 7.8. Further Information .................................. 17
Section 7.9. ERISA Covenants ....................................... 18
Section 7.10. Environmental Covenants ............................... 18
Section 7.11. Restrictions on Merger, Consolidation Sale of Assets,
Issuance of Stock, etc .............................................. 18
Section 7.12. Health Care Covenants ................................. 19
Section 7.13. Distributions ......................................... 19
Section 7.14. Capital Expenditures .................................. 19
Section 7.15. Other Debt. ........................................... 19
Section 7.16. Debt Service Coverage. ................................ 19
Section 7.17. Termination of Covenants. ............................. 20
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Section 8
EVENTS OF DEFAULT .................................................... 20
Section 9
REMEDIES ............................................................. 22
Section 9.1. Specific Remedies ...................................... 22
Section 9.2. Power of Attorney ...................................... 23
Section 9.3. Expenses Secured ...................................... 24
Section 9.4. Equitable Relief ...................................... 24
Section 9.5. Remedies Are Cumulative ................................ 24
Section 10
INDEMNITY ............................................................ 24
Section 10.1. General Indemnity ..................................... 24
Section 10.2. Specific Environmental Indemnity ...................... 25
Section 11
MISCELLANEOUS ........................................................ 25
Section 11.1. Delay and Waiver ...................................... 25
Section 11.2. Complete Agreement .................................... 25
Section 11.3. Severability; Headings ................................ 25
Section 11.4. Binding Effect ........................................ 25
Section 11.5. Notices ............................................... 26
Section 11.6. Governing Law ......................................... 26
Section 11.7. Jurisdiction .......................................... 27
Section 11.8. Waiver of Trial by Jury ............................... 27
SCHEDULES
1.1. Permitted Liens
3.1 Personal Property
5.6 Material Contracts
6.6. Litigation and Proceedings
6.11. Insurance
6.13. Health Care Permits
7.13. Permitted Distributions
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LOAN AND SECURITY AGREEMENT NO. 5
THIS LOAN AND SECURITY AGREEMENT NO. 5 (this "Agreement") is entered
into as of June 16, 1997, by and between DVI Financial Services Inc., a Delaware
corporation ("Lender"), MHOA Texas I, L.L.C., a Texas limited liability company
("Borrower"), and Physician Health Corporation ("Guarantor").
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties agree as
follows:
Section 1
DEFINITIONS
Section 1.1. Specific Definitions. The following definitions apply:
"Account Debtors" mean all customers and other persons who are
obligated or indebted in any manner, whether directly or indirectly, primarily
or secondarily, contingently or otherwise, with respect to Accounts.
"Accounts" mean all accounts, contract rights, instruments, documents,
chattel paper and obligations in any form owing to or owned by Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
Seller or the Metroplex Providers whether or not earned by performance; all
credit insurance, guaranties, letters of credit, advises of credit and other
security for any of the above; all merchandise returned to or reclaimed by
Borrower, Seller or the Metroplex Providers and Borrower's Books relating to any
of the foregoing.
"Advance" means an advance of loan proceeds constituting all or a part
of the Loan.
"Affiliate" means with respect to any Person any other Person which
directly or indirectly Controls, is Controlled by or is under common Control
with that Person.
"Asset Purchase Agreement" means that certain Asset Purchase and
Contribution Agreement dated June 16, 1997 among Seller, certain physicians and
their professional associations, Borrower and Guarantor.
"Assignment of Acquisition Instruments" means that certain Assignment
of Acquisition Instruments dated as of the date hereof collaterally assigning
Borrower's rights under the Asset Purchase Agreement and the other documents
delivered to Borrower by Seller pursuant to the Asset Purchase Agreement as
security for the Loan, and consented to by Seller.
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"Assignment of Management Services Agreement" means that certain
Assignment of Management Services Agreement dated as of the date hereof
collaterally assigning Borrower's rights under the Management Services
Agreement, including Borrower's security interest in the Accounts as security
for the Loan, and consented to by Seller and the Metroplex Providers.
"Assumption Agreement" means the Assumption Agreement dated as of the
date hereof by and between Lender and Seller pursuant to which Seller agrees to
assume operations of the assets purchased by Borrower and the Obligations, and
consented to by Borrower.
"Borrower's Books" means all of Borrower's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records are not included therein,
except to the extent otherwise permitted by law.
"Closing Date" means the date of the first Advance of the Loan.
"Collateral" has the meaning specified in Section 3.1 hereof.
"Control" means (i) the ownership of a majority of the voting power of
all classes of voting stock of a corporation, or (ii) the ownership of a
majority of the beneficial interest in income and capital of a person other than
a corporation.
"Distribution" means, with respect to any shares of capital stock or
any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
"DVIBC" means DVI Business Credit Corporation, a Delaware corporation.
"Environmental Laws" means all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including, ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes, and any and
all regulations, codes, plans, orders, decrees, judgments, injunctions, notices,
or demand letters issued, entered, promulgated, or approved thereunder.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof include such sections and any
predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
"Event of Default" has the meaning specified in Section 8 hereof.
"Governmental Authority" means any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
"Guaranty" means the Unconditional Continuing Guaranty executed by
Guarantor unconditionally guaranteeing Borrower's Obligations under this
Agreement.
"Health Care Laws" mean all federal, state and local laws relating to
health care providers and health care services, including, Section 1877(a) of
the Social Security Act as amended by the Omnibus Budget Reconciliation Act of
1993, 42 USC (S) 1395nn.
"Indebtedness" of a Person means (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby have been
assumed; and (iii) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (otherwise than for the collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock or equity purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable.
"Lender Expenses" means (i) all costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under this Agreement or
under any of the other Loan Documents that are paid or advanced by Lender; (ii)
filing, recording, publication and reasonable search fees paid or incurred by
Lender in connection with Lender's transactions with Borrower; (iii) costs and
expenses incurred by Lender to correct any Event of Default or enforce any
provision of the Loan Documents or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, and preparing for sale or
advertising to sell the Collateral, whether or not a sale is consummated, after
the occurrence of an Event of Default; (iv) costs and expenses of suit incurred
by Lender in enforcing or defending the Loan Documents or any portion thereof;
(v) all costs or expenses paid by Lender to third parties to convert any data
submitted to Lender by Borrower to an
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acceptable form; and (vi) Lender's reasonable attorneys' fees and expenses
incurred (before or after execution of this Agreement) in advising Lender with
respect to, or in structuring, drafting, reviewing, negotiating, amending,
terminating, enforcing, defending or otherwise concerning, the Loan Documents or
any portion thereof, irrespective of whether suit is brought.
"Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including any interest of a vendor under a
conditional sale contract or consignment and any interest of a lessor under a
capital lease.
"Loan" means the loan made by Lender to Borrower pursuant to this
Agreement.
"Loan Documents" mean (i) this Agreement; (ii) the Note; (iii) the
Security Documents; (iv) the Lock Box Agreement; (v) the Subordination
Agreement; and (vi) any other certificates, documents or instruments delivered
by Borrower to Lender pursuant to the terms of this Agreement.
"Lock Box Accounts" means the deposit accounts with NationsBank, or
any subsequent lockbox bank, established and maintained pursuant to either Lock
Box Agreement.
"Lock Box Agreement" means those two (2) certain Lock Box Agreements
dated on or about the date hereof among Borrower, NationsBank and DVIBC or its
assignee, and any amendments, renewals or replacements thereof.
"Management Services Agreement" means the Management Services
Agreement dated as of June 1, 1997 among Seller, Borrower and the Metroplex
Providers.
"Metroplex Providers" has the meaning set forth in the Management
Services Agreement.
"Note" means the Secured Promissory Note executed by Borrower pursuant
to the terms of this Agreement.
"Obligations" mean (i) the due and punctual payment of all amounts due
or become due under the Note; (ii) the performance of all obligations of
Borrower under this Agreement, the Note and the Other Loan Documents; (iii) all
extensions, renewals, modifications, amendments and refinancings of any of the
foregoing; (iv) all Lender Expenses; and (v) all loans, advances, indebtedness
and other obligations owed by Borrower to DVIBC or Lender under the Other Loan
Documents.
"Other Loan Documents" means those five certain Loan and Security
Agreements among Borrower, Guarantor and Lender and that certain Loan and
Security Agreement among Borrower, Guarantor and DVIBC, dated on or about the
date hereof.
"Permitted Liens" means (i) Liens for property taxes and assessments
or governmental charges or levies and Liens securing claims or demands of
mechanics and
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materialmen, provided that payment thereof is not yet due or is being contested
as permitted in this Agreement; (ii) Liens of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which has not
expired, or in respect of which Borrower is in good faith prosecuting an appeal
or proceeding for a review and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured; (iii) Liens and priority
claims incidental to the conduct of business or the ownership of properties and
assets (including warehouse's and attorney's Liens and statutory landlord's
Liens); deposits, pledges or Liens to secure the performance of bids, tenders,
or trade contracts, or to secure statutory obligations; and surety or appeal
bonds or other Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided that in
each case the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings; and further
provided that any such warehouse's or statutory landlord's Liens are subordinate
or have been subordinated to the Liens of Lender in a manner satisfactory to
Lender; (iv) Liens granted to DVI or its Affiliates; and (v) Liens existing on
the date of this Agreement that are disclosed on Schedule 1.1 hereto.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
"Pledge Agreement" means that certain Pledge Agreement (Member
Interests) dated on or about the date hereof among Guarantor, Seller, the other
members who become a party to the Agreement and Lender.
"Proceeds" mean all proceeds and products of Collateral and all
additions and accessions to, replacements of, insurance or condemnation proceeds
of, and documents covering Collateral; all property received wholly or partly in
trade or exchange for Collateral; all claims against third parties arising out
of damage, destruction, or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
"Security Documents" means the Guaranty, the Pledge Agreement, the
Assignment of Acquisition Agreement, the Assignment of Management Services
Agreement and any agreement or instrument entered into between Borrower and
Lender or executed by Borrower or Guarantor and delivered to Lender in
connection with this Agreement to secure repayment of the Loan.
"Seller" means Metroplex Hematology/Oncology Associates, L.L.P., a
Texas limited liability partnership.
"Stated Rate" means Twelve and 25/100 percent (12.25%) per annum
computed on the basis of a 360-day year and actual days elapsed.
"Subordination Agreement" means the Subordination Agreement dated on
or about the date hereof between Lender, Borrower, Guarantor and Seller.
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"Unmatured Default" means any event or condition that, with notice,
passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
"Securities Purchase Agreement" means the Security Purchase Agreement
dated on or about the date hereof, among Guarantor, Weston Presidio Capital II,
L.P. and the other Investors set forth in Exhibit I thereto.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under generally
accepted accounting principles. All other terms used in this Agreement, other
than those defined in this Section 1, have the meanings accorded to them in the
Uniform Commercial Code as is enacted in any applicable jurisdiction.
Section 1.3. Construction.
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein
may be construed or resolved against any party hereto, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and their respective counsel and is entitled to be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
Section 2
LOAN
Section 2.1. The Loan. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender shall
advance to Borrower, and Borrower shall borrow from Lender, a senior secured
term loan in the amount of One Million Two Hundred Fifty Thousand and No/100
Dollars ($1,250,000) which is evidenced by the Note. The proceeds of the Loan
must be used by Borrower for part of the purchase price paid by Borrower to
acquire the assets of Seller pursuant to the Asset Purchase Agreement and to
fund the closing costs incurred in connection with the transactions contemplated
in this Agreement.
Section 2.2. Term and Repayment of Loan. The "Term" of the Loan is
seventy-two (72) months and is payable in (i) a single payment on the first day
of August of interest accrued on the unpaid principal balance at the Stated Rate
from the date of the initial Advance to July 31, (ii) two (2) payments of
interest only on the first day of the following two calendar months of interest
accrued on the unpaid principal balance at the Stated Rate for the preceding
calendar
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month, (iii) sixty-nine (69) consecutive monthly installments of Twenty-Five
Thousand Sixty-Three and 79/100 Dollars ($25,063.79) on the first day of each
calendar month thereafter, with all unpaid principal and interest due and
payable in full on the final installment date. All payments of principal and
interest must be paid in full without setoff, deduction or counterclaim. Lender
will debit the Lock Box Accounts maintained pursuant to the Lock Box Agreement
for payment of each monthly installment of amounts due and payable pursuant to
this Agreement. Borrower shall satisfy any Obligations not paid by such
deductions by direct payment to Lender at 500 Hyde Park, Doylestown, PA 18901.
Section 2.3. Prepayment. The Loan is not subject to prepayment or
redemption in whole or in part prior to the expiration of the Term.
Section 2.4. Late Payments. If Borrower fails to make any payment of
interest or principal, including the payment due upon maturity, when the same is
due and payable and such payment can not be made by debit from the Lock Box
Accounts and such failure continues for five (5) business days after
nonpayment, a late charge by way of damages to the extent provided in this
Section 2.4 is immediately due and payable. Borrower recognizes that default by
Borrower in making the payments herein agreed to be paid when due will result in
the Lender incurring additional expenses, in loss to the Lender of the use of
the money due and in frustration to the Lender in meeting its other commitments.
Lender is entitled to damages for the detriment caused thereby, but it is
extremely difficult and impractical to ascertain the extent of such damages.
Borrower shall pay on demand a sum equal to five cents ($.05) for each one
dollar ($1.00) of each payment which is not received within five (5) business
days after the date it is due and payable is a reasonable estimate of the
damages to the Lender. If any part of the principal or interest is not paid
when due, it thereafter bears interest at the rate of eighteen percent (18%) per
annum from and as of the date of delinquency until paid, provided, however, that
any amount due pursuant to the preceding sentence must be deducted from the
amount due pursuant to this sentence. If the specified interest rate at any
time exceeds the maximum rate allowed by law, then the applicable interest rate
is reduced to the maximum rate allowed by law.
Section 2.5. Conditions to the Closing. The obligation of Lender to
make an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement
and in the Other Loan Documents are true and correct on and as of the date
hereof and are true and correct in all material respects as of the Closing Date
and Borrower has performed all obligations required to have been performed by it
hereunder prior to Closing Date.
(b) Borrower has executed and delivered to Lender (or caused to be
executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Subordination Agreement;
(vi) the Pledge Agreement;
(vii) the Lock Box Agreement;
(viii) the Assignment of Management Services Agreement;
(ix) the Assignment of Acquisition Instruments;
(x) the Assumption Agreement;
(xi) evidence satisfactory to Lender that the transactions
contemplated by the Asset Purchase Agreement and the Venture Capital Agreement
have been consummated in accordance with the terms of such agreements;
(xii) evidence satisfactory to Lender that Borrower is a
limited liability company and Guarantor is a corporation duly formed, validly
existing and in good standing in the state in which it was formed and in each
state in which it is authorized to do business;
(xiii) certificates of insurance that evidence the insurance
coverage and policy provisions required by this Agreement and in the Loan
Documents;
(xiv) pay-off letters, UCC Termination Statement and Lien
Releases as required to grant Lender a first priority security interest, other
than Permitted Liens, in Collateral pledged as security for repayment of the
Loan;
(xv) signature and incumbency certificate of Borrower and
Guarantor;
(xvi) certified copies of resolutions of the members of
Borrower and the Board of Directors of Guarantor authorizing the execution and
delivery of the Loan Documents to be executed by Borrower and Guarantor;
(xvii) copies of the Articles of Organization of Borrower and
Articles of Incorporation of Guarantor certified by the applicable Secretary of
State;
(xviii) copies of the Regulations of Borrower and Bylaws of
Guarantor certified by an officer thereof;
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(xix) certified copies of the Asset Purchase Agreement and
all documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xx) certified copies of the Venture Capital Agreement and
all other documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xxi) certified copy of the Management Services Agreement
satisfactory in form and substance to Lender;
(xxii) the consent of Western Presidio Capital II, L.P. and
the other Investors set forth in Exhibit I to the Venture Capital Agreement to
the terms of this transaction;
(xxiii) the written opinion of counsel to Borrower and
Guarantor issued on the Closing Date and satisfactory to Lender in scope and
substance; and
(xxiv) a certificate from an officer of Borrower indicating
that the representations and warranties contained herein are true and correct as
of the Closing Date.
(c) Borrower has paid closing fees to Lender including Lender's
reasonable legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default has
occurred and is continuing.
(e) None of Borrower, Seller nor Guarantor has suffered a material
adverse change in its business, operations or financial condition from that
reflected in the Financial Statements of Borrower and Guarantor or Seller
delivered to Lender or otherwise.
(f) Lender has received such additional supporting documents,
certificates and assurances as Lender reasonably requests which are satisfactory
to Lender in form and substance.
Section 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest. In order to secure prompt
payment and performance of the Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the following property
of Borrower (the "Collateral"), whether now owned or existing or hereafter
acquired or arising and regardless of where located, subject only to Permitted
Liens. This security interest in the Collateral attaches to all Collateral
without further action on the part of Lender or Borrower. Borrower shall keep
the Collateral at 906 West Randol Mill Road, Arlington, Texas 76012.
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The Collateral consists of the following, together with such third-
party consents, lien waivers and estoppel certificates as Lender reasonably
requires:
(a) all of Borrower's equipment and machinery listed on Schedule 3.1
and all machine tools, motors, tools, parts, attachments, accessories,
accessions, replacements, upgrades, substitutions, additions and improvements
related thereto, wherever located, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds;
(b) all of Borrower's right, title and interest in and to the
Accounts, whether presently existing or hereafter arising, and all contract
rights, instruments, notes, securities, drafts, documents, chattel paper and all
other forms of obligations owing to Borrower or Seller arising out of the sale
or lease of goods or the rendition of services, whether or not earned by
performance, and any and all credit insurance, guarantees and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower or
Seller and all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including the pledge to it of the Borrower's
interest in the Accounts, cash and non-cash Proceeds. Notwithstanding the
foregoing or any other provision hereof, Lender's Lien on and security interest
in the Collateral described in this clause (b) will be released if the Other
Loan Agreement with DVIBC has been terminated and the conditions contained in
Section 7.17 have been satisfied;
(c) all of Borrower's presently existing and hereafter acquired
general intangibles (including, Borrower's rights and interest under the
Management Services Agreement, and any and all choices in action, goodwill,
patents, trade names, trademarks, blueprints, drawings, purchase orders,
computer programs, computer discs, computer tapes, literature, reports,
catalogues, deposit accounts and tax refunds) other than goods and accounts, as
well as all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including cash and non-cash Proceeds; and
(d) all of Borrower's presently existing and hereafter acquired
inventory including, without limitation, goods held for sale or lease or to be
furnished under a contract of service, wherever located, and any documents of
title representing any of the above, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds.
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower. The exact name of Borrower is MHOA
Texas I, L.L.C. Borrower was formed under the laws of the State of Texas. The
following are all previous legal names of Borrower: None. Borrower uses the
following trade names: None. The following are all other trade names used by
Borrower in the past: None.
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Section 4.2. Mergers and Consolidations. Other than the merger with
MHOA Texas I, Inc., a Texas corporation, no entity has merged into Borrower or
been consolidated with Borrower.
Section 4.3. Purchase of Assets. Other than pursuant to the Asset
Purchase Agreement, no entity has sold substantially all of its assets to
Borrower or sold assets to Borrower outside the ordinary course of such seller's
business at any time in the past.
Section 4.4. Change of Name or Identity. Borrower shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
Section 4.5. Corporate Structure. Guarantor, Seller and the Metroplex
Providers hold one hundred percent (100%) of the member interests in Borrower.
Such member interests are the sole authorized and outstanding security interests
in Borrower.
Section 5
PROVISIONS CONCERNING COLLATERAL
Section 5.1. Title. Borrower has good and marketable title to the
Collateral, and the Liens granted to Lender pursuant to this Agreement are fully
perfected first-priority Liens, in and to the Collateral with priority over the
rights of every person in the Collateral, free, clear and unencumbered by any
Liens in favor of any person other than Lender except for Permitted Liens.
Section 5.2. No Warranties. This Agreement is solely a financing
agreement. Borrower acknowledges that with respect to the appropriate
Collateral: the Collateral has or will have been selected and acquired solely
by Borrower for Borrower's purposes; Lender is not the manufacturer, dealer,
vendor or supplier of the Collateral; the Collateral is of a size, design,
capacity, description and manufacturer selected by Borrower; Borrower is
satisfied that the Collateral is suitable and fit for its purposes; and LENDER
HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER
EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR
OPERATION OF THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE
OF THE COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE COLLATERAL OR
WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER.
Section 5.3. Further Assurances. Borrower shall execute and deliver
to Lender, concurrent with Borrower's execution of this Agreement and at any
time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens
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in the Collateral and in order to consummate fully all of the transactions
contemplated under the Loan Documents. Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender's officers, employees or
agents designated by Lender) as Borrower's true and lawful attorney with power
to sign the name of Borrower on any of the above-described documents or on any
other similar documents that need to be executed, recorded, or filed in order to
perfect or continue perfected Lender's Liens in the Collateral. The appointment
of Lender as Borrower's attorney is irrevocable as long as any Obligations are
outstanding. Any person dealing with Lender is entitled to rely conclusively on
any written or oral statement of Lender that this power of attorney is in
effect.
Section 5.4. Intentionally Deleted.
Section 5.5. Lender's Duty of Care. Lender has no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender will be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as the Borrower requests or agrees to in
writing, provided that no failure to comply with any such request nor any
omission to do any such act requested by the Borrower may be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property may not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
loss, damage or destruction of the Collateral is borne by Borrower except to the
extent Lender breaches the standard of care set forth in this Section 5.5.
Section 5.6. Borrower's Contracts. Schedule 5.6 attached hereto is a
true and complete list of all material contracts and agreements to which
Borrower is a party or will become a party pursuant to the assumption of
Seller's rights and obligations under the terms of the Asset Purchase Agreement.
Borrower remains liable to perform its Obligations under any contracts and
agreements included in the Collateral to the same extent as though this
Agreement had not been entered into and Lender does not have any obligation or
liability under such contracts and agreements by reason of this Agreement or
otherwise.
Section 5.7. Reinstatement of Liens. If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for any reason whatsoever (including, the insolvency,
bankruptcy, or reorganization of Borrower or such other Person), this Agreement
and then Lender's Liens granted hereunder are reinstated as to all disgorged
payments as though such payments had not been made, and Borrower shall sign and
deliver to Lender all documents and things necessary to perfect all terminated
Liens.
Section 5.8. Lender Expenses. If Borrower fails to pay any moneys
(whether taxes, assessments, insurance premiums or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit or fails to discharge any Lien not permitted hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's
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interest in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof; provided, however,
Lender shall make a reasonable attempt to make a prior notification of Borrower
if a delay in making such payment would not have a material advise impact on
Lender's interest in the Collateral. Any amounts paid or deposited by Lender
constitute Lender Expenses, become part of the Obligations, bear interest at the
rate of eighteen percent (18%) per annum, and are secured by the Collateral. Any
payments made by Lender do not constitute (a) an agreement by Lender to make
similar payments in the future or (b) a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance or Lien, and the receipt
of the usual official notice for the payment of moneys to a governmental entity
is conclusive evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 5.9. Inspection of Collateral and Records. During usual
business hours, Lender may inspect and examine the Collateral and check and test
the same as to quality, quantity, value and condition and Borrower shall
reimburse Lender for its reasonable costs and expenses in so doing. Lender also
has the right at any time or times hereafter, during usual business hours to
inspect and verify Borrower's Books in order to verify the amount or condition
of, or any other matter relating to, the Collateral and Borrower's financial
condition and to copy and make extracts therefrom. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Lender
pursuant to this Agreement. Lender may directly contact any such accounting
firm or service bureau in order to obtain such information.
Section 5.10. Waivers. Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby warrants and
represents to Lender the following:
Section 6.1. Corporate Status. Borrower is a limited liability
company validly existing and in good standing under the laws of the State of
Texas; Guarantor is a corporation validly existing and in good standing under
the laws of the State of Delaware; and each of such entities is qualified and
licensed to do business and is in good standing in any state in which the
conduct of its
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business or its ownership of property requires that it be so qualified or
licensed, and has the power and authority (corporate and otherwise) to execute
and carry out the terms of the Loan Documents to which it is a party, to own its
assets and to carry on its business as currently conducted.
Section 6.2. Authorization. The execution, delivery, and performance
by Borrower and Guarantor of this Agreement and each Loan Document have been
duly authorized by all necessary company action. Borrower and Guarantor have
duly executed and delivered this Agreement and each Loan Document to which they
are a party, and each such Loan Document constitutes a valid and binding
obligation of Borrower and Guarantor.
Section 6.3. No Breach. The execution, delivery and performance by
Borrower and Guarantor of this Agreement and each Loan Document to which they
are a party (a) will not contravene any law or any governmental rule or order
binding on Collateral; (b) will not violate any provision of the articles of
organization or regulations of Borrower or the articles of incorporation or
bylaws of Guarantor; (c) will not violate any agreement or instrument by which
Borrower or Guarantor or their assets, is bound; (d) do not require any notice
to consent by any Governmental Authority; and (e) will not result in the
creation of a Lien on any assets of Borrower except the Lien to Lender granted
herein.
Section 6.4. Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against Borrower,
or its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
Section 6.5. Deferred Compensation Plans. Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any single-
employer or multi-employer plans. Neither Borrower nor any ERISA Affiliate is
or at any time has been a sponsor of, provided, or maintained for any employees
any defined benefit plan.
Section 6.6. Litigation and Proceedings. Except as set forth on
Schedule 6.6 attached hereto, there are no outstanding judgments against
Borrower or its assets and there are no actions or proceedings pending by or
against Borrower before any court or administrative agency. Borrower has no
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and except as set forth in Schedule 6.6 hereto.
Section 6.7. Business. Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or
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subject to any agreement or restriction that is so unusual or burdensome that it
might have a material adverse effect on Borrower's business, properties or
prospects.
Section 6.8. Laws and Agreements. Borrower is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Borrower is in material compliance with all laws applicable to it.
Section 6.9. Financial Condition. All financial statements and
information relating to Borrower, Guarantor, Seller or their assets that have
been or may hereafter be delivered by Borrower to Lender are accurate and
complete in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied. Borrower and
Guarantor have no material obligations or liabilities of any kind not disclosed
in that financial information, and there has been no material adverse change in
the financial condition of Borrower, Guarantor or Seller since the date of the
most recent financial statements submitted to Lender.
Section 6.10. Environmental Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Environmental Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and are also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Environmental
Laws, or may give rise to any material common law or legal liability, or
otherwise form the basis of any material claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous substance or waste.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Environmental
Laws.
Section 6.11. Insurance. Schedule 6.11 sets forth a complete and
accurate list of all policies of fire, liability, product liability, workers'
compensation, health, business interruption and other forms of insurance
currently in effect with respect to Borrower's business, true copies of which
have heretofore been delivered to Lender. All such policies are valid,
outstanding and enforceable policies and, to the best knowledge of Borrower,
each will remain in full force and effect at least through the respective dates
set forth on Schedule 6.11.
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Section 6.12. Ownership of Property. Borrower has good and marketable
title to all of its properties and assets, free and clear of all liens, security
interests and encumbrances, except Permitted Liens. Borrower has the exclusive
right to use all such assets.
Section 6.13. Health Care Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and is in compliance in all material respects with all terms and conditions of
the required permits, licenses and authorizations, and are also in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Health Care Laws.
Section 6.14. Cumulative Representations. The warranties,
representations and agreements set forth herein are cumulative and in addition
to any and all other warranties, representations and agreements that Borrower
gives, or cause to be given, to Lender, either now or hereafter.
Section 6.15. Full Disclosure. No representation, warranty or
statement by Borrower or Guarantor contained in this Agreement, any Schedule or
any document, instrument or certificate furnished by or on behalf of any of them
pursuant to this Agreement contains any untrue, incorrect, incomplete or
misleading statement of material fact, or knowingly omits to state a material
fact necessary to make the statements contained therein not misleading.
Section 7
COVENANTS
Section 7.1. Encumbrance of Collateral. Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower except for Liens to Lender and Permitted Liens.
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Section 7.2. Business. Borrower shall engage primarily in business of
physician practice management and related services.
Section 7.3. Condition and Repair. Borrower shall maintain in good
repair and working order all material properties used in its business and from
time to time shall make all appropriate repairs and replacements thereof.
Section 7.4. Taxes. Borrower shall pay all taxes, assessments and
other governmental charges imposed upon it or any of its assets or in respect of
any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by generally accepted accounting principles. Borrower shall
make timely payment or deposit of all FICA payments and withholding taxes
required of it by applicable laws and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower has made such payments or
deposits.
Section 7.5. Insurance. Borrower shall maintain, with financially
sound and reputable insurers, insurance with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily
insured against by corporations of established reputation engaged in the same or
similar businesses. Each such policy must name Lender as an additional insured
and, where applicable, as loss payee under a lender loss payable endorsement
satisfactory to Lender and must provide for thirty (30) days' written notice to
Lender before such policy is altered or canceled.
Section 7.6. Accounting System. Borrower and Guarantor at all times
hereafter shall maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles consistently applied,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower and Guarantor shall not modify or change their
method of accounting or enter into any agreement hereafter with any third-party
accounting firm or service bureau for the preparation or storage of their
accounting records without the accounting firm's or service bureau's agreeing to
provide to Lender information regarding the Collateral and Borrower's and
Guarantor's financial condition.
Section 7.7. Financial Statements. Borrower shall submit monthly
financial statements, showing a comparison of actual expenditures to budgeted
amounts, with respect to Borrower and Guarantor, to Lender as soon as available,
and in any event within thirty (30) days of the end of each month.
Additionally, Borrower shall submit audited financial statements with respect to
Borrower and Guarantor to Lender as soon as available, and in any event within
one hundred twenty (120) days of the end of each fiscal year. With all
financial statements, Borrower
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shall deliver a certificate of its chief financial officer attesting that to the
best of such officer's knowledge no Event of Default or Unmatured Default under
this Agreement has occurred and is continuing.
Section 7.8. Further Information. Borrower and Guarantor shall
promptly supply Lender with such other information concerning its affairs as
Lender may reasonably request from time to time hereafter and shall promptly
notify Lender of any material adverse change in Borrower's or Guarantor's
financial condition and any condition or event that constitutes an Event of
Default or Unmatured Default under this Agreement. In addition, Borrower and
Guarantor authorize Lender to contact credit reporting agencies concerning their
credit standing.
Section 7.9. ERISA Covenants. Borrower shall, and shall cause each
ERISA Affiliate to, comply with all applicable provisions of ERISA and all other
laws applicable to any deferred compensation plans with which Borrower or any
ERISA Affiliate is associated, the failure with which to comply would have a
material adverse effect on Borrower's business or financial condition and shall
promptly notify Lender of the occurrence of any event that could result in any
material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
Section 7.10. Environmental Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
Governmental Authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower or
a Subsidiary would be required to notify any Governmental Authority with
jurisdiction over Environmental Laws.
Section 7.1. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower may not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets having an
aggregate value of greater than $100,000 in any twelve month period in any
transaction or series of related transactions other than (i) sales in the
ordinary course of business, (ii) if being replaced by items of comparable or
greater value, provided, Borrower receives the consent of Lender, which will not
be unreasonably withheld, to any such transfer having a value greater than
$100,000, and (iii) a transfer of assets to Seller pursuant to the terms of the
Assumption Agreement;
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
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(d) acquire interests in any other entity in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(e) become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents;
(f) authorize or issue any additional member interests or equity
interest; or
(g) own, hold, lease or operate with any real property nor any other
property not necessary or useful to the operation of Borrower's business as it
is presently proposed to be conducted.
Section 7.12. Health Care Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Health Care Laws applicable to it.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
Section 7.13. Distributions. Except as set forth on Schedule 7.13
hereto, Borrower may not make any Distributions nor pay any management fee,
consulting fee or any similar fee without the prior written consent of Lender,
which may be withheld in its sole discretion.
Section 7.14. Capital Expenditures. Borrower may not spend nor incur
obligations, including the total amount of any capital leases, to acquire fixed
or capital assets exceeding One Million Dollars ( $1,000,000) in any fiscal
year.
Section 7.15. Other Debt. (a) Borrower may not incur any direct or
contingent liabilities, including capital leases, in an aggregate amount
exceeding $100,000 in any twelve month period without Lender's prior written
consent, which may not be unreasonably withheld, provided however that Borrower
shall provide Lender written notice of its intention to incur any such liability
and if such financing can be provided by a third party source such as Lender,
offer Lender a right of first offer to provide such financing. In order to
comply with the right of first offer contained in this Section, Borrower shall
provide Lender with the terms of the proposed financing, including interest
rate, term, amount and collateral for the financing. If Lender declines to
provide the financing on such terms, or does not respond to Borrower's notice
within ten Business Days of receipt thereof, then Borrower can seek alternative
financing on such terms, provided Borrower continues to comply with the first
sentence of this Section. Lender's decision not to provide any such financing
does not waive its right of first offer with respect to any subsequent
financing.
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(b) Nothing contained in this Section 7.15 prohibits Borrower from:
(i) acquiring goods, supplies or merchandise on normal trade credit;
(ii) endorsing negotiable instruments, received in the usual course
of business; or
(iii) obtaining surety bonds in the usual course of business.
Section 7.16. Debt Service Coverage. Borrower shall maintain as of
the last day of each calendar month, beginning September 30, 1997, a debt
service coverage ratio of no less than 1.5:1 for the previous twelve calendar
month period; provided, that such ratio is calculated on an annualized basis
during the first twelve months following the Closing Date.
"Debt service coverage" means (i) the sum of net income plus
depreciation plus amortization plus interest expense, divided by (ii) the sum of
capitalized lease payments plus loan payments plus interest expense.
Section 7.17. Termination of Covenants. If Guarantor (i) successfully
completes a public offering of its common stock and other securities registered
under the Securities Exchange Act of 1933, as amended, which results in
Guarantor receiving net proceeds of Thirty-Five Million Dollars ($35,000,000) or
more, or (ii) at the end of any fiscal quarter Guarantor or its successor, by
merger or otherwise, attains a net worth of Fifty Million Dollars or more, then
the covenants contained in Sections 7.13, 7.14 and 7.15 will no longer apply to
the Loan and thereafter will be considered deleted from the Agreement.
Section 8
EVENTS OF DEFAULT
An Event of Default is deemed to exist if any of the following events
have occurred and is continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure continues for five (5) business days
after the payment is due;
(b) Borrower fails to observe or perform any material covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any Loan Document to which it is a party and such failure is not cured as
soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender;
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(c) Borrower fails to keep its assets insured as required herein, or
material uninsured damage to or loss, theft or destruction of the Collateral
occurs and such assets are not repaired or replaced with five (5) days;
(d) A court enters a decree or order for relief in respect of Borrower
in an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in excess of
$100,000 is rendered against Borrower and remains undischarged for thirty (30)
days during which execution is not effectively stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any of the
Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant, condition or agreement to be performed under
any Loan Document to which it is a party;
(h) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise, other than as permitted
pursuant to Section 7.11(b);
(i) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $100,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(j) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(k) Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs and such court order is not revoked or overturned within five (5) days;
(l) A judgment or other claim in excess of $100,000 becomes a Lien
upon any or all of Borrower's assets, other than a Permitted Lien;
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(m) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets by any
Governmental Authority or any tax or debt owing at any time hereafter to any one
or more of such entities becomes a Lien upon any or all of Borrower's assets and
the same is not paid on the payment date thereof, except to the extent such tax
or debt is being contested by Borrower as permitted in Section 6.4;
(n) There is a material impairment of the value of the Collateral
which is not insured or priority of Lender's Liens on the Collateral;
(o) Any of Borrower's assets in excess of $100,000 or any Collateral
are seized, subjected to a distress warrant, levied upon or come into the
possession of any judicial officer;
(p) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is materially incorrect when made;
(q) Guarantor is in default under the Guaranty or this Loan Agreement
or an Event of Default occurs under the Other Loan Documents; or
(r) If the aggregate dollar value of all judgments, defaults, demands,
claims and notices of Liens under clauses (f), (i), (j), (l), (m) and (o) hereof
exceeds $250,000.
Section 9
REMEDIES
Section 9.1. Specific Remedies. Upon the occurrence of any Event of
Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(c) Lender may enter any premises of Borrower, with or without
judicial process, and take possession of the Collateral; provided however, that
Lender may only exercise such remedy if it may do so without a breach of the
peace. Lender may remove the Collateral and may remove or copy all records
pertaining thereto, or Lender may remain on such premises and use the premises
for the purpose of collecting, preparing and disposing of the Collateral,
without any liability for rent or occupancy charges. Borrower shall, upon
request of Lender, assemble the Collateral and any records pertaining thereto
and make them available at a place designated by Lender that is reasonably
convenient to both parties.
22
<PAGE>
(d) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease, and insure the Collateral. Lender may use and operate
equipment of Borrower in order to process or finish inventory included in the
Collateral. If any Collateral consists of documents, Lender may proceed either
as to the documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any encumbrance,
charge or Lien that, in the opinion of Lender, appears to be prior or superior
to its Lien and pay all reasonable expenses incurred in connection therewith.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders or other forms of payment of or security for Accounts or
other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors
or issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
(g) Lender may sell the Collateral at public or private sale and is
not required to repossess Collateral before selling it. Any requirement of
reasonable notice of any disposition of the Collateral is satisfied if such
notice is sent to Borrower, ten (10) days prior to such disposition by any of
the methods provided in Section 11.5 hereof. Borrower will be credited with the
net proceeds of such sale only when they are actually received by Lender, and
Borrower continues to be liable for any deficiency remaining after the
Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give notice
of the time and place by publishing a notice one time at least five (5) days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender may be
the purchaser of any or all of the Collateral at any public sale and is
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
Section 9.2. Power of Attorney. Borrower hereby appoints Lender (and
any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power after the occurrence of an Event of Default:
(a) to endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and assignments of Accounts, on verifications of Accounts, and on
notices to Account Debtors; (c) to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
to receive and open all mail addressed to Borrower and to retain all mail
23
<PAGE>
relating to the Collateral and forward all other mail to Borrower; (d) to send
requests for verification of Accounts; (e) to execute UCC Financing Statements;
and (f) to do all things necessary to carry out this Agreement. The appointment
of Lender as Borrower's attorney and each and every one of Lender's rights and
powers, being coupled with an interest, are irrevocable as long as any
Obligations are outstanding. Lender shall not exercise the power granted in
clauses 9.2(a) through 9.2(c) prior to the occurrence of an Event of Default and
shall not exercise the power granted in clause 9.2(d) prior to notification of
Borrower of its intent to do so, but such limitations do not limit the
effectiveness of such power of attorney at any time. Any person dealing with
Lender is entitled to rely conclusively on any written or oral statement of
Lender that this power of attorney is in effect. Lender may also use Borrower's
stationery in connection with exercising its rights and remedies and performing
the Obligations of Borrower.
Section 9.3. Expenses Secured. All expenses, including reasonable
attorney fees, incurred by Lender in the exercise of its rights and remedies
provided in this Agreement, in the Other Loan Documents or by law shall be
payable by Borrower to Lender, are part of the Obligations, and are secured by
the Collateral.
Section 9.4. Equitable Relief. Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, in certain cases no remedy of law will provide
adequate relief to Lender, and Lender is entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 9.5. Remedies Are Cumulative. No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or Guarantor or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
may be deemed to be an election. No delay by Lender constitutes a waiver,
election, or acquiescence by it. Borrower on its behalf waives any rights to
require Lender to proceed against Guarantor or any other party; or proceed
against or exhaust any security held from Guarantor or any other party. Lender
may at any time and from time to time, without notice to, or consent of,
Borrower, and without affecting or impairing the obligation of Borrower
hereunder do any of the following: (i) renew or extend any obligations of
Guarantor, or of any other party at any time directly or contingently liable for
payment of any of the obligations of Guarantor; (ii) accept partial payments of
the obligations of Guarantor; (iii) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the obligations of
Guarantor and the security therefor in any manner; or (iv) consent to the
transfer or sale of any security or bid and purchase at any sale of any security
of Guarantor. The validity of this Agreement and the Obligations of Borrower
are not terminated, affected or impaired by reason of the waiving, delaying,
exercising or non-exercising, of any of Lender's rights against Guarantor or as
a result of the substitution, release, repossession, sale, disposition or
destruction of any Collateral securing any obligations of Guarantor. Borrower
is not released or discharged, either in whole or in part, by Lender's failure
or delay to perfect or continue the perfection of any security interest in any
Collateral which secures the obligations of Guarantor or to protect the property
covered by such security interest.
24
<PAGE>
Section 10
INDEMNITY
Section 10.1. General Indemnity. BORROWER SHALL UNCONDITIONALLY
PROTECT, INDEMNIFY, DEFEND AND HOLD HARMLESS LENDER AND ITS DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS FROM AND AGAINST ANY LOSS, COST, LIABILITY (INCLUDING
NEGLIGENCE, TORT AND STRICT LIABILITY), EXPENSE, DAMAGE, SUITS, DEMANDS OR
CLAIMS (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) ON ACCOUNT OF ANY SUIT OR
PROCEEDING BEFORE ANY GOVERNMENTAL AUTHORITY WHICH ARISES FROM THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT OR OTHERWISE ARISING IN CONNECTION WITH OR
RELATING TO THE LOAN AND ANY SECURITY THEREFOR, UNLESS SUCH SUIT, CLAIM OR
DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MALFEASANCE OF LENDER
OR ITS DIRECTORS, OFFICER, AGENTS OR EMPLOYEES. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower survives the
termination of this Agreement and the repayment of the Note.
Section 10.2. Specific Environmental Indemnity. Borrower shall
unconditionally protect, indemnify, defend and hold harmless Lender, its
directors, officers, employees and agents against any loss, cost, liability
(including negligence, tort and strict liability), expense, damage, suits,
demands or claim (including fees and disbursements of counsel) arising under any
Environmental Laws having jurisdiction over the property or assets of Borrower
or any portion thereof or its use.
Section 11
MISCELLANEOUS
Section 11.1. Delay and Waiver. No delay or omission to exercise any
right impairs any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion is limited to that particular occasion.
Section 11.2. Complete Agreement. This Agreement and the Schedules
are the complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
25
<PAGE>
Section 11.3. Severability; Headings. If any part of this Agreement
or the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement is unaffected thereby. The section headings herein
are included for convenience only and may not be deemed to be a part of this
Agreement.
Section 11.4. Binding Effect. This Agreement is binding upon and
inures to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; provided however, Borrower may not assign any of
its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who thereupon has all of the rights of Lender; and
Lender (or such subsequent assignee who in turn assigns as aforesaid) is then
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 11.5. Notices. Any notices under or pursuant to this
Agreement are deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, facsimile, or similar electronic medium to
the following addresses:
To Borrower: MHOA Texas I, L.L.C.
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Thomas Rodgers
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Guarantor: Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah Garvins
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Lender: DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
Attention: Michael A. O'Hanlon
Telephone: (215) 345-6600
Facsimile: (215) 230-8108
26
<PAGE>
Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
Any party may change such address by sending notice of the change to
the other parties; such change of address is effective only upon actual receipt
of the notice by the other parties.
Section 11.6. Governing Law. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO ARE GOVERNED, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.
Section 11.7. Jurisdiction. The state and federal courts in Orange
County, California or any other court in which Lender initiates proceedings have
jurisdiction over all matters arising out of this Agreement and that service of
process in any such proceeding are effective if mailed to Borrower at its
address described in the Notices section of this Agreement. Borrower waives any
right it may have to assert the defense of forum non conveniens or to object to
such venue and hereby consents to any court-ordered relief.
Section 11.8. Waiver of Trial by Jury. LENDER, GUARANTOR AND BORROWER
HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS
AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE RELATIONSHIP
BETWEEN LENDER, GUARANTOR AND BORROWER.
27
<PAGE>
IN WITNESS WHEREOF, Borrower, Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
BORROWER: LENDER:
MHOA TEXAS I, L.L.C. DVI FINANCIAL SERVICES INC.
By: /s/ Sarah C. Garvin By: /s/ Raymond Fear
-------------------- ------------------
Sarah C. Garvin Raymond Fear
President Vice President
GUARANTOR:
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
--------------------
Sarah C. Garvin
President
<PAGE>
Schedule 1.1
Permitted Liens
1. Those liens listed on Schedule 3.16 of that certain Asset Purchase and
Contribution Agreement dated as of June 16, 1997, executed by and between
Borrower, Seller and certain other parties (the "Purchase Agreement"), and all
other Permitted Encumbrances, as defined therein.
2. Lien and security interest created in favor of DVIBC on the Collateral
described in Section 3.1(b) pursuant to a Loan and Security Agreement dated as
of the date of this Agreement, which Lien and security interest are intended by
all parties to be prior to the Liens and security interests of this Agreement.
<PAGE>
Schedule 3.1
LOAN NO. 5
----------
1. Picker PQ 200 CT Scanner
2. Becton Dickinson Cytometer
3. Varian XIM-cx simulator
And all equipment and assets listed as Personal Property in Schedule 3.12 of the
Purchase Agreement.
<PAGE>
Schedule 5.6
Material Contracts
1. The Management Agreement.
2. The Benefit Agreements, Employee/Contract Labor Agreements, Real Property
Leases (for business space only) and Services Contracts listed on Schedule 3.20
of the Purchase Agreement and assumed by Borrower thereunder.
<PAGE>
Schedule 6.6
Litigation and Proceedings
None
<PAGE>
Schedule 6.11
Insurance
Those insurance policies described in the certificates attached hereto.
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
Schedule 7.13
Permitted Distributions
Borrower is permitted to make Distributions to Guarantor provided after
such payment Borrower continues to satisfy the debt service coverage ratio set
forth in Section 7.16.
<PAGE>
EXHIBIT 10.61
LOAN AND SECURITY AGREEMENT NO. 6
among
MHOA TEXAS I, L.L.C.
Borrower
PHYSICIAN HEALTH CORPORATION
Guarantor
and
DVI FINANCIAL SERVICES INC.
Lender
Dated as of June 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1
DEFINITIONS ........................................................... 1
Section 1.1. Specific Definitions .................................... 1
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code ...................................................... 6
Section 1.3. Construction ............................................ 6
Section 2
LOAN .................................................................. 6
Section 2.1. The Loan ................................................ 6
Section 2.2. Term and Repayment of Loan .............................. 6
Section 2.3. Prepayment .............................................. 7
Section 2.4. Late Payments ........................................... 7
Section 2.5. Conditions to the Closing ............................... 7
Section 3
SECURITY INTEREST ..................................................... 9
Section 3.1. Grant of Security Interest .............................. 9
Section 4
SPECIFIC REPRESENTATIONS .............................................. 10
Section 4.1. Name of Borrower ........................................ 10
Section 4.2. Mergers and Consolidations .............................. 10
Section 4.3. Purchase of Assets ...................................... 11
Section 4.4. Change of Name or Identity .............................. 11
Section 4.5. Corporate Structure ..................................... 11
Section 5
PROVISIONS CONCERNING COLLATERAL ...................................... 11
Section 5.1. Title ................................................... 11
Section 5.2. No Warranties ........................................... 11
Section 5.3. Further Assurances ...................................... 11
Section 5.4. Intentionally Deleted ................................... 12
Section 5.5. Lender's Duty of Care ................................... 12
Section 5.6. Borrower's Contracts .................................... 12
Section 5.7. Reinstatement of Liens .................................. 12
i
<PAGE>
Section 5.8. Lender Expenses ......................................... 12
Section 5.9. Inspection of Collateral and Records .................... 13
Section 5.10. Waivers ................................................ 13
Section 6
REPRESENTATIONS AND WARRANTIES ........................................ 13
Section 6.1. Corporate Status ........................................ 13
Section 6.2. Authorization ........................................... 14
Section 6.3. No Breach ............................................... 14
Section 6.4. Taxes ................................................... 14
Section 6.5. Deferred Compensation Plans ............................. 14
Section 6.6. Litigation and Proceedings .............................. 14
Section 6.7. Business ................................................ 14
Section 6.8. Laws and Agreements ..................................... 14
Section 6.9. Financial Condition ..................................... 15
Section 6.10. Environmental Laws ..................................... 15
Section 6.11. Insurance .............................................. 15
Section 6.12. Ownership of Property .................................. 15
Section 6.13. Health Care Laws ....................................... 16
Section 6.14. Cumulative Representations ............................. 16
Section 6.15. Full Disclosure ........................................ 16
Section 7
COVENANTS ............................................................. 16
Section 7.1. Encumbrance of Collateral ............................... 16
Section 7.2. Business ................................................ 16
Section 7.3. Condition and Repair .................................... 16
Section 7.4. Taxes ................................................... 17
Section 7.5. Insurance ............................................... 17
Section 7.6. Accounting System ....................................... 17
Section 7.7. Financial Statements .................................... 17
Section 7.8. Further Information ..................................... 17
Section 7.9. ERISA Covenants ......................................... 18
Section 7.10. Environmental Covenants ................................ 18
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc ............................................... 18
Section 7.12. Health Care Covenants .................................. 19
Section 7.13. Distributions .......................................... 19
Section 7.14. Capital Expenditures ................................... 19
Section 7.15. Other Debt ............................................. 19
Section 7.16. Debt Service Coverage .................................. 19
Section 7.17. Termination of Covenants ............................... 20
ii
<PAGE>
<TABLE>
<S> <C>
Section 8
EVENTS OF DEFAULT ..................................................... 20
Section 9
REMEDIES .............................................................. 22
Section 9.1. Specific Remedies ....................................... 22
Section 9.2. Power of Attorney ....................................... 23
Section 9.3. Expenses Secured ........................................ 24
Section 9.4. Equitable Relief ........................................ 24
Section 9.5. Remedies Are Cumulative ................................. 24
Section 10
INDEMNITY ............................................................. 24
Section 10.1. General Indemnity ...................................... 24
Section 10.2. Specific Environmental Indemnity ....................... 25
Section 11
MISCELLANEOUS ......................................................... 25
Section 11.1. Delay and Waiver ....................................... 25
Section 11.2. Complete Agreement ..................................... 25
Section 11.3. Severability; Headings ................................. 25
Section 11.4. Binding Effect ......................................... 25
Section 11.5. Notices ................................................ 26
Section 11.6. Governing Law .......................................... 26
Section 11.7. Jurisdiction ........................................... 27
Section 11.8. Waiver of Trial by Jury ................................ 27
</TABLE>
SCHEDULES
1.1. Permitted Liens
3.1 Personal Property
5.6 Material Contracts
6.6. Litigation and Proceedings
6.11. Insurance
6.13. Health Care Permits
7.13. Permitted Distributions
iii
<PAGE>
LOAN AND SECURITY AGREEMENT NO. 6
THIS LOAN AND SECURITY AGREEMENT NO. 6 (this "Agreement") is entered
into as of June 16, 1997, by and between DVI Financial Services Inc., a Delaware
corporation ("Lender"), MHOA Texas I, L.L.C., a Texas limited liability company
("Borrower"), and Physician Health Corporation ("Guarantor").
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties agree as
follows:
Section 1
DEFINITIONS
Section 1.1. Specific Definitions. The following definitions apply:
"Account Debtors" mean all customers and other persons who are
obligated or indebted in any manner, whether directly or indirectly, primarily
or secondarily, contingently or otherwise, with respect to Accounts.
"Accounts" mean all accounts, contract rights, instruments, documents,
chattel paper and obligations in any form owing to or owned by Borrower arising
out of the sale or lease of goods or the rendition of services by Borrower,
Seller or the Metroplex Providers whether or not earned by performance; all
credit insurance, guaranties, letters of credit, advises of credit and other
security for any of the above; all merchandise returned to or reclaimed by
Borrower, Seller or the Metroplex Providers and Borrower's Books relating to any
of the foregoing.
"Advance" means an advance of loan proceeds constituting all or a part
of the Loan.
"Affiliate" means with respect to any Person any other Person which
directly or indirectly Controls, is Controlled by or is under common Control
with that Person.
"Asset Purchase Agreement" means that certain Asset Purchase and
Contribution Agreement dated June 16, 1997 among Seller, certain physicians and
their professional associations, Borrower and Guarantor.
"Assignment of Acquisition Instruments" means that certain Assignment
of Acquisition Instruments dated as of the date hereof collaterally assigning
Borrower's rights under the Asset Purchase Agreement and the other documents
delivered to Borrower by Seller pursuant to the Asset Purchase Agreement as
security for the Loan, and consented to by Seller.
1
<PAGE>
"Assignment of Management Services Agreement" means that certain
Assignment of Management Services Agreement dated as of the date hereof
collaterally assigning Borrower's rights under the Management Services
Agreement, including Borrower's security interest in the Accounts as security
for the Loan, and consented to by Seller and the Metroplex Providers.
"Assumption Agreement" means the Assumption Agreement dated as of the
date hereof by and between Lender and Seller pursuant to which Seller agrees to
assume operations of the assets purchased by Borrower and the Obligations, and
consented to by Borrower.
"Borrower's Books" means all of Borrower's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records are not included therein,
except to the extent otherwise permitted by law.
"Closing Date" means the date of the first Advance of the Loan.
"Collateral" has the meaning specified in Section 3.1 hereof.
"Control" means (i) the ownership of a majority of the voting power of
all classes of voting stock of a corporation, or (ii) the ownership of a
majority of the beneficial interest in income and capital of a person other than
a corporation.
"Distribution" means, with respect to any shares of capital stock or
any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
"DVIBC" means DVI Business Credit Corporation, a Delaware corporation.
"Environmental Laws" means all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including, ambient air, surface water, ground water or
land), or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes, and any and
all regulations, codes, plans, orders, decrees, judgments, injunctions, notices,
or demand letters issued, entered, promulgated, or approved thereunder.
2
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof include such sections and any
predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
"Event of Default" has the meaning specified in Section 8 hereof.
"Governmental Authority" means any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
"Guaranty" means the Unconditional Continuing Guaranty executed by
Guarantor unconditionally guaranteeing Borrower's Obligations under this
Agreement.
"Health Care Laws" mean all federal, state and local laws relating to
health care providers and health care services, including, Section 1877(a) of
the Social Security Act as amended by the Omnibus Budget Reconciliation Act of
1993, 42 USC (S) 1395nn.
"Indebtedness" of a Person means (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with generally accepted accounting principles, would be included in
determining total liabilities as shown on the liability side of the balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including any lease which, in accordance with generally accepted
accounting principles would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby have been
assumed; and (iii) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (otherwise than for the collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock or equity purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable.
"Lender Expenses" means (i) all costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under this Agreement or
under any of the other Loan Documents that are paid or advanced by Lender; (ii)
filing, recording, publication and reasonable search fees paid or incurred by
Lender in connection with Lender's transactions with Borrower; (iii) costs and
expenses incurred by Lender to correct any Event of Default or enforce any
provision of the Loan Documents or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, and preparing for sale or
advertising to sell the Collateral, whether or not a sale is consummated, after
the occurrence of an Event of Default; (iv) costs and expenses of suit incurred
by Lender in enforcing or defending the Loan Documents or any portion thereof;
(v) all costs or expenses paid by Lender to third parties to convert any data
submitted to Lender by Borrower to an
3
<PAGE>
acceptable form; and (vi) Lender's reasonable attorneys' fees and expenses
incurred (before or after execution of this Agreement) in advising Lender with
respect to, or in structuring, drafting, reviewing, negotiating, amending,
terminating, enforcing, defending or otherwise concerning, the Loan Documents or
any portion thereof, irrespective of whether suit is brought.
"Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including any interest of a vendor under a
conditional sale contract or consignment and any interest of a lessor under a
capital lease.
"Loan" means the loan made by Lender to Borrower pursuant to this
Agreement.
"Loan Documents" mean (i) this Agreement; (ii) the Note; (iii) the
Security Documents; (iv) the Lock Box Agreement; (v) the Subordination
Agreement; and (vi) any other certificates, documents or instruments delivered
by Borrower to Lender pursuant to the terms of this Agreement.
"Lock Box Accounts" means the deposit accounts with NationsBank, or
any subsequent lockbox bank, established and maintained pursuant to either Lock
Box Agreement.
"Lock Box Agreement" means those two (2) certain Lock Box Agreements
dated on or about the date hereof among Borrower, NationsBank and DVIBC or its
assignee, and any amendments, renewals or replacements thereof.
"Management Services Agreement" means the Management Services
Agreement dated as of June 1, 1997 among Seller, Borrower and the Metroplex
Providers.
"Metroplex Providers" has the meaning set forth in the Management
Services Agreement.
"Note" means the Secured Promissory Note executed by Borrower pursuant
to the terms of this Agreement.
"Obligations" mean (i) the due and punctual payment of all amounts due
or become due under the Note; (ii) the performance of all obligations of
Borrower under this Agreement, the Note and the Other Loan Documents; (iii) all
extensions, renewals, modifications, amendments and refinancings of any of the
foregoing; (iv) all Lender Expenses; and (v) all loans, advances, indebtedness
and other obligations owed by Borrower to DVIBC or Lender under the Other Loan
Documents.
"Other Loan Documents" means those five certain Loan and Security
Agreements among Borrower, Guarantor and Lender and that certain Loan and
Security Agreement among Borrower, Guarantor and DVIBC, dated on or about the
date hereof.
"Permitted Liens" means (i) Liens for property taxes and assessments
or governmental charges or levies and Liens securing claims or demands of
mechanics and
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materialmen, provided that payment thereof is not yet due or is being contested
as permitted in this Agreement; (ii) Liens of or resulting from any judgment or
award, the time for the appeal or petition for rehearing of which has not
expired, or in respect of which Borrower is in good faith prosecuting an appeal
or proceeding for a review and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured; (iii) Liens and priority
claims incidental to the conduct of business or the ownership of properties and
assets (including warehouse's and attorney's Liens and statutory landlord's
Liens); deposits, pledges or Liens to secure the performance of bids, tenders,
or trade contracts, or to secure statutory obligations; and surety or appeal
bonds or other Liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided that in
each case the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings; and further
provided that any such warehouse's or statutory landlord's Liens are subordinate
or have been subordinated to the Liens of Lender in a manner satisfactory to
Lender; (iv) Liens granted to DVI or its Affiliates; and (v) Liens existing on
the date of this Agreement that are disclosed on Schedule 1.1 hereto.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
"Pledge Agreement" means that certain Pledge Agreement (Member
Interests) dated on or about the date hereof among Guarantor, Seller, the other
members who become a party to the Agreement and Lender.
"Proceeds" mean all proceeds and products of Collateral and all
additions and accessions to, replacements of, insurance or condemnation proceeds
of, and documents covering Collateral; all property received wholly or partly in
trade or exchange for Collateral; all claims against third parties arising out
of damage, destruction, or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
"Security Documents" means the Guaranty, the Pledge Agreement, the
Assignment of Acquisition Agreement, the Assignment of Management Services
Agreement and any agreement or instrument entered into between Borrower and
Lender or executed by Borrower or Guarantor and delivered to Lender in
connection with this Agreement to secure repayment of the Loan.
"Seller" means Metroplex Hematology/Oncology Associates, L.L.P., a
Texas limited liability partnership.
"Stated Rate" means Twelve and 25/100 percent (12.25%) per annum
computed on the basis of a 360-day year and actual days elapsed.
"Subordination Agreement" means the Subordination Agreement dated on
or about the date hereof between Lender, Borrower, Guarantor and Seller.
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"Unmatured Default" means any event or condition that, with notice,
passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
"Securities Purchase Agreement" means the Security Purchase Agreement
dated on or about the date hereof, among Guarantor, Weston Presidio Capital II,
L.P. and the other Investors set forth in Exhibit I thereto.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under generally
accepted accounting principles. All other terms used in this Agreement, other
than those defined in this Section 1, have the meanings accorded to them in the
Uniform Commercial Code as is enacted in any applicable jurisdiction.
Section 1.3. Construction.
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein may
be construed or resolved against any party hereto, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and their respective counsel and is entitled to be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
Section 2
LOAN
Section 2.1. The Loan. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender shall
advance to Borrower, and Borrower shall borrow from Lender, a senior secured
term loan in the amount of Two Million and No/100 Dollars ($2,000,000) which is
evidenced by the Note. The proceeds of the Loan must be used by Borrower for
part of the purchase price paid by Borrower to acquire the assets of Seller
pursuant to the Asset Purchase Agreement and to fund the closing costs incurred
in connection with the transactions contemplated in this Agreement.
Section 2.2. Term and Repayment of Loan. The "Term" of the Loan is
seventy-two (72) months and is payable in (i) a single payment on the first day
of August of interest accrued on the unpaid principal balance at the Stated Rate
from the date of the initial Advance to July 31, (ii) two (2) payments of
interest only on the first day of the following two calendar months of interest
accrued on the unpaid principal balance at the Stated Rate for the preceding
calendar
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month, (iii) sixty-nine (69) consecutive monthly installments of Forty Thousand
One Hundred Two and 06/100 Dollars ($40,102.06) on the first day of each
calendar month thereafter, with all unpaid principal and interest due and
payable in full on the final installment date. All payments of principal and
interest must be paid in full without setoff, deduction or counterclaim. Lender
will debit the Lock Box Accounts maintained pursuant to the Lock Box Agreement
for payment of each monthly installment of amounts due and payable pursuant to
this Agreement. Borrower shall satisfy any Obligations not paid by such
deductions by direct payment to Lender at 500 Hyde Park, Doylestown, PA 18901.
Section 2.3. Prepayment. The Loan is not subject to prepayment or
redemption in whole or in part prior to the expiration of the Term.
Section 2.4. Late Payments. If Borrower fails to make any payment of
interest or principal, including the payment due upon maturity, when the same is
due and payable and such payment can not be made by debit from the Lock Box
Accounts and such failure continues for five (5) business days after
nonpayment, a late charge by way of damages to the extent provided in this
Section 2.4 is immediately due and payable. Borrower recognizes that default by
Borrower in making the payments herein agreed to be paid when due will result in
the Lender incurring additional expenses, in loss to the Lender of the use of
the money due and in frustration to the Lender in meeting its other commitments.
Lender is entitled to damages for the detriment caused thereby, but it is
extremely difficult and impractical to ascertain the extent of such damages.
Borrower shall pay on demand a sum equal to five cents ($.05) for each one
dollar ($1.00) of each payment which is not received within five (5) business
days after the date it is due and payable is a reasonable estimate of the
damages to the Lender. If any part of the principal or interest is not paid
when due, it thereafter bears interest at the rate of eighteen percent (18%) per
annum from and as of the date of delinquency until paid, provided, however, that
any amount due pursuant to the preceding sentence must be deducted from the
amount due pursuant to this sentence. If the specified interest rate at any
time exceeds the maximum rate allowed by law, then the applicable interest rate
is reduced to the maximum rate allowed by law.
Section 2.5. Conditions to the Closing. The obligation of Lender to
make an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement and
in the Other Loan Documents are true and correct on and as of the date hereof
and are true and correct in all material respects as of the Closing Date and
Borrower has performed all obligations required to have been performed by it
hereunder prior to Closing Date.
(b) Borrower has executed and delivered to Lender (or caused to be
executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
(ii) the Note;
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(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Subordination Agreement;
(vi) the Pledge Agreement;
(vii) the Lock Box Agreement;
(viii) the Assignment of Management Services Agreement;
(ix) the Assignment of Acquisition Instruments;
(x) the Assumption Agreement;
(xi) evidence satisfactory to Lender that the transactions
contemplated by the Asset Purchase Agreement and the Venture Capital Agreement
have been consummated in accordance with the terms of such agreements;
(xii) evidence satisfactory to Lender that Borrower is a
limited liability company and Guarantor is a corporation duly formed, validly
existing and in good standing in the state in which it was formed and in each
state in which it is authorized to do business;
(xiii) certificates of insurance that evidence the insurance
coverage and policy provisions required by this Agreement and in the Loan
Documents;
(xiv) pay-off letters, UCC Termination Statement and Lien
Releases as required to grant Lender a first priority security interest, other
than Permitted Liens, in Collateral pledged as security for repayment of the
Loan;
(xv) signature and incumbency certificate of Borrower and
Guarantor;
(xvi) certified copies of resolutions of the members of
Borrower and the Board of Directors of Guarantor authorizing the execution and
delivery of the Loan Documents to be executed by Borrower and Guarantor;
(xvii) copies of the Articles of Organization of Borrower and
Articles of Incorporation of Guarantor certified by the applicable Secretary of
State;
(xviii) copies of the Regulations of Borrower and Bylaws of
Guarantor certified by an officer thereof;
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(xix) certified copies of the Asset Purchase Agreement and
all documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xx) certified copies of the Venture Capital Agreement and
all other documents executed and delivered in connection with the transactions
contemplated thereby satisfactory in form and substance to Lender;
(xxi) certified copy of the Management Services Agreement
satisfactory in form and substance to Lender;
(xxii) the consent of Western Presidio Capital II, L.P. and
the other Investors set forth in Exhibit I to the Venture Capital Agreement to
the terms of this transaction;
(xxiii) the written opinion of counsel to Borrower and
Guarantor issued on the Closing Date and satisfactory to Lender in scope and
substance; and
(xxiv) a certificate from an officer of Borrower indicating
that the representations and warranties contained herein are true and correct as
of the Closing Date.
(c) Borrower has paid closing fees to Lender including Lender's
reasonable legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default has occurred
and is continuing.
(e) None of Borrower, Seller nor Guarantor has suffered a material
adverse change in its business, operations or financial condition from that
reflected in the Financial Statements of Borrower and Guarantor or Seller
delivered to Lender or otherwise.
(f) Lender has received such additional supporting documents,
certificates and assurances as Lender reasonably requests which are satisfactory
to Lender in form and substance.
Section 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest. In order to secure prompt
payment and performance of the Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in the following property
of Borrower (the "Collateral"), whether now owned or existing or hereafter
acquired or arising and regardless of where located, subject only to Permitted
Liens. This security interest in the Collateral attaches to all Collateral
without further action on the part of Lender or Borrower. Borrower shall keep
the Collateral at 906 West Randol Mill Road, Arlington, Texas 76012.
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The Collateral consists of the following, together with such third-
party consents, lien waivers and estoppel certificates as Lender reasonably
requires:
(a) all of Borrower's equipment and machinery listed on Schedule 3.1
and all machine tools, motors, tools, parts, attachments, accessories,
accessions, replacements, upgrades, substitutions, additions and improvements
related thereto, wherever located, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds;
(b) all of Borrower's right, title and interest in and to the
Accounts, whether presently existing or hereafter arising, and all contract
rights, instruments, notes, securities, drafts, documents, chattel paper and all
other forms of obligations owing to Borrower or Seller arising out of the sale
or lease of goods or the rendition of services, whether or not earned by
performance, and any and all credit insurance, guarantees and other security
therefor, as well as all merchandise returned to or reclaimed by Borrower or
Seller and all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including the pledge to it of the Borrower's
interest in the Accounts, cash and non-cash Proceeds. Notwithstanding the
foregoing or any other provision hereof, Lender's Lien on and security interest
in the Collateral described in this clause (b) will be released if the Other
Loan Agreement with DVIBC has been terminated and the conditions contained in
Section 7.17 have been satisfied;
(c) all of Borrower's presently existing and hereafter acquired
general intangibles (including, Borrower's rights and interest under the
Management Services Agreement, and any and all choices in action, goodwill,
patents, trade names, trademarks, blueprints, drawings, purchase orders,
computer programs, computer discs, computer tapes, literature, reports,
catalogues, deposit accounts and tax refunds) other than goods and accounts, as
well as all of Borrower's Books relating to any of the foregoing, and the
Proceeds of any of the foregoing, including cash and non-cash Proceeds; and
(d) all of Borrower's presently existing and hereafter acquired
inventory including, without limitation, goods held for sale or lease or to be
furnished under a contract of service, wherever located, and any documents of
title representing any of the above, and the Proceeds of any of the foregoing,
including cash and non-cash Proceeds.
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower. The exact name of Borrower is MHOA
Texas I, L.L.C. Borrower was formed under the laws of the State of Texas. The
following are all previous legal names of Borrower: None. Borrower uses the
following trade names: None. The following are all other trade names used by
Borrower in the past: None.
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Section 4.2. Mergers and Consolidations. Other than the merger with
MHOA Texas I, Inc., a Texas corporation, no entity has merged into Borrower or
been consolidated with Borrower.
Section 4.3. Purchase of Assets. Other than pursuant to the Asset
Purchase Agreement, no entity has sold substantially all of its assets to
Borrower or sold assets to Borrower outside the ordinary course of such seller's
business at any time in the past.
Section 4.4. Change of Name or Identity. Borrower shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
Section 4.5. Corporate Structure. Guarantor, Seller and the Metroplex
Providers hold one hundred percent (100%) of the member interests in Borrower.
Such member interests are the sole authorized and outstanding security interests
in Borrower.
Section 5
PROVISIONS CONCERNING COLLATERAL
Section 5.1. Title. Borrower has good and marketable title to the
Collateral, and the Liens granted to Lender pursuant to this Agreement are fully
perfected first-priority Liens, in and to the Collateral with priority over the
rights of every person in the Collateral, free, clear and unencumbered by any
Liens in favor of any person other than Lender except for Permitted Liens.
Section 5.2. No Warranties. This Agreement is solely a financing
agreement. Borrower acknowledges that with respect to the appropriate
Collateral: the Collateral has or will have been selected and acquired solely
by Borrower for Borrower's purposes; Lender is not the manufacturer, dealer,
vendor or supplier of the Collateral; the Collateral is of a size, design,
capacity, description and manufacturer selected by Borrower; Borrower is
satisfied that the Collateral is suitable and fit for its purposes; and LENDER
HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER, EITHER
EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN OR
OPERATION OF THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE VALUE
OF THE COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE COLLATERAL OR
WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR WARRANTY
WHATSOEVER.
Section 5.3. Further Assurances. Borrower shall execute and deliver
to Lender, concurrent with Borrower's execution of this Agreement and at any
time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens
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in the Collateral and in order to consummate fully all of the transactions
contemplated under the Loan Documents. Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender's officers, employees or
agents designated by Lender) as Borrower's true and lawful attorney with power
to sign the name of Borrower on any of the above-described documents or on any
other similar documents that need to be executed, recorded, or filed in order to
perfect or continue perfected Lender's Liens in the Collateral. The appointment
of Lender as Borrower's attorney is irrevocable as long as any Obligations are
outstanding. Any person dealing with Lender is entitled to rely conclusively on
any written or oral statement of Lender that this power of attorney is in
effect.
Section 5.4. Intentionally Deleted.
Section 5.5. Lender's Duty of Care. Lender has no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender will be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as the Borrower requests or agrees to in
writing, provided that no failure to comply with any such request nor any
omission to do any such act requested by the Borrower may be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property may not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
loss, damage or destruction of the Collateral is borne by Borrower except to the
extent Lender breaches the standard of care set forth in this Section 5.5.
Section 5.6. Borrower's Contracts. Schedule 5.6 attached hereto is a
true and complete list of all material contracts and agreements to which
Borrower is a party or will become a party pursuant to the assumption of
Seller's rights and obligations under the terms of the Asset Purchase Agreement.
Borrower remains liable to perform its Obligations under any contracts and
agreements included in the Collateral to the same extent as though this
Agreement had not been entered into and Lender does not have any obligation or
liability under such contracts and agreements by reason of this Agreement or
otherwise.
Section 5.7. Reinstatement of Liens. If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for any reason whatsoever (including, the insolvency,
bankruptcy, or reorganization of Borrower or such other Person), this Agreement
and then Lender's Liens granted hereunder are reinstated as to all disgorged
payments as though such payments had not been made, and Borrower shall sign and
deliver to Lender all documents and things necessary to perfect all terminated
Liens.
Section 5.8. Lender Expenses. If Borrower fails to pay any moneys
(whether taxes, assessments, insurance premiums or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit or fails to discharge any Lien not permitted hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's
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interest in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof; provided, however,
Lender shall make a reasonable attempt to make a prior notification of Borrower
if a delay in making such payment would not have a material advise impact on
Lender's interest in the Collateral. Any amounts paid or deposited by Lender
constitute Lender Expenses, become part of the Obligations, bear interest at the
rate of eighteen percent (18%) per annum, and are secured by the Collateral. Any
payments made by Lender do not constitute (a) an agreement by Lender to make
similar payments in the future or (b) a waiver by Lender of any Event of Default
under this Agreement. Lender need not inquire as to, or contest the validity of,
any such expense, tax, security interest, encumbrance or Lien, and the receipt
of the usual official notice for the payment of moneys to a governmental entity
is conclusive evidence that the same was validly due and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 5.9. Inspection of Collateral and Records. During usual
business hours, Lender may inspect and examine the Collateral and check and test
the same as to quality, quantity, value and condition and Borrower shall
reimburse Lender for its reasonable costs and expenses in so doing. Lender also
has the right at any time or times hereafter, during usual business hours to
inspect and verify Borrower's Books in order to verify the amount or condition
of, or any other matter relating to, the Collateral and Borrower's financial
condition and to copy and make extracts therefrom. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Lender
pursuant to this Agreement. Lender may directly contact any such accounting
firm or service bureau in order to obtain such information.
Section 5.10. Waivers. Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 6
REPRESENTATIONS AND WARRANTIES
As of the date hereof Guarantor and Borrower each hereby warrants and
represents to Lender the following:
Section 6.1. Corporate Status. Borrower is a limited liability
company validly existing and in good standing under the laws of the State of
Texas; Guarantor is a corporation validly existing and in good standing under
the laws of the State of Delaware; and each of such entities is qualified and
licensed to do business and is in good standing in any state in which the
conduct of its
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business or its ownership of property requires that it be so qualified or
licensed, and has the power and authority (corporate and otherwise) to execute
and carry out the terms of the Loan Documents to which it is a party, to own its
assets and to carry on its business as currently conducted.
Section 6.2. Authorization. The execution, delivery, and performance
by Borrower and Guarantor of this Agreement and each Loan Document have been
duly authorized by all necessary company action. Borrower and Guarantor have
duly executed and delivered this Agreement and each Loan Document to which they
are a party, and each such Loan Document constitutes a valid and binding
obligation of Borrower and Guarantor.
Section 6.3. No Breach. The execution, delivery and performance by
Borrower and Guarantor of this Agreement and each Loan Document to which they
are a party (a) will not contravene any law or any governmental rule or order
binding on Collateral; (b) will not violate any provision of the articles of
organization or regulations of Borrower or the articles of incorporation or
bylaws of Guarantor; (c) will not violate any agreement or instrument by which
Borrower or Guarantor or their assets, is bound; (d) do not require any notice
to consent by any Governmental Authority; and (e) will not result in the
creation of a Lien on any assets of Borrower except the Lien to Lender granted
herein.
Section 6.4. Taxes. All assessments and taxes, whether real,
personal or otherwise, due or payable by or imposed, levied or assessed against
Borrower, or its property have been paid in full before delinquency or before
the expiration of any extension period; and Borrower has made due and timely
payment or deposit of all federal, state, and local taxes, assessments, or
contributions required of it by law, except only for items that Borrower is
currently contesting diligently and in good faith and that have been fully
disclosed in writing to Lender.
Section 6.5. Deferred Compensation Plans. Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any single-
employer or multi-employer plans. Neither Borrower nor any ERISA Affiliate is
or at any time has been a sponsor of, provided, or maintained for any employees
any defined benefit plan.
Section 6.6. Litigation and Proceedings. Except as set forth on
Schedule 6.6 attached hereto, there are no outstanding judgments against
Borrower or its assets and there are no actions or proceedings pending by or
against Borrower before any court or administrative agency. Borrower has no
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and except as set forth in Schedule 6.6 hereto.
Section 6.7. Business. Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or
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subject to any agreement or restriction that is so unusual or burdensome that it
might have a material adverse effect on Borrower's business, properties or
prospects.
Section 6.8. Laws and Agreements. Borrower is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Borrower is in material compliance with all laws applicable to it.
Section 6.9. Financial Condition. All financial statements and
information relating to Borrower, Guarantor, Seller or their assets that have
been or may hereafter be delivered by Borrower to Lender are accurate and
complete in all material respects and have been prepared in accordance with
generally accepted accounting principles consistently applied. Borrower and
Guarantor have no material obligations or liabilities of any kind not disclosed
in that financial information, and there has been no material adverse change in
the financial condition of Borrower, Guarantor or Seller since the date of the
most recent financial statements submitted to Lender.
Section 6.10. Environmental Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Environmental Laws and Borrower is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and are also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the Environmental Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Environmental
Laws, or may give rise to any material common law or legal liability, or
otherwise form the basis of any material claim, action, demand, suit,
proceeding, hearing, study or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous substance or waste.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Environmental
Laws.
Section 6.11. Insurance. Schedule 6.11 sets forth a complete and
accurate list of all policies of fire, liability, product liability, workers'
compensation, health, business interruption and other forms of insurance
currently in effect with respect to Borrower's business, true copies of which
have heretofore been delivered to Lender. All such policies are valid,
outstanding and enforceable policies and, to the best knowledge of Borrower,
each will remain in full force and effect at least through the respective dates
set forth on Schedule 6.11.
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Section 6.12. Ownership of Property. Borrower has good and
marketable title to all of its properties and assets, free and clear of all
liens, security interests and encumbrances, except Permitted Liens. Borrower has
the exclusive right to use all such assets.
Section 6.13. Health Care Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and is in compliance in all material respects with all terms and conditions of
the required permits, licenses and authorizations, and are also in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or to the best knowledge of Borrower and
Guarantor threatened against Borrower, relating in any way to Health Care Laws.
Section 6.14. Cumulative Representations. The warranties,
representations and agreements set forth herein are cumulative and in addition
to any and all other warranties, representations and agreements that Borrower
gives, or cause to be given, to Lender, either now or hereafter.
Section 6.15. Full Disclosure. No representation, warranty or
statement by Borrower or Guarantor contained in this Agreement, any Schedule or
any document, instrument or certificate furnished by or on behalf of any of them
pursuant to this Agreement contains any untrue, incorrect, incomplete or
misleading statement of material fact, or knowingly omits to state a material
fact necessary to make the statements contained therein not misleading.
Section 7
COVENANTS
Section 7.1. Encumbrance of Collateral. Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower except for Liens to Lender and Permitted Liens.
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Section 7.2. Business. Borrower shall engage primarily in business
of physician practice management and related services .
Section 7.3. Condition and Repair. Borrower shall maintain in good
repair and working order all material properties used in its business and from
time to time shall make all appropriate repairs and replacements thereof.
Section 7.4. Taxes. Borrower shall pay all taxes, assessments and
other governmental charges imposed upon it or any of its assets or in respect of
any of its franchises, business, income or profits before any penalty or
interest accrues thereon, and all claims (including, without limitation, claims
for labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by generally accepted accounting principles. Borrower shall
make timely payment or deposit of all FICA payments and withholding taxes
required of it by applicable laws and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower has made such payments or
deposits.
Section 7.5. Insurance. Borrower shall maintain, with financially
sound and reputable insurers, insurance with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily
insured against by corporations of established reputation engaged in the same or
similar businesses. Each such policy must name Lender as an additional insured
and, where applicable, as loss payee under a lender loss payable endorsement
satisfactory to Lender and must provide for thirty (30) days' written notice to
Lender before such policy is altered or canceled.
Section 7.6. Accounting System. Borrower and Guarantor at all times
hereafter shall maintain a standard and modern system of accounting in
accordance with generally accepted accounting principles consistently applied,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower and Guarantor shall not modify or change their
method of accounting or enter into any agreement hereafter with any third-party
accounting firm or service bureau for the preparation or storage of their
accounting records without the accounting firm's or service bureau's agreeing to
provide to Lender information regarding the Collateral and Borrower's and
Guarantor's financial condition.
Section 7.7. Financial Statements. Borrower shall submit monthly
financial statements, showing a comparison of actual expenditures to budgeted
amounts, with respect to Borrower and Guarantor, to Lender as soon as available,
and in any event within thirty (30) days of the end of each month.
Additionally, Borrower shall submit audited financial statements with respect to
Borrower and Guarantor to Lender as soon as available, and in any event within
one hundred twenty (120) days of the end of each fiscal year. With all
financial statements, Borrower
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shall deliver a certificate of its chief financial officer attesting that to the
best of such officer's knowledge no Event of Default or Unmatured Default under
this Agreement has occurred and is continuing .
Section 7.8. Further Information. Borrower and Guarantor shall
promptly supply Lender with such other information concerning its affairs as
Lender may reasonably request from time to time hereafter and shall promptly
notify Lender of any material adverse change in Borrower's or Guarantor's
financial condition and any condition or event that constitutes an Event of
Default or Unmatured Default under this Agreement. In addition, Borrower and
Guarantor authorize Lender to contact credit reporting agencies concerning their
credit standing.
Section 7.9. ERISA Covenants. Borrower shall, and shall cause each
ERISA Affiliate to, comply with all applicable provisions of ERISA and all other
laws applicable to any deferred compensation plans with which Borrower or any
ERISA Affiliate is associated, the failure with which to comply would have a
material adverse effect on Borrower's business or financial condition and shall
promptly notify Lender of the occurrence of any event that could result in any
material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
Section 7.10. Environmental Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Environmental Laws.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from the U.S. Environmental Protection Agency or any other
Governmental Authority concerning any possible violation of, or the filing of a
lien pursuant to, any Environmental Laws or any occurrence of which Borrower or
a Subsidiary would be required to notify any Governmental Authority with
jurisdiction over Environmental Laws.
Section 7.11. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower may not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets having an aggregate
value of greater than $100,000 in any twelve month period in any transaction or
series of related transactions other than (i) sales in the ordinary course of
business, (ii) if being replaced by items of comparable or greater value,
provided, Borrower receives the consent of Lender, which will not be
unreasonably withheld, to any such transfer having a value greater than
$100,000, and (iii) a transfer of assets to Seller pursuant to the terms of the
Assumption Agreement;
(c) liquidate, dissolve or effect a recapitalization or reorganization
in any form of transaction;
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(d) acquire interests in any other entity in excess of One Hundred
Thousand Dollars ($100,000) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(e) become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents;
(f) authorize or issue any additional member interests or equity
interest; or
(g) own, hold, lease or operate with any real property nor any other
property not necessary or useful to the operation of Borrower's business as it
is presently proposed to be conducted.
Section 7.12. Health Care Covenants.
(a) Borrower shall comply in all material respects with, and will
obtain all permits required by, all Health Care Laws applicable to it.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
Section 7.13. Distributions. Except as set forth on Schedule 7.13
hereto, Borrower may not make any Distributions nor pay any management fee,
consulting fee or any similar fee without the prior written consent of Lender,
which may be withheld in its sole discretion.
Section 7.14. Capital Expenditures. Borrower may not spend nor incur
obligations, including the total amount of any capital leases, to acquire fixed
or capital assets exceeding One Million Dollars ( $1,000,000) in any fiscal
year.
Section 7.15. Other Debt. (a) Borrower may not incur any direct or
contingent liabilities, including capital leases, in an aggregate amount
exceeding $100,000 in any twelve month period without Lender's prior written
consent, which may not be unreasonably withheld, provided however that Borrower
shall provide Lender written notice of its intention to incur any such liability
and if such financing can be provided by a third party source such as Lender,
offer Lender a right of first offer to provide such financing. In order to
comply with the right of first offer contained in this Section, Borrower shall
provide Lender with the terms of the proposed financing, including interest
rate, term, amount and collateral for the financing. If Lender declines to
provide the financing on such terms, or does not respond to Borrower's notice
within ten Business Days of receipt thereof, then Borrower can seek alternative
financing on such terms, provided Borrower continues to comply with the first
sentence of this Section. Lender's decision not to provide any such financing
does not waive its right of first offer with respect to any subsequent
financing.
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(b) Nothing contained in this Section 7.15 prohibits Borrower from:
(i) acquiring goods, supplies or merchandise on normal trade
credit;
(ii) endorsing negotiable instruments, received in the usual course
of business; or
(iii) obtaining surety bonds in the usual course of business.
Section 7.16. Debt Service Coverage. Borrower shall maintain as of
the last day of each calendar month, beginning September 30, 1997, a debt
service coverage ratio of no less than 1.5:1 for the previous twelve calendar
month period; provided, that such ratio is calculated on an annualized basis
during the first twelve months following the Closing Date.
"Debt service coverage" means (i) the sum of net income plus
depreciation plus amortization plus interest expense, divided by (ii) the sum of
capitalized lease payments plus loan payments plus interest expense.
Section 7.17. Termination of Covenants. If Guarantor (i) successfully
completes a public offering of its common stock and other securities registered
under the Securities Exchange Act of 1933, as amended, which results in
Guarantor receiving net proceeds of Thirty-Five Million Dollars ($35,000,000) or
more, or (ii) at the end of any fiscal quarter Guarantor or its successor, by
merger or otherwise, attains a net worth of Fifty Million Dollars or more, then
the covenants contained in Sections 7.13, 7.14 and 7.15 will no longer apply to
the Loan and thereafter will be considered deleted from the Agreement.
Section 8
EVENTS OF DEFAULT
An Event of Default is deemed to exist if any of the following events
have occurred and is continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure continues for five (5) business days
after the payment is due;
(b) Borrower fails to observe or perform any material covenant,
condition or agreement to be observed or performed pursuant to the terms hereof
or any Loan Document to which it is a party and such failure is not cured as
soon as reasonably practicable and in any event within thirty (30) days after
written notice thereof by Lender;
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(c) Borrower fails to keep its assets insured as required herein, or
material uninsured damage to or loss, theft or destruction of the Collateral
occurs and such assets are not repaired or replaced with five (5) days;
(d) A court enters a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency, or
other similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(f) Final judgment for the payment of money on any claim in excess of
$100,000 is rendered against Borrower and remains undischarged for thirty (30)
days during which execution is not effectively stayed;
(g) Guarantor revokes or attempts to revoke its guaranty of any of
the Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (d) or (e) above with respect to Borrower or fails to
observe or perform any covenant, condition or agreement to be performed under
any Loan Document to which it is a party;
(h) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise, other than as permitted
pursuant to Section 7.11(b);
(i) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower in excess of $100,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(j) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(k) Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs and such court order is not revoked or overturned within five (5) days;
(l) A judgment or other claim in excess of $100,000 becomes a Lien
upon any or all of Borrower's assets, other than a Permitted Lien;
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(m) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets by any
Governmental Authority or any tax or debt owing at any time hereafter to any one
or more of such entities becomes a Lien upon any or all of Borrower's assets and
the same is not paid on the payment date thereof, except to the extent such tax
or debt is being contested by Borrower as permitted in Section 6.4;
(n) There is a material impairment of the value of the Collateral
which is not insured or priority of Lender's Liens on the Collateral;
(o) Any of Borrower's assets in excess of $100,000 or any Collateral
are seized, subjected to a distress warrant, levied upon or come into the
possession of any judicial officer;
(p) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is materially incorrect when made;
(q) Guarantor is in default under the Guaranty or this Loan Agreement
or an Event of Default occurs under the Other Loan Documents; or
(r) If the aggregate dollar value of all judgments, defaults,
demands, claims and notices of Liens under clauses (f), (i), (j), (l), (m) and
(o) hereof exceeds $250,000.
Section 9
REMEDIES
Section 9.1. Specific Remedies. Upon the occurrence of any Event of
Default:
(a) Lender may declare all Obligations to be due and payable
immediately, whereupon they immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(b) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(c) Lender may enter any premises of Borrower, with or without
judicial process, and take possession of the Collateral; provided however, that
Lender may only exercise such remedy if it may do so without a breach of the
peace. Lender may remove the Collateral and may remove or copy all records
pertaining thereto, or Lender may remain on such premises and use the premises
for the purpose of collecting, preparing and disposing of the Collateral,
without any liability for rent or occupancy charges. Borrower shall, upon
request of Lender, assemble the Collateral and any records pertaining thereto
and make them available at a place designated by Lender that is reasonably
convenient to both parties.
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(d) Lender may dispose of the Collateral in its then-existing
condition or, at its election, may take such measures as it deems necessary or
advisable to improve, process, finish, operation, demonstrate and prepare for
sale the Collateral, and may store, ship, reclaim, recover, protect, advertise
for sale or lease, and insure the Collateral. Lender may use and operate
equipment of Borrower in order to process or finish inventory included in the
Collateral. If any Collateral consists of documents, Lender may proceed either
as to the documents or as to the goods represented thereby.
(e) Lender may pay, purchase, contest, or compromise any encumbrance,
charge or Lien that, in the opinion of Lender, appears to be prior or superior
to its Lien and pay all reasonable expenses incurred in connection therewith.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders or other forms of payment of or security for Accounts or
other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors
or issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
(g) Lender may sell the Collateral at public or private sale and is
not required to repossess Collateral before selling it. Any requirement of
reasonable notice of any disposition of the Collateral is satisfied if such
notice is sent to Borrower, ten (10) days prior to such disposition by any of
the methods provided in Section 11.5 hereof. Borrower will be credited with the
net proceeds of such sale only when they are actually received by Lender, and
Borrower continues to be liable for any deficiency remaining after the
Collateral is sold or collected.
(h) If the sale is to be a public sale, Lender shall also give notice
of the time and place by publishing a notice one time at least five (5) days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held.
(i) To the maximum extent permitted by applicable law, Lender may be
the purchaser of any or all of the Collateral at any public sale and is
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any public sale,
to use and apply all or any part of the Obligations as a credit on account of
the purchase price of any Collateral payable by Lender at such sale.
Section 9.2. Power of Attorney. Borrower hereby appoints Lender (and
any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power after the occurrence of an Event of Default:
(a) to endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and assignments of Accounts, on verifications of Accounts, and on
notices to Account Debtors; (c) to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
to receive and open all mail addressed to Borrower and to retain all mail
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relating to the Collateral and forward all other mail to Borrower; (d) to send
requests for verification of Accounts; (e) to execute UCC Financing Statements;
and (f) to do all things necessary to carry out this Agreement. The appointment
of Lender as Borrower's attorney and each and every one of Lender's rights and
powers, being coupled with an interest, are irrevocable as long as any
Obligations are outstanding. Lender shall not exercise the power granted in
clauses 9.2(a) through 9.2(c) prior to the occurrence of an Event of Default and
shall not exercise the power granted in clause 9.2(d) prior to notification of
Borrower of its intent to do so, but such limitations do not limit the
effectiveness of such power of attorney at any time. Any person dealing with
Lender is entitled to rely conclusively on any written or oral statement of
Lender that this power of attorney is in effect. Lender may also use Borrower's
stationery in connection with exercising its rights and remedies and performing
the Obligations of Borrower.
Section 9.3. Expenses Secured. All expenses, including reasonable
attorney fees, incurred by Lender in the exercise of its rights and remedies
provided in this Agreement, in the Other Loan Documents or by law shall be
payable by Borrower to Lender, are part of the Obligations, and are secured by
the Collateral.
Section 9.4. Equitable Relief. Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, in certain cases no remedy of law will provide
adequate relief to Lender, and Lender is entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 9.5. Remedies Are Cumulative. No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or Guarantor or now or hereafter
existing at law or in equity or by statute. Lender may pursue its rights and
remedies concurrently or in any sequence, and no exercise of one right or remedy
may be deemed to be an election. No delay by Lender constitutes a waiver,
election, or acquiescence by it. Borrower on its behalf waives any rights to
require Lender to proceed against Guarantor or any other party; or proceed
against or exhaust any security held from Guarantor or any other party. Lender
may at any time and from time to time, without notice to, or consent of,
Borrower, and without affecting or impairing the obligation of Borrower
hereunder do any of the following: (i) renew or extend any obligations of
Guarantor, or of any other party at any time directly or contingently liable for
payment of any of the obligations of Guarantor; (ii) accept partial payments of
the obligations of Guarantor; (iii) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the obligations of
Guarantor and the security therefor in any manner; or (iv) consent to the
transfer or sale of any security or bid and purchase at any sale of any security
of Guarantor. The validity of this Agreement and the Obligations of Borrower
are not terminated, affected or impaired by reason of the waiving, delaying,
exercising or non-exercising, of any of Lender's rights against Guarantor or as
a result of the substitution, release, repossession, sale, disposition or
destruction of any Collateral securing any obligations of Guarantor. Borrower
is not released or discharged, either in whole or in part, by Lender's failure
or delay to perfect or continue the perfection of any security interest in any
Collateral which secures the obligations of Guarantor or to protect the property
covered by such security interest.
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Section 10
INDEMNITY
Section 10.1. General Indemnity. BORROWER SHALL UNCONDITIONALLY
PROTECT, INDEMNIFY, DEFEND AND HOLD HARMLESS LENDER AND ITS DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS FROM AND AGAINST ANY LOSS, COST, LIABILITY (INCLUDING
NEGLIGENCE, TORT AND STRICT LIABILITY), EXPENSE, DAMAGE, SUITS, DEMANDS OR
CLAIMS (INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) ON ACCOUNT OF ANY SUIT OR
PROCEEDING BEFORE ANY GOVERNMENTAL AUTHORITY WHICH ARISES FROM THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT OR OTHERWISE ARISING IN CONNECTION WITH OR
RELATING TO THE LOAN AND ANY SECURITY THEREFOR, UNLESS SUCH SUIT, CLAIM OR
DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MALFEASANCE OF LENDER
OR ITS DIRECTORS, OFFICER, AGENTS OR EMPLOYEES. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower survives the
termination of this Agreement and the repayment of the Note.
Section 10.2. Specific Environmental Indemnity. Borrower shall
unconditionally protect, indemnify, defend and hold harmless Lender, its
directors, officers, employees and agents against any loss, cost, liability
(including negligence, tort and strict liability), expense, damage, suits,
demands or claim (including fees and disbursements of counsel) arising under any
Environmental Laws having jurisdiction over the property or assets of Borrower
or any portion thereof or its use.
Section 11
MISCELLANEOUS
Section 11.1. Delay and Waiver. No delay or omission to exercise any
right impairs any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion is limited to that particular occasion.
Section 11.2, Complete Agreement. This Agreement and the Schedules
are the complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
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Section 11.3. Severability; Headings. If any part of this Agreement
or the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement is unaffected thereby. The section headings herein
are included for convenience only and may not be deemed to be a part of this
Agreement.
Section 11.4. Binding Effect. This Agreement is binding upon and
inures to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; provided however, Borrower may not assign any of
its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who thereupon has all of the rights of Lender; and
Lender (or such subsequent assignee who in turn assigns as aforesaid) is then
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 11.5. Notices. Any notices under or pursuant to this
Agreement are deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, facsimile, or similar electronic medium to
the following addresses:
To Borrower: MHOA Texas I, L.L.C.
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Thomas Rodgers
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Guarantor: Physician Health Corporation
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Sarah Garvins
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
To Lender: DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
Attention: Michael A. O'Hanlon
Telephone: (215) 345-6600
Facsimile: (215) 230-8108
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Copies to: Jeffrey J. Wong, Esq.
Cooper, White & Cooper
201 California Street
17th Floor
San Francisco, CA 94111
Telephone: (415) 433-1900
Facsimile: (415) 433-5530
Any party may change such address by sending notice of the change to
the other parties; such change of address is effective only upon actual receipt
of the notice by the other parties.
Section 11.6. Governing Law. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO ARE GOVERNED, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA.
Section 11.7. Jurisdiction. The state and federal courts in Orange
County, California or any other court in which Lender initiates proceedings have
jurisdiction over all matters arising out of this Agreement and that service of
process in any such proceeding are effective if mailed to Borrower at its
address described in the Notices section of this Agreement. Borrower waives any
right it may have to assert the defense of forum non conveniens or to object to
such venue and hereby consents to any court-ordered relief.
Section 11.8. Waiver of Trial by Jury. LENDER, GUARANTOR AND
BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF
THIS AGREEMENT OR ANY OF THE SECURITY DOCUMENTS OR THE CONDUCT OF THE
RELATIONSHIP BETWEEN LENDER, GUARANTOR AND BORROWER.
27
<PAGE>
IN WITNESS WHEREOF, Borrower, Guarantor and Lender have executed this
Agreement by their duly authorized officers as of the date first above written.
BORROWER: LENDER:
MHOA TEXAS I, L.L.C. DVI FINANCIAL SERVICES INC.
By: /s/ Sarah C. Garvin
---------------------------
Sarah C. Garvin By: /s/ Raymond Fear
President ------------------------------------
Raymond Fear
Vice President
GUARANTOR:
PHYSICIAN HEALTH CORPORATION
By: /s/ Sarah C. Garvin
---------------------------
Sarah C. Garvin
President
<PAGE>
Schedule 1.1
Permitted Liens
1. Those liens listed on Schedule 3.16 of that certain Asset Purchase and
Contribution Agreement dated as of June 16, 1997, executed by and between
Borrower, Seller and certain other parties (the "Purchase Agreement"), and all
other Permitted Encumbrances, as defined therein.
2. Lien and security interest created in favor of DVIBC on the Collateral
described in Section 3.1(b) pursuant to a Loan and Security Agreement dated as
of the date of this Agreement, which Lien and security interest are intended by
all parties to be prior to the Liens and security interests of this Agreement.
<PAGE>
SCHEDULE 3.1
LOAN NO. 6
----------
1. Varian 2100C Linear Accelerator
2. I-Flow Infusion Pumps
3. Miscellaneous medical equipment
And all equipment and assets listed as Personal Property in Schedule 3.12 of the
Purchase Agreement.
<PAGE>
Schedule 5.6
Material Contracts
1. The Management Agreement.
2. The Benefit Agreements, Employee/Contract Labor Agreements, Real Property
Leases (for business space only) and Services Contracts listed on Schedule 3.20
of the Purchase Agreement and assumed by Borrower thereunder.
<PAGE>
Schedule 6.6
Litigation and Proceedings
None
<PAGE>
Schedule 6.11
Insurance
Those insurance policies described in the certificates attached hereto.
<PAGE>
Schedule 7.13
Permitted Distributions
Borrower is permitted to make Distributions to Guarantor provided after
such payment Borrower continues to satisfy the debt service coverage ratio set
forth in Section 7.16.
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
[CERTIFICATE APPEARS HERE]
<PAGE>
EXHIBIT 10.62
LOAN AND SECURITY AGREEMENT
among
MHOA TEXAS I, L.L.C.
Borrower
and
DVI BUSINESS CREDIT CORPORATION
Lender
Dated as of June 16, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1
DEFINITIONS ........................................................... 1
Section 1.1. Specific Definitions .................................... 1
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code ...................................................... 6
Section 1.3. Construction ............................................ 6
Section 2
LOAN .................................................................. 6
Section 2.1. The Loan ................................................ 6
Section 2.2. Note .................................................... 7
Section 2.3. Borrowing Base .......................................... 7
Section 2.4. Notice of Borrowing ..................................... 7
Section 2.5. Use of Proceeds ......................................... 7
Section 2.6. Repayment of Loan Via Lock Box/Servicer Account ......... 7
Section 2.7. Term of Agreement ....................................... 8
Section 2.8. Lender's Fees ........................................... 9
Section 2.9. Interest on the Loans ................................... 9
Section 2.10. Late Payments .......................................... 9
Section 2.11. Conditions to the Closing .............................. 9
Section 3
SECURITY INTEREST ..................................................... 11
Section 3.1. Grant of Security Interest .............................. 11
Section 4
SPECIFIC REPRESENTATIONS .............................................. 11
Section 4.1. Name of Borrower ........................................ 11
Section 4.2. Mergers and Consolidations .............................. 11
Section 4.3. Purchase of Assets ...................................... 12
Section 4.4. Change of Name or Identity .............................. 12
Section 5
PROVISIONS CONCERNING ACCOUNTS ........................................ 12
Section 5.1. Office and Records of Borrower .......................... 12
Section 5.2. Representations ......................................... 12
</TABLE>
i
<PAGE>
Section 5.3. Returns and Repossessions ............................... 12
Section 5.4. Borrowing Base Reports .................................. 12
Section 5.5. Compliance Certificate .................................. 13
Section 5.6. Lender's Rights ......................................... 13
Section 5.7. Disclaimer of Liability ................................. 13
Section 5.8. Post Default Rights ..................................... 13
Section 5.9. Accounts Owed by Federal Government ..................... 13
Section 5.10. Business Activity Reports .............................. 14
Section 6
PROVISIONS CONCERNING CONTRACTS ....................................... 14
Section 6.1. Contracts ............................................... 14
Section 7
PROVISIONS CONCERNING COLLATERAL ...................................... 14
Section 7.1. Further Assurances ...................................... 14
Section 7.2. Lender's Duty of Care ................................... 15
Section 7.3. Reinstatement of Liens .................................. 15
Section 7.4. Lender Expenses ......................................... 15
Section 7.5. Inspection of Records ................................... 16
Section 7.6. Waivers ................................................. 16
Section 8
REPRESENTATIONS AND WARRANTIES ........................................ 16
Section 8.1. Company Status .......................................... 16
Section 8.2. Authorization ........................................... 16
Section 8.3. No Breach ............................................... 17
Section 8.4. Taxes ................................................... 17
Section 8.5. Deferred Compensation Plans ............................. 17
Section 8.6. Litigation and Proceedings .............................. 17
Section 8.7. Business ................................................ 17
Section 8.8. Laws and Agreements ..................................... 17
Section 8.9. Ownership of Accounts ................................... 17
Section 8.10. Security Interest ...................................... 18
Section 8.11. Intentionally Deleted .................................. 18
Section 8.12. Origination ............................................ 18
Section 8.13. Legality ............................................... 18
Section 8.14. Consents ............................................... 18
Section 8.15. Financial Condition .................................... 18
Section 8.16. Health Care Laws ....................................... 18
Section 8.17. Cumulative Representations ............................. 19
ii
<PAGE>
Section 8.18. Full Disclosure ........................................ 19
Section 9
COVENANTS ............................................................. 19
Section 9.1. Encumbrance of Collateral ............................... 19
Section 9.2. Business ................................................ 19
Section 9.3. Condition and Repair .................................... 19
Section 9.4. Taxes ................................................... 19
Section 9.5. Accounting System ....................................... 19
Section 9.6. Monthly Financial Statements ............................ 20
Section 9.7. Annual Financial Statements ............................. 20
Section 9.8. Further Information ..................................... 20
Section 9.9. ERISA Covenants ......................................... 20
Section 9.10. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc ............................................... 20
Section 9.11. Health Care Covenants .................................. 21
Section 9.12. Distributions .......................................... 21
Section 9.13. Subordinate Obligations ................................ 21
Section 9.14. Amendments ............................................. 21
Section 9.15. Cash Flow Ratio ........................................ 22
Section 9.16. Termination of Covenants ............................... 22
Section 10
EVENTS OF DEFAULT ..................................................... 22
Section 11
REMEDIES .............................................................. 24
Section 11.1. Specific Remedies ...................................... 24
Section 11.2. Power of Attorney ...................................... 25
Section 11.3. Expenses Secured ....................................... 25
Section 11.4. Equitable Relief ....................................... 25
Section 11.5. Remedies Are Cumulative ................................ 26
Section 12
INDEMNITY ............................................................. 26
Section 12.1. General Indemnity ...................................... 26
Section 13
MISCELLANEOUS ......................................................... 27
Section 13.1. Delay and Waiver ....................................... 27
iii
<PAGE>
Section 13.2. Complete Agreement ..................................... 27
Section 13.3. Severability; Headings ................................. 27
Section 13.4. Binding Effect ......................................... 27
Section 13.5. Notices ................................................ 27
Section 13.6. Governing Law .......................................... 28
Section 13.7. Waiver of Trial by Jury ................................ 28
Section 13.8. Submission to Jurisdiction ............................. 28
SCHEDULES
1.1 Permitted Liens
4.2 Mergers and Consolidations
4.3 Purchase of Assets
6.1 Contracts
8.6 Litigation and Proceedings
9.12 Permitted Distributions
EXHIBIT
1.1 Net Collectible Percentage
2.2 Promissory Note
5.5 Borrowing Base Report Compliance Certification
iv
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is dated and
effective as of June 16, 1997 (the "Effective Date") by and between DVI Business
Credit Corporation, a Delaware corporation ("Lender"), and MHOA Texas I, L.L.C.,
a Texas limited liability company ("Borrower").
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and affirmed, the parties agree as
follows:
Section 1
DEFINITIONS
Section 1.1. Specific Definitions. The following definitions apply:
"Account Debtors" mean all customers, the insurance companies or other
payors responsible for their customers' obligations and other persons who are
obligated or indebted in any manner, whether directly or indirectly, primarily
or secondarily, contingently or otherwise, with respect to Accounts.
"Accounts" mean all accounts, accounts receivable, monies and debt
obligations in any form owing to or owned by Borrower arising out of the sale or
lease of goods or the rendition of services by Borrower, Seller or the Metroplex
Providers whether or not earned by performance; all credit insurance,
guaranties, letters of credit, advises of credit and other security for any of
the above; all merchandise returned to or reclaimed by Borrower, Seller or the
Metroplex Providers and Borrower's Books relating to any of the foregoing.
"Advance" means an advance of loan proceeds constituting all or a part
of the Loan.
"Affiliate" means with respect to any Person any other Person which
directly or indirectly Controls, is Controlled by or is under common Control
with that Person.
"Borrower's Books" means all of Borrower's books and records including
but not limited to: minute books; ledgers; records indicating, summarizing or
evidencing Borrower's assets, liabilities and the Accounts; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs and other computer-
prepared information and the equipment containing such information; provided,
however, that confidential patient records are not included therein, except to
the extent otherwise permitted by law.
1
<PAGE>
"Borrowing Base" means, on the date of determination thereof, an
amount equal to eighty percent (80%) of the aggregate, for all Eligible
Accounts, of the Net Collectible Value for each type of Eligible Account.
"business day" means any day which is not a Saturday or Sunday, a
legal holiday or a banking holiday in the State of California.
"Cash Flow Ratio" means a fraction (a) the numerator of which is equal
to (i) the aggregate collections received during the two immediately preceding
calendar months in respect of Eligible Accounts divided by (ii) 2.0 and (b) the
denominator of which is an amount equal to the average daily aggregate Net
Collectible Value of Eligible Accounts during such two immediately preceding
calendar months.
"Closing Date" means the date of the first Advance of the Loan.
"Collateral" has the meaning specified in Section 3.1 hereof.
"Commitment Amount" means Five Million Dollars ($5,000,000).
"Distribution" means, with respect to any shares of capital stock or
any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
"DVIFS" means DVI Financial Services Inc., a Delaware corporation
which is an Affiliate of Lender.
"Eligible Accounts" means accounts receivable from commercial
insurance, Medicare, Medicaid, managed care providers, industrial authorized
("Retail Accounts"), which have been due and payable for one hundred fifty (150)
or fewer days from the date of service.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof include such sections and any
predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) that together with Borrower would be deemed a "contributing
sponsor" to a single employee plan within the meaning of Section 4001 of ERISA.
"Event of Default" has the meaning specified in Section 10 hereof.
2
<PAGE>
"GAAP" means generally accepted accounting principles set forth in the
opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants or in statements of the Financial Accounting
Standards Board, consistently applied.
"Governmental Authority" means any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
"Guaranty" means the Unconditional Continuing Guaranty executed by
Guarantor unconditionally guaranteeing Borrower's Obligations under this
Agreement.
"Guarantor" means Physician Health Corporation, a Delaware
corporation.
"Health Care Laws" mean all federal, state and local laws relating to
health care providers and health care services, including, Section 1877(a) of
the Social Security Act as amended by the Omnibus Budget Reconciliation Act of
1993, 42 USC (S) 1395nn.
"Indebtedness" of a Person means (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liability side of the balance sheet of such Person as at the date
as of which Indebtedness is to be determined, including any lease which, in
accordance with GAAP, would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby has been
assumed; and (iii) all indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (otherwise than for the collection or deposit in
the ordinary course of business), discounted or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock or equity purchase, capital contribution or otherwise) or
otherwise to become directly or indirectly liable.
"Lender Expenses" means (i) all costs or expenses (including taxes and
insurance premiums) required to be paid by Borrower under this Agreement or
under any of the other Loan Documents that are paid or advanced by Lender; (ii)
filing, recording, publication and reasonable search fees paid or incurred by
Lender in connection with Lender's transactions with Borrower; (iii) costs and
expenses reasonably incurred by Lender to correct any Event of Default or
enforce any provision of the Loan Documents or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, and preparing for
sale or advertising to sell the Collateral, whether or not a sale is
consummated, after the occurrence of an Event of Default; (iv) costs and
expenses of suit reasonably incurred by Lender in enforcing or defending the
Loan Documents or any portion thereof; (v) all costs or expenses paid by Lender
to third parties to convert any data submitted to Lender by Borrower to an
acceptable form; and (vi) Lender's reasonable attorneys' fees and expenses
incurred (before or after execution of this Agreement) in advising Lender with
respect to, or in structuring, drafting, reviewing, negotiating, amending,
terminating, enforcing, defending or otherwise concerning, the Loan Documents or
any portion thereof, irrespective of whether suit is brought.
3
<PAGE>
"Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including any interest of a vendor under a
conditional sale contract or consignment and any interest of a lessor under a
capital lease.
"Loan" means the loan, in one or more Advances, made by Lender to
Borrower pursuant to this Agreement.
"Loan Availability" means the lesser of (i) the Commitment Amount or
(ii) the Borrowing Base minus the aggregate Advances and other monetary
Obligations outstanding under this Agreement.
"Loan Documents" mean (i) this Agreement; (ii) the Note; (iii) the
Security Documents; (iv) the Lock Box Agreements; (v) the Subordination
Agreement; and (vi) any other certificates, documents, or instruments or
financing statements delivered by Borrower to Lender pursuant to the terms of
this Agreement.
"Lock Box Accounts" means the deposit accounts with Servicer, or any
subsequent lockbox bank, established and maintained pursuant to either Lock Box
Agreement.
"Lock Box Agreement" means those two (2) certain Lock Box Agreements
dated on or about the date hereof between Borrower, NationsBank ("Servicer") and
Lender, any amendments, renewals, extensions or replacements thereof and the
letter of instructions with respect thereto.
"Management Agreement" means that certain Management Services
Agreement dated as of June 1, 1997, among Borrower, Seller and the physicians
which are a party to such agreement.
"Metroplex Providers" has the meaning set forth in the Management
Agreement.
"Net Collectible Percentage" means the percentage described on Exhibit
1.1 attached hereto for each type of Eligible Account. Pursuant to Section 5.4
the Net Collectible Percentage may change from time to time in Lender's sole and
absolute discretion, written notification of which must be given to Borrower by
Lender.
"Net Collectible Value" means, for each type of Eligible Account, the
Net Collectible Percentage times the aggregate current outstanding amount of all
Eligible Accounts that are such type of Eligible Account.
"Note" means the Secured Promissory Note executed by Borrower pursuant
to Section 2.2.
"Obligations" mean all obligations (monetary or otherwise) of Borrower
to Lender or DVIFS under or in connection with this Agreement, the Note and the
Other Loan Documents.
4
<PAGE>
"Other Loan Agreements" means those six (6) certain Loan and Security
Agreements dated as of the date hereof among Borrower and DVIFS.
"Permitted Liens" mean (i) Liens for property taxes and assessments or
governmental charges or levies and Liens securing claims or demands of mechanics
and materialmen, provided that payment thereof is not yet due or is being
contested as permitted in this Agreement; (ii) Liens and priority claims
incidental to the conduct of business or the ownership of properties and assets
(including warehouse's and attorney's Liens and statutory landlord's Liens);
deposits, pledges or Liens to secure the performance of bids, tenders, or trade
contracts, or to secure statutory obligations; and surety or appeal bonds or
other Liens of like general nature incurred in the ordinary course of business
and not in connection with the borrowing of money; provided that in each case
the obligation secured is not overdue or, if overdue, is being contested in good
faith by appropriate actions or proceedings; and further provided that any such
warehouse's or statutory landlord's Liens are subordinate or have been
subordinated to the Liens of Lender in a manner satisfactory to Lender; (iii)
Liens granted to Lender or any Affiliate of Lender; and (iv) Liens existing on
the date of this Agreement that secure indebtedness outstanding on such date and
that are disclosed on Schedule 1.1 hereto.
"Person" means an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
"Proceeds" mean all proceeds and products of Collateral and documents
covering Collateral; all property received wholly or partly in trade or exchange
for Collateral; all claims against third parties arising out of a decrease in
value of the Collateral; and all rents, revenues, issues, profits and proceeds
arising from the sale, lease, license, encumbrance, collection or any other
temporary or permanent disposition of the Collateral or any interest therein.
"Reference Rate" means the rate of interest announced publicly by Bank
of America, NT&SA in San Francisco, California, from time to time as its
reference rate.
"Security Documents" means the Guaranty, and any agreement or
instrument entered into between Borrower or Guarantors and Lender or executed by
Borrower or Guarantor and delivered to Lender in connection with this Agreement
to secure repayment of the Loan.
"Seller" means Metroplex Hematology/Oncology Associates, L.L.P., a
Texas limited liability partnership.
"Subordinate Obligations" means all Indebtedness of Borrower
subordinated to the Obligations pursuant to a subordination or intercreditor
agreement in form satisfactory to Lender.
"Subordination Agreement" means the Subordination Agreement dated on
or about the date hereof between Lender, Borrower, Guarantor and Seller.
5
<PAGE>
"Termination Date" means the last day of any term as to which a
written notice of non-renewal pursuant to Section 2.7 has been received.
"Unmatured Default" means any event or condition that, with notice,
passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code. All financial terms used in this Agreement other than those
defined in Section 1, have the meanings accorded to them under GAAP. All other
terms used in this Agreement, other than those defined in this Section 1, have
the meanings accorded to them in the Uniform Commercial Code as is enacted in
any applicable jurisdiction.
Section 1.3. Construction.
(a) Unless the context of this Agreement clearly requires otherwise,
the plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and other similar terms in this Agreement refer to this Agreement
as a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein may
be construed or resolved against any party hereto, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and their respective counsel and is entitled to be construed
and interpreted according to the ordinary meaning of the words used so as to
accomplish the purposes and intentions of all parties hereto fairly.
Section 2
LOAN
Section 2.1. The Loan. Subject to the terms and conditions and
relying on the representations and warranties set forth herein, Lender shall
advance to Borrower from time to time, and Borrower shall borrow from Lender, a
revolving loan in an amount not to exceed Loan Availability. Within the limits
of the Loan Availability, Borrower may borrow, make repayments pursuant to
Section 2.6 and reborrow. If, at any time, the aggregate Advances and other
Obligations outstanding exceed the then Loan Availability, then Borrower shall
pay to Lender a sum sufficient to reduce the Advances and other Obligations
outstanding to an amount not greater than the Loan Availability. Lender's
commitment to make Advances expires and the amount of the Loan then outstanding
matures and must be repaid by Borrower, without further action on the part of
Lender, on the Termination Date.
Section 2.2. Note. All Advances made by Lender under this Agreement
are evidenced by, and must be repaid with interest in accordance with a single
promissory note of
6
<PAGE>
Borrower in substantially the form of Exhibit 2.2, duly completed, in the
original principal amount equal to the Commitment Amount, dated the Effective
Date, payable to the Lender and maturing as to principal on the Termination Date
(the "Note"). The amount of each Advance and payment of principal amount
received by the Lender will be recorded in the books and records of the Lender,
which books and records, in the absence of manifest error, are conclusive as to
the outstanding balance of and other information related to the Loan. Lender is
entitled at any time to endorse on a schedule attached to the Note the amount
and type of each Advance and information relating thereto.
Section 2.3. Borrowing Base. On a weekly basis, the Borrowing Base
will be recalculated by adding weekly billings to the prior week's Eligible
Accounts and subtracting deposits and adjustments, if applicable, and then
multiplying this amount by the Net Collectible Percentage. The Borrowing Base
will be calculated on the basis of the reports delivered to Lender pursuant to
Sections 2.6 and 5.4.
Section 2.4. Notice of Borrowing. Whenever Borrower desires to
borrow under Section 2.1, Borrower shall deliver to Lender a Drawdown Request
Form, in a form reasonably satisfactory to Lender, signed by an authorized
officer no later than 2:00 p.m. Pacific Standard Time at least one (1) business
day in advance of the proposed funding date. The Drawdown Request Form must
specify (i) the funding date (which shall be a business day) with respect to the
requested Loan and (ii) the amount of the proposed Advance.
Section 2.5. Use of Proceeds. The proceeds of the Loan must be used
by Borrower for any proper corporate purposes in connection with Borrower's
business as described in Section 9.2.
Section 2.6. Repayment of Loan Via Lock Box/Servicer Account.
(a) Upon the execution hereof, Borrower shall become a party to the
Lock Box Agreement which provides for the receipt and processing of Account
payments. Borrower shall irrevocably direct: (i) all non-government payors to
remit payment to the Servicer's post office box in Lender's name and control;and
(ii) all government payors to remit payment to a second post office box of such
Servicer in Borrower's name. Prior to funding and upon receipt of the lock box
post office box numbers, Borrower shall provide Lender re-direct letters (in a
form satisfactory to Lender) to all of Borrower's and Seller's payors on
Borrower's or Seller's letterhead, including envelopes for Lender to process and
mail (Lender will add postage which will be charged to Borrower). The Lock Box
Agreement provides for the Servicer to deposit daily all receipts of the post
office boxes into deposit accounts, with non-government payor receipts paid into
an account subject to Lender's control, and government payor receipts paid into
an account in Borrower's name; such accounts must be (i) at a financial
institution acceptable to Lender, and (ii) governed by terms and conditions
acceptable to Lender. All government payor receipts will be immediately
transferred to an account in the name and control of Lender. Any receipts from
Accounts received by Borrower must be deposited in the Lock Box Account promptly
upon receipt. On a weekly basis Borrower shall provide Lender a reconciliation
statement for the prior week (providing in a reasonable detail a breakdown of
the prior week's receipts between accounts receivable generated prior to and
after the
7
<PAGE>
Effective Date) acceptable in form and substance to Lender. Upon receipt of
such reconciliation statement and upon collectibility, deposits will be (x)
remitted to Seller to the extent of receipts for accounts receivable generated
prior to the Effective Date, and (y) applied to reduce the Loan balance
including Advances, interest, fees, all charges and other payments, if
applicable, and if generated after the Effective Date. Collected receipts
applicable to accounts receivable generated prior to the Effective Date will be
paid to Seller on a weekly basis within 24 hours of receipt of the
reconciliation statement. Deposits/receipts and adjustments (net of fees and
payments pursuant to the preceding sentence), will reduce the Borrowing Base in
accordance with Section 2.3 above. Any excess collected receipts for accounts
receivable generated after the Effective Date (net of fees) remaining after all
such payments will be paid to Borrower on a weekly basis within 24 hours of
receipt of such reconciliation statement. Upon Lender's and Seller's collective
determination that reconciliation statements are no longer necessary, provisions
in this Section 2.6 relating to the preparation of reconciliation statements and
receipts related to accounts receivable generated prior to the Effective Date
will no longer apply. In addition, thereafter all payments and application of
the receipts, as well as reduction of the Borrowing Base, will be made on a
daily basis within 24 hours of collectibility of receipts. Borrower shall pay
all charges for establishing and maintaining the post office box accounts and
all bank charges for such deposit accounts. Lender shall deduct from the
deposit accounts all sums Borrower owes to it hereunder, including fees,
interest, reimbursements and principal payments. Borrower shall satisfy any
Obligations to Lender not paid by such deduction by direct payment to Lender at
4041 MacArthur Blvd., Suite 401, Newport Beach, California 92660.
(b) Borrower is indebted to DVIFS pursuant to the Other Loan
Agreements. Borrower will make payments on the Other Loan Agreements ("DVIFS
Payments") by having Lender deduct from the Lock Box Accounts the amount of each
of the DVIFS Payments when due according to the Other Loan Agreements, in
addition to the payments required under this Agreement. Borrower agrees that
Lender will first deduct from the Lock Box Accounts payments due to Lender under
this Agreement, and then, to the extent that there are sufficient funds
remaining, deduct the DVIFS Payments and remit such payments to DVIFS. Any
funds remaining in the deposit accounts after all such payments have been made
shall be remitted to Borrower as provided in Section 2.6(a).
Section 2.7. Term of Agreement. The Term of this Agreement is two
(2) years from the Effective Date and is noncancellable during such two year
period. This Agreement will be renewed for consecutive one (1) year terms;
provided that during any such additional terms after the initial two year term
either Lender or Borrower may terminate this Agreement effective as of the last
day of a term by written notice by Lender or Borrower no later than thirty (30)
days before the expiration of such term; provided, further, that during any such
additional terms after the initial two year term Borrower may terminate this
Agreement as of the last day of any calendar month by the (30) days written
notice to Lender. All of Lender's obligations, responsibilities and duties
shall cease upon the date of termination of this Agreement, except for its
obligation to remit excess receipts from the lock box deposit accounts in
accordance with the terms of this Agreement. Upon termination of this Agreement
and payment in full of the Obligations of Borrower to Lender, Lender shall
transfer the Lockbox Accounts and all funds therein to Borrower and Lender's
Liens will be released.
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Section 2.8. Lender's Fees. Upon execution hereof, Borrower shall pay
Lender an origination fee equal to one and one-half percent (1.5%) of the
Commitment Amount. Increases to the Commitment Amount during the term will be
charged on the incremental increase at the same origination percentage.
Following the Effective Date and on or before the first day of each month
Borrower shall pay Lender a monthly maintenance fee of Four Thousand Five
Hundred Dollars ($4,500). Following the Effective Date and on or before the
first day of each month, Borrower shall pay Lender an unutilized loan fee of
equal to one-quarter percent (.25%) of the difference between the Commitment
Amount and the average outstanding Loan amount for the immediately previous
month. Lender's fees will be deducted, when due, directly from receipts from
accounts receivable deposited in accordance with Section 2.6.
Section 2.9. Interest on the Loans. All Advances bear interest on the
unpaid principal amount thereof from the date made until paid in full at a
fluctuating rate equal to the Reference Rate plus two and one-half percent
(2.5%). Interest is payable monthly in arrears on the first day of each month
for the preceding month. Interest is calculated on the basis of a year of 360
days, but for the actual number of days elapsed. Interest accrued but not paid
pursuant to Section 2.6 is treated as an Advance if not otherwise paid within
five (5) days of the end of the month in which it accrues.
Section 2.10. Late Payments. If Borrower fails to make any payment of
interest or principal, including the payment due upon maturity, when the same is
due and payable and such failure continues for five (5) days after nonpayment, a
late charge by way of damages to the extent provided in this Section 2.10 is
immediately due and payable. Borrower recognizes that default by Borrower in
making the payments herein agreed to be paid when due will result in the Lender
incurring additional expenses, in loss to the Lender of the use of the money due
and in frustration to the Lender in meeting its other commitments. Lender is
entitled to damages for the detriment caused thereby, but it is extremely
difficult and impractical to ascertain the extent of such damages. Borrower
shall pay on demand a sum equal to five cents ($.05) for each one dollar ($1.00)
of each payment which is not received within five (5) days after the date it is
due and payable is a reasonable estimate of the damages to the Lender.
Section 2.11. Conditions to the Closing. The obligation of Lender to
make an Advance on the Closing Date is subject to Lender's determination that
Borrower has satisfied the following conditions on the Closing Date:
(a) The representations and warranties set forth in this Agreement
and the other Loan Documents are true and correct on and as of the date hereof
and are true and correct in all material respects as of the Closing Date and
Borrower has performed all obligations required to have been performed by it
hereunder prior to Closing Date.
(b) Borrower has executed and delivered to Lender (or caused to be
executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
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(ii) the Note;
(iii) UCC-1 Financing Statements;
(iv) the Guaranty;
(v) the Lock Box Agreement;
(vi) the Subordination Agreement;
(vii) payor redirect letters;
(viii) evidence satisfactory to Lender that Borrower is a
limited liability company and Guarantor is a corporation duly formed, validly
existing and in good standing in the state in which it was formed and in each
state in which it is authorized to do business;
(ix) pay-off letters, UCC Termination Statements and Lien
Releases as required to grant Lender a first priority security interest other
than Permitted Liens in Collateral pledged as security for repayment of the
Loan;
(x) signature and incumbency certificate of Borrower and
Guarantor;
(xi) certified copies of resolutions of the members of
Borrower and the Board of Directors of Guarantor authorizing the execution and
delivery of the Loan Documents to be executed by Borrower and Guarantor;
(xii) copies of the Articles of Organizations of Borrower
and the Articles of Incorporation of Guarantor certified by the Secretary of
State of each such Person's jurisdiction of incorporation;
(xiii) the written opinion of counsel to Borrower and
Guarantor issued on the Closing Date and satisfactory to Lender in scope and
substance; and
(xiv) a certificate from an officer of Borrower indicating
that the representations and warranties contained herein are true and correct as
of the Closing Date.
(c) Borrower has paid closing fees to Lender including Lender's
reasonable legal fees incurred by Lender for the negotiation and preparation of
the Loan Documents.
(d) Neither an Event of Default nor an Unmatured Default has
occurred and is continuing.
(e) Neither Borrower nor any Guarantor has suffered a material or
adverse change in its business, operations or financial condition from that
reflected in the financial statements of Borrower delivered to Lender or
otherwise.
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(f) Lender has received such additional supporting documents,
certificates and assurances as Lender reasonably requests which are satisfactory
to Lender in form and substance.
Section 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest. In order to secure prompt
payment and performance of the Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in all right, title and
interest of Borrower in and to the Management Agreement and the Accounts and any
Proceeds thereof (the "Collateral"), together with such third-party consents,
lien waivers and estoppel certificates as Lender reasonably requires, whether
now owned or existing or hereafter acquired or arising and regardless of where
located, subject only to Permitted Liens. This security interest in the
Collateral attaches to all Collateral without further action on the part of
Lender or Borrower.
Section 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower.
The exact name of Borrower is MHOA Texas I, L.L.C. Borrower was
formed under the laws of the State of Texas. The following are all previous
legal names of Borrower: None. Borrower uses the following trade names: None.
The following are all other trade names used by Borrower in the past: None.
Section 4.2. Mergers and Consolidations. Except as disclosed on
Schedule 4.2, no entity has merged into Borrower or been consolidated with
Borrower.
Section 4.3. Purchase of Assets. Except as disclosed on Schedule 4.3,
no entity has sold substantially all of its assets to Borrower or sold assets to
Borrower outside the ordinary course of such seller's business at any time in
the past.
Section 4.4. Change of Name or Identity. Borrower shall not change
its name, business structure, or identity or use any new trade name without
prior notification of Lender.
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Section 5
PROVISIONS CONCERNING ACCOUNTS
Section 5.1. Office and Records of Borrower. Borrower's principal
place of business and chief executive offices are located at: 906 West Randol
Mill Road, Arlington, Texas 76012. Borrower maintains all of their records with
respect to Accounts at 906 West Randol Mill Road, Arlington, Texas 76012.
Borrower has not at any time within the past four (4) months maintained their
chief executive office or their records with respect to Accounts at any other
location and shall not do so hereafter except with the prior written consent of
Lender.
Section 5.2. Representations. Borrower represents and warrants that
each Account at the time of its assignment to Lender (a) will be owned solely by
Borrower or Metroplex and Borrower will have a security interest in all Accounts
owned by Metroplex, (b) will be for a liquidated amount maturing as stated in
Borrower's Books; (c) will be a bona fide existing obligation created by the
rendition of services to Account Debtors or their insured by Borrower, Metroplex
or the Metroplex Providers in the ordinary course of its business; and (d) will
not be subject to any known deduction, offset, counterclaim, return privilege,
or other condition, except as reflected on Borrower's Books. Borrower shall
neither redate any invoices nor reissue new invoices in full or partial
satisfaction of old invoices. Allowances, if any, as between Borrower and its
customers will be on the same basis and in accordance with the usual customary
practices of Borrower as they exist on the date of this Agreement.
Section 5.3. Returns and Repossessions. Borrower shall notify Lender
within five (5) business days of occurrence of all material claims asserted by
Account Debtors.
Section 5.4. Borrowing Base Reports. Borrower shall on a weekly basis
execute and deliver to Lender, in a form satisfactory to Lender, (i) a Borrowing
Base report; (ii) a summary by payor class aging of Accounts; and (iii) a
charges, collections and adjustment summary for the preceding week. Borrower
shall upon the request of Lender execute and deliver to Lender an updated
Borrowing Base report reflecting additional billings, writeoffs and deposits and
all of Borrower's accounts receivable data in a computer disc or tape format
acceptable to Lender. On a monthly basis, and no later than the 10th day of each
month, Borrower shall submit to Lender (i) a month-end Borrowing Base Report,
(ii) a detailed accounts receivable aging report as of the last day of the
preceding month, (iii) charges, collections and adjustments summary for the
preceding month, and (iv) a payor concentration schedule. Lender shall
periodically review Borrower's actual adjustments to cash receipts and
writeoffs, as well as Borrower's payor profile. To the extent Borrower's
adjustments, writeoffs and payor profile materially changes, Lender may, based
on a reasonable review of such criteria, in its sole discretion, change the Net
Collectible Percentage attributable to each type of Account by written notice to
Borrower of such change.
Section 5.5. Compliance Certificate. With each final month-end
Borrowing Base report which Borrower delivers to Lender, Borrower shall deliver
to Lender a Compliance Certificate in the form of Exhibit 5.5 attached hereto,
completed and signed by an officer of Borrower.
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Section 5.6. Lender's Rights. Any officer, employee or agent of
Lender has the right, at any time or times hereafter, in the name of Lender or
its nominee (including Borrower), with prior notice to Borrower, to verify the
validity, amount or any other matter relating to any Accounts by mail, telephone
or otherwise; and all reasonable costs thereof are payable by Borrower to
Lender. Lender, or its designee may at any time after the occurrence and during
the continuance of an Event of Default notify customers or Account Debtors that
Accounts have been assigned to Lender or of Lender's security interest therein
and collect the same directly and charge all reasonable collection costs and
expenses to Borrower's account.
Section 5.7. Disclaimer of Liability. Lender shall not be liable to
Borrower or any third person for the correctness, validity or genuineness of any
instruments or documents released or endorsed to Borrower by Lender (which shall
automatically be deemed to be without recourse to Lender in any event) or for
the existence, character, quantity, quality, condition, value or delivery of any
goods purporting to be represented by any such documents; and Lender, by
accepting a Lien on the Collateral or by releasing any Collateral to Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or creditor of Borrower or to any other third party. Borrower agrees to
indemnify and defend Lender and hold it harmless in respect to any claim or
proceeding arising out of any matter referred to in this Section 5.7.
Section 5.8. Post Default Rights. If an Event of Default has occurred
and is continuing hereunder, no discount, credit or allowance may be granted or
permitted by Borrower to any Account Debtor; provided, however, that,
notwithstanding the existence of an Event of Default, (i) Borrower may continue
to invoice and bill Account Debtors under discount, credit and allowance
arrangements that Borrower maintained in the ordinary course of business prior
to such Event of Default occurring, and (ii) Account Debtors may, during the
continuance of an Event of Default, utilize discount, credit and allowance
arrangements that Borrower extended to them in the ordinary course of business.
Lender may, if an Event of Default has occurred and is continuing, settle or
adjust disputes and claims directly with Account Debtors for amounts and upon
terms that Lender considers advisable, and in such cases, Lender will credit
Borrower's account with only the net amounts received by Lender in payment of
such disputed Accounts, after deducting all Lender Expenses incurred in
connection therewith.
Section 5.9. Accounts Owed by Federal Government. If any Accounts
(other than Medicare and Medicaid accounts or payments) arise out of a contract
with the United States of America or any department, agency, subdivision or
instrumentality thereof, Borrower shall promptly notify Lender thereof in
writing and take all other action reasonably requested by Lender to protect
Lender's Lien on such Accounts under the provisions of the federal laws on
assignment of claims.
Section 5.10. Business Activity Reports. Borrower and its Affiliates
have filed and shall file all legally required notices and reports of its
business activities with all appropriate state taxing authorities and the
appropriate Governmental Authority of each other jurisdiction in which Borrower
or an Affiliate is legally required to file such a notice or report.
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Section 6
PROVISIONS CONCERNING CONTRACTS
Section 6.1. Contracts.
(a) Schedule 6.1. is a true and complete list of all material
contracts and agreements to which Borrower is a party.
(b) Borrower shall not amend, modify or supplement any contract or
agreement included in the Collateral or waive any provision thereof other than
in accordance with Borrower's standard business practice, nor may such standard
business practice be materially changed without Lender's consent, which shall
not be unreasonably withheld.
(c) Borrower shall remain liable to perform all of its duties and
obligations under any contracts and agreements included in the Collateral to the
same extent as if this Agreement had not been executed; and Lender shall not
have any obligation or liability under such contracts and agreements by reason
of this Agreement or otherwise.
(d) Borrower need not pay any amount due under any contract or
agreement listed on Schedule 6.1, nor otherwise perform any action required
under the terms of any such contract or agreement, if such payment or
performance is being contested in good faith by appropriate proceedings promptly
initiated and diligently conducted, if Lender is notified in advance of such
contest, and if Borrower establishes any reserve or other appropriate provision
required by GAAP and deposits with Lender cash or an acceptable bond reasonably
requested by Lender.
Section 7
PROVISIONS CONCERNING COLLATERAL
Section 7.1. Further Assurances. Borrower shall execute and deliver
to Lender, concurrent with Borrower's execution of this Agreement and at any
time or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens in the Collateral and
in order to consummate fully all of the transactions contemplated under the Loan
Documents. Borrower hereby irrevocably make, constitute, and appoint Lender
(and any of Lender's officers, employees or agents designated by Lender) as
Borrower's true and lawful attorney with power to sign the name of Borrower on
any of the above-described documents or on any other similar documents that need
to be executed, recorded, or filed in order to perfect or continue perfected
Lender's Liens in the Collateral. The appointment of Lender as Borrower's
attorney is irrevocable as long as any Obligations are outstanding. Any person
dealing with Lender is entitled to rely conclusively on any written or oral
statement of Lender that this power of attorney is in effect.
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Section 7.2. Lender's Duty of Care. Lender has no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender will be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as the Borrower requests or agrees to in
writing, provided that no failure to comply with any such request nor any
omission to do any such act requested by the Borrower may be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property may not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
loss, damage or destruction of the Collateral is borne by Borrower, except to
the extent Lender breaches the standard of care set forth in this Section 7.2.
Section 7.3. Reinstatement of Liens. If, at any time after payment in
full by Borrower of all Obligations and termination of Lender's Liens, any
payments on Obligations previously made by Borrower or any other Person must be
disgorged by Lender for any reason whatsoever (including, the insolvency,
bankruptcy, or reorganization of Borrower or such other Person), this Agreement
and Lender's Liens granted hereunder are reinstated as to all disgorged payments
as though such payments had not been made, and Borrower shall sign and deliver
to Lender all documents and things necessary to perfect all terminated Liens.
Section 7.4. Lender Expenses. If Borrower fails to pay any moneys
(whether taxes, assessments, insurance premiums or otherwise) due to third
persons or entities, fails to make any deposits or furnish any required proof of
payment or deposit or fails to discharge any Lien not permitted hereby, all as
required under the terms of this Agreement, then Lender may, to the extent that
it determines that such failure by Borrower could have a material adverse effect
on Lender's interest in the Collateral, in its discretion and without prior
notice to Borrower, make payment of the same or any part thereof; provided,
however, Lender shall a make reasonable attempt to provide Borrower with prior
notice if the delay caused by providing such notice would not have a material
adverse impact on Lender's interest in the Collateral. Any amounts paid or
deposited by Lender constitute Advances, become part of the Obligations, bear
interest at the rate of eighteen percent (18%) per annum and are secured by the
Collateral. Any payments made by Lender do not constitute (a) an agreement by
Lender to make similar payments in the future or (b) a waiver by Lender of any
Event of Default under this Agreement. Lender need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance
or Lien, and the receipt of the usual official notice for the payment of moneys
to a governmental entity is conclusive evidence that the same was validly due
and owing.
Borrower shall immediately and without demand reimburse Lender for all
sums expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 7.5. Inspection of Records. During usual business hours,
Lender may inspect Borrower's Books in order to verify the amount or condition
of, or any other matter relating to, the Collateral and Borrower's financial
condition and to copy and make extracts therefrom. Borrower waives the right to
assert a confidential relationship, if any, it may have with any
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accounting firm or service bureau in connection with any information requested
by Lender pursuant to this Agreement. Lender may directly contact any such
accounting firm or service bureau in order to obtain such information.
Section 7.6. Waivers. Except as specifically provided for herein,
Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Borrower may in any way be
liable.
Section 8
REPRESENTATIONS AND WARRANTIES
As of the date hereof Borrower hereby warrants and represents to
Lender the following:
Section 8.1. Company Status. Borrower is a limited liability company
validly existing and in good standing under the laws of the state of its
formation; and is qualified and licensed to do business and is in good standing
in any state in which the conduct of its business or its ownership of property
requires that it be so qualified or licensed, and has the power and authority
(corporate and otherwise) to execute and carry out the terms of the Loan
Documents to which it is a party, to own its assets and to carry on its business
as currently conducted.
Section 8.2. Authorization. The execution, delivery, and performance
by Borrower of this Agreement and each other Loan Document to which it is a
party have been duly authorized by all necessary company action. Borrower has
duly executed and delivered this Agreement and each such Loan Document to which
it is a party, and each of them constitutes a valid and binding obligation of
Borrower enforceable according to its terms.
Section 8.3. No Breach. The execution, delivery and performance by
Borrower of this Agreement and each Loan Document to which it is a party (a)
will not contravene any law or any governmental rule or order binding on
Collateral; (b) will not violate any provision of the articles of organization
or regulations of Borrower; (c) will not violate any agreement or instrument by
which Borrower or its assets, is bound; (d) do not require any notice to consent
by any Governmental Authority; and (e) will not result in the creation of a Lien
on any assets of Borrower except the Lien to Lender granted herein.
Section 8.4. Taxes. All assessments and taxes, whether real, personal
or otherwise, due or payable by or imposed, levied or assessed against Borrower,
or its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments, or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
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Section 8.5. Deferred Compensation Plans. Borrower and each ERISA
Affiliate have made all required contributions to all deferred compensation
plans to which such person is required to contribute, and neither Borrower nor
any ERISA Affiliate has any liability for any unfunded benefits of any single-
employer or multi-employer plans. Neither Borrower nor any ERISA Affiliate is
or at any time has been a sponsor of, provided, or maintained for any employees
any defined benefit plan.
Section 8.6. Litigation and Proceedings. Except as set forth on
Schedule 8.6 attached hereto, there are no outstanding judgments against
Borrower or its assets and there are no actions or proceedings pending by or
against Borrower before any court or administrative agency. Borrower has no
knowledge of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower except for ongoing collection matters in which Borrower is the
plaintiff and except as set forth in Schedule 8.6 hereto.
Section 8.7. Business. Borrower has all franchises, authorizations,
patents, trademarks, copyrights and other rights necessary to conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or subject to any
agreement or restriction that is so unusual or burdensome that it might have a
material adverse effect on Borrower's business, properties or prospects.
Section 8.8. Laws and Agreements. Borrower is in compliance with all
material contracts and agreements applicable to it, including obligations to
contribute to any employee benefit plan or pension plan regulated by ERISA.
Borrower is in material compliance with all laws applicable to it.
Section 8.9. Ownership of Accounts. Prior to the Lender making any
Advance, Borrower or Metroplex will be the sole owner of, or Borrower will have
a valid security interest in, the Accounts.
Section 8.10. Security Interest. After giving effect to each Advance
contemplated by this Agreement, the Lender will be the holder of a valid
perfected first priority security interest in Borrower's right, title and
interest in the Accounts. The Collateral will be free and clear of all liens
other than Permitted Liens.
Section 8.11. Intentionally Deleted.
Section 8.12. Origination. Each Account will have been originated by
Borrower or Metroplex in the ordinary course of its business in accordance with
its regular credit approval process and does not contravene any laws, rules or
regulations applicable thereto.
Section 8.13. Legality. No Eligible Account will have been originated
in, or be subject to the laws of, any jurisdiction whose laws would make the
terms hereof or any transaction contemplated hereby unlawful.
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Section 8.14. Consents. No consent or approval is required for the
pledging of any Collateral to the Lender pursuant to the terms of this
Agreement, except for such consents or approvals as have been obtained prior to
the Closing Date.
Section 8.15. Financial Condition. All financial statements and
information relating to Borrower or its assets that have been or may hereafter
be delivered by Borrower to Lender are accurate and complete in all material
respects and have been prepared in accordance with GAAP. Borrower has no
material obligations or liabilities of any kind not disclosed in that financial
information, and there has been no material adverse change in the financial
condition of Borrower since the date of the most recent financial statements
submitted to Lender.
Section 8.16. Health Care Laws.
(a) Borrower has obtained all permits, licenses and other
authorizations that are required under Health Care Laws applicable to Borrower
and is in compliance in all material respects with all terms and conditions of
the required permits, licenses and authorizations, and are also in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
(b) Borrower is not aware of, and has not received notice of, any
past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans that may interfere with or prevent
compliance or continued compliance in any material respect with Health Care
Laws.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice or demand letter, notice of violation,
investigation or proceeding pending or to the best knowledge of Borrower
threatened against Borrower, relating in any way to Health Care Laws.
Section 8.17. Cumulative Representations. The warranties,
representations and agreements set forth herein are cumulative and in addition
to any and all other warranties, representations and agreements that Borrower
gives, or cause to be given, to Lender, either now or hereafter.
Section 8.18. Full Disclosure. No representation, warranty or
statement by Borrower contained in this Agreement, any Schedule or any document,
instrument or certificate furnished by or on behalf of any of them pursuant to
this Agreement contains any untrue, incorrect, incomplete or misleading
statement of material fact, or knowingly omits to state a material fact
necessary to make the statements contained therein not misleading.
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Section 9
COVENANTS
Section 9.1. Encumbrance of Collateral. Borrower shall not create,
incur, assume or permit to exist any Lien on any Collateral now owned or
hereafter acquired by Borrower except for Permitted Liens.
Section 9.2. Business. Borrower shall engage primarily in business of
physician practice management and related services.
Section 9.3. Condition and Repair. Borrower shall maintain in good
repair and working order all material properties used in its business and from
time to time shall make all appropriate repairs and replacements thereof.
Section 9.4. Taxes. Borrower shall pay all taxes, assessments and
other governmental charges imposed upon it or its assets or in respect of any of
its franchises, business, income or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of their
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by GAAP. Borrower shall make timely payment or deposit of all
FICA payments and withholding taxes required of it by applicable laws and will,
upon request, furnish Lender with proof satisfactory to Lender indicating that
Borrower has made such payments or deposits.
Section 9.5. Accounting System. Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with GAAP,
with ledger and account cards or computer tapes, disks, printouts, and records
that contain information pertaining to the Collateral that may from time to time
be requested by Lender. Borrower shall not modify or change its method of
accounting or enter into any agreement hereafter with any third-party accounting
firm or service bureau for the preparation or storage of Borrower's accounting
records without the accounting firm's or service bureau's agreeing to provide to
Lender information regarding the Collateral and Borrower's financial condition.
Section 9.6. Monthly Financial Statements. Borrower shall furnish
Lender as soon as practicable but in no event later than thirty (30) days after
the end of each month with unaudited monthly financial statements in form and
substance as reasonably required by Lender, including a balance sheet, an income
statement and a statement of cash flows, prepared in accordance with GAAP,
together with a certificate executed by the chief financial officer of Borrower
attesting that to the best of such officer's knowledge the financial statements
fairly present the financial condition of Borrower as of the date and for the
periods covered and that as of the date of such certificate there
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has not been a violation of any provision of this Agreement and no Event of
Default or Unmatured Default has occurred and is continuing.
Section 9.7. Annual Financial Statements. Borrower shall furnish
Lender as soon as practicable but in no event later than one hundred twenty
(120) days after the close of each fiscal year with audited annual financial
statements, which financial statements are prepared in accordance with GAAP and
certified without qualification by an independent certified public accounting
firm reasonably satisfactory to Lender. With the annual financial statements,
Borrower shall deliver a certificate of its chief financial officer attesting
that to the best of such officer's knowledge there has not been a violation of
any provision of this Agreement and no Event of Default or Unmatured Default
under the Agreement has occurred and is continuing.
Section 9.8. Further Information. Borrower shall promptly supply
Lender with such other information concerning its affairs as Lender may
reasonably request from time to time hereafter and shall promptly notify Lender
of any material adverse change in Borrower's financial condition and any
condition or event that constitutes an Event of Default under, this Agreement.
In addition, Borrower authorizes Lender to contact credit reporting agencies
concerning Borrower's credit standing. Borrower also authorizes Lender to
utilize Borrower's name in Lender's marketing materials.
Section 9.9. ERISA Covenants. Borrower shall, and shall cause each
ERISA Affiliate to, comply with all applicable provisions of ERISA and all other
laws applicable to any deferred compensation plans with which Borrower or any
ERISA Affiliate is associated, and shall promptly notify Lender of the
occurrence of any event that could result in any material liability of Borrower
to any person to any person whatsoever with respect to any such plan.
Section 9.10. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Unless authorized by Lender, Borrower may not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets having an
aggregate value greater than $100,000 in any twelve month period in any
transaction or series of related transactions other than (i) sales in the
ordinary course of business (ii) if being replaced by items of comparable or
greater value, provided Borrower receives the consent of Lender which will not
be unreasonably withheld, to any such transfer having a value greater than
$100,000 or (iii) to Metroplex pursuant to the terms of that certain Assumption
Agreement dated as of the date hereof among Metroplex and DVIFS;
(c) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction;
(d) acquire interests in any entity in excess of $100,000 in the
aggregate in any calendar year (whether by purchase of assets, purchase of stock
merger or otherwise);
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(e) become subject to any agreement or instrument which by its terms
would restrict Borrower's right or ability to perform any of its obligations to
Lender pursuant to the terms of the Loan Documents; or
(f) authorize or issue any additional member interests or other
equity interest.
Section 9.11. Health Care Covenants.
(a) Borrower and its Subsidiaries shall comply in all material
respects with, and will obtain all permits required by, all Health Care Laws
applicable to it.
(b) Borrower shall promptly furnish to Lender a copy of any
communication from any governmental authority concerning any possible violation
of any Health Care Laws or any occurrence of which Borrower would be required to
notify any Governmental Authority with jurisdiction over Health Care Laws.
Section 9.12. Distributions. Except as set forth on Schedule 9.12
hereto, Borrower may not make any Distributions, without the prior written
consent of Lender, which consent may not be unreasonably withheld and which
consent will not be deemed to authorize any Distributions while an Event of
Default is continuing or if such Distribution would cause an Event of Default to
occur.
Section 9.13. Subordinate Obligations. Borrower shall not voluntarily
prepay any principal (including the making of any sinking fund payment),
interest or any other amount in respect of Subordinate Obligations.
Section 9.14. Amendments. Borrower shall not amend any provision of
any Subordinate Obligation if such amendment would (i) affect any of the
subordination provisions thereof, (ii) advance the date of any required payment
or prepayment thereunder, (iii) make covenants therein more burdensome, when
considered in their entirety, to Borrower, (iv) reduce any default or grace
period therein provided, or (v) otherwise have a material adverse effect on the
interests of Lender.
Section 9.15. Cash Flow Ratio. In any three (3) consecutive calendar
month period, Borrower's Cash Flow Ratio must be twenty percent (20%) or greater
for one of the calendar months in such period. This Section does not apply
during the first three (3) calendar months after the Effective Date.
Section 9.16. Termination of Covenants. If Guarantor (i) successfully
completes a public offering of its common stock and other securities registered
under the Securities Exchange Act of 1933, as amended, which results in
Guarantor receiving net proceeds of Thirty-Five Million Dollars ($35,000,000) or
more, or (ii) at the end of any fiscal quarter Guarantor or its successor, by
merger or otherwise, attains a net worth of Fifty Million Dollars or more, then
the covenants contained in Section 9.12 will no longer apply to the Loan and
thereafter will be considered deleted from the Agreement.
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Section 10
EVENTS OF DEFAULT
An Event of Default is deemed to exist if any of the following events
have occurred and is continuing:
(a) Borrower fails to make any payment of principal or interest or
any other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure continues for five (5) days after
notice of non-payment is received by Borrower;
(b) Borrower or a Guarantor fails to observe or perform any material
covenant, condition or agreement to be observed or performed pursuant to the
terms hereof or any Loan Document to which it is a party and such failure is not
cured as soon as reasonably practicable and in any event within thirty (30) days
after written notice thereof by Lender;
(c) A court enters a decree or order for relief in respect of
Borrower in an involuntary case under any applicable bankruptcy, insolvency, or
other similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of their property, or orders the windup or liquidation
of Borrower's affairs; or a petition initiating an involuntary case under any
such bankruptcy, insolvency, or similar law is filed against Borrower and is
pending for sixty (60) days without dismissal;
(d) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law then in effect, makes any general
assignment for the benefit of creditors, fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing;
(e) Final judgment for the payment of money on any claim in excess
of $100,000 is rendered against Borrower and remains undischarged for thirty
(30) days during which execution is not effectively stayed;
(f) Guarantor revokes or attempts to revoke its guaranty of any of
the Obligations, or becomes the subject of an insolvency proceeding of the type
described in clauses (c) or (d) above with respect to Borrower or fails to
observe or perform any material covenant, condition or agreement to be performed
under any Loan Document to which it is a party;
(g) Borrower makes any payment on account of any Subordinate
Obligations, other than payments specifically permitted by the terms of such
subordination or this Agreement.
(h) Any Person holding any Subordinate Obligations becomes the
subject of any proceeding resulting in the termination of the Subordination
Arrangement, terminates the subordination arrangement or asserts that it is
terminated.
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(i) Any Collateral or any part thereof is sold, agreed to be sold,
conveyed or allocated by operation of law or otherwise other than as permitted
by Section 9.10;
(j) Borrower defaults under the terms of any Indebtedness or lease
involving total payment obligations of Borrower excess of $100,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such indebtedness
or lease payments;
(k) Demand is made for payment of any Indebtedness in excess of
$100,000 that was not originally payable upon demand when incurred but the terms
of which were later changed to provide for payment upon demand;
(l) Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs and such court order is not revoked or overturned within 5 days;
(m) A judgment or other claim in excess of $100,000 becomes a Lien
upon any or all of Borrower's assets or the Collateral, other than a Permitted
Lien;
(n) A notice of Lien, levy or assessment in excess of $100,000 is
filed of record with respect to any or all of Borrower's assets or the
Collateral by any Governmental Authority or any tax or debt owing at any time
hereafter to any one or more of such entities becomes a Lien upon any or all of
Borrower's assets or the Collateral and the same is not paid on the payment date
thereof, except to the extent such tax or debt is being contested by Borrower as
permitted in Section 8.4;
(o) There is a material impairment of the value of the Collateral or
priority of Lender's Liens on the Collateral;
(p) Any of Borrower's assets in excess of $100,000 or any Collateral
are seized, subjected to a distress warrant, levied upon or come into the
possession of any judicial officer;
(q) Any representation or warranty made in writing to Lender by any
officer of Borrower in connection with the transaction contemplated in this
Agreement is materially incorrect when made;
(r) Guarantor is in default under the Guaranty or an Event of
Default occurs under the Other Loan Documents;
(s) If the aggregate dollar value of all judgments, defaults,
demands, claims and notices of Liens under clauses (e), (j), (k), (m), (n) and
(p) hereof exceeds $250,000; or
(t) Borrower fails to direct all receipts for Accounts to the
Lockbox Accounts.
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Section 11
REMEDIES
Section 11.1. Specific Remedies. Upon the occurrence and during the
continuance of any Event of Default:
(a) Lender may cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any other Loan Document, or
under any other agreement between Borrower and Lender.
(b) Lender may declare all Obligations to be due and payable
immediately, whereupon they shall immediately become due and payable without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by Borrower.
(c) Lender may set off against the Obligations all Collateral,
balances, credits, deposits, accounts, or moneys of Borrower then or thereafter
held with Lender, including amounts represented by certificates of deposit.
(d) Lender may pay, purchase, contest, or compromise any encumbrance,
charge or Lien that, in the opinion of Lender, appears to be prior or superior
to its Lien and pay all reasonable expenses incurred in connection therewith.
(e) Lender may (i) notify Account Debtors to make payment on Account
directly to Lender; (ii) settle, adjust, compromise, extend or renew Accounts,
whether before or after legal proceedings to collect such Accounts have
commenced; (iii) prepare and file any bankruptcy proofs of claim or similar
documents against any Account Debtor; (iv) prepare and file any notice,
assignment, satisfaction, or release of Lien, UCC termination statement or any
similar document; (v) sell or assign Accounts, individually or in bulk, upon
such terms, for such amounts, and at such time or times as Lender deems
advisable; and (vi) complete the performance required of Borrower or a Guarantor
under any contract or agreement to which Borrower is a party and out of which
Accounts arise or may arise.
(f) Lender may (i) endorse Borrower's name on all checks, notes,
drafts, money orders or other forms of payment of or security for Accounts or
other Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors
or issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
Section 11.2. Power of Attorney. Borrower hereby appoints Lender
(and any of Lender's officers, employees, or agents designated by Lender) as
Borrower's attorney, with power after the occurrence of an Event of Default: (a)
to endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and
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assignments of Accounts, on verifications of Accounts, and on notices to Account
Debtors; (c) to notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Lender, to receive and
open all mail addressed to Borrower and to retain all mail relating to the
Collateral and forward all other mail to Borrower; (d) to send requests for
verification of Accounts; (e) to execute UCC Financing Statements; and (f) to do
all things necessary to carry out this Agreement. The appointment of Lender as
Borrower's attorney and each and every one of Lender's rights and powers, being
coupled with an interest, are irrevocable as long as any Obligations are
outstanding. Lender shall not exercise the power granted in clause 11.2(b)
unless an Event of Default has occurred and is continuing and shall not exercise
the power granted in clause 11.2(d) prior to notification of Borrower of its
intent to do so, but such limitations do not limit the effectiveness of such
power of attorney at any time. Any person dealing with Lender is entitled to
rely conclusively on any written or oral statement of Lender that this power of
attorney is in effect. Lender may also use Borrower's stationery in connection
with exercising its rights and remedies and performing the Obligations of
Borrower.
Section 11.3. Expenses Secured. All expenses, including reasonable
attorney fees, incurred by Lender in the exercise of its rights and remedies
provided in this Agreement, or by law shall be payable by Borrower to Lender,
are part of the Obligations, and are secured by the Collateral.
Section 11.4. Equitable Relief. Borrower recognizes that in the
event Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, in certain cases no remedy of law will provide
adequate relief to Lender, and Lender is entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
Section 11.5. Remedies Are Cumulative. No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or now or hereafter existing at
law or in equity or by statute. Lender may pursue its rights and remedies
concurrently or in any sequence, and no exercise of one right or remedy may be
deemed to be an election. No delay by Lender constitutes a waiver, election, or
acquiescence by it. Borrower on its behalf waives any rights to require Lender
to proceed against Guarantor or any other party; or proceed against or exhaust
any security held from any Guarantor. Lender may at any time and from time to
time, without notice to, or consent of, Borrower, and without affecting or
impairing the obligation of Borrower hereunder do any of the following: (i)
renew or extend any obligations of Guarantor, or of any other party at any time
directly or contingently liable for payment of any of the obligations of
Guarantor; (ii) accept partial payments of the obligations of Guarantor; (iii)
settle, release (by operation of law or otherwise), compound, compromise,
collect or liquidate any of the obligations of Guarantor and the security
therefor in any manner; or (iv) consent to the transfer or sale of any security
or bid and purchase at any sale of any security of Guarantor. The validity of
this Agreement and the Obligations of Borrower are not terminated, affected or
impaired by reason of the waiving, delaying, exercising or non-exercising, of
any of Lender's rights against Guarantor or as a result of the substitution,
release, repossession, sale, disposition or destruction of any Collateral
securing any obligations of Guarantor. Borrower is not released or discharged,
either in whole or
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in part, by Lender's failure or delay to perfect or continue the perfection of
any security interest in any Collateral which secures the obligations of any
Guarantor or to protect the property covered by such security interest.
Section 12
INDEMNITY
Section 12.1. General Indemnity. BORROWER SHALL PROTECT, INDEMNIFY
AND DEFEND AND SAVE HARMLESS LENDER AND ITS DIRECTORS, OFFICERS, AGENTS AND
EMPLOYEES FROM AND AGAINST ANY AND ALL LOSS, COST, LIABILITY (INCLUDING
NEGLIGENCE, TORT AND STRICT LIABILITY), EXPENSE, DAMAGE, SUITS OR DEMANDS
(INCLUDING FEES AND DISBURSEMENTS OF COUNSEL) ON ACCOUNT OF ANY SUIT OR
PROCEEDING BEFORE ANY GOVERNMENTAL AUTHORITY WHICH ARISES FROM THE TRANSACTIONS
CONTEMPLATED IN THIS AGREEMENT OR OTHERWISE ARISING IN CONNECTION WITH OR
RELATING TO THE LOAN AND ANY SECURITY THEREFOR, UNLESS SUCH SUIT, CLAIM OR
DAMAGES ARE CAUSED BY THE GROSS NEGLIGENCE OR INTENTIONAL MALFEASANCE OF LENDER
OR ITS DIRECTORS, OFFICER, AGENTS OR EMPLOYEES. Upon receiving knowledge of any
suit, claim or demand asserted by a third-party that Lender believes is covered
by this indemnity, Lender shall give Borrower timely notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel acceptable to Lender. Lender may, at its option, also require Borrower
to so defend the matter. This obligation on the part of Borrower survives the
termination of this Agreement and the repayment of the Note.
Section 13
MISCELLANEOUS
Section 13.1. Delay and Waiver. No delay or omission to exercise any
right impairs any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver
on one occasion is limited to that particular occasion.
Section 13.2. Complete Agreement. This Agreement, the Schedules and
the other Loan Documents are the complete agreement of the parties hereto and
supersede all previous understandings relating to the subject matter hereof.
This Agreement may be amended only by an instrument in writing that explicitly
states that it amends this Agreement and is signed by the party against whom
enforcement of the amendment is sought. This Agreement may be executed in
counterparts, each of which will be an original and all of which will constitute
a single agreement.
Section 13.3. Severability; Headings. If any part of this Agreement
or the application thereof to any person or circumstance is held invalid, the
remainder of this Agreement
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is unaffected thereby. The section headings herein are included for convenience
only and may not be deemed to be a part of this Agreement.
Section 13.4. Binding Effect. This Agreement is binding upon and
inures to the benefit of the respective legal representatives, successors and
assigns of the parties hereto; provided however, Borrower may not assign any of
its rights or delegate any of its Obligations hereunder. Lender (and any
subsequent assignee) may transfer and assign this Agreement and deliver the
Collateral to the assignee, who thereupon has all of the rights of Lender; and
Lender (or such subsequent assignee who in turn assigns as aforesaid) is then
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 13.5. Notices. Any notices under or pursuant to this
Agreement are deemed duly sent when delivered in hand or when mailed by
registered or certified mail, return receipt requested, or when delivered by
courier or when transmitted by telex, telecopy, or similar electronic medium to
the following addresses:
To Borrower: MHOA Texas I, L.L.C.
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attention: Thomas Rodgers
Telephone: (770) 673-1964
Facsimile: (770) 673-1970
Copies To: Jackson & Walker, L.L.P.
901 Main Street, Suite 600
Dallas, Texas 75202-3797
Attention: James S. Ryan III, Esq.
Telephone: (214) 953-6000
Facsimile: (214) 953-5822
To Lender: DVI Business Credit Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn
Telephone: (714) 474-6100
Facsimile: (714) 474-6199
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Copies to: DVI Business Credit Corporation
500 Hyde Park
Doylestown, PA 18901
Attention: Melvin C. Breaux, Esq.
General Counsel
Telephone: (215) 230-2931
Facsimile: (215) 230-3537
Any party may change such address by sending notice of the change to
the other parties; such change of address is effective only upon actual receipt
of the notice by the other parties.
Section 13.6. Governing Law. ALL ACTS AND TRANSACTIONS HEREUNDER AND
THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA WITHOUT GIVING EFFECT
TO CONFLICTS OF LAW PRINCIPLES.
Section 13.7. Waiver of Trial by Jury. LENDER AND BORROWER HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR
ANY OF THE LOAN DOCUMENTS OR THE RELATIONSHIP BETWEEN LENDER AND BORROWER.
Section 13.8. Submission to Jurisdiction.
(a) BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
CALIFORNIA OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA, OVER ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. BORROWER
HEREBY AGREES THAT SERVICE OF COPIES OF SUMMONS AND COMPLAINTS AND ANY OTHER
PROCESS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING ARISING HEREUNDER MAY BE
MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET FORTH AT THE BEGINNING OF
THIS AGREEMENT.
(b) NOTHING IN THIS PARAGRAPH 13.8 SHALL AFFECT THE RIGHT OF LENDER
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT
OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY OF ITS
PROPERTIES IN THE COURTS OF OTHER JURISDICTIONS TO THE EXTENT OTHERWISE
PERMITTED BY LAW.
(c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE (i) ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA OR ANY FEDERAL COURT
SITTING IN ORANGE COUNTY,
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CALIFORNIA OR FROM ANY LEGAL PROCESS OUT OF ANY SUCH COURT (WHETHER THROUGH
SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, OR (ii) ANY
OBJECTION TO THE LAYING OF THE VENUE OR OF AN INCONVENIENT FORUM OF ANY SUIT,
ACTION OR PROCEEDING, IF BROUGHT IN CALIFORNIA OR FEDERAL COURT SITTING IN
ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN ACCORDANCE WITH SUBPARAGRAPH
(a) ABOVE, BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY OR OBJECTION IN
RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE LOANS.
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IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
by their duly authorized officers as of the date first above written.
BORROWER: LENDER:
MHOA TEXAS I, L.L.C. DVI BUSINESS CREDIT CORPORATION
By: /s/ Sarah C. Garvin By: /s/ Cynthia J. Cohn
------------------------------ ----------------------------------
Sarah C. Garvin, President Cynthia J. Cohn, Executive Vice
President
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Schedule 1.1
Permitted Liens
1. Those liens listed on Schedule 3.16 of that certain Asset Purchase and
Contribution Agreement dated as of June 16, 1997, executed by and between
Borrower, Seller and certain other parties (the "Purchase Agreement"), and all
other Permitted Encumbrances, as defined therein.
2. Liens and security interest granted to DVI FS, with respect to the
Collateral pursuant to the terms of the six Loan and Security Agreements dated
on or about the date hereof, which Liens and security interests are intended by
all parties to be second to the Liens and security interests of this Agreement.
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Schedule 4.2
Mergers and Consolidations
Merger with Garvin Texas I, Inc. formerly known as MHOA Texas I, Inc.
32
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Schedule 4.3
Purchase of Assets
Purchase of assets of Metroplex Hematology/Oncology Associates, L.L.P. pursuant
to the Purchase Agreement.
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Schedule 6.1
Contracts
1. The Management Agreement.
2. The Benefit Agreements, Employee/Contract Labor Agreements, Real Property
Leases (for business space only) and Services Contracts listed on Schedule 3.20
of the Purchase Agreement and assumed by Borrower thereunder.
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Schedule 8.6
Litigation and Proceedings
None
35
<PAGE>
Schedule 9.12
Permitted Distributions
Borrower is permitted to make Distributions to Guarantor provided after
such payment Borrower maintains a debt service coverage ratio of no less than
1.5 to 1 for the previous twelve calendar month period.
"Debt service coverage" means (i) the sum of net income plus depreciations
plus amortization plus interest expense, divided by (ii) the sum of capitalized
lease payments plus loan payments plus interest expense.
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Exhibit 1.1
Net Collectible Percentage
--------------------------
37
<PAGE>
Exhibit 2.2
SECURED PROMISSORY NOTE
Due July 1, 1999
FOR VALUE RECEIVED, MHOA TEXAS I, L.L.C.., a Texas limited liability
company ("Maker"), hereby promises to pay to DVI BUSINESS CREDIT CORPORATION
("Holder") or order, the principal sum of FIVE MILLION DOLLARS ($5,000,000), or
such amount as may be advanced thereon from time to time, with interest on the
unpaid principal balance from time to time outstanding at the fluctuating rate
of interest announced publicly by Bank of America, NT&SA in San Francisco,
California, from time to time as its reference rate plus two and one-half
percent (2.5%) per annum, computed on the basis of a 360-day year and actual
days elapsed, until paid. Interest is payable on the first business day of each
calendar month for the preceding month, will all unpaid principal and interest
due and payable in full on July 1, 1999.
1. This Note is made pursuant to, and secured by that certain Loan and
Security Agreement dated as of the date hereof between Holder as Lender and
Maker as Borrower (the "Agreement"). All capitalized terms used but not defined
herein have the meanings ascribed to them in the Agreement, the terms of which
are incorporated herein by reference thereto. This Note is also secured by the
Security Documents referred to in the Agreement. The Agreement and the Security
Documents create a lien on and security interest in the personal property
described therein ("Collateral"). The Agreement and the Security Documents are
collectively referred to as the "Loan and Security Documents" and are hereby
incorporated herein by reference thereto and made a part of this Note.
2. This Note may be prepaid or redeemed in whole or in part at any time
without penalty or premium. Notwithstanding the foregoing, the Agreement may not
be terminated, and is not terminated by any prepayment.
3. Principal and interest are payable to Holder at 4041 MacArthur Blvd.,
Suite 401, Newport Beach, California 92660, or such other place as the Holder
may, from time to time in writing, designate.
4. If any part of the principal or interest of the Note is not paid when
due, it will be added to the principal amount of this Note and thereafter bear
interest at the rate provided above. If the specified interest rate at any time
exceeds the maximum rate allowed by law, then the applicable interest rate is
reduced to the maximum rate allowed by law.
5. The occurrence of an Event of Default under the Agreement may, at the
election of the Holder, make the entire unpaid balance of the principal amount
of this Note and accrued interest thereon immediately due and payable without
notice of default, presentment or demand for payment, protest or notice of
nonpayment or dishonor, or other notices or demands of any kind or character.
<PAGE>
6. Failure of the Holder to exercise the acceleration option of paragraph
5 of this Note on the occurrence of an Event of Default does not constitute a
waiver of the right to exercise such option on the subsequent occurrence of an
Event of Default.
7. Principal and interest is payable in lawful money of the United States
of America which is legal tender in payment of all debts and dues, public and
private, at the time of payment. If any payment of principal or interest under
this Note becomes due on a Saturday, Sunday or legal or banking holiday, such
payment is due on the next succeeding business day. Maker waives presentment,
demand for payment, notice of nonpayment, protest, and notice of protest, and
all other notices and demands in connection with the delivery, acceptance,
performance, default, or enforcement of this Note. Maker consents to any and all
assignments of this Note, extensions of time, renewals, and waivers that may be
made or granted by the Holder. Maker expressly agrees that such assignments,
extensions of time, renewals, or waivers do not affect Maker's liability
hereunder. Maker agrees that Holder may, without notice to Maker and without
affecting the liability of Maker, accept additional or substitute security for
this Note, or release any security or any party liable for this Note, or extend
or renew this Note.
8. If Maker fails to make any payment of interest or principal under this
Note, including the payment due upon maturity, when the same is due and payable
and such failure continues for five (5) days after nonpayment, a late charge by
way of damages to the extent provided in this paragraph is immediately due and
payable. Maker recognizes that default by Maker in making the payments herein
agreed to be paid when due will result in the Holder incurring additional
expenses, in loss to the Holder of the use of the money due and in frustration
to the Holder in meeting its other commitments. Maker agrees that, if for any
reason Maker fails to pay any amount due under this Note when due, the Holder is
entitled to damages for the detriment caused thereby, but that it is extremely
difficult and impractical to ascertain the extent of such damages. Maker
therefore agrees that a sum equal to five cents ($.05) for each one dollar
($1.00) of each payment which is not received within five (5) days after the
date it is due and payable is a reasonable estimate of the damages to the
Holder, which sum Maker agrees to pay on demand.
9. If action is instituted on this Note (including without limitation,
any proceedings for collection hereof in any bankruptcy or probate matter or
case), or if proceedings are commenced on or under any of the Loan and Security
Documents, and Holder prevails in such proceedings Maker promises to pay the
Holder all costs of collection and enforcement including, without limitation,
reasonable attorneys' fees plus interest on any defaulted amount at the rate of
eighteen percent (18%) per annum.
10. Any and all notices or other communications or payments required or
permitted to be given hereunder are effective when received or refused if given
or rendered in writing, in the manner provided in the Agreement.
2
<PAGE>
11. This Note inures to the benefit of and is binding upon the
Holder's successors and assigns. References to the "Holder" are deemed to refer
to the holders of this Note at the time such reference becomes relevant.
12. If any term, provision, covenant, or condition of this Note is
held by a court of competent jurisdiction to be invalid, void, or unenforceable,
the rest of this Note remains in full force and effect to the greatest extent
permitted by law and is in no other way affected, impaired or invalidated.
13. Nothing contained herein or in the Loan and Security Documents may
be deemed to prevent recourse to and the enforcement against Maker and the
Collateral of all liabilities, obligations and undertakings contained herein and
in the Loan and Security Documents.
14. THIS NOTE IS GOVERNED BY AND MUST BE CONSTRUED UNDER THE LAWS OF
THE STATE OF CALIFORNIA AND MAKER AGREES TO SUBMIT TO THE JURISDICTION OF THE
STATE OR FEDERAL COURTS IN THE STATE OF CALIFORNIA.
Dated: June 16, 1997
MHOA TEXAS I, L.L.C.,
By:
----------------------------------
Sarah C. Garvin, President
3
<PAGE>
Exhibit 5.5
Borrowing Base Report
Compliance Certification
------------------------
In connection with the Borrowing Base report dated the date hereof
delivered by MHOA Texas I, L.L.C. ("Borrower") pursuant to that certain Loan and
Security Agreement by and among Borrower and DVI Business Credit Corporation,
the undersigned hereby certifies as follows:
1. Borrower has complied and is in compliance in all material respects
with all of the terms, covenants and conditions of the Loan and
Security Agreement;
2. No Default or Event of Default exists under the Loan and Security
Agreement; and
3. The representations, warranties and covenants contained in Section 8
of the Loan and Security Agreement are true in all material respects
as of the date hereof.
Capitalized terms used herein not otherwise defined shall have the
respective earnings ascribed thereto in the Loan and Security Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be duly
executed and delivered as of the ______ day of _______________, 199__.
Borrower:
MHOA TEXAS I, L.L.C.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
<PAGE>
EXHIBIT 10.63
PHYSICIAN HEALTH CORPORATION
Warrant and Preferred Stock Commitment
--------------------------------------
This Agreement, dated as of September 12, 1997, is among Physician Health
Corporation, a Delaware corporation (the "Company"), Weston Presidio Capital II,
-------
L.P. ("WPC"), and the other holders of Series B Preferred Stock or Common Stock
---
of the Company who subsequently join this Agreement prior to October 13, 1997 as
set forth in Exhibit 1 hereto as from time to time in effect (collectively with
WPC, the "Preferred Stock Purchasers").
--------------------------
Recitals
--------
A. The Company would like to have additional funds available to make
acquisitions and to finance its working capital and business growth.
B. Southwest Bank (the "Bank") is willing to make a $3,000,000 loan (the
----
"Loan") to the Company evidenced by a Variable Rate Note dated September 12,
1997, in the original principal amount of $3,000,000, due January 10, 1998 and
bearing interest at a per annum interest rate equal to the prime rate
established by the Bank from time to time (the "Variable Rate Note"), but only
------------------
if WPC guarantees the Variable Rate Note pursuant to a Continuing Limited
Guaranty Agreement dated the date hereof (the "Note Guarantee").
--------------
C. WPC is willing to enter into the Note Guarantee. In order to enable
the Company to repay the Variable Rate Note, WPC and the other Preferred Stock
Purchasers will severally purchase at a price of $4.00 per share shares of the
Company's Series B Redeemable Convertible Preferred Stock, par value $0.01 per
share (the "Preferred Stock") in an aggregate amount equal to the then principal
---------------
of, accrued interest on and expenses of the Bank with respect to the Variable
Rate Note divided by $4.00. The portion of the Preferred Stock to be purchased
by each Preferred Stock Purchaser will be equal to the percentage of the
aggregate purchase price for all Preferred Stock (the "Commitment Amount")
-----------------
indicated for such Preferred Stock Purchaser in Exhibit 1 hereto as from time to
time in effect (the "Commitment Percentage"). Such purchase will occur promptly
---------------------
after a notice for guarantee payment has been delivered by the Bank or the
Company to WPC or after a notice from WPC has been delivered to the Company and
the other Preferred Stock Purchasers any time after January 12, 1998. The
proceeds of the Preferred Stock will be used by the Company solely to repay in
full the principal of, accrued interest on and expenses of the Bank with respect
to the Variable Rate Note so that WPC will not be required to pay any amounts
under its Note Guarantee.
<PAGE>
D. The Company is willing to obtain the Loan and to issue the Variable
Rate Note only if it is assured that it will obtain financing to repay in full
the principal of, accrued interest on and the Bank's expenses with respect to
the Variable Rate Note prior to maturity through the sale of the Preferred Stock
as provided herein or, at the Company's option, through other financing options.
E. WPC and the Preferred Stock Purchasers are willing to commit to acquire
such Preferred Stock only if the Company issues to them certain warrants to
acquire at least 50,000 shares of the Company's Common Stock at a price of $4.00
per share.
Agreement
---------
NOW THEREFORE, in consideration of the mutual promises provided in this
Agreement and for other valuable consideration, the receipt and sufficiency of
which are acknowledged, the parties agree as follows:
1. Preferred Stock.
---------------
1.1 Issuance. Within ten business days after the earlier of (a) the
--------
receipt by WPC of a notice from the Bank or the Company to pay under the Note
Guarantee or (b) the receipt by the Company and the other Preferred Stock
Purchasers of a notice from WPC delivered after January 12, 1998, the
undersigned Preferred Stock Purchasers severally agree to purchase from the
Company, and the Company agrees to sell to the Preferred Stock Purchasers in
accordance with their respective Commitment Percentages, at a purchase price of
$4.00 per share the aggregate number of shares of Preferred Stock equal to the
then effective Commitment Amount divided by $4.00. The Preferred Stock shall be
purchased by wire transfer of immediately available funds of such respective
Commitment Percentages in the Commitment Amount on the purchase date set forth
in such notice. The Company shall promptly apply the proceeds of the Preferred
Stock solely to the payment in full of the Variable Rate Note (together with the
Bank's expenses with respect thereto) and shall obtain the release of WPC from
its obligations under the Note Guarantee. Upon the written request of WPC, the
Company agrees to take any additional corporate action, including board of
director votes, necessary to issue the Preferred Stock in accordance herewith.
1.2 Unconditional Purchase. The parties agree to consummate the
----------------------
purchase of the Preferred Stock in accordance with this Section 1 regardless of
the occurrence of a material adverse change in the business, assets, financial
condition, income or prospects of the Company, the bankruptcy or insolvency of
the Company, any litigation or other claims brought against the Company or any
other event or circumstance. In the event that the Company is prohibited from
issuing the Preferred Stock for any reason, whether on account of any bankruptcy
proceeding, legal requirement or otherwise, each of the Preferred Stock
Purchasers agrees that it will contribute to the amounts paid by WPC in
guaranteeing the Variable Rate Note to the Bank, and the Preferred Stock
Purchasers will make such
-2-
<PAGE>
arrangements among themselves, so that the payments under the Note Guarantee are
made by them in substantially the proportions of the Preferred Stock that would
otherwise have been acquired by them in accordance with this Section 1.
1.3 Termination of Obligation. The Preferred Stock Purchasers'
-------------------------
obligation to purchase and the Company's obligation to sell Preferred Stock
shall cease automatically on the date WPC is released by the Bank from its
obligations under the Note Guarantee.
2. Warrants. As of the date hereof, the Company is issuing to each of the
--------
Preferred Stock Purchasers party hereto on the date hereof warrants to purchase
shares of its Common Stock on the terms and in substantially the form of Exhibit
2 hereto (the "Warrants"). The initial Warrants shall be for an aggregate of
--------
50,000 shares of Common Stock and the Warrants issued to each Preferred Stock
Purchaser party hereto are in the amount set forth in Exhibit 1 hereto. The
shares covered by the Warrants shall be Voting Common Stock; provided, however,
-------- -------
that any Preferred Stock Purchaser may obtain Nonvoting Common Stock upon
exercise of its Warrants upon written request to the Company. The exercise
price for the Warrant is $4.00 per share of Common Stock. As provided in the
Warrants, the number of shares subject to the Warrants shall increase by an
aggregate of 20,000 shares of Common Stock on the 12th day of each month,
commencing October 12, 1997, and ending January 12, 1998, during which the
Preferred Stock Purchasers are still obligated to purchase Preferred Stock
hereunder. In the event such commitments are terminated during any month after
October 12, 1997 and prior to January 13, 1998, the increased shares subject to
the Warrants shall be prorated based on the number of days during the month that
the Preferred Stock purchase obligation remained in effect.
3. Default by Preferred Stock Purchaser. In the event that any Preferred
------------------------------------
Stock Purchaser does not purchase its portion of the Preferred Stock at the
closing therefor in accordance with Section 1, in addition to any other rights
or remedies available to the Company, WPC and the other Preferred Stock
Purchasers under law or in equity, the Warrants of the defaulting Preferred
Stock Purchaser shall be canceled. In the event that such Warrants have then
for any reason previously been exercised, at the option of the Company, the
Company shall rescind such exercise and sale of Common Stock to the defaulting
Preferred Stock Purchaser. The other Preferred Stock Purchasers may each
subscribe for the allocated portion of Preferred Stock that would have been
issued to such defaulting Preferred Stock Purchaser. In the event that any
portion of such defaulting Preferred Stock Purchaser's allocation shall remain
unsold, WPC shall acquire such remaining portion.
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants as follows:
4.1 Organization. The Company is a duly organized and validly existing
------------
corporation in good standing under the laws of the State of Delaware. The
Company has all necessary corporate power and authority to enter into and
perform this Agreement and to issue
-3-
<PAGE>
the Warrants and Preferred Stock and to carry on the business now conducted or
presently proposed to be conducted by it. The Company has taken corporate
action necessary to authorize this Agreement, the Warrants and the Preferred
Stock. This Agreement is, and the Warrants and Preferred Stock will be, duly
executed and delivered by the Company and constitute the legal, valid and
binding obligations of the Company, enforceable in accordance with their terms,
except as such enforceability may be limited by laws relating to bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
rights and remedies of creditors generally and by principles of equity.
4.2 Capital Stock of the Company. The authorized and outstanding
----------------------------
capital stock of the Company is set forth in Exhibit 4.2 hereto, which also
shows (a) in all material respects the beneficial and record ownership of such
stock and (b) any options, warrants, conversion rights and other purchase
rights.
4.3 Financial Statements. The Company has furnished to the Preferred
--------------------
Stock Purchasers complete copies of (a) the audited consolidated balance sheet
of the Company and its subsidiaries as of December 31, 1996, together with the
related statements of income, cash flows and stockholders' equity for the fiscal
year then ended, accompanied by the audit report of Coopers & Lybrand LLC and
(b) the unaudited consolidated balance sheet of the Company and its subsidiaries
as of June 30, 1997, together with the unaudited consolidated income statement
for the six-month fiscal period then ended. These financial statements have
been prepared in accordance with generally accepted accounting principles
consistently applied and fairly present the financial condition of the Company
and its subsidiaries at the date thereof and the results of their operations for
the periods covered thereby (except for the addition of footnotes and year-end
audit adjustments in the case of the interim financial statements). Since
December 31, 1996, no material adverse effect upon the business, assets,
financial condition, income or prospects of the Company and its subsidiaries on
a consolidated basis has occurred.
4.4 Litigation. No litigation or proceeding is currently before any
----------
foreign, federal, state or municipal board or other governmental or
administrative agency or any arbitrator, nor, to the knowledge of the executive
officers of the Company, is such litigation, or proceeding threatened or
pending, against the Company or its subsidiaries or, to the Company's knowledge,
any officer of the Company or its subsidiaries, which in the aggregate would
reasonably be expected to result in a material adverse effect on the business,
assets, financial condition, income or prospects of the Company and its
subsidiaries on a consolidated basis or which seeks rescission of, seeks to
enjoin the consummation of or which questions the validity of this Agreement or
the issuance of the Warrants or Preferred Stock.
4.5 No Conflict With Other Agreements. Except for the Ancillary
---------------------------------
Agreements (as defined below) prior to their amendment as set forth in Section
5.2, neither the execution and delivery of this Agreement or the issuance of the
Warrants or the Preferred Stock as contemplated hereby will (a) constitute a
breach or a default under any agreement,
-4-
<PAGE>
instrument, deed or lease of the Company or its subsidiaries that has not been
consented to or waived, (b) result in acceleration in the time for performance
of any obligation of the Company or its subsidiaries under any such agreement,
instrument, deed or lease, (c) result in the creation of any lien upon any asset
of the Company or its subsidiaries, (d) require any consent, waiver or amendment
to any agreement, instrument, deed or lease that has not been obtained, (e) give
rise to any severance payment, right of termination, securities purchase right
or other right under any agreement, instrument, deed or lease or (f) violate or
give rise to a default under any statute, rule, regulation, law, order or
decree, except for events or conditions described in clauses (a) through (f)
above which will not in the aggregate have any material adverse effect upon the
business, assets, financial condition, income or prospects of the Company and
its subsidiaries on a consolidated basis.
4.6 Reservation of Shares. The Company has reserved shares of its
---------------------
Preferred Stock for sale as contemplated hereby and of its Common Stock for
issuance upon exercise or conversion of the Warrants and conversion of the
Preferred Stock. All such shares, when so issued upon such exercise or
conversion for the full consideration therefor, shall be duly authorized,
validly issued, fully paid and nonassessable.
5. Post-Closing Covenants.
----------------------
5.1 Legal Opinion. On or before September 19, 1997, the Company will
-------------
furnish to the Preferred Stock Purchasers the legal opinion of Jackson Walker
L.L.P., the Company's counsel, with respect to the Warrants and the Preferred
Stock in form and substance reasonably satisfactory to WPC.
5.2 Amendments of Related Agreements. The Company shall use its best
--------------------------------
efforts to cause the Preferred Stock, Warrants and the shares issuable upon
conversion or exercise thereof to be subject to the Registration Rights
Agreement and the Second Amended and Restated Stockholders Agreement, each dated
as of June 16, 1997 as from time to time amended and in effect (the "Ancillary
---------
Agreements"). In any event, no later than October 1, 1997, the Company shall
- ----------
grant the holders of the Warrants registration rights substantially the same as
the registration rights provided to holders of Preferred Stock pursuant to such
Registration Rights Agreement.
6. Representations by Preferred Stock Purchasers; Restrictions on
--------------------------------------------------------------
Transfer.
- --------
6.1 Representations by Preferred Stock Purchasers. Each of the
---------------------------------------------
Preferred Stock Purchasers severally represents and warrants to the Company as
follows:
(a) Such Preferred Stock Purchaser is an "accredited investor" for
purposes of Regulation D under the federal Securities Act of 1933, as
amended (the "Securities Act"), and is acquiring the Warrants and Preferred
--------------
Stock for investment for its own account, and not with a view to selling or
otherwise distributing them in violation of
-5-
<PAGE>
the Securities Act; provided, however, that nothing contained in this
-------- -------
Section 6.1(a) shall prevent the Preferred Stock Purchasers from
transferring the Warrants and Preferred Stock in compliance with this
Section 6.
(b) Such Preferred Stock Purchaser has sufficient knowledge and
experience in investing in companies similar to the Company in terms of the
Company's stage of development so as to be able to evaluate the risks and
merits of the investment in the Company and such Preferred Stock Purchaser
is able financially to bear the risks thereof.
(c) Such Preferred Stock Purchaser has had an opportunity to discuss
the Company, business, management and financial affairs with the Company's
management and has received (or had made available to such Preferred Stock
Purchaser) any financial and business documents requested by such Preferred
Stock Purchaser.
(d) Such Preferred Stock Purchaser acknowledges that there is no
additional information regarding the Company or the Warrants and Preferred
Stock which such Preferred Stock Purchaser wishes to receive or which such
Preferred Stock Purchaser requires in order to make a reasoned, informed
investment decision with respect to the Warrants and Preferred Stock.
6.2 Home Office Payment. All payments, if any, made in respect of the
-------------------
Warrants and Preferred Stock held by the Preferred Stock Purchasers shall be
paid by wire transfer or Company check to the address shown on Exhibit 1B,
accompanied by sufficient information to identify the source and application
thereof or by such other method or at such other address as the Preferred Stock
Purchasers shall have from time to time given timely notice of to the Company.
6.3 Replacement of Lost Securities. Upon receipt of evidence
------------------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant or Preferred Stock and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity bond in such reasonable
amount as the Company may determine (or, in the case of a security held by the
Preferred Stock Purchasers or any institutional holder or by the Preferred Stock
Purchasers or such institutional holder's nominee, of an unsecured indemnity
agreement from the Preferred Stock Purchasers or such other holder reasonably
satisfactory to the Company), or, in the case of any such mutilation, upon the
surrender of such security for cancellation to the Company at its principal
office, the Company at its expense will execute and deliver in lieu thereof, a
new security of like tenor. Any security in lieu of which any such new security
has been so executed and delivered by the Company shall not be deemed to be an
outstanding security for any purpose.
6.4 Transfer, Exchange and Conversion. The Company shall keep at its
---------------------------------
principal office a register in which shall be entered the names and addresses of
the holders of
-6-
<PAGE>
the capital stock, Warrants and Preferred Stock of the Company and particulars
of the respective Preferred Stock, Common Stock, Preferred Stock (including the
classes thereof) and Warrants held by them and of all transfers, exchanges,
conversions and redemptions of such capital stock. Upon surrender at such
office or such other place as shall be duly specified by the Company of any
certificate representing shares of capital stock, Warrants or Preferred Stock
for exchange or (subject to compliance with the applicable provisions of this
Agreement, including the conditions set forth in Section 6.5) transfer or for
conversion, the Company shall as appropriate issue, at its expense, one or more
new certificates, Warrants or Preferred Stock in such denomination or
denominations as may be requested, and registered as such holder may request.
Any certificate representing shares of capital stock, Warrants or Preferred
Stock surrendered for registration or transfer shall be duly endorsed, or
accompanied by a written instrument of transfer duly executed by the holder of
such certificate or his attorney duly authorized in writing. The Company will
pay shipping and insurance charges, from and to each holder's principal office,
upon any transfer, exchange or conversion provided for in this Section 6.4.
6.5 Restrictions on Transfer. The Warrants and Preferred Stock
------------------------
shall be transferable only upon satisfaction of the applicable conditions
specified in this Section 6.5 and unless sold in an offering registered under
the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act.
6.5.1 Restrictive Legend. Except as otherwise permitted by Section
------------------
6.5.3, each share of Preferred Stock and each Warrant shall bear a legend
(in addition to any other required legends) in substantially the following
form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under the
securities laws of any state, and may not be sold, or otherwise
transferred, in the absence of such registration or an exemption
therefrom under such Act and under any such applicable state laws. In
addition, the shares represented by this certificate are subject to
restrictions on transfer contained in a Warrant and Preferred Stock
Commitment dated as of September 12, 1997, a copy of which is available
at the issuer's office and will be furnished free of charge to the
holder hereof."
6.5.2 Notice of Proposed Transfer; Opinions of Counsel. Prior to any
------------------------------------------------
transfer of any Warrant or Preferred Stock other than pursuant to an
effective registration statement under the Securities Act, the holder
thereof will give written notice to the Company of such holder's intention
to effect such transfer, describing in reasonable detail the manner of the
proposed transfer. If any such holder delivers to the Company (a) an
opinion of counsel reasonably acceptable to the Company addressed to the
Company to the effect that the proposed transfer may be effected without
registration of such security under the Securities Act or applicable state
securities laws (or a certificate of an officer of such holder that the
transfer is being made to a wholly owned
-7-
<PAGE>
Subsidiary of the holder's corporate parent) and (b) the written agreement
of the proposed transferee to be bound by all of the terms and conditions
of this Agreement (including this Section 6.5) and the Ancillary
Agreements, such holder shall thereupon be entitled, within 10 days
thereafter, to transfer such Warrant or Preferred Stock in accordance with
the terms of this Agreement and the notice delivered by such holder to the
Company. Each certificate representing such shares or Preferred Stock
issued upon or in connection with such transfer shall bear the restrictive
legend set forth in Section 6.5.1, in each case unless the restrictions on
transfer provided for in Section 6.5 shall have ceased and terminated as to
such Warrant or Preferred Stock pursuant to Section 6.5.3.
6.5.3 Termination of Restrictions. The restrictions imposed by
---------------------------
Section 6.5.1 upon the transferability of Warrant or Preferred Stock shall
terminate as to any particular Warrant or Preferred Stock and any
securities issued in exchange or conversion therefor or upon transfer
thereof when, in the opinion of counsel reasonably acceptable to the
Company, such restrictions are no longer required in order to assure
compliance with the Securities Act. Whenever any of such restrictions shall
terminate as to any Warrant or Preferred Stock, the holder thereof shall be
entitled to receive from the Company, without expense, new certificates not
bearing the legend set forth in Section 6.5.1.
6.5.4 Assumption of this Agreement. As a condition precedent to any
----------------------------
transfer of the Warrant or Preferred Stock, the transferee shall be bound
by the terms of this Agreement to which the transferring Preferred Stock
Purchaser is a party and such transferee shall execute such documents or
certificates reasonably requested by the Company to confirm and effect the
foregoing.
7. Expenses, Etc.
--------------
7.1 Expenses. The Company hereby agrees to pay on demand all
--------
reasonable out-of-pocket expenses incurred by WPC in connection with the
transactions contemplated by this Agreement and by any Preferred Stock
Purchasers in connection with any amendments or waivers (whether or not the same
become effective) hereof and all expenses incurred by the Preferred Stock
Purchasers or any holder of any Warrant or Preferred Stock issued hereunder in
connection with the enforcement in good faith of any rights hereunder, including
(a) the reasonable fees, expenses and disbursements of the Preferred Stock
Purchasers' special counsel in connection with the transactions contemplated by
this Agreement and the other transactions contemplated hereby; and (b) all taxes
(other than taxes determined with respect to income), including any recording
fees and filing fees and documentary stamp and similar taxes, at any time
payable in respect of this Agreement or the issuance of any of the Warrants or
Preferred Stock.
-8-
<PAGE>
7.2 Indemnification. The Company shall indemnify and hold the
---------------
Preferred Stock Purchasers and each of the Preferred Stock Purchasers' partners,
stockholders, officers, directors, employees and agents free and harmless from
and against all actions, causes of action, suits, litigation, losses,
liabilities and damages, investigations or proceedings ("Actions") instituted by
any governmental agency or any other person and expenses in connection
therewith, including reasonable attorneys' fees and disbursements, incurred by
the indemnitee or any of them as a result of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in part directly or
indirectly with proceeds from the sale by the Company of any of the Warrants or
Preferred Stock, or (b) the execution, delivery, performance or enforcement of
this Agreement or any instrument contemplated hereby by any of the indemnitees,
except in each such case described in clauses (a) or (b) above for any such
indemnified liabilities arising on account of any indemnitee's gross negligence
or willful misconduct. The Company shall have the right to control the defense
of any such actions or other proceedings and to select counsel in connection
therewith, except to the extent a conflict of interest, separate defenses or
other circumstances indicate that separate counsel for the indemnitee is
customary practice.
8. Further Assurances. The Company and the Preferred Stock Purchasers
------------------
agree to take all other action and to execute and deliver all other instruments
and documents as may be necessary to carry out the transactions contemplated by
this Agreement.
9. Notices. Any notice or other communication in connection with this
-------
Agreement or the Warrant or Preferred Stock shall be deemed to be delivered if
in writing addressed as provided in Exhibit 1 hereto and if either (a) actually
delivered at such address, (b) two business days shall have elapsed after the
same shall have been deposited for overnight delivery with a courier of national
recognition, (c) in the case of a telecopy within the United States, upon
confirmation of receipt of such telecopy (which confirmation may consist of a
telecopy machine printout showing successful transmission), if such telecopy is
followed by a copy of the same being deposited within one business day of such
telecopy with an overnight courier (for overnight delivery) or (d) transmitted
to any address outside of the United States, by telecopy and confirmed by
overnight or two-day courier.
10. General. The invalidity or unenforceability of any term or provision
-------
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. This
Agreement, the Warrants and the Preferred Stock constitute the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersede all present and prior agreements, whether written or oral. This
Agreement is intended to take effect as a sealed instrument and may be executed
in any number of counterparts which together shall constitute one instrument and
shall be governed by and construed in accordance with the laws (other than the
conflict of laws rules) of The Commonwealth of Massachusetts, and shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns.
-9-
<PAGE>
The undersigned have executed this Agreement under seal as of the date
first above written.
Company: PHYSICIAN HEALTH CORPORATION
By:
-------------------------------------
Title:
Preferred Stock Purchasers: WESTON PRESIDIO CAPITAL II, L.P.
By: WESTON PRESIDIO CAPITAL
MANAGEMENT, L.P.
By:
-------------------------------------
General Partner
The following entities join in and become
party to this Agreement as Preferred
Stock Purchasers as of the date and with
a Commitment Percentage as set forth
below their signatures:
BANCBOSTON INVESTMENTS INC.
By
-------------------------------------
Title:
Date:
Commitment Percentage:
-10-
<PAGE>
MERCURY ASSET MANAGEMENT plc, on behalf
of ROWAN NOMINEES LIMITED
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
NATWEST VENTURES INVESTMENTS LIMITED
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
ST. PAUL VENTURE CAPITAL IV, LLC
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
PARTECH U.S. PARTNERS III C.V.
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
U.S. GROWTH FUND PARTNERS C.V.
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
-11-
<PAGE>
AXA U.S. GROWTH FUND LLC
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
DOUBLE BLACK DIAMOND II LLC
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
ALMANORI LIMITED
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
MULTINVEST LIMITED
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
NATIONAL CITY VENTURE CORPORATION
By:
-------------------------------------
Title:
Date:
Commitment Percentage:
-12-
<PAGE>
EXHIBIT 1
---------
<TABLE>
<CAPTION>
Common Shares
Initial Shares of Initially Subject to
Preferred Stock Preferred Stock
(Increase for Accrued (Increase for Accrued
Investors Commitment Common Shares Initially Variable Rate Note Variable Rate Note
Name and Address Percentage Subject to Warrant Interest and Expenses) Interest and Expenses)
- ---------------- ---------- ------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
WESTON PRESIDIO 35.23% 17,615 264,222 264,222
CAPITAL II, L.P.
One Federal Street
Boston, MA 02110
Telephone: (617) 988-2500
Telecopy: (617) 988-2515
EGL HOLDINGS FUNDS 22.50% 11,249 168,750 168,750
6600 Peachtree-Dunwoody Road
Building 300, Suite 630
Atlanta, GA 30328
Tel: 770-399-5633
Fax: 770-393-4825
ST. PAUL VENTURE 10.57% 5,284 79,257 79,257
CAPITAL IV, LLC
c/o St. Paul Venture Capital, Inc.
Normandale Office Park, Suite 1940
8500 Normandale Lake Blvd.
Bloomington, MN 55437
Tel: 612-830-7490
Fax: 612-830-7475
PARTECH INTERNATIONAL FUNDS 10.57% 5,284 79,257 79,257
50 California Street, Suite 3200
San Francisco, CA 94111
Tel: 415-788-2929
Fax: 415-788-6763
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Common Shares
Initial Shares of Initially Subject to
Preferred Stock Preferred Stock
(Increase for Accrued (Increase for Accrued
Investors Commitment Common Shares Initially Variable Rate Note Variable Rate Note
Name and Address Percentage Subject to Warrant Interest and Expenses) Interest and Expenses)
- ---------------- ---------- ------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
BANCBOSTON 10.57% 5,284 79,257 79,257
INVESTMENTS INC.
175 Federal Street
31st Floor
Boston, MA 02110
Tel: (617) 434-5917
Fax: (617) 434-1153
NATIONAL CITY VENTURE 10.57% 5,284 79,257 79,257
CORPORATION
1965 E. 6th Street
Suite 1010
Cleveland, OH 44114
Tel: 216-575-9482
Fax: 216-575-9965
--------- --------- --------- --------
Grand Total 100% 50,000 750,000 750,000
</TABLE>
-14-
<PAGE>
EXHIBIT 10.64
THE ISSUANCE OF THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE
OR CONVERSION OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE SOLD, OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND UNDER
ANY SUCH APPLICABLE STATE LAWS. IN ADDITION, THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER CONTAINED IN A
WARRANT AND PREFERRED STOCK COMMITMENT DATED AS OF SEPTEMBER 12, 1997,
A COPY OF WHICH IS AVAILABLE AT THE ISSUER'S OFFICE AND WILL BE
FURNISHED FREE OF CHARGE TO THE HOLDER HEREOF.
THIS WARRANT AND ANY SHARES ISSUED UPON EXERCISE OR CONVERSION HEREOF
WILL BE ENTITLED TO CERTAIN REGISTRATION RIGHTS AND TO CERTAIN OTHER
BENEFITS SET FORTH IN A REGISTRATION RIGHTS AGREEMENT AND A SECOND
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, EACH DATED ON OR ABOUT
JUNE 16, 1997. THE ISSUER WILL FURNISH A COPY OF SUCH AGREEMENTS TO THE
HOLDER OF THIS WARRANT WITHOUT CHARGE UPON WRITTEN REQUEST.
PHYSICIAN HEALTH CORPORATION
Common Stock Warrant
No. GW-1 September 12, 1997
Physician Health Corporation, a Delaware corporation (the "Company"),
-------
for value received, hereby certifies that Weston Presidio Capital II, L.P., or
its registered assigns, is entitled to purchase from the Company 50,000 duly
authorized, validly issued, fully paid and nonassessable shares of Voting Common
Stock, par value $0.0025 per share (the "Common Stock"), of the Company at the
------------
purchase price per share of $4.00 (the "Initial Warrant Price"), at any time or
---------------------
from time to time prior to 5:00 p.m., Boston, Massachusetts time, on the earlier
of (a) September 12, 2007 or (b) the third anniversary of the closing of the
initial public
<PAGE>
offering of the Company's stock that constitutes a "Liquidity Event" (as defined
in the Certificate of Designation) (the "Expiration Date"), all subject to the
---------------
terms, conditions and adjustments set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants", such term to include any such warrants issued in substitution
therefor) originally issued pursuant to a Warrant and Preferred Stock Commitment
dated September 12, 1997 (as from time to time in effect, the "Warrant and
-----------
Preferred Stock Commitment") among the Company, the holder hereof and certain
- --------------------------
other original holders of Warrants (collectively, the "Investors"). This Warrant
---------
originally evidences rights to purchase an aggregate of 50,000 shares of Common
Stock, subject to adjustment as provided herein, on the Original Issue Date (the
"Original Share Amount"). The number of shares of Common Stock that this Warrant
---------------------
evidences rights to purchase shall be increased from the Original Share Amount
by 20,000 shares on the 12th day of each month after the date hereof, commencing
on October 12, 1997 and ending on January 12, 1998, during which any holder of
Warrants remains obligated to purchase Series B Redeemable Convertible Preferred
Stock, par value $0.01 pre share, issued by the Company (the "Series B Preferred
------------------
Stock") under the Warrant and Preferred Stock Commitment; provided, however,
- ----- -------- -------
that in the event such purchase obligation is terminated during any month after
October 12, 1997 and prior to January 13, 1998, the increase for such month
shall be prorated based on the number of days during such month that such
purchase obligation remains in effect. Promptly upon the termination of such
purchase obligation, the Company shall provide a certificate to the holder(s)
hereof stating the number of shares of Common Stock for which this Warrant is
exercisable and offering to furnish a replacement Warrant bearing such number of
shares on its face.
1. DEFINITIONS. Certain capitalized terms are used in this Warrant as
specifically defined below in this Section 1. Except as the context otherwise
explicitly requires, (a) the capitalized term "Section" refers to sections of
this Warrant, (b) the capitalized term "Exhibit" refers to exhibits to this
Warrant, (c) references to a particular Section include all subsections thereof,
(d) the word "including" shall be construed as "including without limitation",
(e) accounting terms not otherwise defined herein have the meaning provided
under GAAP, (f) references to a particular statute or regulation include all
rules and regulations thereunder and any successor statute, regulation or rules,
in each case as from time to time in effect and (g) references to a particular
Person include such Person's successors and assigns to the extent not prohibited
by this Warrant. References to "the date hereof" mean the date first set forth
above.
"Additional Shares of Common Stock" means Additional Shares of Common
---------------------------------
Stock, as defined in the Certificate of Designation.
"Book Value" means the Company's consolidated stockholders' equity per
----------
common share on a fully diluted basis, determined in accordance with generally
accepted accounting
-2-
<PAGE>
principles, as of the end of its fiscal quarter most recently completed prior to
the date of determination.
"Business Day" means any day other than a Saturday or a Sunday or a day
------------
on which commercial banking institutions in Boston, Massachusetts or New York,
New York are authorized by law to be closed.
"Certificate of Designation" means the Second Amended and Restated
--------------------------
Certificate of Designation, Preferences And Rights of the Series B Redeemable
Convertible Preferred Stock of the Company filed by the Company with the
Delaware Secretary of State as of July 31, 1997.
"Commission" means the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Common Stock" is defined in the preamble and means the Voting Common
------------
Stock of the Company, $0.0025 per share par value.
"Company" is defined in the preamble, and includes any corporation
-------
which shall succeed to or assume the obligations of the Company hereunder.
"Convertible Securities" means any indebtedness, shares or other
----------------------
securities convertible into or exchangeable for Common Stock.
"Exchange Act" means the federal Securities Exchange Act of 1934.
------------
"Expiration Date" is defined in the preamble.
---------------
"Initial Warrant Price" is defined in the preamble.
---------------------
"Investors" is defined in the preamble.
---------
"Market Price" means, on any date, the amount per share of Common Stock
------------
equal to (a) the last sale price of Common Stock, regular way, on such date or,
if no such sale takes place on such date, the average of the closing bid and
asked prices thereof on such date, in each case as officially reported on the
principal national securities exchange on which Common Stock is then listed or
admitted to trading, or (b) if Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security by the NASD, the last trading price of Common Stock on
such date, or (c) if no trading occurred on such date or if Common Stock is not
so designated, the average of the closing bid and asked prices of Common Stock
on such date as shown by the NASD automated quotation system, or (d) if Common
Stock is not then listed or admitted to trading
-3-
<PAGE>
on any national exchange or quoted in the over-the-counter market, the higher of
(i) Book Value or (ii) the fair value thereof determined in good faith by the
Board of Directors of the Company as of a date which is within 15 days of the
date as of which the determination is to be made.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Options" means rights, options or warrants to subscribe for, purchase
-------
or otherwise acquire either Common Stock or Convertible Securities.
"Original Issue Date" means the date on which this Warrant is first
-------------------
issued by the Company.
"Other Securities" means any stock (other than Common Stock) and other
----------------
securities of the Company or any other Person which the holders of the Warrants
at any time shall be entitled to receive, or shall have received, upon the
exercise of the Warrants, in lieu of or in addition to Common Stock, or which at
any time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 3 or
otherwise.
"Person" means a corporation, an association, a partnership, a limited
------
partnership, an organization, a business trust, a limited liability company, an
individual, a government or political subdivision thereof or a governmental
agency.
"Registration Rights Agreement" means the Registration Rights Agreement
-----------------------------
dated on or about June 16, 1997, among the Company and certain of its
stockholders, as from time to time in effect.
"Securities Act" means the federal Securities Act of 1933.
--------------
"Series B Preferred Stock" is defined in the preamble.
------------------------
"Warrant and Preferred Stock Commitment" is defined in the preamble.
--------------------------------------
"Warrant Price" is defined in Section 3.1.
-------------
"Warrant Shares" means the shares of Common Stock or Other Securities
--------------
issuable upon exercise or conversion of the Warrant.
"Warrants" is defined in the preamble.
--------
-4-
<PAGE>
2. EXERCISE OR CONVERSION OF WARRANT.
2.1. Manner of Exercise or Conversion; Payment.
-----------------------------------------
2.1.1. Exercise. This Warrant may be exercised by the holder
--------
hereof, in whole or in part, during normal business hours on any
Business Day on or prior to the Expiration Date, by surrender of this
Warrant to the Company at its office maintained pursuant to Section
6.2(a), accompanied by a subscription in substantially the form
attached to this Warrant duly executed by such holder and accompanied
by payment, in cash or by check payable to the order of the Company, in
the amount obtained by multiplying (a) the number of shares of Common
Stock (without giving effect to any adjustment thereof) designated in
such subscription by (b) the Initial Warrant Price, and such holder
shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully paid and nonassessable Warrant Shares determined
as provided in Section 3.
2.1.2. Conversion. This Warrant may be converted by the holder
----------
hereof, in whole or in part, into Warrant Shares, during normal
business hours on any Business Day on or prior to the Expiration Date,
by surrender of this Warrant to the Company at its office maintained
pursuant to Section 6.2(a), accompanied by a conversion notice in
substantially the form attached to this Warrant duly executed by such
holder, and such holder shall thereupon be entitled to receive a number
of duly authorized, validly issued, fully paid and nonassessable
Warrant Shares equal to:
(a) an amount equal to:
(i) the product of (A) the number of
Warrant Shares determined as
provided in Sections 3 through 5
which such holder would be entitled
to receive upon exercise of this
Warrant for the number of shares of
Common Stock designated in such
conversion notice multiplied by (B)
the Market Price of each such
Warrant Share so receivable upon
such exercise
minus
-----
(ii) the product of (A) the number of
shares of Common Stock (without
giving effect to any adjustment
thereof) designated in such
conversion notice multiplied by (B)
the Initial Warrant Price
divided by
----------
-5-
<PAGE>
(b) the Market Price of each such Warrant Share.
For all purposes of this Warrant (other than this Section 2.1), any
reference herein to the exercise of this Warrant shall be deemed to
include a reference to the conversion of this Warrant into Warrant
Shares in accordance with the terms of this Section 2.1.2.
2.2. When Exercise Effective. Each exercise of this Warrant shall be
-----------------------
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 2.1, and at such time the Person in whose name any
certificate for Warrant Shares shall be issuable upon such exercise as provided
in Section 2.3 shall be deemed to have become the holder of record thereof.
2.3. Delivery of Stock Certificates, etc. As soon as practicable after
-----------------------------------
each exercise of this Warrant, in whole or in part, and in any event within five
Business Days thereafter, the Company at its expense (including the payment by
it of any applicable issue or documentary taxes) will cause to be issued in the
name of and delivered to the holder hereof or, subject to Section 5, as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct:
(a) a certificate for the number of duly authorized,
validly issued, fully paid and nonassessable Warrant Shares to which
such holder shall be entitled upon such exercise plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash
in an amount equal to the same fraction of the Market Price per share
on the Business Day immediately preceding the date of such exercise;
and
(b) in case such exercise is in part only, a new
Warrant of like tenor, dated the date hereof and calling in the
aggregate on the face thereof for the number of shares of Common Stock
equal (without giving effect to any adjustment thereof) to the number
of such shares called for on the face of this Warrant minus the number
of such shares designated by the holder upon such exercise as provided
in Section 2.1.
2.4. Company to Reaffirm Obligations. The Company will, at the time of
-------------------------------
each exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder all
rights (including any rights pursuant to the Registration Rights Agreement of
the Warrant Shares issued upon such exercise) to which such holder shall
continue to be entitled after such exercise in accordance with the terms of this
Warrant; provided, however, that if the holder of this Warrant shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford such rights to such holder.
-6-
<PAGE>
3. ADJUSTMENT OF WARRANT SHARES AND WARRANT PRICE.
3.1. Adjustment of Warrant Shares and Warrant Price due to Additional
----------------------------------------------------------------
Shares. The number of Warrant Shares which the holder of this Warrant shall be
- ------
entitled to receive upon the exercise hereof shall be determined by multiplying
the number of shares of Common Stock which would otherwise (but for the
provisions of this Section 3.1) be issuable upon such exercise, as designated by
the holder hereof pursuant to Section 2.1, by the fraction of which (a) the
numerator is the Initial Warrant Price and (b) the denominator is the Warrant
Price in effect on the date of such exercise. The "Warrant Price" shall
initially be the Initial Warrant Price, shall be adjusted and readjusted from
time to time as provided in this Section 3.1 and, as so adjusted or readjusted,
shall remain in effect until a further adjustment or readjustment thereof is
required by this Section 3.1.
3.1.1. No Adjustment of Warrant Price. No adjustment in the
------------------------------
Warrant Price shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Company is less than the applicable Warrant Price in effect on the date
of, and immediately prior to, such issue.
3.1.2. Adjustment of Warrant Price Upon Issuance of Additional
-------------------------------------------------------
Shares of Common Stock. In the event the Company shall issue Additional
----------------------
Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 3.1.4) for a consideration per
share less than the applicable Warrant Price in effect on the date of
and immediately prior to such issue, then the applicable Warrant Price
shall be reduced, concurrently with such issue (calculated to the
nearest one hundredth of a cent) to a new Warrant Price obtained by
dividing (a) an amount equal to the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issue multiplied by
the then applicable Warrant Price and (ii) the consideration, if any,
deemed received by the Company upon such issue by (b) the total number
of shares of Common Stock deemed to be outstanding immediately after
such issue; provided, however, that, for purposes of this Section
3.1.2, all shares of Common Stock outstanding and issuable upon
conversion of outstanding Options, Convertible Securities and the
Series B Preferred Stock shall be deemed to be outstanding. In no event
will the Warrant Price be adjusted as the result of any issuance of any
Additional Shares of Common Stock for any amount higher than the
Warrant Price in effect immediately prior to such issuance.
3.1.3. Adjustments for Subdivisions, Stock Dividends,
----------------------------------------------
Combinations or Consolidation of Common Stock. In the event the
---------------------------------------------
outstanding shares of Common Stock shall be increased by way of stock
issued as a dividend for no consideration or subdivided (by stock split
or otherwise) into a greater number of shares of Common Stock, the
Warrant Price then in effect shall, concurrently with the effectiveness
of
-7-
<PAGE>
such increase or subdivision, be proportionately decreased. In the
event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the Warrant Price then in effect shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
3.1.4. Deemed Issue of Additional Shares of Common Stock -
---------------------------------------------------
Options and Convertible Securities. Except as provided in Section 3.1.2
----------------------------------
or Section 3.1.3, in the event the Company at any time after the
Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such
record date; provided, however, that Additional Shares of Common Stock
-------- -------
shall not be deemed to have been issued unless the consideration per
share (determined pursuant to Section 3.1.5) of such Additional Shares
of Common Stock would be less than the applicable Warrant Price in
effect on the date of, and immediately prior to, such issue, or such
record date, as the case may be; and provided further that in any such
-------- -------
case in which Additional Shares of Common Stock are deemed to be
issued:
(a) no further adjustment in the applicable Warrant
Price shall be made upon the subsequent issue of shares of
Common Stock upon the exercise of such Options or conversion
or exchange of such Convertible Securities or upon the
subsequent issue of such Convertible Securities or Options;
(b) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise,
for any increase or decrease in the consideration payable to
the Company, or any increase or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof, the applicable Warrant Price computed
upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible
Securities;
-8-
<PAGE>
(c) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the applicable
Warrant Price computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon shall, upon such
expiration, be recomputed as if such unexercised portion of
such Options or rights of conversion or exchange under such
Convertible Securities had not been issued; and
(d) no readjustment pursuant to clause (b) or (c)
above shall have the effect of increasing the applicable
Warrant Price to an amount which exceeds the lower of (i) the
applicable Warrant Price on the original adjustment date, or
(ii) the applicable Warrant Price that resulted from the
issuance or deemed issuance of other Additional Shares of
Common Stock between the original adjustment date and such
readjustment date.
3.1.5. Determination of Consideration. For purposes of this
------------------------------
Section 3.1, the consideration received by the Company for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
-----------------
(i) insofar as it consists of cash, be
computed at the aggregate amount of net cash proceeds
received by the Company excluding amounts paid or
payable for accrued interest or accrued dividends;
(ii) insofar as it consists of property
other than cash, be computed at the fair value
thereof at the time of such issue, as determined in
good faith by the Board of Directors of the Company;
and
(iii) in the event Additional Shares of
Common Stock are issued together with other shares or
securities or other assets of the Company for
consideration which covers both, be the proportion of
such consideration so received, computed as provided
in clauses (i) and (ii) above, which is allocated to
the Additional Shares of Common Stock as determined
in good faith by the Board of Directors.
(b) Options and Convertible Securities. The
----------------------------------
consideration per share received by the Company for Additional
Shares of Common Stock deemed to have been issued pursuant to
Section 3.1.3 relating to Options and Convertible Securities,
shall be determined by dividing
-9-
<PAGE>
(i) the total amount, if any, received or
receivable by the Company as consideration for the
issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible
Securities by
(ii) the maximum number of shares of Common
Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities.
3.1.6. Other Dilutive Events. In case any event shall occur as
---------------------
to which the other provisions of this Section 3.1 are not strictly
applicable, but the failure to make any adjustment in the Warrant Price
would not, in the reasonable judgment of a majority of the directors of
the Company, fairly protect the rights represented by this Warrant in
accordance with the intention of this Section 3, then, upon request of
the holders of a majority of the Warrants, the Board of Directors of
the Company shall appoint a firm of independent public accountants of
recognized national standing (which may be the regular auditors of the
Company) to give their opinion as to the adjustment, if any, on a basis
consistent with the intention of this Section 3, necessary to preserve
without dilution the rights represented by the Warrants. Upon receipt
of such opinion, the Company will promptly furnish a copy thereof to
the holders of the Warrants and the Warrant Price shall be adjusted in
accordance therewith to the extent recommend by such accountants. The
fees and expenses of such accountants shall be paid by the Company;
provided, however, that if such accountants opine that the total
-------- -------
adjustment per Warrant Share is less than 10% of the previous per share
Warrant Price, such fees and expenses will be paid by the holders of
the Warrants.
3.2. Other Distributions. In the event the Company shall declare a
-------------------
distribution payable in securities of the Company (other than shares of Common
Stock), securities of other entities, securities evidencing indebtedness issued
by the Company or other entities or options or rights (but in no event including
cash dividends), then, in each such case for the purpose of this Section 3, the
holders of the Warrants shall be entitled to a proportionate share of any such
distribution upon exercise or conversion of this Warrant as though they were the
holders of the number of shares of Common Stock into which their Warrants were
exercisable as of
-10-
<PAGE>
the record date fixed for the determination of the holders of Common Stock
entitled to receive such distribution.
3.3. Subsequent Events. In the event of any recapitalization,
-----------------
consolidation or merger of the Company or its successor, the Warrants shall be
exercisable for such shares or other interests as the Warrants would have been
entitled if the Warrants had been exercised for Common Stock immediately prior
to such event.
4. Covenants.
---------
4.1. No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of all or a substantial portion of its assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed under this Warrant by the Company, but will at all times in good
faith assist in carrying out all the provisions of this Warrant and in taking
all such action as may be necessary or appropriate in order to protect the
rights of the holders of Warrants against impairment.
4.2. Reservation of Shares. So long as any Warrants shall remain
---------------------
outstanding, the Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized capital stock, for the purpose of
issuance upon exercise of the Warrants, the full number of shares of Common
Stock then issuable upon exercise of all outstanding Warrants. If the Common
Stock shall be listed on any national stock exchange, the Company at its expense
shall include in its listing application all of the shares of Common Stock
reserved for issuance upon exercise of the Warrants (subject to issuance or
notice of issuance to the exchange) and will similarly procure the listing of
any further Common Stock reserved for issuance upon exercise of the Warrants at
any subsequent time as a result of adjustments in the outstanding Common Stock
or otherwise.
4.3. Validity of Shares. The Company will from time to time take all
------------------
such action as may be required to assure that all shares of Common Stock which
may be issued upon exercise of this Warrant will, upon issuance, be legally and
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issuance thereof. Without limiting the generality of
the foregoing, the Company will from time to time take all such action as may be
required to assure that the par value per share, if any, of the Common Stock is
at all times equal to or less than the lowest quotient obtained by dividing the
then current exercise price of this Warrant by the number of shares of Common
Stock into which this Warrant can, from time to time, be exercised.
-11-
<PAGE>
4.4. Notice of Certain Events. If at any time:
------------------------
(a) the Company shall declare any dividend or distribution
payable to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or
any other rights;
(c) there shall be any recapitalization of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation or business
organization; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give the registered
holder of this Warrant written notice, by registered mail, of the date on which
a record shall be taken for such dividend, distribution or subscription rights
or for determining stockholders entitled to vote upon such recapitalization,
consolidation, merger, sale, dissolution, liquidation or winding up and of the
date when any such transaction shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such recapitalization, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such written notice
shall be given at least 20 days prior to the record date with respect thereto.
5. RESTRICTIONS ON TRANSFER.
Except as otherwise permitted by this Section 5, each certificate for
Warrant Shares issued upon the exercise of any Warrant, each certificate issued
upon the direct or indirect transfer of any Warrant Shares, all Warrants
originally issued in connection with the Warrant and Preferred Stock Commitment
and each Warrant issued upon direct or indirect transfer or in substitution for
any Warrant pursuant to Section 6 shall be transferable only upon satisfaction
of the conditions specified in Section 6 of the Warrant and Preferred Stock
Commitment and shall be stamped or otherwise imprinted with legends in
substantially the form set forth on the face of this Warrant or otherwise
required by Section 6 of the Warrant and Preferred Stock Commitment.
6. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS.
-12-
<PAGE>
6.1. Ownership of Warrants. The Company may treat the Person in whose
---------------------
name any Warrant is registered on the register kept at the office of the Company
maintained pursuant to Section 6.2(a) as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, except that, if and when
any Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of such Warrant for all
purposes, notwithstanding any notice to the contrary. Subject to Section 5, a
Warrant, if properly assigned, may be exercised by a new holder without a new
Warrant first having been issued.
6.2. Office; Transfer and Exchange of Warrants.
-----------------------------------------
(a) The Company will maintain an office (which may be an
agency maintained at a bank) in the United States of America where
notices, presentations and demands in respect of this Warrant may be
made upon it. Such office shall be maintained at 990 Hammond Drive -
Suite 300, Atlanta, Georgia 30328, until such time as the Company shall
notify the holders of the Warrants of any change of location of such
office.
(b) The Company shall cause to be kept at its office
maintained pursuant to Section 6.2(a) a register for the registration
and transfer of the Warrants. The names and addresses of holders of
Warrants, the transfers thereof and the names and addresses of
transferees of Warrants shall be registered in such register. The
Person in whose name any Warrant shall be so registered shall be deemed
and treated as the owner and holder thereof for all purposes of this
Warrant, and the Company shall not be affected by any notice or
knowledge to the contrary.
(c) Upon the surrender of any Warrant, properly endorsed, for
registration of transfer or for exchange at the office of the Company
maintained pursuant to Section 6.2(a), the Company at its expense will
(subject to compliance with Section 5, if applicable) execute and
deliver to or upon the order of the holder thereof a new Warrant of
like tenor, in the name of such holder or as such holder (upon payment
by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face thereof for the number of shares of Common
Stock called for on the face of the Warrant so surrendered.
6.3. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant
held by a Person other than an Investor or any institutional investor, upon
delivery of indemnity reasonably satisfactory to the Company in form and amount
or, in the case of any such mutilation, upon surrender of such Warrant for
cancellation at the office of the Company maintained pursuant to Section 6.2(a),
the Company at its expense will execute and deliver, in lieu thereof, a new
Warrant of like tenor and dated the date hereof.
-13-
<PAGE>
7. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this Warrant are not
and will not be adequate and that, to the fullest extent permitted by law, such
terms may be specifically enforced by a decree for the specific performance of
any agreement contained herein or by an injunction against a violation of any of
the terms hereof or otherwise.
8. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained in this Warrant
shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
9. NOTICES. Any notice or other communication in connection with this Warrant
shall be deemed to be delivered if in writing (or in the form of a telex or
telecopy) addressed as hereinafter provided and if either (a) actually delivered
at such address (evidenced in the case of a telex by receipt of the correct
answerback) or (b) in the case of a letter, three Business Days shall have
elapsed after the same shall have been deposited in the United States mails,
postage prepaid and registered or certified: (i) if to any holder of any
Warrant, at the registered address of such holder as set forth in the register
kept at the office of the Company maintained pursuant to Section 6.2(a); or (ii)
if to the Company, to the attention of its President at its office maintained
pursuant to Section 6.2(a); provided, however, that the exercise of any Warrant
-------- -------
shall be effective in the manner provided in Section 2.
10. GENERAL. The section headings in this Warrant are for convenience of
reference only and shall not constitute a part hereof. This Warrant and any term
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant shall be construed and enforced
in accordance with and governed by the laws (other than the conflict of laws
rules) of The Commonwealth of Massachusetts.
PHYSICIAN HEALTH CORPORATION
By:
----------------------------
Title:
-14-
<PAGE>
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
TO PHYSICIAN HEALTH CORPORATION:
The undersigned registered holder of the enclosed Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, __________ /1/
shares of Common Stock and herewith makes payment of $_______ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to _________, whose address is ____________________________________.
Dated:
----------- -----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
- -----------------
/1/ Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which this
Warrant is being exercised), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of a partial exercise, a new Warrant
will be issued and delivered, representing the unexercised portion of the
Warrant, to the holder surrendering the Warrant.
<PAGE>
FORM OF CONVERSION NOTICE
[To be executed only upon conversion of Warrant]
TO PHYSICIAN HEALTH CORPORATION:
The undersigned registered holder of the enclosed Warrant hereby
irrevocably converts such Warrant with respect to __________ /1/ shares of
Common Stock which such holder would be entitled to receive upon the exercise
hereof, and requests that the certificates for such shares be issued in the
name of, and delivered to ___________, whose address is_______________________.
Dated:
----------- -----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
- ------------------------
/1/ Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial conversion, the portion thereof as to which this
Warrant is being converted), in either case without making any adjustment for
Additional Shares of Common Stock or any other stock or other securities or
property or cash which, pursuant to the adjustment provisions of this Warrant,
may be delivered upon exercise. In the case of a partial conversion, a new
Warrant will be issued and delivered, representing the unconverted portion of
the Warrant, to the holder surrendering the Warrant.
<PAGE>
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the attached
Warrant hereby sells, assigns and transfers unto __________ the right
represented by such Warrant to purchase __________ /1/ shares of Common Stock
of PHYSICIAN HEALTH CORPORATION to which such Warrant relates, and appoints
_________________ Attorney to make such transfer on the books of PHYSICIAN
HEALTH CORPORATION maintained for such purpose, with full power of substitution
in the premises.
Dated:
----------- -----------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
______________________________
______________________________
/1/ Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial transfer, the portion thereof being transferred),
in either case without making any adjustment for Additional Shares of Common
Stock or any other stock or other securities or property or cash which, pursuant
to the adjustment provisions of this Warrant, may be delivered upon exercise. In
the case of a partial transfer, a new Warrant will be issued and delivered,
representing the untransferred portion of the Warrant, to the holder
surrendering the Warrant.
<PAGE>
EXHIBIT 21.1
PHYSICIAN HEALTH CORPORATION
----------------------------
SUBSIDIARIES
------------
Physician Health Corporation
- ----------------------------
PHC Holding Corporation
PHC - Orlando Acquisition Subsidiary I, Inc.
Dentofacial Care Centers, Inc.
PHC Tennessee Acquisition Subsidiary I, Inc.
Physician Network of Brevard, Inc.
Primary Care Specialists of Central Florida, Inc.
PHC Central Florida, Inc.
PHC Physician Networks, Inc.
PHC Ancillary Services, Inc.
PHC Palm Beach, Inc.
Eye Care Services of Missouri, Inc.
PHC Louisville, Inc. (f/k/a PHC Acquisition Subsidiary V, Inc.)
Physician Management Services of Missouri, Inc.
PHC Physician Network of Orlando, Inc. (Non-Profit Corporation)
G.H. Eye Care Services, Inc. (f/k/a PHC Acquisition Subsidiary VI, Inc.)
Primary Care Specialist of Georgia, Inc.
MHOA Texas I, L.L.C.
PHC - St. Louis Acquisition Subsidiary I, Inc.
PHC - Orlando Acquisition Subsidiary II, Inc.
PHC - Acquisition Subsidiary II, Inc.
PHC - Midwest, Inc.
Tri-County Eye Center, Inc.
John Daake, Inc.
PHC Physician Network of Geogia, Inc. (Non-Profit Corporation)
PHC - West Plains, Inc. d/b/a Ream Optometry, Ltd.
InternaCare, Inc.
PHC - Regional Oncology, Inc.
PHC - Southeast, Inc.
PHC - Arizona, Inc.
PFCA Management, Inc.
PHC Orlando II, Inc.
PHC Orlando III, Inc.
PHC Ohio, Inc.
ALOF, Inc.
RAK, Inc.
RATL, Inc.
DTD, Inc.
SCD, Inc.
PHK, Inc.
Central Florida Medical Management Services Organization, a Florida General
Partnership
Physician Management Network, L.L.P.
Atlanta Center Medicine, a Georgia General Partnership
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
Atlanta, Georgia
November 10, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 9, 1997, with respect to the financial statements
of Metroplex Hematology/Oncology Associates, L.L.P., included in the
Registration Statement (Form S-1) and related Prospectus of Physician Health
Corporation dated November 12, 1997 for the registration of its shares of
common stock.
Ernst & Young LLP
Dallas, Texas
November 10, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 1,160,910 3,705,467
<SECURITIES> 0 0
<RECEIVABLES> 929,059 3,720,993
<ALLOWANCES> (463,970) (372,497)
<INVENTORY> 0 367,197
<CURRENT-ASSETS> 1,750,799 13,907,942
<PP&E> 867,260 5,504,843
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 4,142,663 32,248,881
<CURRENT-LIABILITIES> 1,604,692 10,896,115
<BONDS> 0 0
0 0
2,442,712 18,034,222
<COMMON> 9,838 17,619
<OTHER-SE> (414,579) (10,430,239)
<TOTAL-LIABILITY-AND-EQUITY> 4,142,663 32,248,881
<SALES> 0 0
<TOTAL-REVENUES> 4,035,964 5,723,529
<CGS> 0 0
<TOTAL-COSTS> 5,856,932 6,648,469
<OTHER-EXPENSES> 356,472 14,250,498
<LOSS-PROVISION> 660,159 492,224
<INTEREST-EXPENSE> 29,527 172,704
<INCOME-PRETAX> (2,867,126) (13,759,391)
<INCOME-TAX> 16,500 13,720
<INCOME-CONTINUING> (2,883,626) (13,773,111)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,883,626) (13,773,111)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
