<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCREDO HEALTH, INCORPORATED
(Exact name of registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8099 62-1642871
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
1640 CENTURY CENTER PARKWAY, SUITE 101
MEMPHIS, TN 38134
(901) 385-3688
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
DAVID D. STEVENS
CHIEF EXECUTIVE OFFICER
ACCREDO HEALTH, INCORPORATED
1640 CENTURY CENTER PARKWAY, SUITE 101
MEMPHIS, TN 38134
(901) 385-3688
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEVEN L. POTTLE, ESQ. JOHN J. EGAN III, ESQ.
ALSTON & BIRD LLP GOODWIN, PROCTER & HOAR LLP
ONE ATLANTIC CENTER EXCHANGE PLACE
1201 WEST PEACHTREE STREET BOSTON, MA 02109-2881
ATLANTA, GA 30309-3424 (617) 570-1000
(404) 881-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
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 number of the earlier effective registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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 this prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share.......................... $74,750,000 $25,774
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee and
computed in accordance with Rule 457(o) under the Securities Act.
------------------------------
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>
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 1998
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.
<PAGE>
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby (the "Offering") are
being sold by the Company. Prior to this Offering, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price for the Common Stock 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 quoted on the Nasdaq National Market under the
symbol ACDO.
--------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share...................... $ $ $
Total(3)....................... $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $750,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock solely to cover over-allotments, if
any. If all such shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and $
, respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them, and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998, at the offices of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
NATIONSBANC MONTGOMERY SECURITIES LLC
SUNTRUST EQUITABLE SECURITIES
, 1998
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus, which is part of the Registration Statement, omits certain
information, exhibits, schedules and undertakings set forth in the Registration
Statement. For further information pertaining to the Company and the Common
Stock, reference is made to such Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents or
provisions of any documents referred to herein are not necessarily complete, and
in each instance where a copy of the document has been filed as an exhibit to
the Registration Statement reference is made to the exhibit filed. The
Registration Statement may be inspected without charge at the office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the
Registration Statement may be obtained from the Commission at prescribed rates
from the Public Reference Section of the Commission at such address, and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60611. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov. The Registration Statement, including all
exhibits thereto and amendments thereof, has been filed with the Commission
through EDGAR.
Accredo Health, Incorporated-SM- is a service mark of the Company and Nova
Factor-Registered Trademark- is a trademark of the Company. All other service
marks, trademarks and trade names referred to in this Prospectus are the
property of their respective owners.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
THE COMPANY
Accredo Health, Incorporated ("Accredo" or the "Company") provides
specialized contract pharmacy and related services beneficial to patients with
certain costly, chronic diseases. Because of the unique needs of patients
suffering from chronic diseases, biotechnology drug manufacturers have
recognized the benefits of customized treatment programs to facilitate alternate
site drug administration, ensure compliance with treatment regimens, provide
reimbursement assistance and capture valuable clinical and patient demographic
information. The Company addresses the needs of the manufacturers by providing
specialized services that facilitate product launch and patient acceptance,
including timely drug utilization and patient compliance information, patient
education and monitoring, reimbursement expertise and overnight drug delivery.
The Company believes that its ability to accelerate market penetration and
increase revenues for new biotechnology drugs makes it the partner of choice for
manufacturers as evidenced by its preferred relationships with Genzyme
Corporation ("Genzyme"), Biogen, Inc. ("Biogen"), Genentech, Inc. ("Genentech")
and Centocor Inc. ("Centocor").
The Company has designed its specialty services to focus primarily on
biotechnology drugs that: (i) are used on a recurring basis to treat chronic and
potentially life threatening diseases; (ii) are expensive, with an annual
therapy cost as high as $200,000 per patient; (iii) are administered through
injection; and (iv) require temperature control or other specialized handling as
part of their distribution process. Currently, the Company provides services
that address the needs of patients with the following diseases: Gaucher Disease,
a hereditary liver enzyme deficiency; hemophilia, a hereditary bleeding
disorder; Multiple Sclerosis, a debilitating disease of the central nervous
system; and growth hormone-related disorders. In addition, the Company has
recently entered into an agreement with Centocor to provide its services to
patients with Crohn's Disease, a chronic inflammatory disease affecting the
gastrointestinal tract. These diseases generally require life-long therapy,
except for growth hormone-related disorders which typically require treatment
for six to ten years.
The Company believes that it is well positioned to take advantage of a large
drug development pipeline and is at the forefront of an increasing trend toward
specialized outsourcing by the biotechnology drug industry. Biotechnology
products represent the most expensive and rapidly growing part of the new drug
pipeline, with an estimated 240 products in late-stage clinical trials as of
mid-1998. The Company continuously monitors biotechnology drugs in various
phases of clinical development with a particular focus on identifying potential
new drugs for the treatment of costly, chronic diseases. Unlike many traditional
drugs, these products often possess specific characteristics that make
utilization and compliance increasingly difficult. They are often composed of
unstable proteins which must be taken by injection and require timely,
temperature maintained distribution, dosage monitoring, and controlled inventory
management. In addition, expert reimbursement management is crucial as a result
of their high cost. When addressing chronic diseases, the challenges facing
biotechnology drug manufacturers are often heightened by small patient
populations and the need for patients to remain on therapy for extended periods.
In response to the challenges facing biotechnology drug manufacturers, which
include often limited resources, the unpredictability of the drug approval
process and the onset of significant competition, many manufacturers have sought
to outsource various stages of product development in order to realize a return
on investment prior to the expiration of any patent or orphan drug status
exclusivity. This has included discovery research by outsourcing genomics and
screening functions and clinical development through the use of contract
research organizations (CROs) and site management organizations (SMOs). This
trend has also extended to product commercialization and launch through the
outsourcing of manufacturing, sales and marketing, product detailing, pharmacy
and distribution services and patient support programs.
The Company's objective is to be the leading provider of specialized
contract pharmacy and related services. Key elements of the Company's strategy
include: (i) expanding the number of chronic diseases served; (ii) leveraging
its expertise to expand its service offerings; (iii) establishing additional
relationships with academic medical centers and children's hospitals that treat
patients with costly, chronic diseases; (iv) increasing its number of payor
contracts; and (v) pursuing acquisitions of similar or complementary businesses.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...................... shares
Common Stock to be outstanding after the Offering........ shares(1)
Use of proceeds.......................................... To repay certain indebtedness, redeem the
Company's outstanding Series A Cumulative
Preferred Stock and for working capital
and other general corporate purposes,
including possible acquisitions.
Proposed Nasdaq National Market symbol................... ACDO
</TABLE>
- ------------------------
(1) Excludes shares of Common Stock reserved for issuance under the
Company's stock option and employee stock purchase plans, of which
shares are subject to outstanding options at a weighted average
exercise price of $ per share. See "Capitalization."
------------------------------
UNLESS THE CONTEXT SUGGESTS OTHERWISE, REFERENCES IN THIS PROSPECTUS TO THE
"COMPANY" OR "ACCREDO" MEAN ACCREDO HEALTH, INCORPORATED AND ITS SUBSIDIARIES
AND PREDECESSOR ENTITIES. EXCEPT WHERE OTHERWISE INDICATED, ALL INFORMATION IN
THIS PROSPECTUS: (I) GIVES EFFECT TO A RECAPITALIZATION TO BE EFFECTIVE PRIOR TO
COMPLETION OF THE OFFERING PURSUANT TO WHICH A FOR STOCK SPLIT WILL BE
EFFECTED AND PURSUANT TO WHICH SHARES OF COMMON STOCK HELD BY THE COMPANY'S
PRINCIPAL STOCKHOLDER, WELSH, CARSON, ANDERSON AND STOWE VII, L.P. ("WCAS VII"),
WILL BE EXCHANGED FOR SHARES OF NON-VOTING COMMON STOCK OF THE COMPANY (THE
"RECAPITALIZATION"); (II) GIVES EFFECT TO THE REDEMPTION OF ALL OUTSTANDING
SHARES OF THE COMPANY'S SERIES A CUMULATIVE PREFERRED STOCK (THE "SERIES A
PREFERRED STOCK") AT A REDEMPTION PRICE OF $100 PER SHARE (PLUS ACCRUED AND
UNPAID DIVIDENDS) USING A PORTION OF THE NET PROCEEDS FROM THE OFFERING; AND
(III) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS THE
CONTEXT SUGGESTS OTHERWISE, REFERENCES IN THIS PROSPECTUS TO "COMMON STOCK"
INCLUDE THE NON-VOTING COMMON STOCK TO BE ISSUED AS PART OF THE
RECAPITALIZATION.
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PREDECESSOR(1) COMPANY(1)
-------------------------- ---------------------------------
JULY 1, MAY 24,
1995 1996 YEARS ENDED
YEAR ENDED THROUGH THROUGH JUNE 30,
JUNE 30, MAY 31, JUNE 30, --------------------
1995 1996 1996 1997 1998
------------- ----------- ----------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues:
Net patient service revenue......................... $ 71,513 $ 68,585 $ 6,647 $ 106,143 $ 170,002
Other revenue....................................... 6,710 6,346 597 8,049 9,806
Equity in net income (loss) of joint ventures....... 646 (139) 49 1,017 1,150
------------- ----------- ----------- --------- ---------
Total revenues.................................. 78,869 74,792 7,293 115,209 180,958
Operating expenses:
Cost of services.................................... 68,273 65,867 6,450 101,081 154,046
General and administrative.......................... 2,714 2,753 627 5,939 12,351
Bad debts........................................... 1,322 1,860 251 2,977 3,165
Depreciation and amortization....................... 76 104 126 1,599 2,528
Corporate overhead allocation(2).................... 1,900 4,206 -- -- --
------------- ----------- ----------- --------- ---------
Total operating expenses........................ 74,285 74,790 7,454 111,596 172,090
------------- ----------- ----------- --------- ---------
Operating income (loss)................................. 4,584 2 (161) 3,613 8,868
Interest expense, net................................... 943 266 106 983 3,552
------------- ----------- ----------- --------- ---------
Income (loss) before income taxes....................... 3,641 (264) (267) 2,630 5,316
Income tax expense (benefit)............................ 1,387 (72) (29) 1,508 2,495
------------- ----------- ----------- --------- ---------
Net income (loss)....................................... $ 2,254 $ (192) (238) 1,122 2,821
------------- -----------
------------- -----------
Mandatorily redeemable cumulative preferred stock
dividends............................................. (170) (2,043) (2,043)
----------- --------- ---------
Net income (loss) attributable to common stockholders... $ (408) $ (921) $ 778
----------- --------- ---------
----------- --------- ---------
Net income (loss) per share attributable to common
stockholders--Diluted................................. $ () $ () $
----------- --------- ---------
----------- --------- ---------
Weighted average shares and dilutive equivalents
outstanding...........................................
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------
ACTUAL AS ADJUSTED(3)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 5,087
Working capital..................................................................... 23,377
Total assets........................................................................ 118,990
Long-term debt...................................................................... 36,418
Mandatorily redeemable cumulative preferred stock................................... 29,792
Stockholders' equity................................................................ 17,671
</TABLE>
- ------------------------
(1) The Company was incorporated on May 24, 1996. On May 31, 1996, the Company
acquired Southern Health Systems, Inc. ("SHS"), a holding company, and its
wholly-owned subsidiary, Nova Factor, Inc. ("Nova Factor" or the
"Predecessor"). Since the Company was newly formed at May 24, 1996, and
because the Predecessor had been in existence for several years, the Company
is considered the successor to the Predecessor's operations. The balance
sheet data of the Predecessor represents the historical cost basis of the
Predecessor's assets and liabilities prior to its acquisition by the
Company. The acquisition of the Predecessor by the Company resulted in a new
basis of accounting such that the Predecessor's assets and liabilities were
recorded at their fair value in the Company's consolidated balance sheet
upon consummation of the acquisition. Additionally, the Company acquired
Horizon Health Systems, Inc. ("HHS") on June 1, 1997. Accordingly, the
Summary Financial Data are not strictly comparable for the periods
presented. See Notes 1 and 3 of Notes to the Company's Consolidated
Financial Statements.
(2) The Predecessor has been allocated expenses for certain services provided by
its parent, SHS, including cash management, tax reporting, risk management
and executive management services. Charges for these services were based
upon a general allocation methodology determined by SHS (used to allocate
all corporate overhead expenses to SHS subsidiaries), and were not
necessarily allocated based on specific identification of expenses.
Management believes the allocation methodology is reasonable. See Note 6 of
Notes to the Nova Factor, Inc. Financial Statements.
(3) As adjusted to reflect the sale of the Common Stock offered hereby at an
assumed initial public offering price of $ per share and the receipt
and application of the estimated net proceeds therefrom as if such
transactions had occurred on June 30, 1998. See "Use of Proceeds" and
"Capitalization."
5
<PAGE>
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION
TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN EVALUATING THE COMPANY, ITS
BUSINESS AND AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS (WHICH MAY BE IDENTIFIED BY
WORDS SUCH AS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," "INTEND" AND
SIMILAR EXPRESSIONS) INCLUDE, WITHOUT LIMITATION, THE COMPANY'S BELIEFS
CONCERNING THE AVAILABILITY OF NEW DRUGS, THE DEMAND FOR ITS SERVICES, ITS
ABILITY TO EXPAND THROUGH JOINT VENTURES AND ACQUISITIONS, ITS ABILITY TO
MAINTAIN ITS PRICING ARRANGEMENTS WITH SUPPLIERS THAT PRESERVE ITS MARGINS, THE
IMPACT OF EXISTING AND NEW GOVERNMENT REGULATIONS, THE IMPACT OF YEAR 2000
ISSUES, ITS NEED FOR ADDITIONAL CAPITAL, THE SEASONALITY AND VARIABILITY OF ITS
OPERATING RESULTS AND ITS ABILITY TO IMPLEMENT THE STRATEGIES DESCRIBED HEREIN
AND ACHIEVE ITS OBJECTIVES. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, MANY
OF WHICH CANNOT BE PREDICTED WITH ACCURACY AND SOME OF WHICH MIGHT NOT EVEN BE
ANTICIPATED. FUTURE EVENTS AND ACTUAL RESULTS, FINANCIAL AND OTHERWISE, COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN OR CONTEMPLATED BY THE FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN. IMPORTANT FACTORS THAT COULD CONTRIBUTE TO SUCH
DIFFERENCES ARE SET FORTH BELOW UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING IN "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS".
DEPENDENCE ON RELATIONSHIPS WITH LIMITED NUMBER OF BIOTECHNOLOGY DRUG
MANUFACTURERS. The Company's revenue and profitability are highly dependent on
its relationships with a limited number of biotechnology drug companies that
manufacture and supply drugs for the specific chronic diseases served by the
Company. The Company derives a substantial portion of its total revenue from its
relationships with its three largest suppliers, Genzyme, Biogen and Genentech.
For the fiscal year ended June 30, 1998, the Company derived approximately 46%,
23% and 6%, respectively, of its total revenue from its relationships with such
suppliers and approximately 64%, 14% and 9%, respectively, for the fiscal year
ended June 30, 1997. Due to the Company's focus on a limited number of chronic
diseases, the Company is likely to continue to experience a high degree of
concentration of business with several suppliers, which concentration may
increase from continuing consolidation in the biotechnology industry. The
Company's agreements with these suppliers generally limit the Company's ability
to supply competing drugs during (and in some cases for up to five years after)
the term of the agreement, allow the supplier to distribute directly or through
other parties, are generally short term and may be canceled by either party,
without cause, upon between 60 and 90 days prior notice. The Company and its
suppliers periodically adjust the Company's purchase price and other terms for
the drugs covered by such contracts as well as the scope and pricing of services
provided by the Company under such contracts. Any termination, adverse
adjustment of purchase price or other terms, change in the supplier's
distribution methods or adverse change in the Company's relationship with any of
its suppliers (including as a result of consolidation among drug suppliers)
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Disease Markets and
Manufacturer Relationships" and "--Suppliers."
CONCENTRATION OF DRUGS AND CHRONIC DISEASES. The Company currently focuses
almost exclusively on a limited number of complex and expensive drugs that treat
certain specific chronic diseases: Gaucher Disease, for which the Company offers
Ceredase-Registered Trademark- and Cerezyme-Registered Trademark- supplied by
Genzyme; Multiple Sclerosis, for which the Company primarily offers Biogen's
Avonex-Registered Trademark- (Interferon Beta-1a)
("Avonex-Registered Trademark-"); growth hormone-related disorders, for which
the Company primarily offers Protropin-Registered Trademark-,
Nutropin-Registered Trademark- and Nutropin AQ-Registered Trademark- supplied by
Genentech; and hemophilia, for which the Company offers all currently approved
clotting factor products. In addition, the Company recently entered into a
contract with Centocor to offer Remicade-TM- for the treatment of Crohn's
Disease. For the fiscal year ended June 30, 1998, the Company derived
approximately 46%, 23%, 6% and 23% of its total revenue from providing its
pharmacy services in respect of drugs for Gaucher Disease, Multiple Sclerosis,
growth hormone-related disorders and hemophilia, respectively, and approximately
64%, 14%, 9% and 9%, respectively, for the fiscal year ended June 30, 1997. The
drugs offered by the Company are complex (generally requiring injection, special
handling and patient education), are expensive (with small numbers of patients
representing large amounts of revenue), serve small patient populations in the
United States
6
<PAGE>
and, other than drugs for hemophilia and growth hormone-related disorders, are
available only from single sources that generally restrict the Company from
offering competing drugs. As a result, the Company could be materially and
adversely affected by a variety of factors, such as the development of a new
treatment modality not requiring the Company's specialty pharmacy services, an
adverse reaction to or recall of a drug, the expiration of or challenge to a
drug patent, the loss of orphan drug status, the availability of a competing
treatment through a new drug or a new indication for an existing drug, the loss
of a managed care or other payor relationship covering a number of high revenue
patients, a disease cure or the death of a high revenue patient. For example, in
July 1996, Berlex Laboratories, Inc. ("Berlex") filed suit against Biogen
alleging patent infringement by Biogen in the production of
Avonex-Registered Trademark- and seeking, among other things, a permanent
injunction restraining Biogen from such alleged infringement. The granting of a
permanent injunction that restrains Biogen from manufacturing
Avonex-Registered Trademark- or the inability of Biogen to continue to supply
Avonex-Registered Trademark- on terms favorable to the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, due to the small patient populations of the
diseases serviced by the Company, future growth is highly dependent on the
Company expanding the base of drugs for which it provides its services,
expanding its relationships with its current suppliers and establishing
relationships with new suppliers, none of which can be assured. See
"Business--Disease Markets and Manufacturer Relationships" and "--Suppliers."
DEPENDENCE ON MEDICAL CENTER RELATIONSHIPS. The Company has certain joint
venture or business management relationships, as applicable, with eight medical
centers (or their affiliates) that involve services related to hemophilia and
growth hormone-related disorders. For the fiscal years ended June 30, 1998 and
1997, the Company derived an aggregate of approximately 22% and 39%,
respectively, of its income before income taxes from its equity in the net
income of these joint ventures, and, in particular, 12% and 24%, respectively,
from the Company's joint venture with Alternative Care Systems, Inc. located in
Dallas, Texas. The Company and each of the medical centers with which it has a
joint venture typically share in the profits and losses of the venture in
proportion to their respective capital contributions, with neither party having
voting control. The agreements with these medical centers are short-term,
ranging between one and five years in duration, and may be cancelled by either
party without cause with between one and twelve months prior notice. Any
termination, adjustment to terms or adverse change in the Company's
relationships with these medical centers, including as a result of consolidation
within the hospital industry, regulatory uncertainties inherent in the structure
of the relationships or restrictive changes to regulatory requirements, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Strategic Relationships with Medical
Centers" and "--Government Regulation."
DEPENDENCE ON BIOTECHNOLOGY DRUG INDUSTRY. The Company's business is highly
dependent on research, development, manufacturing and marketing expenditures of
biotechnology drug companies and the ability of such companies to develop,
supply and generate demand for drugs that meet the Company's service model. The
Company has benefited to date from the willingness of such companies to
outsource specialty pharmacy services such as those offered by the Company, but
there can be no assurance that this trend will continue. Furthermore, the
Company would be materially and adversely affected by unfavorable developments
in the biotechnology drug industry generally, such as, among other things,
supply shortages, adverse drug reactions, drug recalls, increased competition
among biotechnology drug companies, the inability of drug companies to obtain
capital needed to finance product development, governmental or private market
initiatives to reduce the retail price of drugs, changes in the United States
Food and Drug Administration ("FDA") approval process or governmental or private
initiatives to regulate the manner in which drug manufacturers, health care
providers or pharmacies promote or sell their products and services. Any of
these factors could result in a decline in the development of drugs, a general
decline in research, development and marketing expenditures, a reduction in the
retail price of drugs sold by the Company, a shortage of drugs sold by the
Company or a reduction in the use by drug companies of the specialty pharmacy
services offered by the Company, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business-- Industry Overview."
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DEPENDENCE ON PAYORS AND REIMBURSEMENT RELATED RISKS. The profitability of
the Company depends on payment and reimbursement from governmental and
nongovernmental third-party payors. The primary trend in the United States
health care industry is toward cost containment. The increasing prevalence of
managed care, centralized purchasing decisions, consolidation among and
integration of health care providers and competition for patients is continuing
to affect pricing, purchasing and usage patterns in health care. Decisions
regarding the use of a particular drug treatment are increasingly influenced by
large private payors, managed care organizations, group purchasing
organizations, pharmacy benefits management companies, regional integrated
delivery systems and similar organizations, and are becoming more economically
focused, with decisions taking into account product cost and whether a product
reduces the overall cost of treatment. For the fiscal years ended June 30, 1998
and 1997, the Company derived approximately 80% and 83%, respectively, of its
gross patient service revenue from private payors (including self-pay), which
included 7% and 10%, respectively, from sales to private physician practices
whose ultimate payor is typically Medicare. Furthermore, many private payors,
including large managed care organizations and some private physician practices,
have recently experienced financial difficulty. There can be no assurance that
the Company will not be adversely affected by cost containment measures exerted
by its third party payors, the influence of such organizations over decisions
regarding the use of drug treatments or the financial inability of any such
payors, including private physician practices, to satisfy their payment
obligations to the Company. See "Business--Payors."
The Company also derives a significant portion of its revenue from
governmental programs such as Medicare and Medicaid. For the fiscal years ended
June 30, 1998 and 1997, the Company received reimbursement payments from federal
and state programs that accounted for approximately 20% and 17%, respectively,
of the Company's gross patient service revenue, excluding sales to private
physician practices whose ultimate payor is typically Medicare. Such programs
are highly regulated and subject to frequent and substantial changes and cost
containment measures. In recent years, changes in these programs have limited
and reduced reimbursement to providers and Congress recently enacted the
Balanced Budget Act of 1997 which establishes a plan to balance the federal
budget by fiscal year 2002 and which includes significant additional reductions
in spending levels for these programs. This legislation also replaced and
relaxed the federal Medicaid payment standard, thereby increasing state
discretion over the financial administration of Medicaid programs. Furthermore,
federal and state proposals are pending that would impose further limitations on
governmental payments and that would increase patient co-payments and
deductibles. Additionally, a number of states are considering legislation
designed to reduce their Medicaid expenditures and provide universal coverage
and additional care for certain populations, including proposals to impose
additional taxes on providers to help finance or expand such programs. Any of
these changes could result in significant reductions in payment levels for drugs
handled and services provided by the Company, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Payors."
VARIATION IN QUARTERLY OPERATING RESULTS; SEASONALITY. The Company's
results of operations historically have fluctuated on a quarterly basis and can
be expected to continue to be subject to quarterly fluctuations. In particular,
the Company typically increases its operating expenses in anticipation of the
launch of a new drug, and if the new drug does not generate the levels of sales
during the periods anticipated by management, the Company's results in that and
future quarters could be adversely affected. Quarterly results can also
fluctuate as a result of the timing of periodic adjustments to prices and other
terms with the Company's drug suppliers, the accuracy of estimates of resources
required for ongoing programs, the timing and integration of acquisitions,
changes in regulations related to biotechnology companies, physician prescribing
patterns, and general economic conditions, none of which can be adequately
predicted by the Company. Quarterly operating results also fluctuate as a result
of the annual renewal (on a calendar year basis) of deductible and co-payment
requirements, thereby affecting patient ordering patterns in a manner that
creates a seasonal reduction in revenue from existing drug programs for the
Company's third fiscal quarter ending March 31. The Company believes that
quarterly comparisons of its financial results may not necessarily be meaningful
and should not be relied upon as an indication of future performance. In
addition, fluctuations in quarterly results could affect the market price of the
Common Stock in a manner unrelated to the longer term operating performance of
the Company. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Fluctuations and Seasonality."
JOINT VENTURE AND ACQUISITION RISKS. As part of its strategy, the Company
continually evaluates joint venture and acquisition opportunities. Such
transactions involve numerous risks, including difficulties in the assimilation
of operations, costs incurred in connection with the transaction, diversion of
management's attention from other business concerns, potential loss of key
employees of an acquired company and delays to address regulatory requirements.
There can be no assurance that the Company will complete any future acquisitions
or joint ventures, or that such transactions, if completed, will be integrated
successfully or will contribute favorably to the Company's operations and
financial condition. In addition, acquisitions and joint ventures can expose the
Company to unknown or contingent liabilities of acquired businesses, including
liabilities for failure to comply with health care or reimbursement laws. In May
1996 the Company acquired all of the outstanding capital stock of SHS, which had
four subsidiaries (including Nova Factor), each of which had prior operating
histories in one or more health care businesses. Prior to closing the
acquisition, SHS divested all of its subsidiaries other than Nova Factor.
However, there can be no assurance that the Company will not be held liable for
matters relating to the operations of the divested subsidiaries for periods
prior to the divestiture. In addition, in June 1997, the Company acquired all of
the outstanding capital stock of HHS, which had an extensive operating history.
Liabilities relating to the prior operations of these and other acquired
companies could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, future acquisitions
or joint ventures may result in dilutive issuances of equity securities,
incurrence of additional debt, amortization of expenses related to acquired
goodwill and intangible assets and exposure to unknown or contingent
liabilities, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "The Company."
GOVERNMENT REGULATION. The conduct of marketing, selling and purchasing
drugs and medical supplies by and among manufacturers, distributors, health care
providers and patients is extensively regulated and periodically scrutinized by
state and federal governments for compliance with laws and regulations
regarding, among other things, inducements for referrals, prohibited financial
relationships with physicians, joint venture and management arrangements,
product discounts, incentives to patients and professional licensure. This
regulatory framework is complex and the laws are very broad in scope, subject to
differing interpretations and lack substantive court decisions addressing many
arrangements under which the Company has conducted and expects to conduct its
business. Any failure to comply or alleged failure to comply with applicable
laws and regulations could have a material adverse effect on the Company's
business, financial conditions and results of operations. See
"Business--Government Regulation."
In particular, federal and state governments enforce a federal statute that
prohibits the offer, payment, solicitation or receipt of any remuneration,
directly or indirectly, overtly or covertly, to induce or in exchange for the
referral of patients covered by certain governmental programs, or the leasing,
purchasing, ordering or arranging for or recommending the lease, purchase or
order of any item, good, facility or service covered by such programs (the
"Anti-Kickback Law"). The Health Insurance Portability and Accountability Act of
1996 ("HIPAA") greatly expanded the prohibitions of the Anti-Kickback Law by
applying them to almost all health care programs that receive federal funding,
creating new violations for certain fraudulent activity applicable to both
public and private "health care benefit programs" and prohibiting inducements to
Medicare or Medicaid eligible patients. The Company is also subject to the
Ethics in Patient Referrals Act of 1989, as amended, commonly referred to as the
"Stark Law," which prohibits physician referrals for certain health-related
items, including those offered by the Company, to entities with which the
physician or an immediate family member has a "financial relationship," and
prohibits the recipient of any such referral from billing for the referred item.
Violations of these laws are punishable by civil sanctions, including
significant monetary penalties and exclusion from participation in the Medicare
and Medicaid programs, and criminal sanctions in the case of the Anti-Kickback
Law and HIPAA. Due to the breadth and complexity of these laws, there can be no
assurance that the Company, any of its personnel, or any significant customer or
business partner of the Company, will not become subject to sanctions that could
have a material adverse effect on the Company's business, financial condition
and
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results of operations. Additionally, the sanctioning or exclusion of a
manufacturer or recipient of the Company's products or services, even for
activities unrelated to those of the Company, could also have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Government Regulation."
In an attempt to clarify which arrangements are not subject to prosecution
under the Anti-Kickback Law, the Department of Health and Human Services
("DHHS") adopted certain "safe harbor" regulations and continues to publish
clarifications to such safe harbors. Arrangements that comply with all the
requirements of all applicable safe harbors are deemed not to violate the
Anti-Kickback Law. Several of the Company's business arrangements, such as joint
venture and management arrangements with medical centers, service arrangements
with physicians and product discount arrangements with its suppliers, do not
satisfy all of the requirements necessary to fall within the applicable safe
harbor. Furthermore, the Office of the Inspector General ("OIG") of DHHS has
published certain proposed regulations under HIPAA outlining certain permissible
patient incentives designed to promote preventative care or that are DE MINIMIS
under the HIPAA prohibition against beneficiary inducements. The Company
routinely provides certain items and services to its patients that may not fit
within the proposed regulation. It is possible that some of the Company's
practices could be challenged. Although failure of a transaction or arrangement
to fit within a specific safe harbor provision or the proposed regulation for
beneficiary inducements does not necessarily mean that the transaction or
arrangement is illegal or that prosecution will be pursued, there can be no
assurance that the Company's practices will not be challenged, or that the
Company will not be subject to sanctions or be required to alter or discontinue
certain of its practices, any of which could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Government Regulation."
State laws prohibit the practice of medicine, pharmacy and nursing without a
license. For example, many states interpret the practice of nursing to include
health teaching, health counseling, the provision of care supportive to or
restorative of life and well being and the administration of medical regimens
prescribed by a physician. Accordingly, to the extent that the Company assists
patients and providers in helping patients to comply with prescribed treatment
programs, such activities could be deemed by a state to be the practice of
medicine, pharmacy or nursing. There can be no assurance that the Company's
operations will not be challenged as constituting the unlicensed practice of
medicine or nursing or being outside the scope of its licensed pharmacists or
pharmacy licenses. If such a challenge were made successfully in any state, the
Company and its personnel could be subject to civil and criminal penalties under
such state's law and the Company could be required to reduce, restructure,
outsource or cease its business in that state. See "Business--Government
Regulation."
Significant public attention recently has been focused on the health care
industry due to ongoing federal and state investigations related to among other
things joint ventures, referral and billing practices, product discount
arrangements, home health care services, dissemination of confidential patient
information, clinical drug research trials and gifts for patients. In addition,
state and federal agencies have initiated billing review projects in certain
states and are expected to extend such projects to additional states, including
states in which the Company does business. These enforcement actions increase
the likelihood of governmental investigations of the Company, its affiliates and
their respective predecessors and personnel, and parties with whom it conducts
business, and there can be no assurance that governmental investigators will not
take positions that are inconsistent with industry practices, including the
Company's or such other parties' practices. In addition to investigations and
enforcement actions by governmental agencies, QUI TAM (or "whistleblowers")
actions may be brought under the False Claims Act by private individuals on
behalf of the government. Because the health care industry will continue to be
subject to substantial regulation, there can be no assurance that the Company's
activities will not be challenged or that the Company will not be subject to
sanctions or be required to alter or discontinue certain of its practices, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Government
Regulation."
POSSIBLE HEALTH CARE REFORM. Health care reform measures have been
considered by Congress and other federal and state bodies during recent years.
The intent of the proposals generally has been to reduce health care
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costs and the growth of total health care expenditures, to expand health care
coverage for the uninsured and to eliminate fraud, waste and financial abuse.
Although comprehensive health care reform has been considered, only limited
proposals have been enacted. Comprehensive health care reform may be considered
again and efforts to enact reform bills are likely to continue. Implementation
of government health care reform may adversely affect development and marketing
expenditures by biotechnology companies, which could decrease the business
opportunities available to the Company or the demand for its specialty services.
The Company is unable to predict the likelihood of such legislation or similar
legislation being enacted into law or the effects that any such legislation
would have on the Company.
MANAGEMENT OF GROWTH. The Company's business has grown rapidly in its last
two fiscal years with total revenue increasing from $115.2 million in fiscal
year 1997 to $181.0 million in fiscal year 1998. This growth has resulted in a
substantial increase in the number of its employees (from 203 at June 30, 1997
to 271 at June 30, 1998), the size of its programs and the scope of its
operations. This growth has placed and, if such growth continues, will continue
to place a strain on operational, human and financial resources. The Company's
ability to manage such growth effectively will depend upon its ability to
enhance its management team and its ability to attract and retain skilled
employees. The Company's success will also depend on the ability of its officers
and key employees to continue to implement and improve its operational,
management information and financial control systems, and to expand, train and
manage its work force. There can be no assurance that the Company will be able
to manage any future growth successfully or provide the necessary resources to
successfully manage its business. Failure to manage growth effectively could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION; INDUSTRY CONSOLIDATION. The specialty pharmacy industry is
highly competitive and is experiencing both horizontal and vertical
consolidation. All of the drugs, supplies and services that the Company provides
are available from sources other than the Company. Current and potential
competitors of the Company include specialty pharmacy divisions of wholesale
drug distributors; specialty pharmacy distributors; pharmacy benefit management
companies; hospital-based pharmacies; retail pharmacies; home infusion therapy
companies; comprehensive hemophilia treatment centers; and other alternate site
health care providers. In addition, the Company's drug suppliers or their
competitors have developed and may continue to develop and implement their own
direct specialty pharmacy service programs in lieu of using the Company. In
addition, managed care companies, pharmacy benefit managers and other payors can
influence the source from which their enrollees may obtain drugs through
required formularies and may desire to use full-line providers on their provider
panels. Many of the Company's competitors and potential competitors have greater
financial, technical, marketing and managerial resources than the Company.
Furthermore, certain of the Company's competitors, such as hospitals and certain
hemophilia treatment centers, are eligible for federally mandated discounts for
drug purchases that are not available to the Company. There are relatively few
barriers to entry into the Company's specialty contract pharmacy service segment
and there can be no assurance that, as the segment continues to evolve,
additional competitors with greater resources than the Company will not enter
the market or that the Company's suppliers will not choose to provide such
specialty services directly or through other businesses that have a broader
range of sales, marketing and support services. There can be no assurance that
competitive pressures will not increase, including as a result of further
industry consolidation, or that such pressures will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business--Competition."
RELIANCE ON TELEPHONE AND COMPUTER SYSTEMS; YEAR 2000 COMPLIANCE
RISK. Because the Company believes that its success depends, in part, upon its
services provided over the telephone on a real-time basis, any continuing
disruption in either its computer system or its telephone system could adversely
affect its ability to receive and process customer orders, provide its service
to patients and ship products on a timely basis, and could adversely affect the
Company's relations with its patients and suppliers.
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. By the year 2000, these
date code fields will need to accept four-digit entries to
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distinguish 21st century dates from 20th century dates. Computer systems that do
not accept four-digit entries could fail or produce erroneous results and cause
disruptions of operations. As a result, many software and computer systems may
need to be upgraded or replaced in order to comply with such "year 2000"
requirements. The Company is in the process of obtaining written verification
from vendors to determine whether the Company's computer systems and software
products are year 2000 compliant. Also, the Company is upgrading its pharmacy
management systems, including its billing and accounts receivable systems, to
address year 2000 issues. The failure of the Company's systems to be year 2000
compliant could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Issue."
In addition, the Company has ongoing relationships with third-party payors,
suppliers, vendors, and others that may have computer systems with year 2000
problems that the Company does not control. There can be no assurance that the
Company's payors, including the fiscal intermediaries and governmental agencies,
with which the Company transacts business and which are responsible for payment
to the Company will not experience significant problems with year 2000
compliance. According to testimony before a U.S. House of Representatives
subcommittee, HCFA, which administers the Medicare and Medicaid programs, is far
behind in remedying year 2000 problems, which could delay payment of claims to
providers. The failure of third parties to remedy year 2000 problems could have
a material adverse effect on the Company's business, financial condition and
results of operations.
RISKS RELATED TO SHIPPING. The Company ships most of its orders by
overnight delivery, and typically bears the cost of shipment. Shipping is a
significant expense in the operation of the Company's business and principally
all of the Company's products are shipped by a single carrier, Federal Express
Corporation ("FedEx"). Accordingly, any significant increase in shipping rates
could have an adverse effect on the Company's results of operations. Similarly,
strikes or other service interruptions by FedEx, or by any other carrier that
may indirectly affect FedEx, would adversely affect the Company's ability to
deliver products on a timely basis and therefore its ability to generate
revenue. The drugs shipped by the Company require special handling, including
refrigeration to maintain temperatures within certain ranges. The Company does
not maintain insurance against product spoilage during shipment. Due to their
high cost, even small shipments of the Company's products can represent
significant dollar amounts of inventory. Accordingly, the spoilage of one or
more shipments of the Company's products could have a material adverse effect on
the Company's results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company depends on a number of key
executives, the loss of the services of which could have a material adverse
effect on the Company. The Company does not maintain "key person" life insurance
policies on any of its executives. The Company also depends on its ability to
attract and retain qualified professional (including pharmacists) and technical
operating staff. There can be no assurance that the Company will be able to
continue to attract and retain such personnel, and its inability to do so could
have a material adverse effect on the Company's business, financial condition
and results of operations.
NEED FOR FINANCING. In order to implement its growth strategy, the Company
will require substantial capital resources and will need to maintain its
existing capital resources and incur, from time to time, additional short- and
long-term indebtedness, including purchasing terms from its suppliers. The
Company also may need to issue, in public or private transactions, equity or
debt securities, the terms of which will depend on market and other conditions.
There can be no assurance that existing or additional financing will be
available on terms acceptable to the Company, if at all. As a result, the
Company may not be able to implement fully its growth strategy. In addition, any
such financing may result in dilutive issuances of equity securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
RISKS RELATED TO INTANGIBLE ASSETS. The formation of the Company by WCAS
VII and certain of its affiliates (collectively, "Welsh Carson") and the
subsequent acquisitions by the Company of SHS and HHS have resulted in the
recording of a significant amount of goodwill on the Company's financial
statements. As of June 30, 1998, the Company had goodwill, net of accumulated
amortization, of approximately $56.7 million, or 48% of total assets. Goodwill
arises when an acquiror pays more for a business than the fair value of the
tangible
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and separately measurable intangible net assets. Generally accepted accounting
principles require that goodwill and all other intangible assets be amortized
over the period benefited by such assets. Management has determined that period
to be no less than 40 years for goodwill and, therefore, the Company amortizes
goodwill on a straight line basis over a period of 40 years. In addition, the
Company's growth strategy will likely result in additional goodwill on the
Company's financial statements. There can be no assurance that the value of
goodwill will ever be realized by the Company. On an on-going basis, the Company
makes an evaluation to determine whether events and circumstances indicate that
all or a portion of the carrying value of goodwill may no longer be recoverable,
in which case a charge to earnings may be necessary to write off unrecoverable
goodwill. Any future determination requiring the write-off of a significant
portion of goodwill could have a material adverse effect on the Company's
business, financial condition and results of operations. See Note 3 of Notes to
the Company's Consolidated Financial Statements.
POTENTIAL LIABILITY; AVAILABILITY OF INSURANCE. The Company's business
exposes it to risks inherent in the provision of drugs and related services.
Although the Company currently maintains professional liability insurance, there
can be no assurance that the scope of coverage or limits of such insurance will
be adequate to protect it against future claims. In addition, there can be no
assurance that the Company will be able to maintain adequate liability insurance
in the future on acceptable terms or with adequate coverage against potential
liabilities.
CONTROL BY AND USE OF PROCEEDS TO BENEFIT EXISTING STOCKHOLDERS. Upon the
completion of this Offering, the Company's directors and executive officers and
their affiliates as a group (including shares held by Welsh Carson) will
beneficially own approximately % of the outstanding voting Common Stock (or
approximately % if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders, if acting together, will have effective
control over the Company through their ability to control the election of
directors and all other matters that require a vote by the Company's
stockholders. Such control by the existing stockholders may have the effect of
preventing a change in control of the Company. The existing stockholders'
ability to prevent such a change in control of the Company may have an adverse
effect on the market price of the Common Stock. See "Management--Directors and
Executive Officers," "Principal Stockholders," and "Description of Capital
Stock."
The Company will use a portion of the net proceeds from this Offering to
redeem all outstanding shares of Series A Preferred Stock and to prepay in full
all principal and accrued interest on the Company's outstanding 10% Senior
Subordinated Notes due June 1, 2004 (the "Senior Subordinated Notes"). Welsh
Carson owns approximately 97% of the outstanding shares of Series A Preferred
Stock and substantially all outstanding Senior Subordinated Notes. In addition,
certain executive officers and directors of the Company own, in the aggregate,
approximately 2% of the outstanding shares of Series A Preferred Stock. See "Use
of Proceeds" and "Certain Transactions."
NO PRIOR TRADING MARKET; POTENTIAL 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 for the Common Stock will develop or,
if one does develop, that it will be maintained. The initial public offering
price, which will be established by negotiations between the Company and the
representatives of the Underwriters, may not be indicative of prices that will
prevail in the trading market for the Common Stock. The market price of the
Common Stock could be subject to wide fluctuations in response to variations in
operating results from quarter to quarter, changes in earnings estimates by
analysts, market conditions in the industry and general economic conditions.
Furthermore, the stock market has experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies.
These market fluctuations may have an adverse effect on the market price of the
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market, or the perception that such sales might occur, could
have a material adverse effect on the market price of the Common Stock.
Immediately following the Offering, the Company will have outstanding
shares of Common Stock ( shares if the Underwriters' over-allotment option
is exercised in full), excluding shares reserved
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for issuance upon the exercise of outstanding stock options. The shares of
Common Stock offered hereby ( if the Underwriters' over-allotment option is
exercised in full) will be eligible for public sale without restriction under
the Securities Act by persons other than affiliates (as that term is defined in
Rule 144 under the Securities Act) of the Company. All of the remaining
shares of Common Stock outstanding will be "restricted" within the meaning
of Rule 144 and may not be resold in the absence of registration under the
Securities Act or the availability of an exemption from such registration,
including the exemption provided by Rule 144. Taking into consideration the
effect of the 180-day "lock-up" agreements described herein (covering an
aggregate of shares and options to purchase an additional shares held
by executive officers, directors and certain existing stockholders of the
Company), approximately restricted shares of Common Stock will be eligible
for sale in the public market immediately after the Offering and all
remaining restricted shares will be eligible for sale upon the expiration of the
180-day lock-up agreements, in each case subject to certain volume and other
limitations of Rule 144. Holders of restricted shares of Common Stock have
contractual rights to have those shares registered for resale to the public. If
such holders, by exercising their registration rights after the 180-day lockup
period, cause a large number of shares to be registered and sold in the public
market, the market price of the Common Stock might be adversely affected.
The Company intends to register on Form S-8 under the Securities Act, as
soon as practicable on or after the effective date of the Offering, shares
of Common Stock reserved for issuance under the Company's stock option and
employee stock purchase plans. This registration statement will be effective
upon filing. Shares registered and issued pursuant to such registration
statement will be freely tradable except to the extent that the holders thereof
are deemed to be affiliates of the Company, in which case the transferability of
such shares will be subject to the volume limitations of Rule 144. Options for
the purchase of shares of Common Stock are currently outstanding under the
Company's stock option plans. See "Shares Eligible for Future Sale."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER, BYLAW AND OTHER
PROVISIONS. Certain provisions of the Company's Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws, including the
classification of the Board of Directors into three classes, could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Common Stock. Certain of such provisions
allow the Company to issue preferred stock with rights senior to those of the
Common Stock and impose various procedural and other requirements which could
make it more difficult for stockholders to effect certain corporate actions. In
addition, the Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law ("DGCL"), which restricts certain business
combinations with any "interested stockholder" and may delay, defer or prevent a
change in control of the Company. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchasers of shares of Common
Stock pursuant to the Offering will experience immediate and substantial
dilution of the net tangible book value per share of Common Stock from the
initial public offering price. At an assumed initial public offering price of
$ per share, purchasers in the Offering will incur dilution of $
per share. See "Dilution."
ABSENCE OF DIVIDENDS. The Company has not and does not expect to declare or
pay any cash dividends in the foreseeable future. The Company intends to retain
all earnings, if any, in order to expand its operations. Furthermore, the
Company's bank credit agreement presently prohibits the payment of cash
dividends. The payment of cash dividends, if any, in the future is within the
discretion of the Company's Board of Directors and will depend upon the
Company's earnings, if any, capital requirements, financial condition, credit
agreements and other relevant factors. See "Dividend Policy."
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THE COMPANY
Accredo provides specialized contract pharmacy and related services
beneficial to patients with certain costly, chronic diseases. Accredo's business
was founded in 1985 by Le Bonheur Health Systems, Inc., the former parent of a
not-for-profit children's hospital in Memphis, Tennessee ("Le Bonheur"). Le
Bonheur operated the business through its subsidiary, Southern Health Systems,
Inc. ("SHS"), and through Nova Factor, Inc., one of four subsidiaries of SHS
("Nova Factor"). In May 1996, Accredo (formerly known as Nova Holdings, Inc.)
was formed to acquire SHS and Nova Factor following the divestiture by SHS of
all of its subsidiaries other than Nova Factor. Accredo continues to own SHS as
a wholly owned subsidiary, and SHS continues to own Nova Factor as a wholly
owned subsidiary. In June 1997, Accredo acquired all of the outstanding stock of
Horizon Health Systems, Inc. (d/b/a Hemophilia Health Services) ("HHS"), which
became and continues to be a wholly owned subsidiary of Accredo. See "Risk
Factors--Joint Venture and Acquisition Risks" and Note 3 of Notes to the
Consolidated Financial Statements of the Company.
The Company's principal executive offices are located at 1640 Century Center
Parkway, Suite 101, Memphis, Tennessee 38134, and its telephone number is (901)
385-3688.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company, are estimated to be $ ($ if
the Underwriters' over-allotment option is exercised in full).
The Company expects to use the net proceeds it receives from the Offering as
follows: (i) approximately $ million will be used to repay a portion of the
Company's outstanding indebtedness under its existing Loan and Security
Agreement with NationsBank of Tennessee, N.A. and First Tennessee Bank National
Association (the "Credit Agreement"); (ii) approximately $11.0 million will be
used to prepay in full all principal and accrued interest on the Company's
outstanding Senior Subordinated Notes; (iii) approximately $31.0 million will be
used to redeem all outstanding shares of Series A Preferred Stock, including all
accrued dividends thereon; and (iv) the balance will be used for working capital
and other general corporate purposes, including possible acquisitions. Pending
such uses, the balance of the net proceeds will be invested in short term,
investment grade, interest bearing obligations. The Company from time to time
considers various acquisition proposals, but currently has no commitments or
agreements with respect to any material acquisitions.
The Credit Agreement provides that borrowings thereunder will bear interest
at the prime rate or the London Interbank Offered Rate ("LIBOR") plus, in each
case, a margin depending on the Company's ratio of funded debt to cash flow. The
Company has entered into an interest rate swap agreement with NationsBank of
Tennessee, N.A. to hedge against floating rate interest risk with respect to
amounts of up to $15.0 million outstanding under the Credit Agreement.
Accordingly, as of June 30, 1998, the effective interest rate on the first $15.0
million outstanding under the Credit Agreement was 8.15% per annum, and the
effective interest rate on borrowings in excess of $15.0 million under the
Credit Agreement was 7.625% per annum. All outstanding principal and interest on
borrowings under the Credit Agreement must be paid in full by October 31, 1999.
The Senior Subordinated Notes bear interest at 10.0% per annum and mature on
June 1, 2004. The Series A Preferred Stock accrues dividends at an annual rate
of $8.00 per share. Such dividends are cumulative and accrue from the date of
issue. The mandatory redemption date of the Series A Preferred Stock is May 31,
2004.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to retain any future earnings to finance the growth
and development of its business and therefore does not anticipate paying any
cash dividends in the forseeable future. The payment of cash dividends in the
future will be at the discretion of the Board of Directors and will depend upon
factors such as the Company's earnings levels, capital requirements, financial
condition and other factors deemed relevant by the Board of Directors. There can
be no assurance that the Company will pay any dividends in the future.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1998 (i) the actual
capitalization of the Company and (ii) the pro forma capitalization of the
Company as adjusted to give effect to (a) the exchange by WCAS VII of
shares of Common Stock for shares of Non-Voting Common Stock pursuant to
the Recapitalization and (b) the sale by the Company of shares of Common
Stock in the Offering at an assumed initial public offering price of $
per share and the application of the estimated net proceeds therefrom (after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company). This table should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------
<S> <C> <C>
PRO FORMA
ACTUAL AS ADJUSTED
----------- ---------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Long-term notes payable.......................................... $ 27,498 $
----------- -------
Senior Subordinated Notes payable................................ 8,920
----------- -------
Mandatorily redeemable cumulative preferred stock, at redemption
amount, 300,000 shares authorized, and 255,361 shares issued
and outstanding................................................ 29,792
----------- -------
Stockholders' equity:
Non-Voting Common Stock, $.01 par value; shares
authorized; no shares issued and outstanding, actual;
shares issued and outstanding, pro forma as adjusted... --
Common Stock, $.01 par value; shares authorized;
shares issued and outstanding, actual;
shares issued and outstanding, pro forma as adjusted(1).... 56
Common Stock subscribed-- shares...................... 204
Additional paid-in capital................................... 16,837
Retained earnings............................................ 778
Subscription receivable...................................... (204)
----------- -------
Total stockholders' equity............................... 17,671
----------- -------
Total capitalization................................. $ 83,881 $
----------- -------
----------- -------
</TABLE>
- ------------------------
(1) Excludes shares of Common Stock reserved for issuance under the
Company's stock option and employee stock purchase plans, of which
shares were subject to outstanding options as of June 30, 1998 at a
weighted average exercise price of $ per share.
16
<PAGE>
DILUTION
As of June 30, 1998, the Company's net deficit in tangible book value was
$ , or $ per share of Common Stock. Net deficit in tangible book value
per share represents the amount of the Company's total tangible assets, less
total liabilities and mandatorily redeemable cumulative preferred stock, divided
by the number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of shares of Common Stock in the Offering at an assumed
initial public offering price of $ per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the pro forma net tangible book value of the Company as of June 30,
1998 would have been approximately $ , or $ per share. This represents
an immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $
Net deficit in tangible book value per share as of June 30,
1998(1)..................................................... $
Increase per share attributable to new investors..............
---------
Pro forma net tangible book value per share after the
Offering(1)...................................................
---------
Dilution per share to new investors(2).......................... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the differences between the existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid
(based upon an assumed initial public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).... % $ % $
New investors
--------- ----- ---------- -----
Total............... 100.0% $ 100.0%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>
- ------------------------
(1) Excludes shares of Common Stock reserved for issuance under the
Company's stock option and employee stock purchase plans, of which shares
are subject to outstanding options at a weighted average exercise price of
$ per share. To the extent that options are exercised, there could be
further dilution to new investors.
(2) Dilution per share to new investors is determined by subtracting pro forma
net tangible book value per share after the Offering from the assumed
initial public offering price per share. Dilution per share to new investors
will be $ if the Underwriters' over-allotment option is exercised in
full.
17
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize certain selected financial data, which are
qualified by and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Predecessor's
and the Company's Financial Statements and the Notes thereto included elsewhere
in this Prospectus. The following table sets forth selected financial data with
respect to (a) Nova Factor (Predecessor) as of and for the fiscal years ended
June 30, 1994 and 1995, and as of May 31, 1996 and for the period July 1, 1995
through May 31, 1996, and (b) the Company as of June 30, 1996 and for the period
from inception (May 24, 1996) through June 30, 1996, and as of and for the
fiscal years ended June 30, 1997 and 1998. The selected financial data of the
Predecessor and the Company have been derived from the audited financial
statements of the Predecessor and the Company. The information set forth below
is not necessarily indicative of the results of future operations.
<TABLE>
<CAPTION>
PREDECESSOR(1) COMPANY(1)
--------------------------------- ---------------------------------
MAY 24,
JULY 1, 1996
YEARS ENDED 1995 (INCEPTION) YEARS ENDED JUNE 30,
JUNE 30, THROUGH THROUGH
-------------------- MAY 31, JUNE 30, --------------------
1994 1995(2) 1996 1996 1997 1998
--------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Net patient service revenue....................... $ 5,442 $ 71,513 $ 68,585 $ 6,647 $ 106,143 $ 170,002
Other revenue..................................... 756 6,710 6,346 597 8,049 9,806
Equity in net income (loss) of joint ventures..... 126 646 (139) 49 1,017 1,150
--------- --------- ----------- ----------- --------- ---------
Total revenues................................ 6,324 78,869 74,792 7,293 115,209 180,958
Operating expenses:
Cost of services.................................. 4,016 68,273 65,867 6,450 101,081 154,046
General and administrative........................ 694 2,714 2,753 627 5,939 12,351
Bad debts......................................... 74 1,322 1,860 251 2,977 3,165
Depreciation and amortization..................... 11 76 104 126 1,599 2,528
Corporate overhead allocation(3).................. 413 1,900 4,206 -- -- --
--------- --------- ----------- ----------- --------- ---------
Total operating expenses...................... 5,208 74,285 74,790 7,454 111,596 172,090
--------- --------- ----------- ----------- --------- ---------
Operating income (loss)............................... 1,116 4,584 2 (161) 3,613 8,868
Interest expense, net................................. -- 943 266 106 983 3,552
--------- --------- ----------- ----------- --------- ---------
Income (loss) before income taxes..................... 1,116 3,641 (264) (267) 2,630 5,316
Income tax expense (benefit).......................... 428 1,387 (72) (29) 1,508 2,495
--------- --------- ----------- ----------- --------- ---------
Net income (loss)..................................... $ 688 $ 2,254 $ (192) (238) 1,122 2,821
--------- --------- -----------
--------- --------- -----------
Mandatorily redeemable cumulative preferred stock
dividends........................................... (170) (2,043) (2,043)
----------- --------- ---------
Net income (loss) attributable to common
stockholders........................................ $ (408) $ (921) $ 778
----------- --------- ---------
----------- --------- ---------
Net income (loss) per share attributable to common
stockholders--Diluted............................... $ $ $
----------- --------- ---------
----------- --------- ---------
Weighted average shares and dilutive equivalents
outstanding.........................................
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
-------------------- MAY 31, ---------------------------------
1994 1995 1996 1996 1997 1998
--------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 572 $ 645 $ 1,995 $ 3,576 $ 3,676 $ 5,087
Working capital........................... 1,234 13,523 1,148 1,384 16,894 23,377
Total assets(4)........................... 4,135 44,808 27,538 72,366 116,917 118,990
Long-term debt............................ -- 4,000 -- -- 35,195 36,418
Mandatorily redeemable cumulative
preferred stock......................... -- -- -- 25,706 27,749 29,792
Stockholders' equity...................... 1,476 11,315 3,327 14,913 16,393 17,671
</TABLE>
- ------------------------------
(1) The Company was incorporated on May 24, 1996. On May 31, 1996, the Company
acquired SHS, a holding company, and its wholly-owned subsidiary, Nova
Factor (the "Predecessor"). Since the Company was newly formed at May 24,
1996, and because the Predecessor had been in existence for several years,
the Company is considered the successor to the Predecessor's operations. The
balance sheet data of the Predecessor represents the historical cost basis
of the Predecessor's assets and liabilities prior to its acquisition by the
Company. The acquisition of the Predecessor by the Company resulted in a new
basis of accounting such that the Predecessor's assets and liabilities were
recorded at their fair value in the Company's consolidated balance sheet
upon consummation of the acquisition. Additionally, the Company acquired HHS
on June 1, 1997. Accordingly, the Selected Financial Data are not strictly
comparable for the periods presented. See Notes 1 and 3 of Notes to the
Company's Consolidated Financial Statements.
(2) On July 1, 1994, the Predecessor was assigned contractual rights from a
subsidiary of SHS relating to the distribution of certain drugs.
(3) The Predecessor has been allocated expenses for certain services provided by
its parent, SHS, including cash management, tax reporting, risk management
and executive management services. Charges for these services were based
upon a general allocation methodology determined by SHS (used to allocate
all corporate overhead expenses to SHS subsidiaries), and were not
necessarily allocated based on specific identification of expenses.
Management believes the allocation methodology is reasonable. See Note 6 of
Notes to the Nova Factor, Inc. Financial Statements.
(4) In May 1996, the Predecessor settled various intercompany accounts with
subsidiaries of SHS.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE PREDECESSOR'S AND THE COMPANY'S FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE
DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE HEREIN.
OVERVIEW
Accredo provides specialized contract pharmacy and related services for the
treatment of patients with certain costly, chronic diseases. The Company derives
revenues primarily from the sale of biotechnology drugs to patients.
Historically, the majority of the Company's revenues have been derived from
products and services provided with respect to four diseases: Gaucher Disease,
hemophilia, Multiple Sclerosis and growth hormone-related disorders. The
products provided by the Company are purchased directly from biotechnology drug
manufacturers pursuant to preferred relationship agreements in the case of
Gaucher Disease, Multiple Sclerosis, and growth hormone-related disorders and
purchase agreements in the case of hemophilia. Approximately 46%, 23% and 6% of
Accredo's total revenues in fiscal 1998 were generated from sales and services
provided with respect to Gaucher Disease, Multiple Sclerosis and growth
hormone-related disorders, respectively, and which sales and services were (and
will continue to be) dependent upon the Company's preferred relationships with
Genzyme, Biogen and Genentech, respectively. Sales and services provided with
respect to hemophilia represented approximately 23% of the Company's total
revenues in 1998.
The Company's preferred relationship agreements describe certain services to
be provided by the Company, including contract pharmacy, information, clinical,
reimbursement and customized delivery services. The agreements generally limit
the Company's ability to supply competing drugs during (and in some cases for up
to five years after) the term of the agreement, allow the manufacturer to
distribute directly or through other parties, are generally short term and may
be cancelled by either party, without cause, upon between 60 and 90 days prior
notice. The agreements vary in level of exclusivity and scope of services
provided. The Company typically purchases products at prices below the
manufacturers' average wholesale sales prices, and the Company's resulting
contribution margins vary for each product line. Pricing is customized to
reflect specific services to be provided by Accredo and is subject to periodic
adjustments to reflect changing market conditions.
The Company recognizes revenue at the time the biotechnology drug is
dispensed or when the contractual service has been performed. While the Company
may experience some revenue changes from price fluctuations on its existing
product lines, its revenue growth will depend principally on the introduction of
new drugs and to a lesser extent on volume growth in existing drug lines. In May
1996, the Company entered into a preferred relationship with Biogen and
initiated sales and services with respect to Avonex-Registered Trademark- for
the treatment of Multiple Sclerosis. In August 1998, the Company entered into a
preferred relationship with Centocor and will initiate sales and services with
respect to Remicade-TM- for the treatment of Crohn's Disease. Although the
introduction of new drugs is dependent on the regulatory approval process,
management believes the pipeline of biotechnology drugs for which the Company's
services may be utilized will continue to expand.
In response to growing demand, the Company has expanded its existing
relationships with biotechnology manufacturers through the development of new or
complementary services that fit the specialized needs of the manufacturer and
the patients they serve. For example, the Company recently implemented a
referral triage service to provide a convenient single source for prescribing
physicians and help manufacturers increase market penetration. These services
have provided an additional source of revenue for the Company in fiscal 1998 and
19
<PAGE>
1997, and management believes that the need for additional services will
continue to expand and will constitute an increasing percentage of the Company's
revenues in the future.
In addition to new services, Accredo may also grow through strategic
acquisitions and joint ventures. The acquisition of HHS in June 1997 enabled the
Company to significantly increase its presence in the hemophilia market.
Subsequent to the acquisition, the Company consolidated its existing hemophilia
operations into HHS to take advantage of volume purchasing discounts, disease
management systems and increased access to certain state Medicaid and managed
care relationships.
Accredo has four joint venture agreements with various medical centers (or
their affiliates) in which the Company owns 50% or less of the venture. Many of
the Company's patient populations have diseases that are discovered before or
during adolescence and require on-going care from physician specialists, many of
whom are based at pediatric, academic and other acute care medical centers. To
date, these ventures have primarily derived revenues from the treatment of
patients with hemophilia and growth hormone-related disorders. The Company and
its joint venture partners share profits and losses in equal proportion to their
respective equity ownership. The Company accounts for its interests in the net
income or loss in these joint ventures under the equity method of accounting.
The Company's equity interest in the net income of these joint ventures
represented approximately 22% of the Company's income before income taxes for
fiscal 1998. In addition to joint venture relationships, the Company has
management agreements with four medical centers (or their affiliates) for the
provision of specialized contract pharmacy services. The Company receives a
management fee for these services which is classified as other revenue.
Cost of services include drug acquisition costs, pharmacy and warehouse
personnel costs, freight and other direct costs associated with the delivery of
the products and costs of clinical services provided. General and administrative
expenses include the personnel costs of the reimbursement, sales, marketing,
administrative and support staffs as well as corporate overhead and other
general expenses. Bad debts include the Company's provision for patient accounts
receivable which prove to be uncollectable after routine collection efforts have
been exhausted. The Company typically hires personnel and incurs legal,
recruiting, marketing and other expenses in anticipation of the commercial
launch of a new biotechnology drug. In certain instances, a portion of these
expenses are reimbursed to the Company by the biotechnology drug manufacturer.
The Company historically has not capitalized any of these start up expenses.
Due to the increasing sensitivity to drug cost within governmental and
private payors, the Company is continuously susceptible to reimbursement and
operating margin pressures. In recent years, pharmacy benefit managers and other
private payors have aggressively attempted to discount their reimbursement rates
for the Company's products. While this aggressive discounting has resulted in
some reduced margins for the Company's services, its preferred agreements with
biotechnology manufacturers typically provide for terms which allow the Company
to compensate for much of these discounts through negotiated adjustments in
product acquisition cost. These relationships have allowed the Company to remain
price competitive while maintaining relatively stable product margins in recent
quarters.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the percentages of
total revenues represented by the respective financial items:
<TABLE>
<CAPTION>
MAY 24, 1996
(INCEPTION) YEARS ENDED JUNE 30,
THROUGH --------------------------
JUNE 30, 1996 1997 1998
--------------------- ----------- -------------
<S> <C> <C> <C>
Revenues:
Net patient service revenue.................... 91.1% 92.1% 94.0%
Other revenue.................................. 8.2 7.0 5.4
Equity in net income of joint ventures......... 0.7 0.9 0.6
----- ----- -----
Total revenues............................. 100.0 100.0 100.0
Operating expenses:
Cost of services............................... 88.5 87.7 85.1
General and administrative..................... 8.6 5.2 6.8
Bad debts...................................... 3.4 2.6 1.7
Depreciation and amortization.................. 1.7 1.4 1.4
----- ----- -----
Total operating expenses................... 102.2 96.9 95.0
----- ----- -----
Operating income (loss)............................ (2.2) 3.1 5.0
Interest expense, net.............................. 1.5 0.8 2.0
----- ----- -----
Income (loss) before income taxes.................. (3.7) 2.3 3.0
Income tax expense (benefit)....................... (0.4) 1.3 1.4
----- ----- -----
Net income (loss).................................. (3.3%) 1.0% 1.6%
----- ----- -----
----- ----- -----
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR 1997
REVENUES. Total revenues increased from $115.2 million to $181.0 million,
or 57%, from fiscal 1997 to fiscal 1998. Approximately $25.1 million, or 38%, of
this increase was attributed to increased sales volume of
Avonex-Registered Trademark-, which was launched in May 1996. Approximately
$30.0 million, or 46%, of the increase was attributed to the increased
hemophilia revenue associated with the acquisition of HHS in June 1997 and
increased patient volume. The remaining $10.7 million, or 16%, of the revenue
increase was attributable primarily to growth in the Company's
Ceredase-Registered Trademark- and Cerezyme-Registered Trademark- drug sales and
associated service fees. The Company's equity in net income of joint ventures
increased from approximately $1.0 million to approximately $1.2 million from
fiscal 1997 to fiscal 1998.
COST OF SERVICES. Cost of services increased from $101.1 million to $154.0
million, or 52%, from fiscal 1997 to fiscal 1998. This increase was attributable
primarily to the expanded revenue volume of Avonex-Registered Trademark-,
hemophilia clotting factor and Ceredase-Registered Trademark- and
Cerezyme-Registered Trademark- along with personnel and other direct expenses
associated with this growth. As a percentage of revenues, cost of services
decreased from 87.7% to 85.1% from fiscal 1997 to fiscal 1998 primarily as a
result of the increasing revenue growth in drugs with lower product acquisition
costs as a percentage of revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $5.9 million to $12.4 million, or 108%, from fiscal 1997 to fiscal 1998.
Approximately $4.2 million, or 66%, of this increase was associated with the
acquisition of HHS in June 1997. The remaining $2.3 million of this increase was
primarily the result of increased salaries and benefits associated with the
expansion of the Company's reimbursement, sales, marketing, administrative and
support staffs in anticipation of revenue growth and new strategic sales and
marketing efforts. As a percentage of revenues, general and administrative
expenses increased from 5.2% to
21
<PAGE>
6.8% from fiscal 1997 to fiscal 1998 primarily as a result of the acquisition of
HHS which involves a more cost intensive service model than that of the
Company's other drug therapies.
BAD DEBTS. Bad debts increased from $3.0 million to $3.2 million from
fiscal 1997 to fiscal 1998. As a percentage of revenue, bad debt expense
decreased from 2.6% to 1.7% from fiscal 1997 to fiscal 1998 primarily as a
result of the increased percentage of the Company's revenues being reimbursed by
prescription benefit managers and other payors which reduces the Company's
exposure to the uncollectability of patient co-payments.
DEPRECIATION AND AMORTIZATION. Depreciation expense increased from $231,000
to $430,000 from fiscal 1997 to fiscal 1998. Of this increase, $94,000 was
attributable to the assets acquired as a result of the acquisition of HHS in
June 1997. The remaining increase is a result of approximately $992,000 of
capital expenditures made in fiscal 1998 for the purchases of property and
equipment associated with the Company's revenue growth and expansion of its
leasehold facility improvements. Amortization expense increased from $1.4
million to $2.1 million from fiscal 1997 to fiscal 1998, primarily as a result
of the acquisition of HHS, which resulted in approximately $24.4 million of
goodwill and other intangible assets. Approximately $628,000 of the increase was
attributable to the amortization of those intangibles.
INTEREST EXPENSE, NET. Interest expense, net increased from $984,000 to
$3.6 million, from fiscal 1997 to fiscal 1998 primarily as a result of the
issuance of $27.5 million of long-term notes payable and $10.0 million of Senior
Subordinated Notes payable issued as part of the acquisition of HHS in June
1997. The Company generated interest income of approximately $169,000 in fiscal
1998 and $100,000 in fiscal 1997 resulting from cash management programs which
utilized the Company's increased short-term excess cash balances.
INCOME TAX EXPENSE. The Company's effective tax rate decreased from 57.3%
to 46.9% from fiscal 1997 to fiscal 1998 as a result of increased income before
income taxes while nondeductible amortization expense remained constant. The
difference between the recognized effective tax rate and the statutory tax rate
is primarily attributed to approximately $1.3 million of nondeductible
amortization expense and state income taxes.
PERIOD FROM INCEPTION (MAY 24, 1996) TO JUNE 30, 1996
Accredo was formed on May 24, 1996, for the purpose of acquiring SHS and its
wholly owned subsidiary Nova Factor, the Company's predecessor. This acquisition
was completed on May 31, 1996. Because the financial statements for the period
from inception (May 24, 1996) to June 30, 1996 reflect only one month of the
Company's operations, a comparison of the Company's financial statements for
that period to the Company's financial statements for fiscal year 1997 would not
be meaningful.
PERIOD FROM JULY 1, 1995 THROUGH MAY 31, 1996 (PREDECESSOR) COMPARED TO FISCAL
YEAR 1995 (PREDECESSOR)
The results of operations for the period July 1, 1995 through May 31, 1996
(eleven-months) and for the fiscal year ended June 30, 1995 (fiscal year 1995)
are reflective of the operations of Nova Factor, the Company's predecessor. Due
primarily to the differences in the length of the reporting periods, the
comparison of the operating results may not be meaningful. In addition, the
results of operations for these periods may not be indicative of the results of
operations had the Predecessor been operated on a stand alone basis.
REVENUES. Total revenues were $74.8 million for the eleven-month period
ended May 31, 1996, and were $78.9 million for fiscal year 1995.
COST OF SERVICES. Cost of services were $65.9 million for the eleven-month
period ended May 31, 1996, and were $68.3 million for fiscal year 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $2.8
million for the eleven-month period ended May 31, 1996, and were $2.7 million
for fiscal year 1995.
22
<PAGE>
BAD DEBTS. Bad debts were $1.9 million for the eleven-month period ended
May 31, 1996, and were $1.3 million for fiscal year 1995.
DEPRECIATION EXPENSE. Depreciation expense was $104,000 for the
eleven-month period ended May 31, 1996, and was $76,000 for fiscal year 1995.
CORPORATE OVERHEAD ALLOCATION. Corporate overhead allocation was $4.2
million for the eleven-month period ended May 31, 1996, and was $1.9 million for
fiscal year 1995.
INTEREST EXPENSE, NET. Interest expense, net was $266,000 for the
eleven-month period ended May 31, 1996, and was $943,000 for fiscal year 1995.
INCOME TAX EXPENSE. The effective tax rate used to record the tax benefit
for the eleven-month period ended May 31, 1996 was approximately 27%, and was
approximately 38% for fiscal year 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998 and 1997, the Company had working capital of $23.4
million and $16.9 million, respectively. The increase in working capital at June
30, 1998, as compared to June 30, 1997, resulted principally from the increase
in patient accounts receivable resulting from the Company's revenue growth. The
Company's net cash provided by operating activities was approximately $1.9
million for the fiscal year ended June 30, 1998, which was due primarily to the
timing of receivables, inventory purchases and payables resulting from the
Company's continued growth. Net cash used in investing activities was $967,000
for the fiscal year ended June 30, 1998. Such cash was used primarily for the
purchase of property and equipment.
For the period from inception (May 24, 1996) through June 30, 1996, the
Company used cash in the amount of approximately $37.7 million to purchase the
outstanding stock of SHS. In fiscal year 1997, the Company used cash in the
amount of approximately $29.7 million to purchase the outstanding stock of HHS.
During fiscal 1997, the Company's cash distributions from its joint ventures in
excess of its equity in the net income from these joint ventures was $378,000.
During the fiscal year ended June 30, 1998, the Company received cash
distributions from its joint ventures of approximately $1.2 million while its
associated equity in the net income of these joint ventures increased
approximately $1.2 million.
For the period from inception (May 24, 1996) to June 30, 1996, the Company
received $40.0 million from the issuance of common and preferred stock. For the
fiscal year ended June 30, 1997, the Company received approximately $27.5
million from the issuance of long-term notes payable and $10.0 million from the
issuance of the Senior Subordinated Notes which were used to refinance
approximately $7.2 million of long-term debt and to fund the acquisition of HHS.
The Company issued shares of Common Stock to the purchasers of the
Senior Subordinated Notes. During fiscal year 1998, the Company elected to issue
additional Senior Subordinated Notes of approximately $1.0 million which
represented the accrued interest on the Senior Subordinated Notes then
outstanding. The Company also received $500,004 from the sale of shares
of Common Stock during 1998.
Historically, the Company has funded its operations and continued internal
growth through cash provided by operations. The Company anticipates its capital
expenditures for the year ending June 30, 1999 will consist primarily of
additional leasehold improvements and equipment for the continuing expansion of
the Company's leasehold to accommodate personnel necessary to manage the
Company's growth. Upon consummation of the Offering, the Company plans to retire
a portion of its long-term senior debt, redeem all outstanding shares of Series
A Preferred Stock and retire the Senior Subordinated Notes. In connection with
the retirement of debt with the Offering proceeds, the Company will incur an
extraordinary charge of approximately $2.1 million to its operations for early
extinguishment of its debt.
The Company's Credit Agreement consists of a $40.0 million revolving credit
facility, which includes a subfacility for letters of credit. The Credit
Agreement contains a $20.0 million sublimit for working capital loans and
letters of credit and is subject to a borrowing base limit that is based on the
Company's cash flow. All
23
<PAGE>
outstanding principal and interest on loans made under the Credit Agreement is
due and payable on October 31, 1999. Interest on loans under the Credit
Agreement accrues at a variable rate index, at the Company's option, based on
the prime rate or LIBOR for one, two, three or six months (as selected by the
Company), plus an applicable margin. The Company has entered into an interest
rate swap agreement with NationsBank of Tennessee, N.A. to hedge against
floating rate interest risk. The swap agreement relates to borrowings under the
Credit Agreement of up to $15.0 million and expires on October 29, 1999.
Accordingly, as of June 30, 1998, the effective interest rate on the first $15.0
million outstanding under the Credit Agreement was 8.15% per annum, and the
effective interest rate on borrowings in excess of $15.0 million under the
Credit Agreement was 7.625% per annum. The Company's obligations under the
Credit Agreement are secured by a lien on substantially all of the assets of the
Company, including a pledge of all of the common stock of each direct or
indirect wholly owned subsidiary of the Company. Each wholly owned subsidiary
has also guaranteed all of the obligations of the Company under the Credit
Agreement, which guarantee obligations are secured by a lien on substantially
all of the assets of each such subsidiary. See Note 5 of Notes to the Company's
Consolidated Financial Statements.
The Credit Agreement contains operating and financial covenants, including
requirements to maintain a certain debt to equity ratio and certain leverage and
debt service coverage ratios. In addition, the Credit Agreement includes
customary affirmative and negative covenants, including covenants relating to
transactions with affiliates, use of proceeds, restrictions on subsidiaries,
limitations on indebtedness, limitations on liens, limitations on capital
expenditures, limitations on certain mergers, acquisitions and sales of assets,
limitations on investments, prohibitions on payment of dividends and stock
repurchases, and limitations on certain debt payments (including payment of
subordinated indebtedness) and other distributions. The Credit Agreement also
contains customary events of default, including certain events relating to
changes in control of the Company.
While the Company anticipates its cash from operations, along with the short
term use of the Credit Agreement and the net proceeds to be received from the
Offering, will be sufficient to meet its internal operating requirements and
growth plans for at least the next 12 months, the Company expects that
additional funds may be required in the future to successfully continue its
growth beyond that 12-month period or in the event that the Company grows more
than expected within such period. The Company may be required to raise
additional funds through sales of equity or debt securities or seek additional
financing from financial institutions. There can be no assurance, however, that
financing will be available on terms that are favorable to the Company or, if
obtained, will be sufficient for the Company's needs.
SELECTED QUARTERLY FINANCIAL RESULTS
The following table presents selected unaudited quarterly statements of
operations items, and the percentages of total revenues represented by those
respective items, for each of the eight quarters beginning July 1, 1996 and
ending June 30, 1998. This information has been prepared on the same basis as
the audited financial statements appearing elsewhere in this Prospectus, and
includes all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of the information when
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read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1997 1997(1) 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:........................
Total revenues........... $ 24,543 $ 27,659 $ 28,538 $ 34,468 $ 40,886 $ 44,701 $ 44,813
Operating income......... 663 817 859 1,274 1,892 2,051 2,246
Income before income
taxes.................. 452 642 686 849 1,000 1,162 1,325
Net income............... 153 276 299 395 492 570 698
AS A PERCENTAGE OF TOTAL REVENUES:
Total revenues........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating income......... 2.7 3.0 3.0 3.7 4.6 4.6 5.0
Income before income
taxes.................... 1.8 2.3 2.4 2.5 2.4 2.6 3.0
Net income............... 0.6 1.0 1.0 1.1 1.2 1.3 1.6
<CAPTION>
<S> <C>
JUNE 30,
1998
-----------
<S> <C>
STATEMENT OF OPERATIONS
DATA:........................
Total revenues........... $ 50,559
Operating income......... 2,680
Income before income
taxes.................. 1,830
Net income............... 1,061
AS A PERCENTAGE OF TOTAL REVE
Total revenues........... 100.0%
Operating income......... 5.3
Income before income
taxes.................... 3.6
Net income............... 2.1
</TABLE>
- ------------------------------
(1) On June 1, 1997, the Company acquired all of the stock of HHS.
QUARTERLY FLUCTUATIONS AND SEASONALITY
The Company's results of operations historically have fluctuated on a
quarterly basis and can be expected to continue to be subject to quarterly
fluctuations. In particular, the Company typically increases its operating
expenses in anticipation of the launch of a new drug, and if the new drug does
not generate the levels of sales during the periods anticipated by management,
the Company's results in that and future quarters could be adversely affected.
Quarterly results can also fluctuate as a result of the timing of periodic
adjustments to prices and other terms with the Company's drug suppliers, the
accuracy of estimates of resources required for ongoing programs, the timing and
integration of acquisitions, changes in regulations related to biotechnology
companies, physician prescribing patterns, and general economic conditions, none
of which can be adequately predicted by the Company. Quarterly operating results
also fluctuate as a result of the annual renewal (on a calendar year basis) of
deductible and co-payment requirements, thereby affecting patient ordering
patterns in a manner that creates a seasonal reduction in revenue from existing
drug programs for the Company's third fiscal quarter ending March 31. The
Company believes that quarterly comparisons of its financial results may not
necessarily be meaningful and should not be relied upon as an indication of
future performance. In addition, fluctuations in quarterly results could affect
the market price of the Common Stock in a manner unrelated to the longer term
operating performance of the Company.
THE YEAR 2000 ISSUE
INTRODUCTION. The term "year 2000 issue" is a general term used to describe
the various problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems arise from hardware and software unable
to distinguish dates in the "2000's" from dates in the "1900's" and from other
sources such as the use of special codes and conventions in software that make
use of a date field.
THE COMPANY'S STATE OF READINESS. The Company's efforts in addressing the
year 2000 issue are focused in the following three areas: (i) implementing
procedures to determine whether the Company's software systems and hardware
platforms are year 2000 compliant; (ii) communicating with suppliers and third
party payors to determine whether there will be any interruption in their
systems that could affect the Company's ability to receive timely shipments of
inventory or payment for services as a result of the year 2000 issue; and (iii)
25
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evaluating and making necessary modifications to other systems that contain
imbedded chips, such as phone systems, which process dates and date sensitive
material.
The Company is in the process of obtaining written verification from vendors
to the effect that the Company's software applications and hardware platforms
acquired from such vendors will correctly manipulate dates and date-related data
as the year 2000 is approached and reached. By March 31, 1999, the Company
expects to have completed upgrades on its pharmacy management systems, including
its billing and accounts receivable systems, in order to address the year 2000
issue. Nevertheless, there can be no assurance that the software applications
and hardware platforms on which the Company's business relies will correctly
manipulate dates and date-related data as the year 2000 is approached and
reached. Such failures could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's business relies heavily upon its ability to obtain
pharmaceuticals from a limited number of biotechnology manufactures and from its
ability to obtain reimbursement from third party payors, including Medicare and
Medicaid. The Company is in the process of obtaining written verification from
each of its suppliers, and certain significant third party payors, to determine
whether there will be any interruption in the provision of pharmaceuticals or
receipt of payment resulting from the year 2000 issue. The Company expects to
complete this process by March 31, 1999. At this time HCFA has testified to a
committee of the U.S. House of Representatives that it is far behind in
remedying year 2000 problems. The failure of HCFA or any of the Company's other
significant third party payors to remedy year 2000 related problems could result
in a delay in the Company's receipt of payments for services which could have a
material adverse impact on the Company's business, financial condition and
results of operations. Furthermore, a delay in receiving pharmaceuticals from
certain key biotechnology manufacturers could hinder the Company's ability to
provide services to its customers which could have a material adverse impact on
the Company's business, financial condition and results of operations.
The Company is aware that certain of its systems, such as phone systems,
facsimile machines, heating and air conditioning, security systems and other
non-data processing oriented systems may include imbedded chips which process
dates and date sensitive material. These imbedded chips are both difficult to
identify in all instances and difficult to repair; often, total replacement of
the chips is necessary. The Company intends to perform an evaluation of its
systems to determine whether the Company needs to repair or replace any chips to
avoid year 2000 problems. Failure of the Company to identify or remediate any
embedded chips (either on an individual or an aggregate basis) on which
significant business operations depend, such as phone systems, could have a
material adverse impact on the Company's business, financial condition and
results of operations.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. Based on current
information, the Company has budgeted $100,000 for the cost of repairing,
updating or replacing software and equipment. Because additional funds may be
required as a result of future findings, the Company is not currently able to
estimate the final aggregate cost of addressing the year 2000 issue. The Company
expects to fund the costs of addressing the year 2000 issue from cash flows
resulting from operations and does not expect such costs to have a material
effect on the financial condition of the Company or its results of operations.
RISKS PRESENTED BY YEAR 2000 ISSUES. The Company is still in the process of
evaluating potential disruptions or complications that might result from year
2000 related problems. However, at this time the Company has not identified any
specific business functions that will suffer material disruption as a result of
year 2000 related events. It is possible, however, that the Company may identify
business functions in the future that are specifically at risk of year 2000
disruption. The absence of any such determination at this point represents only
the Company's current status of evaluating potential year 2000 related problems
and facts presently known to the Company, and should not be construed to mean
that there is no risk of year 2000 related disruption. Moreover, due to the
unique and pervasive nature of the year 2000 issue, it is impracticable to
anticipate each of the wide variety of year 2000 events, particularly outside of
the Company, that might arise in a worst case scenario which might have a
material adverse impact on the Company's business, financial condition and
results of operations.
26
<PAGE>
THE COMPANY'S CONTINGENCY PLANS. The Company intends to develop contingency
plans for significant business risks that might result from year 2000 related
events. Since the Company has not identified any specific business function that
will be materially at risk of significant year 2000 related disruptions, and
because a full assessment of the Company's risk from potential year 2000
failures is still in process, the Company has not yet developed detailed
contingency plans specific to year 2000 problems. Development of these
contingency plans is currently scheduled to occur before March 31, 1999 and as
otherwise appropriate.
IMPACT OF INFLATION
Changes in prices charged by the biotechnology drug manufacturers for the
drugs dispensed by the Company, along with increasing labor costs, freight and
supply costs and other overhead expenses, affects the Company's cost of services
and general and administrative expenses. Historically, the Company has been able
to pass all, or a portion, of the effect of such increases to the biotechnology
drug manufacturers pursuant to negotiated adjustments made under its preferred
distribution agreements. As a result, changes due to inflation have not had
significant adverse effects on the Company's operations.
27
<PAGE>
BUSINESS
OVERVIEW
Accredo provides specialized contract pharmacy and related services
beneficial to patients with certain costly, chronic diseases. Because of the
unique needs of these patients, biotechnology drug manufacturers have recognized
the benefits of customized treatment programs to facilitate alternate site drug
administration, ensure compliance with treatment regimens, provide reimbursement
assistance and capture valuable clinical and patient demographic information.
The Company addresses the needs of the manufacturers by providing specialized
services that facilitate product launch and patient acceptance, including timely
drug utilization and patient compliance information, patient education and
monitoring, reimbursement expertise and overnight drug delivery. The Company
believes that its ability to accelerate market penetration and increase revenues
for new biotechnology drugs makes it the partner of choice for drug
manufacturers as evidenced by its preferred relationships with Genzyme, Biogen,
Genentech and Centocor.
The Company has designed its specialty services to focus primarily on
biotechnology drugs that: (i) are used on a recurring basis to treat chronic and
potentially life threatening diseases; (ii) are expensive, with an annual
therapy cost as high as $200,000 per patient; (iii) are administered through
injection; and (iv) require temperature control or other specialized handling as
part of their distribution process. Currently, the Company provides services
that address the needs of patients with the following diseases: Gaucher Disease,
a hereditary liver enzyme deficiency; hemophilia, a hereditary bleeding
disorder; Multiple Sclerosis, a debilitating disease of the central nervous
system; and growth hormone-related disorders. In addition, the Company has
recently entered into an agreement with Centocor to provide its services to
patients with Crohn's Disease, a chronic inflammatory disease affecting the
gastrointestinal tract. These diseases generally require life-long therapy,
except for growth hormone-related disorders which typically require treatment
for six to ten years.
INDUSTRY BACKGROUND
The pace of drug discovery has accelerated in recent years due to
significant advances in disciplines such as molecular biology, genomics and
high-throughput screening. As a result, opportunities to develop therapies for
previously unmet needs are greater than ever before. Biotechnology products
represent the most expensive and rapidly growing part of the new drug pipeline,
with an estimated 240 new biotechnology products in late stage clinical trials
as of mid-1998. Unlike many traditional drugs, these products often possess
specific characteristics which make utilization and compliance increasingly
difficult. They are often composed of unstable proteins which must be taken by
injection and require timely, temperature maintained distribution, dosage
monitoring, and controlled inventory management. In addition, expert
reimbursement management is crucial as a result of the high cost and significant
support services associated with these products.
As a result of increasing competitive pressure to introduce new drugs to
market quickly and the unpredictability of the approval and launch process for
new drugs, many drug manufacturers have sought to preserve often limited
internal resources by outsourcing various stages of product development. This
has included discovery research by outsourcing genomics and screening functions
and clinical development through the utilization of contract research
organizations (CROs) and site management organizations (SMOs). This trend has
also extended beyond development to product commercialization and launch through
the outsourcing of manufacturing, sales and marketing, product detailing,
pharmacy and distribution services and patient support programs.
When addressing chronic diseases, the challenges facing biotechnology drug
manufacturers are often heightened by small patient populations, increased
difficulties in ensuring patient compliance and persistence with treatment
programs, the need to realize a return on investment prior to the expiration of
any patent or orphan drug status exclusivity and the onset of significant
competition. In addition, many traditional distribution channels including
wholesalers, hospitals, pharmacies and pharmacy benefit managers do not want to
maintain an inventory of expensive biotechnology products and lack the
specialized knowledge often needed to manage chronic disease patients. The
Company believes that it is well positioned to take advantage of a large drug
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<PAGE>
development pipeline and is at the forefront of an increasing trend toward
specialized outsourcing by the biotechnology drug industry.
ACCREDO STRATEGY
Accredo's objective is to be the leading provider of specialized contract
pharmacy and related services. Key elements of the Company's strategy include:
EXPAND NUMBER OF CHRONIC DISEASES SERVED. The Company closely monitors
biotechnology drugs in development and seeks to increase the number of chronic
diseases for which it provides its services by developing new relationships with
additional manufacturers and leveraging its existing relationships to include
new drugs and new FDA indications for existing drugs. For example, the Company
has recently established a new preferred relationship with Centocor in which the
Company will provide its specialized services with respect to Remicade-TM- for
use in treating patients with Crohn's Disease.
LEVERAGE EXPERTISE TO EXPAND SERVICE OFFERINGS. The Company continually
seeks to develop new or complementary services that meet the specialized needs
of biotechnology drug manufacturers and the patients who use their products. The
Company believes that it is uniquely positioned to identify these needs and
develop customized solutions through its close relationships with leading drug
manufacturers. For example, the Company recently implemented a referral triage
service to provide a convenient single source for prescribing physicians and
help manufacturers increase market penetration. The Company believes that
biotechnology drug manufacturers will increasingly recognize the benefits of
outsourcing product development, launch and specialized pharmacy services as the
biotechnology market matures and competition increases.
ESTABLISH ADDITIONAL RELATIONSHIPS WITH MEDICAL CENTERS. The Company
intends to pursue additional strategic relationships with medical centers
through joint ventures and management contracts. Many of the Company's patient
populations have diseases that are discovered before or during adolescence and
require on-going care from physician specialists, who are often based at
pediatric, academic or other acute care medical centers. By establishing
strategic relationships with these centers, the Company believes it can obtain
access to a large number of patients and introduce them to the Company's
specialized services during the initial stages of their treatment program.
INCREASE NUMBER OF PAYOR CONTRACTS. The Company intends to pursue contracts
with additional payors, including managed care companies and employers, in order
to access and provide services to a greater number of patients. Because most
third party payor beneficiaries are restricted to using pharmacy providers
included in their plan's panel of providers, the Company is eligible to receive
reimbursement only for services provided to patients who are enrolled in plans
with which the Company maintains provider contracts. The Company maintains a
dedicated team of sales and marketing personnel that work exclusively on
pursuing additional payor relationships and has a variety of payor education
programs aimed at increasing awareness of the Company's specialized services
among private payors.
PURSUE ACQUISITIONS OF SIMILAR OR COMPLEMENTARY BUSINESSES. The Company
intends to pursue acquisitions that offer attractive growth opportunities and
that involve businesses that are similar to or that complement the Company's
present operations. For example, in June 1997 the Company significantly expanded
the scope of its hemophilia operations with the acquisition of HHS in Nashville,
Tennessee.
SERVICES
The Company believes that its specialized services make it the partner of
choice for manufacturers of biotechnology drugs used in treating certain costly,
chronic diseases and the provider of choice for patients with these diseases.
These services include specialized contract pharmacy, clinical, reimbursement
and delivery services.
29
<PAGE>
CONTRACT PHARMACY SERVICES. The Company offers customized services to
biotechnology drug manufacturers designed to meet specific needs that arise at
various stages in the life cycles of their products. During the pre-launch stage
of product development, the Company provides consulting services related to
strategic pricing decisions and the impact those decisions may have on private
insurance and Medicaid and Medicare reimbursement policies. The Company also
offers analyses and information to assist manufacturers in evaluating payor mix
and pricing strategies for their new drugs. The Company will test a
manufacturer's packaging to assess maintenance of product temperatures and to
determine whether the packaging system will maintain product integrity during
normal shipping conditions. In addition, the Company offers advice on ancillary
injection and infusion supplies and assists in procuring supplies and customized
packaging for infusion supply kits. The Company provides clinical protocols that
assist nurses and caregivers in learning how to safely and effectively
administer a drug, including aseptic techniques, supplies needed and infusion
time required. The Company also has extensive experience with patient assistance
programs for uninsured or underinsured patients and offers consulting services
that assist manufacturers in determining appropriate admission criteria for such
programs.
Following product launch, the Company offers: (i) clinical hotlines that
allow the physician or patient caregiver to inquire about product usage, adverse
drug reactions and other clinical questions; (ii) reimbursement hotlines for
patients and health care professionals; (iii) support for manufacturers' patient
assistance programs for patients without the financial ability to otherwise
acquire needed drugs and services; (iv) replacement drug and supply programs
that replenish patients' inventory of products or supplies that become damaged;
(v) home care coordination programs that provide patient assistance in training,
the identification of home care providers and the transfer of clinical
information to all caregivers; and (vi) triage services that refer patients to
the appropriate provider based on the patients' insurance provider network.
Results of the Company's interaction with patients are coded and tracked to
compile valuable information, including side effects, drug interactions,
administration problems, supply issues, changes to new products, and reasons for
therapy discontinuation and non-compliance. The Company will also report on
adverse drug reactions, log the occurrence, and complete an initial preliminary
report of the occurrence to assist manufacturers in completing adverse event
reports in a timely manner. The Company can also create a wide variety of
additional reports that can be custom tailored to meet specific manufacturers'
needs. Examples of reports include sales by physician, sales by zip code, sales
trending, first time patient orders, Medicaid and Medicare sales, inventory
status and reasons for patient discontinuations. Due to the nature of the data
it collects, the Company has established procedures designed to ensure
compliance with laws regarding confidentiality of patient information.
CLINICAL SERVICES. At the initiation of service, the Company works with the
patient and the patient's physician to implement the prescribed plan of care.
Each patient is assigned to a team consisting of a pharmacist, a customer
service representative and a reimbursement specialist. Generally, each patient's
team members specialize only in that patient's disease and work only with payors
and providers in that patient's geographic region. In order to assist patients
with their complicated treatment program, the Company provides clinical
consultation and education regarding the patient's disease and treatment
program, helps patients set realistic expectations for their drug therapy, helps
coordinate backup care in the event of an acute episode, provides current
information on advances in technology and treatment regimens, coordinates
medication during travel and helps patients establish an inventory management
and record keeping system. Due to their limited stability, the drugs currently
handled by the Company are not mixed or reconstituted prior to shipment.
Accordingly, the Company does not mix or reconstitute any pharmaceuticals. This
makes the Company's patient education services particularly important for
patients just beginning drug therapy because they generally must learn to
reconstitute and administer products themselves. The Company maintains frequent
communication with patients to monitor and encourage compliance with the
prescribed plan of care and persistence in staying on therapy for the entire
course of treatment. The Company also helps patients understand their medication
and manage the potential side effects and adverse reactions that can occur so
that patients are less likely to discontinue therapy. In addition, the Company
assists patients and their families in coping with a variety of difficult social
and emotional challenges presented by their disease, participates in national,
state and local patient advocacy organizations, assists in the formation of
patient support groups, advocates legislation to advance specific patient
interests and publishes newsletters containing information relevant to its
patients.
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REIMBURSEMENT SERVICES. By focusing on specific chronic diseases, the
Company has developed significant expertise in managing reimbursement issues
related to the patient's condition and treatment program. Due to the long
duration and high cost of therapy generally required to treat chronic disorders,
the availability of adequate health insurance is a continual concern for
chronically ill patients and their families. Generally, the Company contacts the
payor prior to each shipment to determine the patient's health plan coverage and
the portion of costs that the payor will reimburse. The Company's reimbursement
specialists review such issues as pre-certification or other prior approval
requirements, lifetime limits, pre-existing condition clauses and the
availability of special state programs. By identifying coverage limitations as
part of its initial consultation, the Company can assist the patient in planning
for alternate coverage, if necessary. From time to time, the Company negotiates
with payors to facilitate or expand coverage for the chronic diseases served by
the Company. In addition, the Company accepts assignment of benefits from
numerous payors, which substantially eliminates the claims submission process
for many patients.
DELIVERY SERVICES. The Company provides timely delivery of drugs and
ancillary supplies directly to the patient in packaging specially designed to
maintain appropriate temperatures and which typically contains all of the
supplies required for reconstitution and administration in the patient's home or
in other alternate sites. Substantially all products are shipped from the
Company's two primary pharmacy locations in Memphis and Nashville, Tennessee.
The Company also maintains satellite pharmacy locations in Dallas-Ft. Worth,
Texas and Birmingham, Alabama. The Company ships its products via FedEx and
believes that its proximity to FedEx's principal "hub" location in Memphis
provides the Company with a competitive advantage in meeting the time-sensitive
needs of its patients.
DISEASE MARKETS AND MANUFACTURER RELATIONSHIPS
Generally, as part of the Company's preferred relationships, the
biotechnology drug manufacturers: (i) undertake promotional and marketing
efforts to generate prescriptions for their products, including direct marketing
to physicians and clinics, and then recommend the Company's services; (ii)
provide customized pricing that reflects the scope of services provided by the
Company; and (iii) review and adjust pricing periodically based on fluctuating
market conditions and changes in desired services. Currently, the Company
provides its specialty services with respect to the following diseases:
GAUCHER DISEASE. Type I Gaucher Disease is the most common form of Gaucher
Disease, affecting about 90% of all Gaucher patients. Type I Gaucher Disease is
a seriously debilitating, sometimes fatal, genetic disorder caused by a
deficiency of an important enzyme in the body called glucocerebrosidase ("GCR").
This deficiency results in the accumulation of the glucocerebroside lipid in the
cells of organs in the body. The disease is characterized by an enlarged liver
or spleen, anemia, bleeding problems, fatigue, bone and joint pain and other
orthopedic complications such as repeated fractures and bone erosion. Genzyme's
Ceredase-Registered Trademark- and Cerezyme-Registered Trademark- products are
the only FDA approved products used for treating Gaucher Disease.
The Company (including former affiliates) has had a preferred relationship
with Genzyme relating to Ceredase-Registered Trademark- since its commercial
launch in 1994 and relating to Cerezyme-Registered Trademark- since its
commercial launch in 1994. Ceredase-Registered Trademark- is a modified form of
human GCR in which glycoprotein remodeling technology has been used to target
GCR to the cells where the lipid accumulation occurs.
Cerezyme-Registered Trademark- is a recombinant form of GCR which has been
remodeled in a similar manner. Ceredase-Registered Trademark- and
Cerezyme-Registered Trademark- are generally administered by intravenous
infusion. Dosing frequencies vary, but a typical dosing regimen involves
administration once every two weeks. The annual revenue to the Company during
its 1998 fiscal year from patients receiving this therapy was predominantly
within the range of $150,000 to $200,000 per patient depending on a patient's
weight, stage in the therapy cycle and severity of condition. As part of its
preferred relationship with Genzyme, the Company and Genzyme have entered into
two agreements (the "Genzyme Agreements"), pursuant to which the Company
dispenses Ceredase-Registered Trademark- and Cerezyme-Registered Trademark- in
the United States and pursuant to which the Company provides various information
and other services to Genzyme. The pricing of Ceredase-Registered Trademark- and
Cerezyme-Registered Trademark- under the Genzyme Agreements, as well as the
scope and pricing of services provided by the Company under such agreements, are
subject to periodic adjustment. The Genzyme Agreements automatically renew on an
annual basis unless either
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party provides 90 days prior notice of non-renewal, and are terminable by either
party for any reason with 60 days prior notice. In addition, the Genzyme
Agreements provide that during the term of the agreements and for a period of
five years after termination, the Company may not sell any prescription drug for
the treatment of Gaucher Disease other than Ceredase-Registered Trademark- and
Cerezyme-Registered Trademark-. The Company does not have exclusive rights to
sell Ceredase-Registered Trademark- or Cerezyme-Registered Trademark-, and
Genzyme has reserved the right under the Genzyme Agreements to sell these
products directly or to appoint other distributors of these products.
HEMOPHILIA. Hemophilia is an inherited, genetic, lifelong bleeding disorder
caused by the absence or inactivity of an essential blood clotting protein or
"factor." Two major disease categories exist, hemophilia A, or Factor VIII
deficiency, and hemophilia B, or Factor IX deficiency. Hemophilia occurs almost
exclusively in males and severe cases are often diagnosed at birth or early
childhood. It is estimated that there are approximately 17,000 people with
hemophilia in the United States, and presently there is no known cure.
Individuals with hemophilia are susceptible to bleeding episodes which can occur
spontaneously or as a result of physical activity or trauma. While small surface
cuts can usually be treated with a pressure bandage, the most frequent
complication of hemophilia is internal bleeding into muscles and joints which
can cause arthritis and debilitating orthopedic problems. More serious
complications include internal bleeding in the head, neck, spinal cord or
internal organs which can cause death.
Hemophilia is generally treated by infusing anti-hemophilic factor
concentrates intravenously when the symptoms of a bleed are detected. Products
are dispensed as freeze-dried factor concentrates which are reconstituted with
sterile water prior to use and dosage is determined by the patient's weight.
This therapy is generally administered by the patient or his or her family
members, without the assistance of a nurse, in response to bleeding episodes.
Approximately 60% of the persons with hemophilia in the United States have a
severe form of the disorder as measured by the level of factor naturally present
in the body. In general, the more severe the factor deficiency, the more
frequently the bleeding episodes may occur. On average, someone with severe
hemophilia will need to infuse factor weekly. In many individuals with severe
hemophilia, factor therapy is administered prophylactically to maintain high
enough circulating factor levels to minimize the risk of bleeding. The annual
revenue to the Company during its 1998 fiscal year from patients receiving this
therapy generally ranged from $50,000 to $100,000 per patient depending on a
patient's weight, severity of condition and the presence of complications such
as inhibitors.
Today, with proper treatment, people with hemophilia can live relatively
long and healthy lives. However, in the recent past, many patients contracted
hepatitis or human immunodeficiency virus ("HIV") as a result of contaminated
plasma derivative therapies they received prior to the mid-1980's. Since then,
manufacturers of plasma-derived products have used advanced screening procedures
and viral inactivation methods. While such procedures and methods have
significantly reduced, if not eliminated, the risk of transmission of hepatitis
and HIV in current plasma-derived factor products, it is estimated that
approximately one-half of the hemophilia population who received anti-hemophilic
factor prior to the mid-1980's was exposed to HIV and is at risk of developing
acquired immune deficiency syndrome ("AIDS"). The Company offers medications
used in treating AIDS as a convenience to its hemophilia patients that have
contracted the HIV virus. In the early 1990's, recombinant clotting factor, a
biotechnological alternative to plasma-derived factor, was introduced and to
date has proved to be as effective as the plasma-derived products with virtually
no risk of viral transmission. Current utilization reflects increased use of
recombinant and monoclonal products by physicians because of the advantages of
increased purity. Issues related to the development of inhibitors, or antibodies
to the infused factor products, may influence future utilization of these
products.
As one of the largest purchasers of clotting factor in the United States,
the Company has supply contracts with all major suppliers of factor in order to
maintain availability of adequate quantities of factor products and competitive
pricing. There are currently six major suppliers of FDA approved products used
for treating hemophilia. The Company purchases Kogenate-Registered Trademark-
from Bayer Corporation and Recombinate-Registered Trademark- from Baxter
Healthcare Corporation in the largest quantities, but no supplier is responsible
for a majority of the Company's hemophilia product purchases. In addition, the
Company purchases factor products from Alpha Therapeutic Corporation, Centeon
LLC, Genetics Institute, Inc. and the American Red Cross.
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MULTIPLE SCLEROSIS. Multiple Sclerosis is a debilitating neurological
disease of the central nervous system that is characterized by episodic symptoms
followed by fixed neurologic deficits, increasing disability and physical
decline over a period of 30 to 40 years. The disease is believed to be caused by
the destruction of myelin sheaths by the body's own immune system. Myelin is the
fatty tissue that surrounds and protects the nerve fibers of the central nervous
system and facilitates the flow of nerve impulses to and from the brain. The
loss of myelin disrupts the conduction of nerve impulses, producing the symptoms
of Multiple Sclerosis including vision loss, incontinence, short-term memory
loss, fatigue, slurred speech, poor coordination, loss of balance, depression
and partial or complete paralysis. It is estimated that Multiple Sclerosis
affects between 250,000 and 350,000 people in the United States, approximately
two-thirds of whom are women. Ninety-five percent of the patients are caucasian
and the disease is more prevalent in the northern latitudes with the highest
rates in the Midwest and Northeast areas of the United States. The geography
risk for Multiple Sclerosis appears to be associated with where an individual
lived their first fifteen years of life. Disease onset typically occurs in young
adults between the ages of 20 and 40. Of the patients diagnosed with Multiple
Sclerosis in the United States, about 90% of patients initially have relapsing
Multiple Sclerosis and about half of those patients go on to develop a
progressive form of the disease. About 10% of patients exhibit a progressive
form of the disease at onset. There are currently three FDA approved products
used for treating relapsing Multiple Sclerosis: Avonex-Registered Trademark-,
which is manufactured by Biogen; Betaseron-Registered Trademark-, which is
manufactured by Chiron Corporation; and Copaxone-Registered Trademark-, which is
manufactured by Teva Pharmaceutical Industries Limited. Biogen's
Avonex-Registered Trademark- product is the only FDA approved product shown to
slow the accumulation of disability in patients with relapsing forms of Multiple
Sclerosis and, as a result, Avonex-Registered Trademark- is used by a majority
of such patients in the United States currently on drug therapy. The annual
revenue to the Company during its 1998 fiscal year from patients receiving this
therapy generally ranged from $10,000 to $11,000 per patient.
The Company has had a preferred relationship with Biogen relating to
Avonex-Registered Trademark- since its commercial launch in 1996.
Avonex-Registered Trademark-, is a recombinant form of a protein produced by
fibroblast cells in response to viral infection. Avonex-Registered Trademark- is
generally administered via a single intramuscular injection once per week. As
part of its preferred relationship with Biogen, the Company and Biogen have
entered into an agreement (the "Biogen Agreement"), pursuant to which the
Company dispenses Avonex-Registered Trademark- and pursuant to which the Company
provides various services and information to Biogen. The scope of services
provided by the Company to Biogen has increased over the course of the Company's
relationship with the manufacturer as the Company has worked with Biogen to
further develop customized service offerings. The pricing of
Avonex-Registered Trademark- under the Biogen Agreement, as well as the scope
and pricing of services provided by the Company under such agreement, are
subject to periodic adjustment. The Biogen Agreement has an initial term of
three years ending May 1999 and is terminable by either party for any reason
with 90 days prior notice. In addition, the Biogen Agreement provides that as
long as the Company is the only preferred home delivery service provider
approved by Biogen (other than providers to Medicaid patients in certain
states), the Company may not without Biogen's approval sell any products that
compete with Avonex-Registered Trademark- for the treatment of Multiple
Sclerosis. The Company does not have any exclusive rights to sell
Avonex-Registered Trademark-, and Biogen has reserved the right under the Biogen
Agreement to sell Avonex-Registered Trademark- directly or to appoint other
providers of home delivery pharmacy services for Avonex-Registered Trademark-,
but such action would eliminate the Company's exclusivity obligations.
GROWTH HORMONE-RELATED DISORDERS. While growth delay in children may be
caused by a number of factors, including malnutrition, systemic illness,
psychosocial stress or endocrine deficiency, a major treatable cause of growth
delay is growth hormone deficiency. Growth hormone deficiency may result from
damage to or malfunction of the hypothalamus or pituitary gland. Growth hormone
has been used in a variety of conditions associated with short stature,
including growth retardation due to renal insufficiency and Turner's syndrome,
but the major indication for growth hormone therapy is growth hormone
deficiency. It is estimated that there are approximately 20,000 patients in the
United States who are candidates for growth hormone therapy. The use of growth
hormone to treat disorders caused by growth hormone deficiency has been
commercially available since 1985 and, therefore, the market for growth hormone
products is relatively mature. The annual revenue to the Company during its 1998
fiscal year from patients receiving this therapy generally ranged from $15,000
to $25,000 per patient depending on a patient's weight and severity of
condition. Currently, five manufacturers sell
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nine FDA-approved growth hormone products for a variety of indications. However,
a majority of patients currently being treated with growth hormone products use
one of Genentech's growth hormone products, Protropin-Registered Trademark-,
Nutropin-Registered Trademark- or Nutropin AQ-Registered Trademark-.
The Company has purchasing relationships with all five manufacturers of
growth hormone products used in the United States, including a preferred
relationship with Genentech that dates back (through former affiliates of the
Company) to the launch of Genentech's original growth hormone product,
Protropin-Registered Trademark-, in 1985. Growth hormone products are
administered by injection several times per week, and in some cases daily.
Typically, patients or family members are trained to administer the medication
at home without the presence of a nurse. As part of its preferred relationship
with Genentech, the Company and Genentech have entered into a distribution
agreement (the "Genentech Agreement"), pursuant to which the Company dispenses
Genentech's human growth hormone products, Protropin-Registered Trademark-,
Nutropin-Registered Trademark- and Nutropin AQ-Registered Trademark-, in the
United States and pursuant to which the Company provides various information and
other services to Genentech. The pricing of Protropin-Registered Trademark-,
Nutropin-Registered Trademark- and Nutropin AQ-Registered Trademark- under the
Genentech Agreement, as well as the scope and pricing of the services provided
by the Company under such agreement, are subject to periodic adjustment. The
Genentech Agreement has an initial term expiring on December 31, 1999, unless
extended by mutual agreement, and may only be terminated by either party for
cause following a 60-day right to cure or in the event of bankruptcy, insolvency
or similar events affecting the other party. In addition, the Genentech
Agreement provides that during the term of the agreement, the Company can
(subject to certain conditions) sell human growth hormone products other than
Protropin-Registered Trademark-, Nutropin-Registered Trademark- and Nutropin
AQ-Registered Trademark-. The Company does not have any exclusive rights to
distribute Protropin-Registered Trademark-, Nutropin-Registered Trademark- and
Nutropin AQ-Registered Trademark-.
CROHN'S DISEASE. Crohn's Disease is a chronic and debilitating disorder
involving inflammation of the gastrointestinal tract. Symptoms include abdominal
pain, diarrhea, fever, general fatigue and weight loss. Some patients develop
draining fistulae. Remicade-TM-, a drug developed by Centocor, has recently been
approved by the FDA for commercialization for the treatment of moderately to
severely active Crohn's Disease for the reduction of its signs and symptoms in
patients who have an inadequate response to conventional therapy. It has also
been approved as a treatment for patients with fistulizing Crohn's Disease for
reduction in the number of draining fistulae. It is believed that Remicade-TM-
reduces intestinal inflammation in patients with Crohn's Disease by binding to
and neutralizing TNF-A on the cell membrane and in the blood and by destroying
TNF-A producing cells. TNF-A is a key biologic response mediator implicated in
the inflammation process.
Crohn's Disease is estimated to affect approximately 400,000 patients in the
United States, of which as many as 140,000 patients have moderate to severe
Crohn's Disease. Of those with moderate to severe Crohn's Disease, more than
40,000 suffer from fistulizing disease.
The Company has recently established a preferred relationship with Centocor
relating to Remicade.-TM- Under an agreement between the Company and Centocor
(the "Centocor Agreement"), the Company will dispense Remicade-TM- and will
provide various information and other services to Centocor. The pricing of
Remicade-TM- under the Centocor Agreement, as well as the scope and pricing of
the services provided by the Company under such agreement, are subject to
periodic adjustment. The Centocor Agreement also contemplates extending the
Company's relationship with Centocor to an additional indication for
Remicade-TM- if the additional indication receives all required approvals. This
additional indication is currently in Phase III clinical trials. The Centocor
Agreement has an initial term of three years ending August 2001, with a renewal
provision, and it is terminable by either party for any reason with 90 days
prior notice. In addition, the Centocor Agreement provides that during the term
of the agreement and for a period of 90 days after termination of the agreement,
the Company may not sell any other company's treatment for inflammatory bowel
disease or any other indication for which the FDA has approved the use of
Remicade-TM-. The Company does not have any exclusive rights to sell
Remicade-TM-, and Centocor has reserved the right under the Centocor Agreement
to sell Remicade-TM- directly or to appoint distributors or other providers of
pharmacy services for Remicade-TM-. Centocor's decision to appoint other
providers of pharmacy services would eliminate the Company's exclusivity
obligations.
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BUSINESS DEVELOPMENT
The Company has 23 full time sales and marketing personnel who sell the
Company's therapies and services to physicians, patients and private payors. The
Company also creates special direct marketing programs to potential referral
sources who specialize in care and support of patients with chronic disorders.
The Company's sales and support personnel also work closely with each of the
referral sources with the goal of addressing the clinical and reimbursement
needs of their patients. The Company assists in clinical studies, professional
training seminars, distribution of patient support material, development of
patient support groups, and other programs designed to assist patients, payors,
manufacturers and physicians in enhancing the quality of care and quality of
life for patients and their families.
The Company continually seeks to obtain contracts with additional payors,
including managed care companies and employers, in order to access and provide
services for a greater number of patients. Because most third party payor
beneficiaries are restricted to using pharmacy providers included in their
payor's provider panel, the Company is eligible to receive reimbursement only
for services provided to patients covered by payors with whom the Company
maintains provider contracts. The Company maintains a dedicated team of sales
and marketing personnel that work exclusively on pursuing additional payor
relationships and has a variety of payor education programs aimed at increasing
awareness of the Company's specialized services among private payors.
In addition, the Company has a full time director of business development
whose responsibilities include tracking biotechnology drugs in development,
determining whether these drugs meet the Company's service criteria and are a
strategic fit for the Company, introducing the Company's services to the
manufacturers of these drugs and assisting in the development of customized
services for these manufacturers. There were an estimated 240 biotechnology
drugs in late stage development as of mid-1998. The Company targets
biotechnology drug manufacturers that have a need to outsource specialized
contract pharmacy and related services to an experienced provider of such
services rather than develop the capabilities internally.
SUPPLIERS
Substantially all of the biotechnology drugs sold by the Company, other than
clotting factor products, are available only from single sources: Genzyme, with
respect to Ceredase-Registered Trademark- and Cerezyme-Registered Trademark-;
Biogen, with respect to Avonex-Registered Trademark-; Genentech, with respect to
Protropin-Registered Trademark-, Nutropin-Registered Trademark- and Nutropin
AQ-Registered Trademark-; and Centocor, with respect to Remicade-TM-. Although
there are four other manufacturers of FDA approved growth hormone products,
Genentech's products collectively enjoy a market share that exceeds the
aggregate of all other individual manufacturers of growth hormone products.
Accordingly, in the event that one or more of its current suppliers of products
(other than hemophilia products) were to cease selling products to the Company,
the Company's business, financial condition and results of operations would be
materially and adversely affected. Approximately 14% and 23% of the Company's
total revenues in the fiscal years ended June 30, 1997 and 1998, respectively,
were derived from sales of Avonex-Registered Trademark- and related services. In
addition, approximately 64% and 46% of the Company's total revenues in the
fiscal years ended June 30, 1997 and 1998, respectively, were derived from sales
of Ceredase-Registered Trademark- and Cerezyme-Registered Trademark- and related
services. The Company has supply contracts with all five major suppliers of
clotting factor in the United States, and no supplier is responsible for a
majority of the Company's hemophilia product purchases.
The Company's agreements with its key suppliers (including Genzyme, Biogen,
Genentech and Centocor) generally may be canceled by either party, without
cause, upon between 60 and 90 days prior notice. Furthermore, the Company and
its suppliers periodically adjust the acquisition cost and other terms for the
drugs and related supplies covered by such contracts. In addition, the Company's
agreements with its suppliers generally provide that during the term of the
agreements (and in certain instances for as much as five years after termination
of the agreements), the Company may not distribute any competing products. The
Company does not have any exclusive rights to distribute its products, and its
suppliers have generally reserved the right under their agreements with the
Company to distribute their products directly or to appoint other distributors
of their
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products. See "Risk Factors--Dependence on Relationships with Limited Number of
Biotechnology Drug Manufacturers" and "Business--Disease Markets and
Manufacturer Relationships."
STRATEGIC RELATIONSHIPS WITH MEDICAL CENTERS
Many of the patients served by the Company have diseases that are discovered
before or during adolescence and require on-going care from specialist
physicians, who are often based at pediatric, academic or other acute care
medical centers. In order for the Company to obtain access to additional
patients and introduce them to the Company's specialized services during the
initial stages of their treatment program, the Company seeks to establish
strategic relationships, including joint ventures and management contracts, with
such medical centers.
The Company currently has joint ventures with four medical centers (or their
affiliates): Zale Lipshy
University Hospital located in Dallas, Texas; Alternative Care Systems, Inc.
located in Dallas, Texas; Cook Childrens Medical Center located in Ft. Worth,
Texas; and Children's Memorial Hospital located in Chicago, Illinois. In the
typical joint venture arrangement, the Company and a medical center (or its
affiliate) form a joint venture entity that then enters into a management
agreement with the Company to obtain specialized contract pharmacy services.
Under the terms of the joint venture agreement, the Company manages the sales,
marketing and provision of specialty pharmacy services in exchange for a monthly
management fee and the reimbursement of certain expenses. Generally, the Company
and the medical center share in the profits and losses of the joint venture
entity in proportion to their respective capital contributions. The agreements
generally have initial terms of between one and five years and contain certain
restrictive covenants and rights of first refusal.
In addition to joint venture relationships, the Company has entered into
management agreements with medical centers (or their affiliates) to provide
specialized contract pharmacy services. The Company currently has contract
management relationships with four medical centers (or their affiliates):
Egleston Children's Hospital at Emory University located in Atlanta, Georgia;
duPont Hospital for Children located in Wilmington, Delaware; Children's
National Medical Center located in Washington D.C.; and Childrens Hospital of
Los Angeles located in Los Angeles, California. Pursuant to these management
agreements, the Company provides goods and services used in the medical center's
specialized pharmacy business, including drugs and related supplies, patient
education, clinical consultation and certain reimbursement services. While the
payment terms under such management agreements vary, the Company is generally
reimbursed for its costs and is paid a monthly management fee from the sale of
those products and services. These agreements usually have terms of between one
and five years and are terminable by either party, with or without cause, with
between one and twelve months prior notice. See "Risk Factors--Dependence on
Medical Center Relationships."
PAYORS
The following are the approximate percentages of the Company's gross patient
service revenue attributable to various payor categories for the fiscal year
ended June 30, 1998:
<TABLE>
<S> <C>
Private payors (including self pay)(1)................................ 80%
Medicaid and other state programs..................................... 17%
Medicare and other federal programs................................... 3%
--
Total............................................................. 100%
--
--
</TABLE>
- ------------------------------
(1) Includes sales to private physician practices, whose ultimate payor is
typically Medicare, which accounted for approximately 7% of gross patient
service revenue for fiscal 1998.
The Company typically agrees to furnish drugs and services to substantially
all patients recommended to the Company by its referral sources. The Company
believes this approach is important to maintain the confidence, support, and
loyalty of referral sources. The Company acts on behalf of the patients it
serves to assist them in obtaining reimbursement from third-party payors,
including managed care companies. Generally, the Company contacts third-party
payors before the commencement of services or delivery of product in order to
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determine the patient's coverage and the percentage of costs that the payor will
cover. The Company's reimbursement staff reviews issues such as lifetime limits,
pre-existing condition clauses, the availability of special state programs, and
other reimbursement-related matters. The Company often will negotiate with
third-party payors on the patient's behalf to obtain or extend coverage. The
Company typically obtains assignment of benefits from patients that enable it to
file claims for its services and be paid directly for the covered amounts of its
charges. Due to the high cost of the products distributed by the Company and the
complexity of payor systems, claims often cannot be submitted electronically,
which increases labor costs associated with obtaining reimbursement. As with
most health care providers, the Company can experience lengthly collection
periods as a result of third party payment systems and, consequently, management
of accounts receivable through patient registration, billing, collection and
reinbursement procedures is critical to the Company.
The primary trend in the United States health care industry is toward cost
containment. The increasing prevalence of managed care, centralized purchasing
decisions, consolidation among and integration of health care providers and
competition for patients has and continues to affect pricing, purchasing and
usage patterns in health care. Decisions regarding the use of a particular drug
treatment are increasingly influenced by large private payors, including managed
care organizations, pharmacy benefit managers, group purchasing organizations,
regional integrated delivery systems and similar organizations and are becoming
more economically focused, with decisions taking into account product cost and
whether a product reduces the cost of treatment. Efforts by payors to eliminate,
contain or reduce costs through coverage exclusions, lower reimbursement rates,
greater claims scrutiny, closed provider panels, restrictions on required
formularies, claim delays or denials and other similar measures could adversely
affect the Company's revenues, profitability and cash flow. Certain payors set
lifetime limits on the amount reimbursable to patients for medical costs.
Certain of the Company's patients may reach these limits because of the high
cost of their medical treatment and associated pharmaceutical regimens. To date,
the Company has not had significant experience with patients reaching lifetime
limits. Certain payors may attempt to further control costs by selecting certain
firms to be their exclusive providers of pharmaceutical or other medical product
benefits. If any such arrangements were with the Company's competitors, the
Company would be unable to be reimbursed for purchases made by such patients.
The Company derives a significant portion of its revenue from governmental
programs such as Medicare and Medicaid. Such programs are highly regulated and
subject to frequent and substantial changes and cost containment measures. In
recent years, changes in these programs have limited and reduced reimbursement
to providers and Congress recently enacted the Balanced Budget Act of 1997
(which establishes a plan to balance the federal budget by fiscal year 2002)
that includes significant additional reductions in spending levels for these
programs. This legislation also replaced and relaxed the federal Medicaid
payment standard thereby increasing state discretion over administration of
Medicaid programs. Furthermore, federal and state proposals are pending that
would impose further limitations on governmental payments and that would
increase patient co-payments and deductibles. Additionally, a number of states
are considering legislation designed to reduce their Medicaid expenditures and
provide universal coverage and additional care for certain populations,
including proposals to impose additional taxes on providers to help finance or
expand such programs. Any of these changes could result in significant
reductions in payment levels for drugs handled and services provided by the
Company, which would have a material adverse affect on the Company's business,
financial condition and results of operations. In addition, the Company may be
required to maintain a licensed pharmacy in certain states in order to qualify
for reimbursement under state administered reimbursement plans. See "Risk
Factors--Dependence on Payors and Reimbursement Risks."
Certain of the medical centers with which the Company has a joint venture or
management relationship have hemophilia treatment centers ("HTC") that are
eligible to purchase factor from manufacturers at a discount pursuant to a
provision of the Public Health Service Act as enacted by the Veteran's Health
Care Act of 1992 ("PHS Pricing"). Manufacturers that sell outpatient drugs to
eligible entities sign an agreement with DHHS under which they agree to not
charge a price for covered outpatient drugs in excess of a statutorily set
amount. The Company does not directly own or operate an HTC that is eligible for
PHS Pricing, which may place it at a competitive disadvantage as a provider of
factor, except in the limited circumstances where its affiliated medical
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centers are eligible for PHS Pricing. Under DHHS contract pharmacy guidelines,
an eligible HTC may obtain factor at PHS Pricing, and dispense it to patients of
the HTC through a contract pharmacy. However, eligible centers which fail to
comply with the contract pharmacy guidelines, or divert PHS Pricing factor to
non-patients of the HTC in violation of DHHS guidelines, may incur civil
penalties, or liability to drug manufacturers for the amount of discount
provided.
COMPETITION
The specialty pharmacy services industry is highly competitive and is
experiencing both horizontal and vertical consolidation. The industry is
fragmented, with many public and private companies focusing on different product
or customer niches. Some of the Company's current and potential competitors
include specialty pharmacy divisions of national wholesale drug distributors;
specialty pharmacy distributors, such as Caremark Therapeutic Services (a
subsidiary of MedPartners, Inc.) and Olsten Corporation; pharmacy benefit
management companies; hospital-based pharmacies; retail pharmacies; home
infusion therapy companies; certain manufacturers that sell their products both
to distributors and directly to users, including clinics and physician offices;
and hospital-based comprehensive hemophilia care centers and other alternate
site health care providers. Some of the Company's competitors have greater
financial, technical, marketing and managerial resources than the Company.
While competition is often based primarily on price and quality of care and
service, it can also be affected by the ability to develop and maintain
relationships with patients and referral sources, depth of product line,
technical support systems, specific patient requirements and reputation. There
can be no assurance that competitive pressures will not have a material adverse
effect on the Company's business, financial condition and results of operations.
Through federal legislation such as the Social Security Act, as amended, the
Veterans Health Care Act of 1992, and the Public Health Services Act, and the
rules and regulations thereunder, manufacturers of certain types of outpatient
drugs, including clotting factor, are required to provide price discounts for
such drugs to various types of federally funded hemophilia treatment centers,
which is a competitive advantage to such providers not available to the Company.
COMPLIANCE PROGRAM
The Company adopted a new corporate compliance program, entitled "Code of
Ethics and Business Conduct," in February 1998 (the "Compliance Program"). Upon
accepting a job with the Company, employees receive a written copy of the
Compliance Program and are asked to read the document prior to their first day
of employment. A training session is conducted during new employee orientation
and all employees are required to sign a written acknowledgment that he or she
has read and understands the Compliance Program and will adhere to the standards
set forth therein. The Company has a corporate compliance officer and a
compliance committee with representation from each operating subsidiary. The
compliance officer is responsible for administering the program, which includes
training, internal audits and reviews, and responding to reported issues with
the assistance of the compliance committee. Employees are encouraged to ask
questions or reveal potential compliance issues to either their supervisor or
their compliance committee member or via a toll free hotline number. These calls
can be made anonymously, if so desired. Employees also receive corporate
compliance training twice a year with respect to potential compliance issues.
Issues that are reported to the committee will normally be handled at the
committee level unless the compliance officer believes that the Company's Board
of Directors should be involved. At least once a year, the corporate compliance
officer will meet with or submit a written report to the Company's Board of
Directors. While there is not a standing compliance committee of the Board of
Directors, an outside director, Kenneth R. Masterson, has been designated as a
liaison from whom the compliance officer may seek advice.
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<PAGE>
GOVERNMENT REGULATION
The conduct of marketing, selling and purchasing drugs and medical supplies
by and among manufacturers, distributors, health care providers and patients is
extensively regulated and periodically scrutinized by state and federal
governments for compliance with laws and regulations regarding, among other
things, inducements for referrals, prohibited financial relationships with
physicians, joint venture and management arrangements, product discounts,
incentives to patients and professional licensure. This regulatory framework is
complex and the laws are very broad in scope, subject to differing
interpretations and lack substantive court decisions addressing many
arrangements under which the Company has and expects to conduct its business.
Because civil and criminal sanctions may be imposed for violations of these
laws, compliance is a significant operational requirement for the Company.
Because of the nature of this regulatory framework, there can be no assurance
that all of the Company's business practices would be construed to comply with
these laws in all respects, and any violation or alleged violation of these laws
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company is unable to predict the future course of federal, state and
local regulation, legislation or enforcement, and changes in this complex
regulatory framework or in the interpretation of these laws, rules and
regulations could have a material adverse effect on the Company's business,
financial condition and results of operations.
LICENSURE AND REGISTRATION. In general, the Company's pharmacy operations
are regulated by the statutes and regulations of Tennessee, where it is licensed
as a retail pharmacy and wholesale distributor of pharmaceuticals, as well as
the states of of Alabama, and Texas, where it operates satellite retail
pharmacies. In addition, the Company currently delivers prescription products
from its licensed pharmacies to patients in other states in which the Company
does not operate a pharmacy. Many of these states have laws or regulations
requiring out-of-state pharmacies to be licensed as a condition to the delivery
of prescription products to patients in such states. The Company believes that
it is in substantial compliance with such laws as are applicable.
Various federal and state pharmacy associations and some boards of pharmacy
have attempted to promote laws or regulations directed at restricting the
activities of out-of-state pharmacies, thereby benefiting local pharmacies with
which the Company competes from time to time. In addition, a number of states
have laws or regulations which, if successfully enforced, would effectively
limit some of the financial incentives available to third-party payors that
offer managed care prescription drug programs. To the extent such laws or
regulations are found to be applicable to the Company, there is no assurance the
Company could comply, and noncompliance could adversely affect the Company's
pharmacy service operations.
The federal and state controlled substances laws and regulations govern
manufacturers, distributors and dispensers of controlled substances. Any person
who manufactures, distributes, or dispenses controlled substances must obtain a
registration from the United States Attorney General and, where required, from
the appropriate state agency. A separate registration is required at each
principal place of business where the applicant manufactures, distributes, or
dispenses controlled substances. The laws and regulations also specify label and
packaging requirements for manufacturers and distributors and record-keeping and
reporting requirements for all registrants. Although the Company maintains
federal and applicable state regulations under these laws, it handles small
amount of inventory that are subject to controlled substances laws.
PROFESSIONAL PRACTICE. State laws prohibit the practice of pharmacy without
a license. Accordingly, the Company's pharmacists are all licensed in Tennessee,
and other states where required. The Company monitors the professional aspects
of their practice. However, to the extent that the Company's employees assist
patients and providers in helping patients comply with prescribed treatment
programs, such activities could be deemed by a state to be the practice of
medicine, nursing, or outside the scope of permitted pharmacy practice.
PHARMACY COUNSELING LAW. Federal support of state Medicaid programs for
covered outpatient drugs is conditioned on the state having a drug use review
("DUR") program. The DUR program must consist of prospective drug review,
retrospective drug use review, the application of predetermined standards, and
an
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<PAGE>
educational program. The purpose of the DUR program is to improve the quality of
pharmaceutical care by ensuring that prescriptions are appropriate and medically
necessary, and that they are not likely to result in adverse medical effects. As
part of the program, the state must develop standards containing the minimum
specified requirements for the counseling by pharmacists of patients or their
caregivers. The standards must address special situations where the patient or
the patient's representative is not readily available to receive an offer to
counsel, such as prescriptions delivered through the mail. The Company believes
that its pharmacists monitor these requirements and provide the requisite
counseling in the ordinary course of their activities.
FEDERAL MAIL ORDER. In addition to state regulations of pharmacies and
pharmacists, federal statutes and regulations establish standards for the
labeling, packaging, repackaging, advertising and adulteration of prescription
drugs and the dispensing of "controlled" substances and prescription drugs. To
the extent that the Company were to use the federal postal service, Federal
Trade Commission and United States Postal Service regulations require mail order
sellers to engage in truthful advertising, to stock a reasonable supply of
drugs, to fill mail orders within thirty days and, if that is impossible, to
inform the consumer of his or her right to a refund. The Company believes that
it is in substantial compliance with the above requirements.
THE PRESCRIPTION DRUG MARKETING ACT. The federal Prescription Drug
Marketing Act ("PDMA") provides that certain drugs and devices, generally those
requiring a prescription by a physician, are exempted from the federal labeling
and packing requirements, upon the condition that such drugs are not adulterated
or misbranded. The PMDA also generally prohibits the selling, purchasing, or
trading of any drug sample, which is not intended to be sold or intended to
promote the sale of the drug. The PMDA imposes certain documentation and record
keeping requirements, as well as proper drug storage and maintenance
requirements, in connection with the distribution of drug samples. In those
instances where the PMDA applies to drugs or services provided by the Company,
the Company believes that it complies with the PMDA through its ordinary course
of documentation, record keeping and storage procedures.
ANTI-KICKBACK AND SELF-REFERRAL. As a health care company, the Company is
subject to various federal laws that regulate the relationship between providers
of health care services and referral sources such as physicians and hospitals.
Under the Medicare, Medicaid and other programs of government payment and
reimbursement of health-related costs, the federal and state governments enforce
a federal statute that prohibits the offer, payment, solicitation or receipt of
any remuneration, directly or indirectly, overtly or covertly, in cash or in
kind to induce or in exchange for (i) the referral of patients covered by the
programs, or (ii) the leasing, purchasing, ordering or arranging for or
recommending the lease, purchase or order of any item, good, facility or service
covered by the programs (the "Anti-Kickback Law"). Penalties include criminal
fines, civil monetary penalties, and imprisonment, and the exclusion of anyone,
including an individual or an entity who has committed any of the prohibited
acts, from participation in the Medicare and Medicaid programs whether such
individual or entity participates in such governmental programs directly or
indirectly. If applied to the Company, any of its personnel, or any significant
customer or business partner of the Company, such sanctions could have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, the sanctioning or exclusion of a
manufacturer or a recipient of the Company's services from those programs, for
activities unrelated to those of the Company, could also have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, numerous states have existing or proposed laws that prohibit
financial arrangements among health care providers. These state laws are not
necessarily limited to items or services for which payment is made by Medicare
or Medicaid. Violations of these laws include civil and criminal penalties, as
well as the suspension or termination of a provider's ability to continue to
provide services in the state. Federal and state court decisions interpreting
these federal and state statutes are limited, but some courts have construed the
statutes to apply if "one purpose" of remuneration is to induce referrals or
other conduct within the proscriptions of the statute.
In an effort to curb health care fraud, Congress included several anti-fraud
measures in the Health Insurance Portability and Accountability Act of 1996
("HIPAA"). HIPAA, among other things, amends existing
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<PAGE>
crimes and criminal penalties for Medicare fraud and enacts new federal health
care fraud crimes. HIPAA also expands the federal Anti-Kickback Law to apply to
all federal health care programs, which is any plan or program that provides
health benefits through insurance funded by the federal government. Under HIPAA,
the Secretary of the Department of Health and Human Services ("the Secretary")
may exclude from the Medicare program any individual who has a direct or
indirect ownership or control interest in a health care entity that has been
convicted of a health care fraud crime or that has been excluded from the
Medicare program, if the individual knew or should have known of the action
constituting the basis for the conviction or exclusion of the entity. HIPAA
directs the Secretary to establish a program to collect information on health
care fraud and abuse to encourage individuals to report information concerning
fraud and abuse against the Medicare program and provides for payment of a
portion of amounts collected to such individuals. HIPAA mandates the
establishment of a Fraud and Abuse Program, among other programs, to control
fraud and abuse with respect to health plans and to conduct investigations,
audits, evaluations, and inspections relating to the delivery of and payment for
health care in the United States.
HIPAA prohibits any person or entity from knowingly and willfully committing
a federal health care offense relating to a health care benefit program. Under
HIPAA, a "health care benefit program" broadly includes "any public or private
plan or contract, affecting commerce, under which any medical benefit, item, or
service is provided to any individual." Among the "federal health care offenses"
prohibited by HIPAA are health care fraud and making false statements relative
to health care matters. Any person or entity that knowingly and willfully
defrauds or attempts to defraud a health care benefit program or obtains by
means of false or fraudulent pretenses, representations, or promises, any of the
money or property of any health care benefit program in connection with the
delivery of health care services is subject to a fine and/or imprisonment. In
addition, HIPAA provides that any person or entity that knowingly and willfully
falsifies or conceals or covers up a material fact or makes any materially false
or fraudulent statements in connection with the delivery of or payment of health
care services by a health care benefit plan is subject to a fine and/or
imprisonment. These provisions of HIPAA represent the criminalization of
situations which previously would have been handled civilly through the
administrative processes of repayments of overpayments, offsets, and fines.
The Anti-Kickback Law and similar state statutes are broad in scope, subject
to frequent modification and differing interpretations. In an attempt to clarify
which arrangements are not subject to prosecution under the Anti-Kickback Law,
the Department of Health and Human Services ("DHHS") adopted a set of "safe
harbor" regulations and continues to publish clarifications to such safe
harbors. Arrangements that comply with all the requirements of all applicable
safe harbors are deemed not to violate the Anti-Kickback Law. The Company has
several business arrangements such as, without limitation, joint venture and
management arrangements with medical centers, service arrangements with
physicians and product pricing arrangements with suppliers, do not satisfy all
of the requirements necessary to fall within the safe harbors, and there is not
safe harbor protection for each and every Company arrangement. Due to the
breadth and complexity of these laws and regulations, and the absence in many
instances of court decisions addressing arrangements by which the Company has
conducted and expects to conduct its business, it is possible that some of the
Company's practices could be challenged. Although failure of a transaction or
arrangement to fit within a specific safe harbor provision does not necessarily
mean that the structure of the transaction is illegal or that prosecution under
the Anti-Kickback Law will be pursued, there can be no assurance that the
Company's practices will not be challenged, or that the Company will not be
subject to sanctions or be required to alter or discontinue certain of its
practices, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
OIG FRAUD ALERTS. The Office of Inspector General ("OIG") has issued "Fraud
Alerts" identifying certain arrangements and practices which it believes may
implicate the federal fraud and abuse laws. The OIG has issued a Fraud Alert
providing its views on certain joint venture and contractual arrangements
between health care providers. The OIG has issued a Fraud Alert concerning
prescription drug marketing practices that could potentially violate federal
fraud and abuse laws. Pharmaceutical marketing activities may implicate the
federal fraud and abuse laws because drugs are often paid for by Medicare and
the Medicaid program. According to the
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Fraud Alert, examples of practices that may implicate the fraud and abuse laws
include arrangements under which remuneration is made to pharmacists to
recommend the use of a particular pharmaceutical product. In addition, a number
of states have recently undertaken enforcement actions against pharmaceutical
manufacturers involving pharmaceutical marketing programs, including programs
containing incentives for pharmacists to dispense one particular product rather
than another. These enforcement actions arise under state consumer protection
laws which generally prohibit false advertising, deceptive trade practices and
the like. Further, a number of the states involved in these enforcement actions
have requested that the FDA exercise greater regulatory oversight in the area of
pharmaceutical promotional activities by pharmacists. It is not possible to
determine whether the FDA will act in this regard or what effect, if any, FDA
involvement would have on the Company's operations.
THE STARK LAW. The Company and any physician (or the physician's immediate
family members) with whom the Company may have business dealings are also
subject to the Ethics in Patient Referrals Act of 1989, commonly called the
"Stark Law." Unless excepted, the Stark Law prohibits physicians from making a
referral for the rendering of certain health-related items or services if such
practitioner or his or her family member has a financial relationship with the
entity receiving the referral. Correspondingly, such entity cannot bill for a
service or item provided pursuant to a prohibited referral. The prohibitions of
the Stark Law apply to the products and services provided by the Company. Among
other sanctions, a civil monetary penalty may be levied for each product or
service provided pursuant to a prohibited referral upon both the person making
the referral and the provider rendering the service. Such persons or entities
are also subject to exclusion from Medicare and Medicaid. The prohibitions of
the Stark Law apply to the Company's products and services. Due to the breadth
and complexity of the Stark Law and the absence of court decisions construing
such law, it is possible that some of the Company's practices could be
challenged and there can be no assurance that the Company will not be subject to
sanctions or be required to alter or discontinue certain of its practices, any
of which could have a material adverse effect on the Company's business,
financial condition and results of operations.
BENEFICIARY INDUCEMENT. HIPAA created new civil monetary penalties for
individuals and entities that offer remuneration or other inducements to the
beneficiaries of federal health care programs, such as Medicare, Medicaid and
CHAMPUS, which the provider knows or should know will influence the
beneficiaries' decision to seek specific governmentally reimbursable items or
services or to choose a particular provider to provide those items or medical
services. HIPAA provides an exception to this prohibition by excluding items
provided to promote the delivery of preventive care. Under the statutory
exemption, it would not be considered impermissible remuneration for a provider
to give certain types of incentives to a beneficiary to encourage the
beneficiary to receive preventive care. The statutory exception would apply
where "such care is provided or directly supervised by the medical provider that
has provided the incentive."
The OIG has issued proposed regulations concerning the HIPAA prohibition
against inducements to beneficiaries (the "Proposed Regulations"). In contrast
to the statute, the OIG has taken the position that the statutory exception for
incentives to promote preventive care does not include the "direct rendering of
preventive medical care." The Preamble of the Proposed Regulations provides
examples of the type of preventive care incentives the OIG would consider
permissible under this statutory exemption: (i) transportation to and from
preventive care services; (ii) car seats, formula and other items for those
participating in prenatal or postnatal classes; (iii) tee shirts, videos and
water bottles for those participating in post-cardiac care fitness programs. The
OIG has indicated that items and services related to general health promotion
such as health club memberships, vitamins, nutritional supplements and the like
would not be permissible incentives under the statutory exception. The OIG has
also stated that permissible incentives would not include cash or cash
equivalents. As the OIG noted in the Preamble, the committee report on these
provisions had stated that the provision of items and services of nominal value
was permissible, offering as examples, "refreshments, medical literature,
complimentary local transportation services, or participation in free health
fairs." The OIG has interpreted this statement restrictively to mean that the
aggregate value of such services is nominal and that the provision of even
nominally priced incentives on a frequent basis would be impermissible. The
Company from time to time provides certain items at no charge to its patients in
connection with their drug therapies. Although the
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<PAGE>
Company believes these items fall within the scope of the statutory preventive
care exception, or are otherwise of nominal value, there can be no assurance
regarding the scope of any final regulations, or that the Company will not be
challenged on its practices and suffer applicable sanctions or be required to
alter or discontinue its "no charge" practices, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
THE FALSE CLAIMS ACT. The Company is also subject to federal and state
laws, including the federal False Claim Act, prohibiting an individual or entity
from knowingly and willfully presenting claims for payment (by Medicare,
Medicaid, or other third party payors) that contain false or fraudulent
information. These laws also provide for both criminal and civil penalties.
Furthermore, providers found to have submitted claims which they knew or should
have known were false, fraudulent, or for items or services that were not
provided as claimed, may be excluded from Medicare and Medicaid participation,
required to repay previously collected amounts, and subject to substantial civil
monetary penalties.
GOVERNMENT INVESTIGATIONS. There is increasing scrutiny by law enforcement
authorities, the OIG, the courts, and Congress of arrangements between health
care providers and potential referral sources to ensure that the arrangements
are not designed as a mechanism to exchange remuneration for patient care
referrals and opportunities. Investigators have demonstrated a willingness to
look behind the formalities of a business transaction to determine the
underlying purpose of payments between health care providers and potential
referral sources. Enforcement actions have increased, as evidenced by recent
highly publicized enforcement investigations. Although, to its knowledge, the
Company is not currently the subject of any investigation, there can be no
assurance that the Company will not be the subject of investigations or
inquiries in the future nor that any such investigation would not have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition to investigations and enforcement actions initiated by
governmental agencies, health care companies may also be the subject of qui tam
actions brought under the False Claims Act by private individuals on behalf of
the government. Furthermore, actions under the False Claims Act, commonly known
as "whistleblower" lawsuits are generally filed under seal to allow the
government adequate time to investigate and determine whether it will intervene
in the action, and defendant health care providers are often without knowledge
of such actions until the government has completed its investigation and the
seal is lifted.
CONFIDENTIALITY. Various federal and state laws establish minimum standards
for the maintenance of medical records and protect the confidentiality of
patient medical information. In the course of its business, the Company
maintains medical records for each patient to whom it dispenses drugs. As a
result, it is subject to one or more of these medical record and patient
confidentiality laws. In addition, the Company may become subject to new rules
recently mandated by the HIPAA, and proposed by the Health Care Financing
Administration ("HCFA") to ensure the integrity and confidentiality of patient
data by creating mandatory security standards for entities which maintain or
transmit health information electronically. Unauthorized disclosure of
confidential patient information, or other failure to comply with any applicable
laws and regulations regarding the maintenance of patient records and the
confidentiality of medical information, could have a material adverse effect on
the Company's business, financial condition and results of operation.
BALANCED BUDGET ACT. Each state has its own Medicaid program that is funded
jointly by the state and Federal government. Federal law governs how each state
manages its Medicaid program, but there is wide latitude for states to customize
Medicaid programs to fit the needs and resources to their citizens. As a result,
each state Medicaid plan has its own payment formula and recipient eligibility
criteria. In recent years, changes in Medicare and Medicaid programs have
resulted in limitations on, and reduced levels of, payment and reimbursement for
a substantial portion of health care goods and services. Congress recently
enacted the Balanced Budget Act of 1997, which establishes a plan to balance the
federal budget by fiscal year 2002, and includes significant additional
reductions in spending levels for the Medicare and Medicaid programs.
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<PAGE>
The Medicare, Medicaid, CHAMPUS and other governmental programs are subject
to statutory and regulatory changes, administrative rulings, interpretations and
determinations, requirements for utilization review and new governmental funding
restrictions, all of which may materially increase or decrease program payments
as well a affect the cost of providing services and the timing of payments. The
final determination of amounts earned under the programs often requires many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical provisions. The Company
believes adequate provision has been made for such adjustments. Until final
adjustment, however, significant issues remain unresolved and payments received
could be recouped.
REFORM. Political, economic and regulatory influences are subjecting the
health care industry in the United States to fundamental change. A variety of
new approaches have been proposed, including mandated basic health care
benefits, controls on health care spending through limitations on the growth of
private health insurance premiums and Medicare and Medicaid spending, and the
creation of large purchasing groups. In addition, some of the states in which
the Company operates have adopted or are considering various health care reform
proposals. The Company anticipates that Congress and state legislatures will
continue to review and assess alternative health care delivery systems and
payment methods and that public debate of these issues will likely continue in
the future. Because of uncertainty regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted, or what impact they may have on the Company.
FACILITIES
The Company's corporate headquarters is located in Memphis, Tennessee and
its primary pharmacy locations are in Memphis and Nashville, Tennessee. In
addition, the Company has a satellite pharmacy location in the Birmingham,
Alabama area and two satellite pharmacy locations in the Dallas/Ft. Worth, Texas
area.
MEMPHIS, TENNESSEE. The Company currently leases an aggregate of
approximately 42,000 square feet of space in an office/warehouse business park
in Memphis, Tennessee pursuant to two lease agreements that expire in 2003, each
with an option to extend the lease term for one additional five year period.
NASHVILLE, TENNESSEE. The Company currently leases approximately 24,000
square feet of space in Nashville, Tennessee pursuant to a lease agreement that
expires in October 1999, with an option to extend the lease term for one
additional five year period.
BIRMINGHAM, ALABAMA. The Company currently leases approximately 2,400
square feet of space in the Birmingham, Alabama area pursuant to a lease
agreement that expires in February 2000.
DALLAS/FORT WORTH, TEXAS. The Company currently leases an aggregate of
approximately 1,800 square feet of space in two locations in the Dallas/Ft.
Worth, Texas area pursuant to two lease agreements that expire in May 1999, each
with an option to extend the lease term for one additional three year period.
EMPLOYEES
The Company had 242 full-time and 29 part-time employees at June 30, 1998.
None of the Company's employees are represented by a labor union, and management
considers its relations with its employees to be good.
LIABILITY INSURANCE
Providing health care services and products entails an inherent risk of
liability. In recent years, participants in the health care industry have become
subject to an increasing number of lawsuits, many of which involve large claims
and significant defense costs. The Company may from time to time be subject to
such suits as a result of the nature of its business. The Company maintains
general liability insurance, including professional and product liability, in an
amount deemed adequate by management. There can be no assurance, however, that
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claims in excess of, or beyond the scope of, the Company's insurance coverage
will not arise. In addition, the Company's insurance policies must be renewed
annually. Although the Company has not experienced difficulty in obtaining
insurance coverage in the past, there can be no assurance that it will be able
to do so in the future on acceptable terms or at all.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits and claims arising in the normal
course of business. In the opinion of Company management, although outcomes of
these lawsuits and claims are uncertain, in the aggregate they should not have a
material adverse effect on the Company's business, financial condition or
results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
David D. Stevens.......................... 45 Chairman of the Board of Directors and
Chief Executive Officer
John R. ("Randy") Grow.................... 50 President and Director
Joel R. Kimbrough......................... 40 Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
Kyle J. Callahan.......................... 32 Senior Vice President and Director
Thomas W. Bell, Jr........................ 47 Senior Vice President and General Counsel
Kenneth R. Masterson(1)................... 54 Director
Kenneth J. Melkus(1)...................... 52 Director
Andrew M. Paul(2)......................... 52 Director
Patrick J. Welsh(2)....................... 54 Director
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
DAVID D. STEVENS has served as Chief Executive Officer and Director of
Accredo since it was acquired from Le Bonheur in 1996. Previously, Mr. Stevens
served as Chief Operating Officer of SHS since its inception in 1983. Mr.
Stevens has served as President of SHS since 1993 and Director since 1996. He
has served as Chief Executive Officer of Nova Factor since 1996 and as a
Director since 1990.
JOHN R. ("RANDY") GROW has served as President and Director of Accredo since
it was acquired from Le Bonheur in 1996. Mr. Grow has also served as President
of Nova Factor since 1996, and Chief Operating Officer and Director since 1990.
Previously, Mr. Grow was employed in the home infusion industry as President of
Curaflex Health Services, Inc. from 1988 to 1989 and as Area Vice President of
Caremark, Inc. from 1985 to 1988.
JOEL R. KIMBROUGH has served as Senior Vice President and Chief Financial
Officer, Secretary and Treasurer of Accredo since it was acquired from Le
Bonheur in 1996. He has also served as Chief Financial Officer and Director of
Nova Factor since its inception in 1990, as Chief Financial Officer of SHS since
1989, and as a Director of SHS since 1996. Previously, Mr. Kimbrough, a
certified public accountant, was employed by the accounting firm of Ernst &
Young LLP from 1980 to 1989.
KYLE J. CALLAHAN has served as Senior Vice President and a Director of
Accredo since HHS was acquired by the Company in June 1997. Mr. Callahan has
served as President of HHS since June 1997. From HHS's inception in 1990 until
June 1997, Mr. Callahan served in several management and executive positions
with HHS, including Vice President of Operations.
THOMAS W. BELL, JR. joined Accredo as Senior Vice President and General
Counsel in July 1998. Prior to joining the Company, Mr. Bell practiced law from
1976 to 1998 as a member of the firm of Armstrong Allen Prewitt Gentry Johnston
& Holmes, PLLC in Memphis, Tennessee, where Mr. Bell represented Nova Factor and
SHS since their inception in 1990 and 1983, respectively.
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<PAGE>
KENNETH R. MASTERSON has been a Director of Accredo since April 1998. Mr.
Masterson joined FedEx in 1980 and in 1996 he became Executive Vice President,
General Counsel and Secretary of FedEx. In 1998, Mr. Masterson assumed the same
duties for FDX Corporation, a transportation holding company and the parent
company of FedEx. Mr. Masterson is also a director of Thomas & Betts
Corporation.
KENNETH O. MELKUS has been a Director of Accredo since October 1997. Mr.
Melkus currently serves as a consultant to WCA Management Corporation, an
affiliate of WCAS VII. From its founding in 1993 to its sale in 1996, Mr. Melkus
served as Chairman of the Board and Chief Executive Officer of HealthWise of
America, Inc., an operator of health maintenance organizations. From 1986 until
1993, Mr. Melkus served as Vice Chairman and President of Surgical Care
Affiliates, Inc., an operator of outpatient surgery centers. Mr. Melkus is also
a director of Quorum Health Group, Inc.
ANDREW M. PAUL has been a Director of the Accredo since 1996. Mr. Paul
joined Welsh Carson in 1984 and is a general partner of the sole general partner
of WCAS VII and an affiliated entity that are stockholders of the Company. Mr.
Paul also is a director of Lincare, Inc. and several privately held companies.
PATRICK J. WELSH has been a Director of Accredo since 1996. Mr. Welsh was a
founder of Welsh Carson in 1979 and is a general partner of the sole general
partner of WCAS VII and an affiliated entity that are stockholders of the
Company. Prior to 1979, Mr. Welsh was president and a Director of Citicorp
Venture Capital, Ltd., an affiliate of Citicorp engaged in venture capital
investing. Mr. Welsh also serves as a director of several private companies.
The Board of Directors is divided into three classes, each consisting of
approximately one-third of the total number of directors. There are currently
seven directors. Class I directors, consisting of Messrs. Stevens and Melkus,
will hold office until the 1999 annual meeting of stockholders; Class II
directors, consisting of Messrs. Paul and Callahan, will hold office until the
2000 annual meeting of stockholders; and Class III directors, consisting of
Messrs. Welsh, Grow and Masterson, will hold office until the 2001 annual
meeting of stockholders. See "Description of Capital Stock--Special Provisions
of the Certificate of Incorporation, Bylaws and Delaware Law."
Mr. Callahan was elected to the Board of Directors in connection with the
Company's acquisition of HHS in 1997. Mr. Callahan's employment agreement
provides that he may terminate his employment for "good reason" (as defined in
the employment agreement) if he is willing to serve but is not elected to the
Board of Directors of the Company while WCAS VII owns a majority of the
outstanding Common Stock of the Company and the Company has not consummated an
initial public offering. Pursuant to a letter dated June 3, 1997, WCAS VII
agreed to vote its shares of Common Stock to elect Mr. Callahan to the Board of
Directors of the Company, and Mr. Callahan was elected to the Board on June 30,
1997.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently includes a Compensation Committee and an
Audit Committee. The Compensation Committee, which is composed of Messrs. Welsh
and Paul, is responsible for the approval of compensation arrangements for
executive officers of the Company and administers the Company's stock option and
employee stock purchase plans. The Audit Committee, which is composed of Messrs.
Masterson and Melkus, reviews the scope and results of audits and other services
performed by the independent public accountants of the Company and reviews the
adequacy of the Company's internal controls.
COMPENSATION OF DIRECTORS
Employees of the Company who are members of the Board of Directors do not
receive any compensation for serving on the Board of Directors. Each
non-employee member of the Board of Directors receives a fee of $1,500 for each
meeting attended. All directors of the Company, including members who are
employees, receive reimbursement of out-of-pocket expenses incurred in
connection with attending meetings. In addition, all
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<PAGE>
directors of the Company are eligible to receive grants of stock options or
other awards pursuant to the Company's stock option plans. During the fiscal
year ended June 30, 1998, Messrs. Welsh, Paul, Melkus and Masterson each
received a grant of a ten-year non-qualified stock option for shares of Common
Stock at an exercise price of $ per share. All of such options vest at an
annual rate of 25%, with the first 25% vesting on the first anniversary of the
date of grant.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company for
services rendered for the fiscal year ended June 30, 1998 with respect to the
Company's Chief Executive Officer and the Company's other executive officers
whose total salary and bonus for the fiscal year ended June 30, 1998 exceeded
$100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ----------------------------
------------------------------------------ RESTRICTED SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK UNDERLYING
POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) AWARD(S)($) OPTIONS(#)
- -------------------------- ----------- ---------- --------- ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David D. Stevens.......... 1998 $ 250,938 $ 41,580 -- -- --
Chairman of the Board
and
Chief Executive Officer
John R. Grow.............. 1998 167,269 28,050 -- -- --
President
Joel R. Kimbrough......... 1998 159,306 26,978 -- -- --
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Kyle J. Callahan.......... 1998 160,621 26,978 -- -- --
Senior Vice President
<CAPTION>
NAME AND PRINCIPAL ALL OTHER
POSITION COMPENSATION($)(2)
- -------------------------- -------------------
<S> <C>
David D. Stevens.......... $ 4,657
Chairman of the Board
and
Chief Executive Officer
John R. Grow.............. 4,525
President
Joel R. Kimbrough......... 3,587
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Kyle J. Callahan.......... 3,740
Senior Vice President
</TABLE>
- ------------------------
(1) Excludes perquisites and other personal benefits which for each Named
Executive Officer during any such year did not exceed the lesser of $50,000
or 10% of such individual's salary plus annual bonus.
(2) Includes contributions by the Company under its 401(k) Plan on behalf of
Messrs. Stevens, Grow, Kimbrough and Callahan in the amount of $3,749;
$3,192; $2,909; and $3,592, respectively. Also includes insurance premiums
paid by the Company with respect to term life insurance for the benefit of
Messrs. Stevens, Grow, Kimbrough and Callahan in the amount of $908; $1,333;
$678; and $148, respectively.
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<PAGE>
OPTION GRANTS
The following table sets forth certain information regarding options granted
by the Company to the Named Executive Officers during the fiscal year ended June
30, 1998.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SHARES OPTIONS GRANTED TO EXERCISE GRANT DATE
UNDERLYING EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED(#) FISCAL YEAR ($/SHARE) DATE VALUE($)(1)
- ----------------------------- ------------------- --------------------- ------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
David D. Stevens............. -- -- -- -- --
John R. Grow................. -- -- -- -- --
Joel R. Kimbrough............ -- -- -- -- --
Kyle J. Callahan(2).......... 28.2% 9/1/07 $ 97,950
9.4% 2/9/08 32,300
</TABLE>
- ------------------------
(1) These values were determined using the Black-Scholes methodology and the
assumptions described in Note 10 to the Company's Consolidated Financial
Statements included in this Prospectus.
(2) Mr. Callahan was granted an incentive stock option to purchase shares
of Common Stock (divided into Tranche A option shares and Tranche
B option shares) and an incentive stock option to purchase shares of
Common Stock (divided into Tranche A option shares and Tranche B
option shares) on September 3, 1997 and February 9, 1998, respectively. The
exercise price per share of each option was equal to the fair market value
of the Common Stock on the respective dates of grant, as determined by the
Board of Directors. Pursuant to each option, the option shares subject to
Tranche A will vest at an annual rate of 25%, and the option shares subject
to Tranche B will vest in 2002 (or at an annual rate of 25% in the event the
Company meets certain performance goals based upon target earning levels).
The options will vest immediately upon certain changes in control of the
Company. The term of each option expires ten years from the date of grant
(or earlier, in the event the optionee ceases to be employed by the Company
or any subsidiary or parent thereof).
OPTION EXERCISES AND YEAR END OPTION VALUES
The following table provides information with respect to options exercised
by the Named Executive Officers during the fiscal year ended June 30, 1998 and
the value of unexercised options held by the Named Executive Officers as of June
30, 1998.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
NUMBER OF SHARES UNDERLYING AT
NUMBER OF SHARES UNEXERCISED OPTIONS FISCAL YEAR END
ACQUIRED ON VALUE AT FISCAL YEAR END 1998(#) 1998($)(1)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- --------------------- ----------------- ------------------------------ ---------------------
<S> <C> <C> <C> <C> <C>
David D. Stevens......... -- --
John R. Grow............. -- --
Joel R. Kimbrough........ -- --
Kyle J. Callahan......... -- --
<CAPTION>
NAME
- -------------------------
<S> <C>
David D. Stevens.........
John R. Grow.............
Joel R. Kimbrough........
Kyle J. Callahan.........
</TABLE>
- ------------------------
(1) For purposes of this calculation, value is based upon the difference between
the exercise price and the assumed initial public offering price of $
per share.
49
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Welsh and Paul, who presently serve as members of the Compensation
Committee of the Board of Directors, served on the Compensation Committee during
the fiscal year ended June 30, 1998. Neither Messrs. Welsh or Paul, nor any
executive officer of the Company, serves as a member of a board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of the Company's Board of Directors.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Stevens,
Grow and Kimbrough as of May 31, 1996, and with Mr. Bell as of July 10, 1998.
HHS, a wholly owned subsidiary of the Company, entered into an employment
agreement with Mr. Callahan as of June 5, 1997. The terms of such employment
agreements expire on May 31, 1999 (with respect to Messrs. Stevens, Grow and
Kimbrough), June 1, 2000 (with respect to Mr. Callahan), and June 30, 2001 (with
respect to Mr. Bell), although each employment agreement is subject to automatic
one-year renewals. The Company may terminate the employment agreements at any
time. Each employment agreement provides that in the event the Company
terminates the executive's employment without "cause" (as defined therein) and
other than by reason of his death or disability, or in the event the executive
terminates his or her employment for "good reason" (as defined therein), the
executive shall continue to receive his or her salary as a severance payment for
a certain period of time (one year, with respect to Messrs. Stevens, Grow,
Kimbrough and Bell, and 18 months, with respect to Mr. Callahan). In addition,
upon such termination, Messrs. Stevens, Grow, Kimbrough and Bell would be
entitled to continue to participate in the Company's benefit plans for a period
of one year (or until the commencement of other full-time employment, whichever
is earlier).
The employment agreements entitle Messrs. Stevens, Grow, Kimbrough, Bell and
Callahan to annual base salaries presently set at $252,000, $170,000, $163,500,
$168,000 and $163,500, respectively. Each employment agreement also provides for
the payment of an annual bonus of up to 50% of salary with respect to Messrs.
Stevens, Grow, Kimbrough and Callahan and up to 40% of salary with respect to
Mr. Bell, based upon the extent to which the Company achieves certain
performance goals based upon target earning levels established by the Board.
Each of the employment agreements entitles the executive to all benefits
provided by the Company for its senior executives. In addition, the Company has
agreed to maintain $500,000 in term life insurance for each of Messrs. Stevens,
Grow, Kimbrough and Bell, payable to their respective named beneficiaries.
Each of the employment agreements prohibits the executive's disclosure and
use of confidential information and restricts, for certain periods of time
following termination of employment (12 months, with respect to Messrs. Stevens,
Grow, Kimbrough and Bell, and 36 months, with respect to Mr. Callahan), his
solicitation of certain employees of the Company, conduct of certain business
with the Company's five largest suppliers, or competition with the Company.
LONG-TERM INCENTIVE PLAN
The Accredo Health, Incorporated 1998 Long-Term Incentive Plan (the
"Incentive Plan"), was adopted by the Board of Directors of the Company on
, and was approved by the Company's stockholders on . A summary of the
Incentive Plan is set forth below. The summary is qualified in its entirety by
reference to the full text of the Incentive Plan, a copy of which is included as
an exhibit to the Registration Statement of which this Prospectus is a part.
The purpose of the Incentive Plan is to promote the success, and enhance the
value, of the Company by linking the personal interests of employees, officers,
consultants and directors to those of the stockholders, and by providing such
persons with an incentive for outstanding performance. As of , there were
approximately persons eligible to participate in the Incentive Plan.
50
<PAGE>
The Incentive Plan authorizes the granting of awards ("Awards") to
employees, officers, consultants and directors of the Company or its
subsidiaries in the following forms: (i) options to purchase shares of Common
Stock ("Options"), which may be incentive stock options that meet the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") ("ISOs") or non-qualified stock options ("NQSOs"), (ii) stock
appreciation rights ("SARs"); (iii) performance units ("Performance Units");
(iv) restricted stock ("Restricted Stock"); (v) dividend equivalent rights; and
(vi) other stock-based awards. Subject to adjustment as provided in the
Incentive Plan, the aggregate number of shares of Common Stock reserved and
available for Awards or which may be used to provide a basis of measurement for
or to determine the value of an Award (such as with a SAR or Performance Share)
is . The maximum number of shares of Common Stock with respect to one or
more Options and/or SARs that may be granted during any one calendar year under
the Incentive Plan to any one participant is . The maximum fair market
value of any Awards (other than Options and SARs) that may be received by a
participant (less any consideration paid by the participant for such Award)
during any one calendar year under the Incentive Plan is $ .
The Incentive Plan is administered by the Compensation Committee, which has
the power, authority and discretion to designate participants; determine the
type or types of Awards to be granted to each participant and the terms and
conditions thereof; establish, adopt or revise any rules and regulations as it
may deem necessary or advisable to administer the Incentive Plan; and make all
other decisions and determinations that may be required under, or as it deems
necessary or advisable to administer, the Incentive Plan. The Board or the
Compensation Committee may, at any time and from time to time, terminate, amend
or modify the Incentive Plan without stockholder approval. No termination,
amendment, or modification of the Incentive Plan may adversely affect any Award
previously granted under the Incentive Plan, without the consent of the
participant.
Upon the participant's death or disability during his or her employment or
his or her service as a director, all outstanding Options, SARs, and other
Awards in the nature of rights that may be exercised will become fully vested
and exercisable and all restrictions on outstanding Awards will lapse. In
addition, in the event of a Change in Control of the Company (as defined in the
Incentive Plan), all outstanding Options, SARs, and other Awards in the nature
of rights that may be exercised will become fully vested and exercisable and all
restrictions on all outstanding Awards will lapse. Unexercised or restricted
Awards generally will not be assignable or transferable by a participant other
than by will or the laws of descent and distribution or, except in the case of
an ISO, pursuant to a qualifying domestic relations order.
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company may not deduct compensation in excess of $1.0 million
paid to the Chief Executive Officer and the four next most highly compensated
executive officers of the Company. The Incentive Plan is designed to comply with
Code Section 162(m) so that the grant of Options and SARs under the Incentive
Plan, and other Awards, such as Performance Shares, that are conditioned on the
performance goals described in the Incentive Plan, will be excluded from the
calculation of annual compensation for purposes of Code Section 162(m) and will
be fully deductible by the Company.
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
The Nova Holdings, Inc. and its Subsidiaries Stock Option and Restricted
Stock Purchase Plan, as amended and restated (the "Option Plan"), became
effective as of May 31, 1996, the date of its original adoption by the Board of
Directors of the Company. The amendment and restatement of the Option Plan was
approved by the Company's stockholders on June 30, 1997. A summary of the Plan
is set forth below. The summary is qualified in its entirety by reference to the
full text of the Plan, a copy of which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Option Plan authorizes the granting of options to purchase shares of
Common Stock, which may be ISOs or NQSOs, and other related awards, to
employees, officers, and directors of the Company or its subsidiaries. Subject
to adjustment as provided in the Option Plan, the aggregate number of shares of
Common
51
<PAGE>
Stock for which Options or awards may be granted under the Option Plan is .
As of July 31, 1998, there were approximately 30 persons eligible to participate
in the Plan.
The Option Plan is administered by the Compensation Committee, which has the
power, authority and discretion to designate participants, determine the type or
types of awards to be granted to each participant and the terms and conditions
thereof, and establish any other terms, restrictions and conditions applicable
to any option or award not inconsistent with the provisions of the Option Plan.
The Board or the Compensation Committee may, at any time and from time to time,
terminate, amend or modify the Option Plan without stockholder approval;
provided that stockholder approval shall be required in the case of an amendment
to increase the aggregate number of shares issuable subject to the Option Plan,
to decrease the minimum exercise price in respect of ISOs, or to change the
class of employees eligible to receive ISOs under the Option Plan. No
termination, amendment, or modification of the Option Plan may adversely affect
any option or award previously granted under the Option Plan, without the
consent of the participant.
EMPLOYEE STOCK PURCHASE PLAN
The Accredo Health, Incorporated 1998 Employee Stock Purchase Plan (the
"ESPP") was adopted by the Board of Directors of the Company on , and was
approved by the Company's stockholders on . The purpose of the ESPP, which
is intended to qualify as an employee stock purchase plan under Section 423 of
the Code, is to enhance the proprietary interest among the employees of the
Company and its participating subsidiaries through ownership of Common Stock of
the Company. A summary of the ESPP is set forth below. The summary is qualified
in its entirety by reference to the full text of the ESPP, a copy of which is
included as an exhibit to the Registration Statement of which this Prospectus is
a part.
Pursuant to the ESPP, eligible employees make contributions, through payroll
deductions, to a plan account during a six-month "offering period." The offering
periods commence and end on or about January 1 to June 30 and July 1 to December
31 of each year. On the first business day of each offering period, the Company
will grant to each participant in the ESPP an option to purchase, on the last
day of such offering period, a maximum of shares of Common Stock. No option
will be granted to a participant if such option, when combined with all other
options granted under all of the Code Section 423 employee stock purchase plans
of the Company, its parents and its subsidiary corporations, would permit such
participant to purchase shares of Common Stock of the Company having a fair
market value in excess of $25,000 per year.
The participant will be entitled to exercise such option to the extent of
the participant's accumulated payroll deductions on the last day of such
offering period; provided, however, that if the participant's accumulated
payroll deductions on the last day of the offering period would enable the
participant to purchase more than shares, the excess of the amount of the
accumulated payroll deductions over the aggregate purchase price of the shares
will be refunded to the participant, without interest. The option price for each
offering period will be the lesser of (i) 85% of the fair market value of the
Common Stock on the first business day of the offering period, or (ii) 85% of
the fair market value of the Common Stock on the last business day of the
offering period. Employees may authorize payroll deductions in amounts not less
than one percent (1%) but not more than ten percent (10%) of their respective
total compensation, including base pay or salary and any bonuses or commissions.
Each employee of the Company and each employee of any participating
subsidiary is eligible to participate in the ESPP, provided such employee: (i)
is regularly scheduled to work at least 20 hours each week and at least five
months in the calendar year, and (ii) immediately after the grant of an option
to him or her under the ESPP would own less than five percent of the total
combined voting power or value of all classes of stock of the Company or any of
its subsidiaries. As of , there were approximately employees
eligible to participate in the ESPP.
Shares subject to the ESPP may be authorized but unissued shares or shares
that were once issued and subsequently reacquired by the Company. The total
number of shares of Common Stock for which options may be granted under the ESPP
is shares, subject to adjustment in accordance with the ESPP.
52
<PAGE>
The ESPP will be administered by the Compensation Committee or the Board of
Directors, which will have authority to interpret and administer the ESPP. The
ESPP may be terminated at any time by the Board, but such termination will not
affect options then outstanding. The ESPP will terminate in any case when all or
substantially all of the unissued shares of stock reserved for the purposes of
the ESPP have been purchased. If at any time shares of stock reserved for the
ESPP remain available for purchase but not in sufficient number to satisfy all
then unfilled purchase requirements, the available shares will be apportioned
among participants in proportion to their options and the ESPP will terminate.
Upon termination, all payroll deductions not used to purchase stock will be
refunded. The Committee or the Board may from time to time amend the ESPP
provided that, without the approval of the stockholders, no amendment may (i)
materially affect the eligibility requirements or the definition of "Employer,"
(ii) increase the number of shares of Common Stock subject to any options issued
to participants, or (iii) materially increase the benefits to participants under
the Plan.
An employee's rights under the ESPP will terminate when he or she ceases to
be an employee for any reason, and the cash balance in his or her contribution
account will be distributed to such employee (or his or her designated
beneficiary). An employee's rights under the ESPP may not be transferred other
than by will or the laws of descent and distribution. Any option granted under
the ESPP to an employee may be exercised, during the employee's lifetime, only
by the employee.
401(K) PLAN
The Company sponsors a defined contribution plan (the "401(k) Plan") for
eligible employees of the Company under Section 401(k) of the Code. Participants
may contribute up to 18% of their annual compensation to the 401(k) Plan,
subject to certain limitations. All contributions made by participants are fully
vested and are not subject to forfeiture. The Company makes matching
contributions to the 401(k) Plan on behalf of each eligible participant based
upon the participant's total years of service with the Company. The Company
matches 25% of "eligible contributions" (as defined in the 401(k) Plan) made by
participants with less than five years of service, and 50% of eligible
contributions made by participants with five or more years of service.
53
<PAGE>
CERTAIN TRANSACTIONS
INITIAL FORMATION, CAPITALIZATION AND ACQUISITION OF SHS.
In May 1996, the Company (formerly known as Nova Holdings, Inc.) was formed
for the purpose of acquiring all of the outstanding equity securities of SHS,
then a subsidiary of Le Bonheur. In connection with the initial capitalization
of the Company, Welsh Carson purchased an aggregate of shares of the
Company's Common Stock for $14,917,602 and an aggregate of 248,624 shares of
Series A Preferred Stock for $24,862,400. Additional investors purchased a total
of shares of the Company's Common Stock for $82,398 and 1,376 shares of
Series A Preferred Stock for $137,600. In connection with the Recapitalization,
Welsh Carson will exchange shares of Common Stock for shares of
Non-Voting Common Stock. All outstanding shares of Series A Preferred Stock will
be redeemed by the Company with a portion of the net proceeds from the Offering.
On May 31, 1996, the Company acquired all of the outstanding Class A Common
Stock and Class B Common Stock of SHS (the "SHS Common Stock"). Prior to the
Company's purchase of the SHS Common Stock, SHS spun-off its three subsidiaries
other than Nova Factor and repurchased certain shares of SHS Common Stock held
by persons other than Le Bonheur. In addition, Messrs. Grow, Kimbrough and
Stevens (in addition to certain other holders of SHS Common Stock) exchanged
their shares of SHS Common Stock for , and shares of the
Company's Common Stock, respectively, and 978 shares, 611 shares and 3,056
shares of Series A Preferred Stock, respectively.
REGISTRATION RIGHTS AGREEMENT
In connection with the formation of the Company in May 1996, Welsh Carson
entered into a Registration Rights Agreement with the Company (the "Registration
Rights Agreement"). The Registration Rights Agreement provides for demand
registration rights that may be exercised on up to two occasions by the holders
of Restricted Stock (as defined therein, which definition includes substantially
all shares of Common Stock outstanding prior to the Offering) constituting at
least a majority of the total Restricted Stock outstanding at the time of
exercise. The Registration Rights Agreement also provides unlimited demand
registration rights to holders of Restricted Stock for registrations on Form
S-3, so long as the reasonably anticipated aggregate price to the public of such
offering is at least $1.0 million; provided, however, that such demand
registrations may not be exercised more than once every 180 days. No
registration effected pursuant to these unlimited demand registration rights on
Form S-3 will be counted toward the limit of two demand registration rights
referred to above.
The Registration Rights Agreement also provides that, subject to certain
limitations including the discretion of the managing underwriter in an
underwritten offering, holders of Restricted Stock may request inclusion of
their shares in a registration of securities initiated by the Company. The
Company is required to pay all costs of any registration pursuant to the
Registration Rights Agreement, subject to certain limitations provided in the
agreement. All of the parties to the Registration Rights Agreement have waived
any right to participate in this Offering.
All shares of Common Stock owned by the executive offices and directors of
the Company are shares of Restricted Stock as such term is defined in the
Registration Rights Agreement and are, therefore, subject to the above described
registration rights.
ACQUISITION OF HHS
In June 1997, the Company purchased all of the outstanding shares of common
stock of HHS for an aggregate purchase price of approximately $29,996,000.
Dianne R. Griffith, one of the two stockholders of HHS and the mother of Mr.
Callahan, has received approximately $20,302,000 in connection with the sale of
her HHS stock to the Company. In addition, approximately $3,395,000 of
additional consideration to Ms. Griffith is currently being held in escrow
pending settlement of certain liabilities. Upon such settlement, any remaining
54
<PAGE>
amounts in escrow will be paid to Ms. Griffith. Ms. Griffith also entered into a
three month consulting agreement with the Company pursuant to which she provided
certain consulting services to the Company in exchange for a total of $21,875
plus a percentage of the base salary of Sara Meyers, a former employee of HHS,
for each of those three months.
Ms. Griffith leases approximately 24,000 square feet of office space located
in Nashville, Tennessee to HHS pursuant to a lease that expires on October 31,
1999. The Company is obligated under the lease to make annual rent payments to
Ms. Griffith in the amount of $302,277.
Also in connection with the acquisition of HHS, the Company entered into an
employment agreement and a stock option agreement with Mr. Callahan. See
"Management--Executive Compensation" and "--Employment Agreements." Mr.
Callahan's employment agreement permits him to terminate his employment for
"good reason", including if he is willing to serve and he is not elected to the
Board of Directors of the Company while WCAS VII owns a majority of the
outstanding Common Stock and the Company has not consummated an initial public
offering. Pursuant to a letter dated June 3, 1997, WCAS VII agreed to vote its
shares of Common Stock to elect Mr. Callahan to the Board of Directors of the
Company, and Mr. Callahan was elected to the Board on June 30, 1997. Also, on
October 1, 1997, Mr. Callahan purchased shares of Common Stock for a total
purchase price of $250,002 and was granted registration rights covering those
shares with the same terms and conditions as those granted to Welsh Carson in
the Registration Rights Agreement.
10% SENIOR SUBORDINATED NOTES DUE JANUARY 1, 2004
On June 4, 1997, Welsh Carson purchased $10.0 million of the Company's
Senior Subordinated Notes. The Senior Subordinated Notes bear interest at 10%
and are due and payable in full on June 1, 2004, with interest payable thereon
quarterly in arrears on the first day of March, June, September and December of
each year commencing on September 1, 1997. At the option of the Company, the
amount of interest due and payable through June 1, 1999 may be added to the
unpaid principal balance of the Senior Subordinated Notes.
Upon the Company's prior written notice to the holders of the Senior
Subordinated Notes, the Company may prepay all or any portion of the Senior
Subordinated Notes. The Company is required to make certain mandatory
prepayments of the Senior Subordinated Notes in full if at any time while the
Senior Subordinated Notes are outstanding: (i) the Company merges or
consolidates with or into another entity (subject to certain exceptions); (ii)
the Company sells or otherwise disposes of substantially all of its assets to a
third-party; or (iii) the Company consummates a public offering of equity
securities pursuant to an effective registration statement under the Securities
Act of 1933. The Company intends to prepay in full the entire principal balance
of the Senior Subordinated Notes and all accrued interest thereon with a portion
of the net proceeds of this Offering. See "Use of Proceeds."
In connection with the issuance of the Senior Subordinated Notes, the
Company also issued to purchasers of the Senior Subordinated Notes shares
of Common Stock for each $25 principal amount of Senior Subordinated Notes
purchased, for a total of shares of Common Stock.
COMMON STOCK PURCHASES BY AFFILIATES
In connection with the appointment of Mr. Melkus to the Company's Board of
Directors, his daughter, Lauren Melkus, acquired shares of Common Stock for
$250,002 on October 27, 1997. In addition, Mr. Masterson, upon his appointment
to the Company's Board of Directors, acquired shares of Common Stock for
$204,000 on July 24, 1998 pursuant to a subscription agreement entered into by
Mr. Masterson in April 1998. Both Ms. Melkus and Mr. Masterson were granted
registration rights covering those shares with the same terms and conditions as
those granted to Welsh Carson in the Registration Rights Agreement. See "--
Registration Rights Agreement."
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 31, 1998, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by (i) each
person known to the Company to beneficially own more than 5% percent of the
outstanding Common Stock, (ii) each of the Company's directors, (iii) each of
the Company's Named Executive Officers, and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
SHARES ------------------------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(1) OFFERING OFFERING
- ---------------------------------------------------- ------------- --------------- -------------------
<S> <C> <C> <C>
Welsh, Carson, Anderson & Stowe VII, L.P. (2)(3)....
David D. Stevens....................................
Joel R. Kimbrough...................................
Kyle J. Callahan....................................
John R. ("Randy") Grow..............................
Thomas W. Bell, Jr..................................
Kenneth R. Masterson................................
Kenneth O. Melkus(4)................................
Andrew W. Paul(2)(5)................................
Patrick J. Welsh(2)(6)..............................
All directors and executive officers as a group (9
persons)..........................................
</TABLE>
- ------------------------------
* Less than one percent.
(1) The percentages shown are based on shares of Common Stock outstanding
prior to the Offering and shares of Common Stock (including Non-Voting
Common Stock) outstanding after the Offering. Pursuant to the rules of the
Commission, shares of Common Stock which a person has the right to acquire
within 60 days pursuant to the exercise of stock options are deemed to be
outstanding for the purpose of computing the percentage ownership of such
person but are not deemed outstanding for the purpose of computing
percentage ownership of any other person. Accordingly, the totals for the
following persons include the following shares represented by options
exercisable within 60 days of August 31, 1998: Mr. Stevens, shares; Mr.
Kimbrough, shares; Mr. Callahan, shares; Mr. Grow, shares;
Mr. Bell, shares; Mr. Masterson, shares; Mr. Melkus, shares;
Mr. Paul, shares; Mr. Welsh, shares; and all directors and
executive officers as a group, shares.
(2) The business address of the named person is One World Financial Center,
Suite 3601, New York, New York 10281.
(3) Includes shares of Common Stock owned by WCAS Healthcare Partners, L.P.
, shares of Non-Voting Common Stock held by WCAS VII and shares of
Common Stock held by individual general partners of WCAS VII. WCAS
Healthcare Partners, L.P. is a limited partnership with two general
partners: Russell L. Carson and Patrick J. Welsh. WCAS VII is a limited
partnership with twelve general partners, including Messrs. Carson, Welsh
and Paul.
(4) Includes shares of Common Stock held by Mr. Melkus' daughter, Lauren
Melkus.
(5) Includes those shares held directly and indirectly by WCAS VII except for
shares owned by the individual general partners of WCAS VII other then Mr.
Paul. See footnote (3) above. Mr. Paul is a director of the Company and a
general partner of WCAS VII. Mr. Paul disclaims beneficial ownership of the
shares owned by WCAS VII.
(6) Includes those shares held directly and indirectly by WCAS VII except for
shares owned by the individual general partners of WCAS VII other than Mr.
Welsh. See footnote (3) above. Mr. Welsh is a director of the Company and a
general partner of WCAS VII. Mr. Welsh disclaims beneficial ownership of the
shares owned by WCAS VII.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary is a description of certain provisions of the
Company's Amended and Restated Certificate of Incorporation (the "Certification
of Incorporation"). Such summary does not purport to be complete and is subject
to, and is qualified in its entirety by, all of the provisions of the
Certificate of Incorporation, a copy of which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
Upon completion of the Offering, the Company's authorized capital stock will
consist of ,000,000 shares of Common Stock, $0.01 par value per share,
shares of Non-Voting Common Stock, $0.01 par value per share ("Non-Voting Common
Stock"), and ,000,000 shares of preferred stock, $1.00 par value per share
("Preferred Stock"), Currently, there are outstanding shares of Common
Stock and 255,361 shares of Series A Preferred Stock. All outstanding shares of
Series A Preferred Stock will be redeemed by the Company using a portion of the
net proceeds from the Offering. Upon completion of the Offering and, the Company
will have outstanding shares of Common Stock (including shares of
Non-Voting Common Stock) and no shares of Preferred Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders and are not entitled to cumulative voting
in the election of directors. The holders of Common Stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion out of funds legally available therefor. The
Company currently anticipates that all of its earnings will be retained to
finance the growth and development of its business and, therefore, does not
anticipate that any cash dividends will be declared on the Common Stock in the
foreseeable future. See "Dividend Policy". The holders of Common Stock are
entitled to share ratably in any assets remaining after satisfaction of all
prior claims upon liquidation of the Company. The Certificate of Incorporation
gives holders of Common Stock no preemptive or other subscription or conversion
rights, and there are no redemption provisions with respect to such shares. All
outstanding shares of Common Stock are, and the shares offered hereby will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences,
and privileges of holders of Common Stock are subject to, and may be adversely
affected by, the rights of holders of shares of any series of Preferred Stock
which the Company may designate and issue in the future.
NON-VOTING COMMON STOCK
The shares of Non-Voting Common Stock to be issued to WCAS VII pursuant to
the Recapitilization will be fully paid and nonassessable. Subject to the prior
rights of the holders of any Preferred Stock, and on a pro rata basis with the
holders of Common Stock, the holders of outstanding shares of Non-Voting Common
Stock are entitled to receive dividends out of assets legally available therefor
at such time and in such amounts as the Board of Directors may from time to time
determine. The shares of Non-Voting Common Stock are convertible into Common
Stock at any time provided that WCAS VII will not own 50% or more of the Common
Stock after such conversion. In the event WCAS VII sells any Non-Voting Common
Stock to third parties, such shares shall automatically convert to Common Stock.
The holders of Non-Voting Common Stock have no preemptive or subscription rights
to purchase any securities of the Company. Upon liquidation, dissolution or
winding up of the Company, and on a pro rata basis with the holders of Common
Stock, the holders of Non-Voting Common Stock are entitled to receive pro rata
the assets of the Company that are legally available for distribution after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding. Holders of outstanding shares
of Non-Voting Common Stock will not be entitled to vote such shares on any
matter submitted to a vote of stockholders.
PREFERRED STOCK
Subject to conditions specified in the Certificate of Incorporation, the
Delaware General Corporation Law ("DGCL") and other applicable law, the Board of
Directors has the authority to issue undesignated Preferred
57
<PAGE>
Stock in one or more class or series and to determine the dividend rights,
dividend rate, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking fund provisions, number of shares constituting
any class or series, and designations of such class or series without any
further vote or action by the stockholders of the Company. The Company has no
present intention to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock is to enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of the Company by means of a tender offer, proxy contest, merger or otherwise,
and thereby to protect the continuity of the Company's management. For example,
the Company could issue a series of Preferred Stock having characteristics that
would make a takeover prohibitively expensive. The issuance of shares of the
Preferred Stock pursuant to the Board of Directors' authority described above
may adversely affect the rights of the holders of Common Stock. For example,
Preferred Stock issued by the Company may rank senior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or unlimited
voting rights and may be convertible into shares of Common Stock. Accordingly,
the issuance of shares of Preferred Stock may discourage bids for the Common
Stock or may otherwise adversely affect the market price of the Common Stock.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
Certain provisions of the Certificate of Incorporation and the Company's
Amended and Restated Bylaws (the "Bylaws") may be deemed to have an
anti-takeover effect or may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in such stockholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by such stockholder.
DELAWARE ANTI-TAKEOVER LAW. Section 203 of the DGCL ("Section 203") applies
to the Company and generally provides that a person who, together with
affiliates and associates owns, or within three years did own, 15% or more of
the outstanding voting stock of a corporation subject to the statute (an
"Interested Stockholder"), but less than 85% of such stock, may not engage in
certain business combinations with the corporation for a period of three years
after the date on which the person became an Interested Stockholder unless (i)
prior to such date, the corporation's board of directors approved either the
business combination or the transaction in which the stockholder became an
Interested Stockholder, (ii) the Interested Stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes such person an Interested Stockholder (excluding shares owned by persons
who are both officers and directors of the corporation, and shares held by
certain employee stock ownership plans), or (iii) subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at a stockholders' meeting by a vote of at least two-thirds of the
corporation's outstanding voting stock not owned by the Interested Stockholder.
Section 203 defines the term "business combination" to encompass a wide variety
of transactions with or caused by an Interested Stockholder, including mergers,
asset sales, and other transactions in which the Interested Stockholder receives
or could receive a benefit on other than a pro rata basis with other
stockholders.
The Company's stockholders, by adopting an amendment to the Certificate of
Incorporation, may elect not to be governed by Section 203, which election would
be effective 12 months after such adoption. Neither the Certificate of
Incorporation nor the Bylaws presently exclude the Company from the restrictions
imposed by Section 203, and the restrictions imposed by Section 203 apply to the
Company. The provisions of Section 203 could delay or frustrate a change in
control of the Company, deny stockholders the receipt of a premium on their
Common Stock and have a depressing effect on the market price of the Common
Stock. The provisions also could discourage, impede or prevent a merger, tender
offer or proxy contest, even if such event would be favorable to the interests
of stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation provides
for the Board of Directors to be divided into three classes of directors serving
staggered three-year terms. A director may be removed from office prior to the
expiration of his or her term only "for cause," so any person acquiring control
of the Company would need three annual meetings to replace all of the members of
the Board of Directors. The classified board provision of the Certificate of
Incorporation could have the effect of making the removal of incumbent directors
58
<PAGE>
more time-consuming and difficult, and, therefore discouraging a third party
from making a tender offer or otherwise attempting to obtain control of the
Company, even though such an attempt might be beneficial to the Company and its
stockholders. Thus, the classified board provision could increase the likelihood
that incumbent directors will retain their positions. The Company believes that
a classified Board of Directors will help to assure the continuity and stability
of the Board of Directors and of the business strategies and policies of the
Company as determined by the Board of Directors. See "Management."
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES. The Certificate of
Incorporation and Bylaws provide that the number of directors will be fixed from
time to time with the consent of two-thirds of the Board of Directors. Moreover,
the Certificate of Incorporation provides that directors may only be removed
with cause by the affirmative vote of the holders of at least a majority of the
outstanding shares of capital stock of the Company then entitled to vote at an
election of directors. This provision prevents stockholders from removing any
incumbent director without cause and allows two-thirds of the incumbent
directors to add additional directors without approval of stockholders until the
next annual meeting of stockholders at which directors of that class are
elected.
ADVANCE NOTICE OF NOMINATIONS AND STOCKHOLDER PROPOSALS. The Bylaws contain
a provision requiring at least 60 but no more than 90 days' advance notice by a
stockholder of a proposal or director nomination that such stockholder desires
to present at any annual or special meeting of stockholders, which would prevent
a stockholder from making a proposal or a director nomination at a stockholder
meeting without the Company having advance notice of the proposal or director
nomination. This provision could make a change in control more difficult by
providing the directors of the Company with more time to prepare an opposition
to a proposed change in control.
VOTE REQUIREMENT FOR CALLING SPECIAL MEETING. The Bylaws also contain a
provision requiring the vote of the holders of two-thirds of the outstanding
Common Stock in order to call a special meeting of stockholders. This provision
would prevent a stockholder with less than a two-thirds interest from calling a
special meeting to consider a merger unless such stockholder had first garnered
adequate support from a sufficient number of other stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATIONS OF DIRECTOR LIABILITY. Section 102 (b) (7) of the DGCL
authorizes corporations to limit or to eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of directors' fiduciary duty of care. Although Section 102(b) of the DGCL does
not change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
of Incorporation limits the liability of directors to the Company or its
stockholders to the full extent permitted by such Section 102(b). Specifically,
directors of the Company are not to be personally liable for monetary damages
for breach of a director's fiduciary duty as a director, except for liability:
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
INDEMNIFICATION. To the maximum extent permitted by law, the Certificate of
Incorporation provides for mandatory indemnification of directors and officers
of the Company against any expense, liability or loss to which they may become
subject, or which they may incur as a result of being or having been a director
or officer of the Company. In addition, the Company must advance or reimburse
directors and officers for expenses incurred by them in connection with
indemnifiable claims.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock ( shares, if the Underwriters' over-allotment option
is exercised in full, excluding shares reserved for issuance upon the
exercise of outstanding stock options). Of these shares, all of the shares
sold in the Offering ( shares, if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, unless held by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining shares outstanding are "restricted securities" as that term is
defined under Rule 144 and were issued by the Company in one or more private
transactions in reliance upon one or more exemptions under the Securities Act.
Such restricted securities may not be resold in the public market in the absence
of registration under the Securities Act or the availability of an exemption
from such registration, including the exemption provided by Rule 144.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including an affiliate of the Company, who has beneficially owned
restricted securities for at least one year is entitled to sell within any
three-month period a number of shares that does not exceed the greater of the
average weekly trading volume during the four calendar weeks preceding such sale
or 1% of the then outstanding shares of Common Stock, provided certain manner of
sale and notice requirements and requirements as to the availability of current
public information about the Company are satisfied. In addition, affiliates of
the Company must comply with the restrictions and requirements of Rule 144,
other than the one-year holding period, to sell unrestricted shares of Common
Stock. A person who is deemed not to have been an "affiliate" of the Company at
any time during the 90 days preceding a sale by such person, and who has
beneficially owned such shares for at least two years, would be entitled to sell
such shares without regard to the limitations described above. Taking into
consideration the effect of the 180-day lock-up agreements described below,
approximately restricted shares of Common Stock will be eligible for sale
in the public market immediately after the Offering and all remaining
restricted shares will be eligible for sale upon the expiration of the 180-day
lock-up agreements, in each case subject to the volume and other limitations of
Rule 144.
In addition to the outstanding shares of Common Stock, the Company has
reserved for issuance shares of Common Stock pursuant to the Company's
stock option and employee stock purchase plans, under which options to purchase
shares will be outstanding upon completion of the Offering. The Company
intends to register on Form S-8 under the Securities Act as soon as practicable
on and after the effective date of the Offering all of the shares reserved
for issuance pursuant to these plans. This registration statement will be
effective upon filing. Shares registered and issued pursuant to this
registration statement will be freely tradable except to the extent that the
holders thereof are deemed to be affiliates of the Company, in which case the
transferability of such shares will be subject to the volume limitations of Rule
144, and except to the extent that the holders thereof are subject to the
lock-up agreements described below.
Subject to certain exceptions, the Company, its directors and executive
officers and certain holders of outstanding shares of Common Stock and optionees
holding options to purchase a total of shares of Common Stock have agreed,
subject to certain exceptions, with the Underwriters not to sell or otherwise
dispose of any shares of Common Stock, any options to purchase Common Stock or
any securities convertible into or exchangeable for shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Hambrecht & Quist LLC.
Following the consummation of the Offering and subject to the lock-up
agreements, certain stockholders will be entitled to require the Company to
register under the Securities Act a total of shares of outstanding Common
Stock (the "Registrable Shares"). In addition, in the event the Company proposes
to register any of its securities under the Securities Act, either for its own
account or for the account of a security holder, such stockholders may be
entitled to include the Registrable Shares in such registration, subject to
certain limitations on the number of shares to be included in the registration
by the underwriter of such Offering. See "Certain Transactions--Registration
Rights Agreement."
Sales of substantial amounts of shares of Common Stock in the public market,
or the perception that such sale might occur, could adversely affect the market
price of the Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities. See "Risk Factors-Shares
Eligible for Future Sale."
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below through their Representatives, Hambrecht & Quist LLC,
NationsBanc Montgomery Securities LLC and SunTrust Equitable Securities have
severally agreed to purchase from the Company the following respective number of
shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ----------------------------------------------------------------- -----------
<S> <C>
Hambrecht & Quist LLC............................................
NationsBanc Montgomery Securities LLC............................
SunTrust Equitable Securities....................................
-----------
Total......................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives. The Representatives have informed
the Company that the Underwriters do not intend to confirm sales to accounts
over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the initial public offering price,
less the underwriting discount, set forth on the cover page of this Prospectus.
To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the table above bears to the total number of shares of Common Stock
offered hereby. The Company will be obligated, pursuant to the option, to sell
shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby.
The Offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
61
<PAGE>
The executive officers and directors of the Company and certain
stockholders, have executed lock-up agreements in which they have agreed that
they will not, without the prior written consent of Hambrecht & Quist LLC,
directly or indirectly, offer, sell, pledge, contract to sell (including any
short sale), grant any option to purchase or otherwise dispose of any shares of
Common Stock (including, without limitation, shares of Common Stock which may be
deemed to be beneficially owned by the parties to the lock-up agreements in
accordance with the rules and regulations of the Securities and Exchange
Commission and shares of Common Stock which may be issued upon exercise of a
stock option or warrant or conversion of any convertible securities) or enter
into any short sale (whether or not against the box) or any purchase, sale or
grant of any right (including without limitation, any put or call option) with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from the
Common Stock (each of the foregoing referred to as a "Disposition") for a period
from the date hereof and continuing until 180 days after the effective date of
the registration statements relating to the initial Public Offering (the
"Lock-Up Period"). The lock-up agreements are intended to preclude the Company's
officers, directors and certain of its stockholders from engaging in any
transaction which is designed to or reasonably expected to lead to or result in
a Disposition during the Lock-Up Period even if the securities would be disposed
of by someone other than the parties to the lock-up agreements. Sales of such
shares in the future could adversely affect the market price of the Common
Stock. Hambrecht & Quist LLC may, in its sole discretion, release any of the
shares subject to the lock-up agreements at any time without notice.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives. Among the factors
considered in determining the initial public Offering price will be prevailing
market conditions, revenues and earnings of the Company, market valuations of
other companies engaged in activities similar to those of the Company, estimates
of the business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors deemed
relevant.
Certain persons participating in this Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transactions may be effected on the
Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Alston & Bird LLP, Atlanta, Georgia. Certain other matters in connection with
this Offering will be passed upon for the Underwriters by Goodwin, Procter &
Hoar LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements and schedule of Accredo Health,
Incorporated as of and for the years ended June 30, 1997 and 1998, and for the
period May 24, 1996 through June 30, 1996; the statement of operations and
schedule of the Predecessor for the period July 1, 1995 through May 31, 1996;
the financial statements of Horizon Health Systems, Inc. as of and for the years
ended December 31, 1995 and 1996; the financial statements and schedule of Texas
Health Pharmaceutical Resources as and for the year ended June 30, 1997 included
in this Prospectus and in the Registration Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
62
<PAGE>
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NO.
-----
<S> <C>
ACCREDO HEALTH, INCORPORATED
Report of Independent Auditors..................................................... F-2
Consolidated Balance Sheets--June 30, 1997 and 1998................................ F-3
Consolidated Statements of Operations--for the period from inception (May 24, 1996)
through June 30, 1996, for years ended June 30, 1997 and 1998.................... F-4
Consolidated Statements of Stockholder's Equity and Mandatorily Redeemable
Cumulative Preferred Stock--for the period from inception (May 24, 1996) through
June 30, 1996, for the years ended June 30, 1997 and 1998........................ F-5
Consolidated Statements of Cash Flows--for the period from inception (May 24, 1996)
through June 30, 1996, for the years ended June 30, 1997 and 1998................ F-6
Notes to Consolidated Financial Statements......................................... F-7
NOVA FACTOR, INC.
Report of Independent Auditors..................................................... F-18
Statement of Operations--for the period July 1, 1995 through May 31, 1996.......... F-19
Statement of Stockholder's Equity--for the period July 1, 1995 through May 31,
1996............................................................................. F-20
Statement of Cash Flows--for the period July 1, 1995 through May 31, 1996.......... F-21
Notes to Financial Statements--for the period July 1, 1995 through May 31, 1996.... F-22
HORIZON HEALTH SYSTEMS, INC.
Report of Independent Auditors..................................................... F-25
Statements of Income--for the years ended December 31, 1995 and 1996 and for the
three months ended March 31, 1996 (unaudited) and 1997 (unaudited)............... F-26
Statements of Stockholders' Equity--for the years ended December 31, 1995 and 1996
and for the three months ended March 31, 1997 (unaudited)........................ F-27
Statements of Cash Flows--for the years ended December 31, 1995 and 1996 and for
the three months ended March 31, 1996 (unaudited) and 1997 (unaudited)........... F-28
Notes to Financial Statements...................................................... F-29
TEXAS HEALTH PHARMACEUTICAL RESOURCES
Report of Independent Auditors..................................................... F-31
Balance Sheets as of June 30, 1997 and 1998 (unaudited)............................ F-32
Statements of Operations for the years ended June 30, 1996 (unaudited), 1997 and
1998 (unaudited)................................................................. F-33
Statements of Partners' Equity for the years ended June 30, 1996 (unaudited), 1997
and 1998 (unaudited)............................................................. F-34
Statements of Cash Flows for the years ended June 30, 1996 (unaudited), 1997 and
1998 (unaudited)................................................................. F-35
Notes to Financial Statements...................................................... F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Accredo Health, Incorporated
We have audited the accompanying consolidated balance sheets of Accredo
Health, Incorporated (formerly Nova Holdings, Inc.) (the "Company") as of June
30, 1997 and 1998, and the related consolidated statements of operations,
stockholders' equity and mandatorily redeemable cumulative preferred stock, and
cash flows for the period from inception (May 24, 1996) through June 30, 1996,
and for the years ended June 30, 1997 and 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Accredo
Health, Incorporated at June 30, 1997 and 1998, and the results of its
operations and its cash flows for the period from inception (May 24, 1996)
through June 30, 1996, and for the years ended June 30, 1997 and 1998, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Memphis, Tennessee
August 12, 1998, except for note 12,
as to which the date is , 1998
The foregoing report is in the form that will be signed upon completion of
the restatement of capital accounts described in Note 12 to the financial
statements. The share and per share information included in the accompanying
financial statements reflect the historical capitalization of the Company and
will be restated upon completion of the restatement of capital accounts.
/s/ Ernst & Young LLP
Memphis, Tennessee
September 1, 1998
F-2
<PAGE>
ACCREDO HEALTH, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
<S> <C> <C>
1997 1998
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 3,675,819 $ 5,087,135
Receivables:
Patient accounts............................................. 33,922,326 40,062,375
Allowance for doubtful accounts.............................. (3,802,326) (3,429,863)
----------- -----------
30,120,000 36,632,512
Due from affiliates.......................................... 414,272 321,487
Other........................................................ 2,077,950 2,921,672
----------- -----------
32,612,222 39,875,671
Recoverable income taxes....................................... -- 150,893
Inventories.................................................... 16,016,166 12,131,032
Prepaids and other current assets.............................. 452,093 309,587
Deferred income taxes.......................................... 1,488,227 323,986
----------- -----------
Total current assets............................................. 54,244,527 57,878,304
Property and equipment, net...................................... 1,565,682 2,127,749
Other assets:
Joint venture investments...................................... 652,374 627,728
Goodwill, net.................................................. 58,158,549 56,679,141
Other intangible assets, net................................... 2,296,181 1,677,005
----------- -----------
Total assets..................................................... $116,917,313 $118,989,927
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $33,420,517 $31,304,771
Accrued expenses............................................... 2,127,784 3,196,977
Income taxes payable........................................... 1,802,161 --
----------- -----------
Total current liabilities........................................ 37,350,462 34,501,748
Long-term notes payable.......................................... 27,497,725 27,497,725
Senior subordinated notes payable................................ 7,696,984 8,920,180
Deferred income taxes............................................ 230,131 607,161
Mandatorily redeemable cumulative preferred stock, at redemption
amount, 300,000 shares authorized, and 255,361 shares issued
and outstanding in 1997 and 1998............................... 27,749,221 29,792,109
Stockholders' equity:
Common Stock, $.01 par value; 7,000,000 shares authorized,
5,507,253 in 1997 and 5,590,587 in 1998 issued and
outstanding................................................ 55,073 55,906
Common stock subscribed--83,334 shares in 1997 and 34,000
shares in 1998............................................. 500,004 204,000
Additional paid-in capital................................... 16,337,717 16,836,888
Retained earnings............................................ -- 778,210
----------- -----------
16,892,794 17,875,004
Subscription receivable.......................................... (500,004) (204,000)
----------- -----------
Total stockholders' equity....................................... 16,392,790 17,671,004
----------- -----------
Total liabilities and stockholders' equity....................... $116,917,313 $118,989,927
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ACCREDO HEALTH, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 24,
1996) YEARS ENDED JUNE 30,
THROUGH ------------------------
JUNE 30, 1996 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Net patient service revenue..................... $6,647,165 $106,143,403 $170,001,733
Other revenue................................... 597,283 8,048,870 9,806,296
Equity in net income of joint ventures.......... 49,255 1,016,518 1,150,122
------------- ----------- -----------
Total revenues.................................... 7,293,703 115,208,791 180,958,151
Operating expenses:
Cost of services................................ 6,450,279 101,080,589 154,045,458
General and administrative...................... 626,688 5,938,874 12,350,717
Bad debts....................................... 251,538 2,976,718 3,165,292
Depreciation.................................... 17,300 230,887 429,702
Amortization.................................... 108,604 1,368,299 2,098,584
------------- ----------- -----------
Total operating expenses.......................... 7,454,409 111,595,367 172,089,753
------------- ----------- -----------
Operating income (loss)........................... (160,706) 3,613,424 8,868,398
Other expense (income):
Interest expense................................ 106,014 1,083,431 3,721,528
Interest income................................. -- (99,890) (169,398)
------------- ----------- -----------
106,014 983,541 3,552,130
------------- ----------- -----------
Income (loss) before income taxes................. (266,720) 2,629,883 5,316,268
Income tax expense (benefit)...................... (28,420) 1,507,430 2,495,170
------------- ----------- -----------
Net income (loss)................................. (238,300) 1,122,453 2,821,098
Mandatorily redeemable cumulative preferred stock
dividends....................................... (170,233) (2,042,888) (2,042,888)
------------- ----------- -----------
Net income (loss) attributable to common
stockholders.................................... $(408,533) $ (920,435) $ 778,210
------------- ----------- -----------
------------- ----------- -----------
Net income (loss) per share attributable to common
stockholders:
Basic........................................... $ (0.08) $ (0.18) $ 0.14
Diluted......................................... $ (0.08) $ (0.18) $ 0.13
Weighted average number of shares and dilutive
share equivalents outstanding
Basic........................................... 5,107,253 5,140,586 5,566,281
Diluted......................................... 5,107,253 5,417,721 5,875,275
</TABLE>
See accompanying notes.
F-4
<PAGE>
ACCREDO HEALTH, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL RETAINED TOTAL
STOCK COMMON STOCK SUBSCRIPTION PAID-IN EARNINGS STOCKHOLDERS'
SHARES STOCK SUBSCRIBED RECEIVABLE CAPITAL (DEFICIT) EQUITY
---------- --------- ---------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization..... 5,000,000 $ 50,000 $ -- $ -- $ 14,950,000 $ -- $ 15,000,000
Issuance of common stock
and mandatorily
redeemable preferred
stock for acquired
Company.................. 107,253 1,073 -- -- 320,685 -- 321,758
Accrued dividends on
mandatorily redeemable
cumulative preferred
stock.................... -- -- -- -- (170,233) -- (170,233)
Net loss................... -- -- -- -- -- (238,300) (238,300)
---------- --------- ---------- ----------- ------------- ------------ -------------
Balance at June 30, 1996... 5,107,253 51,073 -- -- 15,100,452 (238,300) 14,913,225
Issuance of common stock... 400,000 4,000 -- -- 2,396,000 -- 2,400,000
Common stock subscribed
(83,334 shares).......... -- -- 500,004 -- -- -- 500,004
Subscription receivable.... -- -- -- (500,004) -- -- (500,004)
Accrued dividends on
mandatorily redeemable
cumulative preferred
stock.................... -- -- -- -- (1,158,735) (884,153) (2,042,888)
Net income................. -- -- -- -- -- 1,122,453 1,122,453
---------- --------- ---------- ----------- ------------- ------------ -------------
Balance at June 30, 1997... 5,507,253 55,073 500,004 (500,004) 16,337,717 -- 16,392,790
Issuance of common stock... 83,334 833 (500,004) 500,004 499,171 -- 500,004
Common stock subscribed
(34,000 shares).......... -- -- 204,000 -- -- -- 204,000
Subscription receivable.... -- -- -- (204,000) -- -- (204,000)
Accrued dividends on
mandatorily redeemable
cumulative preferred
stock.................... -- -- -- -- -- (2,042,888) (2,042,888)
Net income................. -- -- -- -- -- 2,821,098 2,821,098
---------- --------- ---------- ----------- ------------- ------------ -------------
Balance at June 30, 1998... 5,590,587 $ 55,906 $ 204,000 $(204,000) $ 16,836,888 $ 778,210 $ 17,671,004
---------- --------- ---------- ----------- ------------- ------------ -------------
---------- --------- ---------- ----------- ------------- ------------ -------------
<CAPTION>
MANDATORILY
REDEEMABLE
CUMULATIVE
PREFERRED
STOCK
-------------
<S> <C>
Initial capitalization..... $ 25,000,000
Issuance of common stock
and mandatorily
redeemable preferred
stock for acquired
Company.................. 536,100
Accrued dividends on
mandatorily redeemable
cumulative preferred
stock.................... 170,233
Net loss................... --
-------------
Balance at June 30, 1996... 25,706,333
Issuance of common stock... --
Common stock subscribed
(83,334 shares).......... --
Subscription receivable.... --
Accrued dividends on
mandatorily redeemable
cumulative preferred
stock.................... 2,042,888
Net income................. --
-------------
Balance at June 30, 1997... 27,749,221
Issuance of common stock...
Common stock subscribed
(34,000 shares).......... --
Subscription receivable.... --
Accrued dividends on
mandatorily redeemable
cumulative preferred
stock.................... 2,042,888
Net income................. --
-------------
Balance at June 30, 1998... $ 29,792,109
-------------
-------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ACCREDO HEALTH, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 24,
1996) YEARS ENDED JUNE 30,
THROUGH ----------------------
JUNE 30, 1996 1997 1998
------------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................... $ (238,300) $1,122,453 $2,821,098
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................... 125,904 1,599,186 2,528,286
Original issue discount amortization............. -- 11,975 177,370
Interest added to long-term obligations.......... -- 85,009 1,045,826
Provision for losses on accounts receivable...... 251,538 2,976,718 3,165,292
Deferred income tax expense (benefit)............ (150,260) 116,865 1,541,271
Changes in operating assets and liabilities, net of
effect from purchase of companies:
Patient receivables and other.................. (900,707) (11,059,965) (10,521,526)
Due from affiliates............................ (39,392) 478,512 92,785
Inventories.................................... (5,349,168) (5,260,633) 3,885,134
Prepaids and other current assets.............. (26,480) (216,048) 142,506
Recoverable income taxes....................... 23,264 -- (150,893)
Accounts payable and accrued expenses.......... 7,230,569 9,378,288 (1,046,553)
Income taxes payable........................... 305,289 261,340 (1,802,161)
------------- ---------- ----------
Net cash provided by (used in) operating
activities......................................... 1,232,257 (506,300) 1,878,435
INVESTING ACTIVITIES
Purchases of property and equipment.................. (23,326) (349,049) (991,769)
Purchase of Horizon Health Systems, Inc. in 1997 and
Southern Health Systems, Inc. in 1996, net of cash
acquired........................................... (37,733,715) (29,721,000) --
Change in joint venture investments, net............. 100,745 378,482 24,646
------------- ---------- ----------
Net cash used in investing activities................ (37,656,296) (29,691,567) (967,123)
FINANCING ACTIVITIES
Proceeds from long-term obligations.................. -- 27,897,725 --
Issuance of preferred stock.......................... 25,000,000 -- --
Issuance of common stock............................. 15,000,000 2,400,000 500,004
------------- ---------- ----------
Net cash provided by financing activities............ 40,000,000 30,297,725 500,004
------------- ---------- ----------
Increase in cash and cash equivalents................ 3,575,961 99,858 1,411,316
Cash and cash equivalents at beginning of period..... -- 3,575,961 3,675,819
------------- ---------- ----------
Cash and cash equivalents at end of period........... $ 3,575,961 $3,675,819 $5,087,135
------------- ---------- ----------
------------- ---------- ----------
SUPPLEMENTARY CASH FLOW DISCLOSURES:
Income taxes paid.................................... $ 204,687 $ 858,840 $1,531,692
------------- ---------- ----------
------------- ---------- ----------
Cash paid for interest............................... $ 105,854 $ 567,999 $2,675,701
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Accredo Health, Incorporated (formerly Nova Holdings, Inc.) (the Company)
was incorporated on May 24, 1996. As more fully described in Note 3, on May 31,
1996, the Company acquired Southern Health Systems, Inc. (a holding company) and
its wholly-owned subsidiary, Nova Factor, Inc. Since the Company was newly
formed at May 24, 1996, and because Nova Factor, Inc. had been in existence for
several years, the Company is considered the successor to Nova Factor Inc.'s
operations.
The consolidated financial statements include the accounts and transactions
of the Company and its subsidiaries for the period from inception (May 24, 1996)
through June 30, 1998, and its subsidiary Horizon Health Systems, Inc. (HHS) for
the period from its acquisition, June 1, 1997, through June 30, 1998.
Significant intercompany accounts have been eliminated in consolidation.
DESCRIPTION OF BUSINESS
The Company provides specialized contract pharmacy and related services
beneficial to patients with certain costly chronic diseases. Because of the
unique needs of patients suffering from chronic diseases, biotechnology drug
manufacturers have recognized the benefits of customized programs to facilitate
alternate site drug administration, ensure compliance with treatment regimens,
provide reimbursement assistance and capture valuable clinical and patient
demographic information. The Company addresses the needs of the manufacturers by
providing specialized services that facilitate product launch and patient
acceptance including timely drug utilization and patient compliance information,
patient education and monitoring, reimbursement expertise and overnight drug
delivery.
The Company has designed its specialty services to focus primarily on
biotechnology drugs that: (i) are used on a recurring basis to treat chronic,
and potentially life threatening diseases; (ii) are expensive; (iii) are
administered through injection; and (iv) require temperature control or other
specialized handling as part of their distribution process. Currently, the
Company provides specialized contract pharmacy and related services that address
the needs of patients with the following diseases: Gaucher Disease, a hereditary
liver enzyme deficiency; hemophilia, a hereditary bleeding disorder; Multiple
Sclerosis, a debilitating disease of the central nervous system; and growth
hormone related disorders. These diseases generally require life-long therapy,
except for the treatment of growth hormone-related disorders which typically
require treatment for six to ten years.
Other revenues primarily consist of management fees from biotech
manufacturers and various management agreements with hospitals and joint
ventures.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents.
PATIENT ACCOUNTS RECEIVABLE
The Company's primary concentration of credit risk is patient accounts
receivable, which consists of amounts owed by various governmental agencies,
insurance companies and private patients. The Company manages the receivables by
regularly reviewing its accounts and contracts and by providing appropriate
F-7
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
allowances for uncollectible amounts. Significant concentrations of gross
patient accounts receivable consist of the following at June 30:
<TABLE>
<CAPTION>
1997 1998
--- ---
<S> <C> <C>
Medicare....................................................... 5% 3%
Medicaid....................................................... 17% 23%
</TABLE>
Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors and the
geographic dispersion of the Company's operations The Company grants credit
without collateral to its patients.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of receivables, accounts payable and notes payable
approximates fair value of these financial instruments at June 30, 1997 and
1998.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Provisions for depreciation are
computed primarily by the straight-line method based on the estimated useful
lives of the related assets of 2 to 7 years.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of businesses acquired over fair
value of net tangible and identifiable intangible assets at the date of
acquisition. The Company recorded $23,396,095 in goodwill and $1,000,000 in
non-compete agreements on June 1, 1997, and $35,780,242 in goodwill, $1,117,783
in non-compete agreements and $361,416 in other intangible assets on May 31,
1996, in connection with business acquisitions. These assets are being amortized
using the straight-line method over their estimated useful lives of 40 years for
goodwill, 3 and 10 years for the non-compete agreements, and 10 years for the
other intangible assets. Goodwill is net of accumulated amortization of
$1,017,788 and $2,497,196 at June 30, 1997 and 1998, respectively. Non-compete
agreements and other intangible assets are net of accumulated amortization of
$459,115 and $1,078,291 at June 30, 1997 and 1998, respectively.
VALUATION OF LONG-LIVED ASSETS
Management periodically evaluates carrying values of long-lived assets,
including property and equipment, strategic investments, goodwill and other
intangible assets, to determine whether events and circumstances indicate that
these assets have been impaired. An asset is considered impaired when
undiscounted cash flows to be realized from such asset are less than its
carrying value. In that event, a loss is determined based on the amount the
carrying value exceeds the fair market value of such asset.
F-8
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK
The Company is authorized to issue up to 300,000 shares of nonvoting
mandatorily redeemable cumulative preferred stock (Series A). In connection with
its formation, the Company issued, at the $100 redemption amount, 250,000 shares
of the preferred stock on May 31, 1996, and 5,361 shares on the same date in
connection with the acquisition (see note 3), for a total of $25,536,100. The
nonvoting mandatorily redeemable cumulative preferred stock is entitled to an $8
per share annual dividend. Accumulated unpaid dividends of $2,213,121 and
$4,256,009 at June 30, 1997 and 1998, respectively, are included in the
mandatorily redeemable cumulative preferred stock in the accompanying
consolidated balance sheets. Accumulated unpaid dividends are $16.67 per share
at June 30, 1998.
The Company may, at its option, redeem at any time a portion or all of the
preferred stock at the redemption price of $100 per share, plus any accrued but
unpaid dividends, with the consent of the bank holding the senior debt. On May
31, 2004, the Company must purchase and redeem, at the redemption price of $100
plus any accrued and unpaid dividends, all the then outstanding shares of the
redeemable preferred stock. If at any time the Company consummates a public
offering of its common stock, the Company shall apply any net cash proceeds of
such offering to redeem, at the redemption price, shares of the preferred stock.
STOCK-BASED COMPENSATION
The Company recognizes stock-based compensation using the intrinsic value
method as permitted by Financial Accounting Standards Board Statement No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION (Statement 123). Accordingly, no
compensation expense is recorded for stock-based awards issued at market value
at the date such awards are granted. The Company makes pro forma disclosures of
net income as if the market-value method was followed.
REVENUE RECOGNITION
Net patient service revenues are reported at the net amounts billed to
patients, third-party payors and others in the period the services are rendered.
The Company has agreements with certain third-party payors that provide for
payments to the Company at amounts discounted from its established rates.
Approximately 18%, 17% and 20% of gross patient service revenues for the
periods ended June 30, 1996, 1997 and 1998, respectively, is from participation
in the Medicare and state-sponsored Medicaid programs.
INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap agreements as a means of managing
its interest rate exposure. The differential to be paid or received is
recognized over the life of the agreement as an adjustment to interest expense.
NET EARNINGS (LOSS) PER SHARE
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
No. 128. Earnings per Share. Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously
F-9
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET EARNINGS (LOSS) PER SHARE (CONTINUED)
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented to conform to Statement 128 requirements.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. Estimates are used primarily in recording the allowance for
doubtful accounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
Statement changes the way public companies report segment information in
financial statements and also requires those companies to report selected
segment information in interim financial reports to shareholders. The Statement
is effective for the Company beginning with its June 30, 1999, financial
statements. The Statement affects only disclosures presented in the financial
statements and will have no effect on consolidated financial position or results
of operations.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in years beginning after June 15, 1999. Management of the
Company does not anticipate that the adoption of the new Statement will have a
significant effect on results of operations or the financial position of the
Company.
3. BUSINESS ACQUISITIONS
On May 31, 1996, the Company acquired all of the outstanding shares of
Southern Health Systems, Inc. (SHS) common stock. SHS was a holding company
whose wholly-owned operating subsidiary was Nova Factor, Inc. In connection with
the acquisition of SHS common stock, the Company paid cash of $39,169,291 and
issued 107,253 shares of the Company's common stock and 5,361 shares of the
Company's mandatorily redeemable preferred stock with a value of $857,858. Total
assets acquired and liabilities assumed were $27,537,936 and $24,210,786,
respectively. This transaction was recorded by the Company using the purchase
method of accounting. The excess of the total purchase price of $40,586,591,
including acquisition costs of $559,442, over the fair market value of the net
assets acquired of $3,327,150 was allocated to goodwill and other identifiable
intangible assets. The Company recorded $35,780,242 in goodwill, $1,117,783 in
non-compete agreements and $361,416 in other intangible assets which are
included in the accompanying consolidated balance sheet.
On June 1, 1997, the Company acquired substantially all the assets of HHS, a
Company engaged in the sale and distribution of blood clotting factors and
ancillary supplies to hemophilia patients, through an acquisition accounted for
using the purchase method of accounting. The consideration paid by the Company
related to this acquisition was $29,996,127. Total assets acquired and
liabilities assumed were $9,018,540 and $3,152,031, respectively. This
transaction was recorded by the Company using the purchase method of accounting.
The excess of the purchase price of $24,396,095, including acquisition costs of
$266,477, over the fair market value of the net assets acquired, was allocated
to goodwill and other identifiable intangible assets. The operating results of
HHS are included in the Company's consolidated statement of operations beginning
June 1, 1997.
F-10
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS ACQUISITIONS (CONTINUED)
Pro forma amounts for the periods ended June 30, 1996 and 1997, as if the
acquisition had occurred on May 24, 1996 (inception), are as follows:
<TABLE>
<CAPTION>
1996 1997
--------- -----------
<S> <C> <C>
Pro forma total revenues........................... $8,971,000 $142,777,000
Pro forma net (loss) attributable to common
shareholders..................................... $(510,000) $(1,197,000)
Pro forma (loss) per share attributable to common
shareholders..................................... $ (0.10) $ (0.23)
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Equipment............................................ $ 817,142 $1,304,935
Furniture and fixtures............................... 996,727 1,487,585
--------- ---------
1,813,869 2,792,520
Accumulated depreciation............................. (248,187) (664,771)
--------- ---------
$1,565,682 $2,127,749
--------- ---------
--------- ---------
</TABLE>
5. NOTES PAYABLE
At June 30, 1998, the Company has a revolving line of credit agreement for
up to $40 million with banks, which expires October 31, 1999. The Company's
borrowing base, as defined in the agreement, was approximately $33,155,000 and
$39,843,000 at June 30, 1997 and 1998, respectively. Amounts outstanding under
the line of credit bear interest at varying rates based upon a LIBOR or prime
rate of interest at the periodic election of the Company plus a variable margin
rate based on the Company's debt to cash flow ratio as defined by the banks (the
combination of a 2% margin and LIBOR base rate resulted in effective rates of
7.69% at June 30, 1997 and 7.625% at June 30, 1998). The Company entered into an
interest rate swap agreement with a bank in October 1997 in order to fix a
portion of its interest rate exposure on this line of credit. The terms of the
agreement require the Company to pay a fixed interest rate of 6.15% on a $15
million notional amount and receive the 30 day LIBOR rate in exchange. The
interest rate swap agreement terminates October 29, 1999. The line of credit is
secured by substantially all assets of the Company. The bank's security interest
in a portion of the Company's inventory is subordinate to the liens on that
inventory under the terms of a security agreement between the Company and one of
its vendors. The same vendor has a security interest in certain accounts
receivable of the Company which is subordinate to the rights of the banks. At
June 30, 1998, the balance outstanding under this line of credit was
$27,497,725.
As defined in the credit agreements, the line of credit contains financial
covenants which require the Company to maintain certain levels of net worth,
tangible net worth, working capital, debt to net worth and liquidity ratios. The
credit agreement also restricts certain changes in management and ownership of
the Company.
During June 1997, the Company issued $10 million in senior subordinated
notes (the Notes) to certain stockholders of the Company in connection with the
purchase of HHS. The Notes, which are due June 1, 2004,
F-11
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
have a stated interest rate of 10% and an effective rate of 16%. The Notes are
unsecured. Concurrently with the issuance of the Notes, the Company issued
400,000 shares of its common stock to the Note holders. The excess of the fair
market value of the 400,000 shares of common stock issued over the purchase
price of $4,000 was recorded as an original issue discount. This original issue
discount, which accretes over the life of the related obligation using the
effective interest method, is reflected as a reduction of the Notes in the
accompanying consolidated balance sheets.
At the option of the Company, the amount of interest due and payable
September 1, 1998; December 1, 1998; March 1, 1999 and June 1, 1999, may be
added to the unpaid principal balance of the Notes. During 1997 and 1998, the
Company added $85,009 and $1,045,826, respectively, of accrued interest due
during 1997 and 1998 to the unpaid principal balance of the Notes.
If at any time while the Notes are outstanding, the Company shall consummate
a public offering, as defined in the note purchase agreement, or merge or
consolidate, as defined in the note purchase agreement, the Company shall use
the net proceeds of such offering to repay the principal amount of the Notes,
plus accrued interest (see Note 12). On any interest payment date on or after
June 1, 2002, the Company shall pay an amount of accrued original issue discount
on the Notes as shall be necessary to ensure that such Notes shall not be
considered applicable high yield discount obligations as defined in the note
purchase agreement.
6. INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company is indemnified for income tax
liabilities arising prior to May 31, 1996, by its former parent.
Income tax expense (benefit) consist of the following for the periods ended
June 30:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................. $ 121,840 $1,159,425 $ 850,062
State.................................... -- 231,140 103,837
--------- --------- ---------
121,840 1,390,565 953,899
Deferred:
Federal.................................. (142,852) 100,172 1,303,935
State.................................... (7,408) 16,693 237,336
--------- --------- ---------
(150,260) 116,865 1,541,271
--------- --------- ---------
$ (28,420) $1,507,430 $2,495,170
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes differed from the amount computed
by applying the statutory federal income tax rate of 34% for the periods ended
June 30 due to the following:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate.......... $ (90,685) $ 894,107 $1,807,496
State income tax expense (benefit), net of federal
income tax expense (benefit).......................... (4,889) 164,903 225,174
Goodwill amortization................................... 36,925 443,104 443,104
Other................................................... 30,229 5,316 19,396
--------- ---------- ----------
Income tax expense (benefit)............................ $ (28,420) $1,507,430 $2,495,170
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
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 used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at June 30 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves....................... $1,350,846 $1,197,657
Accrued expenses................................... 84,505 96,904
Joint venture investments.......................... 20,322 17,129
Other.............................................. 32,554 34,316
--------- ---------
1,488,227 1,346,006
Deferred tax liabilities:
Property and equipment............................. (99,863) (150,458)
Intangible assets.................................. (43,391) (372,606)
Joint venture investments.......................... (86,877) (84,097)
Accounts receivable................................ -- (1,022,020)
--------- ---------
(230,131) (1,629,181)
--------- ---------
Net deferred tax assets (liabilities)................ $1,258,096 $(283,175)
--------- ---------
--------- ---------
</TABLE>
7. OPERATING LEASES
The Company leases office space and equipment under various operating
leases. Rent expense for all operating leases was approximately $24,000,
$429,000 and $758,000 for the periods ended June 30, 1996, 1997 and 1998,
respectively.
F-13
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OPERATING LEASES (CONTINUED)
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial terms of one year or more consist of the following
at June 30, 1998 (including executed lease extensions through August 12, 1998):
<TABLE>
<S> <C>
1999............................................................ $ 780,000
2000............................................................ 522,000
2001............................................................ 360,000
2002............................................................ 388,000
2003............................................................ 361,000
---------
$2,411,000
---------
---------
</TABLE>
8. INVESTMENT IN JOINT VENTURES
Texas Health Pharmaceutical Resources, Teddy Bear Home Care/Drug Therapies
and Children's Memorial Home Hemophilia Services are partnerships in which the
Company has a 50% ownership interest. Campus Home Health Care-Home Hemophilia is
a limited liability company in which the Company has a 25% ownership interest.
These joint ventures are accounted for by the Company under the equity method of
accounting. Amounts due from these joint ventures to the Company are classified
as due from affiliates in the accompanying consolidated balance sheets. The
portion of the Company's retained earnings at June 30, 1998, attributable to
undistributed earnings of these joint ventures is $628,000.
The Company provided management services to these joint ventures of $21,000,
$362,000 and $413,000 for the periods ended June 30, 1996, 1997 and 1998,
respectively, which are recorded as other revenues in the accompanying
consolidated statements of operations.
Summary financial information for affiliated joint ventures (20 percent to
50 percent owned) accounted for by the equity method is as follows as of and for
the periods ended June 30:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Current assets.......................... $3,222,000 $2,629,000 $2,160,000
Property and equipment and other
assets................................ 96,000 84,000 78,000
Current liabilities..................... 1,260,000 1,392,000 971,000
Total revenues.......................... 729,000 12,736,000 10,215,000
Net income.............................. 99,000 2,050,000 2,315,000
</TABLE>
9. DEFINED CONTRIBUTION PLAN
The Company has a qualified defined contribution plan under Section 401(k)
of the Internal Revenue Code. Substantially all full time employees qualify for
participation in the plan. The Company matches employee contributions, as
defined in the plan. The Company made annual matching contributions of
approximately $2,000, $41,000 and $43,000 for the periods ended June 30, 1996,
1997 and 1998, respectively.
10. STOCK OPTION PLAN
The Company's Amended and Restated Stock Option and Restricted Stock
Purchase Plan has authorized the grant of options to selected employees,
officers, and directors for up to 965,000 shares of the Company's
F-14
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
common stock. All options granted have 10-year terms and vest and become fully
exercisable over a period of 1 to 6 years of continued employment. Certain
options granted with up to 6-year vesting terms also have provisions for
accelerated vesting over the first 4 years if certain Company income targets are
achieved during that period. Otherwise, these options become fully exercisable
at the end of up to 6 years of continued employment.
Pro forma information regarding net income is required by Statement 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of Statement 123. Significant assumptions
used by the Company in the Black-Scholes option pricing model computations are
as follows for the periods ended June 30:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Risk-free interest rates..... 6.25% to 6.40% 6.08% to 6.93% 5.48% to 6.22%
Dividend yield............... 0% 0% 0%
Volatility factor............ .60 .60 .60
Weighted-average expected 4.6 years 4.5 years 4.45 years
life.......................
</TABLE>
The Black-Scholes option model was developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the periods ended June 30 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) "as reported"............ $(238,300) $1,122,453 $2,821,098
Pro forma net income (loss)................ $(253,387) $ 914,795 $2,515,336
</TABLE>
These pro forma disclosures are not necessarily representative of the
effects of stock options on reported pro forma net income for future years.
F-15
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
A summary of the Company's stock option activity and related information for
the periods ended June 30 follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ------------- ----------- ------------- ----------- -------------
Outstanding at beginning of period.... -- $ -- 542,857 $ 3 670,858 $ 3
Granted............................... 542,857 3 130,001 3 186,428 6
Exercised............................. -- -- -- -- -- --
Forfeited............................. -- -- (2,000) 3 (857) 3
----------- ----- ----------- ----- ----------- -----
Outstanding at end of period.......... 542,857 $ 3 670,858 $ 3 856,429 $ 4.84
----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- -----
Exercisable at end of period.......... -- $ -- 116,000 $ 3 247,001 $ 3.17
----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- -----
Weighted-average fair value of options
granted during the year............. $ 1.64 $ 1.63 $ 2.61
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The range of exercise prices for the Company's stock options outstanding at
June 30, 1998, is $3.00 to $6.00. The weighted-average remaining contractual
life of those outstanding options is 8.3 years at June 30, 1998.
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data) for the periods ended June 30:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Numerator for basic and diluted income (loss) per
share attributable to common stockholders:
Net income (loss).............................. $(238,300) $1,122,453 $2,821,098
Less preferred stock dividends................. (170,233) (2,042,888) (2,042,888)
--------- ---------- ----------
Net income (loss) attributable to common
stockholders................................. $(408,533) $ (920,435) $ 778,210
--------- ---------- ----------
--------- ---------- ----------
Denominator:
Denominator for basic income (loss) per share
attributable to common
stockholders--weighted-average shares........ 5,107,253 5,140,586 5,566,281
Effect of dilutive stock options............... -- 277,135 308,994
--------- ---------- ----------
Denominator for diluted income (loss) per share
attributable to common stockholders--adjusted
weighted-average shares...................... 5,107,253 5,417,721 5,875,275
--------- ---------- ----------
--------- ---------- ----------
Net income (loss) per share attributable to
common stockholders--basic..................... $ (0.08) $ (0.18) $ 0.14
--------- ---------- ----------
--------- ---------- ----------
Net income (loss) per share attributable to
common stockholders--diluted (1)............... $ (0.08) $ (0.18) $ 0.13
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
F-16
<PAGE>
ACCREDO HEALTH, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EARNINGS PER SHARE (CONTINUED)
(1) Historical diluted loss per share amounts for 1996 and 1997 have been
calculated using the same denomination as used in the basic loss per share
calculation as the inclusion of dilutive securities in the denominator would
have an anti-dilutive effect.
12. SUBSEQUENT EVENTS
PUBLIC OFFERING
The Company is currently in the process of an initial public offering of its
common stock (the "Offering"). The net proceeds from the Offering are planned to
be used primarily to reduce outstanding indebtedness and redeem Series A
mandatorily redeemable cumulative preferred stock.
CHANGES IN COMMON STOCK
Immediately prior to the consummation of the anticipated Offering, the
Company intends to complete a recapitalization pursuant to which a for
stock split will be effected and pursuant to which shares of Common
Stock held by the Company's principal stockholder will be exchanged for
shares of Non-voting Common Stock of the Company. All share and per share
amounts have been retroactively restated to reflect the stock split.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Nova Factor, Inc.
We have audited the accompanying statements of operations, stockholder's
equity and cash flows for Nova Factor, Inc. (the "Company") for the period July
1, 1995 through May 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 results of operations, changes in stockholder's
equity and cash flows of Nova Factor, Inc. for the period July 1, 1995 through
May 31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Memphis, Tennessee
August 30, 1996
F-18
<PAGE>
NOVA FACTOR, INC.
STATEMENT OF OPERATIONS
ELEVEN-MONTH PERIOD ENDED MAY 31, 1996
<TABLE>
<S> <C>
Revenues:
Net patient service revenue.................................................. $68,584,991
Other revenue................................................................ 6,346,546
Equity in net loss of joint ventures......................................... (138,970)
----------
Total revenues................................................................. 74,792,567
Operating expenses:
Cost of services............................................................. 65,867,240
General and administrative................................................... 2,753,353
Bad debts.................................................................... 1,860,253
Depreciation................................................................. 103,352
Corporate overhead allocation................................................ 4,206,274
----------
Total operating expenses....................................................... 74,790,472
----------
Operating income............................................................... 2,095
Other (expense) income:
Interest expense............................................................. (1,281,683)
Interest income.............................................................. 1,015,664
----------
(266,019)
----------
Loss before income tax benefit................................................. (263,924)
Income tax benefit: 72,090
----------
Net loss....................................................................... $ (191,834)
----------
----------
</TABLE>
See accompanying notes.
F-19
<PAGE>
NOVA FACTOR, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995........... 100 $ 1,000 $7,585,731 $3,728,265 $11,314,996
Dividend to SHS.................. -- -- (4,259,581) (3,536,431) (7,796,012)
Net loss for the period ended May
31, 1996....................... -- -- -- (191,834) (191,834)
----------- ----------- ---------- ---------- ----------
Balance at May 31, 1996............ 100 $ 1,000 $3,326,150 $ -- $3,327,150
----------- ----------- ---------- ---------- ----------
----------- ----------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-20
<PAGE>
NOVA FACTOR, INC.
STATEMENT OF CASH FLOWS
ELEVEN-MONTH PERIOD ENDED MAY 31, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss........................................................................ $ (191,834)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation.................................................................. 103,352
Provision for losses on patient receivables................................... 1,860,253
Provision for deferred income taxes........................................... 78,778
Changes in operating assets and liabilities:
Patient receivables and other............................................... (720,568)
Recoverable income taxes.................................................... 23,264
Due to affiliates........................................................... 1,048,753
Inventories................................................................. 5,027,002
Prepaids and other current assets........................................... (59,462)
Accounts payable and accrued expenses....................................... (5,089,028)
Income taxes payable........................................................ (161,972)
----------
Net cash provided by operating activities....................................... 1,872,010
INVESTING ACTIVITIES
Purchases of property and equipment............................................. (880,057)
Increase in other assets........................................................ (12,346)
Change in joint venture investments, net........................................ 401,570
----------
Net cash used in investing activities........................................... (490,833)
FINANCING ACTIVITIES
Payments on notes payable....................................................... (30,883)
----------
Increase in cash................................................................ 1,350,294
Cash at beginning of period..................................................... 644,723
----------
Cash at end of period........................................................... $1,995,017
----------
----------
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest.......................................................... $ 366,000
----------
----------
Cash paid for income taxes...................................................... $ 193,000
----------
----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
NOVA FACTOR, INC.
NOTES TO FINANCIAL STATEMENTS
ELEVEN-MONTH PERIOD ENDED MAY 31, 1996
1. ORGANIZATION AND NATURE OF OPERATIONS
ORGANIZATION
Nova Factor, Inc. (the Company) is a wholly-owned subsidiary of Southern
Health Systems, Inc. (SHS), a holding company. Prior to May 31, 1996, Le Bonheur
Health Systems, Inc. was the majority shareholder of SHS. On May 31, 1996,
Accredo Health, Incorporated (Accredo) (formerly Nova Holdings, Inc.) purchased
from Le Bonheur Health Systems, Inc. all of the outstanding shares of SHS common
stock. The financial statements reflect the historical cost-basis financial
statements of the Company, the predecessor to Accredo, prior to the acquisition.
DESCRIPTION OF BUSINESS
The Company provides specialized contract pharmacy and related services
beneficial to patients with certain costly chronic diseases. Because of the
unique needs of patients suffering from chronic diseases, biotechnology drug
manufacturers have recognized the benefits of customized programs to facilitate
alternate site drug administration, ensure compliance with treatment regimens,
provide reimbursement assistance and capture valuable clinical and patient
demographic information. The Company addresses the needs of the manufacturers by
providing specialized services that facilitate product launch and patient
acceptance including timely drug utilization and patient compliance information,
patient education and monitoring, reimbursement expertise and overnight drug
delivery.
The Company has designed its specialty services to focus primarily on
biotechnology drugs that: (i) are used on a recurring basis to treat chronic,
and potentially life threatening diseases; (ii) are expensive; (iii) are
administered through injection; and (iv) require temperature control or other
specialized handling as part of their distribution process.
Other revenues primarily consist of management fees from biotech
manufacturers and various management agreements with hospitals and joint
ventures.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Net patient service revenues are reported at the net amounts billed to
patients, third-party payors and others in the period the services are rendered.
The Company has agreements with certain third party-payors that provide for
payments to the Company at amounts discounted from its established rates.
Approximately 18% of gross patient service revenue for the eleven-month
period ended May 31, 1996, is from participation in the Medicare and
state-sponsored Medicaid programs. The Company grants credit without collateral
to its patients.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
F-22
<PAGE>
NOVA FACTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ELEVEN-MONTH PERIOD ENDED MAY 31, 1996
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Provisions for depreciation are computed by the straight-line method based
on the estimated useful lives of the related assets of 2 to 7 years.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Estimates are used primarily in recording the allowance for doubtful
accounts.
3. INCOME TAXES
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company is indemnified for income tax
liabilities arising prior to May 31, 1996, by Le Bonheur Health Systems, Inc.,
SHS's former parent.
SHS files a consolidated federal income tax return. Financial Accounting
Standards Board Statement 109, ACCOUNTING FOR INCOME TAXES, requires the
allocation of federal income tax expense to the members of a control group that
file a consolidated income tax return for federal income tax purposes.
Therefore, SHS allocated federal income tax benefits of $72,090 to the Company
for the eleven-month period ended May 31, 1996, as if a separate federal income
tax return were filed for the Company.
Income tax (expense) benefit consists of the following for the period ended
May 31, 1996:
<TABLE>
<S> <C>
Current federal benefit.......................................... $ 150,868
Deferred federal expense......................................... (78,778)
---------
$ 72,090
---------
---------
</TABLE>
The benefit for income taxes differed from the amount computed by applying
the statutory federal income tax rate of 34% for the eleven-month period ended
May 31, 1996, due to the following:
<TABLE>
<S> <C>
Income tax benefit at statutory rate.............................. $ 89,734
Nondeductible expenses............................................ (17,644)
---------
Income tax benefit $ 72,090
---------
---------
</TABLE>
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 used for income tax purposes.
4. OPERATING LEASES
The Company leases office space and equipment under various operating
leases. Rent expense for all operating leases was approximately $162,000 for the
eleven-month period ended May 31, 1996.
F-23
<PAGE>
NOVA FACTOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ELEVEN-MONTH PERIOD ENDED MAY 31, 1996
4. OPERATING LEASES (CONTINUED)
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with terms of one year or more consist of the following for the
years ended June 30:
<TABLE>
<S> <C>
1997............................................................ $ 287,000
1998............................................................ 287,000
1999............................................................ 287,000
2000............................................................ 287,000
2001............................................................ 263,000
---------
$1,411,000
---------
---------
</TABLE>
5. DEFINED CONTRIBUTION PLAN
The Company participates in a qualified defined contribution plan of SHS,
under Section 401(k) of the Internal Revenue Code (IRC). Substantially all full
time employees qualify for participation in the plan. The Company makes matching
contributions to the employees' accounts, as defined in the plan. The Company
made matching contributions of approximately $7,500 in the eleven-month period
ended May 31, 1996.
6. RELATED PARTIES
In connection with the sale of SHS by Le Bonheur Health Systems, Inc. on May
31, 1996, the Company declared a non-cash dividend consisting of the amount owed
to the Company by SHS at May 31, 1996 of $7,796,012 by forgiving such amounts
due from SHS. This dividend was recorded as a reduction of stockholder's equity.
Dividends on a per share basis do not provide meaningful information and are not
disclosed herein.
The Company received certain services provided by SHS that include cash
management, tax reporting, risk management and executive management. Allocated
expenses for such services, amounting to $2,753,268 for the eleven-month period
ended May 31, 1996, have been included in the accompanying statement of
operations. Charges for these corporate services were based upon a general
allocation methodology determined by SHS (used to allocate all corporate
overhead expenses to SHS subsidiaries), and were not necessarily allocated based
on specific identification of expenses. Management believes the allocation
methodology is reasonable, and results in amounts that approximate the amounts
that would have been incurred on a stand-alone basis. Additionally, SHS
allocated expenses of $1,453,006 incurred in connection with the sale of the
Company to Accredo.
Texas Health Pharmaceutical Resources, Teddy Bear Home Care/Drug Therapies
and Children's Memorial Home Hemophilia Services are joint ventures in which the
Company has a 50% ownership interest. These joint ventures are accounted for by
the Company under the equity method of accounting.
The Company provided management services to these joint ventures of
approximately $342,000 for the eleven-month period ended May 31, 1996. The
management fees are recorded as other revenues in the accompanying statement of
operations.
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Horizon Health Systems, Inc.
We have audited the accompanying statements of income, stockholders' equity
and cash flows for Horizon Health Systems, Inc. (the "Company") for the years
ended December 31, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 results of operations, changes in stockholders'
equity and cash flows of Horizon Health Systems, Inc. for the years ended
December 31, 1995 and 1996, in conformity with generally accepted accounting
principles.
Memphis, Tennessee /s/ Ernst & Young LLP
July 30, 1998
F-25
<PAGE>
HORIZON HEALTH SYSTEMS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, ------------------------
------------------------- MARCH 31, MARCH 31,
1995 1996 1996 1997
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Net patient service revenues............ 2$3,834,480 $27,427,988 $6,311,473 $7,196,407
Operating expenses:
Cost of services...................... 16,820,301 19,757,939 4,514,174 5,141,500
General and administrative............ 4,138,634 4,595,068 911,187 1,062,323
Depreciation and amortization......... 101,866 82,086 22,759 21,079
----------- ------------ ----------- -----------
Total operating expenses................ 21,060,801 24,435,093 5,448,120 6,224,902
----------- ------------ ----------- -----------
Operating income........................ 2,773,679 2,992,895 863,353 971,505
Other expense (income):
Interest income....................... (19,532) (80,653) (17,281) (17,149)
Interest expense...................... 100,831 17,384 14,515 --
----------- ------------ ----------- -----------
81,299 (63,269) (2,766) (17,149)
----------- ------------ ----------- -----------
Income before income taxes.............. 2,692,380 3,056,164 866,119 988,654
State income taxes...................... 112,574 143,562 51,967 40,853
----------- ------------ ----------- -----------
Net income.............................. $2,579,806 $2,912,602 $ 814,152 $ 947,801
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
See accompanying notes.
F-26
<PAGE>
HORIZON HEALTH SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON COMMON RETAINED STOCKHOLDERS'
SHARES STOCK EARNINGS EQUITY
------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995.................... 100 $ 150,100 $1,479,488 $1,629,588
Net income.................................. -- -- 2,579,806 2,579,806
Dividends paid.............................. -- -- (1,148,650) (1,148,650)
--
----------- ---------- ------------
Balance at December 31, 1995.................. 100 150,100 2,910,644 3,060,744
Net income.................................. -- -- 2,912,602 2,912,602
Dividends paid.............................. -- -- (1,800,000) (1,800,000)
--
----------- ---------- ------------
Balance at December 31, 1996.................. 100 150,100 4,023,246 4,173,346
Net income.................................. -- -- 947,801 947,801
Dividends paid.............................. -- -- (400,000) (400,000)
--
----------- ---------- ------------
Balance at March 31, 1997 (unaudited)......... 100 $ 150,100 $4,571,047 $4,721,147
--
--
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
See accompanying notes.
F-27
<PAGE>
HORIZON HEALTH SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, ------------------------
------------------------- MARCH 31, MARCH 31,
1995 1996 1996 1997
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net income.............................. $2,579,806 $2,912,602 $ 814,152 $ 947,801
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 101,866 82,086 22,759 21,079
Loss on abandoned property............ -- 32,516 -- --
Changes in operating assets and
liabilities:
Patient receivables and other....... 596,058 (1,291,267) 734,136 577,996
Inventories......................... (625,878) (210,472) 36,206 133,674
Prepaids and other assets........... (55,039) (6,456) 44,482 28,388
Accounts payable and accrued
expenses.......................... 230,304 715,371 (580,217) (710,628)
Refunds payable..................... (33,523) 620,400 -- --
Income taxes payable................ 10,625 (61,655) (40,120) (64,997)
----------- ------------ ----------- -----------
Net cash provided by operating
activities............................ 2,804,219 2,793,125 1,031,398 913,313
INVESTING ACTIVITIES
Purchases of property and equipment..... (65,630) (70,981) (42,758) (112,317)
FINANCING ACTIVITIES
Proceeds from long term obligations..... 750,000 -- -- --
Net payments on line of credit.......... (1,768,000) -- -- --
Principal payments on long-term debt.... (125,000) (625,000) (37,500) --
Payment of dividends.................... (1,148,650) (1,800,000) (600,000) (400,000)
----------- ------------ ----------- -----------
Net cash used in financing activities... (2,291,650) (2,425,000) (637,500) (400,000)
----------- ------------ ----------- -----------
Increase in cash and cash equivalents... 446,939 297,144 351,140 400,996
Cash and cash equivalents at beginning
of period............................. 729,722 1,176,661 1,176,661 1,473,805
----------- ------------ ----------- -----------
Cash and cash equivalents at end of
period................................ $1,176,661 $1,473,805 $1,527,801 $1,874,801
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
SUPPLEMENTARY CASH FLOW DISCLOSURES:
Cash paid for interest.................. $ 100,831 $ 17,384 $ 14,515 $ --
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
Income taxes paid....................... $ 101,949 $ 113,130 $ 40,484 $ 105,851
----------- ------------ ----------- -----------
----------- ------------ ----------- -----------
</TABLE>
See accompanying notes.
F-28
<PAGE>
HORIZON HEALTH SYSTEM, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1996
1. ORGANIZATION AND NATURE OF OPERATIONS
ORGANIZATION
Prior to June 1, 1997, Horizon Health Systems, Inc. d/b/a Hemophilia Health
Services (the Company) was organized as an S corporation. On June 1, 1997,
Accredo Health, Incorporated (formerly Nova Holdings, Inc.) acquired
substantially all of the assets of the Company and the Company became a
wholly-owned subsidiary of Accredo Health, Incorporated.
DESCRIPTION OF BUSINESS
The Company is engaged in the sale and distribution of clotting factors and
ancillary supplies to hemophilia patients located throughout the United States.
The Company provides value-added clinical and distribution services to patients
and payors such as insurance companies, health maintenance organizations, self
insured employers and through the federal Medicare and state-funded health care
programs.
2. SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Net patient service revenues are reported at the net amounts billed to
patients, third-party payors and others in the period the services are rendered.
The Company has agreements with certain third-party payors that provide for
payments to the Company at amounts discounted from its established rates. The
Company grants credit without collateral to its patients.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
DEPRECIATION AND AMORTIZATION
Provisions for depreciation and amortization are computed principally by
accelerated and straight-line methods based on the estimated useful lives of the
related assets of 5 to 7 years.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. INCOME TAXES
The Company, with the consent of its shareholders, has elected to be an S
Corporation under the Internal Revenue Code. Instead of the Company paying
federal corporate income taxes, the stockholders are taxed individually on the
Company's taxable income. Therefore no provision for federal income taxes has
been made. The Company is liable for state franchise and excise taxes and,
accordingly, a provision has been made for such taxes.
F-29
<PAGE>
HORIZON HEALTH SYSTEM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1996
4. OPERATING LEASES
The Company leases office space and equipment under various operating
leases. Rent expense for all operating leases was approximately $274,000 and
$226,000 for the years ended December 31, 1995 and 1996, respectively.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial terms of one year or more consist of the following
at December 31, 1996:
<TABLE>
<S> <C>
1997.............................................................. $ 251,000
1998.............................................................. 226,000
1999.............................................................. 198,000
---------
$ 675,000
---------
---------
</TABLE>
5. RELATED PARTIES
The Company leased office space from the President and 79% owner of the
Company prior to June 1, 1997. Monthly payments on the lease, which expires
November 1999, are $17,988.
6. NOTES PAYABLE
At December 31, 1995, the Company had a promissory note with a bank for
$750,000. The note carried interest at the bank's prime rate plus an additional
amount based on the Company's leverage rate, ranging from 0.25% to 1.0% (9.5% at
December 31, 1995). The note was paid in full during 1996.
7. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited financial statements for the three-month periods ended March
31, 1996 and 1997, have been prepared in accordance with generally accepted
accounting principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of recurring adjustments, necessary for a fair presentation have been included.
Operating results for the three-month periods ended March 31, 1996 and 1997, are
not necessarily indicative of the results that may be expected for the entire
year.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Texas Health Pharmaceutical Resources
We have audited the accompanying balance sheet of Texas Health
Pharmaceutical Resources (the Partnership) as of June 30, 1997, and the related
statements of operations, partners' equity and cash flows for the year then
ended. 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 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 Texas Health Pharmaceutical
Resources at June 30, 1997, and the results of its operations and cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Memphis, Tennessee
August 21, 1998
F-31
<PAGE>
TEXAS HEALTH PHARMACEUTICAL RESOURCES
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 198,728 $ 53,979
------------ ------------
Receivables:
Patient accounts.................................................................. 602,827 520,806
Allowance for doubtful accounts................................................... (123,003) (170,160)
------------ ------------
479,824 350,646
Due from affiliates............................................................... 183,239 192,096
Other............................................................................. 39,515 124,765
------------ ------------
702,578 667,507
Inventories......................................................................... 413,371 252,731
Prepaids and other current assets................................................... 3,860 1,159
------------ ------------
Total current assets.................................................................. 1,318,537 975,376
Furniture and equipment, net of accumulated depreciation of $24,397 and $30,356 for
1997 and 1998, respectively......................................................... 56,575 55,385
------------ ------------
Total assets.......................................................................... $ 1,375,112 $ 1,030,761
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 583,026 $ 388,156
Accrued expenses.................................................................... 10,173 29,281
Due to partner...................................................................... 7,851 13,896
------------ ------------
Total current liabilities............................................................. 601,050 431,333
Partners' equity...................................................................... 774,602 599,428
------------ ------------
Total liabilities and partners' equity................................................ $ 1,375,112 $ 1,030,761
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-32
<PAGE>
TEXAS HEALTH PHARMACEUTICAL RESOURCES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues:
Net patient service revenue............................. $7,465,691 $7,217,045 $3,840,253
Other revenue........................................... -- 43,315 718,469
--------- --------- ---------
Total revenues............................................ 7,465,691 7,260,360 4,558,722
Expenses:
Cost of services........................................ 5,480,648 5,300,908 2,771,129
General and administrative.............................. 144,005 162,534 166,626
Management, accounting and reimbursement fees........... 771,085 245,967 194,198
Bad debts............................................... 223,369 283,357 177,351
Depreciation............................................ 2,120 13,350 13,857
--------- --------- ---------
Total operating expenses.................................. 6,621,227 6,006,116 3,323,161
--------- --------- ---------
Operating income.......................................... 844,464 1,254,244 1,235,561
Other income (expense):
Interest income......................................... -- 19,691 14,268
Forgiveness of amounts due from affiliates.............. (1,635,143) -- --
--------- --------- ---------
(1,635,143) 19,691 14,268
--------- --------- ---------
Net income (loss)......................................... $(790,679) $1,273,935 $1,249,829
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-33
<PAGE>
TEXAS HEALTH PHARMACEUTICAL RESOURCES
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
Balance at June 30, 1995 (unaudited)............................................ $2,240,806
Net loss (unaudited).......................................................... (790,679)
---------
Balance at June 30, 1996........................................................ 1,450,127
Distributions to partners..................................................... (1,950,000)
Net income.................................................................... 1,273,935
---------
Balance at June 30, 1997........................................................ 774,062
Distributions to partners (unaudited)......................................... (1,424,463)
Net income (unaudited)........................................................ 1,249,829
---------
Balance at June 30, 1998 (unaudited)............................................ $ 599,428
---------
---------
</TABLE>
See accompanying notes.
F-34
<PAGE>
TEXAS HEALTH PHARMACEUTICAL RESOURCES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net income (loss)......................................... $(790,679) $1,273,935 $1,249,829
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation............................................ 2,120 13,350 13,857
Gain on sale of equipment............................... -- -- (2,000)
Forgiveness of amounts due from affiliates.............. 1,635,143 -- --
Provision for losses on patient accounts receivable..... 223,369 283,357 177,351
Changes in operating assets and liabilities:
Patient receivables and other......................... (612,037) 645,220 (133,423)
Due from affiliates................................... (485,375) (107,636) (8,857)
Inventories........................................... 310,329 (1,104) 160,640
Prepaids and other current assets..................... (10,551) 6,691 2,701
Accounts payable and accrued expenses................. (517,463) 333,754 (175,762)
Due to partner........................................ 425,652 (410,736) 6,045
--------- --------- ---------
Net cash provided by operating activities................. 180,508 2,036,831 1,290,381
INVESTING ACTIVITIES
Purchases of furniture and equipment...................... (62,276) (6,335) (12,667)
Proceeds from sale of equipment........................... -- -- 2,000
--------- --------- ---------
Net cash used in investing activities..................... (62,276) (6,335) (10,667)
FINANCING ACTIVITIES
Distributions to general partners......................... -- (1,950,000) (1,424,463)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents.......... 118,232 80,496 (144,749)
Cash and cash equivalents at beginning of year............ -- 118,232 198,728
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 118,232 $ 198,728 $ 53,979
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-35
<PAGE>
TEXAS HEALTH PHARMACEUTICAL RESOURCES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED AS TO 1996 AND 1998)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
1. ORGANIZATION AND NATURE OF OPERATIONS
ORGANIZATION
Texas Health Pharmaceutical Resources (the Partnership) is a general
partnership formed on July 1, 1994. The Partnership has two general partners,
Nova Factor, Inc. (NFI) and Alternative Care Systems, Inc. (ACS), each of which
has a 50% ownership interest and shares equally in the profits and losses of the
Partnership. Under the partnership agreement, the partnership term will end on
March 31, 1999, unless extended by mutual agreement of the partners.
DESCRIPTION OF BUSINESS
The purpose of the Partnership is to provide specialized contract pharmacy
services beneficial to patients with certain costly chronic diseases. The
Partnership markets, sells and distributes drugs such as growth hormone and
provides hemophilia therapy services and supplies.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents.
PATIENT ACCOUNTS RECEIVABLE
The Partnership's primary concentration of credit risk is patient accounts
receivable, which consists of amounts owed by various governmental agencies,
insurance companies and private patients. The Partnership manages the
receivables by regularly reviewing its accounts and contracts and by providing
appropriate allowances for uncollectible accounts. Significant concentrations of
gross patient accounts receivable are as follows at June 30:
<TABLE>
<CAPTION>
1997
--------- 1998
-----------
(UNAUDITED)
<S> <C> <C>
Medicare................................................................ 24% 14%
Medicaid................................................................ 29% 32%
</TABLE>
Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors, and could be
adversely affected by the geographic service area of the business which, under
the partnership agreement, is the area encompassed within the 50-mile radius of
Dallas, Texas, and within the city limits of Lubbock, Texas. The Partnership
grants credit without collateral to its patients.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of receivables and accounts payable approximates fair
value of these financial instruments.
F-36
<PAGE>
TEXAS HEALTH PHARMACEUTICAL RESOURCES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO 1996 AND 1998)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Provisions for depreciation are
computed by the straight-line method based on the estimated useful lives of the
related assets of three to seven years.
REVENUE RECOGNITION
Net patient service revenues are reported at the net amounts billed to
patients, third-party payors and others in the period the services are rendered.
The Partnership has agreements with certain third-party payors that provide for
payments to the Partnership at amounts discounted from its established rates.
Approximately 59% (unaudited), 63% and 63% (unaudited) of gross patient service
revenues for the years ended June 30, 1996, 1997 and 1998, respectively, are
from participation in the Medicare and state-sponsored Medicaid programs.
Other revenues primarily consist of management fees.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Estimates are used primarily in recording the allowances for doubtful
accounts.
3. OPERATING LEASES
The Partnership leases office space and equipment under various operating
leases. Rent expense for all operating leases was approximately $1,700
(unaudited), $15,000 and $15,000 (unaudited), for the years ended June 30, 1996,
1997 and 1998, respectively.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with terms of one year or more, consist of the following for
the years ended June 30:
<TABLE>
<S> <C>
1999............................................................... $ 14,000
2000............................................................... 13,000
---------
$ 27,000
---------
---------
</TABLE>
4. RELATED PARTIES
During 1996, the Partnership forgave $1,635,143 (unaudited) of amounts due
from affiliates in which ACS and an affiliate of NFI were each 50% partners. Due
from affiliates of $183,239 and $192,096 (unaudited) at June 30, 1997 and 1998,
respectively, consists of accounts receivable from other entities affiliated
with NFI.
The Partnership receives certain services provided by NFI that include cash
management, tax reporting, risk management, executive management, computer
processing, and accounting and reimbursement services. For these services, the
Partnership pays management, reimbursement and accounting fees to NFI.
Management, accounting and reimbursement fees were $771,085 (unaudited),
$245,967 and $194,198 (unaudited) for the years ended June 30, 1996, 1997 and
1998, respectively. The Partnership received management fees of approximately
$708,000 (unaudited) from an affiliate of ACS for the year ended June 30, 1998.
F-37
<PAGE>
TEXAS HEALTH PHARMACEUTICAL RESOURCES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AS TO 1996 AND 1998)
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
5. INCOME TAXES
No provision is made in the accounts of the Partnership for federal and
state income taxes, as such taxes are liabilities of the partners. The
Partnership's tax returns and amounts of allocable Partnership revenues and
expenses are subject to examination by federal and state taxing authorities. If
such examinations occur and result in changes, the portion of the Partnership's
income or loss reported by the partners may also change.
F-38
<PAGE>
- ---------------------------------------------------------
---------------------------------------------------------
- ---------------------------------------------------------
---------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL, OR TO ANY PERSON TO WHOM IT IS 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 OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
The Company.......................... 15
Use of Proceeds...................... 15
Dividend Policy...................... 15
Capitalization....................... 16
Dilution............................. 17
Selected Financial Information....... 18
Management's Discussion and
Analysis............................ 19
Business............................. 28
Management........................... 46
Certain Transactions................. 54
Principal Stockholders............... 56
Description of Capital Stock......... 57
Shares Eligible for Future Sale...... 60
Underwriting......................... 61
Legal Matters........................ 62
Experts.............................. 62
Index to Financial Statements........ F-1
</TABLE>
--------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT 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.
SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
NATIONSBANC MONTGOMERY
SECURITIES LLC
SUNTRUST EQUITABLE
SECURITIES
, 1998
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Company in connection with the issuance and distribution of the securities being
registered hereby, other than underwriting discounts and commissions. The
Company is paying all of these expenses in connection with the issuance and
distribution of the securities.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 25,774
NASD Filing Fee................................................. 7,000
Nasdaq Original Listing Fee.....................................
Accountants' Fees and Costs.....................................
Legal Fees and Costs............................................
Printing and Engraving Costs....................................
Blue Sky Fees and Costs.........................................
Transfer Agent and Registrar fees...............................
Miscellaneous...................................................
---------
Total....................................................... $ 750,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation provides
that the Company shall, to the fullest extent permitted by Section 145 of the
DGCL, as amended from time to time, indemnify its officers and directors.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they 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
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of any action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
The Company's Amended and Restated Certificate of Incorporation contains a
provision which eliminates, to the fullest extent permitted by the DGCL,
director liability for monetary damages for breaches of the fiduciary duty of
care or any other duty as a director.
The Company intends to purchase a policy of director's and officer's
insurance that would in certain instances provide the funds necessary for the
Company to meet its indemnification obligations under its Amended and Restated
Certificate of Incorporation.
II-1
<PAGE>
Reference is hereby made to Section of the Underwriting Agreement, the form
of which is filed as Exhibit 1.1 hereto, in which the Company has agreed to
indemnify the Underwriters and certain other persons against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the Company's original capitalization, on May 31, 1996
the Company sold to Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") and
certain of its affiliates an aggregate of shares of Common Stock for
$14,917,602 and an aggregate of 248,624 shares of Series A Preferred Stock for
$24,862,400. In addition, certain other investors acquired shares of Common
Stock for $82,398 and 1,376 shares of Series A Cumulative Preferred Stock for
$137,600.
In connection with the Company's acquisition of Southern Health Systems,
Inc. ("SHS") on May 31, 1996, Messrs. Grow, Kimbrough and Stevens (in addition
to certain other holders of SHS common stock) exchanged their shares of SHS
common stock for , and shares of the Company's Common Stock,
respectively, and 978 shares, 611 shares and 3,056 shares of the Series A
Preferred Stock, respectively.
In order to finance the acquisition of Horizon Health Systems, Inc. ("HHS")
and to provide working capital, the Company issued $10.0 million in Senior
Subordinated Notes to WCAS VII and certain of its affiliates on June 4, 1997. In
connection with the issuance of the Senior Subordinated Notes, the Company
issued an aggregate of shares of Common Stock to the holders of the Senior
Subordinated Notes. Furthermore, as a condition to the acquisition of HHS and
the appointment of Kyle J. Callahan to the Company's Board of Directors, Mr.
Callahan acquired shares of the Company's Common Stock for $250,002 on
October 1, 1997.
In connection with the appointment of Kenneth O. Melkus to the Company's
Board of Directors, Lauren Melkus acquired shares of Common Stock for
$250,002 on October 27, 1997.
In connection with the appointment of Kenneth R. Masterson to the Company's
Board of Directors, the Company sold shares of Common Stock to Mr.
Masterson for $204,000 on July 24, 1998 pursuant to a
subscription agreement entered into by Mr. Masterson in April 1998.
Except as otherwise noted, all issuances of securities described above were
made in reliance on the exemption from registration provided by Section 4(2) of
the Securities Act of 1933, as amended, as transactions by an issuer not
involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits
<TABLE>
<C> <S>
*1.1 Underwriting Agreement
*3.1 Amended and Restated Certificate of Incorporation of the Registrant
*3.2 Amended and Restated Bylaws of the Registrant
*4.1 Form of Common Stock Certificate
*5.1 Opinion of Alston & Bird LLP with respect to validity of Common Stock
10.1 Employment Agreement dated May 31, 1996 between the Company and David D. Stevens
10.2 Employment Agreement dated May 31, 1996 between the Company and John R. Grow
10.3 Employment Agreement dated May 31, 1996 between the Company and Joel R.
Kimbrough
10.4 Employment Agreement dated June 5, 1997 between the Company and Kyle J. Callahan
10.5 Employment Agreement dated July 10, 1998 between the Company and Thomas W. Bell
Jr.
*10.6 Accredo Health 1998 Long-Term Incentive Plan
*10.7 Accredo Health 1998 Employee Stock Purchase Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.8 Nova Holdings, Inc. and its Subsidiaries Stock Option and Restricted Purchase
Plan, as amended and restated
10.9 Note Purchase Agreement dated June 4, 1997 among the Company, Welsh, Carson,
Anderson & Stowe VII, L.P. and certain other investors
10.10 Registration Rights Agreement dated May 31, 1996 among the Company, Welsh,
Carson, Anderson & Stowe VII, L.P. and certain other investors
10.11 Amendment Number One to the Registration Rights Agreement dated October 27, 1997
among the Company, Welsh, Carson, Anderson & Stowe VII, L.P. and certain other
investors.
10.12 Amendment Number Two to the Registration Rights Agreement dated July 24, 1998
among the Company, Welsh, Carson, Anderson & Stowe VII, L.P. and certain other
investors.
10.13 Subscription and Exchange Agreement dated May 31, 1996 among the Company and
certain purchasers and exchanging shareholders
10.14 Stock Purchase Agreement dated May 31, 1996 among Le Bonheur Health Systems,
Inc., Southern Health Systems, Inc., the Company and Welsh, Carson, Anderson &
Stowe VII, L.P.
10.15 Modification Agreement dated May 31, 1996 among Le Bonheur Health Systems, Inc.,
Southern Health Systems, Inc., Nova Holdings, Inc. and Welsh, Carson Anderson &
Stowe VII, L.P.
10.16 Non-Disclosure and Non-Competition Agreement dated May 31, 1996 by and among Le
Bonheur Health Systems, Inc., PharmaThera, Inc., Welsh, Carson, Anderson & Stowe
VII, L.P., Southern Health Systems, Inc., Nova Factor, Inc. and Nova Holdings,
Inc.
10.17 Stock Purchase Agreement dated as of June 5, 1997 among Dianne R. Martz, A.B.
Charlton, the Company and Horizon Health Systems, Inc.
10.18 Non-Disclosure and Non-Compete Agreement dated as of June 5, 1997 by and among
Horizon Health Systems, Inc., the Company and Dianne R. Martz
10.19 Grant Agreement dated as of June 5, 1997 by and between Kyle Callahan and the
Company
10.20 Subscription and Restriction Agreement dated as of June 5, 1997 by and between
the Company and Kyle Callahan
10.21 Consulting and Transition Agreement dated as of June 5, 1997 by and between
Dianne Martz and Horizon Health Systems, Inc.
10.22 Letter Agreement dated as of June 3, 1997 from Andrew M. Paul to Kyle Callahan
regarding Mr. Callahan's election to the Board of Directors of the Company
10.23 Lease Agreement dated September 1, 1994 between Dianne Martz and Horizon Health
Systems, Inc.
10.24 Addendum to Lease Agreement dated September 1, 1994 amending the square footage
of Premises and annual rental payments
10.25 Escrow Agreement dated June 5, 1997 among First American National Bank, Nova
Holdings, Inc. and Dianne Martz and A. B. Charlton, III
10.26 Refunds Payable Escrow Agreement dated June 5, 1997 among First American
National Bank, Nova Holdings, Inc. and Dianne Martz and A. B. Charlton, III
*10.27 Contract for the Sale and Distribution of Genentech Human Growth Hormone dated
March 1, 1997 by and between Genentech, Inc. and Nova Factor, Inc.
*10.28 Distribution Agreement dated September 30, 1994 by and between Nova Factor, Inc.
and Genzyme Corporation
*10.29 Amendment No. 1 to Distribution Agreement dated January 1, 1995 by and between
Nova Factor, Inc. and Genzyme Corporation
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*10.30 Second Amended and Restated Distribution Agreement dated July 1, 1994 by and
among PharmaThera, Inc., Nova Factor, Inc. and Genzyme Corporation
*10.31 Amendment No. 1 to Second Amended and Restated Distribution Agreement dated
September 30, 1994 by and between PharmaThera, Inc., Nova Factor, Inc. and
Genzyme Corporation
*10.32 Amendment No. 2 to Second Amended and Restated Distribution Agreement dated
January 1, 1995 by and between Nova Factor, Inc. and Genzyme Corporation
*10.33 Distribution and Services Agreement dated November 1, 1995 by and between
Biogen, Inc. and Nova Factor, Inc.
*10.34 Amendment No. 1 to Distribution and Services agreement dated May 17, 1996 by and
between Biogen, Inc. and Nova Factor, Inc.
*10.35 Addendum and Amendment No. 2 to Distribution and Services Agreement dated May
21, 1997 by and between Biogen, Inc. and Nova Factor, Inc.
*10.36 Addendum and Amendment No. 3 to Distribution and Services Agreement dated July
1, 1997 by and between Biogen, Inc. and Nova Factor, Inc.
*10.37 Addendum and Amendment No. 4 to Distribution and Services Agreement dated
January 1, 1998 by and between Biogen, Inc. and Nova Factor, Inc.
*10.38 Loan and Security Agreement, dated as of June 5, 1997 among Nova Holdings, Inc.
and its Subsidiaries and NationsBank of Tennessee, N.A. and First Tennessee Bank
National Association.
*10.39 Swing Line Note, dated December 1, 1997, entered into by Nova Holdings, Inc.
with NationsBank of Tennessee, N.A.
10.40 ISDA Master Agreement, dated August 7, 1997, between NationsBank of Tennessee,
N.A. and Nova Holdings, Inc.
*10.41 Texas Health Pharmaceutical Resources Partnership Agreement dated July 1, 1994
*10.42 Distribution Business Management and Service Agreement, dated July 1, 1994 by
and among Southern Health Systems, Inc. and Texas Health Pharmaceutical
Resources
*10.43 Amendment No. 1 to Distribution Business Management and Service Agreement, dated
July 1, 1994 by and among Southern Health Systems, Inc. and Texas Health
Pharmaceutical Resources
*10.44 Hemophilia Therapy Pharmacy Management Agreement, dated May 9, 1997, by and
among Texas Health Pharmaceutical Resources and Children's Medical Center of
Dallas
*10.45 Amendment No. 1 to Hemophilia Therapy Pharmacy Management Agreement, dated
February 28, 1998, by and among Texas Health Pharmaceutical Resources and
Children's Medical Center of Dallas
10.46 Incentive Stock Option Agreement of David Stevens dated May 31, 1996
10.47 Incentive Stock Option Agreement of Joel R. Kimbrough dated May 31, 1996
10.48 Incentive Stock Option Agreement of John R. Grow dated May 31, 1996
10.49 Incentive Stock Option Agreement of Kyle Callahan dated September 3, 1997
10.50 Non-Qualified Stock Option Agreement of Patrick J. Welsh dated February 9, 1998
10.51 Non-Qualified Stock Option Agreement of Ken Melkus dated February 9, 1998
10.52 Incentive Stock Option Agreement of Kyle Callahan dated February 9, 1998
10.53 Non-Qualified Stock Option Agreement of Andrew M. Paul dated February 9, 1998
10.54 Non-Qualified Stock Option Agreement of Kenneth R. Masterson dated April 30,
1998
10.55 Incentive Stock Option Agreement of Thomas W. Bell, Jr. dated July 10, 1998
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
21.1 Subsidiaries of the Registrant
*23.1 Consent of Alston & Bird LLP (included in Opinion filed as Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24.1 Power of Attorney (included on the signature page)
27.1 Financial Data Schedule
</TABLE>
(B) Financial Statement Schedules
Accredo Health, Incorporated
Schedule II--Valuation and Qualifying Accounts
Nova Factor, Inc.
Schedule II--Valuation and Qualifying Accounts
Texas Health Pharmaceutical Resources
Schedule II--Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because they are not
required or are not applicable, or the required information is shown in the
respective financial statements or notes thereto.
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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.
The undersigned registrant hereby undertakes to provide to the
Representatives of the Underwriters at the closing specified in the underwriting
agreements certificates in such denominations and registered in such names as
required by the Representatives of the Underwriters to permit prompt delivery to
each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Memphis, State of
Tennessee, on August 31, 1998.
<TABLE>
<S> <C> <C>
ACCREDO HEALTH, INCORPORATED
By: /s/ DAVID D. STEVENS
-----------------------------------------
David D. Stevens
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints David D. Stevens and Joel R. Kimbrough, and each
of them, with the power to act without 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, and in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
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 either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 31, 1998.
SIGNATURE TITLE
- ------------------------------ ---------------------------
/s/ DAVID D. STEVENS Chief Executive Officer and
- ------------------------------ Chairman of the Board of
David D. Stevens Directors
/s/ JOHN R. GROW President and Director
- ------------------------------
John R. Grow
Senior Vice President and
/s/ JOEL R. KIMBROUGH Chief Financial Officer
- ------------------------------ (principal financial and
Joel R. Kimbrough accounting officer)
/s/ KYLE J. CALLAHAN Senior Vice President and
- ------------------------------ Director
Kyle J. Callahan
/s/ PATRICK J. WELSH Director
- ------------------------------
Patrick J. Welsh
/s/ ANDREW M. PAUL Director
- ------------------------------
Andrew M. Paul
/s/ KENNETH O. MELKUS Director
- ------------------------------
Kenneth O. Melkus
/s/ KENNETH R. MASTERSON Director
- ------------------------------
Kenneth R. Masterson
II-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Accredo Health, Incorporated
We have audited the consolidated financial statements of Accredo Health,
Incorporated as of June 30, 1997 and 1998, and for the period from inception
(May 24, 1996) through June 30, 1996, and for the years ended June 30, 1997 and
1998, and have issued our report thereon dated August 12, 1998, except for note
12, as to which the date is , 1998 (included elsewhere in this
Registration Statement). Our audit also included the financial statement
schedule of the Company listed in Item 16(b) of this Registration Statement.
This Schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Memphis, Tennessee
August 12, 1998, except for note 12,
as to which the date is , 1998
The foregoing report is the form that will be signed upon completion of the
restatement of capital accounts described in note 12 to the consolidated
financial statements.
/s/ Ernst & Young LLP
Memphis, Tennessee
September 1, 1998
S-1
<PAGE>
ACCREDO HEALTH, INCORPORATED
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. C
------------------------
ADDITIONS
COL. B ------------------------ COL. E
---------- CHARGED TO COL. D ----------
COL. A BALANCE AT CHARGED TO OTHER ------------ BALANCE AT
- ------------------------------------- BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ------------------------------------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Period from inception (May 24, 1996)
through June 30, 1996:
Allowance for doubtful accounts.... $ -- $ 251,538 $2,749,847 (1) $291,370 (2) $2,710,015
Year ended June 30, 1997:
Allowance for doubtful accounts.... 2,710,015 2,976,718 -- 1,884,407 (2) 3,802,326
Year ended June 30, 1998:
Allowance for doubtful accounts.... 3,802,326 3,165,292 -- 3,537,755 (2) 3,429,863
</TABLE>
- --------------------------
(1) Allowance as a result of acquisition of Nova Factor, Inc.
(2) Uncollectible accounts written off, net of recoveries.
S-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Nova Factor, Inc.
We have audited the statements of operations, stockholder's equity and cash
flows of Nova Factor, Inc. for the period July 1, 1995 through May 31, 1996, and
have issued our report thereon dated August 30, 1996 (included elsewhere in this
Registration Statement). Our audit also included the financial statement
schedule of the Company listed in Item 16(b) of this Registration Statement.
This Schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Memphis, Tennessee
August 30, 1996
S-3
<PAGE>
NOVA FACTOR, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. C
-----------------------
ADDITIONS
COL. B ----------------------- COL. E
---------- CHARGED TO COL. D ----------
COL. A BALANCE AT CHARGED TO OTHER ------------ BALANCE AT
- --------------------------------------- BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------------- ---------- ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Period from July 1, 1995 through May
31, 1996:
Allowance for doubtful accounts...... $3,982,980 $1,860,253 $ -- 3$,093,386 (1) $2,749,847
</TABLE>
- --------------------------
(1) Uncollectible accounts written off, net of recoveries.
S-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Texas Health Pharmaceutical Resources
We have audited the financial statements of Texas Health Pharmaceutical
Resources as of June 30, 1997, and for the year then ended, and have issued our
report thereon dated August 21, 1998 (included elsewhere in this Registration
Statement). Our audit also included the information for the year ended June 30,
1997, in the financial statement schedule of the Partnership listed in Item
16(b) of this Registration Statement. This Schedule is the responsibility of the
Partnership's management. Our responsibility is to express an opinion based on
our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein for
the year ended June 30, 1997.
/s/ Ernst & Young LLP
Memphis, Tennessee
August 21, 1998
S-5
<PAGE>
TEXAS HEALTH PHARMACEUTICAL RESOURCES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. C
------------------------
ADDITIONS
COL. B ------------------------ COL. E
----------- CHARGED TO COL. D -----------
COL. A BALANCE AT CHARGED TO OTHER ------------ BALANCE AT
- ------------------------------------------ BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ------------------------------------------ ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996 (unaudited):
Allowance for doubtful accounts......... $ 248,912 $ 223,369 $ -- $358,995 (1) $ 113,286
Year ended June 30, 1997:
Allowance for doubtful accounts......... 113,286 283,357 -- 273,640 (1) 123,003
Year ended June 30, 1998 (unaudited):
Allowance for doubtful accounts......... 123,003 177,351 -- 130,194 (1) 170,160
</TABLE>
- --------------------------
(1) Uncollectible accounts written off, net of recoveries.
S-6
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 31, 1996, by and among NOVA
HOLDINGS, INC., a Delaware corporation (the "Company"), NOVA FACTOR, INC., a
Tennessee corporation ("NFI"), and DAVID D. STEVENS (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive for the period
provided in this Agreement, and the Executive is willing to accept such
employment with the Company on a full-time basis, all in accordance with the
terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto hereby covenant and agree
as follows:
1. Employment.
(a) The Company hereby employs the Executive, and the Executive hereby
accepts such employment with the Company, for the period set forth in Section 2
hereof, all upon the terms and conditions hereinafter set forth.
(b) The Executive affirms and represents that he is under no obligation
to any former employer or other party which is in any way inconsistent with, or
which imposes any restriction upon, the Executive's acceptance of employment
hereunder with the Company, the employment of the Executive by the Company or
NFI, or the Executive's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as hereinafter
provided, the term of the Executive's employment under this Agreement shall
initially be for a period beginning on the date hereof and ending on May 31,
1999; provided that on May 31, 1998 and on each May 31 thereafter, the term of
the Executive's employment hereunder shall automatically be extended for an
additional one-year period unless, prior to such May 31, the Company shall have
given the Executive, or the Executive shall have given the Company, written
notice that the Employment Term shall not be so extended. The period commencing
on the date hereof and ending on the earlier of (i) the termination of
Executive's employment hereunder, and (ii) the later of May 31, 1999 or the
expiration of all one-year extensions described in the preceding sentence, is
referred to herein as the Employment Term.
<PAGE>
If the Executive continues in the full-time employ of the Company after
the end of the Employment Term (it being expressly understood and agreed that
the Company does not now, nor hereafter shall have, any obligation to continue
the Executive in its employ whether or not on a full-time basis, after said
Employment Term ends), then, unless otherwise expressly agreed to by the
Executive and the Company in writing, the Executive's continued employment by
the Company after the Employment Term shall, notwithstanding anything to the
contrary expressed or implied herein, be terminable by the Company at will, with
or without cause and with or without notice, but shall in all other respects be
subject to the terms and conditions of this Agreement.
3. Duties. The Executive shall be employed as Chairman and Chief
Executive Officer of the Company, shall, subject to the direction of the Board
of Directors of the Company (the "Board"), faithfully and competently perform
such duties as inhere in such position and shall also perform and discharge such
other executive employment duties and responsibilities consistent with his
position as Chairman and Chief Executive Officer as the Board may from time to
time reasonably prescribe, including serving as Chairman and Chief Executive
Officer of one or more of the Company's subsidiaries or affiliates (including
without limitation NFI). It is the intention of the parties that during the
Employment Term the Executive shall also serve on the Board without additional
compensation. The Executive shall report directly to the Board. The Executive's
primary workplace will be located in Memphis, Tennessee. Except as may otherwise
be approved in advance by the Board, and except during vacation periods and
reasonable periods of absence due to sickness, personal injury or other
disability, personal affairs or non-profit public service activities, the
Executive shall devote his full time during normal business hours throughout the
Employment Term to the services required of him hereunder. The Executive shall
render his business services exclusively to the Companies (as defined in Section
6(a)) during the Employment Term and shall use his best efforts, judgment and
energy to improve and advance the business and interests of the Companies in a
manner consistent with the duties of his position.
4. Salary and Bonus.
(a) Salary. As compensation for the performance by the Executive of the
services to be performed by the Executive hereunder during the Employment Term,
the Company shall pay the Executive a base salary at the annual rate of two
hundred forty thousand dollars ($240,000) (said amount being hereinafter
referred to as "Salary"). Any Salary payable hereunder shall be paid in regular
intervals (but in no event less frequently than monthly) in accordance with the
Company's payroll practices from time to time in effect. The Salary payable to
the Executive
2
<PAGE>
pursuant to this Section 4(a) shall be increased annually, as of September 1,
1997 and each September 1 thereafter for the twelve-month period then
commencing, by an amount equal to (i) the annual percentage increase in the
Consumer Price Index for Urban Consumers, All Items, Memphis, Tennessee Area,
for the most recent twelve-month period for which such figures are then
available as reported in the Monthly Labor Review published by the Bureau of
Labor Statistics of the U.S. Department of Labor or (ii) such higher amount as
may be determined from time to time by the Board in its sole discretion.
(b) Bonus. The Executive will be entitled to receive bonus compensation
from the Company in respect of each fiscal year (or portion thereof) occurring
during the Employment Term, the amount of such bonus compensation to be based on
the extent to which the Company's planned EBT established by the Board for the
corresponding period (the "Plan EBT") has been achieved, as follows:
<TABLE>
<CAPTION>
Percent of Plan EBT Achieved Bonus
---------------------------- -----
<S> <C>
Less than 80% None
Between 80% and 100% 1.5 % of Salary for each
1% of Plan EBT achieved
in excess of 80%
Between 100% and 125% 30% of Salary plus 0.8%
of Salary for each 1% of
Plan EBT achieved in
excess of 100%
125% or more 50% of Salary
</TABLE>
"EBT" shall mean, with respect to any fiscal year (i) the net income (determined
in accordance with generally accepted accounting principles applied consistently
with the Company's audited financial statements, but excluding the effect of any
extraordinary or other material non-recurring gain (but not loss) outside the
ordinary course of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net Income")
plus (ii) to the extent deducted in determining Consolidated Net Income for such
period, the amount of the provision for income taxes for such period. Plan EBT
for the Company's fiscal year ending June 30, 1997 shall be $9,600,000. Plan EBT
for subsequent fiscal years shall be as determined by the Board. Any bonus to
which the Executive is entitled shall be paid as promptly as practicable after
the audited financial statements for the fiscal year in question have been
approved by the Board and shall be calculated on a linear basis to the nearest
$100.
3
<PAGE>
(c) Withholding, Etc. The payment of any Salary and bonus hereunder
shall be subject to applicable withholding and payroll taxes, and such other
deductions as may be required by law or the Company's employee benefit plans.
5. Other Benefits. During the Employment Term, the Executive shall:
(i) be eligible to participate in employee fringe benefits and
pension and/or profit sharing plans that may be provided by the Company
for its senior executive employees in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(ii) be eligible to participate in any medical and health plans or
other employee welfare benefit plans that may be provided by the
Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(iii) be entitled to the number of paid vacation days in each
calendar year determined by the Company from time to time for its
senior executive officers, as well as all paid holidays given by the
Company to its senior executive officers;
(iv) be entitled to sick leave, sick pay and disability benefits in
accordance with any Company policy that may be applicable to senior
executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable and
necessary out-of-pocket business expenses incurred by the Executive in
the performance of his duties hereunder in accordance with the
Company's policies applicable thereto.
For purposes of determining eligibility, vesting and benefit accrual under each
of the benefit plans and arrangements referred to in this Section 5, the
Executive shall be credited with service for all years and partial years of
service with NFI, Southern Health Systems, Inc. ("SHS"), Le Bonheur Health
Systems, Inc., or any of their affiliates prior to the date hereof. In addition,
from the date hereof until the expiration of the Employment Term, the Company
shall maintain term insurance coverage on the life of the Executive (including
any such coverage provided for pursuant to the foregoing provisions of this
Section 5) in the aggregate amount of $500,000, payable to that Executive's
named beneficiaries in accordance with standard policy terms and conditions.
6. Confidential Information. The Executive hereby covenants,
agrees and acknowledges as follows:
4
<PAGE>
(a) The Executive has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company, SHS and NFI, and any other present or future subsidiaries
or affiliates of the Company (collectively, with the Company, the
"Companies"), including but not limited to (i) customer and physician
lists; patient histories, patient identities and related records and
compilations of information; the identity, lists or descriptions of any
new customers or physicians, referral sources or organizations;
financial statements; cost reports or other financial information;
contract proposals or bidding information; business plans; training and
operations methods and manuals; personnel records; software programs;
reports and correspondence; premium structures; and management systems,
policies or procedures, including related forms and manuals; (ii)
information pertaining to future developments such as future marketing
or acquisition plans or ideas, and potential new business locations and
new suppliers and (iii) all other tangible and intangible property,
which are used in the business and operations of the Companies but not
made public. The information and trade secrets relating to the business
of the Companies described hereinabove in this paragraph (a) are
hereinafter referred to collectively as the "Confidential Information",
provided that the term Confidential Information shall not include any
information (x) that is or becomes generally publicly available (other
than as a result of violation of this Agreement by the Executive) or
(y) that the Executive receives on a nonconfidential basis from a
source (other than the Companies or their representatives) that is not
known by him to be bound by an obligation of secrecy or confidentiality
to any of the Companies.
(b) The Executive shall not disclose, use or make known for
his or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Companies in the performance of the Executive's duties under
this Agreement. The Executive may disclose Confidential Information
when required by a third party and applicable law or judicial process,
but only after providing (i) notice to the Company of any third party's
request for such information, which notice shall include the
Executive's intent with respect to such request, and (ii) sufficient
opportunity for the Company to challenge or limit the scope of the
disclosure on behalf of the Companies, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6
would be inadequate and, therefore, agrees that the Companies shall be
entitled to injunc-
5
<PAGE>
tive relief in addition to any other available rights and remedies in
case of any such breach or threatened breach; provided, however, that
nothing contained herein shall be construed as prohibiting the
Companies from pursuing any other rights and remedies available for any
such breach or threatened breach.
(d) The Executive agrees that upon termination of his
employment with the Company for any reason, the Executive shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer discs
and other electronic media).
(e) The obligations of the Executive under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this
Agreement.
(f) Without limiting the generality of Section 10 hereof, the
Executive hereby expressly agrees that the foregoing provisions of this
Section 6 shall be binding upon the Executive's heirs, successors and
legal representatives.
7. Termination.
(a) The Executive's employment hereunder shall be terminated upon the
occurrence of any of the following:
(i) death of the Executive;
(ii) the Executive's inability to perform his duties on account of
disability or incapacity for a period of one hundred eighty (180) or
more days, whether or not consecutive, within any period of twelve (12)
consecutive months;
(iii) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated "for
cause" (as defined below);
(iv) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated other
than pursuant to clause (i), (ii) or (iii) above; or
(v) the Executive giving written notice, at any time, to the
Company that the Executive is terminating his employment for "good
reason" (as defined below).
The following actions, failures and events by or affecting the
Executive shall constitute "cause" for termination within the meaning of clause
(iii) above: (A) an indictment for or conviction of the Executive of, or the
entering of a plea of
6
<PAGE>
nolo contendere by the Executive with respect to, having committed a felony, (B)
acts of dishonesty or moral turpitude by the Executive that are detrimental to
one or more of the Companies, (C) acts or omissions by the Executive that the
Executive knew were likely to damage the business of one or more of the
Companies, (D) negligence by the Executive in the performance of, or disregard
by the Executive of, his obligations hereunder or otherwise relating to his
employment, or (E) failure by the Executive to obey the reasonable and lawful
policies or orders of the Board that are consistent with the provisions of this
Agreement. For purposes of this Agreement, the Executive shall not be deemed to
have been terminated for cause unless and until there shall have been delivered
to the Executive a copy of a resolution, duly adopted by the Board, stating
that, in the good faith opinion of the Board, the Executive is guilty of an
action or omission that constitutes cause and specifying the particulars thereof
in reasonable detail. Before adopting any such resolution, the Board shall offer
the Executive, upon reasonable written notice (which need not exceed two days),
an opportunity for him, together with his counsel, to be heard by the Board.
The following circumstances shall constitute "good reason" for
termination within the meaning of clause (v) above: (I) the assignment to the
Executive of duties that are materially inconsistent with the Executive's
position or with his authority, duties or responsibilities as contemplated by
Section 3 of this Agreement, or any other action by the Company, NFI or their
successors which results in a material diminution or material adverse change in
the Executive's position, authority, duties or responsibilities, (II) any
material breach by the Company, NFI or their successors of any provision of this
Agreement, (III) a relocation of the Executive's primary workplace without his
written consent to any location other than the one described in Section 3
hereof, or (IV) a "Change of Control," as hereinafter defined.
For purposes of the foregoing, the term "Change of Control" means the
acquisition of (a) beneficial ownership of more than 50% of the voting equity
securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than Welsh,
Carson, Anderson & Stowe VII, L.P. and WCAS Healthcare Partners, L.P., or their
respective affiliates.
(b) In the event that the Executive's employment is terminated pursuant
to clause (iv) or (v) of Section 7(a) above, whether during the Employment Term
or during any continuation of employment pursuant to Section 2 above, the
Company shall pay to the Executive, as severance pay or liquidated damages or
both, bi-monthly payments at the rate per annum of his Salary at the
7
<PAGE>
time of such termination for a period from the date of such termination to the
first anniversary of such termination. The Executive shall continue to
participate in the benefit plans and arrangements of the Company (to the extent
permitted by the terms thereof) as provided in Section 5 until the earlier of
(x) the first anniversary of such termination or (y) the date the Executive
commences other full-time employment; provided, however, that in the event
coverage for any pre-existing condition is not available under the health and
medical plans of Executive's successor employer, the Company shall provide
continuing coverage with respect to such pre-existing condition until the first
anniversary of termination of employment.
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in Section
7(b) above, the Company (and its affiliates) shall not be obligated to make any
payments to the Executive or on his behalf of whatever kind or nature by reason
of the Executive's cessation of employment (including, without limitation, by
reason of termination of the Executive's employment by the Company for "cause"),
other than (i) such amounts, if any, of his Salary as shall have accrued and
remained unpaid as of the date of said cessation, (ii) such other amounts, if
any, which may be then otherwise payable to the Executive pursuant to the terms
of the Company's benefit plans or pursuant to clause (v) of Section 5 above, and
(iii) any amounts owed or obligations to the Executive pursuant to the terms of
any option or other stock-based award granted to him by the Company.
(d) No interest shall accrue on or be paid with respect to any portion
of any payments timely made hereunder.
8. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder shall be
assignable by the Executive or his beneficiaries or legal representatives
without the Company's prior written consent; provided, however, that nothing in
this Section 8(a) shall preclude the Executive from designating a beneficiary to
receive any benefit payable hereunder upon his death or incapacity. Neither this
Agreement nor any right or interest hereunder shall be assignable by the Company
or NFI; provided, however, that notwithstanding the foregoing, this Agreement
and the Company's rights and interests hereunder may be assigned by the Company
pursuant to a merger or consolidation in which the Company is not the continuing
entity, or the sale or liquidation of all or substantially all of the assets of
the Company, provided that (i) the assignee or transferee is the successor to
all or substantially all of the assets of the Company and (ii) such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law.
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(b) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or to assignment by operation of law, and
any attempt, voluntary or involuntary, to effect any such action shall be null,
void and of no effect.
9. Restrictive Covenants.
(a) Competition. During the Employment Term, during any continuation of
employment pursuant to Section 2 above and during the twelve (12) month period
following termination of the Executive's employment with the Company for any
reason, provided that payments, if any, required pursuant to Section 7(b) hereof
are made in full and in a timely fashion, the Executive will not directly or
indirectly (as a director, officer, executive employee, manager, consultant,
independent contractor, advisor or otherwise) engage in competition with, or own
any interest in, perform any services for, participate in or be connected with
any business or organization which engages in competition with any of the
Companies within the meaning of Section 9(d), provided, however, that the
provisions of this Section 9(a) shall not be deemed to prohibit the Executive's
ownership of not more than two percent (2%) of the total shares of all classes
of stock outstanding of any publicly held company, or ownership, whether through
direct or indirect stock holdings or otherwise, of one percent (1%) or more of
any other business.
(b) Non-Solicitation. During the Employment Term, during any
continuation of employment pursuant to Section 2 above and during the twelve
(12) month period following termination of the Executive's employment with the
Company for any reason, provided that payments, if any, required pursuant to
Section 7(b) hereof are made in full and in a timely fashion, the Executive will
not knowingly directly or indirectly induce or attempt to induce any employee of
any of the Companies to leave the employ of any of the Companies or of their
subsidiaries or affiliates, or in any way interfere with the relationship
between any of the Companies and any employee thereof.
(c) Non-Interference. During the twelve (12) month period following
termination of the Executive's employment with the Company for any reason,
provided that payments, if any, required pursuant to Section 7(b) hereof are
made in full and in a timely fashion, the Executive will not directly or
indirectly hire, engage, send any work to, place orders with, or in any manner
be associated with any business entity which, during the period of twelve months
preceding or following such termination of employment, was among the five
largest suppliers of NFI by dollar volume.
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<PAGE>
(d) Certain Definitions.
(i) For purposes of this Section 9, a person or entity
(including, without limitation, the Executive) shall be deemed to be a
competitor of one or more of the Companies, or a person or entity
(including, without limitation, the Executive) shall be deemed to be
engaging in competition with one or more of the Companies, if, at the
time of determination, such person or entity (A) engages in any
business engaged in or proposed to be engaged in by any of the
Companies, or (B) in any way conducts, operates, carries out or engages
in the business of managing any entity engaged in any business
described in clause (A), in each case, in any state of the United
States of America, excluding, however, during any period following the
termination of the Executive's employment with the Company, (x) any
business or any state in which none of the Companies was engaged or had
proposed to be engaged at the time of termination of the Executive's
employment with the Company, and (y) after termination of the
Executive's employment, any business which was not, prior to such
termination, directly or indirectly supervised by the Executive.
(ii) For purposes of this Section 9, no corporation or entity that
may be deemed to be an affiliate of the Companies solely by reason of
its being controlled by, or under common control with, Welsh, Carson,
Anderson & Stowe VII, L.P. or any of its affiliates other than the
Companies, will be deemed to be an affiliate of the Companies.
(e) Certain Representations of the Executive. In connection with the
foregoing provisions of this Section 9, the Executive represents that his
experience, capabilities and circumstances are such that such provisions will
not prevent him from earning a livelihood. The Executive further agrees that the
limitations set forth in this Section 9 (including, without limitation, time and
territorial limitations) are reasonable and properly required for the adequate
protection of the current and future businesses of the Companies. It is
understood and agreed that the covenants made by the Executive in this Section 9
shall survive the expiration or termination of this Agreement.
(f) Injunctive Relief. The Executive acknowledges and agrees that a
remedy at law for any breach or threatened breach of the provisions of Section 9
hereof would be inadequate and, therefore, agrees that the Company and any of
its subsidiaries or affiliates shall be entitled to injunctive relief in
addition to any other available rights and remedies in cases of any such breach
or threatened breach; provided, however, that nothing contained herein shall be
construed as prohibiting the Company or any of its affiliates from pursuing any
other rights and remedies available for any such breach or threatened breach.
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10. Indemnity. To the maximum extent permitted by applicable law and
the charter and by-laws of the Company or NFI, the Company and NFI shall
indemnify the Executive and hold him harmless for any acts or decisions made by
him in good faith while performing services for the Company or NFI or any of
their subsidiaries of affiliates, and will use their reasonable best efforts to
obtain coverage for him under any insurance policy now in force or hereinafter
obtained during the term of this Agreement covering other officers and directors
of the Company or NFI and their subsidiaries or affiliates against lawsuits, and
the Company or NFI will, to the extent provided by their respective charters and
by-laws and applicable law, advance or pay all expenses, including attorney's
fees actually and necessarily incurred by the Executive in connection with the
defense of any such action, suit or proceeding and in connection with any appeal
thereon including the cost of court settlements.
11. No Mitigation. In the event of any termination of the Executive's
employment under Section 7(a)(iv) or (v), the Executive shall be under no
obligation to seek other employment and there shall be no offset against any
amounts due the Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that the Executive may obtain.
12. Binding Effect. Without limiting or diminishing the effect of
Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
13. Notices. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and (i) delivered personally, (ii) mailed by
certified or registered mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier or (iv) sent via
facsimile confirmed in writing to the recipient, if to the Company at the
Company's principal place of business, and if to the Executive, at his home
address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
14. Enforcement. Any dispute arising under this Agreement shall, at the
election of either party, be resolved by final and binding arbitration to be
held in New York, N.Y. in accordance with the rules and procedures of the
American Arbitration Association. Judgment upon the award entered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
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<PAGE>
15. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
16. Severability. The Executive agrees that in the event that any court
of competent jurisdiction shall finally hold that any provision of Section 6 or
9 hereof is void or constitutes an unreasonable restriction against the
Executive, the provisions of such Section 6 or 9 shall not be rendered void but
shall apply with respect to such extent as such court may judicially determine
constitutes a reasonable restriction under the circumstances. If any part of
this Agreement other than Section 6 or 9 is held by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part by reason of any rule of law or public policy, such part shall be deemed
to be severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
17. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
18. Entire Agreement; Modifications. This Agreement constitutes the
entire and final expression of the agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, oral and written,
between the parties hereto with respect to the subject matter hereof. This
Agreement may be modified or amended only by an instrument in writing signed by
both parties hereto.
19. Termination of Certain Agreements. Concurrently with the execution
and delivery of this Agreement, the Employment Agreement dated December 31,
1992, by and between SHS and the Executive, as amended by Amendment One to
Employment Agreement dated November 20, 1995, shall terminate, without further
action by the parties thereto, and be of no further force or effect.
20. 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 instrument.
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IN WITNESS WHEREOF, the Company and the Executive have duly executed
and delivered this Agreement as of the day and year first above written.
NOVA HOLDINGS, INC.
By /s/ Andrew M. Paul
------------------------------
Name: Andrew M. Paul
Title: President
/s/ David D. Stevens
------------------------------
David D. Stevens
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 31, 1996, by and among NOVA
HOLDINGS, INC., a Delaware corporation (the "Company"), NOVA FACTOR, INC., a
Tennessee corporation ("NFI"), and JOHN R. GROW (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive for the period
provided in this Agreement, and the Executive is willing to accept such
employment with the Company on a full-time basis, all in accordance with the
terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises hereof and
the mutual covenants contained herein, the parties hereto hereby covenant and
agree as follows:
1. Employment.
(a) The Company hereby employs the Executive, and the Executive hereby
accepts such employment with the Company, for the period set forth in Section 2
hereof, all upon the terms and conditions hereinafter set forth.
(b) The Executive affirms and represents that he is under no obligation
to any former employer or other party which is in any way inconsistent with, or
which imposes any restriction upon, the Executive's acceptance of employment
hereunder with the Company, the employment of the Executive by the Company or
NFI, or the Executive's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as hereinafter
provided, the term of the Executive's employment under this Agreement shall
initially be for a period beginning on the date hereof and ending on May 31,
1999; provided that on May 31, 1998 and on each May 31 thereafter, the term of
the Executive's employment hereunder shall automatically be extended for an
additional one-year period unless, prior to such May 31, the Company shall have
given the Executive, or the Executive shall have given the Company, written
notice that the Employment Term shall not be so extended. The period commencing
on the date hereof and ending on the earlier of (i) the termination of
Executive's employment hereunder, and (ii) the later of May 31, 1999 or the
expiration of all one-year extensions described in the preceding sentence, is
referred to herein as the Employment Term.
<PAGE>
If the Executive continues in the full-time employ of the Company after
the end of the Employment Term (it being expressly understood and agreed that
the Company does not now, nor hereafter shall have, any obligation to continue
the Executive in its employ whether or not on a full-time basis, after said
Employment Term ends), then, unless otherwise expressly agreed to by the
Executive and the Company in writing, the Executive's continued employment by
the Company after the Employment Term shall, notwithstanding anything to the
contrary expressed or implied herein, be terminable by the Company at will, with
or without cause and with or without notice, but shall in all other respects be
subject to the terms and conditions of this Agreement.
3. Duties. The Executive shall be employed as Vice President and Chief
Financial Officer of the Company, shall, subject to the direction of the Board
of Directors of the Company (the "Board"), faithfully and competently perform
such duties as inhere in such position and shall also perform and discharge such
other executive employment duties and responsibilities consistent with his
position as Vice President and Chief Financial Officer as the Board of Directors
of the Company may from time to time reasonably prescribe, including serving as
Chief Financial Officer of one or more of the Company's subsidiaries or
affiliates. The Executive's primary workplace will be located in Memphis,
Tennessee. Except as may otherwise be approved in advance by the Board, and
except during vacation periods and reasonable periods of absence due to
sickness, personal injury or other disability, personal affairs or non-profit
public service activities, the Executive shall devote his full time during
normal business hours throughout the Employment Term to the services required of
him hereunder. The Executive shall render his business services exclusively to
the Companies (as defined in Section 6(a)) during the Employment Term and shall
use his best efforts, judgment and energy to improve and advance the business
and interests of the Companies in a manner consistent with the duties of his
position.
4. Salary and Bonus.
(a) Salary. As compensation for the performance by the Executive of the
services to be performed by the Executive hereunder during the Employment Term,
the Company shall pay the Executive a base salary at the annual rate of one
hundred thirty five thousand dollars ($135,000) (said amount being hereinafter
referred to as "Salary"). Any Salary payable hereunder shall be paid in regular
intervals (but in no event less frequently than monthly) in accordance with the
Company's payroll practices from time to time in effect. The Salary payable to
the Executive pursuant to this Section 4(a) shall be increased annually, as of
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September 1, 1997 and each September 1 thereafter for the twelve-month period
then commencing, by an amount equal to (i) the annual percentage increase in the
Consumer Price Index for Urban Consumers, All Items, Memphis, Tennessee Area,
for the most recent twelve-month period for which such figures are then
available as reported in the Monthly Labor Review published by the Bureau of
Labor Statistics of the U.S. Department of Labor or (ii) such higher amount as
may be determined from time to time by the Board in its sole discretion.
(b) Bonus. The Executive will be entitled to receive bonus
compensation from the Company in respect of each fiscal year (or portion
thereof) occurring during the Employment Term, the amount of such bonus
compensation to be based on the extent to which the Company's planned EBT
established by the Board for the corresponding period (the "Plan EBT") has been
achieved, as follows:
<TABLE>
<CAPTION>
Percent of Plan EBT Achieved Bonus
---------------------------- -----
<S> <C>
Less than 80% None
Between 80% and 100% 1.5 % of Salary for each
1% of Plan EBT achieved
in excess of 80%
Between 100% and 125% 30% of Salary plus 0.8%
of Salary for each 1% of
Plan EBT achieved in
excess of 100%
125% or more 50% of Salary
</TABLE>
"EBT" shall mean, with respect to any fiscal year (i) the net income (determined
in accordance with generally accepted accounting principles applied consistently
with the Company's audited financial statements, but excluding the effect of any
extraordinary or other material non-recurring gain (but not loss) outside the
ordinary course of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net Income")
plus (ii) to the extent deducted in determining Consolidated Net Income for such
period, the amount of the provision for income taxes for such period. Plan EBT
for the Company's fiscal year ending June 30, 1997 shall be $9,600,000. Plan EBT
for subsequent fiscal years shall be as determined by the Board. Any bonus to
which the Executive is entitled shall be paid as promptly as practicable after
the audited financial statements for the fiscal year in question have been
approved by the Board and shall be calculated on a linear basis to the nearest
$100.
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(c) Withholding, Etc. The payment of any Salary and bonus hereunder
shall be subject to applicable withholding and payroll taxes, and such other
deductions as may be required by law or the Company's employee benefit plans.
5. Other Benefits. During the Employment Term, the Executive shall:
(i) be eligible to participate in employee fringe benefits and
pension and/or profit sharing plans that may be provided by the Company
for its senior executive employees in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(ii) be eligible to participate in any medical and health plans or
other employee welfare benefit plans that may be provided by the
Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(iii) be entitled to the number of paid vacation days in each
calendar year determined by the Company from time to time for its
senior executive officers, as well as all paid holidays given by the
Company to its senior executive officers;
(iv) be entitled to sick leave, sick pay and disability benefits in
accordance with any Company policy that may be applicable to senior
executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable and necessary
out-of-pocket business expenses incurred by the Executive in the
performance of his duties hereunder in accordance with the Company's
policies applicable thereto.
For purposes of determining eligibility, vesting and benefit accrual under each
of the benefit plans and arrangements referred to in this Section 5, the
Executive shall be credited with service for all years and partial years of
service with NFI, Southern Health Systems, Inc. ("SHS"), Le Bonheur Health
Systems, Inc., or any of their affiliates prior to the date hereof. In addition,
from the date hereof until the expiration of the Employment Term, the Company
shall maintain term insurance coverage on the life of the Executive (including
any such coverage provided for pursuant to the foregoing provisions of this
Section 5) in the aggregate amount of $500,000, payable to that Executive's
named beneficiaries in accordance with standard policy terms and conditions.
6. Confidential Information. The Executive hereby covenants,
agrees and acknowledges as follows:
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(a) The Executive has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company, SHS and NFI, and any other present or future subsidiaries
or affiliates of the Company (collectively, with the Company, the
"Companies"), including but not limited to (i) customer and physician
lists; patient histories, patient identities and related records and
compilations of information; the identity, lists or descriptions of any
new customers or physicians, referral sources or organizations;
financial statements; cost reports or other financial information;
contract proposals or bidding information; business plans; training and
operations methods and manuals; personnel records; software programs;
reports and correspondence; premium structures; and management systems,
policies or procedures, including related forms and manuals; (ii)
information pertaining to future developments such as future marketing
or acquisition plans or ideas, and potential new business locations and
new suppliers and (iii) all other tangible and intangible property,
which are used in the business and operations of the Companies but not
made public. The information and trade secrets relating to the business
of the Companies described hereinabove in this paragraph (a) are
hereinafter referred to collectively as the "Confidential Information",
provided that the term Confidential Information shall not include any
information (x) that is or becomes generally publicly available (other
than as a result of violation of this Agreement by the Executive) or
(y) that the Executive receives on a nonconfidential basis from a
source (other than the Companies or their representatives) that is not
known by him to be bound by an obligation of secrecy or confidentiality
to any of the Companies.
(b) The Executive shall not disclose, use or make known for
his or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Companies in the performance of the Executive's duties under
this Agreement. The Executive may disclose Confidential Information
when required by a third party and applicable law or judicial process,
but only after providing (i) notice to the Company of any third party's
request for such information, which notice shall include the
Executive's intent with respect to such request, and (ii) sufficient
opportunity for the Company to challenge or limit the scope of the
disclosure on behalf of the Companies, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6
would be inadequate and, therefore, agrees that the Companies shall be
entitled to injunc-
5
<PAGE>
tive relief in addition to any other available rights and remedies in
case of any such breach or threatened breach; provided, however, that
nothing contained herein shall be construed as prohibiting the
Companies from pursuing any other rights and remedies available for any
such breach or threatened breach.
(d) The Executive agrees that upon termination of his
employment with the Company for any reason, the Executive shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer discs
and other electronic media).
(e) The obligations of the Executive under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this
Agreement.
(f) Without limiting the generality of Section 10 hereof, the
Executive hereby expressly agrees that the foregoing provisions of this
Section 6 shall be binding upon the Executive's heirs, successors and
legal representatives.
7. Termination.
(a) The Executive's employment hereunder shall be terminated upon the
occurrence of any of the following:
(i) death of the Executive;
(ii) the Executive's inability to perform his duties on account of
disability or incapacity for a period of one hundred eighty (180) or
more days, whether or not consecutive, within any period of twelve (12)
consecutive months;
(iii) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated "for
cause" (as defined below);
(iv) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated other
than pursuant to clause (i), (ii) or (iii) above; or
(v) the Executive giving written notice, at any time, to the
Company that the Executive is terminating his employment for "good
reason" (as defined below).
The following actions, failures and events by or affecting the
Executive shall constitute "cause" for termination within the meaning of clause
(iii) above: (A) an indictment for or conviction of the Executive of, or the
entering of a plea of
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<PAGE>
nolo contendere by the Executive with respect to, having committed a felony, (B)
acts of dishonesty or moral turpitude by the Executive that are detrimental to
one or more of the Companies, (C) acts or omissions by the Executive that the
Executive knew were likely to damage the business of one or more of the
Companies, (D) negligence by the Executive in the performance of, or disregard
by the Executive of, his obligations hereunder or otherwise relating to his
employment, or (E) failure by the Executive to obey the reasonable and lawful
policies or orders of the Board that are consistent with the provisions of this
Agreement. For purposes of this Agreement, the Executive shall not be deemed to
have been terminated for cause unless and until there shall have been delivered
to the Executive a copy of a resolution, duly adopted by the Board, stating
that, in the good faith opinion of the Board, the Executive is guilty of an
action or omission that constitutes cause and specifying the particulars thereof
in reasonable detail. Before adopting any such resolution, the Board shall offer
the Executive, upon reasonable written notice (which need not exceed two days),
an opportunity for him, together with his counsel, to be heard by the Board.
The following circumstances shall constitute "good reason" for
termination within the meaning of clause (v) above: (I) the assignment to the
Executive of duties that are materially inconsistent with the Executive's
position or with his authority, duties or responsibilities as contemplated by
Section 3 of this Agreement, or any other action by the Company, NFI or their
successors which results in a material diminution or material adverse change in
the Executive's position, authority, duties or responsibilities, (II) any
material breach by the Company, NFI or their successors of any provision of this
Agreement, (III) a relocation of the Executive's primary workplace without his
written consent to any location other than the one described in Section 3
hereof, or (IV) a "Change of Control," as hereinafter defined.
For purposes of the foregoing, the term "Change of Control" means the
acquisition of (a) beneficial ownership of more than 50% of the voting equity
securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than Welsh,
Carson, Anderson & Stowe VII, L.P. and WCAS Healthcare Partners, L.P., or their
respective affiliates.
(b) In the event that the Executive's employment is terminated pursuant
to clause (iv) or (v) of Section 7(a) above, whether during the Employment Term
or during any continuation of employment pursuant to Section 2 above, the
Company shall pay to the Executive, as severance pay or liquidated damages or
both, bi-monthly payments at the rate per annum of his Salary at the
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<PAGE>
time of such termination for a period from the date of such termination to the
first anniversary of such termination. The Executive shall continue to
participate in the benefit plans and arrangements of the Company (to the extent
permitted by the terms thereof) as provided in Section 5 until the earlier of
(x) the first anniversary of such termination or (y) the date the Executive
commences other full-time employment; provided, however, that in the event
coverage for any pre-existing condition is not available under the health and
medical plans of Executive's successor employer, the Company shall provide
continuing coverage with respect to such pre-existing condition until the first
anniversary of termination of employment.
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in Section
7(b) above, the Company (and its affiliates) shall not be obligated to make any
payments to the Executive or on his behalf of whatever kind or nature by reason
of the Executive's cessation of employment (including, without limitation, by
reason of termination of the Executive's employment by the Company for "cause"),
other than (i) such amounts, if any, of his Salary as shall have accrued and
remained unpaid as of the date of said cessation, (ii) such other amounts, if
any, which may be then otherwise payable to the Executive pursuant to the terms
of the Company's benefit plans or pursuant to clause (v) of Section 5 above, and
(iii) any amounts owed or obligations to the Executive pursuant to the terms of
any option or other stock-based award granted to him by the Company.
(d) No interest shall accrue on or be paid with respect to any portion
of any payments timely made hereunder.
8. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder shall be
assignable by the Executive or his beneficiaries or legal representatives
without the Company's prior written consent; provided, however, that nothing in
this Section 8(a) shall preclude the Executive from designating a beneficiary to
receive any benefit payable hereunder upon his death or incapacity. Neither this
Agreement nor any right or interest hereunder shall be assignable by the Company
or NFI; provided, however, that notwithstanding the foregoing, this Agreement
and the Company's rights and interests hereunder may be assigned by the Company
pursuant to a merger or consolidation in which the Company is not the continuing
entity, or the sale or liquidation of all or substantially all of the assets of
the Company, provided that (i) the assignee or transferee is the successor to
all or substantially all of the assets of the Company and (ii) such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law.
8
<PAGE>
(b) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or to assignment by operation of law, and
any attempt, voluntary or involuntary, to effect any such action shall be null,
void and of no effect.
9. Restrictive Covenants.
(a) Competition. During the Employment Term, during any continuation of
employment pursuant to Section 2 above and during the twelve (12) month period
following termination of the Executive's employment with the Company for any
reason, provided that payments, if any, required pursuant to Section 7(b) hereof
are made in full and in a timely fashion, the Executive will not directly or
indirectly (as a director, officer, executive employee, manager, consultant,
independent contractor, advisor or otherwise) engage in competition with, or own
any interest in, perform any services for, participate in or be connected with
any business or organization which engages in competition with any of the
Companies within the meaning of Section 9(d), provided, however, that the
provisions of this Section 9(a) shall not be deemed to prohibit the Executive's
ownership of not more than two percent (2%) of the total shares of all classes
of stock outstanding of any publicly held company, or ownership, whether through
direct or indirect stock holdings or otherwise, of one percent (1%) or more of
any other business.
(b) Non-Solicitation. During the Employment Term, during any
continuation of employment pursuant to Section 2 above and during the twelve
(12) month period following termination of the Executive's employment with the
Company for any reason, provided that payments, if any, required pursuant to
Section 7(b) hereof are made in full and in a timely fashion, the Executive will
not knowingly directly or indirectly induce or attempt to induce any employee of
any of the Companies to leave the employ of any of the Companies or of their
subsidiaries or affiliates, or in any way interfere with the relationship
between any of the Companies and any employee thereof.
(c) Non-Interference. During the twelve (12) month period following
termination of the Executive's employment with the Company for any reason,
provided that payments, if any, required pursuant to Section 7(b) hereof are
made in full and in a timely fashion, the Executive will not directly or
indirectly hire, engage, send any work to, place orders with, or in any manner
be associated with any business entity which, during the period of twelve months
preceding or following such termination of employment, was among the five
largest suppliers of NFI by dollar volume.
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(d) Certain Definitions.
(i) For purposes of this Section 9, a person or entity
(including, without limitation, the Executive) shall be deemed to be a
competitor of one or more of the Companies, or a person or entity
(including, without limitation, the Executive) shall be deemed to be
engaging in competition with one or more of the Companies, if, at the
time of determination, such person or entity (A) engages in any
business engaged in or proposed to be engaged in by any of the
Companies, or (B) in any way conducts, operates, carries out or engages
in the business of managing any entity engaged in any business
described in clause (A), in each case, in any state of the United
States of America, excluding, however, during any period following the
termination of the Executive's employment with the Company, (x) any
business or any state in which none of the Companies was engaged or had
proposed to be engaged at the time of termination of the Executive's
employment with the Company, and (y) after termination of the
Executive's employment, any business which was not, prior to such
termination, directly or indirectly supervised by the Executive.
(ii) For purposes of this Section 9, no corporation or entity that
may be deemed to be an affiliate of the Companies solely by reason of
its being controlled by, or under common control with, Welsh, Carson,
Anderson & Stowe VII, L.P. or any of its affiliates other than the
Companies, will be deemed to be an affiliate of the Companies.
(e) Certain Representations of the Executive. In connection with the
foregoing provisions of this Section 9, the Executive represents that his
experience, capabilities and circumstances are such that such provisions will
not prevent him from earning a livelihood. The Executive further agrees that the
limitations set forth in this Section 9 (including, without limitation, time and
territorial limitations) are reasonable and properly required for the adequate
protection of the current and future businesses of the Companies. It is
understood and agreed that the covenants made by the Executive in this Section 9
shall survive the expiration or termination of this Agreement.
(f) Injunctive Relief. The Executive acknowledges and agrees that a
remedy at law for any breach or threatened breach of the provisions of Section 9
hereof would be inadequate and, therefore, agrees that the Company and any of
its subsidiaries or affiliates shall be entitled to injunctive relief in
addition to any other available rights and remedies in cases of any such breach
or threatened breach; provided, however, that nothing contained herein shall be
construed as prohibiting the Company or any of its affiliates from pursuing any
other rights and remedies available for any such breach or threatened breach.
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10. Indemnity. To the maximum extent permitted by applicable law and
the charter and by-laws of the Company or NFI, the Company and NFI shall
indemnify the Executive and hold him harmless for any acts or decisions made by
him in good faith while performing services for the Company or NFI or any of
their subsidiaries of affiliates, and will use their reasonable best efforts to
obtain coverage for him under any insurance policy now in force or hereinafter
obtained during the term of this Agreement covering other officers and directors
of the Company or NFI and their subsidiaries or affiliates against lawsuits, and
the Company or NFI will, to the extent provided by their respective charters and
by-laws and applicable law, advance or pay all expenses, including attorney's
fees actually and necessarily incurred by the Executive in connection with the
defense of any such action, suit or proceeding and in connection with any appeal
thereon including the cost of court settlements.
11. No Mitigation. In the event of any termination of the Executive's
employment under Section 7(a)(iv) or (v), the Executive shall be under no
obligation to seek other employment and there shall be no offset against any
amounts due the Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that the Executive may obtain.
12. Binding Effect. Without limiting or diminishing the effect of
Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
13. Notices. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and (i) delivered personally, (ii) mailed by
certified or registered mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier or (iv) sent via
facsimile confirmed in writing to the recipient, if to the Company at the
Company's principal place of business, and if to the Executive, at his home
address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
14. Enforcement. Any dispute arising under this Agreement shall, at the
election of either party, be resolved by final and binding arbitration to be
held in New York, N.Y. in accordance with the rules and procedures of the
American Arbitration Association. Judgment upon the award entered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
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15. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
16. Severability. The Executive agrees that in the event that any court
of competent jurisdiction shall finally hold that any provision of Section 6 or
9 hereof is void or constitutes an unreasonable restriction against the
Executive, the provisions of such Section 6 or 9 shall not be rendered void but
shall apply with respect to such extent as such court may judicially determine
constitutes a reasonable restriction under the circumstances. If any part of
this Agreement other than Section 6 or 9 is held by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part by reason of any rule of law or public policy, such part shall be deemed
to be severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
17. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
18. Entire Agreement; Modifications. This Agreement constitutes the
entire and final expression of the agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, oral and written,
between the parties hereto with respect to the subject matter hereof. This
Agreement may be modified or amended only by an instrument in writing signed by
both parties hereto.
19. Termination of Certain Agreements. Concurrently with the execution
and delivery of this Agreement, the Employment Agreement dated December 31,
1992, by and between SHS and the Executive, as amended by Amendment One to
Employment Agreement dated November 20, 1995, shall terminate, without further
action by the parties thereto, and be of no further force or effect.
20. 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 instrument.
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IN WITNESS WHEREOF, the Company and the Executive have duly executed
and delivered this Agreement as of the day and year first above written.
NOVA HOLDINGS, INC.
By /s/ Andrew M. Paul
---------------------------
Name: Andrew M. Paul
Title: President
/s/ John R. Grow
---------------------------
John R. Grow
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 31, 1996, by and among
NOVA HOLDINGS, INC., a Delaware corporation (the "Company"), NOVA FACTOR, INC.,
a Tennessee corporation ("NFI"), and JOEL R. KIMBROUGH (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive for the
period provided in this Agreement, and the Executive is willing to accept such
employment with the Company on a full-time basis, all in accordance with the
terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises
hereof and the mutual covenants contained herein, the parties hereto hereby
covenant and agree as follows:
1. Employment.
(a) The Company hereby employs the Executive, and the
Executive hereby accepts such employment with the Company, for the period set
forth in Section 2 hereof, all upon the terms and conditions hereinafter set
forth.
(b) The Executive affirms and represents that he is under no
obligation to any former employer or other party which is in any way
inconsistent with, or which imposes any restriction upon, the Executive's
acceptance of employment hereunder with the Company, the employment of the
Executive by the Company or NFI, or the Executive's undertakings under this
Agreement.
2. Term of Employment. Unless earlier terminated as
hereinafter provided, the term of the Executive's employment under this
Agreement shall initially be for a period beginning on the date hereof and
ending on May 31, 1999; provided that on May 31, 1998 and on each May 31
thereafter, the term of the Execu- tive's employment hereunder shall
automatically be extended for an additional one-year period unless, prior to
such May 31, the Company shall have given the Executive, or the Executive shall
have given the Company, written notice that the Employment Term shall not be so
extended. The period commencing on the date hereof and ending on the earlier of
(i) the termination of Executive's employment hereunder, and (ii) the later of
May 31, 1999 or the expiration of all one-year extensions described in the
preceding sentence, is referred to herein as the Employment Term.
<PAGE>
If the Executive continues in the full-time employ of the
Company after the end of the Employment Term (it being expressly understood and
agreed that the Company does not now, nor hereafter shall have, any obligation
to continue the Executive in its employ whether or not on a full-time basis,
after said Employment Term ends), then, unless otherwise expressly agreed to by
the Executive and the Company in writing, the Executive's continued employment
by the Company after the Employment Term shall, notwithstanding anything to the
contrary expressed or implied herein, be terminable by the Company at will, with
or without cause and with or without notice, but shall in all other respects be
subject to the terms and conditions of this Agreement.
3. Duties. The Executive shall be employed as Vice President
and Chief Financial Officer of the Company, shall, subject to the direction of
the Board of Directors of the Company (the "Board"), faithfully and competently
perform such duties as inhere in such position and shall also perform and
discharge such other executive employment duties and responsibilities consistent
with his position as Vice President and Chief Financial Officer as the Board of
Directors of the Company may from time to time reasonably prescribe, including
serving as Chief Financial Officer of one or more of the Company's subsidiaries
or affiliates. The Executive 's primary workplace will be located in Memphis,
Tennessee. Except as may otherwise be approved in advance by the Board, and
except during vacation periods and reasonable periods of absence due to
sickness, personal injury or other disability, personal affairs or non-profit
public service activities, the Executive shall devote his full time during
normal business hours throughout the Employment Term to the services required of
him hereunder. The Executive shall render his business services exclusively to
the Companies (as defined in Section 6(a)) during the Employment Term and shall
use his best efforts, judgment and energy to improve and advance the business
and interests of the Companies in a manner consistent with the duties of his
position.
4. Salary and Bonus.
(a) Salary. As compensation for the performance by the
Executive of the services to be performed by the Executive hereunder during the
Employment Term, the Company shall pay the Executive a base salary at the annual
rate of one hundred thirty five thousand dollars ($135,000) (said amount being
hereinafter referred to as "Salary"). Any Salary payable hereunder shall be paid
in regular intervals (but in no event less frequently than monthly) in
accordance with the Company's payroll practices from time to time in effect. The
Salary payable to the Executive pursuant to this Section 4(a) shall be increased
annually, as of September 1, 1997 and each September 1 thereafter for the
twelve-month period then commencing, by an amount equal to (i) the
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annual percentage increase in the Consumer Price Index for Urban Consumers, All
Items, Memphis, Tennessee Area, for the most recent twelve-month period for
which such figures are then available as reported in the Monthly Labor Review
published by the Bureau of Labor Statistics of the U.S. Department of Labor or
(ii) such higher amount as may be determined from time to time by the Board in
its sole discretion.
(b) Bonus. The Executive will be entitled to receive bonus
compensation from the Company in respect of each fiscal year (or portion
thereof) occurring during the Employment Term, the amount of such bonus
compensation to be based on the extent to which the Company's planned EBT
established by the Board for the corresponding period (the "Plan EBT") has been
achieved, as follows:
<TABLE>
<CAPTION>
Percent of Plan EBT Achieved Bonus
----------------------------- -----
<S> <C>
Less than 80% None
Between 80% and 100% 1.5 % of Salary for each
1% of Plan EBT achieved
in excess of 80%
Between 100% and 125% 30% of Salary plus 0.8%
of Salary for each 1% of
Plan EBT achieved in
excess of 100%
125% or more 50% of Salary
</TABLE>
"EBT" shall mean, with respect to any fiscal year (i) the net income (determined
in accordance with generally accepted accounting principles applied consistently
with the Company's audited financial statements, but excluding the effect of any
extraordinary or other material non-recurring gain (but not loss) outside the
ordinary course of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net Income")
plus (ii) to the extent deducted in determining Consolidated Net Income for such
period, the amount of the provision for income taxes for such period. Plan EBT
for the Company's fiscal year ending June 30, 1997 shall be $9,600,000. Plan EBT
for subsequent fiscal years shall be as determined by the Board. Any bonus to
which the Executive is entitled shall be paid as promptly as practicable after
the audited financial statements for the fiscal year in question have been
approved by the Board and shall be calculated on a linear basis to the nearest
$100.
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(c) Withholding, Etc. The payment of any Salary and bonus
hereunder shall be subject to applicable withholding and payroll taxes, and such
other deductions as may be required by law or the Company's employee benefit
plans.
5. Other Benefits. During the Employment Term, the
Executive shall:
(i) be eligible to participate in employee fringe benefits and
pension and/or profit sharing plans that may be provided by the Company
for its senior executive employees in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(ii) be eligible to participate in any medical and health plans or
other employee welfare benefit plans that may be provided by the
Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(iii) be entitled to the number of paid vacation days in each
calendar year determined by the Company from time to time for its
senior executive officers, as well as all paid holidays given by the
Company to its senior executive officers;
(iv) be entitled to sick leave, sick pay and disability benefits in
accordance with any Company policy that may be applicable to senior
executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable and
necessary out-of-pocket business expenses incurred by the Executive in
the performance of his duties hereunder in accordance with the
Company's policies applicable thereto.
For purposes of determining eligibility, vesting and benefit accrual under each
of the benefit plans and arrangements referred to in this Section 5, the
Executive shall be credited with service for all years and partial years of
service with NFI, Southern Health Systems, Inc. ("SHS"), Le Bonheur Health
Systems, Inc., or any of their affiliates prior to the date hereof. In addition,
from the date hereof until the expiration of the Employment Term, the Company
shall maintain term insurance coverage on the life of the Executive (including
any such coverage provided for pursuant to the foregoing provisions of this
Section 5) in the aggregate amount of $500,000, payable to that Executive's
named beneficiaries in accordance with standard policy terms and conditions.
6. Confidential Information. The Executive hereby covenants,
agrees and acknowledges as follows:
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(a) The Executive has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company, SHS and NFI, and any other present or future subsidiaries
or affiliates of the Company (collectively, with the Company, the
"Companies"), including but not limited to (i) customer and physician
lists; patient histories, patient identities and related records and
compilations of information; the identity, lists or descriptions of any
new customers or physicians, referral sources or organizations;
financial statements; cost reports or other financial information;
contract proposals or bidding information; business plans; training and
operations methods and manuals; personnel records; software programs;
reports and correspondence; premium structures; and management systems,
policies or procedures, including related forms and manuals; (ii)
information pertaining to future developments such as future marketing
or acquisition plans or ideas, and potential new business locations and
new suppliers and (iii) all other tangible and intangible property,
which are used in the business and operations of the Companies but not
made public. The information and trade secrets relating to the business
of the Companies described hereinabove in this paragraph (a) are
hereinafter referred to collectively as the "Confidential Information",
provided that the term Confidential Information shall not include any
information (x) that is or becomes generally publicly available (other
than as a result of violation of this Agreement by the Executive) or
(y) that the Executive receives on a nonconfidential basis from a
source (other than the Companies or their representatives) that is not
known by him to be bound by an obligation of secrecy or confidentiality
to any of the Companies.
(b) The Executive shall not disclose, use or make known for
his or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Companies in the performance of the Executive's duties under
this Agreement. The Executive may disclose Confidential Information
when required by a third party and applicable law or judicial process,
but only after providing (i) notice to the Company of any third party's
request for such information, which notice shall include the
Executive's intent with respect to such request, and (ii) sufficient
opportunity for the Company to challenge or limit the scope of the
disclosure on behalf of the Companies, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6
would be inadequate and, therefore, agrees that the Companies shall be
entitled to injunc-
5
<PAGE>
tive relief in addition to any other available rights and remedies in
case of any such breach or threatened breach; provided, however, that
nothing contained herein shall be construed as prohibiting the
Companies from pursuing any other rights and remedies available for any
such breach or threatened breach.
(d) The Executive agrees that upon termination of his
employment with the Company for any reason, the Executive shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer discs
and other electronic media).
(e) The obligations of the Executive under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this
Agreement.
(f) Without limiting the generality of Section 10 hereof, the
Executive hereby expressly agrees that the foregoing provisions of this
Section 6 shall be binding upon the Executive's heirs, successors and
legal representatives.
7. Termination.
(a) The Executive's employment hereunder shall be terminated
upon the occurrence of any of the following:
(i) death of the Executive;
(ii) the Executive's inability to perform his duties on account of
disability or incapacity for a period of one hundred eighty (180) or
more days, whether or not consecutive, within any period of twelve (12)
consecutive months;
(iii) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated "for
cause" (as defined below);
(iv) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated other
than pursuant to clause (i), (ii) or (iii) above; or
(v) the Executive giving written notice, at any time, to the
Company that the Executive is terminating his employment for "good
reason" (as defined below).
The following actions, failures and events by or affecting the
Executive shall constitute "cause" for termination within the meaning of clause
(iii) above: (A) an indictment for or conviction of the Executive of, or the
entering of a plea of
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<PAGE>
nolo contendere by the Executive with respect to, having committed a felony, (B)
acts of dishonesty or moral turpitude by the Executive that are detrimental to
one or more of the Companies, (C) acts or omissions by the Executive that the
Executive knew were likely to damage the business of one or more of the
Companies, (D) negligence by the Executive in the performance of, or disregard
by the Executive of, his obligations hereunder or otherwise relating to his
employment, or (E) failure by the Executive to obey the reasonable and lawful
policies or orders of the Board that are consistent with the provisions of this
Agreement. For purposes of this Agreement, the Executive shall not be deemed to
have been terminated for cause unless and until there shall have been delivered
to the Executive a copy of a resolution, duly adopted by the Board, stating
that, in the good faith opinion of the Board, the Executive is guilty of an
action or omission that constitutes cause and specifying the particulars thereof
in reasonable detail. Before adopting any such resolution, the Board shall offer
the Executive, upon reasonable written notice (which need not exceed two days),
an opportunity for him, together with his counsel, to be heard by the Board.
The following circumstances shall constitute "good reason" for
termination within the meaning of clause (v) above: (I) the assignment to the
Executive of duties that are materially inconsistent with the Executive's
position or with his authority, duties or responsibilities as contemplated by
Section 3 of this Agreement, or any other action by the Company, NFI or their
successors which results in a material diminution or material adverse change in
the Executive's position, authority, duties or responsibilities, (II) any
material breach by the Company, NFI or their successors of any provision of this
Agreement, (III) a relocation of the Executive's primary workplace without his
written consent to any location other than the one described in Section 3
hereof, or (IV) a "Change of Control," as hereinafter defined.
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than Welsh,
Carson, Anderson & Stowe VII, L.P. and WCAS Healthcare Partners, L.P., or their
respective affiliates.
(b) In the event that the Executive's employment is terminated
pursuant to clause (iv) or (v) of Section 7(a) above, whether during the
Employment Term or during any continuation of employment pursuant to Section 2
above, the Company shall pay to the Executive, as severance pay or liquidated
damages or both, bi-monthly payments at the rate per annum of his Salary at the
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<PAGE>
time of such termination for a period from the date of such termination to the
first anniversary of such termination. The Executive shall continue to
participate in the benefit plans and arrangements of the Company (to the extent
permitted by the terms thereof) as provided in Section 5 until the earlier of
(x) the first anniversary of such termination or (y) the date the Executive
commences other full-time employment; provided, however, that in the event
coverage for any pre-existing condition is not available under the health and
medical plans of Executive's successor employer, the Company shall provide
continuing coverage with respect to such pre-existing condition until the first
anniversary of termination of employment.
(c) Notwithstanding anything to the contrary expressed or
implied herein, except as required by applicable law and except as set forth in
Section 7(b) above, the Company (and its affiliates) shall not be obligated to
make any payments to the Executive or on his behalf of whatever kind or nature
by reason of the Executive's cessation of employment (including, without
limitation, by reason of termination of the Executive's employment by the
Company for "cause"), other than (i) such amounts, if any, of his Salary as
shall have accrued and remained unpaid as of the date of said cessation, (ii)
such other amounts, if any, which may be then otherwise payable to the Executive
pursuant to the terms of the Company's benefit plans or pursuant to clause (v)
of Section 5 above, and (iii) any amounts owed or obligations to the Executive
pursuant to the terms of any option or other stock-based award granted to him by
the Company.
(d) No interest shall accrue on or be paid with respect to any
portion of any payments timely made hereunder.
8. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder
shall be assignable by the Executive or his beneficiaries or legal
representatives without the Company's prior written consent; provided, however,
that nothing in this Section 8(a) shall preclude the Executive from designating
a beneficiary to receive any benefit payable hereunder upon his death or
incapacity. Neither this Agreement nor any right or interest hereunder shall be
assignable by the Company or NFI; provided, however, that notwithstanding the
foregoing, this Agreement and the Company's rights and interests hereunder may
be assigned by the Company pursuant to a merger or consolidation in which the
Company is not the continuing entity, or the sale or liquidation of all or
substantially all of the assets of the Company, provided that (i) the assignee
or transferee is the successor to all or substantially all of the assets of the
Company and (ii) such assignee or transferee assumes the liabilities,
obligations and duties of the Company, as contained in this Agreement, either
contractually or as a matter of law.
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<PAGE>
(b) Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or to assignment by operation of law, and
any attempt, voluntary or involuntary, to effect any such action shall be null,
void and of no effect.
9. Restrictive Covenants.
(a) Competition. During the Employment Term, during any
continuation of employment pursuant to Section 2 above and during the twelve
(12) month period following termination of the Executive's employment with the
Company for any reason, provided that payments, if any, required pursuant to
Section 7(b) hereof are made in full and in a timely fashion, the Executive will
not directly or indirectly (as a director, officer, executive employee, manager,
consultant, independent contractor, advisor or otherwise) engage in competition
with, or own any interest in, perform any services for, participate in or be
connected with any business or organization which engages in competition with
any of the Companies within the meaning of Section 9(d), provided, however, that
the provisions of this Section 9(a) shall not be deemed to prohibit the
Executive's ownership of not more than two percent (2%) of the total shares of
all classes of stock outstanding of any publicly held company, or ownership,
whether through direct or indirect stock holdings or otherwise, of one percent
(1%) or more of any other business.
(b) Non-Solicitation. During the Employment Term, during any
continuation of employment pursuant to Section 2 above and during the twelve
(12) month period following termination of the Executive's employment with the
Company for any reason, provided that payments, if any, required pursuant to
Section 7(b) hereof are made in full and in a timely fashion, the Executive will
not knowingly directly or indirectly induce or attempt to induce any employee of
any of the Companies to leave the employ of any of the Companies or of their
subsidiaries or affiliates, or in any way interfere with the relationship
between any of the Companies and any employee thereof.
(c) Non-Interference. During the twelve (12) month period
following termination of the Executive's employment with the Company for any
reason, provided that payments, if any, required pursuant to Section 7(b) hereof
are made in full and in a timely fashion, the Executive will not directly or
indirectly hire, engage, send any work to, place orders with, or in any manner
be associated with any business entity which, during the period of twelve months
preceding or following such termination of employment, was among the five
largest suppliers of NFI by dollar volume.
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(d) Certain Definitions.
(i) For purposes of this Section 9, a person or entity
(including, without limitation, the Executive) shall be deemed to be a
competitor of one or more of the Companies, or a person or entity
(including, without limitation, the Executive) shall be deemed to be
engaging in competition with one or more of the Companies, if, at the
time of determination, such person or entity (A) engages in any
business engaged in or proposed to be engaged in by any of the
Companies, or (B) in any way conducts, operates, carries out or engages
in the business of managing any entity engaged in any business
described in clause (A), in each case, in any state of the United
States of America, excluding, however, during any period following the
termination of the Executive's employment with the Company, (x) any
business or any state in which none of the Companies was engaged or had
proposed to be engaged at the time of termination of the Executive's
employment with the Company, and (y) after termination of the
Executive's employment, any business which was not, prior to such
termination, directly or indirectly supervised by the Executive.
(ii) For purposes of this Section 9, no corporation or entity that
may be deemed to be an affiliate of the Companies solely by reason of
its being controlled by, or under common control with, Welsh, Carson,
Anderson & Stowe VII, L.P. or any of its affiliates other than the
Companies, will be deemed to be an affiliate of the Companies.
(e) Certain Representations of the Executive. In connection
with the foregoing provisions of this Section 9, the Executive represents that
his experience, capabilities and circumstances are such that such provisions
will not prevent him from earning a livelihood. The Executive further agrees
that the limitations set forth in this Section 9 (including, without limitation,
time and territorial limitations) are reasonable and properly required for the
adequate protection of the current and future businesses of the Companies. It is
understood and agreed that the covenants made by the Executive in this Section 9
shall survive the expiration or termination of this Agreement.
(f) Injunctive Relief. The Executive acknowledges and agrees
that a remedy at law for any breach or threatened breach of the provisions of
Section 9 hereof would be inadequate and, therefore, agrees that the Company and
any of its subsidiaries or affiliates shall be entitled to injunctive relief in
addition to any other available rights and remedies in cases of any such breach
or threatened breach; provided, however, that nothing contained herein shall be
construed as prohibiting the Company or any of its affiliates from pursuing any
other rights and remedies available for any such breach or threatened breach.
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10. Indemnity. To the maximum extent permitted by applicable
law and the charter and by-laws of the Company or NFI, the Company and NFI shall
indemnify the Executive and hold him harmless for any acts or decisions made by
him in good faith while performing services for the Company or NFI or any of
their subsidiaries of affiliates, and will use their reasonable best efforts to
obtain coverage for him under any insurance policy now in force or hereinafter
obtained during the term of this Agreement covering other officers and directors
of the Company or NFI and their subsidiaries or affiliates against lawsuits, and
the Company or NFI will, to the extent provided by their respective charters and
by-laws and applicable law, advance or pay all expenses, including attorney's
fees actually and necessarily incurred by the Executive in connection with the
defense of any such action, suit or proceeding and in connection with any appeal
thereon including the cost of court settlements.
11. No Mitigation. In the event of any termination of the
Executive's employment under Section 7(a)(iv) or (v), the Executive shall be
under no obligation to seek other employment and there shall be no offset
against any amounts due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that the Executive may
obtain.
12. Binding Effect. Without limiting or diminishing the effect
of Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
13. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and (i) delivered personally,
(ii) mailed by certified or registered mail, return receipt requested and
postage prepaid, (iii) sent via a nationally recognized overnight courier or
(iv) sent via facsimile confirmed in writing to the recipient, if to the Company
at the Company's principal place of business, and if to the Executive, at his
home address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
14. Enforcement. Any dispute arising under this Agreement
shall, at the election of either party, be resolved by final and binding
arbitration to be held in New York, N.Y. in accordance with the rules and
procedures of the American Arbitration Association. Judgment upon the award
entered by the arbitrator(s) may be entered in any court having jurisdiction
thereof.
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15. Law Governing. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Tennessee.
16. Severability. The Executive agrees that in the event that
any court of competent jurisdiction shall finally hold that any provision of
Section 6 or 9 hereof is void or constitutes an unreasonable restriction against
the Executive, the provisions of such Section 6 or 9 shall not be rendered void
but shall apply with respect to such extent as such court may judicially
determine constitutes a reasonable restriction under the circumstances. If any
part of this Agreement other than Section 6 or 9 is held by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part by reason of any rule of law or public policy, such part shall be deemed
to be severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
17. Waiver. Failure to insist upon strict compliance with any
of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
18. Entire Agreement; Modifications. This Agreement
constitutes the entire and final expression of the agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements, oral
and written, between the parties hereto with respect to the subject matter
hereof. This Agreement may be modified or amended only by an instrument in
writing signed by both parties hereto.
19. Termination of Certain Agreements. Concurrently with the
execution and delivery of this Agreement, the Employment Agreement dated
December 31, 1992, by and between SHS and the Executive, as amended by Amendment
One to Employment Agreement dated November 20, 1995, shall terminate, without
further action by the parties thereto, and be of no further force or effect.
20. 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 instrument.
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IN WITNESS WHEREOF, the Company and the Executive have duly
executed and delivered this Agreement as of the day and year first above
written.
NOVA HOLDINGS, INC.
By /s/ Andrew M. Paul
-----------------------------------
Name: Andrew M. Paul
Title: President
/s/ Joel R. Kimbrough
-----------------------------------
Joel R. Kimbrough
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of June 5th, 1997, by and among
HORIZON HEALTH SYSTEMS, INC. (the "Company"), and KYLE CALLAHAN (the
"Executive").
W I T N E S S E T H:
WHEREBY, the Company desires to employ the Executive for the period
provided in this Agreement, and the Executive is willing to accept such
employment with the Company on a full-time basis, all in accordance with the
terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto hereby covenant and agree
as follows:
1. Employment.
(a) The Company hereby employs the Executive, and the Executive hereby
accepts such employment with the Company, for the period set forth in Section 2
hereof, all upon the terms and conditions hereinafter set forth.
(b) The Executive affirms and represents that he is under no obligation
to any former employer or other party which is in any way inconsistent with, or
which imposes any restriction upon, the Executive's acceptance of employment
hereunder with the Company, the employment of the Executive by the Company, or
the Executive's undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as hereinafter
provided, the term of the Executive's employment under this Agreement shall
initially be for a period beginning on the date hereof and ending on June 1,
2000. The period commencing on the date hereof and ending on the earlier of (i)
the termination of Executive's employment hereunder, and (ii) June 1, 2000, is
referred to herein as the Employment Term.
If the Executive continues in the full-time employ of the Company after
the end of the Employment Term (it being expressly understood and agreed that
the Company does not now, nor hereinafter shall have, any obligation to continue
the Executive in its employ whether or not on a full-time basis, after said
Employment Term ends), then, unless otherwise expressly agreed to by the
Executive and the Company in writing, the Executive's continued employment by
the Company after the Employment Term shall, notwithstanding anything to the
contrary expressed or implied herein, be terminable by the Company at will, with
or without cause and with or without notice, but shall in all other respects be
subject to the terms and conditions of this Agreement.
<PAGE>
3. Duties. The Executive shall be employed as President and Chief
Operating Officer of the Company, and shall, subject to the direction of the
Board of Directors of the Company (the "Board") and the Chief Executive Officer
of Nova Holdings, Inc., faithfully and competently perform such duties as inhere
in such position and shall also perform and discharge such other executive
employment duties and responsibilities consistent with his position as President
and Chief Operating Officer as the Board of Directors of the Company and/or
Chief Executive Officer of Nova Holdings, Inc. may from time to time reasonably
prescribe, including serving as an officer of one or more of the Company's
subsidiaries or affiliates. The Executive's primary workplace will be located in
Nashville, Tennessee. Except as may otherwise be approved in advance by the
Board, and except during vacation periods and reasonable periods of absence due
to sickness, personal injury or other disability, personal affairs or non-profit
public service activities, the Executive shall devote his full time during
normal business hours throughout the Employment Term to the services required of
him hereunder. The Executive shall render his business services exclusively to
the Companies (as defined in Section 6(a)) during the Employment Term and shall
use his best efforts, judgment and energy to improve and advance the business
and interests of the Companies in a manner consistent with the duties of his
position.
4. Salary and Bonus.
(a) Salary. As compensation for the performance by the Executive of the
services to be performed by the Executive hereunder during the Employment Term,
the Company shall pay the Executive a base salary at the annual rate of One
Hundred Fifty Thousand ($150,000.00) Dollars (said amount being hereinafter
referred to as "Salary"). Any Salary payable hereunder shall be paid in regular
intervals (but in no event less frequently than monthly) in accordance with the
Company's payroll practices from time to time in effect. The Salary payable to
the Executive pursuant to this Section 4(a) shall be subject to being increased
annually based on merit, as of September 1, 1997 and each September 1 thereafter
for the twelve-month period then commencing, by an amount up to (i) the annual
percentage increase in the Consumer Price Index for Urban Consumers, All Items,
Nashville, Tennessee Area, for the most recent twelve-month period for which
such figures are then available as reported in the Monthly Labor Review
published by the Bureau of Labor Statistics of the U.S. Department of Labor, or
(ii) such other amount as may be determined from time to time by the Board in
its sole discretion. As of September 1, 1997 Executive's salary shall increase
to One Hundred Sixty-Three Thousand Five Hundred ($163,500.00) Dollars.
(b) Bonus. The Executive will be entitled to receive bonus compensation
from the Company in respect of each fiscal year (or portion thereof) occurring
during the Employment Term beginning with the year which starts on July 1, 1997
provided that Executive
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is employed by Company on the last day of said fiscal year. The amount of such
bonus compensation to be based on the extent to which the Company's planned EBT
established by the Board for the corresponding period (the "Plan EBT") has been
achieved, as follows:
<TABLE>
<CAPTION>
Percent of Plan EBT Achieved Bonus
---------------------------- -----
<S> <C>
80% or less None
Between 80% and 100% 1.5% of Salary for each 1%
of Plan EBT achieved in
excess of 80%
100% and above up to 125% 30% of Salary, plus 0.8% of
Salary for each 1% of Plan
EBT achieved in excess of
100%
125% or more 50% of Salary
</TABLE>
"EBT" shall mean, with respect to any fiscal year (i) the net income (determined
in accordance with generally accepted accounting principles applied consistently
with the Company's audited financial statements, but excluding the effect of any
extraordinary or other material non-recurring gain (but not loss) outside the
ordinary course of business) of the Company ("Net Income"), plus (ii) to the
extent deducted in determining Net Income for such period, the amount of the
provision for income taxes for such period. Plan EBT for each fiscal year shall
be as determined by the Board. Any bonus to which the Executive is entitled
shall be paid as promptly as practicable after the audited financial statements
for the fiscal year in question have been approved by the Board and shall be
calculated on a linear basis to the nearest $100.
Executive shall be entitled to a pro-rated bonus for the period January
1, 1997 through June 30, 1997 based upon the Company's bonus
plan which was in place prior to the date of this Agreement. This prorated bonus
and the bonuses described hereinabove shall be in lieu of all other bonuses or
bonus plans previously adopted by the Company and applicable to Executive.
(c) Withholding, Etc. The payment of any Salary and bonus hereunder
shall be subject to applicable withholding and payroll taxes, and such other
deductions as may be required by law or the Company's employee benefit plans.
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<PAGE>
5. Other Benefits. During the Employment Term, the Executive
shall:
(i) be eligible to participate in employee fringe benefits and pension
and/or profit sharing plans that may be provided by the Company for its
senior executive employees in accordance with the provisions of any
such plans, as the same may be in effect from time to time;
(ii) be eligible to participate in any medical and health plans or
other employee welfare benefit plans that may be provided by the
Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(iii) be entitled to 160 hours paid vacation in each calendar year,
accrued on a per pay period basis, as well as all paid holidays given
by the Company to its senior executive officers;
(iv) be entitled to non-vested sick leave, (initially 240 hours with
bi-weekly accruals of 8 hours per month, up to a maximum of 960 hours),
sick pay and disability benefits in accordance with any Company policy
that may be applicable to senior executive employees from time to time;
and
(v) be entitled to reimbursement for all reasonable and necessary
out-of-pocket business expenses incurred by the Executive in the
performance of his duties hereunder in accordance with the Company's
policies applicable thereto.
For purposes of determining eligibility, vesting and benefit accrual under each
of the benefit plans and arrangements referred to in this Section 5, the
Executive shall be credited with service for all years and partial years of
service with Company prior to the date hereof.
6. Confidential Information. The Executive hereby covenants, agrees and
acknowledges as follows:
(a) The Executive has and will have access to and will participate in
the development of or be acquainted with confidential or proprietary
information and trade secrets related to the business of the Company,
Nova Holdings, Inc, Nova Factor, Inc., Southern Health Systems, Inc.,
and any other present or future subsidiaries or affiliates of the
Company (collectively, with the Company, the "Companies"), including
but not limited to (i) customer and physician lists; patient histories,
patient identities and related records and compilations of information;
the identity, lists or descriptions of any new customers or physicians,
referral
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<PAGE>
sources or organizations; financial statements; or
other financial information; contract proposals or bidding
information; business plans; training and operations methods
and manuals; personnel records; software programs; reports and
correspondence; premium structures; and management systems,
policies or procedures, including relating forms and manuals;
(ii) information pertaining to future developments such as
future marketing or acquisition plans or ideas, and potential
new business locations and new suppliers, and (iii) all other
tangible and intangible property, which are used in the
business and operations of the Companies but not made public.
The information and trade secrets relating to the business of
the Companies described hereinabove in this paragraph (a) are
hereinafter referred to collectively as the "Confidential
Information", provided that the term Confidential Information
shall not include any information (x) that is or becomes
generally publicly available (other than as a result of
violation of this Agreement by the Executive), or (y) that the
Executive receives on a nonconfidential basis from a source
(other than the Companies or their representatives) that is
not known by him to be bound by an obligation of secrecy or
confidentiality to any of the Companies.
(b) The Executive shall not disclose, use or make known for his or
another's benefit any Confidential Information or use such Confidential
Information in any way except as is in the best interests of the
Companies in the performance of the Executive's duties under this
Agreement. The Executive may disclose Confidential Information when
required by a third party and applicable law or judicial process, but
only after using best efforts to provide (i) notice to the Company of
any third party's request for such information, which notice shall
include the Executive's intent with respect to such request, and (ii)
sufficient opportunity for the Company to challenge or limit the scope
of the disclosure on behalf of the Companies, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 6 would
be inadequate and, therefore, agrees that the Companies shall be
entitled to injunctive relief in addition to any other available rights
and remedies in case of any such breach or threatened breach; provided,
however, that nothing contained herein shall be construed as
prohibiting the Companies from pursuing any other rights and remedies
available for any such breach or threatened breach.
(d) The Executive agrees that upon termination of his employment with
the Company for any reason, the Executive shall forthwith return to the
Company all Confidential Information in whatever form maintained
(including, without limitation, computer discs and other electronic
media).
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<PAGE>
(e) The obligations of the Executive under this Section 6 shall, except
as otherwise provided herein, survive the termination of the Employment
Term and the expiration or termination of this Agreement.
(f) Without limiting the generality of Section 10 hereof, the Executive
hereby expressly agrees that the foregoing provisions of this Section 6
shall be binding upon the Executive's heirs, successors and legal
representatives.
7. Termination.
(a) The Executive's employment hereunder shall be terminated upon the
occurrence of any of the following:
(i) death of the Executive;
(ii) the Executive's inability to perform his duties on
account of disability or incapacity for a period of ninety
(90) or more days, whether or not consecutive, within any
period of twelve (12)consecutive months;
(iii) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated
"for cause" (as defined below);
(iv) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated
other than pursuant to clause (i), (ii) or (iii) above; or
(v) the Executive giving written notice, at any time, to the
Company that the Executive is terminating his employment for
"good reason" (as defined below).
The following actions, failures and events by or affecting the
Executive shall constitute "cause" for termination within the meaning of clause
(iii) above: (A) an indictment for or conviction of the Executive of, or the
entering of a plea of nolo contendere by the Executive with respect to, having
committed a felony, (B) acts of dishonesty or moral turpitude by the Executive
that are detrimental to one or more of the Companies, (C) acts or omissions by
the Executive that the Executive knew were likely to damage the business of one
or more of the Companies, (D) negligence by the Executive in the performance of,
or disregard by the Executive of, his obligations hereunder or otherwise
relating to his employment, or (E) failure by the Executive to obey the
reasonable and lawful polices or orders of the Board that are consistent with
the provisions of this Agreement. For purposes of this Agreement, the Executive
shall not be deemed to have been terminated for cause unless and until there
shall have been delivered to the Executive a copy of a resolution, duly adopted
by the Board, stating that, in
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<PAGE>
the good faith opinion of the Board, the Executive is guilty of an action or
omission that constitutes cause and specifying the particulars thereof in
reasonable detail.
The following circumstances shall constitute "good reason" for
termination within the meaning of clause (v) above: (I) the assignment to the
Executive of duties that are materially inconsistent with the Executive's
position or with his authority, duties or responsibilities as contemplated by
Section 3 of this Agreement, or any other action by the Company, or its
successors which results in a material diminution or material adverse change in
the Executive's position, authority, duties or responsibilities, (II) any
material breach by the Company, or its successors of any provision of this
Agreement, (III) a relocation of the Executive's primary workplace without his
written consent to any location other than the one described in Section 3
hereof, or (IV) a "Change of Control", as hereinafter defined.
For purposes of the foregoing, the term "Change of Control" means the
acquisition of (a) beneficial ownership of more than 50% of the voting equity
securities of the Company or any successor to the Company (by merger or
otherwise), or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended), other than Welsh,
Carson, Anderson & Stowe VII, L.P. and WCAS Healthcare Partners, L.P., or their
respective affiliates, or by any other affiliate of the Company.
(b) In the event that the Executive's employment is terminated pursuant
to clause (iv) or (v) of Section 7(a) above, whether during the Employment Term
or during any continuation of employment pursuant to Section 2 above, the
Company shall pay to the Executive, as severance pay or liquidated damages or
both, bi-monthly payments at the rate per annum of his salary at the time of
such termination for a period from the date of such termination to the end of
the eighteenth month immediately following such termination.
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in Section
7(b) above, the Company (and its affiliates) shall not be obligated to make any
payments to the Executive or on
7
<PAGE>
his behalf of whatever kind or nature by reason of the Executive's cessation of
employment (including, without limitation, by reason of termination of the
Executive's employment by the Company for "cause", other than (i) such amounts,
if any, of his Salary as shall have accrued and remained unpaid as of the date
of said cessation, (ii) such other amounts, if any, which may be then otherwise
payable to the Executive pursuant to the terms of the Company's benefit plans or
pursuant to clause (v) of Section 5 above, and (iii) any amounts owed or
obligations to the Executive pursuant to the terms of any option or other
stock-based award granted to him by the Company.
(d) No interest shall accrue on or be paid with respect to any portion
of any payments timely made hereunder.
8. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder shall be
assignable by the Executive or his beneficiaries or legal representatives
without the Company's prior written consent; provided, however, that nothing in
this Section 8(a) shall preclude the Executive from designating a beneficiary to
receive any benefit payable hereunder upon his death or incapacity. Neither this
Agreement nor any right or interest hereunder shall be assignable by the
Company; provided, however, that notwithstanding the foregoing, this Agreement
and the Company's rights and interest hereunder may be assigned by the Company
pursuant to a merger or consolidation in which the Company is not the continuing
entity, or the sale or liquidation of all or substantially all of the assets of
the Company, provided that (i) the assignee or transferee is the successor to
all or substantially all of the assets of the Company, and (ii) such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a mater of law.
(b) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge or hypothecation or to exclusion,
attachment, levy or similar process or to assignment by operation of law, and
any attempt, voluntary or involuntary, to effect any such action shall be null,
void and of no effect.
9. Restrictive Covenants.
(a) Competition. During the Employment Term during any continuation of
employment pursuant to Section 2 above and during the thirty-six (36) month
period following termination of the Executive's employment with the Company for
any reason, the Executive will not directly or indirectly (as a director,
officer, executive employee, manager, consultant, independent contractor,
advisor or otherwise) engage in competition with, or own any
8
<PAGE>
interest in, perform any services for, participate in or be connected with any
business or organization which engages in competition with any of the Companies
within the meaning of Section 9(d), provided, however, that the provisions of
this Section 9(a) shall not be deemed to prohibit the Executive's ownership of
not more than two percent (2%) of the total shares of all classes of stock
outstanding of any publicly held company.
(b) Non-Solicitation. During the Employment Term, during any
continuation of employment pursuant to Section 2 above and during the thirty-six
(36) month period following termination of the Executive's employment with the
Company for any reason, the Executive will not directly or indirectly induce or
attempt to induce any employee of any of the Companies to leave the employ of
any of the Companies or of their subsidiaries or affiliates, or in any way
interfere with the relationship between any of the Companies and any employee
thereof.
(c) Non-Interference. During the thirty-six (36) month period following
termination of the Executive's employment with the Company for any reason, the
Executive will not directly or indirectly hire, engage, send any work to, place
orders with, or in any manner be associated with any business entity which,
during the period of twelve months preceding or following such termination of
employment, was among the five largest suppliers of Company by dollar volume.
(d) Certain Definitions.
(i) For purposes of this Section 9, a person or entity (including,
without limitation, the Executive) shall be deemed to be a competitor of one or
more of the Companies, or a person or entity (including, without limitation, the
Executive) shall be deemed to be engaging in competition with one or more of the
Companies, if, at the time of determination, such person or entity (A) engages
in any business engaged in or proposed to be engaged in by any of the Companies,
or (B) in any way conducts, operates, carries out or engages in the business of
managing any entity engaged in any business described in clause (A), in each
case, in any state of the United States of America, excluding, however, during
any period following the termination of the Executive's employment with the
Company, (x) any business or any state in which none of the Companies was
engaged or had proposed to be engaged at the time of termination of the
Executive's employment with the Company, and (y) after termination of the
Executive's employment, any business which was not, prior to such termination,
directly or indirectly supervised by the Executive.
(e) Certain Representations of the Executive. In connection with the
foregoing provisions of this section 9, the Executive represents that his
experience, capabilities and circumstances are such that such provisions will
not prevent him from earning a
9
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livelihood. The Executive further agrees that the limitations set forth in this
Section 9 (including, without limitation, time and territorial limitations) are
reasonable and properly required for the adequate protection of the current and
future businesses of the Companies. It is understood and agreed that the
covenants made by the Executive in this Section 9 shall survive the expiration
or termination of this Agreement.
(f) Injunctive Relief. The Executive acknowledges and agrees that a
remedy at law for any breach or threatened breach of the provisions of Section 9
hereof would be inadequate and, therefore, agrees that the Company and any of
its subsidiaries or affiliates shall be entitled to injunctive relief in
addition to any other available rights and remedies in cases of any such breach
or threatened breach; provided, however, that nothing contained herein shall be
construed as prohibiting the Company or any of its affiliates from pursuing any
other rights and remedies available for any such breach or threatened
breach.
(g) Attorney Fees, Etc.. Executive further agrees that if suit is
brought to enforce the provisions of Section 9 hereof, or to seek damages for
its breach, Executive will pay to Company, or any of its affiliates, in addition
to any other damages caused to Company or its affiliates, all attorney fees
incurred by Company or affiliates in seeking such relief. If Executive shall
violate any covenant contained in this Section 9, the duration of any such
covenants so violated automatically shall be extended with respect to the
Executive for a period equal to the period during which Executive shall have
been in violation of such covenant.
10. Indemnity. To the maximum extent permitted by applicable law and
the charter and by-laws of the Company, the Company shall indemnify the
Executive and hold him harmless for any acts or decisions made by him in good
faith while performing services for the Company or any of its subsidiaries of
affiliates, and will use reasonable best efforts to obtain coverage for him
under any insurance policy now in force or hereinafter obtained during the term
of this Agreement covering other officers and directors of the Company and its
subsidiaries or affiliates against lawsuits, and the Company will, to the extent
provided by its charter and by-laws and applicable law, advance or pay all
expenses, including attorney's fees actually and necessarily incurred by the
Executive in connection with the defense of any such action, suit or proceeding
and in connection with any appeal thereon including the cost of court
settlements.
11. Binding Effect. Without limiting or diminishing the effect of
Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
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<PAGE>
12. Notices. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and (i) delivered personally, (ii) mailed by
certified or registered mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier, or (iv) sent via
facsimile confirmed in writing to the recipient, if to the Company at the
Company's principal place of business, and if to the Executive, at his home
address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
13. Enforcement. Any dispute arising under this Agreement shall, at the
election of either party, be resolved by final and binding arbitration to be
held in Memphis, Tennessee, in accordance with the rules and procedures of the
American Arbitration Association. Judgment upon the award entered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
14. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
15. Severability. The Executive agrees that in the event that any court
of competent jurisdiction shall finally hold that any provision of Section 6 or
9 hereof is void or constitutes an unreasonable restriction against the
Executive, the provisions of such Section 6 or 9 shall not be rendered void, but
shall apply with respect to such extent as such court may judicially determine
constitutes a reasonable restriction under the circumstances. If any part of
this Agreement other than Section 6 or 9 is held by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part by reason of any rule of law or public policy, such part shall be deemed
to be severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
16. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
17. Entire Agreement; Modifications. This Agreement constitutes the
entire and final expression of the agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, oral and written,
between the parties hereto with respect to the subject matter hereof. This
Agreement may be
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<PAGE>
modified or amended only by an instrument in writing signed by both parties
hereto.
18. 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 instrument.
IN WITNESS WHEREOF, the Company and the Executive have duly executed
and delivered this Agreement as of the day and year first above written.
HORIZON HEALTH SYSTEMS, INC.
By: /s/ Dianne R. Martz
---------------------------------------
Name: DIANNE R. MARTZ
Title: President
/s/ Kyle J. Callahan
---------------------------------------
Kyle Callahan
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Exhibit 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 10, 1998, by and among NOVA
HOLDINGS, INC., a Delware corporation (the "Company"), and THOMAS W. BELL,
JR. (the "Executive").
W I T N E S S E T H:
WHEREBY, the Company desires to employ the Executive for the period
provided in this Agreement, and the Executive is willing to accept such
employment with the Company on a full-time basis, all in accordance with the
terms and conditions set forth below;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto hereby covenant and agree
as follows:
1. Employment.
(a) The Company hereby employs the Executive, and the Executive hereby
accepts such employment with the Company, for the period set forth in Section 2
hereof, all upon the terms and conditions hereinafter set forth.
(b) Executive shall be granted unpaid time off beginning July 14,
1998 to take a scheduled vacation and to wind up and transition those legal
matters that he is handling at Armstrong, Allen, Prewitt, Gentry, Johnston
and Holmes, PLLC; said time off to be for a period ending no later than
September 6, 1998. In addition, Executive may take unpaid time off to assist
attorneys at Armstrong, Allen, Prewitt, Gentry, Johnston & Holmes, PLLC in
the trail of the pending lawsuit brought by Eagle Vision against Odyssey
Medical, Inc. These unpaid leaves shall be in addition to vacation and
personal days to which Executive is entitled hereunder. Futhermore,
Executive shall remain a full time employee of the Company during said leaves
and said leaves shall not constitute a termination of full time employment.
The Executive affirms and represents that he is under no obligation
to any former employer or other party which is in any way inconsistent with, or
which imposes any restriction upon, the Executive's acceptance of employment
hereunder with the Company, the employment of the Executive by the Company, or
the Executive's undertakings under this Agreement.
<PAGE>
2. Term of Employment. Unless earlier terminated as hereinafter
provided, the term of the Executive's employment under this Agreement shall
initially be for a period beginning on the date hereof and ending on June 30,
2001; provided that on July 1, 2000 and on each July 1 thereafter, the term
of the Executive's employment hereunder shall automatically be extended for
an additional one-year period unless, prior to such July 1, the Company shall
have given the Executive, or the Executive shall have given the Company,
written notice that the Employment Term shall not be so extended. The period
commencing on the date hereof and ending on the earlier of (i) the
termination of Executive's employment hereunder, and (ii) the later of July
1, 2001 or the expiration of all one-year extensions described int he
preceding sentence, is referred to herein as the Employment Term.
If the Executive continues in the full-time employ of the Company after
the end of the Employment Term (it being expressly understood and agreed that
the Company does not now, nor hereinafter shall have, any obligation to continue
the Executive in its employ whether or not on a full-time basis, after said
Employment Term ends), then, unless otherwise expressly agreed to by the
Executive and the Company in writing, the Executive's continued employment by
the Company after the Employment Term shall, notwithstanding anything to the
contrary expressed or implied herein, be terminable by the Company at will, with
or without cause and with or without notice, but shall in all other respects be
subject to the terms and conditions of this Agreement.
3. Duties. The Executive shall be employed as Senior Vice President
and General Counsel of the Company, shall, subject to the direction of the
Board of Directors of the Company (the "Board"), faithfully and competently
perform such duties as inhere in such position and shall also perform and
discharge such other executive employment duties and responsibilities
consistent with his position as Senior Vice President and General Counsel as
the Board of Directors of the Company and/or may from time to time reasonably
prescribe, including serving as an General Counsel and Secretary of one or
more of the Company's subsidiaries or affiliates. The Executive's primary
workplace will be located in Memphis, Tennessee. Except as set out herein or
as may otherwise be approved in advance by the Board, and except during
vacation periods and reasonable periods of absence due to sickness, personal
injury or other disability, personal affairs or non-profit public service
activities, the Executive shall devote his full time during normal business
hours throughout the Employment Term to the services required of him
hereunder. The Executive shall render his business services exclusively to
the Companies (as defined in Section 6(a)) during the Employment Term and
shall use his best efforts, judgment and energy to improve and advance the
business and interests of the Companies in a manner consistent with the
duties of his position.
4. Salary and Bonus.
(a) Salary. As compensation for the performance by the Executive of
the services to be performed by the Executive hereunder during the Employment
Term, the Company shall pay the Executive a base salary at the annual rate of
one hundred sixty-eight Thousand dollars ($168,000.00) (said amount being
hereinafter referred to as "Salary"). Any Salary payable hereunder shall be
paid in regular intervals (but in no event less frequently than monthly) in
accordance with
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the Company's payroll practices from time to time in effect. The Salary
payable to the Executive pursuant to this Section 4(a) shall be increased
annually, as of September 1, 1999 and each September 1 thereafter for the
twelve-month period then commencing, by an amount equal to (i) the annual
percentage increase in the Consumer Price Index for Urban Consumers, All
Items, Memphis, Tennessee Area, for the most recent twelve-month period for
which such figures are then available as reported in the Monthly Labor Review
published by the Bureau of Labor Statistics of the U.S. Department of Labor
or (ii) such higher amount as may be determined from time to time by the
Board in its sole discretion.
(b) Bonus. The Executive will be entitled to receive bonus
compensation from the Company in respect of each fiscal year (or portion
thereof) occurring during the Employment Term provided that Executive is
employed by Company on the last day of said Fiscal Year. The amount of such
bonus compensation to be based on the extent to which the Company's planned
EBT established by the Board for the corresponding period (the "Plan EBT")
has been achieved, as follows:
<TABLE>
<CAPTION>
Percent of Plan EBT Achieved Bonus
---------------------------- -----
<S> <C>
Less than 80% None
Between 80% and 100% 1.5% of Salary for each 1%
of Plan EBT achieved in
excess of 80%
Between 100% and 125% 30% of Salary plus 0.4% of
Salary for each 1% of Plan
EBT achieved in excess of
100%
125% or more 40% of Salary
</TABLE>
"EBT" shall mean, with respect to any fiscal year (i) the net income
(determined in accordance with generally accepted accounting principles
applied consistently with the Company's audited financial statements, but
excluding the effect of any extraordinary or other material non-recurring
gain (but not loss) outside the ordinary course of business) of the Company
and its consolidated subsidiaries, determined on a consolidated basis for
such period ("Consolidated Net Income"), plus (ii) to the extent deducted in
determining Consolidated Net Income for such period, the amount of the
provision for income taxes for such period. Plan EBT for each fiscal year
shall be as determined by the Board. Any bonus to which the Executive is
entitled shall be paid as promptly as practicable after the audited financial
statements for the fiscal year in question have been approved by the Board
and shall be calculated on a linear basis to the nearest $100.
(c) Withholding, Etc. The payment of any Salary and bonus hereunder
shall be subject to applicable withholding and payroll taxes, and such other
deductions as may be required by law or the Company's employee benefit plans.
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<PAGE>
5. Other Benefits. During the Employment Term, the Executive
shall:
(i) be eligible to participate in employee fringe benefits and
pension and/or profit sharing plans that may be provided by the Company
for its senior executive employees in accordance with the provisions of
any such plans, as the same may be in effect from time to time;
(ii) be eligible to participate in any medical and health
plans or other employee welfare benefit plans that may be provided by
the Company for its senior executive employees in accordance with the
provisions of any such plans, as the same may be in effect from time to
time;
(iii) be entitled to the number of paid vacation days
in each calendar year determined by the Company from time to time
for its senior executive officers, as well as all paid holidays given
by the Company to its senior executive officers and in addition
Executive shall be given paid time to attend continuing legal
education classes necessary to maintain Executive's license to
practice law;
(iv) be entitled to sick leave, sick pay and disability
benefits in accordance with any Company policy that may be
applicable to senior executive employees from time to time; and
(v) be entitled to reimbursement for all reasonable and
necessary out-of-pocket business expenses incurred by the Executive in
the performance of his duties hereunder in accordance with the
Company's policies applicable thereto.
In addition, from the date hereof until the expiration
of the Employment Term, the Company shall maintain term insurance coverage on
the life of the Executive (excluding any such coverage provided for pursuant
to the foregoing provisions of this Section 5) in the aggregate amount of
$500,000, payable to that Executive's named beneficiaries in accordance with
standard policy terms and conditions. Company shall also pay Executive's
Tennessee professional tax which is due annually, the cost of Executive's
attending continuing legal education seminars necessary to maintain his
license to practice law and membership dues for Executive in the American
Health Lawyers Association and the American Bar Association.
6. Confidential Information. The Executive hereby covenants, agrees and
acknowledges as follows:
(a) The Executive has and will have access to and will
participate in the development of or be acquainted with confidential or
proprietary information and trade secrets related to the business of
the Company, Nova Holdings, Inc and any other present or future
subsidiaries or affiliates of the Company (collectively, with the
Company, the "Companies"), including
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<PAGE>
but not limited to (i) customer and physician lists; patient histories,
patient identities and related records and compilations of information;
the identity, lists or descriptions of any new customers or physicians,
referral sources or organizations; financial statements; cost
reports or other financial information; contract proposals or bidding
information; business plans; training and operations methods and
manuals; personnel records; software programs; reports and
correspondence; premium structures; and management systems, policies or
procedures, including relating forms and manuals; (ii) information
pertaining to future developments such as future marketing or
acquisition plans or ideas, and potential new business locations and
new suppliers, and (iii) all other tangible and intangible property,
which are used in the business and operations of the Companies but not
made public. The information and trade secrets relating to the business
of the Companies and described hereinabove in this paragraph (a) are
hereinafter referred to collectively as the "Confidential Information",
provided that the term Confidential Information shall not include any
information (x) that is or become generally publicly available (other
than as a result of violation of this Agreement by the Executive) or
(y) that the Executive receives on a nonconfidential basis from a
source (other than the Companies or their representatives) that is
not known by him to be bound by an obligation of secrecy or
confidentiality to any of the Companies.
(b) The Executive shall not disclose, use or make known for
his or another's benefit any Confidential Information or use such
Confidential Information in any way except as is in the best interests
of the Companies in the performance of the Executive's duties under
this Agreement. The Executive may disclose Confidential Information
when required by a third party and applicable law or judicial process,
but only after providing (i) notice to the Company of any third
party's request for such information, which notice shall include the
Executive's intent with respect to such request, and (ii) sufficient
opportunity for the Company to challenge or limit the scope of the
disclosure on behalf of the Companies, the Executive or both.
(c) The Executive acknowledges and agrees that a remedy at law
for any breach or threatened breach of the provisions of this Section 6
would be inadequate and, therefore, agrees that the Companies shall be
entitled to injunctive relief in addition to any other available rights
and remedies in case of any such breach or threatened breach; provided,
however, that nothing contained herein shall be construed as
prohibiting the Companies from pursuing any other rights and remedies
available for any such breach or threatened breach.
(d) The Executive agrees that upon termination of his
employment with the Company for any reason, the Executive shall
forthwith return to the Company all Confidential Information in
whatever form maintained (including, without limitation, computer discs
and other electronic media).
(e) The obligations of the Executive under this Section 6
shall, except as otherwise provided herein, survive the termination of
the Employment Term and the expiration or termination of this
Agreement.
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<PAGE>
(f) Without limiting the generality of Section 10 hereof, the
Executive hereby expressly agrees that the foregoing provisions of this
Section 6 shall be binding upon the Executive's heirs, successors and
legal representatives.
7. Termination.
(a) The Executive's employment hereunder shall be terminated upon the
occurrence of any of the following:
(i) death of the Executive;
(ii) the Executive's inability to perform his duties on
account of disability or incapacity for a period of one hundred
eighty (180) or more days, whether or not consecutive, within any
period of twelve (12) consecutive months;
(iii) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated "for
cause" (as defined below);
(iv) the Company giving written notice, at any time, to the
Executive that the Executive's employment is being terminated other
than pursuant to clause (i), (ii) or (iii) above; or
(v) the Executive giving written notice, at any time, to the
Company that the Executive is terminating his employment for "good
reason" (as defined below).
The following actions, failures and events by or affecting the
Executive shall constitute "cause" for termination within the meaning of
clause (iii) above: (A) an indictment for or conviction of the Executive of,
or the entering of a plea of nolo contendere by the Executive with respect
to, having committed a felony, (B) acts of dishonesty or moral turpitude by
the Executive that are detrimental to one or more of the Companies, (C) acts
or omissions by the Executive that the Executive knew were likely to damage
the business of one or more of the Companies, (D) negligence by the Executive
in the performance of, or disregard by the Executive of, his obligations
hereunder or otherwise relating to his employment, or (E) failure by the
Executive to obey the reasonable and lawful policies or orders of the Board
that are consistent with the provisions of this Agreement. For purposes of
this Agreement, the Executive shall not be deemed to have been terminated for
cause unless and until there shall have been delivered to the Executive a
copy of a resolution, duly adopted by the Board, stating that, in the good
faith opinion of the Board, the Executive is guilty of an action or omission
that constitutes cause and specifying the particulars thereof in reasonable
detail. Before adopting any such resolution, the Board shall offer the
Executive, upon reasonable written notice (which need not exceed two days),
an opportunity for him together with his counsel, to be heard by the Board.
The following circumstances shall constitute "good reason" for
termination within the meaning of clause (v) above: (I) the assignment to the
Executive of duties that are materially
6
<PAGE>
inconsistent with the Executive's position or with his authority, duties or
responsibilities as contemplated by Section 3 of this Agreement, or any other
action by the Company, or its successors which results in a material
diminution or material adverse change in the Executive's position, authority,
duties or responsibilities, (II) any material breach by the Company or their
successors of any provision of this Agreement, (III) a relocation of the
Executive's primary workplace without his written consent to any location
other than the one described in Section 3 hereof, or (IV) a "Change of
Control," as hereinafter defined.
For purposes of the foregoing, the term "Change of Control" means the
acquisition of (a) beneficial ownership of more than 50% of the voting equity
securities of the Company or any successor to the Company (by merger or
otherwise), or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended), other than Welsh,
Carson, Anderson & Stowe VII, L.P. and WCAS Healthcare Partners, L.P., or their
respective affiliates.
(b) In the event that the Executive's employment is terminated
pursuant to clause (iv) or (v) of Section 7(a) above, whether during the
Employment Term or during any continuation of employment pursuant to Section
2 above, the Company shall pay to the Executive, as severance pay or
liquidated damages or both, bi-monthly payments at the rate per annum of his
salary at the time of such termination for a period from the date of such
termination to the first anniversary of such termination. The Executive shall
continue to participate in the benefit plans and arrangements of the Company
(to the extent permitted by the terms thereof) as provided in Section 5 until
the earlier of (x) the first anniversary of such termination or (y) the date
the Executve commences other full-time employment; provided, however, that in
the event coverage for any pre-existing condition is not available under the
health and medical plans of Executive's successor employer, the Company shall
provide continuing coverage with respect to such pre-existing condition until
the first anniversary of termination of employment.
(c) Notwithstanding anything to the contrary expressed or implied
herein, except as required by applicable law and except as set forth in
Section 7(b) above, the Company (and its affiliates) shall not be obligated
to make any payments to the Executive or on his behalf of whatever kind or
nature by reason of the Executive's cessation of employment (including,
without limitation, by reason of termination of the Executive's employment by
the Company for "cause"), other than (i) such amounts, if any, of his Salary
as shall have accrued and remained unpaid as of the date of said cessation,
(ii) such other amounts, if any, which may be then otherwise payable to the
Executive pursuant to clause (v) of Section 5 above, and (iii) any amounts
owed or obligations to the Executive pursuant to the terms of any option or
other stock-based award granted to him by the Company.
(d) No interest shall accrue on or be paid with respect to any portion
of any payments timely made hereunder.
7
<PAGE>
8. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder shall be
assignable by the Executive or his beneficiaries or legal representatives
without the Company's prior written consent; provided, however, that nothing in
this Section 8(a) shall preclude the Executive from designating a beneficiary to
receive any benefit payable hereunder upon his death or incapacity. Neither this
Agreement nor any right or interest hereunder shall be assignable by the
Company; provided, however, that notwithstanding the foregoing, this Agreement
and the Company's rights and interest hereunder may be assigned by the Company
pursuant to a merger or consolidation in which the Company is not the continuing
entity, or the sale or liquidation of all or substantially all of the assets of
the Company, provided that (i) the assignee or transferee is the successor to
all or substantially all of the assets of the Company, and (ii) such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law.
(b) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or to assignment by operation of law, and
any attempt, voluntary or involuntary, to effect any such action shall be null,
void and of no effect.
9. Restrictive Covenants.
(a) Competition. During the Employment Term during any continuation
of employment pursuant to Section 2 above and during the twelve (12) month
period following termination of the Executive's employment with the Company
for any reason, provided that payments, if any, required pursuant to Section
7(b) hereof are made in full and in a timely fashion, the Executive will not
directly or indirectly (as a director, officer, executive employee, manager,
consultant, independent contractor, advisory or otherwise) engage in
competition with, or own any interest in, perform any services for,
participate in or be connected with any business or organization which
engages in competition with any of the Companies within the meaning of
Section 9(d), provided, however, that the provisions of this Section 9(a)
shall not be deemed to prohibit the Executive's ownership of not more than
two percent (2%) of the total shares of all classes of stock outstanding of
any publicly held company, or ownership, whether through direct or indirect
stockholding or otherwise, of one percent (1)% or more of any other business.
(b) Non-Solicitation. During the Employment Term, during any
continuation of employment pursuant to Section 2 above and during the twelve
(12) month period following termination of the Executive's employment with
the Company for any reason, provided that payments, if any, required pursuant
to Section 7(b) hereof are made in full and in a timely fashion, the
Executive will not knowingly directly or indirectly induce or attempt to
induce any employee of any of the Companies to leave the employ of any of the
Companies or of their subsidiaries or affiliates, or in any way interfere
with the relationship between any of the Companies and any employee thereof.
Notwithstanding the preceding provisions, this Section shall not apply to
Lisa Nickelson, Executive's Administrative Assistant.
8
<PAGE>
(c) Non-Interference. During the twelve (12) month period following
termination of the Executive's employment with the Company for any reason,
provided that payments, if any, required pursuant to Section 7(b) hereof are
made in full and in a timely fashion, the Executive will not directly or
indirectly hire, engage, send any work to, place orders with, or in any
manner be associated with any business entity which, during the period of
twelve months preceding or following such termination of employment, was
among the five largest suppliers of the Company by dollar volume.
(d) Certain Definitions.
(i) For purposes of this Section 9, a person or entity (including
without limitation, the Executive) shall be deemed to be a competitor of one or
more of the Companies, or a person or entity (including, without limitation, the
Executive) shall be deemed to be engaging in competition with one or more of the
Companies, if, at the time of determination, such person or entity (A) engages
in any business engaged in or proposed to be engaged in by any of the Companies,
or (B) in any way conducts, operates, carries out or engages in the business of
managing any entity engaged in any business described in clause (A), in each
case, in any state of the United States of America, excluding, however, during
any period following the termination of the Executive's employment with the
Company, (x) any business or any state in which none of the Companies was
engaged or had proposed to be engaged at the time of termination of the
Executive's employment with the Company, and (y) after termination of the
Executive's employment, any business which was not, prior to such termination,
directly or indirectly supervised by the Executive.
(ii) For purposes of this Section 9, no corporation or entity that
may be deemed to be an affiliate of the Companies solely by reason of its
being controlled by, or under common control with, Welsh, Carson, Anderson &
Stowe VII, L.P. or any of its affiliates other than the Companies, will be
deemed to be an affiliate of the Companies.
(e) Certain Representations of the Executive. In connection with the
foregoing provisions of this Section 9, the Executive represents that his
experience, capabilities and circumstances are such that such provisions will
not prevent him from earning a livelihood. The Executive further agrees that the
limitations set forth in this Section 9 (including, without limitation, time and
territorial limitations) are reasonable and properly required for the adequate
protection of the current and future businesses of the Companies. It is
understood and agreed that the covenants made by the Executive in this Section 9
shall survive the expiration or termination of this Agreement.
(f) Injunctive Relief. The Executive acknowledges and agrees that a
remedy at law for any breach or threatened breach of the provisions of Section 9
hereof would be inadequate and, therefore, agrees that the Company and any of
its subsidiaries or affiliates shall be entitled to injunctive relief in
addition to any other available rights and remedies in cases of any such breach
or threatened breach; provided, however, that nothing contained herein shall be
9
<PAGE>
construed as prohibiting the Company or any of its affiliates from pursuing any
other rights and remedies available for any such breach or threatened breach.
10. Indemnity. To the maximum extent permitted by applicable law and
the charter and by-laws of the Company, the Company shall indemnify the
Executive and hold him harmless, for any acts or decisions made by him in
good faith while performing services for the Company or any of its
subsidiaries of affiliates, and will use reasonable best efforts to obtain
coverage for him under any insurance policy now in force or hereinafter
obtained during the term of this Agreement covering other officers and
directors of the Company and their subsidiaries or affiliates against
lawsuits, and the Company will, to the extent provided by their charters and
by-laws and applicable law, advance or pay all expenses, including attorney's
fees actually and necessarily incurred by the Executive in connection with
the defense of any such action, suit or proceeding and in connection with any
appeal thereon including the cost of court settlements.
11. No Mitigation. In the event of any termination of the
Executive's employment under Section 7(a) (iv) or (v), the Executive shall be
under no obligation to seek other employment and there shall be no offset
against any amounts due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that the Executive may
obtain.
12. Binding Effect. Without limiting or diminishing the effect of
Section 8 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
13. Notices. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in all
respects if given in writing and (i) delivered personally, (ii) mailed by
certified or registered mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier, or (iv) sent via
facsimile confirmed in writing to the recipient, if to the Company at the
Company's principal place of business, and if to the Executive, at his home
address most recently filed with the Company, or to such other address or
addresses as either party shall have designated in writing to the other party
hereto.
14. Enforcement. Any dispute arising under this Agreement shall, at
the election of either party, be resolved by final and binding arbitration to
be held in New York, NY, in accordance with the rules and procedures of the
American Arbitration Association. Judgment upon the award entered by the
arbitrator(s) may be entered in any court having jurisdiction thereof.
15. Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee.
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<PAGE>
16. Severability. The Executive agrees that in the event that any court
of competent jurisdiction shall finally hold that any provision of Section 6 or
9 hereof is void or constitutes an unreasonable restriction against the
Executive, the provisions of such Section 6 or 9 shall not be rendered void but
shall apply with respect to such extent as such court may judicially determine
constitutes a reasonable restriction under the circumstances. If any part of
this Agreement other than Section 6 or 9 is held by a court or competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part by reason of any rule of law or public policy, such part shall be deemed
to be severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
17. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
18. Entire Agreement; Modifications. This Agreement constitutes the
entire and final expression of the agreement of the parties with respect to the
subject matter hereof and supersedes all prior agreements, oral and written,
between the parties hereto with respect to the subject matter hereof. This
Agreement may be modified or amended only by an instrument in writing signed by
both parties hereto.
19. 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 instrument.
IN WITNESS WHEREOF, the Company and the Executive have duly executed
and delivered this Agreement as of July 10, 1998.
NOVA HOLDINGS, INC.
By: /s/ David D. Stevens
------------------------------------
David D. Stevens
Chief Executive Officer
/s/ Thomas W. Bell, Jr.
------------------------------------
Thomas W. Bell, Jr.
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Exhibit 10.8
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
AS AMENDED AND RESTATED
Section 1. Purpose. The purpose of the Nova Holdings, Inc. and
its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan") is
to promote the interests of Nova Holdings, Inc., a Delaware corporation (the
"Company"), and any Subsidiary thereof and the interests of the Company's
stockholders by providing an opportunity to selected employees, officers and
directors of the Company or any Subsidiary thereof as of the date of the
adoption of the Plan or at any time thereafter to purchase Common Stock of the
Company. By encouraging such stock ownership, the Company seeks to attract,
retain and motivate such employees and other persons and to encourage such
employees and other persons to devote their best efforts to the business and
financial success of the Company. It is intended that this purpose will be
effected by the granting of "non-qualified stock options" and/or "incentive
stock options" to acquire the Common Stock of the Company and/or by the granting
of rights to purchase the Common Stock of the Company on a "restricted stock"
basis. Under the Plan, the Committee shall have the authority (in its sole
discretion) to grant "incentive stock options" within the meaning of Section
422(b) of the Code, "non-qualified stock options" as described in Treasury
Regulation Section 1.83-7 or any successor regulation thereto, or "restricted
stock" awards.
Section 2. Definitions. For purposes of the Plan, the
following terms used herein shall have the following meanings, unless a
different meaning is clearly required by the context:
2.1. "Award" shall mean an award of the right to purchase
Common Stock granted under the provisions of Section 7 of the Plan. -----
2.2. "Board of Directors" shall mean the Board of Directors of
the Company.
2.3. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
2.4. "Committee" shall mean the committee of the Board of
Directors referred to in Section 5 hereof; provided, that if no such committee
is appointed by the Board of Directors, the Board of Directors shall have all of
the authority and obligations of the Committee under the Plan.
<PAGE>
2.5. "Common Stock" shall mean the Common Stock, $.01 par
value, of the Company.
2.6. "Employee" shall mean (i) with respect to an ISO, any
person, including, without limitation, an officer or director of the Company,
who, at the time an ISO is granted to such person hereunder, is employed on a
full-time basis by the Company or any Parent or Subsidiary of the Company, and
(ii) with respect to a Non-Qualified Option and/or an Award, any person employed
by, or performing services for, the Company or any Parent or Subsidiary of the
Company, including, without limitation, directors and officers.
2.7. "ISO" shall mean an Option granted to a Participant
pursuant to the Plan that constitutes and shall be treated as an "incentive
stock option" as defined in Section 422(b) of the Code.
2.8. "Non-Qualified Option" shall mean an Option granted to a
Participant pursuant to the Plan that is intended to be, and qualifies as, a
"non-qualified stock option" as described in Treasury Regulation Section 1.83-7
or any successor regulation thereto and that shall not constitute or be treated
as an ISO.
2.9. "Option" shall mean any ISO or Non-Qualified Option
granted to an Employee pursuant to the Plan.
2.10. "Participant" shall mean any Employee to whom an Award
and/or an Option is granted under the Plan.
2.11. "Parent" of the Company shall have the meaning set forth
in Section 424(e) of the Code.
2.12. "Subsidiary" of the Company shall have the meaning set
forth in Section 424(f) of the Code.
Section 3. Eligibility. Awards and/or Options may be granted
to any Employee. The Committee shall have the sole authority to select the
persons to whom Awards and/or Options are to be granted hereunder, and to
determine whether a person is to be granted a Non-Qualified Option, an ISO or an
Award or any combination thereof. No person shall have any right to participate
in the Plan. Any person selected by the Committee for participation during any
one period will not by virtue of such participation have the right to be
selected as a Participant for any other period.
3
<PAGE>
Section 4. Common Stock Subject to the Plan.
4.1. Number of Shares. The total number of shares of Common
Stock for which Options and/or Awards may be granted under the Plan shall not
exceed in the aggregate Nine Hundred Sixty Five Thousand (965,000) shares of
Common Stock (subject to adjustment as provided in Section 8 hereof).
4.2. Reissuance. The shares of Common Stock that may be
subject to Options and/or Awards granted under the Plan may be either authorized
and unissued shares or shares reacquired at any time and now or hereafter held
as treasury stock as the Committee may determine. In the event that any
outstanding Option expires or is terminated for any reason, the shares allocable
to the unexercised portion of such Option may again be subject to an Option
and/or Award granted under the Plan. If any shares of Common Stock issued or
sold pursuant to an Award or the exercise of an Option shall have been
repurchased by the Company, then such shares may again be subject to an Option
and/or Award granted under the Plan.
4.3. Special ISO Limitations.
(a) To the extent that the aggregate fair market value
(determined as of the date an ISO is granted) of the shares of Common Stock with
respect to which ISOs are exercisable for the first time by an Employee during
any calendar year (under all incentive stock option plans of the Company or any
Parent or Subsidiary of the Company) exceeds $100,000, such options shall be
treated as non-qualified stock options.
(b) No ISO shall be granted to an Employee who, at the time
the ISO is granted, owns (actually or constructively under the provisions of
Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or Subsidiary
of the Company, unless (i) the option price is at least 110% of the fair market
value (determined as of the time the ISO is granted) of the shares of Common
Stock subject to the ISO and (ii) the ISO by its terms is not exercisable more
than five years from the date it is granted.
4.4. Limitations Not Applicable to Non-Qualified Options or
Awards. Notwithstanding any other provision of the Plan, the provisions of
Sections 4.3(a) and (b) shall not apply, nor shall be construed to apply, to any
Non-Qualified Option or Award granted under the Plan.
4
<PAGE>
Section 5. Administration of the Plan.
5.1. Administration. The Plan shall be administered by a
committee of the Board of Directors (the "Committee") established by the Board
of Directors and consisting of no less than three persons. All members of the
Committee shall be "disinterested persons" within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") at all times after the Company first registers a class of equity
securities under Section 12 of the Exchange Act. The Committee shall be
appointed from time to time by, and shall serve at the pleasure of, the Board of
Directors.
5.2. Grant of Options/Awards.
(a) Options. The Committee shall have the sole authority and
discretion under the Plan (i) to select the Employees who are to be granted
Options hereunder; (ii) to designate whether any Option to be granted hereunder
is to be an ISO or a Non-Qualified Option; (iii) to establish the number of
shares of Common Stock that may be subject to each Option; (iv) to determine the
time and the conditions subject to which Options may be exercised in whole or in
part; (v) to determine the amount (not less than the par value per share) and
the form of the consideration that may be used to purchase shares of Common
Stock upon exercise of any Option (including, without limitation, the
circumstances under which issued and outstanding shares of Common Stock owned by
a Participant may be used by the Participant to exercise an Option); (vi) to
impose restrictions and/or conditions with respect to shares of Common Stock
acquired upon exercise of an Option; (vii) to determine the circumstances under
which shares of Common Stock acquired upon exercise of any Option may be subject
to repurchase by the Company; (viii) to determine the circumstances and
conditions subject to which shares acquired upon exercise of an Option may be
sold or otherwise transferred, including, without limitation, the circumstances
and conditions subject to which a proposed sale of shares of Common Stock
acquired upon exercise of an Option may be subject to the Company's right of
first refusal (as well as the terms and conditions of any such right of first
refusal); (ix) to establish a vesting provision for any Option relating to the
time when (or the circumstances under which) the Option may be exercised by a
Participant, including, without limitation, vesting provisions that may be
contingent upon (A) the Company's meeting specified financial goals, (B) a
change of control of the Company or (C) the occurrence of other specified
events; (x) to accelerate the time when outstanding Options may be exercised,
provided, however, that any ISOs shall be deemed "accelerated"
5
<PAGE>
within the meaning of Section 424(h) of the Code; and (xi) to establish any
other terms, restrictions and/or conditions applicable to any Option not
inconsistent with the provisions of the Plan. Notwithstanding anything in the
Plan to the contrary, in no event shall any Option granted to any director or
officer of the Company who is subject to Section 16 of the Exchange Act become
exercisable, in whole or in part, prior to the date that is six months after the
date such Option is granted to such director or officer.
(b) Awards. The Committee shall have the sole authority and
discretion under the Plan (i) to select the Employees who are to be granted
Awards hereunder; (ii) to determine the amount to be paid by a Participant to
acquire shares of Common Stock pursuant to an Award, which amount may be equal
to, more than, or less than 100% of the fair market value of such shares on the
date the Award is granted (but in no event less than the par value of such
shares); (iii) to determine the time or times and the conditions subject to
which Awards may be made; (iv) to determine the time or times and the conditions
subject to which the shares of Common Stock subject to an Award are to become
vested and no longer subject to repurchase by the Company; (v) to establish
transfer restrictions and the terms and conditions on which any such transfer
restrictions with respect to shares of Common Stock acquired pursuant to an
Award shall lapse; (vi) to establish vesting provisions with respect to any
shares of Common Stock subject to an Award, including, without limitation,
vesting provisions which may be contingent upon (A) the Company's meeting
specified financial goals, (B) a change of control of the Company or (C) the
occurrence of other specified events; (vii) to determine the circumstances under
which shares of Common Stock acquired pursuant to an Award may be subject to
repurchase by the Company; (viii) to determine the circumstances and conditions
subject to which any shares of Common Stock acquired pursuant to an Award may be
sold or otherwise transferred, including, without limitation, the circumstances
and conditions subject to which a proposed sale of shares of Common Stock
acquired pursuant to an Award may be subject to the Company's right of first
refusal (as well as the terms and conditions of any such right of first
refusal); (ix) to determine the form of consideration that may be used to
purchase shares of Common Stock pursuant to an Award (including, without
limitation, the circumstances under which issued and outstanding shares of
Common Stock owned by a Participant may be used by the Participant to purchase
the Common Stock subject to an Award); (x) to accelerate the time at which any
or all restrictions imposed with respect to any shares of Common Stock subject
to an Award will lapse; and (xi) to establish any other terms,
6
<PAGE>
restrictions and/or conditions applicable to any Award not inconsistent with the
provisions of the Plan.
5.3. Interpretation. The Committee shall be authorized to
interpret the Plan and may, from time to time, adopt such rules and regulations,
not inconsistent with the provisions of the Plan, as it may deem advisable to
carry out the purposes of the Plan.
5.4. Finality. The interpretation and construction by the
Committee of any provision of the Plan, any Option and/or Award granted
hereunder or any agreement evidencing any such Option and/or Award shall be
final and conclusive upon all parties.
5.5. Expenses, Etc. All expenses and liabilities incurred by
the Committee in the administration of the Plan shall be borne by the Company.
The Committee may employ attorneys, consultants, accountants or other persons in
connection with the administration of the Plan. The Company, and its officers
and directors, shall be entitled to rely upon the advice, opinions or valuations
of any such persons. No member of the Committee shall be liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan or any Option and/or Award granted hereunder.
Section 6. Terms and Conditions of Options.
6.1. ISOs. The terms and conditions of each ISO granted under
the Plan shall be specified by the Committee and shall be set forth in an ISO
agreement between the Company and the Participant in such form as the Committee
shall approve. The terms and conditions of each ISO shall be such that each ISO
issued hereunder shall constitute and shall be treated as an "incentive stock
option" as defined in Section 422(b) of the Code. The terms and conditions of
any ISO granted hereunder need not be identical to those of any other ISO
granted hereunder.
The terms and conditions of each ISO shall include the
following:
(a) The option price shall be fixed by the Committee but shall
in no event be less than 100% (or 110% in the case of an Employee referred to in
Section 4.3(b) hereof) of the fair market value of the shares of Common Stock
subject to the ISO on the date the ISO is granted. For purposes of the Plan, the
fair market value per share of Common Stock as of any day shall mean the average
of the closing prices of sales of shares of Common
7
<PAGE>
Stock on all national securities exchanges on which the Common Stock may at the
time be listed or, if there shall have been no sales on any 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 day the Common Stock shall not be so listed, the
average of the representative bid and asked prices quoted in the NASDAQ system
as of 3:30 p.m., New York time, on such day, or, if on any day the Common Stock
shall not be quoted in the NASDAQ system, the average of the high and low bid
and asked prices on such day in the over-the-counter market as reported by
National Quotation Bureau Incorporated, or any similar successor organization.
If at any time the Common Stock is not listed on any national securities
exchange or quoted in the NASDAQ system or the over-the-counter market, the fair
market value of the shares of Common Stock subject to an Option on the date the
ISO is granted shall be the fair market value thereof determined in good faith
by the Board of Directors.
(b) ISOs, by their terms, shall not be transferable otherwise
than by will or the laws of descent and distribution, and, during a
Participant's lifetime, an ISO shall be exercisable only by the Participant.
(c) The Committee shall fix the term of all ISOs granted
pursuant to the Plan (including, without limitation, the date on which such ISO
shall expire and terminate); provided, however, that such term shall in no event
exceed ten years from the date on which such ISO is granted (or, in the case of
an ISO granted to an Employee referred to in Section 4.3(b) hereof, such term
shall in no event exceed five years from the date on which such ISO is granted).
Each ISO shall be exercisable in such amount or amounts, under such conditions
and at such times or intervals or in such installments as shall be determined by
the Committee in its sole discretion; provided, however, that in no event shall
any ISO granted to any director or officer of the Company who is subject to
Section 16 of the Exchange Act become exercisable, in whole or in part, prior to
the date that is six months after the date such ISO is granted to such director
or officer.
(d) To the extent that the Company or any Parent or Subsidiary
of the Company is required to withhold any Federal, state or local taxes in
respect of any compensation income realized by any Participant as a result of
any "disqualifying disposition" of any shares of Common Stock acquired upon
exercise of an ISO granted hereunder, the Company shall deduct from any payments
of any kind otherwise due to such Participant the aggregate amount of such
Federal, state or local taxes required
8
<PAGE>
to be so withheld or, if such payments are insufficient to satisfy such Federal,
state or local taxes, such Participant will be required to pay to the Company,
or make other arrangements satisfactory to the Company regarding payment to the
Company of, the aggregate amount of any such taxes. All matters with respect to
the total amount of taxes to be withheld in respect of any such compensation
income shall be determined by the Board of Directors, in its sole discretion.
(e) In the sole discretion of the Committee the terms and
conditions of any ISO may (but need not) include any of the following
provisions:
(i) In the event a Participant shall cease to be
employed by the Company or any Parent or Subsidiary of the Company on a
full-time basis for any reason other than as a result of his death or
"disability" (within the meaning of Section 22(e)(3) of the Code), the
unexercised portion of any ISO held by such Participant at that time
may only be exercised within one month after the date on which the
Participant ceased to be so employed, and only to the extent that the
Participant could have otherwise exercised such ISO as of the date on
which he ceased to be so employed.
(ii) In the event a Participant shall cease to be
employed by the Company or any Parent or Subsidiary of the Company on a
full-time basis by reason of his "disability" (within the meaning of
Section 22(e)(3) of the Code), the unexercised portion of any ISO held
by such Participant at that time may only be exercised within one year
after the date on which the Participant ceased to be so employed, and
only to the extent that the Participant could have otherwise exercised
such ISO as of the date on which he ceased to be so employed.
(iii) In the event a Participant shall die while in the
employ of the Company or a Parent or Subsidiary of the Company (or
within a period of one month after ceasing to be an Employee for any
reason other than his "disability" (within the meaning of Section
22(e)(3) of the Code) or within a period of one year after ceasing to
be an Employee by reason of such "disability"), the unexercised portion
of any ISO held by such Participant at the time of his death may only
be exercised within one year after the date of such Participant's
death, and only to the extent that the Participant could have otherwise
exercised such ISO at the time of his death. In such event, such ISO
may be exercised by the executor or administrator of the Participant's
estate
9
<PAGE>
or by any person or persons who shall have acquired the ISO directly
from the Participant by bequest or inheritance.
6.2. Non-Qualified Options. The terms and conditions of each
Non-Qualified Option granted under the Plan shall be specified by the Committee,
in its sole discretion, and shall be set forth in a written option agreement
between the Company and the Participant in such form as the Committee shall
approve. The terms and conditions of each Non-Qualified Option will be such (and
each Non-Qualified Option Agreement shall expressly so state) that each
Non-Qualified Option issued hereunder shall not constitute nor be treated as an
"incentive stock option" as defined in Section 422(b) of the Code, but will be a
"non-qualified stock option" for Federal, state and local income tax purposes.
The terms and conditions of any Non-Qualified Option granted hereunder need not
be identical to those of any other Non-Qualified Option granted hereunder.
The terms and conditions of each Non-Qualified Option
Agreement shall include the following:
(a) The option (exercise) price shall be fixed by the
Committee and may be equal to, more than or less than 100% of the fair market
value of the shares of Common Stock subject to the Non-Qualified Option on the
date such Non-Qualified Option is granted.
(b) The Committee shall fix the term of all Non-Qualified
Options granted pursuant to the Plan (including, without limitation, the date on
which such Non-Qualified Option shall expire and terminate). Such term may be
more than ten years from the date on which such Non-Qualified Option is granted.
Each Non-Qualified Option shall be exercisable in such amount or amounts, under
such conditions (including, without limitation, provisions governing the rights
to exercise such Non-Qualified Option), and at such times or intervals or in
such installments as shall be determined by the Committee in its sole
discretion; provided, however, that in no event shall any Non-Qualified Option
granted to any director or officer of the Company who is subject to Section 16
of the Exchange Act become exercisable, in whole or in part, prior to the date
that is six months after the date such Non-Qualified Option is granted to such
director or officer.
(c) Non-Qualified Options shall not be transferable otherwise
than by will or the laws of descent and distribution, and during a Participant's
lifetime a Non-Qualified Option shall be exercisable only by the Participant.
10
<PAGE>
(d) To the extent that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
any Participant in respect of a Non-Qualified Option granted hereunder or in
respect of any shares of Common Stock acquired upon exercise of a Non-Qualified
Option, the Company shall deduct from any payments of any kind otherwise due to
such Participant the aggregate amount of such Federal, state or local taxes
required to be so withheld or, if such payments are insufficient to satisfy such
Federal, state or local taxes, or if no such payments are due or to become due
to such Participant, then, such Participant will be required to pay to the
Company, or make other arrangements satisfactory to the Company regarding
payment to the Company of, the aggregate amount of any such taxes. All matters
with respect to the total amount of taxes to be withheld in respect of any such
compensation income shall be determined by the Board of Directors, in its sole
discretion.
7. Terms and Conditions of Awards. The terms and conditions of
each Award granted under the Plan shall be specified by the Committee, in its
sole discretion, and shall be set forth in a written agreement between the
Participant and the Company, in such form as the Committee shall approve. The
terms and provisions of any Award granted hereunder need not be identical to
those of any other Award granted hereunder.
The terms and conditions of each Award shall include the
following:
(a) The amount to be paid by a Participant to acquire the
shares of Common Stock pursuant to an Award shall be fixed by the Committee and
may be equal to, more than or less than 100% of the fair market value of the
shares of Common Stock subject to the Award on the date the Award is granted
(but in no event less than the par value of such shares).
(b) Each Award shall contain such vesting provisions, such
transfer restrictions and such other restrictions and conditions as the
Committee, in its sole discretion, may determine, including, without limitation,
the circumstances under which the Company shall have the right and option to
repurchase shares of Common Stock acquired pursuant to an Award.
(c) Stock certificates representing Common Stock acquired
pursuant to an Award shall bear a legend referring to any restrictions imposed
on such Stock and such other matters as the Committee may determine.
11
<PAGE>
(d) To the extent that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
the Participant in respect of an Award granted hereunder, in respect of any
shares acquired pursuant to an Award, or in respect of the vesting of any such
shares of Common Stock, then the Company shall deduct from any payments of any
kind otherwise due to such Participant the aggregate amount of such Federal,
state or local taxes required to be so withheld, or if such payments are
insufficient to satisfy such Federal, state or local taxes, or if no such
payments are due or to become due to such Participant, then such Participant
will be required to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. All matters with respect to the total amount of taxes to be withheld
in respect of any such compensation income shall be determined by the Committee,
in its sole discretion.
12
<PAGE>
Section 8. Adjustments. (a) In the event that, after the
adoption of the Plan by the Board of Directors, the outstanding shares of the
Company's Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another entity through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors shall appropriately adjust (i) the number
of shares of Common Stock (and the option price per share) subject to the
unexercised portion of any outstanding Option (to the nearest possible full
share); provided, however, that the limitations of Section 424 of the Code shall
apply with respect to adjustments made to ISOs, (ii) the number of shares of
Common Stock to be acquired pursuant to an Award which have not become vested,
and (iii) the number of shares of Common Stock for which Options and/or Awards
may be granted under the Plan, as set forth in Section 4.1 hereof, and such
adjustments shall be effective and binding for all purposes of the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another entity, or the sale of all or substantially all its assets to another
entity, shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, subject to Section 8(c) below, each holder of an Option
shall thereafter have the right to purchase, upon the exercise of the Option in
accordance with the terms and conditions specified in the option agreement
governing such Option and in lieu of the shares of Common Stock immediately
theretofore receivable upon the exercise of such Option, such shares of stock,
securities or assets (including, without limitation, cash) 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 Common Stock immediately
theretofore so receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place.
(c) Notwithstanding Section 8(b) hereof (but only if expressly
provided in any option agreement), in the event of (i) any offer to holders of
the Company's Common Stock generally relating to the acquisition of all or
substantially all of their shares, including, without limitation, through
purchase, merger or otherwise, or (ii) any proposed transaction generally
relating to the acquisition of substantially all of the assets or business of
the Company (herein sometimes referred to as an
13
<PAGE>
"Acquisition"), the Board of Directors may, in its sole discretion, cancel any
outstanding Options (provided, however, that the limitations of Section 424 of
the Code shall apply with respect to adjustments made to ISO's) and pay or
deliver, or cause to be paid or delivered, to the holder thereof an amount in
cash or securities having a value (as determined by the Board of Directors
acting in good faith) equal to the product of (A) the number of shares of Common
Stock (the "Option Shares") that, as of the date of the consummation of such
Acquisition, the holder of such Option had become entitled to purchase (and had
not purchased) multiplied by (B) the amount, if any, by which (1) the formula or
fixed price per share paid to holders of shares of Common Stock pursuant to such
Acquisition exceeds (2) the option price applicable to such Option Shares.
Section 9. Effect of the Plan on Employment Relationship.
Neither the Plan nor any Option and/or Award granted hereunder to a Participant
shall be construed as conferring upon such Participant any right to continue in
the employ of (or otherwise provide services to) the Company or any Subsidiary
or Parent thereof, or limit in any respect the right of the Company or any
Subsidiary or Parent thereof to terminate such Participant's employment or other
relationship with the Company or any Subsidiary or Parent, as the case may be,
at any time.
Section 10. Amendment of the Plan. The Board of Directors may
amend the Plan from time to time as it deems desirable; provided, however, that,
without the approval of the holders of a majority of the outstanding capital
stock of the Company entitled to vote thereon or consent thereto, the Board of
Directors may not amend the Plan (i) to increase (except for increases due to
adjustments in accordance with Section 8 hereof) the aggregate number of shares
of Common Stock for which Options and/or Awards may be granted hereunder, (ii)
to decrease the minimum exercise price specified by the Plan in respect of ISOs
or (iii) to change the class of Employees eligible to receive ISOs under the
Plan.
Section 11. Termination of the Plan. The Board of Directors
may terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board of Directors, the Plan shall terminate ten years after
the date of its initial adoption by the Board of Directors. No Option and/or
Award may be granted hereunder after termination of the Plan. The termination or
amendment of the Plan shall not alter or impair any rights or obligations under
any Option and/or Award theretofore granted under the Plan.
14
<PAGE>
15
<PAGE>
Section 12. Effective Date of the Plan. The Plan shall be
effective as of May 31, 1996, the effective date of the Plan's adoption by the
Board of Directors of the Company. Pursuant to Section 10, the Board of
Directors has since made an amendment to the Plan and Holders of a majority of
the outstanding voting capital stock of the Company approved this amendment on
June 30, 1997. The Plan has been Amended and Restated to reflect this amendment.
* * * * *
16
<PAGE>
NOTE PURCHASE AGREEMENT
Among
NOVA HOLDINGS, INC.
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
and
the other several purchasers named herein
Dated as of June 4, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. PURCHASE AND SALE OF NOTES, CLOSING DATES.............................................................. 1
SECTION 1.01 Sale and Purchase of Notes
and Common Stock..............................................................................1
SECTION 1.02 Closing Dates................................................................... 1
II. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION...................................................... 2
SECTION 2.01 Organization and Corporate Power................................................ 2
SECTION 2.02 Authorization of Agreements, Etc................................................ 2
SECTION 2.03 Validity........................................................................ 3
SECTION 2.04 Governmental Approvals.......................................................... 3
SECTION 2.05 Absence of Changes and Defaults................................................. 3
SECTION 2.06 Use of Proceeds................................................................. 3
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS....................................................... 3
IV. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS........................................................ 4
SECTION 4.01 Notice of Closing Date.......................................................... 4
SECTION 4.02 Representations and Warranties
to Be True and Correct...................................................................... 4
SECTION 4.03 Initial Closing Date............................................................ 4
SECTION 4.04 Performance..................................................................... 5
V. MISCELLANEOUS.......................................................................................... 5
SECTION 5.01 Expenses, Etc................................................................... 5
SECTION 5.02 Amendment to Registration Rights
Agreement................................................................................... 5
SECTION 5.03 Survival of Agreements.......................................................... 5
SECTION 5.04 Parties in Interest............................................................. 5
SECTION 5.05 Notices......................................................................... 6
SECTION 5.06 Counterparts.................................................................... 6
SECTION 5.07 Governing Law................................................................... 6
TESTIMONIUM .....................................................................................................7
</TABLE>
<PAGE>
INDEX TO EXHIBIT AND SCHEDULE
<TABLE>
<CAPTION>
Item Description Section Reference
---- ----------- -----------------
<S> <C> <C>
EXHIBIT A Form of Note 1.01(a)
Schedule I Names and Addresses
of Purchasers
</TABLE>
<PAGE>
NOTE PURCHASE AGREEMENT, dated as of June 4, 1997, between
NOVA HOLDINGS, INC., a Delaware corporation (the "Corporation"), WELSH, CARSON,
ANDERSON & STOWE VII, L.P., a Delaware limited partnership ("WCAS VII"), and the
other several purchasers named on Schedule I hereto (collectively, the
"Purchasers").
WHEREAS the Corporation wishes to be able to issue and sell,
and the Purchasers are willing to purchase, up to $10,000,000 aggregate
principal amount of the Company's 10% Senior Subordinated Notes Due June 1, 2004
(collectively, the "Notes"), all on the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
I.
PURCHASE AND SALE OF NOTES, CLOSING DATES
SECTION 1.01 Sale and Purchase of Notes and Common Stock.
Subject to the terms and conditions hereinafter set forth,
from time to time on or prior to August 31, 1997 (the "Termination Date") each
Purchaser severally agrees to purchase, on request by the Corporation as
hereinafter provided, Notes not exceeding in the aggregate the principal amount
of Notes set forth opposite such Purchaser's name on Schedule I hereto. The
Notes shall be substantially in the form of Exhibit A hereto. The purchase price
payable for Notes shall in each case be 99.96% of their principal amount.
Concurrently with each purchase of Notes pursuant hereto, the Corporation shall
issue to each Purchaser one share of the Corporation's Common Stock, par value
$0.01 per share ("Common Stock"), for each $25 principal amount of Notes
purchased by such Purchaser at a price of $.01 per share. On each Closing Date
(as hereinafter defined), the Corporation shall sell and deliver to each
Purchaser the Note, dated the applicable Closing Date, and the shares of Common
Stock which are to be purchased by such Purchaser on such Closing Date, and as
payment in full against delivery thereof, such Purchaser shall, subject to the
satisfaction of the conditions set forth in Article IV, pay to the Corporation,
by wire transfer of immediately available funds to an account designated by the
Corporation, the purchase price payable for such Note and Common Stock.
SECTION 1.02 Closing Dates. The Corporation shall give written
notice to the Purchasers of each requested purchase
<PAGE>
hereunder (each such purchase to be for not less than $1,000,000 in aggregate
principal amount of Notes) not less than 5 business days prior to the Closing
Date therefor (which shall not be later than August 31, 1997), specifying the
respective amounts to be purchased by each of them, such amounts to be
proportionate to the respective aggregate principal amounts of Notes set forth
opposite their respective names on Schedule I hereto. The closing of each sale
and purchase hereunder shall take place at the offices of Reboul, MacMurray,
Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, N.Y. 10111 at 2 p.m.,
New York time, on the specified date in the Corporation's notice, or at such
other date and time as may be mutually agreed upon between the Purchaser and the
Corporation (each such date and time of the closing being herein called a
"Closing Date").
II.
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation represents and warrants to the Purchasers as
follows:
SECTION 2.01 Organization and Corporate Power. The Corporation
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. The Corporation has the corporate power and
authority to own and hold its properties, to carry on its business as currently
conducted and to execute, deliver and perform this Agreement and the Notes and
to issue the shares of Common Stock to be issued pursuant hereto.
SECTION 2.02 Authorization of Agreements, Etc. The execution
and delivery by the Corporation of this Agreement and the Notes and the issuance
of the Common Stock and the performance by the Corporation of its respective
obligations hereunder and thereunder have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation or By-laws
of the Corporation, or any provision of any indenture, agreement (including,
without limitation the Loan and Security Agreement dated as of June 4, 1997 (the
"Loan Agreement") among the Corporation, its subsidiaries, NationsBank of
Tennessee, NA (individually and as Agent) and First Tennessee Bank National
Association) or other instrument to which the Corporation or any subsidiary, or
any of the properties or assets of the Corporation or any subsidiary is bound,
or conflict with, result in a breach of or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Corporation or any subsidiary.
2
<PAGE>
SECTION 2.03 Validity. This Agreement has been duly executed
and delivered by the Corporation and constitutes the legal, valid and binding
obligation of the Corporation, enforceable against the Corporation in accordance
with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws from time to
time in effect affecting the enforcement of creditors' rights generally and to
general principles of equity. The Notes, when executed and delivered by the
Corporation against payment therefor as provided in this Agreement, will
constitute legal, valid and binding obligations of the Corporation, enforceable
against the Corporation in accordance with their terms, subject, as to
enforcement of remedies, to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws from time to time in effect affecting the
enforcement of creditors' rights generally and to general principles of equity.
The shares of Common Stock, when issued and delivered by the Corporation against
payment therefor as provided in this Agreement will be validly issued, fully
paid and nonassessable.
SECTION 2.04 Governmental Approvals. Subject to the accuracy
of the representations and warranties of the Purchasers set forth in Article III
hereof, no registration or filing with, or consent or approval of, or other
action by, any Federal, state or other governmental agency or instrumentality is
or will be necessary for the valid execution, delivery and performance of this
Agreement and the Note or the sale of the Note.
SECTION 2.05 Absence of Changes and Defaults. No material
adverse change in the business, results of operations of financial condition of
the Corporation and its subsidiaries, taken as a whole, has occurred since the
date of this Agreement, and no event of default or event which (with the giving
of notice or lapse of time or both) would become an event of default under the
Loan Agreement has occurred and is continuing.
SECTION 2.06 Use of Proceeds. The Corporation will use the
proceeds from the sale of the Notes to finance a portion of the cost of
acquiring Horizon Health Systems, Inc., a Tennessee corporation, and for general
corporate purposes.
III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants to the Corporation that
such Purchaser will acquire the Notes and Common Stock to be purchased by it
from the Corporation hereunder for its own account for the purpose of investment
and not with a view to or for sale in connection with any distribution thereof.
Each Purchaser further represents that it understands that (i) the
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<PAGE>
Notes and Common Stock have not been registered under the Securities Act of 1933
(the "Securities Act") by reason of their issuance in transactions exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof, (ii) the Notes and Common Stock must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Notes and Common Stock will bear a
legend to such effect, and (iv) the Corporation will make a notation on its
transfer books to such effect. Each Purchaser further represents and warrants
that it has requested, received and reviewed all information which it deems
relevant in making a decision to purchase the Notes and Common Stock being
purchased by it hereunder. Each Purchaser represents and warrants that it is an
"accredited investor" within the meaning of Rule 501(a) under the Securities Act
of 1933.
IV.
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligations of the Purchasers to purchase and pay for the
Notes and Common Stock to be purchased by them hereunder on any Closing Date
are, at their option, subject to the satisfaction, on or before such Closing
Date, of the following conditions:
SECTION 4.01 Notice of Closing Date. The Corporation shall
have given notice of such Closing Date in conformity with Section 1.02.
SECTION 4.02 Representations and Warranties to Be True and
Correct. The representations and warranties contained in Article II hereof shall
be true and correct on and as of such Closing Date with the same effect as
though such representations and warranties had been made on and as of such date.
SECTION 4.03 Initial Closing Date. In the case of the first
Closing Date:
(a) The Corporation shall have completed, or concurrently with
the initial purchase hereunder shall complete, the acquisition of all of the
shares of Horizon Health Systems, Inc.
(b) The Corporation and all other parties thereto shall have
executed and delivered the Loan Agreement.
(c) All other parties shall have executed and delivered the
Intercreditor Agreement dated as of June 4, 1997 among the Corporation, its
subsidiaries, NationsBank of Tennessee,
4
<PAGE>
N.A., First Tennessee Bank National Association and the other parties thereto,
including the Purchasers.
(d) All corporate and other proceedings to be taken by the
Corporation and all consents needed to be obtained by the Corporation in
connection with the transactions contemplated hereby, including any consent of
the lenders under the Loan Agreement, shall have been taken or obtained by the
Corporation and all documents incident thereto shall be satisfactory in form and
substance to the Purchasers and their counsel.
SECTION 4.04 Performance. The Corporation shall have performed
and complied with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at such Closing Date.
V.
MISCELLANEOUS
SECTION 5.01 Expenses, Etc. Each party hereto will pay its own
expenses in connection with the transactions contemplated by this Agreement,
whether or not such transactions shall be consummated, except that the
Corporation shall pay the fees and disbursements of Reboul, MacMurray, Hewitt,
Maynard & Kristol, counsel for the Purchasers.
SECTION 5.02 Amendment to Registration Rights Agreement. The
Registration Rights Agreement dated as of May 31, 1996 between the Corporation
and the other parties thereto is hereby amended to confirm that the Common Stock
to be acquired by the Purchasers pursuant hereto shall constitute "Restricted
Stock" for purposes of that Agreement.
SECTION 5.03 Survival of Agreements. All covenants,
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and each issuance, sale and delivery of
the Notes and Common Stock pursuant hereto.
SECTION 5.04 Parties in Interest. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not.
SECTION 5.05 Notices. Any notice or other communications
required or permitted hereunder shall be deemed to be sufficient if contained in
a written instrument delivered in person or duly sent by first class certified
mail, postage prepaid, or by facsimile addressed to such party at the address or
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<PAGE>
facsimile number set forth below or such other address or facsimile number as
may hereafter be designated in writing by the addressee to the addressor:
if to the Corporation, to it at 1620 Century Center
Parkway, Suite 109, Memphis, Tennessee, 38134, Facsimile No.
1-800-827-8987, Attention: Chief Financial Officer; or
if to any Purchaser, to it at the address or facsimile number
for such Purchaser appearing on Schedule I hereto;
or, in any case, at such other address or addresses or facsimile number as shall
have been furnished in writing by such party to the other party hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of mailing, on the fifth business day following the
date of such mailing and (c) in the case of facsimile, when received.
SECTION 5.06 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 5.07 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
6
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have
executed this Agreement as of the day and year first above written.
NOVA HOLDINGS, INC.
By /s/ Andrew M. Paul
---------------------------------------------
Title: Assistant Secretary
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By /s/ Laura VanBuren
--------------------------------------------
General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HP Partners,
General Partner
By *
--------------------------------------------
*
--------------------------------------------
Patrick J. Welsh
*
--------------------------------------------
Russell L. Carson
*
--------------------------------------------
Bruce K. Anderson
/s/ Andrew M. Paul
--------------------------------------------
Andrew M. Paul
*
--------------------------------------------
Thomas E. McInerney
<PAGE>
*
--------------------------------------------
James B. Hoover
*
--------------------------------------------
Robert A. Minicucci
*
--------------------------------------------
Anthony J. de Nicola
*
---------------------------------------------
Paul B. Queally
*By /s/ Laura VanBuren
----------------------------------------
Attorney-in-fact
/s/ Laura VanBuren
--------------------------------------------
Laura VanBuren
DE CHARTER TRUST CO., as Trustee f/b/o
the IRA/Rollover of Richard H. Stowe
/s/
--------------------------------------------
<PAGE>
EXHIBIT A
---------
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID")
AS DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING REQUIREMENTS
SET FORTH IN TREASURY REGULATION 1.1275-3.
THE ISSUE PRICE, THE AMOUNT OF OID, THE ISSUE DATE AND
THE YIELD TO MATURITY OF THIS DEBT INSTRUMENT PER QUARTER
MAY BE OBTAINED UPON REQUEST FROM THE COMPANY'S
CHIEF FINANCIAL OFFICER AT THE OFFICE REFERRED TO
IN SECTION 11(a) (TELEPHONE 901-385-6813).
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NEITHER THE
SECURITIES EVIDENCED HEREBY, NOR ANY INTEREST THEREIN, MAY BE
OFFERED, SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED
OF UNLESS EITHER (I) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND LAWS RELATING THERETO OR (II) THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, STATING
THAT SUCH REGISTRATION IS NOT REQUIRED.
PURSUANT TO THE TERMS OF THAT CERTAIN INTERCREDITOR AGREEMENT
DATED AS OF JUNE 4, 1997, AS AMENDED,
BETWEEN SUBORDINATED LENDERS AND SENIOR LENDERS
(EACH AS DEFINED IN THE INTERCREDITOR AGREEMENT),
THE PAYMENT OF THIS NOTE IS SUBORDINATE TO
THE PAYMENT OF CLAIMS ON THE PART OF SENIOR LENDERS
AGAINST NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
TO THE EXTENT SET FORTH IN SUCH INTERCREDITOR AGREEMENT.
NOVA HOLDINGS, INC.
10% Senior Subordinated Note
Due June 1, 2004
Registered New York, New York
R-00__ _____________, 1997
$_________________
NOVA HOLDINGS, INC., a Delaware corporation (hereinafter called the
"Company"), for value received, hereby promises to pay to [Name], or its
registered assigns, the principal sum of _____DOLLARS ($ __________) on June 1,
2004, and to pay interest (computed on the basis of a 360-day year consisting
of twelve 30-day months) from the date hereof on the unpaid stated principal
sum hereof (as increased pursuant to Section 2) at the rate of 10% per annum,
payable quarterly in arrears on the first day of
<PAGE>
March, June, September and December of each year (each said day being an
"Interest Payment Date"), commencing on September 1, 1997, until the
principal amount hereof shall have become due and payable, whether at
maturity or by acceleration or otherwise, and thereafter at the rate of 12%
per annum on any overdue principal amount and (to the extent permitted by
applicable law) on any overdue interest until paid. To the extent and in the
manner provided in Section 2, accrued interest hereon may be capitalized and
added to the unpaid principal amount hereof on certain Interest Payment Dates.
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment
shall be legal tender for payment of public and private debts, and shall be
made at the offices of the person deemed the holder hereof in accordance with
Section 5 below.
For purposes of this Note, "Business Day" shall mean any day other than
a Saturday, Sunday or a legal holiday under the laws of the State of New York.
1. Notes. This Note is one of a duly authorized issue of Notes (herein
called the "Notes") made or to be made by the Company in the original
aggregate principal amount of $10,000,000, maturing on June 1, 2004 (subject
to increase as provided in Section 2) and bearing interest payable at the
same rate and on the same dates as the interest on the principal amount of
this Note.
2. Capitalization of Interest. The amount of interest otherwise due
and payable hereon on each of September 1, 1997, December 1, 1997, March 1,
1998 and June 1, 1998 shall be capitalized and added to the unpaid principal
sum of this Note on the date it would otherwise be so payable. The amount of
interest otherwise payable hereon on each of September 1, 1998, December 1,
1998, March 1, 1999, and June 1, 1999 may, in each case at the option of the
Company by notice to the holder given on or prior to the applicable Interest
Payment Date (but with the consent of the holder if an Event of Default, as
defined in Section 13, shall have occurred and be continuing), be capitalized
and added to the unpaid principal sum of this Note on the date it would
otherwise be so payable. All amounts so capitalized shall (unless the
principal hereof shall have become overdue, by acceleration or otherwise, in
which event the overdue rate shall apply) bear interest at the rate of 10%
per annum, payable quarterly in arrears on each ensuing Interest Payment Date
as provided above, except on any Interest Payment Date on which such interest
is again capitalized as herein provided. Not more than five Business Days
after each Interest Payment Date on which unpaid interest hereon shall be
capitalized as provided herein, the Company shall deliver to the holder of
this Note a certificate executed by its chief financial officer setting forth
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<PAGE>
the amount of interest so capitalized and the date on which such interest was
added to the principal sum hereof and copies thereof shall be maintained in
the register maintained pursuant to paragraph (a) of Section 11.
3. Transfer, Etc. of Notes. The Company shall keep at its office or
agency maintained as provided in paragraph (a) of Section 11 a register in
which the Company shall provide for the registration of Notes and for the
registration of transfer and exchange of Notes. The holder of this Note may,
at its option, and either in person or by duly authorized attorney, surrender
the same for registration of transfer or exchange at the office or agency of
the Company maintained as provided in paragraph (a) of Section 11, and,
without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or
Notes each in such denomination or denominations as such holder may request,
dated as of the date to which interest has been paid on the Note or Notes so
surrendered for transfer or exchange, for the same aggregate principal sum as
the then unpaid principal sum of the Note or Notes so surrendered for
transfer or exchange, and registered in the name of such person or persons as
may be designated by such holder; provided, however, that if such Notes are
to be registered in a name other than that of the registered holder, the new
registered holder shall execute and become a party to the Intercreditor
Agreement referred to in Section 17 if such Agreement is still in effect.
Every Note presented or surrendered for registration of transfer or exchange
shall be duly endorsed, or shall be accompanied by a written instrument of
transfer, satisfactory in form to the Company, duly executed by the holder of
such Note or his attorney duly authorized in writing. Every Note so made and
delivered in exchange for this Note shall in all other respects be in the
same form and have the same terms as this Note. In connection therewith, the
Company shall make a notation on the new Notes of the amount of any interest
added to the principal thereof pursuant to Section 2. No transfer or exchange
of any Note shall be valid unless made in the foregoing manner at such office
or agency.
4. Loss, Theft, Destruction or Mutilation of Note. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and indemnity from the
holder hereof reasonably satisfactory to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the Company
will make and deliver, in lieu of this Note, a new Note of like tenor and
unpaid principal amount and dated as of the date to which interest has been
paid on this Note.
5. Persons Deemed Owners; Holders. The Company may deem and treat the
person in whose name any Note is registered as the owner and holder of such
Note for the purpose of receiving
3
<PAGE>
payment of principal of and interest on such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue. With respect to any
Note at any time outstanding, the term "holder", as used herein, shall be
deemed to mean the person in whose name such Note is registered as aforesaid
at such time.
6. Prepayments. Subject to the provisions of the Intercreditor
Agreement:
(a) Optional Prepayment. Upon notice given as provided in Section
7 the Company may, at its option, prepay all or any portion of the
Notes, at the principal amount thereof so to be prepaid, together with
interest accrued thereon to the date fixed for such prepayment.
(b) Mandatory Prepayment.
(i) Public Offering. If at any time while any of the Notes shall
be outstanding, the Company shall consummate a public offering of equity
securities of the Company pursuant to an effective registration
statement filed under the Securities Act of 1933, then the Company shall
use the net proceeds of such offering to prepay the principal amount of
the Notes (to the extent thereof), plus interest accrued thereon through
the date of prepayment.
(ii) Sale of the Company. If at any time while any of the Notes
shall be outstanding, (x) the Company shall merge or consolidate with or
into any other entity (other than a merger or consolidation in which (A)
at least 50% of the voting capital stock of the Company (or the
surviving or resulting entity, if other than the Company) outstanding
immediately after the effective date of such merger is owned of record
or beneficially by persons who owned voting capital stock of the Company
immediately prior to such merger or consolidation and in substantially
the same proportions in which such stock was held immediately prior to
such merger or consolidation, and (B) no Event of Default shall have
occurred as a result of the consummation thereof), or (y) the Company
shall sell, lease or otherwise dispose of all or substantially all of
its assets and properties as an entirety in a single transaction or in a
series of related transactions to an unaffiliated third party purchaser,
or (z) a majority of the outstanding capital stock of the Company shall
be acquired by an unaffiliated third party in a single transaction or
series of related transactions (any transaction described in clauses
(x), (y) or (z) above being referred to herein as a "Sale of the
Company"), then the Company shall take such action as may be necessary,
as a condition precedent to consummating
4
<PAGE>
such Sale of the Company, to obtain all necessary waivers and
consent (including the prepayments constituting "Permitted Payments"
under the Intercreditor Agreement as defined in Section 17) and to
provide funds sufficient to prepay, and shall prepay, 100% of the
principal amount of the Notes, plus interest accrued thereon through
the date of prepayment.
(iii) Prepayment to Avoid High-Yield OID. On any Interest
Payment Date on or after June 1, 2002, the Company shall pay an
amount of accrued original issue discount on any Note as shall be
necessary to ensure that such Note shall not be considered an
"applicable high yield discount obligation" within the meaning of
Section 163(i) of the Internal Revenue Code of 1986, as amended, or
any successor provision. The amount of principal payable on such Note
shall be reduced by the amount of any accrued original issue discount
that is paid under this Section 6(b).
7. Notice of Prepayment and Other Notices. The Company shall give
written notice of any prepayment of this Note or any portion hereof pursuant
to Section 6 not less than 10 nor more than 60 days prior to the date fixed
for such prepayment. Such notice of prepayment and all other notices to be
given to any holder of this Note shall be given by registered or certified
mail to the person in whose name this Note is registered at its address
designated on the register maintained by the Company on the date of mailing
such notice of prepayment or other notice. Upon notice of prepayment being
given as aforesaid, the Company covenants and agrees that it will prepay, on
the date therein fixed for prepayment, this Note or the portion hereof, as
the case may be, so called for prepayment, at the principal amount thereof so
called for prepayment together with interest accrued thereon to the date
fixed for such prepayment. Notwithstanding the foregoing, any notice of
prepayment pursuant to Section 6(b)(i) or (ii) may specify that the
obligation to make such prepayment is conditional upon the closing of the
transaction requiring such prepayment, in which event no prepayment shall be
required unless and until such transaction is consummated.
8. Allocation of Prepayment. In the event of any prepayment, purchase,
redemption or retirement of less than all of the outstanding Notes, the
Company will allocate the principal amount so to be prepaid, purchased,
redeemed or retired to each Note in proportion, as nearly as may be, to the
aggregate principal amount of all Notes then outstanding.
9. Interest After Date Fixed for Prepayment. If this Note or a portion
hereof is called for prepayment as herein provided, this Note or such portion
shall (unless the provisions of the last sentence of Section 7 become
applicable) cease to bear interest on and after the date fixed for such
prepayment unless,
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<PAGE>
upon presentation for the purpose, the Company shall fail to pay this Note or
such portion, as the case may be, in which event this Note or such portion,
as the case may be, and, so far as may be lawful, any overdue installment of
interest, shall bear interest on and after the date fixed for such
prepayment and until paid at the rate per annum provided herein for overdue
principal.
10. Surrender of Notes; Notation Thereon. Upon any prepayment of a
portion of the principal amount of this Note, the holder hereof, at its
option, may require the Company (subject to the provisions of the second
sentence of Section 3) to execute and deliver at the expense of the Company
(except for taxes or governmental charges imposed in connection therewith),
upon surrender of this Note, a new Note registered in the name of such person
or persons as may be designated by such holder for the principal amount of
this Note then remaining unpaid, dated as of the date to which interest has
been paid on the principal amount of this Note then remaining unpaid, or may
present this Note to the Company for notation hereon of the payment of the
portion of the principal amount of this Note so prepaid.
11. Covenants. The Company covenants and agrees that, so long as
any Note shall be outstanding:
(a) Maintenance of Office. The Company will maintain an office or
agency in such place in the United States of America as the Company may
designate in writing to the registered holder hereof, where the Notes
may be presented for registration of transfer and exchange as herein
provided, where notices and demands to or upon the Company in respect of
the Notes may be served and where, at the option of the holders thereof,
the Notes may be presented for payment. Until the Company otherwise
notifies the holders of Notes, said office shall be the principal office
of the Company at 1620 Century Center Parkway, Suite 109, Memphis,
Tennessee, 38134.
(b) Payment of Taxes. The Company will promptly pay and discharge
or cause to be paid and discharged, before the same shall become in
default, all lawful taxes and assessments imposed upon the Company or
any subsidiary or upon the income and profits of the Company or any
subsidiary, or upon any property, real, personal or mixed, belonging to
the Company or any subsidiary, or upon any part thereof by the United
States or any State thereof, as well as all lawful claims for labor,
materials and supplies, which, if unpaid, would become a lien or charge
upon such property or any part thereof, provided, however, that neither
the Company nor any subsidiary shall be required to pay and discharge or
to cause to be paid and discharged any such tax, assessment, charge,
levy or claim so long as (i) the Company or a subsidiary shall be
contesting the validity thereof in good
6
<PAGE>
faith or (ii) the Company shall, in its good faith judgment, deem the
validity thereof to be questionable and the party to whom such tax,
assessment, charge, levy or claim is allegedly owed shall not have made
written demand for the payment thereof.
(c) Corporate Existence. The Company will do or cause to be done
all things necessary and lawful to preserve and keep in full force and
effect its corporate existence, rights and franchises and the corporate
existence, rights and franchises of each of its subsidiaries; provided,
however, that nothing in this paragraph (c) shall prevent the
abandonment or termination of any rights or franchises of the Company,
or the liquidation or dissolution of, or a sale, transfer or disposition
(whether through merger, consolidation, sale or otherwise) of all or any
substantial part of the property and assets of, any subsidiary or the
abandonment or termination of the corporate existence, rights and
franchises of any subsidiary if such abandonment, termination,
liquidation, dissolution, sale, transfer or disposition is, in the good
faith business judgment of the Company, in the best interests of the
Company and is not disadvantageous in any material respect to the
holders of the Notes.
(d) Maintenance of Property. The Company will at all times maintain
and keep, or cause to be maintained and kept, in good repair, working
order and condition all significant properties of the Company and its
subsidiaries used in the conduct of the business of the Company and its
subsidiaries, and will 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 be properly and advantageously conducted at all times;
provided, however, that nothing in this paragraph (d) shall require (i)
the making of any repair or renewal or (ii) the continuance of the
operation and maintenance of any property or (iii) the retention of any
assets if such action (or inaction) is, in the good faith business
judgment of the Company, in the best interests of the Company (and the
best interests of any subsidiary concerned or affected thereby) and is
not disadvantageous in any material respect to the holders of the Notes.
(e) Insurance. The Company will, and will cause each of its
subsidiaries to, (i) keep adequately insured, by financially sound and
reputable insurers, all property of a character usually insured by
corporations engaged in the same or a similar business similarly
situated against loss or damage of the kinds customarily insured against
by such corporations and (ii) carry, with financially sound and
reputable insurers, such other insurance (including, without limitation,
liability insurance) in such amounts as are
7
<PAGE>
available at reasonable expense and to the extent believed necessary in
the good faith business judgment of the Company.
(f) Keeping of Books. The Company will at all times keep, and cause
each of its subsidiaries to keep, proper books of record and account in
which proper entries will be made of its transactions in accordance with
generally accepted accounting principles.
(g) Notice of Default. If any one or more events which constitute,
or which with notice or lapse or time or both would constitute, an Event
of Default under Section 13 of this Note shall occur, or if the holder
of any Note shall demand payment or take any other action permitted upon
the occurrence of any such Event of Default, the Company shall,
immediately after it becomes aware that any such event has occurred or
that such demand has been made or that any such action has been taken,
give notice to all holders of the Notes, specifying the nature of such
event or of such demand or action, as the case may be; provided, however,
that if such event, in the good faith judgment of the Company, will be
cured within ten days after the Company has knowledge that such event
would, with or without notice or lapse of time or both, constitute
such an Event of Default, no such notice need be given if such Event of
Default shall be cured within such ten-day period.
(h) Merger or Consolidation. If the Company shall effect a merger
or consolidation in which it is not the surviving entity and such
transaction is not a Sale of the Company under the provisions of Section
6(b)(ii) of this Note requiring mandatory prepayment of the Notes, then
the Company shall take such action as may be necessary, as a condition
to consummating such transaction, to cause the surviving entity to
assume all of the Company's obligations under the Notes, as if such
entity had been the original issuer thereof, and such entity shall
acknowledge in writing its obligation to fully and timely honor the
Company's obligations under the Notes.
12. Modification by Holders; Waiver. The Company may, subject to the
provisions of the Intercreditor Agreement (as defined in Section 17), with
the written consent of the holders of not less than 66 2/3% in principal
amount of the Notes then outstanding, modify the terms and provisions of the
Notes or the rights of the holders of the Notes or the obligations of the
Company thereunder, and the observance by the Company of any term or
provision of the Notes may be waived with the written consent of the holders
of not less than 66 2/3% in principal amount of
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the Notes then outstanding; provided, however, that no such modification or
waiver shall:
(a) change the maturity of any Note or reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest
thereon without the consent of the holder of each Note so affected; or
(b) give any Note any preference over any other Note; or
(c) reduce the percentage of Notes, the consent of the holders of
which is required for any such modification; or
(d) amend the provisions of Section 17 hereof without the consent
of the holders of Senior Debt (as therein defined).
Any such modification or waiver shall apply equally to all the
holders of the Notes and shall be binding upon them, upon each future holder
of any Note and upon the Company, whether or not such Note shall have been
marked to indicate such modification or waiver, but any Note issued
thereafter shall bear a notation referring to any such modification or
waiver. Promptly after obtaining the written consent of the holders as herein
provided, the Company shall transmit a Copy of such modification or waiver to
all the holders of the Notes at the time outstanding.
(13). Events of Default. If any one or more of the following
events, herein called Events of Default shall occur, for any reason
whatsoever, and whether such occurrence shall, on the part of the Company or
any subsidiary, be voluntary or involuntary, result from compliance with the
Intercreditor Agreement (as hereinafter defined) or come about or be effected
by operation of law or pursuant to or in compliance with any judgement,
decree or order of a court of competent jurisdiction or any order, rule or
regulation of any administrative or other governmental authority, and such
Event of Default shall be continuing:
(a) the Company shall not pay any principal of any Note when and
as the same shall become due and payable, whether at maturity or at a
date fixed for prepayment or by acceleration or otherwise; or
(b) the Company shall not pay any installment of interest on any
Note on any Interest Payment Date (unless capitalized pursuant to
Section 2), or shall not pay any interest when due in connection with
any prepayment or repayment of principal of any Note, and such
non-payment shall continue for a period of 10 Business Days; or
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(c) the Company shall fail to duly perform or observe any other
covenant, condition or agreement to be observed or performed by it
pursuant to the terms hereof and such failure shall continue for 30 days
after written notice thereof, specifying such failure and requesting
that the same be remedied, shall have been given to the Company by the
holder or holders of at least 25% of the principal amount of the Notes
then outstanding (the Company to give forthwith to all other holders of
Notes at the time outstanding written notice of the receipt of such
notice specifying the failure referred to therein); or
(d) any representation or warranty made by the Company in the Note
Purchase Agreement dated June 4, 1997 pursuant to which the Notes are
issued (taken singly or together with other representations and
warranties made by the Company therein) shall prove to have been false
or incorrect on the date on or as of which made in any respect material
to the transactions contemplated by such Agreement; or
(e) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Company or any subsidiary
in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency or other similar laws, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Company or any subsidiary or for any
substantial part of any of their property, or ordering the winding-up or
liquidation of any of their affairs and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive
days; or
(f) the commencement by the Company or any subsidiary of a
voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy,
insolvency or other similar laws, or the consent by any of them to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the
Company or any subsidiary or for any substantial part of their property,
or the making by any of them of any assignment for the benefit of
creditors, or the failure of the Company or any subsidiary generally to
pay its debts as such debts become due; or
(g) default as defined in any instrument evidencing or under which
the Company or any subsidiary has outstanding at the time any
indebtedness for money borrowed in excess of $100,000 in aggregate
principal amount shall occur and as a result thereof the maturity of any
such indebtedness shall have been accelerated so that the same shall have
become due and payable prior to the date on which the same would other-
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<PAGE>
wise have become due and payable and such acceleration shall not have
been rescinded or annulled within 30 days; or
(h) final judgment for the payment of money in excess of $100,000
shall be rendered against the Company or a subsidiary and the same shall
remain undischarged for a period of 30 days during which execution shall
not be effectively stayed;
then, the holder or holders of a least 25% in aggregate principal amount of
the Notes at the time outstanding may, subject to the provisions of the
Intercreditor Agreement (as defined in Section 17) at its or their option, by
notice to the Company, declare all the Notes to be, and all the Notes shall
thereupon be and become, forthwith due and payable together with interest
accrued thereon without presentment, demand, protest or further notice of any
kind, all of which are expressly waived to the extent permitted by law.
At any time after any declaration of acceleration as to all of the Notes
has been made as provided in this Section 13, the holders of at least 66 2/3%
in principal amount of the Notes then outstanding may, by notice to the
Company, rescind such declaration and its consequences, if (i) the Company has
paid all overdue installments of interest on the Notes and all principal that
has become due otherwise than by such declaration of acceleration and (ii)
all other defaults and Events of Default (other than nonpayments of principal
and interest that have become due solely by reason of acceleration) shall
have been remedied or cured or shall have been waived pursuant to this
paragraph; provided, however, that no such rescission shall extend to or
affect any subsequent default or Event of Default or impair any right
consequent thereon.
14. Suits for Enforcement. In case any one or more of the Events of
Default specified in Section 13 of this Note shall occur and be continuing,
the holder of this Note may, subject to the provisions of the Intercreditor
Agreement (as defined in Section 17) proceed to protect and enforce its
rights by suit in equity, action at law and/or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power granted in this
Note, or may proceed to enforce the payment of this Note or to enforce any
other legal or equitable right of the holder of this Note.
In case of any default under any Note, the Company will pay to the
holder thereof such amounts as shall be sufficient to cover the reasonable
costs and expenses of such holder due to said default, including, without
limitation, collection costs and reasonable attorneys' fees, to the extent
actually incurred.
(15) Remedies Cumulative. No remedy herein conferred upon the
holder of this Note is intended to be exclusive of any
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other remedy and each and every such remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
16. Remedies Not Waived. No course of dealing between the Company and
the holder of this Note or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any right of any
holder of this Note.
17. Subordination and Intercreditor Agreement. (a) For purposes hereof,
(i) the term "Intercreditor Agreement" means the Intercreditor Agreement
dated as of June 4, 1997 among the Company, NationsBank of Tennessee, N.A.,
First Tennessee Bank National Association and the other parties thereto and
(ii) the terms "Senior Debt" and "Senior Lenders" have the respective
meanings given in the Intercreditor Agreement. Anything in this Note to the
contrary notwithstanding, the obligation of the Company to pay the principal
of and interest on this Note, and to discharge all its other obligations
hereunder, shall be subordinate and junior in right of payment, to the extent
set forth in the Intercreditor Agreement and the exercise of rights and
remedies by the holder hereof are subject to the provisions thereof.
(b) Subject to the payment in full of all Senior Debt, the holder of
this Note shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distributions of any kind or character, whether in cash,
property, stock or obligations, which may be payable or deliverable to the
holders of Senior Debt, until the principal of, and interest on, this Note
shall be paid in full, and, as between the Company, its creditors other than
the holders of Senior Debt, and the holder of this Note, no such payment or
distribution made to the holders of Senior Debt by virtue of the
Intercreditor Agreement which otherwise would have been made to the holder of
this Note shall be deemed a payment by the Company on account of the Senior
Debt, it being understood that the provisions of this Section 17 and of the
Intercreditor Agreement are and are intended solely for the purposes of
defining the relative rights of the holder of this Note, on the one hand, and
the holders of the Senior Debt, on the other hand. Subject to the rights of
holders of Senior Debt to receive cash, property, stock or obligations
otherwise payable or deliverable to the holder of this Note under the
circumstances specified in the Intercreditor Agreement, nothing herein or in
the Intercreditor Agreement shall, solely as between the Company and the
holder of this Note, either impair the obligation of the Company, which is
unconditional and absolute, to pay the holder hereof the principal hereof and
interest hereon in accordance with the terms and provisions of this Note or,
following any applicable Standstill Period (as defined in the Intercreditor
Agreement), prevent the holder of this Note from exercising all remedies
otherwise permitted by applicable law or upon default hereunder.
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18. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.
19. Governing Law. This Note shall be governed and construed in
accordance with the laws of the State of New York.
20. Headings. The headings of the Sections and paragraphs of this
Note are inserted for convenience only and do not constitute a part of this
Note.
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<PAGE>
IN WITNESS WHEREOF, NOVA HOLDINGS, INC. has caused this Note to be
signed in its corporate name by one of its officers thereunto duly authorized
and to be dated as of the day and year first above written.
NOVA HOLDINGS, INC.
By:
-------------------------------------
Name:
Title:
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Exhibit 10.10
REGISTRATION RIGHTS AGREEMENT
May 31, 1996
To the several persons named
at the foot hereof
Dear Sirs:
This will confirm that in consideration of the acquisition by
each of you on the date hereof of an aggregate 5,107,253 shares of Common Stock,
$.01 par value (the "Common Stock"), of Nova Holdings, Inc., a Delaware
corporation (the "Company"), pursuant to the Subscription and Exchange Agreement
dated as of May 31, 1996, among the Company and you (the "Subscription
Agreement") and as an inducement to you to consummate the transactions
contemplated by the Subscription Agreement, the Company hereby covenants and
agrees with each of you, and with each subsequent holder of Restricted Stock (as
such term is defined herein), as follows:
1. Certain Definitions. As used herein, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Common Stock" shall mean the Common Stock of the Company, as
constituted as of the date of this Agreement, subject to adjustment
pursuant to the provisions of Section 10 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
<PAGE>
"Registration Expenses" shall mean the expenses so described
in Section 8 hereof.
"Restricted Stock" shall mean any shares of capital stock of
the Company, the certificates for which are required to bear the legend
set forth in Section 2 hereof.
"Securities Act" shall mean the Securities Act of 1933 or any
similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in
Section 8 hereof.
2. Restrictive Legend. Each certificate representing the
Common Stock, each certificate issued upon exchange or transfer of any Common
Stock, other than in a public sale or as otherwise permitted by the last
paragraph of paragraph 3 hereof shall be stamped or otherwise imprinted with a
legend substantially in the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE."
3. Notice of Proposed Transfer. Prior to any proposed transfer
of any Restricted Stock (other than under the circumstances described in Section
4, 5 or 6 hereof), the holder thereof shall give written notice to the Company
of its intention to effect such transfer. Each such notice shall describe the
manner of the proposed transfer and, if requested by the Company, shall be
accompanied by an opinion of counsel reasonably satisfactory to the Company (it
being agreed that Reboul, MacMurray, Hewitt, Maynard & Kristol shall be
satisfactory) to the effect that the proposed transfer of the Restricted Stock
may be effected without registration under the Securities Act, whereupon the
holder of such Restricted Stock shall be entitled to transfer such Restricted
Stock in accordance with the terms of its notice; provided, however, that no
such opinion or other documentation shall be required if such notice shall cover
a distribution by Welsh, Carson, Anderson & Stowe VII, L.P. or WCAS Healthcare
Partners, L.P. to their respective partners. Each certificate for Restricted
Stock transferred as above provided shall bear the legend set forth in Section
2, unless (i) such
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transfer is in accordance with the provisions of Rule 144 (or any other rule
permitting public sale without registration under the Securities Act) or (ii)
the opinion of counsel referred to above is to the further effect that the
transferee and any subsequent transferee (other than an affiliate of the
Company) would be entitled to transfer such securities in a public sale without
registration under the Securities Act.
The foregoing restrictions on transferability of Restricted
Stock shall terminate as to any particular shares of Restricted Stock when such
shares shall have been effectively registered under the Securities Act and sold
or otherwise disposed of in accordance with the intended method of disposition
by the seller or sellers thereof set forth in the registration statement
concerning such shares. Whenever a holder of Restricted Stock is able to
demonstrate to the Company (and its counsel) that the provisions of Rule 144(k)
of the Securities Act are available to such holder without limitation, such
holder of Restricted Stock shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legend set forth
in Section 2.
4. Required Registration.
(a) At any time the holders of Restricted Stock constituting
at least a majority of the total Restricted Stock outstanding at such
time may request the Company to register under the Securities Act all
or any portion of the Restricted Stock held by such requesting holder
or holders for sale in the manner specified in such notice
(b) Promptly following receipt of any notice under this
Section 4, the Company shall immediately notify any holders of
Restricted Stock from whom notice has not been received and shall use
its best efforts to register under the Securities Act, for public sale
in accordance with the method of disposition specified in such notice
from requesting holders, the number of shares of Restricted Stock
specified in such notice (and in any notices received from other
holders within 20 days after their receipt of such notice from the
Company); provided, however, that if the proposed method of disposition
specified by the requesting holders shall be an underwritten public
offering, the number of shares of Restricted Stock to be included in
such an offering may be reduced pro rata among the requesting holders
based on the number of shares of Restricted Stock so requested to be
registered) if and to the extent that the managing underwriter shall be
of the opinion that such
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inclusion would adversely affect the marketing of the Restricted Stock
to be sold. If such method of disposition shall be an underwritten
public offering, the Company may designate the managing underwriter
of such offering, subject to the approval of the selling holders of a
majority of the Restricted Stock included in the offering, which
approval shall not be unreasonably withheld. The Company shall be
obligated to register Restricted Stock pursuant to this Section 4
on two occasions only. Notwithstanding anything to the contrary
contained herein, the obligation of the Company under this Section 4
shall be deemed satisfied only when a registration statement covering
all shares of Restricted Stock specified in notices received as
aforesaid, for sale in accordance with the method of disposition
specified by the requesting holder, shall have become effective and, if
such method of disposition is a firm commitment underwritten public
offering, all such shares shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any
registration statement referred to in this Section 4, for sale in
accordance with the method of disposition specified by the requesting
holders, shares of Common Stock to be sold by the Company for its own
account, except as and to the extent that, in the opinion of the
managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would adversely affect
the marketing of the Restricted Stock to be sold. Except as provided in
this paragraph (c), the Company will not effect any other registration
of its Common Stock, whether for its own account or that of other
holders, from the date of receipt of a notice from requesting holders
pursuant to this Section 4 until the completion of the period of
distribution of the registration contemplated thereby.
5. Form S-3 Registration.
(a) If the Company shall receive from any holder or holders of
Restricted Stock, a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to Restricted Stock owned by such holder or holders, the reasonably
anticipated aggregate price to the public of which would exceed $1,000,000, the
Company will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other holders of
Restricted Stock; and
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<PAGE>
(ii) as soon as practicable, effect such registration (including,
without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with
applicable regulations issued under the Securities Act and any other
government requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such
portion of such holder's or holders' Restricted Stock as are specified
in such request, together with all or such portion of the Restricted
Stock of any holder or holders joining in such request as are specified
in a written request given within thirty (30) days after receipt of
such written notice from the Company, provided that the Company shall
not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 5 (A) more than once in any 180-day
period, or (B) if the Company is not entitled to use Form S-3. Subject
to the foregoing, the Company shall file a registration statement
covering the Restricted Stock so requested to be registered as soon as
practicable after receipt of the request or requests of the holders of
the Restricted Stock.
(b) Registrations effected pursuant to this Section 5 shall
not be counted as requests for registration effected pursuant to Section 4.
6. Incidental Registration. If the Company at any time (other
than pursuant to Section 4 or 5 hereof) proposes to register any of its Common
Stock under the Securities Act for sale to the public, whether for its own
account or for the account of other securityholders or both (except with respect
to registration statements on Form S-4 or S-8 or another form not available for
registering the Restricted Stock for sale to the public), it will give written
notice at such time to all holders of outstanding Restricted Stock of its
intention to do so. Upon the written request of any such holder, given within 30
days after receipt of any such notice by the Company, to register any of its
Restricted Stock (which request shall state the intended method of disposition
thereof), the Company will use its best efforts to cause the Restricted Stock as
to which registration shall have been so requested, to be included in the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent requisite to permit the sale or other disposition
by the holder (in accordance with its written request) of such Restricted Stock
so registered; provided that nothing herein shall prevent the Company from
abandoning or
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<PAGE>
delaying such registration at any time. In the event that any registration
pursuant to this Section 6 shall be, in whole or in part, an underwritten public
offering of Common Stock, any request by a holder pursuant to this Section 6 to
register Restricted Stock shall specify that either (i) such Restricted Stock is
to be included in the underwriting on the same terms and conditions as the
shares of Common Stock otherwise being sold through underwriters under such
registration or (ii) such Restricted Stock is to be sold in the open market
without any underwriting, on terms and conditions comparable to those normally
applicable to offerings of common stock in reasonably similar circumstances. The
number of shares of Restricted Stock to be included in such an underwriting may
be reduced pro rata among the requesting holders of Restricted Stock based upon
the number of shares of Restricted Stock so requested to be registered if and to
the extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold by
the Company therein provided, however, that such number of shares of Restricted
Stock shall not be reduced if any shares are to be included in such underwriting
for the account of any person other than the Company.
Notwithstanding anything to the contrary contained in this
Section 6, in the event that there is a firm commitment underwritten public
offering of securities of the Company pursuant to a registration covering
Restricted Stock and a holder of Restricted Stock does not elect to sell his
Restricted Stock to the underwriters of the Company's securities in connection
with such offering, such holder shall refrain from selling such Restricted Stock
so registered pursuant to this Section 6 during the period of distribution of
the Company's securities by such underwriters and the period in which the
underwriting syndicate participates in the after market; provided, however, that
such holder shall, in any event, be entitled to sell its Restricted Stock
commencing on the 90th day after the effective date of such registration
statement.
7. Registration Procedures and Expenses. If and whenever the
Company is required by the provisions of Section 4, 5 or 6 hereof to use its
best efforts to effect the registration of any of the Restricted Stock under the
Securities Act, the Company will, as expeditiously as possible:
(a) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission a registration statement (which, in the case of an
underwritten public offering pursuant to Section 4 hereof, shall be on
Form S-1
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<PAGE>
or another form of general applicability satisfactory to the managing
underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period
specified in paragraph (a) above and as comply with the provisions of
the Securities Act with respect to the disposition of all Restricted
Stock covered by such registration statement in accordance with the
sellers' intended method of disposition set forth in such registration
statement for such period;
(c) furnish to each seller and to each underwriter such number
of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons may
reasonably request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration
statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or
blue sky laws of such jurisdictions as the sellers of Restricted Stock
or, in the case of an underwritten public offering, the managing
underwriter, shall reasonably request (provided that the Company will
not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any
jurisdiction);
(e) immediately notify each seller under such registration
statement and each underwriter, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of
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<PAGE>
the circumstances then existing;
(f) use its best efforts (if the offering is underwritten) to
furnish, at the request of any seller, on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing
the Company for the purposes of such registration, addressed to the
underwriters and to such seller, stating that such registration
statement has become effective under the Securities Act and that (A) to
the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Securities Act, (B) the registration statement, the related prospectus,
and each amendment or supplement thereof, comply as to form in all
material respects with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder (except
that such counsel need express no opinion as to financial statements,
the notes thereto, and the financial schedules and other financial and
statistical data contained therein) and (C) to such other effects as
may reasonably be requested by counsel for the underwriters or by such
seller or its counsel, and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to
the underwriters, stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in
the registration statement or the prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with the
applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other financial matters (including
information as to the period ending no more than five business days
prior to the date of such letter) with respect to the registration in
respect of which such letter is being given as such underwriters or
seller may reasonably request; and
(g) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attor-
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<PAGE>
ney, accountant or agent in connection with such registration
statement and permit such seller, attorney, accountant or agent to
participate in the preparation of such registration statement.
For purposes of paragraphs (a) and (b) above and of Section 4(c) hereof, the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby or
six months after the effective date thereof.
In connection with each registration hereunder, the selling
holders of Restricted Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
shall be reasonably necessary in order to assure compliance with federal and
applicable state securities laws.
In connection with each registration pursuant to Sections 4, 5
and 6 hereof covering an underwritten public offering, the Company agrees to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between major
underwriters and companies of the Company's size and investment stature,
provided, however, that such agreement shall not contain any such provision
applicable to the Company which is inconsistent with the provisions hereof and
provided, further, however, that the time and place of the closing under said
agreement shall be as mutually agreed upon among the Company, such managing
underwriter and the selling holders of Restricted Stock.
8. Expenses. All expenses incurred by the Company in complying
with Sections 4, 5 and 6 hereof, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars and fees and expenses of counsel for the sellers of Restricted Stock,
but excluding any Selling Expenses, are herein called "Registration Expenses".
All underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are herein called "Selling Expenses".
9
<PAGE>
The Company will pay all Registration Expenses in connection
with each registration statement filed pursuant to Section 4, 5 or 6 hereof. All
Selling Expenses in connection with any registration statement filed pursuant to
Section 4, 5 or 6 hereof shall be borne by the participating sellers in
proportion to the number of shares sold by each, or by such persons other than
the Company (except to the extent the Company shall be a seller) as they may
agree.
9. Indemnification. In the event of a registration of any of
the Restricted Stock under the Securities Act pursuant to Section 4, 5 or 6
hereof, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder and each underwriter of Restricted Stock thereunder
and each other person, if any, who controls such seller or underwriter within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or
controlling person 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 any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Restricted Stock was registered under the Securities Act pursuant to
Section 4,5 or 6, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each such seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case if and 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 so made in conformity with information
furnished by such seller, such underwriter or such controlling person in writing
specifically for use in such registration statement or prospectus.
In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 4, 5 or 6 hereof, each seller of
such Restricted Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the
10
<PAGE>
Company, each underwriter and each person who controls any underwriter within
the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer or director
or underwriter or controlling person 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 any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement under which such Restricted Stock was registered under the Securities
Act pursuant to Section 4, 5 or 6, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that such
seller will be liable hereunder in any such case if and only 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 reliance upon and in conformity with information pertaining to such
seller, as such, furnished in writing to the Company by such seller specifically
for use in such registration statement or prospectus; provided, further,
however, that the liability of each seller hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense which is equal
to the proportion that the public offering price of shares sold by such seller
under such registration statement bears to the total public offering price of
all securities sold thereunder, but not to exceed the proceeds (net of
underwriting discounts and commissions) received by such seller from the sale of
Restricted Stock covered by such registration statement.
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to any indemnified party other than under this Section 9. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to
11
<PAGE>
assume and undertake the defense thereof with counsel satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 8 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party, or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall
have the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two
paragraphs of this Section 9 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party
12
<PAGE>
as a result of such losses, claims, damages, liabilities or actions in such
proportion as appropriate to reflect the relative fault of the Company, on the
one hand, and the underwriters and the sellers of such Restricted Stock, on the
other, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or actions as well as any other relevant
equitable considerations, including the failure to give any notice under the
third paragraph of this Section 9. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Company, on the one
hand, or the underwriters and the sellers of such Restricted Stock on the other,
and to the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each of you agree that it would not be just and equitable if contributions
pursuant to this paragraph were determined by pro rata allocation (even if all
of the sellers of such Restricted Stock were treated as one entity for such
purpose) or by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this paragraph,
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this paragraph, the sellers
of such Restricted Stock shall not be required to contribute any amount in
excess of the amount, if any, by which the total price at which the Common Stock
sold by each of them was offered to the public exceeds the amount of any damages
which they would have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act),
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
The indemnification of underwriters provided for in this
Section 9 shall be on such other terms and conditions as are at the time
customary and reasonably required by such underwriters. In that event the
indemnification of the sellers of Restricted Stock in such underwriting shall at
the sellers' request be modified to conform to such terms and conditions.
10. Changes in Common Stock. If, and as often as, there are
any changes in the Common Stock by way of stock split, stock dividend,
combination or reclassification, or through
13
<PAGE>
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Common Stock as so changed.
11. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate
action and will not violate any provision of law, any order of any
court or other agency of government, the Certificate of Incorporation
or By-laws of the Company, or any provision of any indenture, agreement
or other instrument to which it or any of its properties or assets is
bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of
the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to
considerations of public policy in the case of the indemnification
provisions hereof.
12. Rule 144 Reporting. The Company agrees with you as
follows:
(a) The Company shall make and keep public information
available, as those terms are understood and defined in Rule 144 under
the Securities Act, at all times from and after the date it is first
required to do so.
(b) The Company shall file with the Commission in a timely
manner all reports and other documents as the Commission may prescribe
under Section 13(a) or 15(d) of the Exchange Act at any time after the
Company has become subject to such reporting requirements of the
Exchange Act.
(c) The Company shall furnish to such holder of Restricted
Stock forthwith upon request (i) a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any
time from and after the date it first becomes subject to such reporting
require-
14
<PAGE>
ments, and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), (ii)
a copy of the most recent annual or quarterly report of the Company,
and (iii) such other reports and documents so filed as a holder may
reasonably request to avail itself of any rule or regulation of the
Commission allowing a holder of Restricted Stock to sell any such
securities without registration.
13. Miscellaneous.
(a) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. Without limiting the generality of
the foregoing, the registration rights conferred herein on the holders
of Restricted Stock shall inure to the benefit of any and all
subsequent holders from time to time of the Restricted Stock for so
long as the certificates representing the Restricted Stock shall be
required to bear the legend specified in Section 2 hereof.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first class
registered mail, postage prepaid, addressed as follows:
if to the Company, to it at Nova Holdings, Inc., c/o Welsh,
Carson, Anderson & Stowe, One World Financial Center, Suite 3601, New
York, New York 10281, Facsimile Number: 212-945-2016, Attention: Andrew
M. Paul;
if to any holder of Restricted Stock, at their addresses as
set forth in Annex I hereto;
if to any subsequent holder of Restricted Stock to it at such
address as may have been furnished to the Company in writing by such
holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of
Restricted Stock or to the holders of Restricted Stock (in the case of
the Company).
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
15
<PAGE>
(d) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be
modified or amended except in writing signed by the Company and the
holders of not less than 66 2/3% of the Restricted Stock then
outstanding provided that no such modification or amendment shall
deprive any holder of Restricted Stock of any material right under this
Agreement without such holder's consent. The Company will not grant any
registration rights to any other person without the written consent of
the holders of 66 2/3% of the Restricted Stock then outstanding if such
rights could reasonably be expected to conflict with, or be on a parity
with, the rights of holders of Restricted Stock granted under this
Agreement.
(e) 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 instrument.
16
<PAGE>
Please indicate your acceptance of the foregoing by signing
and returning the enclosed counterpart of this letter, whereupon this letter
(herein sometimes called "this Agreement") shall be a binding agreement between
the Company and you.
Very truly yours,
NOVA HOLDINGS, INC.
By
------------------------------------
President
AGREED TO AND ACCEPTED
as of the date first
above written.
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By
---------------------------------------
General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HP Partners,
General Partner
By
---------------------------------------
General Partner
*
- -----------------------------------------
Patrick J. Welsh
*
- -----------------------------------------
Russell L. Carson
*
- -----------------------------------------
Bruce K. Anderson
*
- -----------------------------------------
Richard H. Stowe
<PAGE>
*
- -----------------------------------------
Andrew M. Paul
<PAGE>
*
- -----------------------------------------
Thomas E. McInerney
- -----------------------------------------
Laura VanBuren, individually and
as attorney-in-fact*
*
- -----------------------------------------
James B. Hoover
*
- -----------------------------------------
Robert A. Minicucci
*
- -----------------------------------------
Anthony J. de Nicola
*
- -----------------------------------------
Paul B. Queally
HORIZON INVESTMENTS ASSOCIATES I
By
----------------------------------------
General Partner
THE SSB FOUNDATION
By
----------------------------------------
David F. Bellet, Trustee
DAVID F. BELLET TRUSTEE PROFIT SHARING
PLAN DLJSC CUSTODIAN FBO DAVID F. BELLET
By
----------------------------------------
<PAGE>
- ------------------------------------------
Richard R. Sweat
<PAGE>
- ------------------------------------------
Max Aldrich
- ------------------------------------------
John R. Grow
- ------------------------------------------
Rita Holt
- ------------------------------------------
Joel R. Kimbrough
- ------------------------------------------
Jill Stem
- ------------------------------------------
David D. Stevens
<PAGE>
Exhibit 10.11
AMENDMENT NUMBER ONE TO REGISTRATION RIGHTS AGREEMENT
This Amendment Number One made to the Registration Rights Agreement
entered into on May 31, 1996 by and between Nova Holdings, Inc. ("Company"), and
those persons named at the foot thereof (except Lauren Melkus and Kyle Callahan)
("Agreement").
WHEREAS, Section 13(d) in the Agreement provides that the Agreement may
not be modified or amended except in writing signed by the Company and the
holders of not less than 66 2/3% of the Restricted Stock then outstanding, and
that the Company will not grant any registration rights to any other person
without the written consent of the holders of 66 2/3% of the Restricted Stock
then outstanding.
WHEREAS, the parties now desire to amend the Registration Rights
Agreement to grant registration rights to Lauren Melkus and Kyle Callahan.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. The Agreement be and hereby is amended effective as of the
date hereof to include Kyle Callahan and Lauren Melkus as
holders of Restricted Stock, and the shares of the Company's
common capital stock $.01 par value issued to Lauren Melkus
and Kyle Callahan shall be "Restricted Stock" as defined in
the Registration Rights Agreement.
2. This Amendment may be executed in multiple counterparts, all
of which shall be deemed to be an original and to constitute
one and the same document.
3. Lauren Melkus and Kyle Callahan by execution of this Amendment
acknowledge that they are parties to the Agreement and agree
to abide by and be bound by the terms thereof.
Executed this day of , 1997.
----- ------------
NOVA HOLDINGS, INC.
By: /s/ Nova Holdings, Inc.
----------------------------------
<PAGE>
/s/ WCAS Healthcare Partners, L.P.
-------------------------------------
WCAS HEALTHCARE PARTNERS, L.P.
By:
-----------------------------
Title:
--------------------------
/s/ Welsh, Carson, Anderson & Stone, VII, L.P.
-------------------------------------
WELSH, CARSON, ANDERSON & STOWE, VII,
L.P.
By:
-----------------------------
Title:
--------------------------
/s/ Kyle Callahan
-------------------------------------
KYLE CALLAHAN
/s/ Lauren Melkus
-------------------------------------
LAUREN MELKUS
<PAGE>
Exhibit 10.12
AMENDMENT NUMBER TWO TO REGISTRATION RIGHTS AGREEMENT
This Amendment Number Two is made to the Registration Rights Agreement
entered into on May 31, 1996 by and between Nova Holdings, Inc. ("Company"), and
those persons named at the foot thereof (and amended by Amendment Number One to
include Lauren Melkus and Kyle Callahan) ("Agreement").
WHEREAS, Section 13(d) in the Agreement provides that the Agreement may
not be modified or amended except in writing signed by the Company and the
holders of not less than 66 2/3% of the Restricted Stock then outstanding, and
that the Company will not grant any registration rights to any other person
without the written consent of the holders of 66 2/3% of the Restricted Stock
then outstanding.
WHEREAS, the parties now desire to amend the Registration Rights
Agreement to grant registration rights to Ken Masterson.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. The Agreement be and hereby is amended effective as of the
date hereof to include Ken Masterson as a holder of Restricted
Stock, and the shares of the Company's common capital stock
$.01 par value issued to Ken Masterson shall be "Restricted
Stock" as defined in the Registration Rights Agreement.
2. This Amendment may be executed in multiple counterparts, all
of which shall be deemed to be an original and to constitute
one and the same document.
3. Ken Masterson by execution of this Amendment acknowledges that
he is a party to the Agreement and agrees to abide by and be
bound by the terms thereof.
Executed this 24th day of July, 1998.
NOVA HOLDINGS, INC.
By: /s/ Nova Holdings, Inc.
-----------------------------------------
--------------------------------------------
WCAS HEALTHCARE PARTNERS, L.P.
By: /s/ WCAS Healthcare Partners, L.P.
-----------------------------------------
Title:
--------------------------------------
<PAGE>
/s/ Welsh, Carson, Anderson & Stowe, VII
--------------------------------------------
WELSH, CARSON, ANDERSON & STOWE, VII,
L.P.
By:
-----------------------------------------
Title:
--------------------------------------
/s/ Ken Masterson
--------------------------------------------
KEN MASTERSON
<PAGE>
Exhibit 10.13
- -------------------------------------------------------------------------------
SUBSCRIPTION AND EXCHANGE AGREEMENT
among
NOVA HOLDINGS, INC.,
THE SEVERAL PURCHASERS NAMED
IN SCHEDULE I HERETO
and
THE SEVERAL EXCHANGING SHAREHOLDERS
NAMED IN SCHEDULE II HERETO
Dated as of May 31, 1996
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
I. PURCHASE, SALE AND EXCHANGE OF SECURITIES.......................................................... 2
SECTION 1.01 Issuance, Sale or Exchange and Delivery of Shares........................ 2
SECTION 1.02 Additional Agreement..................................................... 3
II. THE CLOSING........................................................................................ 4
III. REPRESENTATIONS AND WARRANTIES OF COMPANY.......................................................... 4
SECTION 3.01 Organization, Power, Etc................................................. 4
SECTION 3.02 Authorization of Agreements, Etc......................................... 4
SECTION 3.03 Validity................................................................. 5
SECTION 3.04 Authorized Capital Stock................................................. 5
SECTION 3.05 Governmental Approvals................................................... 5
SECTION 3.06 Activities................................................................ 6
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASERS
AND EXCHANGING SHAREHOLDERS........................................................................ 6
SECTION 4.01 Organization, Power, Etc................................................. 6
SECTION 4.02 Authorization of Agreements, Etc......................................... 6
SECTION 4.03 Validity................................................................. 7
SECTION 4.04 Government Approvals..................................................... 7
SECTION 4.05 Investment............................................................... 7
V. COVENANTS.......................................................................................... 8
SECTION 5.01 Certain Covenants of Company............................................. 8
SECTION 5.02 Financial Statements, Reports, Etc....................................... 8
SECTION 5.03 Tax Treatment of Transaction............................................. 10
VI. CONDITIONS PRECEDENT............................................................................... 10
SECTION 6.01 Conditions Precedent to Obligations of Purchasers........................ 10
SECTION 6.02 Conditions Precedent to Obligations of Company........................... 12
VII. MISCELLANEOUS...................................................................................... 13
SECTION 7.01 Expenses, Etc............................................................ 13
SECTION 7.02 Survival of Agreements................................................... 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 7.03 Parties in Interest...................................................... 14
SECTION 7.04 Notices.................................................................. 14
SECTION 7.05 Entire Agreement; Modifications.......................................... 14
SECTION 7.06 Counterparts............................................................. 15
SECTION 7.07 Governing Law............................................................ 15
SECTION 7.08 Notice for Pennsylvania Residents........................................ 15
</TABLE>
<TABLE>
<CAPTION>
Exhibits Description
- -------- -----------
<S> <C>
A Form of Registration Rights Agreement
Schedules Description
- --------- -----------
I Purchasers
II Exchanging Shareholders
</TABLE>
ii
<PAGE>
ATTENTION: PENNSYLVANIA RESIDENTS
OFFERS TO PURCHASE THE SECURITIES ISSUED HEREUNDER THAT ARE
MADE TO PENNSYLVANIA RESIDENTS WILL BE MADE ONLY TO PENNSYLVANIA RESIDENTS WHO
ARE ACCREDITED INVESTORS AS DEFINED IN REGULATION D UNDER THE SECURITIES ACT OF
1933.
EACH PENNSYLVANIA RESIDENT WHO PURCHASES ANY OF THE SECURITIES
ISSUED HEREUNDER HEREBY AGREES NOT TO SELL THE SECURITIES PURCHASED FOR A PERIOD
OF TWELVE MONTHS FROM THE DATE OF PURCHASE UNLESS THE PURCHASER'S SECURITIES ARE
SUBSEQUENTLY REGISTERED UNDER THE PENNSYLVANIA SECURITIES ACT OF 1972 OR UNDER
THE SECURITIES ACT OF 1933, OR OTHERWISE IN ACCORDANCE WITH REGULATION 204.011
OF THE PENNSYLVANIA CODE.
PURSUANT TO SECTION 207(M) OF THE PENNSYLVANIA SECURITIES ACT
OF 1972, EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED FROM
REGISTRATION BY SECTION 203(D) OF THE PENNSYLVANIA SECURITIES ACT OF 1972
DIRECTLY FROM AN ISSUER OR AN AFFILIATE OF AN ISSUER SHALL HAVE THE RIGHT TO
WITHDRAW HIS OR HER ACCEPTANCE, WITHOUT INCURRING ANY LIABILITY TO THE SELLER,
UNDERWRITER (IF ANY) OR ANY OTHER PERSON, WITHIN TWO BUSINESS DAYS FROM THE DATE
OF RECEIPT BY THE ISSUER OF HIS OR HER WRITTEN BINDING CONTRACT OF PURCHASE OR,
IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT OF
PURCHASE, WITHIN TWO BUSINESS DAYS AFTER HE OR SHE MAKES THE INITIAL PAYMENT FOR
THE SECURITIES BEING OFFERED. TO ACCOMPLISH THIS WITHDRAWAL, THE PURCHASER NEED
ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY C/O WELSH, CARSON, ANDERSON &
STOWE, ONE WORLD FINANCIAL CENTER, SUITE 3601, NEW YORK, NEW YORK 10281,
ATTENTION: ANDREW M. PAUL INDICATING HIS OR HER INTENTION TO WITHDRAW. SUCH
LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE
AFOREMENTIONED SECOND BUSINESS DAY. IF THE PURCHASER IS SENDING A LETTER, IT IS
PRUDENT TO SEND IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT
IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED. SHOULD THE
PURCHASER MAKE THE REQUEST ORALLY (EITHER IN PERSON OR BY TELEPHONE TO THE
COMPANY AT 212-945-2012), THE PURCHASER SHOULD ASK FOR WRITTEN CONFIRMATION THAT
SUCH REQUEST HAS BEEN RECEIVED.
iii
<PAGE>
SUBSCRIPTION AND EXCHANGE AGREEMENT
SUBSCRIPTION AND EXCHANGE AGREEMENT dated as of May 31, 1996
among NOVA HOLDINGS, INC., a Delaware corporation (the "Company"), WELSH,
CARSON, ANDERSON & STOWE VII, L.P., a Delaware limited partnership ("WCAS VII"),
the other several purchasers named in Schedule I hereto (WCAS VII and such other
purchasers being sometimes hereinafter referred to individually as a "Purchaser"
and collectively as the "Purchasers") and the several individuals named in
Schedule II hereto (individually an "Exchanging Shareholder" and collectively,
the "Exchanging Shareholders");
WHEREAS, Le Bonheur Health Systems, Inc., a Tennessee
nonprofit corporation ("LHS"), the Exchanging Shareholders and certain other
individuals collectively own all of the issued and outstanding shares of capital
stock of Southern Health Systems, Inc. a Tennessee corporation ("SHS");
WHEREAS, pursuant to a Stock Purchase Agreement (the "Stock
Purchase Agreement") dated as of the date hereof among LHS, SHS, the Company and
WCAS VII, the Company has agreed to purchase, and LHS has agreed to sell, all of
the shares of capital stock of SHS owned by LHS for cash on the terms and
subject to the conditions set forth therein;
WHEREAS, on the Closing Date (as hereinafter defined) and in
order to obtain the funds necessary to make the purchase from LHS described
above, the Company wishes to sell to the Purchasers, and the Purchasers wish to
purchase from the Company, the shares of capital stock of the Company described
below on the terms and conditions hereinafter set forth;
WHEREAS, the Exchanging Shareholders wish to transfer to the
Company on the Closing Date all the shares of capital stock of SHS owned by them
in exchange for shares of capital stock of the Company as provided below on the
terms and conditions hereinafter set forth; and
WHEREAS, in a single overall plan and transaction, the parties
contemplate that:
(a) the Purchasers will, severally and not jointly, on the
terms and conditions and in the respective proportions for each
Purchaser hereinafter set forth, (i) purchase from the Company for an
aggregate price of $15,000,000, such price being subject to adjustment
as hereinafter provided, an aggregate 5,000,000 shares of Common Stock
(the "Pur-
<PAGE>
chaser Common Shares"), par value $0.01 per share, of the Company
("Common Stock") and (ii) purchase from the Company for an
aggregate price of $25,000,000, such price being subject to adjustment
as hereinafter provided, an aggregate 250,000 shares of Series A
Cumulative Preferred Stock (the "Purchaser Preferred Shares"), par
value $1.00 per share, of the Company ("Preferred Stock") (the
Purchaser Common Shares and the Purchaser Preferred Shares are
hereinafter sometimes referred to collectively as the "Purchaser
Shares"), and
(b) each Exchanging Shareholder will transfer to the Company
all shares of Class B Common Stock, par value $.01 per share ("Class B
Stock"), of SHS owned by him (such Exchanging Shareholder's "Class B
Shares"), and in exchange for the Class B Shares so transferred the
Company will, on the terms and conditions hereinafter set forth, issue
and deliver to such Exchanging Shareholder shares of Common Stock and
shares of Preferred Stock as hereinafter provided (collectively, the
"Exchange Shares"; the Purchaser Shares and the Exchange Shares are
hereinafter sometimes referred to collectively as the "Shares");
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
I.
PURCHASE, SALE AND EXCHANGE OF SECURITIES
SECTION 1.01 Issuance, Sale or Exchange and Delivery of
Shares. On the Closing Date, subject to the terms and conditions hereinafter set
forth, the following transactions shall occur:
(a) The Company shall issue and sell to each Purchaser, and
each Purchaser shall purchase from the Company, (i) the number of
shares of Common Stock set forth opposite the name of such Purchaser in
Schedule I hereto under the heading "Common Shares" at a price of $3.00
per share (the "Common Share Price"), such price being subject to
increase or decrease as provided in Section 1.02, and (ii) the number
of shares of Preferred Stock set forth opposite the name of such
Purchaser in Schedule I hereto under the heading "Preferred Shares" at
a price of $100.00 per share (the "Preferred Share Price"). The Company
will issue to each Purchaser certificates in definitive form,
registered in the name of such Purchaser, evidencing the number of
Purchaser Shares so issued and sold to such Purchaser hereunder. As
payment in full for such Purchaser Shares, each Purchaser
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shall pay to the Company, by certified or official bank check in New
York Clearing House funds payable to the order of the Company, the
amount of the purchase price for such Purchaser Shares or, if
requested by the Company, shall transfer such amount by wire transfer
to a bank account of the Company designated by it.
(b) Each Exchanging Shareholder shall transfer to the Company
the number of Class B Shares set forth opposite the name of such
Exchanging Shareholder in Schedule II hereto under the heading "Number
of Class B Shares" and, in exchange for such Class B Shares transferred
to the Company by such Exchanging Shareholder, the Company shall issue
and deliver to such Exchanging Shareholder the number of shares of
Common Stock and the number of shares of Preferred Stock set forth
opposite the name of such Exchanging Shareholder in Schedule II hereto
under the headings "Number of Common Shares" and "Number of Preferred
Shares", respectively. No fractional shares of Common Stock or
Preferred Stock will be issued, and the Company will pay to each
Exchanging Shareholder, as promptly as practical after the Closing
Date, cash equal to the value of any fractional share of Common Stock
or Preferred Stock which would be delivered to such Exchanging
Shareholder but for this sentence, the amount thereof to be as set
forth opposite the name of such Exchanging Shareholder in Schedule II
hereto under the heading "Cash in Lieu of Fractional Shares". The
Company shall, against delivery of a certificate for the number of
Class B Shares to be transferred to it as provided above by an
Exchanging Shareholder registered in the Company's name, deliver to
such Exchanging Shareholder certificates in definitive form and
registered in the name of such Exchanging Shareholder, evidencing the
number of Exchange Shares to be so issued to such Exchanging
Shareholder.
Each party hereto agrees that the transactions set forth above constitute part
of a single overall plan, and, accordingly, understands that unless all such
transactions are consummated on the Closing Date, none of them is required to be
consummated.
SECTION 1.02 Additional Agreement. On the Closing Date,
concurrently with the issuance and delivery of the Purchaser Shares and Exchange
Shares hereunder, the Company, the Purchasers and the Exchanging Shareholders
shall execute and deliver a Registration Rights Agreement in the form of Exhibit
A hereto (the "Registration Rights Agreement").
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II.
THE CLOSING
The closing of the transactions described in Section 1.01
shall take place at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol,
45 Rockefeller Plaza, New York, New York 10111 concurrently with the
consummation of the transactions described in Section 1.01 of the Stock Purchase
Agreement (such date and time of closing being herein called the "Closing
Date").
III.
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to each Purchaser and
Exchanging Shareholder as follows:
SECTION 3.01 Organization, Power, Etc. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to execute and deliver this Agreement, the Registration Rights Agreement, the
Stock Purchase Agreement and the Additional Agreements (as defined in the Stock
Purchase Agreement) to which the Company is to be a party (collectively the
"Agreements"), to perform its obligations hereunder and thereunder, and to
issue, sell or exchange and deliver the Purchaser Shares and the Exchange
Shares.
SECTION 3.02 Authorization of Agreements, Etc. (a) The Company
has duly approved the Agreements and has duly authorized the execution and
delivery of the Agreements, and the consummation of the transactions
contemplated thereby. Neither the execution and delivery by the Company of the
Agreements, nor the consummation of the transactions contemplated thereby, will
violate any provision of law, any order of any court or other agency of
government, the Certificate of Incorporation (as amended by the Amendment
hereinafter referred to) or By-laws of the Company, or any judgment, award or
decree or any indenture, agreement or other instrument to which the Company is a
party, or by which it or any of its properties or assets is bound or affected,
or result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of the Company.
(b) Upon the filing of the Amendment to Certificate of
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Incorporation attached hereto as Exhibit B (the "Amendment") with the Secretary
of State of the State of Delaware, the Purchaser Shares and the Exchange Shares
will have been duly authorized by the Company and, when issued and paid for in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable shares of Common Stock and Preferred Stock. None of the issuance,
sale and delivery hereunder of the Purchaser Shares or the Exchange Shares is or
will be subject to any preemptive rights of stockholders of the Company or to
any right of first refusal or other similar right in favor of any person.
SECTION 3.03 Validity. This Agreement has been duly executed
and delivered by the Company, and, subject to due execution by the other parties
thereto, constitutes, and each of the other Agreements, when executed and
delivered by the Company as contemplated hereby and by the Stock Purchase
Agreement and subject to due execution by the other parties thereto, will
constitute, legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, except as
enforceability may be limited by bankruptcy or other laws affecting creditor's
rights generally and limitations on the availability of equitable remedies and
except as rights to indemnity may be limited by public policy or by law.
SECTION 3.04 Authorized Capital Stock. (a) As of the date
hereof, no shares of Common Stock or Preferred Stock have ever been issued. The
authorized capital stock of the Company consists of 7,000,000 shares of Common
Stock and 300,000 shares of Preferred Stock. After giving effect to the
issuances of the Purchaser Shares and the Exchange Shares pursuant to Sections
1.01(a) and (b) hereof, no shares of capital stock of the Company will be issued
and outstanding, other than the Purchaser Shares and the Exchange Shares.
(b) Except as provided in this Agreement or in any of the
other Agreements, (i) no subscription, warrant, option, convertible security or
other right (contingent or other) to purchase or acquire any shares of the
capital stock of the Company is authorized or outstanding and (ii) there is not
any commitment of the Company to issue any shares, warrants, options or other
such rights or to distribute to holders of the Company's capital stock, any
evidences of indebtedness or assets, it being understood that the Company may in
the future establish stock options plans and grant stock options to employees.
Except as provided in this Agreement or in accordance with the terms of the
Amendment, the Company has no obligation (contingent or other) to purchase,
redeem or otherwise acquire any shares of its capital stock or any interest
therein or to pay any dividend or make any other distribution in respect
thereof.
SECTION 3.05 Governmental Approvals. No order,
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authorization, approval or consent from, or filing with, any federal or state
governmental or public body or other authority having jurisdiction over the
Company not already obtained or made is required to be made or obtained by the
Company for the execution, delivery and performance of the Agreements or is
necessary in order to ensure the legality, validity, binding effect or
enforceability of the Agreements.
SECTION 3.06 Activities. Since its formation, the Company has
engaged in no activities and has incurred no obligations or liabilities, except
those incident to its formation and the consummation of the transactions
contemplated hereby and by the Stock Purchase Agreement.
IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
AND EXCHANGING SHAREHOLDERS
Each Purchaser and each Exchanging Shareholder (solely for
purposes of this Article IV, each such Purchaser or Exchanging Shareholder, as
the case may be, is referred to as an "Acquiror"), severally and not jointly,
represents and warrants to the Company, solely with respect to itself or
himself, as the case may be, as follows:
SECTION 4.01 Organization, Power, Etc. Such Acquiror, if
not a natural person, is a partnership or a corporation or trust duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation. Such Acquiror has individual, partnership or
corporate power and authority to execute and deliver this Agreement and the
Registration Rights Agreement, and to perform its obligations hereunder and
thereunder.
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SECTION 4.02 Authorization of Agreements, Etc. The execution,
delivery and performance by such Acquiror of this Agreement and the Registration
Rights Agreement and the purchase or exchange, as the case may be, and receipt
by such Acquiror of the Shares being acquired by such Acquiror hereunder, as the
case may be, have been duly authorized by all requisite action on the part of
such Acquiror, and will not violate any provision of law, any order of any court
or other agency of government applicable to such Acquiror, the governing
instrument of such Acquiror, or any provision of any indenture, agreement or
other instrument by which such Acquiror or any of such Acquiror's properties or
assets are bound, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of such Acquiror.
SECTION 4.03 Validity. This Agreement has been duly executed
and delivered by such Acquiror and constitutes the legal, valid and binding
obligation of such Acquiror, enforceable against such Acquiror in accordance
with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws from time to
time in effect affecting the enforcement of creditors' rights generally and to
general equity principles. The Registration Rights Agreement, when executed and
delivered in accordance with this Agreement, will constitute the legal, valid
and binding obligation of such Acquiror, enforceable in accordance with its
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws from time to time in
effect affecting the enforcement of creditors' rights generally and to general
equity principles.
SECTION 4.04 Governmental Approvals. No order, authorization,
approval or consent from, or filing with, any federal or state governmental or
public body or other authority having jurisdiction over such Acquiror not
already obtained or made is required for the execution, delivery and performance
of this Agreement or the Registration Rights Agreement or is necessary in order
to ensure the legality, validity, binding effect or enforceability of this
Agreement or the Registration Rights Agreement.
SECTION 4.05 Investment. Such Acquiror understands that the
Acquiror Shares being acquired by such Acquiror have not been, and are not
proposed to be, registered under the Securities Act of 1933, as amended (the
"Securities Act") or any state securities laws, and are being offered and sold
in reliance upon United States federal and state exemptions for transactions not
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involving any public offering. Such Acquiror acknowledges that it is acquiring
its Acquiror Shares for investment purposes and not with a view to, or intention
to effect, the distribution thereof in violation of the Securities Act, and that
such Acquiror Shares may not be disposed of in contravention of the Securities
Act. Such Acquiror represents that it is a sophisticated investor with knowledge
and experience in business and financial matters, is able to evaluate the risks
and benefits of the investment in its Acquiror Shares, has received certain
information concerning the Company and has had the opportunity to obtain
additional information as desired in order to evaluate the merits of and the
risks inherent in acquiring such Acquiror Shares. Each Purchaser represents that
it is an "accredited investor" as defined in Regulation D promulgated pursuant
to the Securities Act.
V.
COVENANTS
SECTION 5.01 Certain Covenants of Company. The Company shall
not waive, without the prior written consent of WCAS VII, any conditions
precedent to its obligation to consummate the transactions contemplated by the
Stock Purchase Agreement. The Company further acknowledges and agrees that WCAS
VII has the unrestricted right to take unilateral action under the Stock
Purchase Agreement, including, among other things, the termination of the Stock
Purchase Agreement if the Closing Date has not occurred on or before June 14,
1996.
SECTION 5.02 Financial Statements, Reports, Etc. Except as set
forth below, so long as any Purchaser shall hold not less than 25% of Purchaser
Shares issued to such Purchaser under this Agreement, the Company shall furnish
to such Purchaser:
(a) as soon as practicable and, in any case, within
ninety-five (95) days after the end of each fiscal year, consolidated
and consolidating financial statements of the Company, consisting of
the balance sheet of the Company as of the end of such fiscal year and
the statements of operations, changes in shareholders' equity and cash
flows of the Company for such fiscal year, setting forth in each case,
in comparative form, the figures for the preceding fiscal year, all in
reasonable detail and fairly presented in accordance with generally
accepted accounting principles applied on a consistent basis throughout
the periods reflected therein, except as stated therein, and
accompanied by an opinion thereon of independent certified public
accountants selected by the Company of good and recognized national
standing in
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the United States and reasonably acceptable to the Purchasers holding
a majority of the Purchaser Shares issued under this Agreement, which
opinion shall provide that (1) the audit of such financial statements
has been conducted in accordance with generally accepted auditing
standards and, accordingly, included examining, on a test basis,
evidence supporting amounts and disclosures in the financial
statements and (2) such financial statements present fairly, in all
material respects, the financial position of the Company and its
subsidiaries taken as a whole at such date and the results of
operations and cash flows thereof for such period and have been
prepared in conformity with generally accepted accounting principles
and subject to qualifications noted therein;
(b) as soon as practicable and, in any case, within fifty (50)
days after the end of each of the first three fiscal quarters in each
fiscal year, unaudited consolidated and consolidating financial
statements of the Company setting forth the balance sheet of the
Company at the end of each such fiscal quarter and the statements of
operations, shareholders' equity and changes in cash flows of the
Company for each such fiscal quarter and for the year to date, and
setting forth in comparative form figures as of the corresponding date
and for the corresponding periods of the preceding fiscal year, all in
reasonable detail and certified by the principal financial officer of
the Company as complete and correct, as having been prepared in
accordance with generally accepted accounting principles consistently
applied (except as otherwise disclosed therein) and as presenting
fairly, in all material respects, the financial position of the Company
and its subsidiaries and results of operations, shareholders' equity
and cash flows thereof subject, in each case, to changes resulting from
normal year-end adjustments consisting only of normal recurring
accruals and to the absence of footnotes;
(c) as soon as available, but in any event within thirty (30)
days after the end of each calendar month, copies of the unaudited
consolidated and consolidating balance sheet of the Company as at the
end of such calendar month and the related unaudited consolidated and
consolidating statements of operations, shareholders' equity and cash
flows for such calendar month and the portion of the calendar year
through such calendar year, in each case setting forth in comparative
form the figures for the corresponding periods of the previous calendar
year, prepared in reasonable detail and in accordance with generally
accepted accounting principles applied consistently throughout the
periods reflected therein (except as otherwise disclosed therein) and
certified by the principal financial officer of
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the Company as presenting fairly the financial condition and results
of operations of the Company and its subsidiaries (subject to normal
year-end adjustments consisting only of normal recurring accruals and
to the absence of footnotes);
(d) within 30 days after the beginning of each fiscal year of
the Company (and with respect to any revision thereof, promptly after
such revision has been prepared), a proposed annual operating budget
for the Company and its subsidiaries, including projected monthly
consolidated and consolidating income and cash flow statements during
such fiscal year and projected consolidating balance sheets as of the
end of each fiscal quarter and as of the end of such fiscal year, and
each monthly financial statement furnished pursuant to (c) above shall
reflect variances from such operating budget, as the same may from time
to time be revised; and
(e) promptly after filing, copies of all registration
statements, prospectuses, periodic reports and other documents filed by
the Company or any of its subsidiaries with the Commission.
The obligations of the Company under paragraphs (c), (d) and (e) above, and
under paragraphs (a) and (b) above as to consolidating financial statements,
shall cease at such time as the Company shall have completed an Initial Public
Offering. For purposes hereof, the term "Initial Public Offering" means a firm
commitment underwritten public offering of Common Stock registered under the
Securities Act of 1933, as amended (the "Securities Act"), resulting in proceeds
to the Company of not less than $15,000,000, after deduction of underwriting
discounts and commissions but before deduction of other expenses of issuance.
SECTION 5.03 Tax Treatment of Transaction. Each of the parties
hereto shall, for all tax purposes, treat the transactions effected pursuant to
paragraphs (a) and (b) of Section 1.01 as collectively constituting a
transaction under Section 351 of the Internal Revenue Code of 1986, as amended
(the "Code"), in which the Purchasers and the Exchanging Shareholders
(collectively, the "Transferors") transfer property to the Company in exchange
for shares of Common Stock, and immediately after the exchange the Transferors
are in control (as defined in Section 368(c) of the Code) of the Company. It is
understood and agreed that none of the Company, any Purchaser or any of their
respective affiliates is making any representation or warranty as to whether or
not the transactions described in paragraphs (a) and (b) of Section 1.01 will
collectively constitute a transaction in which the Exchanging Shareholders will
not recognize gain or loss under Section 351 of the Code.
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VI.
CONDITIONS PRECEDENT
SECTION 6.01 Conditions Precedent to Obligations of
Purchasers. The obligations of each Purchaser hereunder are, at its option,
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) Representations and Warranties to Be True and Correct. The
representations and warranties of the Company contained in this Agreement shall
be true and correct in all material respects on the Closing Date, with the same
force and effect as though such representations and warranties had been made on
and as of such date, and the Company shall have certified to such effect to the
Purchasers in writing.
(b) Performance. The Company shall have performed and complied
with all agreements and conditions contained herein and in the Stock Purchase
Agreement required to be performed or complied with by it prior to or on the
Closing Date, and the Company shall have certified to such effect to the
Purchasers in writing.
(c) All Proceedings to Be Satisfactory. All corporate and
other proceedings to be taken by the Company and all waivers and consents to be
obtained by the Company in connection with the transactions contemplated hereby
shall have been taken or obtained by the Company and all documents incident
thereto shall be satisfactory in form and substance to the Purchasers and their
counsel.
(d) Registration Rights and Other Agreements. The Company
shall have executed and delivered the Registration Rights Agreement and other
Agreements to which the Company is a party.
(e) Opinion of Counsel for Company and Purchasers. The
Purchasers shall have received the opinion of Reboul, MacMurray, Hewitt, Maynard
& Kristol, counsel to the Company and the Purchasers, addressed to the
Purchasers and dated the Closing Date, satisfactory in form and substance to the
Purchasers and covering such matters as the Purchasers shall reasonably request.
(f) Supporting Documents. The Purchasers shall have received
copies of the following supporting documents:
(i) (1) copies of the Certificate of Incorporation of the
Company, and all amendments thereto, certified as of a recent date by
the Secretary of State of the State of Delaware, (2) a certificate of
said Secretary dated as of a
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recent date as to the due incorporation and good standing of the
Company and listing all documents of the Company on file with said
Secretary and (3) a telegram or facsimile from said Secretary as of
the close of business on the next business day preceding the Closing
Date as to the continued due incorporation and good standing of the
Company and to the effect that no amendment to its Certificate of
Incorporation (other than the Amendment) has been filed since the
date of the certificate referred to in clause (2) above;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated the Closing Date and certifying (1) that attached
thereto are true and complete copies of the By-laws of the Company as
in effect on the date of such certification and of the Amendment as
filed with the Secretary of State of the State of Delaware; (2) that
attached thereto is a true and complete copy of resolutions adopted by
the Board of Directors of the Company authorizing the execution,
delivery and performance of this Agreement and the Registration Rights
Agreement, the issuance, sale and delivery of the Purchaser Shares, and
the issuance, exchange and delivery of the Exchange Shares and that all
such resolutions are still in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement and the Registration Rights Agreement; (3) that the
Certificate of Incorporation of the Company has not been amended
(except by filing of the Amendment) since the date of the last
amendment referred to in the certificate delivered pursuant to clause
(i)(2) above; and (4) as to the incumbency and specimen signature of
each officer of the Company executing this Agreement and the
Registration Rights Agreement, the stock certificates representing the
Shares and any certificate or instrument furnished pursuant hereto, and
a certification by another officer of the Company as to the incumbency
and signature of the officer signing the certificate referred to in
this paragraph (ii); and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the
Purchasers or their counsel may reasonably request.
(g) Closing under Stock Purchase Agreement. All conditions
precedent to the Company's obligations to close under the Stock Purchase
Agreement shall have been met (or waived in accordance with the provisions
hereof and of the Stock Purchase Agreement) and such closing shall occur
concurrently with the closing hereunder.
Each Exchanging Shareholder shall be obligated to close
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hereunder if the Purchasers are so obligated or otherwise elect to close.
SECTION 6.02 Conditions Precedent to Obligations of Company.
The obligations of the Company hereunder are, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) Representations and Warranties to Be True and Correct. The
representations and warranties of each Purchaser and each Exchanging Shareholder
contained in this Agreement shall be true and correct in all material respects
on the Closing Date, with the same effect as though such representations and
warranties had been made on and as of such date.
(b) Performance. WCAS VII and each Exchanging Shareholder
shall have performed and complied with all agreements and conditions contained
herein required to be performed or complied with by it prior to or on the
Closing Date.
(c) All Proceedings to Be Satisfactory. All proceedings to be
taken by any Purchaser and any Exchanging Shareholder and all waivers and
consents to be obtained by any Purchaser or any Exchanging Shareholder in
connection with the transactions contemplated hereby shall have been taken or
obtained by such Purchaser or Exchanging Shareholder and all documents incident
thereto shall be satisfactory in form and substance to the Company and its
counsel.
(d) Closing under Stock Purchase Agreement. All conditions
precedent to the Company's obligation to close under the Stock Purchase
Agreement shall have been met (or waived in accordance with the provisions
hereof and of the Stock Purchase Agreement) and such closing shall occur
concurrently with the closing hereunder.
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VII.
MISCELLANEOUS
SECTION 7.01 Expenses, Etc. (a) Each party hereto will pay its
own expenses in connection with the transactions contemplated by this Agreement,
whether or not such transactions shall be consummated; provided, however, that
the Company shall pay the reasonable fees and disbursements of Reboul,
MacMurray, Hewitt, Maynard & Kristol. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, made as a result of any agreements, arrangements or understandings made
or claimed to have been made by such party with any third party.
(b) The Company covenants and agrees that, if in the future
any Purchaser is required to make any filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, in connection with any
transaction to which the Company is hereafter a party, the Company will pay the
reasonable fees and expenses of such Purchaser's counsel in preparing such
filing, together with all filing fees.
SECTION 7.02 Survival of Agreements. All covenants,
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the issuance, sale and delivery of
the Shares pursuant hereto and all statements contained in any certificate or
other instrument delivered by the Company hereunder shall be deemed to
constitute representations and warranties made by the Company.
SECTION 7.03 Parties in Interest. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not. The Purchasers hereby agree for the
express benefit of LHS that if the conditions precedent to the obligations of
the Company set forth in the Stock Purchase Agreement are satisfied on and as of
the Closing Date, the Purchasers will consummate the transactions contemplated
by this Agreement.
SECTION 7.04 Notices. Any notice or other communications
required or permitted hereunder shall be deemed to be sufficient if contained in
a written instrument delivered in person or duly sent by first class certified
mail, postage prepaid, or by facsimile addressed to such party at the address or
facsimile number set forth below:
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if to the Company, to:
Nova Holdings, Inc.
c/o Welsh, Carson, Anderson & Stowe
One World Financial Center
Suite 3601
New York, New York 10281
Facsimile Number: (212) 945-2016
Attention: Andrew M. Paul
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Facsimile Number: (212) 841-5725
Attention: William J. Hewitt, Esq.
if to any Purchaser or Exchanging Shareholder, to the address
of such Purchaser or Exchanging Shareholder appearing on
Schedule I or Schedule II hereto, as the case may be;
or, in any case, at such other address or addresses or facsimile number as shall
have been furnished in writing by such party to the other parties hereto. All
such notices, requests, consents and other communications shall be deemed to
have been received (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of mailing, on the fifth business day following the
date of such mailing and (c) in the case of facsimile, when received.
SECTION 7.05 Entire Agreement; Modifications. This Agreement,
and the other agreements referred to herein, constitutes the entire agreement of
the parties with respect to the subject matter hereof and may not be amended or
modified nor any provisions waived except in a writing signed by the Company and
WCAS VII.
SECTION 7.06 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 instrument.
SECTION 7.07 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 7.08 Notice for Pennsylvania Residents. OFFERS TO
PURCHASE THE SECURITIES ISSUED HEREUNDER THAT ARE MADE
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TO PENNSYLVANIA RESIDENTS WILL BE MADE ONLY TO PENNSYLVANIA RESIDENTS WHO ARE
ACCREDITED INVESTORS AS DEFINED IN REGULATION D UNDER THE SECURITIES ACT OF
1933.
EACH PENNSYLVANIA RESIDENT WHO PURCHASES ANY OF THE SECURITIES
ISSUED HEREUNDER HEREBY AGREES NOT TO SELL THE SECURITIES PURCHASED FOR A PERIOD
OF TWELVE MONTHS FROM THE DATE OF PURCHASE UNLESS THE PURCHASER'S SECURITIES ARE
SUBSEQUENTLY REGISTERED UNDER THE PENNSYLVANIA SECURITIES ACT OF 1972 OR UNDER
THE SECURITIES ACT OF 1933, OR OTHERWISE IN ACCORDANCE WITH REGULATION 204.011
OF THE PENNSYLVANIA CODE.
PURSUANT TO SECTION 207(M) OF THE PENNSYLVANIA SECURITIES ACT
OF 1972, EACH PERSON WHO ACCEPTS AN OFFER TO PURCHASE SECURITIES EXEMPTED FROM
REGISTRATION BY SECTION 203(D) OF THE PENNSYLVANIA SECURITIES ACT OF 1972
DIRECTLY FROM AN ISSUER OR AN AFFILIATE OF AN ISSUER SHALL HAVE THE RIGHT TO
WITHDRAW HIS OR HER ACCEPTANCE, WITHOUT INCURRING ANY LIABILITY TO THE SELLER,
UNDERWRITER (IF ANY) OR ANY OTHER PERSON, WITHIN TWO BUSINESS DAYS FROM THE DATE
OF RECEIPT BY THE ISSUER OF HIS OR HER WRITTEN BINDING CONTRACT OF PURCHASE OR,
IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO WRITTEN BINDING CONTRACT OF
PURCHASE, WITHIN TWO BUSINESS DAYS AFTER HE OR SHE MAKES THE INITIAL PAYMENT FOR
THE SECURITIES BEING OFFERED. TO ACCOMPLISH THIS WITHDRAWAL, THE PURCHASER NEED
ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT THE ADDRESS SET FORTH IN
SECTION 7.04 ABOVE INDICATING HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR
TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED
SECOND BUSINESS DAY. IF THE PURCHASER IS SENDING A LETTER, IT IS PRUDENT TO SEND
IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED
AND ALSO TO EVIDENCE THE TIME WHEN IT WAS MAILED. SHOULD THE PURCHASER MAKE THE
REQUEST ORALLY (EITHER IN PERSON OR BY TELEPHONE TO THE COMPANY AT
212-945-2012), THE PURCHASER SHOULD ASK FOR WRITTEN CONFIRMATION THAT SUCH
REQUEST HAS BEEN RECEIVED.
16
<PAGE>
IN WITNESS WHEREOF, the Company, the Purchasers and the
Exchanging Shareholders have executed this Agreement as of the day and year
first above written.
NOVA HOLDINGS, INC.
By /s/ Nova Holdings, Inc.
---------------------------------
President
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By /s/ WCAS VII Partners, L.P.
---------------------------------
General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HP Partners,
General Partner
By /s/ WCAS HP Partners
---------------------------------
General Partner
*
---------------------------------
Patrick J. Welsh
*
---------------------------------
Russell L. Carson
*
---------------------------------
Bruce K. Anderson
*
---------------------------------
Richard H. Stowe
<PAGE>
*
---------------------------------
Andrew M. Paul
<PAGE>
*
---------------------------------
Thomas E. McInerney
---------------------------------
Laura VanBuren, individually and
as attorney-in-fact*
*
---------------------------------
James B. Hoover
*
---------------------------------
Robert A. Minicucci
*
---------------------------------
Anthony J. de Nicola
*
---------------------------------
Paul B. Queally
HORIZON INVESTMENTS ASSOCIATES I
By /s/ Horizon Investments Associates
-----------------------------------
General Partner
THE SSB FOUNDATION
By /s/ David F. Bellet
------------------------------
David F. Bellet, Trustee
DAVID F. BELLET TRUSTEE PROFIT SHARING PLAN
DLJSC CUSTODIAN FBO DAVID F. BELLET
<PAGE>
By /s/ David F. Bellet
------------------------------
/s/ Richard R. Sweat
------------------------------
Richard R. Sweat
<PAGE>
/s/ Max Aldrich
------------------------------
Max Aldrich
/s/ John R. Grow
------------------------------
John R. Grow
/s/ Rita Holt
------------------------------
Rita Holt
/s/ Joel R. Kimbrough
------------------------------
Joel R. Kimbrough
/s/ Jill Stem
------------------------------
Jill Stem
/s/ David D. Stevens
------------------------------
David D. Stevens
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Purchase
Number of Purchase Number of Price of
Name and Common Price of Preferred Preferred
Address of Purchaser Shares Common Shares Shares Shares
- -------------------- ---------- ------------- ---------- ---------
<S> <C> <C> <C> <C>
WELSH, CARSON, ANDERSON 4,635,670 $13,907,010 231,780 $23,178,000
& STOWE VII, L.P.
One World Financial Center
New York, NY 10281
WCAS HEALTHCARE PARTNERS, L.P. 93,733 281,199 4,688 468,800
One World Financial Center
New York, NY 10281
Patrick J. Welsh 58,133 174,399 2,906 290,600
Russell L. Carson 58,133 174,399 2,906 290,600
Bruce K. Anderson 58,133 174,399 2,906 290,600
Richard H. Stowe 13,133 39,399 656 65,600
Andrew M. Paul 18,733 56,199 938 93,800
Thomas E. McInerney 13,133 39,399 656 65,600
Laura VanBuren 1,867 5,601 94 9,400
James B. Hoover 8,133 24,399 406 40,600
Robert A. Minicucci 8,133 24,399 406 40,600
Anthony J. de Nicola 4,367 13,101 219 21,900
Paul B. Queally 1,233 3,699 63 6,300
In care of WCA Management
Corporation
One World Financial Center
New York, NY 1281
Horizon Investments Associates I 10,633 31,899 531 53,100
c/o Continental Medical Systems, Inc.
600 Wilson Lane
Mechanicsburg, Pennsylvania 17055
The SSB Foundation 1,233 3,699 63 6,300
c/o David F. Bellet
125 E. 72 Street
New York, NY 10021
David F. Bellet Trustee Profit Sharing
Plan DLJSC Custodian FBO
David F. Bellet 9,367 28,101 469 46,900
c/o Donaldson, Lufkin & Jenrette
277 Park Avenue
New York, NY 10172
R. Riley Sweat as Custodian for
R. Riley Sweat, Jr. 3,116 9,348 156 15,600
R. Riley Sweat as Custodian for
Fredrick Watson Sweat 3,117 9,351 157 15,700
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
c/o R. Riley Sweat
Equitable Securities
800 Nashville City Center
Nashville, TN 37219
TOTAL: 5,000,000 $15,000,000 250,000 $25,000,000
--------- ----------- ------- -----------
--------- ----------- ------- -----------
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Number of Number of Number of Cash in Lieu
Name and Address Class B Common Preferred of Fractional
of Exchanging Shareholder Shares Shares Shares Shares
- ------------------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Max Aldrich 1,500 611 30 $57.00
John R. Grow 48,000 19,560 978 0.00
Rita Holt 11,900 4,849 242 47.00
Joel R. Kimbrough 30,000 12,225 611 25.00
Jill Stem 21,800 8,883 444 19.00
David D. Stevens 150,000 61,125 3,056 25.00
In care of Nova Factor, Inc.
1620 Century Center Parkway
Suite 109
Memphis, Tennessee 38134
TOTAL: 263,200 107,253 5,361 $173.00
------- ------- ------ -------
------- ------- ------ -------
</TABLE>
<PAGE>
Exhibit 10.14
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
among
LE BONHEUR HEALTH SYSTEMS, INC.,
SOUTHERN HEALTH SYSTEMS, INC.,
NOVA HOLDINGS, INC.
and
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
Dated as of May 31, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. PURCHASE OF SHS SHARES BY THE COMPANY
FROM LHS; ADJUSTMENT TO PURCHASE PRICE;
CLOSING DATE....................................................................... 2
SECTION 1.01 Purchase and Sale of SHS Shares............................................. 2
SECTION 1.02 Additional Agreements....................................................... 2
SECTION 1.03 Adjustment to Purchase Price................................................ 3
SECTION 1.04 Closing Date................................................................ 4
ARTICLE II. REPRESENTATIONS AND WARRANTIES
OF LHS AND SHS...................................................................... 5
SECTION 2.01 Organization, Qualification and Corporate Power; Subsidiaries................ 5
SECTION 2.02 Authorization of Agreements, Etc............................................. 6
SECTION 2.03 Validity..................................................................... 6
SECTION 2.04 Capitalization; Ownership of Capital Stock.................................. 7
SECTION 2.05 Financial Statements........................................................ 7
SECTION 2.06 Absence of Undisclosed Liabilities.......................................... 8
SECTION 2.07 Absence of Certain Changes or Events........................................ 8
SECTION 2.08 Governmental Approvals...................................................... 10
SECTION 2.09 Title to Properties, Absence of Liens
and Encumbrances............................................................ 10
SECTION 2.10 List of Properties, Contracts and Other Data ............................... 11
SECTION 2.11 Third-Party Payer and Supplier
Contracts................................................................... 12
SECTION 2.12 Intangible Rights........................................................... 13
SECTION 2.13 Software.................................................................... 13
SECTION 2.14 Litigation, Etc............................................................. 14
SECTION 2.15 Taxes....................................................................... 14
SECTION 2.16 Governmental Authorizations and Regulations................................. 16
SECTION 2.17 Labor Matters............................................................... 17
SECTION 2.18 Use of Real Property........................................................ 17
SECTION 2.19 Condition of Assets......................................................... 18
SECTION 2.20 Accounts Receivable......................................................... 18
SECTION 2.21 Books and Records........................................................... 18
SECTION 2.22 Employee Benefit Plans...................................................... 18
SECTION 2.23 Insurance................................................................... 20
SECTION 2.24 Environmental Matters; Medical Waste........................................ 20
SECTION 2.25 Related Party Transactions.................................................. 21
SECTION 2.26 INTENTIONALLY OMITTED
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 2.27 INTENTIONALLY OMITTED
SECTION 2.28 INTENTIONALLY OMITTED
SECTION 2.29 Controlled Substances....................................................... 22
SECTION 2.30 Disclosure of Certain Financial
Relationships............................................................... 22
SECTION 2.31 Brokers' or Finders' Fees................................................... 22
SECTION 2.32 Disclosure.................................................................. 22
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY................................................................... 23
SECTION 3.01 Organization, Power, Etc.................................................... 23
SECTION 3.02 Authorization of Agreements, Etc............................................ 23
SECTION 3.03 Validity.................................................................... 23
SECTION 3.04 Governmental Approvals...................................................... 23
SECTION 3.05 Brokers' or Finders' Fees................................................... 23
ARTICLE IV. COVENANTS................................................................... 23
SECTION 4.01 Certain Covenants of LHS and
Acquired Group.............................................................. 23
SECTION 4.02 Covenants of the Company................................................... 25
SECTION 4.03 Hart-Scott-Rodino Act....................................................... 26
SECTION 4.04 Tax Matters..................................................................26
ARTICLE V. CONDITIONS PRECEDENT........................................................ 30
SECTION 5.01 Conditions Precedent to the Obligations of the Company and Purchasers....... 30
SECTION 5.02 Conditions Precedent to the Obligations of LHS ............................. 33
ARTICLE VI. THE DIVESTMENT PLAN; THE
TRANSITION PLAN........................................................... 35
SECTION 6.01 The Divestment Plan......................................................... 35
SECTION 6.02 The Transition Agreements................................................... 37
ARTICLE VII. INDEMNIFICATION........................................................... 37
SECTION 7.01 Survival of Representations and War-
ranties..................................................................... 37
SECTION 7.02 Tax Indemnity............................................................... 37
SECTION 7.03 General LHS Indemnity....................................................... 39
SECTION 7.04 Conditions of Indemnification............................................... 40
SECTION 7.05 General Provisions Relating
to Indemnification...........................................................41
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 7.06 Exclusive Remedies.......................................................... 42
SECTION 7.07 General Company Indemnity ...................................................42
ARTICLE VIII. TERMINATION AND ABANDONMENT............................................... 42
SECTION 8.01 Termination................................................................. 42
SECTION 8.02 Procedure and Effect of Termination......................................... 43
ARTICLE IX. MISCELLANEOUS............................................................. 43
SECTION 9.01 Expenses, Etc............................................................... 43
SECTION 9.02 Publicity................................................................... 44
SECTION 9.03 Execution in Counterparts................................................... 44
SECTION 9.04 Notices..................................................................... 44
SECTION 9.05 Waivers..................................................................... 45
SECTION 9.06 Amendments.................................................................. 46
SECTION 9.07 Entire Agreement............................................................ 46
SECTION 9.08 APPLICABLE LAW.............................................................. 46
SECTION 9.09 Binding Effect; Benefits.................................................... 46
SECTION 9.10 Assignability............................................................... 46
</TABLE>
<TABLE>
<CAPTION>
Annexes
- -------
<S> <C>
Annex I List of Other Shareholders
Annex III Form of Subscription and Exchange Agreement
Annex IV Form of Noncompete
Schedules
- ---------
Schedule 1.03 Estimated Closing Balance Sheet and Explanation
Schedule 2.01(c) Ownership and Investment Interests of SHS
Schedule 2.01(d) Ownership and Investment Interests of NFI
Schedule 2.04(d) Subscriptions, Options, Warrants, etc. for Shares of Capital
Stock of SHS and NFI
Schedule 2.05 Financial Statements
Schedule 2.06 Undisclosed Liabilities
Schedule 2.07 Certain Changes or Events
Schedule 2.08 Government Approvals
Schedule 2.09 Title to Properties; Liens and Encumbrances
Schedule 2.10 Properties, Contracts and Other Data
Schedule 2.11 Third Party Payer and Supplier Contracts
Schedule 2.12 Intangible Rights
Schedule 2.13 Software
Schedule 2.14 Litigation and Claims
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Schedule 2.15 Tax Matters
Schedule 2.16 Governmental Authorizations and Regulations
Schedule 2.17 Labor Matters
Schedule 2.18 Leased Real Property
Schedule 2.22 Employee Benefit Plans
Schedule 2.23 Insurance Policies
Schedule 2.25 Related Party Transactions
Schedule 2.30 Certain Financial Relationships
Schedule 5.01(g)(1) Opinion of McDermott, Will & Emery
Schedule 5.01(g)(2) Opinion of Armstrong, Allen, Prewitt, Gentry, Johnston
& Holmes
Schedule 5.02(i) Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol
Schedule 6.01(b) List of Option Holders
Schedule 6.01(c) List of Unit Holders
Schedule 6.01(d) Indebtedness to be Satisfied
Schedule 6.01(e) Permitted Intercompany Balances
Schedule 6.01(f) Retained Employees
Schedule 6.02 Transition Agreements
</TABLE>
iv
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of May 31, 1996, among LE
BONHEUR HEALTH SYSTEMS, INC., a Tennessee nonprofit corporation ("LHS"),
SOUTHERN HEALTH SYSTEMS, INC., a Tennessee corporation ("SHS"), NOVA HOLDINGS,
INC., a Delaware corporation (the "Company"), and WELSH, CARSON, ANDERSON &
STOWE VII, L.P., a Delaware limited partnership ("WCAS VII");
WHEREAS, SHS owns (i) all of the issued and outstanding
capital stock of Nova Factor, Inc., a Tennessee corporation ("NFI"; SHS, NFI and
each NFI Venture (as hereinafter defined) are each hereinafter sometimes
referred to individually as a "member of the Acquired Group" and, collectively
as the "Acquired Group"), and (ii) all of the issued and outstanding capital
stock of PharmaThera, Inc., a Tennessee corporation ("PTI"), Clinicall, Inc., a
Tennessee corporation ("CCI"), and HealthEffects, Inc., a Tennessee corporation
("HEI"); PTI, CCI, HEI and each Venture (as hereinafter defined) in which PTI,
CCI or HEI owns an equity interest are each hereinafter sometimes referred to
individually as an "Excluded Subsidiary" and collectively as the "Excluded
Subsidiaries" and together with the Excluded Ventures (as hereinafter defined)
as the "Excluded Group"; the Acquired Group and the Excluded Group are
hereinafter sometimes referred to collectively as the "Group");
WHEREAS, on or prior to the Closing Date (as hereinafter
defined), SHS intends to divest itself of the Excluded Group as hereinafter
provided;
WHEREAS, LHS, together with the individuals named in Annex I
hereto (the "Other Shareholders") collectively own all of the issued and
outstanding capital stock of SHS;
WHEREAS, on or prior to the Closing Date, SHS will repurchase
for cash all shares of its issued and outstanding capital stock which are owned
by the Other Shareholders other than any such shares which any such Other
Shareholders elect to exchange for shares of the Company on the Closing Date as
provided in the Subscription Agreement (as hereinafter defined);
WHEREAS, LHS wishes to sell to the Company, and the Company
wishes to purchase from LHS, all of the shares of capital stock of SHS owned by
LHS for cash on the terms and conditions hereinafter set forth;
WHEREAS, WCAS VII has caused the Company to be formed and,
pursuant to the Subscription and Exchange Agreement dated as of the date hereof
in the form annexed as Annex III (the "Sub-
<PAGE>
scription Agreement") among the Company, WCAS VII and the other purchasers named
therein (WCAS VII and such other purchasers are each hereinafter sometimes
referred to individually as a "Purchaser" and collectively, as the "Purchasers")
will on the Closing Date, together with the other Purchasers, subject to the
terms and conditions set forth herein and therein, purchase from the Company
shares of its capital stock at a price sufficient to enable the Company to
purchase the shares of SHS to be sold to it by LHS as provided herein;
WHEREAS, WCAS VII will cause the Company to consummate the
purchase of all shares of SHS owned by LHS, pursuant to this Agreement; and
WHEREAS, LHS, in order to induce the Company to make the
purchases of the shares of SHS from LHS as provided herein, is willing to make
the representations, covenants and agreements on its part contained herein and
in the other agreements to be executed and delivered by it as contemplated
hereby.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF SHS SHARES BY THE COMPANY FROM LHS;
ADJUSTMENT TO PURCHASE PRICE;
CLOSING DATE
2
<PAGE>
SECTION 1.01 Purchase and Sale of SHS Shares. Subject to
the terms and conditions hereinafter set forth, on the Closing Date, LHS
agrees to sell to the Company, and the Company agrees to purchase from LHS,
10,000,000 shares of Class A Common Stock, par value $.01 per share, of SHS
(the "Class A Shares") for an aggregate price of $40,000,000 (the "Purchase
Price"), such price being subject to (i) decrease as provided in the last
sentence of this Section 1.01 and (ii) increase or decrease as provided in
Section 1.03. As payment in full for the Class A Shares, the Company shall,
against delivery of a certificate or certificates evidencing the Class A
Shares from LHS registered in the Company's name, an amount equal to the
aggregate purchase price for the Class A Shares by wire transfer of
immediately available funds to a bank account of LHS designated in advance in
writing to the Company. On the Closing Date, the Purchase Price shall be
decreased by an amount equal to the product of number of shares of Class B
Common Stock, par value $.01 per share, of SHS (the "Class B Shares")
exchanged by the Other Shareholders on the Closing Date for shares of capital
stock of the Company pursuant to the Subscription Agreement and $3.26.
SECTION 1.02 Additional Agreements. In addition to the
transactions to occur on the Closing Date pursuant to Section 1.01, each of
the agreements listed in Schedule 6.02 shall be executed and delivered by the
parties thereto on the Closing Date concurrently with the consummation of
such transactions.
SECTION 1.03 Adjustment to Purchase Price. (a) On May 22, 1996
SHS delivered to WCAS VII an estimated consolidated balance sheet of NFI and the
NFI Ventures (the "NFI Group") as of the Closing Date (the "Estimated Closing
Balance Sheet") which is attached as Schedule 1.03. The Estimated Closing
Balance Sheet was prepared, based on good faith estimates, in accordance with
generally accepted accounting principles consistently applied with those used in
the preparation of the audited consolidated financial statements for the Group,
the Acquired Group and the NFI Group referred to in Section 2.05, and (i) is
intended to fairly present, in all material respects, the estimated consolidated
balance sheet of NFI as of the Closing Date (after giving effect to the
estimated amounts of the adjustments for taxes and other items attributable to
the consummation of the transactions contemplated by the Divestment Plan (as
defined in Section 6.01)), and (ii) includes a calculation of the estimated
combined cash balances and consolidated equity of the NFI Group (without
including the cash balances of any NFI Venture) at the Closing Date and after
taking into account the transactions contemplated by the Divestment Plan
(respectively, the "Closing Date Cash" and the "Closing Date Equity"). LHS and
SHS will consult with WCAS
3
<PAGE>
VII and the New York office of Ernst & Young LLP ("E&Y-NY") as to all pro forma
adjustments (and will provide all such information and supporting data in
connection therewith as WCAS VII or E&Y-NY may request).
(b) If the Estimated Closing Balance Sheet shows (i) Closing
Date Cash other than $1,000,000 or (ii) Closing Date Equity other than
$3,300,000, then on the Closing Date the Purchase Price, as previously decreased
pursuant to Section 1.01, shall be further adjusted as and to the extent
provided in the following table:
4
<PAGE>
<TABLE>
<CAPTION>
Closing Date Equity Cash Balance Purchase Price Adjustment
- -------------------------- ---------------- -----------------------------------
<S> <C> <C>
3.3 million 1 million None
3.3 million More than 1 million None
3.3 million Less than 1 million Reduce by cash shortfall
More than 3.3 million 1 million None
More than 3.3 million More than 1 million Increase by cash excess, but not more than equity excess
More than 3.3 million Less than 1 million Reduce by cash shortfall
Less than 3.3 million 1 million Reduce by equity shortfall
Less than 3.3 million More than 1 million Reduce by equity shortfall
Less than 3.3 million Less than 1 million Reduce by greater shortfall
</TABLE>
(c) As promptly as practicable, but in no event later than
sixty (60) days after the Closing Date, the Company will cause to be prepared
and delivered to LHS and WCAS VII a final balance sheet for the NFI Group as of
the Closing Date (the "Final Closing Balance Sheet"). The Final Closing Balance
Sheet will be audited by E&Y-Memphis and, except as indicated therein, will be
prepared in accordance with generally accepted accounting principles applied
consistently with those used in the preparation of the audited consolidated
financial statements of the Group, the Acquired Group and the NFI Group and will
(i) fairly present, in all material respects, the actual balance sheet of the
NFI Group as of the Closing Date (after giving effect to the provisions and
adjustments for taxes attributable to the consummation of the transactions
contemplated by the Divestment Plan), (ii) reflect any other modification,
change or addition agreed to between LHS and the Company, and (iii) include a
recalculation of Closing Date Cash and Closing Date Equity. The Company will
consult with LHS as to all final adjustments which shall be reasonably
satisfactory to LHS. The Final Closing Balance Sheet shall be accompanied by a
report of E&Y-Memphis stating that the Final Closing Balance Sheet has been
prepared in accordance with this Section 1.03(c) and shall be subject to Section
1.03(e).
5
<PAGE>
(d) If the Final Closing Balance Sheet shows (y) Closing Date
Cash other than as shown on the Estimated Closing Balance Sheet or (z) Closing
Date Equity other than as shown on the Estimated Closing Balance Sheet, the
Purchase Price shall be recalculated as provided in the table in Section 1.03(b)
and any further increase or decrease in the Purchase Price, after giving effect
to the adjustment provided in Section 1.03(b), shall be paid in cash by the
Company to LHS, or by LHS to the Company, as the case may be. Any such cash
payment shall be made by the Company or LHS, as the case may be, ten (10) days
after delivery of the Final Closing Balance Sheet pursuant to paragraph (c)
hereof by payment of such amount, in immediately available funds, by wire
transfer to an account designated in writing by the Company or LHS, as the case
may be.
(e) In the event of a disagreement between LHS and WCAS VII as
to the amounts determined pursuant to the Final Closing Balance Sheet, LHS and
WCAS VII agree that they will designate another firm of nationally recognized
public accountants (other than Ernst & Young LLP and any other firm with a
material relationship to any of the parties) mutually acceptable to LHS and WCAS
VII to review the Final Closing Balance Sheet and the adjustments provided
therein. LHS and WCAS VII further agree that the determinations of such
accounting firm as to any disputed amounts shall be conclusive. The expenses of
E&Y incurred in connection with the matters described in Sections 1.03(a) and
(c) above, and the expenses incurred by the accounting firm retained pursuant to
this Section 1.03(e) shall be shared by LHS and the Company equally.
SECTION 1.04 Closing Date. The closing of the transactions
described in Section 1.01 shall take place at the offices of Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New
York 10111, effective as of 5:00 p.m., New York time, on May 31, 1996, or at
such other date and time as may be mutually agreed upon among the Company and
LHS (such date and time of closing being herein called the "Closing Date").
6
<PAGE>
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF LHS AND SHS
Each of LHS and SHS hereby severally and not jointly
represents and warrants to the Company as follows:
SECTION 2.01 Organization, Qualification and Corporate
Power; Subsidiaries. (a) LHS is a not for profit corporation duly
incorporated and validly existing under the laws of the State of Tennessee.
LHS has the corporate power and authority to own the Class A Shares and to
execute, deliver and perform this Agreement and the Transition Agreements (as
defined in Section 5.01(j)) to which it is a party and to consummate the
transactions contemplated hereby and thereby.
(b) Each of SHS and NFI is a corporation duly incorporated and
validly existing under the laws of the State of Tennessee and is duly licensed
or qualified as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases any real property or in which the nature
of business transacted by it makes such licensing or qualification necessary.
Each of SHS and NFI has the corporate power and authority to own and operate its
properties and to carry on its business as currently conducted, to execute,
deliver and perform this Agreement and the Transition Agreements to which it is
a party and to consummate the transactions contemplated hereby and thereby.
(c) Except as set forth on Schedule 2.01(c) or Schedule
2.01(d), SHS does not own any shares of any corporation or other equity
interest, either of record, beneficially or equitably, in any association,
partnership, limited liability company, joint venture or other legal entity, or
has any commitment to acquire any such interest or to make any loans or capital
contributions to any such entity.
(d) Annexed hereto as Schedule 2.01(d) is a list of all NFI
Ventures (each as hereinafter defined) setting forth the jurisdiction of its
formation and the record and beneficial ownership of all equity interests in
such entity. As used herein, the term "Venture" means any partnership, limited
liability company, joint venture or other entity in which NFI or any Excluded
Subsidiary owns an equity interest. For the purposes of this Agreement, an "NFI
Venture" shall mean a Venture in which NFI owns an equity interest, and an
"Excluded Venture" shall mean a Venture in which
7
<PAGE>
an Excluded Subsidiary owns an equity interest.
Each NFI Venture is duly organized under the laws of the
jurisdiction of its formation, validly existing and in good standing under the
laws of such jurisdiction. Each NFI Venture has the requisite power and
authority, and the legal right, to own and operate its properties and to carry
on its business as currently conducted, and to execute and deliver any of the
Transition Agreements to which it may be a party and to consummate the
transactions contemplated thereby. Each NFI Venture is duly qualified to do
business and is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of its business, as now being
conducted, makes such qualification necessary. Except as set forth in Schedule
2.01(d), neither NFI nor any NFI Venture owns any shares of any corporation or
any equity interest, either of record, beneficially or equitably, in any
association, partnership, limited liability company, joint venture or other
legal entity, or has any commitment to acquire any such interest or to make any
loans or capital contributions to any such entity.
SECTION 2.02 Authorization of Agreements, Etc. (a) The
execution and delivery by LHS and each member of the Acquired Group of this
Agreement and the Transition Agreements to which it is a party, and the
performance by LHS and each member of the Acquired Group of its obligations
hereunder and thereunder, have been duly authorized by all requisite
corporate, shareholder and other entity action required on the part of any
member of the Acquired Group and will not violate any provision of law or any
order of any court or other agency of government applicable to LHS or any
member of the Acquired Group, the Articles of Incorporation or By-laws, or
Partnership Agreement or Operating Agreement of LHS or any member of the
Acquired Group, or any provision of any indenture, agreement or other
instrument to which LHS or any member of the Acquired Group or any of its
properties or assets is bound, or conflict with, result in a breach of,
create any right of termination under or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
LHS or any member of the Acquired Group or result in any suspension,
revocation, impairment, forfeiture or nonrenewal of, or any requirement to
obtain, any Governmental Permit (as hereinafter defined).
8
<PAGE>
SECTION 2.03 Validity. This Agreement has been duly
executed and delivered by LHS and SHS, and, subject to due execution by the
Company and the Purchasers, constitutes, and the Transition Agreements, when
executed and delivered by LHS and any member of the Acquired Group as
contemplated hereby, subject to the due execution by the other parties
thereto (other than LHS or any member of the Acquired Group), will
constitute, the legal, valid and binding obligations of LHS and any member of
the Acquired Group party thereto, enforceable against them in accordance with
their respective terms, except as enforceability may be limited by bankruptcy
or other laws affecting creditors' rights generally and limitations on the
availability of equitable remedies.
SECTION 2.04 Capitalization; Ownership of Capital Stock.
(a) As of the date hereof, the authorized capital stock of SHS consists of
20,000,000 shares of Class A Stock, 10,000,000 shares of Class B Stock and
1,000,000 shares of preferred stock, par value $.01 per share. 10,000,000
shares of Class A Stock and 1,141,438 shares of Class B Stock have been duly
and validly issued and are outstanding and fully paid and non-assessable. No
such preferred stock has ever been issued.
(b) The Class A Shares are owned by LHS free and clear of all
liens, charges, security interests or other encumbrances of any nature
whatsoever ("Encumbrances"). All right, title and interest in and to the Class A
Shares is being sold, assigned, transferred and delivered to the Company, and
the Company will receive valid title thereto, free and clear of any and all
Encumbrances.
(c) As of the date hereof, the authorized capital stock of NFI
consists of 1,000 shares of Common Stock, par value $.01 per share, of which 100
shares (the "NFI Shares") have been duly and validly issued and are outstanding
and fully paid and non-assessable. The NFI Shares are owned by SHS free and
clear of all Encumbrances.
(d) Except as otherwise set forth in Schedule 2.04(d) hereto
or as expressly contemplated by this Agreement, (i) no subscription, warrant,
option, convertible security or other right (contingent or other) to purchase or
acquire any shares of any class of capital stock of SHS or NFI is authorized or
outstanding, (ii) there is not any commitment of SHS or NFI to issue any shares,
warrants, options or other such rights or to distribute to holders of any class
of its capital stock any evidences of
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indebtedness or assets and (iii) neither SHS nor NFI has any obligation
(contingent or other) to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
SECTION 2.05 Financial Statements. SHS and NFI have
previously delivered to WCAS VII (i) audited consolidated and consolidating
financial statements for the Group and for NFI and the NFI Ventures as at and
for the periods ending June 30, 1995, 1994 and 1993, and (ii) unaudited
consolidated and consolidating financial statements for the Group and for NFI
and the NFI Ventures as of November 30, 1995 (collectively, the "Financial
Statements"). The Financial Statements (i) were prepared from the books and
records of the members of the Group to which they pertain and (ii) except as
otherwise set forth in Schedule 2.05 present fairly the consolidated
financial position of the Group and of NFI and the NFI Ventures as of the
respective dates specified therein, and the income, cash flows and
stockholders' equity for the respective periods then ended, all in conformity
with generally accepted accounting principles applied on a consistent basis.
Except as set forth in Schedule 2.05, since November 30, 1995, there has been
no material adverse change in the business, operations, properties or
condition (financial or other) of any member of the Acquired Group.
SECTION 2.06 Absence of Undisclosed Liabilities. Except as
and to the extent (i) reflected in the most recent balance sheet for such
member of the Acquired Group separately included in the financial statements
referred to in Section 2.05 hereof, (ii) incurred by such member of the
Acquired Group since the date of such balance sheet in the ordinary course of
business and consistent with past practice, or (iii) set forth in Schedule
2.06 hereto, no member of the Acquired Group has any material liabilities or
obligations of any kind or nature, whether known or unknown or secured or
unsecured (whether absolute, accrued, contingent or otherwise, and whether
due or to become due), of a nature customarily accrued, reserved against or
disclosed in a corporate balance sheet prepared in accordance with generally
accepted accounting principles, including without limitation any and all tax
liabilities due or to become due, whether incurred in respect of or measured
by the assets, income or receipts of such member for any period prior to the
close of business on November 30, 1995, or arising out of transactions
entered into or any state of facts existing prior thereto or transactions
contemplated by this Agreement.
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SECTION 2.07 Absence of Certain Changes or Events. Since
the date of its most recent balance sheet referred to in Section 2.05, except
(i) as otherwise set forth in Schedule 2.07 hereto, (ii) as otherwise
expressly contemplated in this Agreement, or (iii) as disclosed in the
materials accompanying the Estimated Balance Sheet, no member of the Acquired
Group has:
(a) changed or amended its Articles of Incorporation or
By-laws, Partnership Agreement, or Operating Agreement, as the case may
be;
(b) borrowed any amount or incurred any material obligation or
liability (absolute or contingent), that would be required to be
disclosed on a balance sheet as of the date hereof prepared in
accordance with generally accepted accounting principles, except
current liabilities incurred, and liabilities under contracts entered
into, in the ordinary course of business and consistent with past
practice;
(c) discharged or satisfied any lien, security interest,
charge or other encumbrance or incurred or paid any obligation or
liability (absolute or contingent), other than current liabilities
shown on such balance sheet and current liabilities incurred since that
date in the ordinary course of business and consistent with past
practice;
(d) mortgaged, pledged or subjected to any lien, security
interest, charge or other encumbrance any of its assets or properties
(other than Permitted Liens as defined in Section 2.09 below);
(e) sold, transferred, assigned, leased or otherwise disposed
of any of its material assets or properties, except for fair
consideration in the ordinary course of business and consistent with
past practice, or acquired any assets or properties, except in the
ordinary course of business and consistent with past practice;
(f) declared, set aside or paid any distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or redeemed or otherwise acquired any of its capital
stock or split, combined or otherwise similarly changed its capital
stock or authorized the creation or issuance of or issued or sold any
capital stock or any securities or obligations convertible into or
exchangeable therefor, or given any person any right to acquire any
capital stock of such member, or agreed to
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take any such action;
(g) made any distribution (whether in cash or property or any
combination thereof and whether in redemption or liquidation of an
interest in such member of the Acquired Group or otherwise) to any
person who or which at the time thereof was a partner or member of such
member of the Acquired Group;
(h) made any investment of a capital nature, whether by
purchase of stock or securities, contributions to capital, property
transfers or otherwise, in any partnership, limited liability company,
corporation or other entity, or purchased any material property or
assets;
(i) canceled or compromised any debt or claim other than in
the ordinary course of business consistent with past practice;
(j) waived or released any rights of material value, including
without limitation, any Intangible Rights (as defined in Section
2.10(b) below);
(k) transferred or granted any rights under or with respect to
any Intangible Rights, or permitted any license, permit or other form
of authorization relating to an Intangible Right to lapse;
(l) made or granted any wage or salary increase applicable to
any group or classification of employees generally, entered into any
employment contract with, or made any loan to, or entered into any
material transaction of any other nature with, any officer or employee
of LHS or any member of the Group;
(m) suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance) which affects in
any material respect its ability to conduct its business;
(n) suffered any material losses, or waived any rights of
substantial value, whether or not in the ordinary course of business;
(o) received notification of cancellation, or canceled or
waived any rights which, individually or in the aggregate, are material
with respect to any currently existing
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agreement, contract, right or understanding to which such member is a
party; or
(p) entered into any transaction except in the ordinary course
of business.
SECTION 2.08 Governmental Approvals. Except as set forth in
Schedule 2.08 hereto and other than pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended from time to time (the
"Hart-Scott-Rodino Act"), if applicable, no order, authorization, approval,
license or consent from, or filing with, any federal or state governmental or
public body or other authority having jurisdiction over LHS or any member of
the Acquired Group, is required for the execution, delivery and performance
of this Agreement or any of the Transition Agreements, or the consummation of
the transactions contemplated hereby and thereby, is necessary in order to
ensure the legality, validity, binding effect or enforceability of this
Agreement or any of the Transition Agreements to which LHS or any member of
the Acquired Group is a party.
SECTION 2.09 Title to Properties, Absence of Liens and
Encumbrances. No member of the Acquired Group owns any real property. Each
member of the Acquired Group has (or upon consummation of the transactions to
occur on the Closing Date pursuant to Section 1.01, will have) good and valid
title to all its other assets and properties, in each case free and clear of
all Encumbrances, other than (w) as set forth in Schedule 2.09, (x) liens for
taxes not yet due or, if due, being contested in good faith by appropriate
proceedings, or (y) mechanics', materialmen's, landlords' and similar
statutory liens arising in the ordinary course of business or (z) liens,
pledges or deposits under workers' compensation, unemployment insurance,
social security or similar legislation, and all of which, in the aggregate,
would not have a material adverse effect on the business, properties or
condition (financial or other) of any member of the Acquired Group (a
"Material Adverse Effect") (the liens described in clauses (w), (x), (y) and
(z) above, together with liens that are released at or before Closing, being
referred to herein as "Permitted Liens").
SECTION 2.10 List of Properties, Contracts and Other Data.
Annexed hereto as Schedule 2.10 is a list setting forth the following:
(a) a description of all leases of real or personal property
to which any member of the Acquired Group is a
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party, either as lessee or lessor, including a description of the
parties to each such lease, the property to which each such lease
relates, and the rental term and monthly (or other) rents payable
under each such lease;
(b) (i) all patents, trademarks and trade names, trademark and
trade name registrations, logos, servicemark registrations, copyright
registrations, all applications pending on the date hereof for patent
or for trademark, trade name, servicemark or copyright registrations,
and all other material proprietary rights other than such rights
relating to Software (as hereinafter defined) set forth in Schedule
2.13 hereto (collectively, "Intangible Rights") owned by any member of
the Acquired Group (specifying the nature of the rights therein), and
(ii) all licenses granted by or to any member of the Acquired Group and
all other material agreements to which any member of the Acquired Group
is a party that relate, in whole or in part, to any Intangible Rights
mentioned in clause (i) above or to other proprietary rights material
to any member of the Acquired Group, whether owned by any member of the
Acquired Group or otherwise;
(c) all collective bargaining agreements, employment and
consulting agreements, independent contractor agreements (other than
such agreements entered into in the ordinary course of business and
which are terminable without penalty upon not more than 30 days
notice), executive compensation plans, bonus plans, deferred
compensation agreements, severance obligations, employee pension plans
or retirement plans, employee profit sharing plans, employee stock
purchase and stock option plans, group life insurance, hospitalization
insurance or other similar plans or arrangements maintained for or
providing benefits to employees of, or independent contractors or other
agents for any member of the Acquired Group; and
(d) all contracts, including without limitation guarantees,
mortgages, indentures and loan agreements, to which any member of the
Acquired Group is a party, or to which any member of the Acquired Group
or any of its or their respective assets or properties is subject and
which are not specifically referred to in clauses (a), (b), or (c)
above, provided, however, that there need not be listed in said
Schedule 2.10 pursuant to this clause (d) any sales contracts, supply
contracts with suppliers and other such contracts incurred in the
ordinary course of business and consistent with past practice, other
than any such contract
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which (i) is a contract or group of related contracts which exceeds
$100,000 in amount, (ii) contains warranties by any member of the
Acquired Group in excess of those customary in its business or (iii)
cannot be performed in the normal course within 12 months after the
Closing Date without breach or penalty.
True and complete copies of all documents and complete
descriptions of all binding oral commitments (if any) referred to in said
Schedule 2.10 have been made available to the Company and its counsel. All
material provisions of the contracts referred to in such Schedule are valid and
enforceable obligations of the applicable member of the Acquired Group, and, to
the knowledge of LHS and each member of the Acquired Group, as the case may be,
of the other parties thereto. As used in this Agreement, "to the knowledge of
LHS and each member of the Acquired Group" or any similar phrase shall mean the
actual knowledge of the directors, officers and senior management employees of
LHS, SHS and NFI. Except as set forth in Schedule 2.10, neither LHS nor any
member of the Acquired Group has been notified of any claim that any contract
referred to in such Schedule is not valid and enforceable in accordance with its
terms for the periods stated therein, or that there is under any such contract
any existing material default or event of default or event which, with notice or
lapse of time or both, would constitute such a default.
SECTION 2.11 Third-Party Payer and Supplier Contracts. Except
as set forth in Schedule 2.11, no member of the Acquired Group has lost any
customer, third-party payer or drug supplier contract since November 30, 1995,
and, to the knowledge of LHS and each member of the Acquired Group, no member of
the Acquired Group is about to lose any customer, third-party payer or drug
supplier in the event of a sale or change of ownership of the Acquired Group or
otherwise.2.11 Third-Party Payer and Supplier Contracts. Except as set forth in
Schedule 2.11, no member of the Acquired Group has lost any customer,
third-party payer or drug supplier contract since November 30, 1995, and, to the
knowledge of LHS and each member of the Acquired Group, no member of the
Acquired Group is about to lose any customer, third-party payer or drug supplier
in the event of a sale or change of ownership of the Acquired Group or
otherwise.
SECTION 2.12 Intangible Rights. Except as set forth in
Schedule 2.12 (i) Each member of the Acquired Group is in compliance with its
material contractual obligations relating to the protection of such of the
Intangible Rights used by it pursuant to licenses or other contracts, (ii) to
the best knowledge of LHS and each
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member of the Acquired Group, each member of the Acquired Group owns or has the
right to use its respective Intangible Rights to provide and sell the services
provided and sold by it, and to conduct its respective business as heretofore
conducted, and the consummation of the transactions contemplated hereby will not
alter or impair its ownership or right to use any such Intangible Rights, (iii)
to the knowledge of LHS and each member of the Acquired Group, no claims are
currently being asserted with respect to the use by any member of the Acquired
Group of any of the Intangible Rights for patent, copyright or trademark
infringement, and (iv) to the knowledge of LHS and each member of the Acquired
Group, no person is infringing on or violating the Intangible Rights or know-how
owned by any member of the Acquired Group.
SECTION 2.13 Software. The operating and applications
computer software programs and databases used by each member of the Acquired
Group in the conduct of its business (collectively, the "Software") are
listed on Schedule 2.13 hereto. Except as set forth in Schedule 2.13 hereto,
each member of the Acquired Group holds valid licenses to all copies of such
member's Software material to its business, and no member of the Acquired
Group has sold, licensed, leased or otherwise transferred or granted any
interest or rights to any thereof. Except as set forth in Schedule 2.13
hereto, to the knowledge of LHS and each member of the Acquired Group, none
of the Software owned by any member of the Acquired Group infringes upon or
violates any patent, copyright, trade secret or other proprietary right of
any other person and, to the best knowledge of LHS and each member of the
Acquired Group, no claim with respect to any such infringement or violation
is threatened.
Upon consummation of the transactions contemplated by this
Agreement, each member of the Acquired Group will continue to own all the
Software owned by it and material to its business, free and clear of all claims,
liens, encumbrances, obligations and liabilities (other than Permitted Liens)
and, with respect to all agreements for the lease or license of Software which
require consents or other actions as a result of the consummation of the
transactions contemplated by this Agreement in order for each member of the
Acquired Group to continue to use and operate such Software after the Closing
Date, each member of the Acquired Group will have obtained such consents or
taken such other actions so required except where the failure to obtain such
consent would not have a Material Adverse Effect on the Acquired Group.
SECTION 2.14 Litigation, Etc. (a) Schedule 2.14 hereto sets
forth a complete list and an accurate description of all claims, actions,
suits, proceedings and investigations pending or, to the knowledge of LHS and
each member of the Acquired Group, threatened, by or against any member of
the Acquired Group or any of their respective properties, assets, rights or
businesses. No such pending or threatened claims,
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actions, suits, proceedings or investigations, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect.
(b) There are no actions, suits, proceedings or claims pending
before or by any court, arbitrator, regulatory authority or government agency
against or affecting LHS or any member of the Group that might enjoin or prevent
the consummation of the transactions contemplated by this Agreement or the
Transition Agreements to which LHS or any member of the Acquired Group is a
party.
SECTION 2.15 Taxes. (a) Except as set forth in Schedule
2.15 (i) each member of the Group has duly and timely filed or caused to be
filed all Tax returns, reports, estimates and information and other
statements or returns (collectively, "Tax Returns"), of which the failure to
file would have a Material Adverse Effect on the Acquired Group, required to
be filed by or on behalf of it (and all such Tax Returns with respect to
which each such member or its assets and properties may be liable or
otherwise subject), pursuant to any applicable federal, state and local tax
laws for all years and periods for which such Tax Returns have become due
(with extensions) as of the date hereof, and (ii) all such Tax Returns
(including all informational Tax Returns) were true, correct and complete in
all material respects as filed and correctly reflect in all material respects
the Tax or Taxes required to be paid or collected by each such member.
(b) For purposes of this Agreement, "Tax" and "Taxes" shall
mean any net income, unincorporated business, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
gains, franchise, profits, withholding on amounts paid or received, payroll,
employment, excise, severance, stamp, occupation, property, windfall profit or
other taxes, or other like assessments or charges of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental authority (domestic or foreign) responsible for the
imposition of any such taxes.
(c) Except as set forth in Schedule 2.15, (i) each member of
the Group has paid all Taxes shown as owed by it on the Tax Returns referred to
in Section 2.15(a) to the appropriate taxing authorities, or where payment of
Taxes is not yet due, has established or will establish an adequate reserve on
its books and records for the payment of all such Taxes with respect to all
taxable periods (or portions thereof) through the Closing Date
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and (ii) no member of the Acquired Group has been the subject of a tax ruling
(or made a request therefor) or entered into any closing agreement under Section
7121 of the Code, which ruling or closing agreement has a material adverse
effect on the Taxes of any member of the Acquired Group on or after the Closing
Date.
(d) Except as set forth in Schedule 2.15, (i) no extensions of
time have been granted to any member of the Group to file any Tax Return
required by applicable law to be filed by it or on its behalf on or prior to the
Closing Date which have expired, or will expire, on or before the Closing Date
without such Tax Return having been filed, (ii) no deficiency or adjustment for
any Taxes has been proposed, asserted or assessed against any member of the
Group, and no federal, state or local audits or other administrative proceedings
or court proceedings are pending with regard to any such Taxes, (iii) to the
knowledge of LHS and SHS, there is no pending or threatened dispute or claim
concerning any Taxes of any member of the Group with respect to any taxable
period or portion thereof ending on or prior to the Closing Date, (iv) no waiver
or consent extending any statute of limitations for the assessment or collection
of any Taxes has been executed by or on behalf of any member of the Group, nor
are any requests for such waivers or consents pending, and (v) no federal income
tax returns of any member of the Group for any year after 1991 have been
examined by the Internal Revenue Service.
(e) Each NFI Venture that is a partnership, for all taxable
periods (and any portions thereof) from its respective date of organization
through the Closing Date, has been taxable as a partnership, and not as an
association taxable as a corporation, for federal, state and local income Tax
purposes.
(f) Except as set forth in Schedule 2.15, no member of the
Acquired Group is a party to any tax-sharing or allocation agreement that will
survive the Closing Date, nor does any member of the Acquired Group owe any
amount to any entity outside the Acquired Group under any tax-sharing or
allocation agreement.
(g) Except as set forth in Schedule 2.15, no member of the
Acquired Group is a party to any agreement, contract or arrangement that would
result, by reason of the consummation of any of the transactions contemplated
herein, separately or in the aggregate, in the payment of any "excess parachute
payment" within the meaning of Section 280G of the Code.
(h) Neither SHS nor NFI (i) has been a member of an
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affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was SHS) or (ii) has any liability for the
Taxes of any person (other than any of PTI, CCI and HEI (together with NFI, the
"Subsidiaries") under Treasury Regulation Section 1.1502-6 (or any similar
provision of state or local law), as a transferee or successor, by contract, or
otherwise.
(i) Except as set forth in Schedule 2.15, the books and
records of SHS and NFI made available for review by the Company and its
representatives provide information adequate to determine: (i) the basis of NFI
in each of its assets; (ii) the basis of SHS in the stock of each of the
Subsidiaries immediately preceding Closing (or the amount of any "excess loss
account" pursuant to applicable Treasury Regulations under Section 1502 of the
Code); (iii) the amount of any net operating loss, net capital loss, or unused
investment or other credit with respect to SHS or the Subsidiaries; and (iv) the
amount of any "deferred intercompany gain or loss" with respect to SHS or the
Subsidiaries arising out of any "deferred intercompany transaction" pursuant to
applicable Treasury Regulations under Section 1502 of the Code.
SECTION 2.16 Governmental Authorizations and Regulations.
(a) Except as set forth in Schedule 2.16 hereto, each member of the Acquired
Group has all material governmental licenses, franchises and permits,
including without limitation all licenses, franchises, permits,
accreditations, certificates of need and provider or supplier agreements as
may be required under Title XVIII and XIX of the Social Security Act and
other applicable laws for reimbursement of services rendered or goods sold,
or required under applicable federal or state laws and regulations for the
conduct of its business as currently conducted (collectively, "Governmental
Permits"), and
(b) The business of each member of the Acquired Group is being
conducted in compliance with all applicable laws, ordinances, rules and
regulations of all governmental authorities relating to their respective
properties or applicable to their respective businesses, including without
limitation the terms of all Governmental Permits and federal securities laws,
other than minor non-compliance that can be cured at nominal cost without
adversely affecting the business of each member of the Acquired Group as it is
currently conducted. Except as set forth in Schedule 2.16 hereto, no member of
the Acquired Group has received any notice of any alleged violation of any of
the foregoing, nor is any member of the Acquired Group aware of any basis
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for any such allegation.
(c) Except as set forth in Schedule 2.16, no member of the
Acquired Group or any of their respective properties, operations or businesses
is subject to any order, judgment, injunction or decree to which any such entity
is a party or which names any such entity. To the knowledge of LHS and each
member of the Acquired Group, no action has been taken or recommended by any
governmental or regulatory official, body or authority, either to revoke,
withdraw or suspend any certificate of need or any license to operate any member
of the Acquired Group or to terminate or decertify any participation of any
member of the Acquired Group in the Medicare, Medicaid or CHAMPUS programs, nor
is there any decision not to renew any Medicare, Medicaid or CHAMPUS provider or
supplier agreement related to any member of the Acquired Group.
SECTION 2.17 Labor Matters. (a) No collective bargaining
agreement is applicable to any employees of any member of the Acquired Group.
There are not any disputes between any member of the Acquired Group and any
such employees that could reasonably be expected to materially adversely
affect the conduct of its or their respective business or any unresolved
labor union grievances or unfair labor practice or labor arbitration
proceedings pending, or to the knowledge of LHS or any member of the Acquired
Group, threatened, relating to the business of any member of the Acquired
Group. To the knowledge of LHS and each member of the Acquired Group, there
are not any organizational efforts presently being made or threatened
involving any of such employees. Except as set forth in Schedule 2.17 hereto,
no member of the Acquired Group has received notice of any claim that any
member of the Acquired Group has failed to comply with any laws relating to
employment, including any provisions thereof relating to wages, hours,
collective bargaining, the payment of social security and other payroll or
similar taxes, equal employment opportunity, employment discrimination or
harassment and employment safety, or that any member of the Acquired Group is
liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing.
(b) There are no proceedings pending or, to the knowledge of
LHS or any member of the Acquired Group, threatened before the National Labor
Relations Board with respect to any employees of any member of the Acquired
Group. Except as set forth in Schedule 2.17 hereto, there are no discrimination
or harassment charges (relating to sex, age, religion, race, national origin,
ethnicity, handicap or veteran status) pending before
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any federal or state agency or authority against any member of the Acquired
Group.
SECTION 2.18 Use of Real Property. The leased real
properties listed in Schedule 2.18 hereto are used and operated by each
member of the Acquired Group in material compliance and conformity with all
applicable leases. To the knowledge of LHS and each member of the Acquired
Group, the ownership, use and operation by each member of the Acquired Group
of its real estate or other assets do not violate, in any material respect,
any applicable zoning or building regulation, ordinance or other law, order,
regulation or requirement relating to such ownership, use or operation.
SECTION 2.19 Condition of Assets. All items of tangible
personal property, fixtures and equipment comprising the respective assets of
each member of the Acquired Group and necessary to the conduct of their
respective businesses are in a good state of repair (ordinary wear and tear
excepted) and operating condition, in all material respects.
SECTION 2.20 Accounts Receivable. Except as set forth in
Schedule 2.05, the accounts receivable reflected in the most recent balance
sheet for each member of the Acquired Group separately included in the financial
statements referred to in Section 2.05 hereof, and all accounts receivable
arising between November 30, 1995 and the date hereof, arose from bona fide
transactions in the ordinary course of business. Except as set forth in Schedule
2.05, the accounts receivable reflected on such balance sheet of each member of
the Acquired Group, have been recorded and reserved against in accordance with
generally accepted accounting principles consistently applied and consistent
with past practice. Except as set forth in Schedule 2.09, no such account
receivable has been assigned or pledged to any other person, firm or corporation
or, to the knowledge of the Partnership, is subject to any right of set-off.
Except as set forth in Schedule 2.05, to the knowledge of LHS and SHS adequate
provision has been made in the Financial Statements for collection losses,
contractual discounts and other adjustments from third party payers. Except as
set forth on Schedule 2.26, no member of the Acquired Group has claimed or
received reimbursements from the Medicare program, the Medicaid program or any
other third-party payer in excess of the amounts permitted by law, except as and
to the extent that such liability for such overpayment has already been
disclosed in Schedule 2.16, satisfied or for which adequate provision has been
made in the Financial Statements.
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SECTION 2.21 Books and Records. The corporate minute books
and stock record books of SHS and NFI (i) accurately reflect all material
actions taken at all meetings of the stockholders and Board of Directors of
SHS and NFI, and each committee (if any) of such Board of Directors, and (ii)
properly and accurately record the issuance and transfer of all shares of
capital stock of SHS and NFI.
SECTION 2.22 Employee Benefit Plans. (a) Schedule 2.22
attached hereto lists each employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA")
maintained by any member of the Acquired Group which contributes or is
required to contribute (a "Plan"). Each member of the Acquired Group has
complied and currently is in compliance in all material respects, both as to
form and operation, with the applicable provisions of ERISA and the Code with
respect to each of the Plans.
(b) With respect to each of the Plans which is intended to
qualify under Section 401(a) of the Code, the relevant member of the Acquired
Group has received favorable and unrevoked determination letters from the
Internal Revenue Service to the effect that such Plan does so qualify and that
the related trust is exempt from taxation pursuant to Section 501(a) of the
Code.
(c) No member of the Acquired Group has at any time
maintained, adopted, or established, contributed to or been required to
contribute to, or otherwise participated in or been required to participate in,
any employee benefit plan or other program or arrangement subject to Title IV of
ERISA (including, without limitation, a "multiemployer plan" (as defined in
Section 3(37) of ERISA) and a defined benefit plan (as defined in Section 3(35)
of ERISA)).
(d) Except as set forth on Schedule 2.22 hereto, and
notwithstanding anything else set forth herein, no member of the Acquired Group
has incurred any liability with respect to any Plan under ERISA (including,
without limitation, Title I or Title IV of ERISA), the Code or other applicable
law, which has not been satisfied in full on a timely basis, and no event has
occurred, and there exists no condition or set of circumstances which could
reasonably be anticipated to result in the imposition of any material liability
under ERISA (including, without limitation, Title I or Title IV of ERISA), the
Code or other applicable law with respect to any of the Plans.
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(e) No Plan, other than a Plan which is an employee pension
benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides
benefits, including without limitation, death, health or medical benefits
(whether or not insured), with respect to current or former employees of any
member of the Acquired Group beyond their retirement or other termination of
service with any member of the Acquired Group (other than (i) coverage mandated
by applicable law, (ii) deferred compensation benefits accrued as liabilities on
the books of the relevant member or (iii) benefits the full cost of which is
borne by the current or former employee (or his beneficiary)).
(f) Except as set forth on Schedule 2.22, the consummation of
the transactions contemplated by this Agreement will not (i) entitle any current
or former employee or officer of any member of the Acquired Group to severance
pay, unemployment compensation or any other payment, or (ii) accelerate the time
of payment or vesting, or increase the amount of compensation due any such
employee or officer.
(g) As a result of the transactions contemplated hereby, no
portion of any amount paid or payable by any member of the Acquired Group to a
"disqualified individual" (within the meaning of Section 280G(c) of the Code and
the regulations promulgated thereunder), whether paid or payable in cash,
securities of such member or otherwise and whether considered alone or in
conjunction with any other amount paid or payable to such a "disqualified
individual", constitutes an "excess parachute payment" within the meaning of
Section 280G(b) of the Code (without regard to subsection (b)(4) thereof) and
the regulations promulgated thereunder.
(h) Each member of the Acquired Group has provided to the
Company true and complete copies of the following for each Plan: (i) the Plan;
(ii) summary plan description of the Plan; (iii) the trust agreement, insurance
policy or other instrument relating to the funding of the Plan; (iv) the two
most recent Annual Reports (Form 5500 series) and accompanying schedules filed
with the Internal Revenue Service or United States Department of Labor with
respect to the Plan; (v) the most recent audited financial statement for the
Plan; (vi) the most recent actuarial report of the Plan; (vii) the policy of
fiduciary liability insurance (and agreements related thereto) maintained in
connection with the Plan; and (viii) the most recent determination letter issued
by the Internal Revenue Service with respect to the Plan that is intended to
qualify under Section 401(a) of the Code.
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SECTION 2.23 Insurance. All policies of fire, liability
(including product liability), workers' compensation, malpractice and
professional liability and other forms of insurance providing insurance coverage
to or for each member of the Acquired Group are listed in Schedule 2.23 hereto
and (i) each member of the Acquired Group is a named insured under such
policies, (ii) all premiums with respect thereto covering all periods up to and
including the Closing Date have been paid or accrued for, and (iii) no notice of
cancellation or termination has been received with respect to any such policy.
All such policies are in full force and effect and will remain in full force and
effect to and including the Closing Date. All such policies are underwritten by
the insurers listed in Schedule 2.23 hereto, are sufficient for all applicable
requirements of law.
SECTION 2.24 Environmental Matters; Medical Waste. (a) For the
purposes of this Section 2.24, the following terms shall have the following
meanings:
"Environmental Law" means any current federal, state or local
statute, law, ordinance, rule or regulation of the United States and
any other jurisdiction within the United States now effective and any
order, to which any member of the Acquired Group is a party or is
otherwise directly bound of the United States or other jurisdiction
within the United States now effective relating to: (i) pollution or
protection of the environment, including natural resources; or (ii)
exposure of persons, including employees, to Hazardous Substances;
"Hazardous Substances" means any substance, whether liquid,
solid or gas (i) listed, identified or designated as hazardous or toxic
under any Environmental Law, (ii) which, applying criteria specified in
any Environmental Law, is hazardous or toxic, or (iii) the use or
disposal of which is regulated under Environmental Law.
(b) No Hazardous Substances have been, or have been threatened
to be, discharged, released or emitted into the air, water, surface water,
ground water, land surface or subsurface strata or transported to or from the
property of any member of the Acquired Group except in compliance in all
material respects with Environmental Law and except for incidental release of
Hazardous Substances in amounts or concentrations which would not reasonably be
expected to give rise to any claims or liabilities against any member of the
Acquired Group under any Environmental
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Law.
(c) No member of the Acquired Group has received any written
notification from a governmental agency that there is any violation of any
Environmental Law with respect to the business and properties of any member of
the Acquired Group and no member of the Acquired Group has received any written
notification from a governmental agency pursuant to Section 104, 106 or 107 of
the Comprehensive Environmental Response Compensation and Liability Act, as
amended.
(d) No member of the Acquired Group is in violation of or, to
the knowledge of LHS and each member of the Acquired Group, the subject of, any
investigation, inquiry or enforcement action by any governmental authority under
the Medical Waste Tracking Act, 42 U.S.C. ss. 6992 et seq., or any applicable
state or local governmental statute, ordinance or regulation dealing with the
disposal of medical wastes ("Medical Waste Laws"). The members of the Acquired
Group have obtained and are in compliance with any permits related to medical
waste disposal required by the Medical Waste Laws, and have taken reasonable
steps to determine, and have determined, that all disposal of medical waste by
them have been in compliance with the Medical Waste Laws.
SECTION 2.25 Related Party Transactions. Except as set
forth in Schedule 2.25 hereto, there are no existing arrangements or proposed
transactions (other than (a) any transactions contemplated by the Transition
Agreements (as hereinafter defined) (b) relating to such person's employment
or (c) entered into on an arms' length basis in the ordinary course of
business) between any member of the Acquired Group and (i) any member of the
Excluded Group, (ii) any officer or director of LHS or any of its
subsidiaries (including without limitation any member of the Group) or any
member of the immediate family of any of the foregoing persons (such
officers, directors and family members being hereinafter individually
referred to as a "Related Party"), (iii) any business (corporate or
otherwise) which a Related Party owns, directly or indirectly, or in which a
Related Party has an ownership interest, or (iv) between any Related Party
and any business (corporate or otherwise) with which any member of the
Acquired Group regularly does business.
SECTION 2.26 INTENTIONALLY OMITTED
SECTION 2.27 INTENTIONALLY OMITTED
SECTION 2.28 INTENTIONALLY OMITTED
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SECTION 2.29 Controlled Substances. Each member of the
Acquired Group and their respective partners, members, officers and directors,
and persons who provide professional services under agreements with any members
of the Acquired Group have not, in connection with their activities directly or
indirectly related to any members of the Acquired Group and in their
professional capacities only, as applicable, engaged in any activities which are
prohibited under the federal Controlled Substances Act, 21 U.S.C. ss. 801 et.
seq. or the regulations promulgated pursuant to such statute or any related
state or local statutes or regulations concerning the dispensing and sale of
controlled substances.
SECTION 2.30 Disclosure of Certain Financial Relationships.
Schedule 2.30 lists all material financial relationships (whether or not
memorialized in a writing) that any member of the Acquired Group has had with a
person known by such member of the Acquired Group to be a physician or an
immediate family member of a physician since January 1, 1993. For purposes of
this Section 2.30, the term "financial relationship" has the meaning set forth
in 42 USC ss. 1395nn.
SECTION 2.31 Brokers' or Finders' Fees. Except for the
financial advisory services provided to LHS, SHS and/or NFI by Equitable
Securities Corporation, all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by LHS and SHS
directly with the Company and WCAS VII, without the intervention of any
person on behalf of either LHS or SHS in such manner as to give rise to any
claim by any person against the Company or WCAS VII for a finder's fee,
brokerage commission or similar payment and all fees shall be satisfied by
LHS on the Closing Date as provided in Section 9.01 hereof.
SECTION 2.32 Disclosure. To the knowledge of LHS and each
member of the Acquired Group, no information appearing in this Agreement and
the Schedules pertaining to LHS, SHS and the Acquired Group attached hereto
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the information contained herein or therein not
misleading in any respect.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to LHS as follows:
SECTION 3.01 Organization, Power, Etc. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Company has the corporate power and authority
to execute and deliver this Agreement and the Transition Agreements to which it
is a party, to perform its obligations hereunder and thereunder.
SECTION 3.02 Authorization of Agreements, Etc. (a) the Company
has duly approved this Agreement and all the Transition Agreements to which the
Company is to be a party, and has duly authorized the execution and delivery of
this Agreement and the Transition Agreements to which the Company is to be a
party, and the consummation of the transactions contemplated hereby and thereby.
Neither the execution and delivery by the Company of this Agreement or the
Transition Agreements to which the Company is to be a party, nor the
consummation of the transactions contemplated hereby and thereby, will violate
any provision of law, any order of any court or other agency of government, the
Certificate of Incorporation or By-laws of the Company, or any judgment, award
or decree or any indenture, agreement or other instrument to which the Company
is a party, or by which it or any of its properties or assets is bound or
affected, or result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
SECTION 3.03 Validity. This Agreement has been duly executed
and delivered by the Company, and, subject to due execution by the other parties
thereto, constitutes, and the Transition Agreements to which the Company is a
party, when executed and delivered by the Company as contemplated hereby,
subject to due execution by the other parties thereto, will constitute, the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as enforceability may
be limited by bankruptcy or other laws affecting creditors' rights generally and
limitations on the availability of equitable remedies.
SECTION 3.04 Governmental Approvals. No order,
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authorization, approval or consent from, or filing with, any federal or state
governmental or public body or other authority having jurisdiction over the
Company is required to be made or obtained by the Company for the execution,
delivery and performance of this Agreement or is necessary in order to ensure
the legality, validity, binding effect or enforceability of this Agreement or
the Transition Agreements to which the Company is a party.
SECTION 3.05 Brokers' or Finders' Fees. All negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried out by the Company directly with the Purchasers, LHS and SHS without
the intervention of any person on behalf of the Company in such manner as to
give rise to any claim by any person against the Purchasers, LHS or SHS for a
finder's fee, brokerage commission or similar payment.
ARTICLE IV.
COVENANTS
SECTION 4.01 Certain Covenants of LHS and Acquired Group.
(a) Except for actions taken in connection with the Divestment Plan and the
Transition Agreements, and except for asset and liability transfers
consistent with minimizing adjustments to the Purchase Price pursuant to
Section 1.03(b) and (d), during the period from the date of this Agreement to
the Closing Date, LHS and SHS will cause each member of the Acquired Group to
(x) conduct its business and operations according to its ordinary course of
business consistent with past practice, including without limitation the
maintenance of inventory levels, the collection of third party accounts
receivable and the payment of third party accounts payable, (y) use its best
reasonable efforts to preserve its relationships with employees, customers
and suppliers, and (z) continue to provide its services to customers. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Closing Date LHS and SHS will not permit any member of
the Acquired Group to do any of the things listed in paragraphs (a) through
(p) of Section 2.07, except as otherwise contemplated by this Agreement.
(b) Between the date hereof and the Closing Date, LHS and SHS
shall provide reasonable access during normal business hours to the
representatives of the Company, WCAS VII and their counsel and accountants to
the financial, accounting and legal records of each member of the Acquired
Group, and, with the prior
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express consent of Mr. David Stevens, to key employees of each member of the
Acquired Group designated by WCAS VII, and, in connection therewith, shall
permit their respective representatives to visit the premises of each member of
the Acquired Group. Such activities shall be performed, so far as is reasonably
possible, in such a manner as to avoid disruption of normal operations.
(c) Unless otherwise contemplated by this Agreement, between
the date hereof and the Closing Date, LHS and SHS will not permit any member of
the Acquired Group to enter into any transaction, make any agreement or
commitment, or take any action, which they know would result in any of the
representations, warranties or covenants of LHS and SHS contained in this
Agreement not being true and correct in all material respects at and as of the
time immediately after the occurrence of such transaction, event or action.
SECTION 4.02 Covenants of the Company. (a) Between the date
hereof and until the consummation of the transaction contemplated by Section
1.01, the Company shall not enter into any transaction, make any agreement or
commitment, or take or omit to take any action, which they know would result in
any of the representations or warranties of the Company contained in this
Agreement not being true and correct in all material respects at and as of the
time immediately after the occurrence of such transaction, event, action or
omission.
(b) The Company hereby covenants and agrees that it will cause
LHS to be named as an additional insured under Company's policies of
malpractice, professional liability and comprehensive and general liability
insurance applicable to the business of NFI and the NFI Ventures, commencing as
of the Closing Date and continuing through the maximum applicable
indemnification periods described in Article VII hereof; and Company will
annually furnish LHS a certificate of such coverage.
(c) For a period of seven years after the Closing, Company
shall not, and shall not permit SHS, NFI or any of the NFI Ventures to, amend,
repeal or modify any provision in SHS's or NFI's or any of the NFI Ventures'
certificate of incorporation or bylaws or partnership agreements, as the case
may be, relating to the exculpation or indemnification of former officers and
directors in any manner which would reduce the protection provided thereby
(unless required by law), and Company shall cause SHS and NFI to maintain
director and officer liability insurance providing coverage to the individuals
who were officers and
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directors of SHS or NFI prior to the Closing Date comparable to the policy or
policies maintained by SHS or NFI immediately prior to the Closing; provided
that SHS and NFI shall be required to maintain or obtain such coverage only in
such amounts as shall be available for an annual premium cost equal to 150% of
the last annual premium paid by or on behalf of SHS and NFI prior to the Closing
Date.
SECTION 4.03 Hart-Scott-Rodino Act. If applicable, each of
the parties shall file any Notification and Report Forms and related material
that it may be required to file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the
Hart-Scott-Rodino Act, shall use its reasonable best efforts to obtain an
early termination of the applicable waiting period, and shall make any
further filings pursuant thereto that may be necessary, proper or advisable.
SECTION 4.04 Tax Matters. (a) Transfer Taxes. Any Tennessee
transfer taxes incurred by LHS in connection with the sale of the capital
stock of SHS to the Company pursuant to this Agreement shall be borne by LHS.
LHS shall prepare and file, at its own expense, all necessary tax returns and
other documentation with respect to all such transfer taxes.
(b) Tax Returns. (i) LHS shall prepare (or cause to be
prepared) and the Acquired Group shall timely file for all taxable periods
ending on or before the close of the Closing Date (a "Pre-Closing Period") all
Tax Returns required to be filed after the Closing Date by or on behalf of the
Acquired Group (the "Pre-Closing Period Tax Returns"). The preparation of such
Tax Returns and the positions taken thereon shall be consistent in all respects
with the Acquired Group's past tax accounting principles and practices.
(ii) The Company shall prepare and timely file (or cause to be
prepared and timely filed) for all taxable periods beginning before and ending
after the close of the Closing Date (a "Straddle Period"), all Tax Returns
required to be filed after the Closing Date by any member of the Acquired Group.
For purposes of this Agreement, the portion of the Straddle Period ending on and
including the Closing Date shall be referred to as the "Pre-Closing Straddle
Period" and the portion of the Straddle Period beginning after the Closing Date
shall be referred to as the "Post-Closing Straddle Period". Any such Taxes for a
Straddle Period with respect to a member of the Acquired Group shall be
apportioned to the Pre-Closing Straddle Period based on the
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actual operations of such member during the portion of such period ending on and
including the Closing Date, determined as though such member's books closed at
the close of the Closing Date. The cost and expenses of preparing any Tax Return
for a Straddle Period shall be borne by the Company.
(iii) All Tax Returns referred to in Sections 4.04(b)(i) shall
be subject to review and approval by the Company, and all Tax Returns referred
to in Section 4.04(b)(ii) which affect the liability of LHS or the Excluded
Group for Taxes pursuant to this Agreement or otherwise shall be subject to
review and approval by LHS, in each case prior to filing, and such approval
shall not be unreasonably withheld by either such party. The party charged with
responsibility to prepare a Tax Return subject to review (the "Preparing Party")
shall present such Tax Return to the other party (the "Reviewing Party") no less
than fifty (50) days prior to the due date (including extensions) for filing the
Tax Return. The parties shall cooperate with one another by making available for
review all related work papers and analyses utilized in preparing the Tax Return
and all related books, records and personnel for this purpose without cost.
Within fifteen (15) days after receipt of the Tax Return, the Reviewing Party
shall deliver a letter to the Preparing Party stating whether it concurs with
the Tax Return or, if not, stating its exceptions thereto, together with the
reasons and supporting information relating to such exceptions. If there are no
such exceptions or such exceptions are resolved by the parties, then such
resolution shall be the final determination. If such exceptions cannot be
resolved by the parties within ten (10) business days after delivery of the list
of exceptions, the dispute shall be submitted to an independent tax consultant
who shall make a final determination in accordance with the terms of this
Agreement within fifteen (15) days after submission to such independent tax
consultant. The independent tax consultant shall be one of the "Big Six" public
accounting firms or a law firm with a nationally recognized tax practice with no
material relationship to the parties or their affiliates, and such independent
tax consultant shall be chosen by agreement of the parties, or if they are
unable to agree, chosen by lot from an equal number of nominees submitted by
each party. The fees and expenses of the independent tax consultant shall be
allocated by it in inverse proportion to the adjustment granted the Reviewing
Party. For example, if such tax consultant grants a portion of the exceptions
proposed by the Reviewing Party that results in an adjustment to the amount of
Taxes owed that is 25% of the total adjustment to the amount of Taxes owed that
would have occurred had all of the Reviewing Party's proposed exceptions been
grant-
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ed, it shall assess the Reviewing Party with 75% of its fees and expenses. The
independent tax consultant's decision shall be final and binding upon, and
non-appealable by, the parties.
(c) Tax Payments. LHS shall pay all Taxes with respect to all
Tax Returns described in Section 4.04(b) attributable to Pre-Closing Periods or
apportioned to Pre-Closing Straddle Periods pursuant to Section 4.04(b)(ii) ten
(10) days prior to the respective due dates (excluding extensions or waivers
thereof) for such Taxes or, if later, when the respective Tax Returns reporting
such Taxes are filed, other than (x) any Taxes payable (the "Excluded Taxes") as
the result of any (i) events occurring on the Closing Date, but after the
Closing, outside of the ordinary course of business, (ii) election made (or
deemed made) under Section 338 of the Code or any comparable provision of state
or local law as a result of a qualified stock purchase of SHS or NFI by the
Company, (iii) any increase in Taxes resulting from SHS or NFI (or any other
entities controlled by SHS or NFI after the Closing) amending any Pre-Closing
Tax Returns without the prior written permission of LHS, and (iv) Direct Taxes
of NFI or the NFI Ventures and (y) Taxes which were previously paid through
estimated Tax payments. The term "Direct Taxes" shall mean all Taxes imposed on
NFI or the NFI Ventures and attributable solely to the items of income, gain,
loss, deduction and credit realized by NFI or the NFI Ventures, and the business
operations, activities and assets of NFI or the NFI Ventures, in each case
determined on a stand alone basis as if NFI were not a member of the SHS
consolidated group or otherwise affiliated with any member of the Group. In no
event shall the term "Direct Taxes" include any liability of NFI for Taxes of
SHS or any member of the Excluded Group pursuant to Treasury Regulations Section
1.1502-6 (or any successor provision), any similar provisions of state or local
law, as a transferee or successor, by contract or otherwise. The parties
acknowledge that any amounts shown on SHS's Estimated and Final Closing Balance
Sheets as a tax provision or receivable, advance or similar item from LHS
represent LHS's obligation with respect to Taxes under this Section 4.04(c) and
are neither an obligation which LHS shall be required to pay to SHS nor an asset
SHS shall be entitled to receive from LHS other than pursuant to Sections 4.04
and 7.02 hereof.
(d) Refunds. The Company agrees to, and shall cause SHS and
NFI to, cooperate in obtaining any refunds of Taxes (other than any Excluded
Taxes) for Pre-Closing Tax Returns and the Pre-Closing Straddle Periods and to
promptly remit to LHS any such refunds received by the Company, SHS or NFI, net
of any
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Taxes incurred by the Company, SHS or NFI. Any reasonable out-of-pocket costs or
expenses incurred by the Company, SHS or NFI in obtaining such refunds shall be
borne by LHS. In no event shall LHS be entitled to file an amended return or
otherwise make a claim for refund (or have such an amended return filed or such
claim made on its behalf) without the prior approval of the Company (which
approval shall not be unreasonably withheld) to the extent that such action
would increase the Tax liability of the Company or any member of the Acquired
Group for any taxable period or portion thereof following the Closing Date.
(e) Tax Characterization. Any payments made pursuant to (i)
this Section 4.04, (ii) the indemnity provisions of Article VII or (iii) the
purchase price adjustment provisions of this Agreement, shall be treated by each
of the parties hereto as an adjustment to the purchase price paid by the Company
for the Class A Shares for all Tax and financial accounting purposes. The
parties hereto agree to account for the transactions contemplated herein in a
manner consistent with all the provisions of this Agreement when filing their
respective Tax Returns and the Tax Returns of the Acquired Group.
(f) Post-Closing Audits and Other Proceedings. (i) LHS, on the
one hand, and Company on the other hand, each agrees, at its own expense (except
to the extent such expense, incurred to third parties, is subject to
indemnification pursuant to Section 7.2), to furnish or cause to be furnished to
each other, upon request, as promptly as practicable, such information and
assistance (including access to books and records) relating to the Acquired
Group and the Excluded Group as is reasonably necessary or is reasonably
requested for the preparation of any return for Taxes, any claim for refund or
any audit, and the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment.
(ii) LHS, on the one hand, and the Company, on the other hand,
each agree to give prompt notice to each other of any written inquiry by a Tax
authority, scheduling of an examination or proposed adjustment with respect to
Taxes for any Pre-Closing Period or any Pre-Closing Straddle Period. LHS and the
Company shall cooperate with each other in the conduct of any Tax audit or other
Tax proceedings involving SHS or the Acquired Group for such periods and each
may participate at its own expense; provided, however, that LHS shall have the
right to control the conduct of any such audits or proceedings to the extent
such audits or proceedings relate to a proposed adjustment that could adversely
affect the liability of LHS or the Excluded Group for Taxes
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pursuant to this Agreement or otherwise. The Company also may, at its own
expense, be present in any such audit or proceeding and, if LHS does not assume
the defense of any such audit or proceeding, the Company may defend the same in
such manner as it may deem appropriate, including, but not limited to, settling
such audit or proceeding after giving thirty (30) days' prior written notice to
LHS setting forth the terms and conditions of settlement, provided that LHS has
not objected within fifteen (15) days of receipt of such notice and assumed
control of the audit. In the event that a potential adjustment is present in and
audit or proceeding (otherwise controlled by LHS) for which the Company or any
member of the Acquired Group would be liable and not entitled to indemnification
hereunder, the Company shall have the right, at its expense, to control the
audit or proceeding with respect to such proposed adjustment. With respect to a
proposed adjustment which could adversely affect the liability of LHS or the
Excluded Group for Taxes pursuant to this Agreement or otherwise, on the one
hand, and the liability of the Company or any member of the Acquired Group for
Taxes pursuant to this Agreement or otherwise, on the other hand, (i) LHS and
the Company each may participate in the audit or proceeding, and (ii) any issues
with respect to the proposed adjustment or otherwise pertaining to the audit or
proceeding shall be decided jointly by LHS and the Company. Notwithstanding the
foregoing provisions of this Section, the parties to this Agreement shall
endeavor to agree on a joint representative or representatives in any proceeding
in which each is entitled to and desires to be represented.
(g) Miscellaneous Tax Issues. Notwithstanding any other
provision of this Agreement (i) the determination of the values placed on PTI,
HEI, CCI and any other assets transferred in connection with the Divestment Plan
shall be determined for Tax purposes solely by LHS and (ii) all Tax deductions
in respect of the repurchase by SHS of the shares of SHS Class B Stock,
cancellation of the Options and redemption of the Phantom Units, all pursuant to
the Divestment Plan, shall be claimed by SHS. In the event that any portion of
such deductions referred to in the immediately preceding clause (ii) are
reallocated to NFI pursuant to an adjustment by a Tax authority, the Company
shall pay to LHS the amount of any Tax benefit actually realized by the Company
or by the Acquired Group as a result of such reallocation at the time such
benefit is actually realized, but in no event shall the Company be obligated to
pay an aggregate amount pursuant to this sentence in excess of the Purchase
Price reduction pursuant to Section 1.03 hereof attributable to the provision
for Taxes made in the Final Closing Date Balance Sheet.
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Solely at the option of LHS, SHS shall make an election under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended, and any
similar provision of state or local law, with respect to the acquisition of PTI
by LHS, provided, however, that SHS shall be obligated to make such election
only if LHS arranges, at LHS' sole expense, for the Tax Return on which the
election is made to be signed as preparer by an accounting firm of national
reputation and such firm confirms that such election should not result in the
imposition of penalties upon a subsequent disallowance of such 338(h)(10)
election by a Tax authority. Such 338(h)(10) election shall be treated for all
purposes of this Agreement as part of the Divestment Plan.
ARTICLE V.
CONDITIONS PRECEDENT
SECTION 5.01 Conditions Precedent to the Obligations of the
Company5.01 Conditions Precedent to the Obligations of the Company. The
obligation of the Company to consummate the transactions contemplated by this
Agreement on the Closing Date are subject, at the option of the Company, to the
satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. Except to the
extent altered by the Divestment Plan and the Transition Agreements, the
representations and warranties of LHS and SHS contained in this Agreement, or in
any certificate or document delivered to the Company pursuant hereto or thereto
shall be true and correct in all material respects on and as of the Closing Date
as though made at and as of that date except as to items which are specific as
to time, and LHS and SHS shall each have so certified to the Company in writing.
(b) Compliance with Covenants. LHS and SHS shall have
performed and complied in all material respects with all terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
them at or prior to the Closing Date (including, without limitation, the
pre-Closing portions of the transactions contemplated by the Divestment Plan and
the Transition Agreements), and LHS and SHS shall have so certified to the
Company in writing.
(c) No Material Adverse Change. Except to the extent altered
by the Divestment Plan and the Transition Agreements and except for the transfer
of assets and liabilities intended to
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minimize adjustments to the Purchase Price pursuant to Sections 1.03(b) and (d),
on the Closing Date there shall not have been any material adverse change since
November 30, 1995, (i) in the financial condition or results of operations of
the business of any member of the Acquired Group or (ii) in the capacity of any
member of the Acquired Group to conduct such business in a manner consistent
with past practice, and LHS and SHS shall have certified to such effect to the
Company and the Purchasers in writing.
(d) Estimated Balance Sheet; Minimum Financial Requirements.
The Estimated Balance Sheet shall have been delivered to the Company and WCAS
VII.
(e) Outstanding Indebtedness. Except for an indebtedness in
the principal amount of $4,250,000 to Methodist Health Systems, Inc. which shall
be satisfied out of the proceeds of the sale of the Class A stock on the Closing
Date, no member of the Acquired Group shall have any existing indebtedness for
borrowed money to any party outside the Acquired Group or any liability under
any guaranty of any indebtedness of any party outside the Acquired Group,
provided, however, that NFI may have indebtedness for borrowed money to First
Tennessee Bank National Association in an amount not to exceed $7,200,000 under
a Promissory Note, Loan Agreement, Security Agreement and other related loan
documents dated as of November 30, 1994, as amended.
(f) All Proceedings To Be Satisfactory. All proceedings to be
taken by LHS and each member of the Acquired Group in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and its counsel,
Reboul, MacMurray, Hewitt, Maynard & Kristol, and the Company, and said counsel
shall have received all such counterpart originals or certified or other copies
of such documents as they may reasonably request.
(g) Opinions of Counsel for LHS, SHS and NFI. The Company
shall have received the opinions of McDermott, Will & Emery, counsel to LHS, and
Armstrong, Allen, Prewitt, Gentry, Johnston & Holmes, counsel to SHS and NFI,
addressed to the Company and dated the Closing Date, satisfactory in form and
substance to the Company and its counsel substantially in the forms attached as
Schedules 5.01(g)(1) and (2) hereto.
(h) Consents and Approvals. All authorizations, consents,
waivers and approvals required to be obtained by the Acquired Group without
which the Acquired Group would not be able
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to conduct its business after the Closing Date in substantially the same manner
as theretofore conducted shall have been duly obtained and shall be in form and
substance reasonably satisfactory to counsel, provided however, that neither LHS
nor any member of the Group shall be required to obtain any authorization,
consent, waiver or approval from any partner in any NFI Venture unless such
partner has such a right under its partnership agreement upon a change of
control.
(i) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened by any private party or by
any governmental department, agency or authority, in either case seeking to
restrain, prohibit, invalidate or otherwise affect the consummation of the
transactions contemplated hereby or seeking damages or which would, if adversely
decided, cause a Material Adverse Effect.
(j) Transition Agreements. Each of the agreements listed in
Schedule 6.02 (collectively the "Transition Agreements") shall have been duly
executed and delivered by all parties thereto other than the Company.
(k) Antitrust Improvements Act. The waiting period under the
Hart-Scott-Rodino Act, if applicable, shall have expired or been terminated.
(l) Supporting Documents. On or prior to the Closing Date, the
Company and its counsel shall have received copies of the following supporting
documents:
(i) (1) the charter documents of LHS, SHS and NFI, certified
as of a recent date by the Secretary of State of the State of
Tennessee; and (2) a certificate of the Secretary of State or
other appropriate official of the State of Tennessee as to the
due incorporation and existence of such corporation, and
listing all documents on file with said official;
(ii) a certificate of the Secretary or an Assistant Secretary
of LHS, SHS and NFI, dated the Closing Date and certifying (1)
that attached thereto is a true and complete copy of the
Charter and By-laws of such corporation as in effect on the
date of such certification; (2) that the Charter of such
corporation has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to
clause (i)(2) above; (3) that attached thereto is a true and
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complete copy of the resolutions adopted by the Board of
Directors of such corporation, authorizing the execution,
delivery and performance of this Agreement and the Transition
Agreements to which such corporation is a party and the
consummation of the transactions contemplated hereby and
thereby; and (4) as to the incumbency and specimen signature
of each officer of such corporation executing this Agreement,
any Additional Agreement, and any certificate or instrument
furnished pursuant hereto, and a certification by another
officer of said corporation as to the incumbency and signature
of the officer signing the certificate referred to in this
paragraph (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of any
member of the Acquired Group as the Company or its counsel may
reasonably request.
All such documents shall be reasonably satisfactory in form
and substance to the Company and its counsel.
SECTION 5.02 Conditions Precedent to the Obligations of
LHS. The obligation of LHS to consummate the transactions contemplated by
this Agreement on the Closing Date are subject, at the option of LHS, to the
satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of the Company contained in this Agreement or in
any certificate or document delivered to LHS pursuant hereto shall be true and
correct in all material respects on and as of the Closing Date as though made at
and as of that date except for items which are specific as to time and the
Company shall have so certified to LHS in writing.
(b) Compliance with Covenants. The Company shall have
performed and complied in all material respects with all terms, agreements,
covenants and conditions of this Agreement to be performed or complied with by
it at or prior to the Closing Date, and the Company shall have so certified to
LHS and SHS in writing.
(c) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened by any private party by any
governmental department, agency or authority, in either case seeking to
restrain, prohibit, invalidate or
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otherwise affect the consummation of the transactions contemplated hereby or
seeking damages which would, if adversely decided, cause a Material Adverse
Effect.
(d) Transition Agreements. Each of the Transition Agreements
shall have been duly executed and delivered by the Company and the Purchasers
party thereto.
(e) Antitrust Improvements Act. The waiting period under the
Hart-Scott-Rodino Act, if applicable, shall have expired or been terminated.
(f) Supporting Documents. On or prior to the Closing Date, LHS
and its counsel shall have received copies of the following supporting
documents:
(i) (1) the charter documents of the Company certified as of a
recent date by the Secretary of State of the State of
Delaware; and (2) a certificate of the Secretary of State or
other appropriate official of the State of Delaware as to the
due incorporation and good standing of the Company, and
listing all documents on file with said official;
(ii) a certificate of the Secretary or an Assistant Secretary
of the Company, dated the Closing Date and certifying (1) that
attached thereto is a true and complete copy of the
Certificate of Incorporation and By-laws of the Company as in
effect on the date of such certification; (2) that the
Certificate of Incorporation of the Company has not been
amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (i)(2) above; (3)
that attached thereto is a true and complete copy of the
resolutions adopted by the Board of Directors of the Company,
authorizing the execution, delivery and performance of this
Agreement and the Transition Agreements to which the Company
is a party and the consummation of the transactions
contemplated hereby and thereby; and (4) as to the incumbency
and specimen signature of each officer of the Company
executing this Agreement, any Additional Agreement, and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the
certificate referred to in this paragraph (ii); and
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(iii) such additional supporting documents and other
information with respect to the operation and affairs and
capitalization of Company as LHS or its counsel may reasonably
request.
All such documents shall be reasonably satisfactory in form
and substance to LHS and its counsel.
(g) Disposition of PTI, HEI and CCI. SHS shall have disposed
of its entire interest in PTI, HEI and CCI and each Venture in which any of them
owns an equity interest.
(h) No Breach. Neither WCAS VII nor the Company shall have
asserted any breach by LHS of any representation or warranty contained in this
Agreement or any document delivered pursuant to this Agreement or any failure by
LHS to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by LHS hereunder.
(i) All Proceedings To Be Satisfactory. All proceedings to be
taken by Company, WCAS VII and each member of the Group in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to LHS and its counsel, McDermott,
Will & Emery, and LHS and said counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
(j) Opinion of Counsel For Company and WCAS VII. LHS shall
have received the opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol,
counsel to WCAS VII and Company, addressed to LHS and dated the Closing Date,
satisfactory in form and substance to LHS and its counsel substantially in the
form attached as Schedule 5.02(i) hereto.
ARTICLE VI.
THE DIVESTMENT PLAN;
THE TRANSITION PLAN
SECTION 6.01 The Divestment Plan. On or prior to the Closing
Date, LHS and SHS shall take or cause the following actions to be taken (herein
collectively referred to as the "Divestment Plan"):
(a) Redemption of Certain SHS Shares. SHS shall
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redeem all of the shares of Class B Stock owned by the Other Shareholders who do
not elect to exchange such shares pursuant to the Subscription Agreement. Such
redemption shall be effected against delivery to SHS of the certificates
evidencing the shares so tendered, duly endorsed in blank.
(b) Cancellation of Class B Stock Options. Set forth on
Schedule 6.01(b) is a list of the holders (the "Option Holders") of all
outstanding Class B Stock options (the "Options") issued pursuant to the SHS
Amended and Restated Class B Common Stock Option Plan and the SHS Class B Common
Stock Option Plan. SHS shall cause all Option Holders to tender to SHS for
cancellation, the number of Options set forth opposite the name of such Option
Holder in Schedule 6.01(b) hereto under the heading "Number of Options." Such
tender shall be effected by delivery to SHS of the executed option agreement
evidencing the Options so tendered. Payments to all Option Holders pursuant to
this Section 6.01(b) shall be made after withholding for or on account of taxes
and such other deductions as may be required under applicable federal, state and
local law.
(c) Redemption of Growth Plan Participants. Set forth on
Schedule 6.01(c), is a list of the holders (the "Unit Holders") of all
outstanding phantom units of Class B Stock (the "Phantom Units") granted
pursuant to the SHS Growth Plan. SHS shall liquidate the Phantom Units by paying
to each Unit Holder the amount set forth opposite such Unit Holder's name in
Schedule 6.01(c) hereto under the heading "Liquidation Price," and each Unit
Holder shall in return execute and deliver to SHS a certificate, in a form
reasonably acceptable to SHS, acknowledging such payment to the Unit Holder and
the termination of the Unit Holder's rights in and to such Phantom Units.
Payments to all Unit Holders pursuant to this Section 6.01(c) shall be made
after withholding for or on account of taxes and such other deductions as may be
required under applicable federal, state and local law.
(d) Satisfaction of Certain Indebtedness. The respective
member or members of the Group shall satisfy any and all indebtedness for
borrowed money existing under the notes, loan agreements, security instruments
and other loan documents set forth on Schedule 6.01(d), and shall obtain, from
the respective creditors, the release and discharge of any security interests
granted therein.
(e) Elimination of Intercompany Balances. With the exception
of those amounts set forth in Schedule 6.01(e) or owed under the Transition
Agreements described in Schedule 6.02, all
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intercompany balances (i) owed by or to any member of the Acquired Group, on the
one hand, and LHS and any member of the Excluded Group, on the other hand, or
(ii) owed by and between members of the Acquired Group, shall be repaid,
extinguished or contributed to capital.
(f) Divestiture of the Excluded Group. SHS shall have disposed
of any and all of SHS's ownership interest in and to the capital stock of, or
other equity interests in, each member of the Excluded Group, without the
assumption, retention or incurrence by any member of the Acquired Group of any
liabilities or indemnification obligations in connection therewith other than
those described in Schedule 6.01(f) hereof. An agreement substantially in the
form of Annex IV attached hereto shall have been executed and delivered by the
parties thereto.
SECTION 6.02 The Transition Agreements. In order to facilitate
that immediately following the Closing Date the Acquired Group will be able to
continue to conduct its business and operations according to its ordinary course
of business consistent with past practice, on or prior to the Closing Date LHS
and SHS shall cause the various members of the Acquired Group and the Excluded
Group to take the requisite actions and enter into the various agreements (the
"Transition Agreements") set forth on Schedule 6.02.
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ARTICLE VII.
INDEMNIFICATION
SECTION 7.01 Survival of Representations and Warranties.
The representations and warranties made by LHS in this Agreement or pursuant
hereto or in any certificate delivered pursuant hereto SHALL NOT SURVIVE the
Closing Date, except for its representations and warranties contained in
Section 2.01(a), Sections 2.02(a) and 2.03 to the extent they pertain to LHS,
and Section 2.04(b), which shall survive for the statute of limitations
applicable thereto. Simultaneously with the Closing of the transactions
contemplated herein, WCAS VII and the Company, on behalf of themselves, the
Acquired Group, the shareholders of the Company and their respective
successors and assigns, agree they shall be deemed to have waived and
released any and all claims any of them might have asserted pursuant to this
Agreement or in connection with the transactions contemplated hereby, whether
before or after the Closing, based on facts or circumstances either (i)
constituting a breach of any such representation or warranty, except as
provided in Sections 7.02, 7.03 and 7.06 or (ii) previously disclosed to the
Company.
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SECTION 7.02 Tax Indemnity. (a) LHS agrees to and shall
indemnify and hold harmless the Company and each member of the Acquired Group
(collectively the "Indemnitees"), from and against any and all Taxes (other
than Excluded Taxes) (i) imposed on or incurred by LHS, any member of the
Acquired Group or any member of the Excluded Group for any taxable year or
taxable period ending on or prior to the close of the Closing Date (including
any short periods up to and including the close of the Closing Date and any
Pre-Closing Straddle Period), (ii) imposed on or incurred by LHS, or any
member of the Excluded Group, the Company, or any member of the Acquired
Group arising out of the consummation of the Divestment Plan and (with the
exception of transfer Taxes incurred by the Company other than as provided in
Section 4.04(a)) the purchase contemplated hereby, (iii) imposed on or
incurred by the Company, SHS or NFI with respect to (x) any item of deferred
income or gain recognized at any time on or following the Closing Date
pursuant to Treasury Regulations Sections 1.1502-13 and 1.1502-13T (or any
successor provisions) and any similar provisions of state or local law, to
the extent attributable to any "intercompany transactions" between or among
any members of the Excluded Group and SHS or NFI occurring on or prior to the
Closing Date, or (y) the recognition of income or gain in respect of any
"excess loss account" in the shares of stock of NFI at any time on or
following the Closing Date pursuant to Treasury Regulations Section 1.1502-19
(or any successor provision) and any similar provisions of state or local
law, but not in excess of an amount equal to the "excess loss account" in the
shares of stock of NFI immediately following the Closing, and (iv) reasonable
attorneys' fees and expenses with respect to contesting any of the
indemnified Taxes referred to in clauses (i), (ii) and (iii) above incurred
by the Company, any member of the Acquired Group or WCAS VII, as well as any
applicable interest, penalty or additional charge with respect to such Taxes.
(b) LHS shall not be required to indemnify the Indemnitees in
respect of any Tax until there occurs a Final Determination (as defined below)
of the liability of the Indemnitees for the Tax (and any interest, penalties and
additions to the Tax) asserted to be payable as a result of any proposed
adjustment, unless LHS elects not to contest or defend against the proposed
adjustment of the Tax. A "Final Determination" shall mean (i) a decision,
judgment decree or other order by any court of competent jurisdiction, which
decision judgment, or decree or other order has become final after all allowable
appeals by either party to the action have been exhausted or the time for filing
such appeal has expired, (ii) a closing agreement entered into
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under Section 7121 of the Internal Revenue Code, or any other settlement
agreement entered into in connection with an administrative or judicial
proceeding with the consent of LHS, or (iii) the expiration of the time for
instituting a claim for refund, or if such claim was filed, the expiration of
the time for instituting a suit with respect thereto. If LHS elects to protest a
proposed adjustment by paying the Tax claimed or to make a deposit in the nature
of a cash bond with respect to any proposed adjustment (a "Tax Deposit"), the
Indemnitees shall, upon the receipt of such Tax Deposit from LHS, promptly remit
such Tax Deposit to the tax authority or court, as requested by LHS, and
properly designate the nature of such amount. Any interest expense which is
stopped as a result of such Tax Deposit shall be for the account of LHS. If the
Indemnitees subsequently receive a refund, in whole or in part, of the Tax
Deposit or interest, penalties, or additions to Tax paid with funds advanced by
LHS, the Indemnitees shall within thirty (30) days of such receipt pay to LHS
the amount of such refund, plus the amount of any additional interest received
thereon. Within thirty (30) days after a Final Determination of, or the election
of LHS not to contest or defend against, the liability of the Indemnitees for
which LHS is required to make an indemnity payment hereunder LHS shall pay the
Indemnitees any excess of such full amount due over any advances or Tax Deposits
previously made by LHS (net of any prior return to LHS of such advances or Tax
Deposits) pursuant to this indemnity and any other payments previously made by
LHS with respect to such Taxes. The Company shall cooperate fully with LHS in
obtaining any refund or return of any Tax Deposits previously made by LHS where
so requested by LHS. In the event that any Tax Deposit made by LHS has been
applied to any Taxes payable by the Company or a member of the Acquired Group
which are not subject to indemnification under this Section 7.02, the Company
shall pay to LHS an amount equal to the portion of the Tax Deposit so applied,
together with any applicable interest savings actually realized by the Company
or a member of the Acquired Group as a result of such application of the Tax
Deposit, within thirty (30) days following the day on which such Taxes would
have otherwise been paid, but for the application of such Tax Deposit, by the
Company or the member of the Acquired Group, as the case may be.
(c) If, as a result of a governmental audit or examination or
adjustment, an item of income is accelerated into a Pre-Closing Straddle Period
or an earlier period from a Post-Closing Straddle Period or later period, or an
item of deduction or credit is disallowed or deferred from a Pre-Closing
Straddle Period or earlier period into a Post-Closing Straddle Period or
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later period, such shift in taxable periods shall not give rise to an
indemnifiable claim by WCAS VII, Company or any member of the Acquired Group.
If, as a result of a governmental audit or examination or adjustment, an item of
income is deferred from a Pre-Closing Straddle Period or earlier period to a
Post-Closing Straddle Period or later period, or an item of deduction or credit
is disallowed or accelerated from a Post-Closing Straddle Period or later period
into a Pre-Closing Straddle Period or earlier period, the Company shall be
entitled to file an amended Tax Return or otherwise claim a refund or credit,
and retain all such amounts for its own account, in respect of any reduction in
Taxes in such Pre-Closing Straddle Period or earlier period to the extent
attributable to such shift in Tax items.
(d) Anything in this Agreement to the contrary
notwithstanding, the provisions of Section 4.04 and this Section 7.02 shall
survive until the expiration of the applicable Tax statute of limitation period
(including any extensions thereof) for the Taxes referred to herein, and any
Taxes subject to indemnification under this Section 7.02 shall not be subject to
the provisions of Sections 7.03 and 7.04 hereof.
SECTION 7.03 General LHS Indemnity. Subject to the terms
and conditions of this Article VII, LHS agrees to and will indemnify, defend
and hold the Company and each member of the Acquired Group harmless from and
against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including without
limitation interest, penalties and reasonable attorneys' fees and expenses
(hereinafter collectively called "Damages"), asserted against, resulting to,
imposed upon or incurred by the Company, WCAS VII and/or any member of the
Acquired Group, resulting from or arising out of (i) a breach of the
representations and warranties made by LHS in Section 2.01(a), Sections
2.02(a) and 2.03 to the extent that they pertain to LHS, and Section 2.04(b),
(ii) the management or operation by SHS of the business of, or the furnishing
of services by LHS or SHS to, any member of the Excluded Group, (iii) SHS's
capacity as a shareholder of any member of the Excluded Group, and (iv) the
Divestment Plan or any actions or transactions taken in connection therewith
(or the failure to take any action contemplated thereby), except (A) the
actions under Sections 6.01(a), (b) and (c) with the SHS employees who will
continue to be employed by SHS or another member of the Acquired Group on or
after the Closing Date, (B) the retention of indebtedness and security
interests by any member of the Acquired Group to the extent contemplated by
this Agreement and (C) liabilities (other than liabilities for Taxes which
are
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subject to indemnification under Section 7.02) accruing under the Divestment
Plan to any member of the Acquired Group (other than liabilities incurred by SHS
or NFI with respect to members of the Excluded Group). In no event shall LHS be
obligated hereunder for the inaccuracy of pro-forma financial information or the
failure of projected financial information to come true.
SECTION 7.04 Conditions of Indemnification. The obligations
and liabilities of LHS (herein sometimes called the "indemnifying party"), to
the Company and each member of the Acquired Group (herein sometimes
collectively called the "party to be indemnified") under Section 7.03 hereof
with respect to claims resulting from the assertion of liability by third
parties shall be subject to the following terms and conditions:
(a) within 20 days after receipt of notice of (i) commencement
of any action or (ii) the assertion of any claim by a third party, the
party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other
legal pleading (provided that failure so to notify the indemnifying
party of the assertion of a claim within such period shall not affect
its indemnity obligation hereunder except as and to the extent that
such failure shall adversely affect the defense of such claim), and the
identifying party shall have the right to undertake the defense thereof
by representatives of its own choosing who shall be reasonably
satisfactory to the indemnified party;
(b) in the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the tenth
day preceding the day on which an answer or other pleading must be
served in order to prevent judgment by default in favor of the person
asserting such claim), does not elect to defend against such claim, the
party to be indemnified will (upon further notice to the indemnifying
party) have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of
the indemnifying party, subject to the right of the indemnifying party,
with the consent of the indemnified party, to assume the defense of
such claim at any time prior to settlement, compromise or final
determination thereof;
(c) anything in this Section 7.04 to the contrary
notwithstanding, (i) if there is a reasonable probability that a claim
may materially and adversely affect the indem-
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nified party other than as a result of money damages or other money
payments, the indemnified party shall have the right, at its own cost
and expense, to compromise or settle such claim, but (ii) the
indemnified party shall not, without the prior written consent of the
indemnifying party, settle or compromise any claim or consent to the
entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the
indemnifying party a release from all liability in respect of such
claim; and
(d) in connection with any such indemnification, the
indemnified party will cooperate in all reasonable requests of the
indemnifying party.
SECTION 7.05 General Provisions Relating to Indemnification.
(a) The party entitled to indemnification shall take all
reasonable steps to mitigate all indemnifiable liabilities and damages upon and
after becoming aware of any event which could reasonably be expected to give
rise to any liabilities or damages that are indemnifiable hereunder. No party
shall be entitled to indemnification to the extent of any insurance, federal or
state income tax deductions or credits arising from the indemnifiable event (to
the extent that any savings from such deduction or credit is actually realized)
or net proceeds of actions against third parties by Company or any member of the
Acquired Group based on pre-Closing Date facts; such indemnified party agrees to
timely notify the insurance carrier and diligently prosecute claims against the
insurance carrier without regard to the possibility of indemnification
hereunder.
(b) Neither Company, nor any member of the Acquired Group
shall make any claim against LHS for indemnification to the extent that the
basis thereof has resulted in a purchase price adjustment pursuant to Section
1.03 hereof, nor shall any of them make any claim against LHS for
indemnification of any item incurred by an NFI Venture until such Venture has
exhausted its remedies against its other partners.
(c) No claim may be made against LHS for indemnification for
any individual claim unless such claim, or group of related claims, exceeds
$1,000.
SECTION 7.06 Exclusive Remedies. The rights of the parties
under Article I, and Section 4.04 and the indemnification
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rights provided in this Article VII shall be the exclusive remedy of the Parties
pursuant to this Agreement with respect to any dispute arising out of or related
to this Agreement, except for (a) the right to seek specific performance of any
of the agreements contained herein, (b) any case where one party has defrauded
the other, and (c) any remedies available under applicable federal and state
securities statutes.
SECTION 7.07 General Company Indemnity. Subject to the terms
and conditions of this Article VII, the Company agrees to and will indemnify,
defend and hold LHS and each member of the Excluded Group harmless from and
against all Damages asserted against, resulting to, imposed upon or incurred by
LHS and/or any member of the Excluded Group, resulting from or arising out of
(i) a breach of the representations, warranties or covenants made by the Company
in this Agreement or any document delivered by or for it pursuant to this
Agreement or (ii) any claim by any third party which should not have been made
because of Section 7.01 hereof.
ARTICLE VIII.VIII.
TERMINATION AND ABANDONMENT
SECTION 8.01 Termination8.01 Termination. This Agreement may
be terminated at any time prior to the closing on the Closing Date:
(a) by the mutual consent of the Company and LHS; or
(b) by either the Company or LHS if the Closing Date shall not
have occurred on or before June 14, 1996 or such later date as may be
agreed upon by them; provided, however, that the right to terminate
this Agreement under this clause (b) shall not be available to any
party (a "Defaulting Party") whose failure (or whose affiliate's or
affiliates' failure) to fulfill any obligation under this Agreement has
been the cause of, or resulted in the failure of the Closing to occur
on or before such date.
No such termination shall affect the liability hereunder of any Defaulting
Party.
SECTION 8.02 Procedure and Effect of Termination. In the
event of termination of this Agreement and abandonment of the transactions
contemplated hereby pursuant to Section 8.01 above, written notice thereof
shall forthwith be given to the other
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parties to this Agreement and this Agreement shall terminate and the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto. If this Agreement is terminated as provided in this
Agreement:
(a) the parties hereto will promptly redeliver all documents,
work papers and other material of any other party relating to the
transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same; and
(b) no party shall have any liability or further obligation to
any other party to this Agreement pursuant to this Agreement except as
provided in Section 8.01 above or Section 9.01.
50
<PAGE>
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, none of the parties hereto
shall have any obligation to pay any of the fees and expenses of any other
party incident to the negotiation, preparation and execution of this
Agreement, including the fees and expenses of counsel, accountants,
investment bankers and other experts , except as hereinafter provided or as
otherwise provided in Section 1.03(e). If such transactions are consummated,
then the Company shall pay the fees and expenses of (i) Reboul, MacMurray,
Hewitt, Maynard & Kristol for its legal services to the Company and the
Purchasers, (ii) Epstein, Becker & Green, P.C. for its legal services to the
Company and the Purchasers, and (iii) subject to the provisions of Section
1.03(e), E&Y for its accounting and other related services to the Company and
the Purchasers. LHS will pay the fees and expenses of (i) Equitable
Securities Corporation for its financial advisory services to LHS, SHS and/or
NFI, (ii) McDermott, Will & Emery for its legal services to LHS. NFI will pay
the fees and expenses of McDermott, Will & Emery and Armstrong, Allen,
Prewitt, Gentry, Johnston & Holmes for its legal services to the Group, to
the extent that any such fees and expenses which have not been paid on May
31, 1996 are accrued on the Closing Balance Sheet. LHS will indemnify the
Company, each Purchaser and, to the extent the transactions contemplated by
this Agreement are consummated, each member of the Acquired Group and hold
each of them harmless from and against any claims for finders' fees or
brokerage commissions in relation to or in connection with such transactions
as a result of any agreement or understanding between LHS, SHS or NFI and any
third party. The Company and WCAS VII will indemnify LHS and SHS and hold
each of them harmless from and against any claims for finders' fees or
brokerage commissions in relation to or in connection with such transactions
as a result of any agreement or understanding between the Company or any
Purchaser and any third party.
SECTION 9.02 Publicity. The parties hereto agree to
cooperate in issuing any press release or other public announcement
concerning this Agreement or the transactions contemplated hereby. Each party
shall furnish to the other drafts of all such press releases or announcements
prior to their release. In the case of any press release or communication
proposed to be made (i) by LHS or any of its subsidiaries or affiliates
(including
51
<PAGE>
without limitation any member of the Group) relating to the transactions
contemplated by this Agreement, the prior consent (which shall not be
unreasonably withheld) of WCAS VII shall be obtained with respect to the timing
and contents thereof, or (ii) by the Company or WCAS VII relating to the
transactions contemplated by this Agreement, the prior consent (which shall not
be unreasonably withheld) of LHS shall be obtained with respect to the timing
and contents thereof. Nothing contained herein shall prevent any party from at
any time furnishing any information required by any governmental authority.
SECTION 9.03 Execution in Counterparts. For the convenience
of the parties, this Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
SECTION 9.04 Notices. All notices which are required or may
be given pursuant to the terms of this Agreement shall be in writing and
shall be sufficient in all respects if (i) delivered personally, (ii) mailed
by registered or certified mail, return receipt requested and postage
prepaid, (iii) sent via a nationally recognized overnight courier service or
(iv) sent via facsimile confirmed in writing to the recipient, in each case
as follows:
If to LHS, to:
850 Poplar Avenue
Memphis, Tennessee 38105
Facsimile No.: (901) 572-5994
Attention: Mr. Eugene K. Cashman, Jr.
with a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606-5096
Facsimile No.: (312) 372-2097
Attention: Alan J. Olson, Esq.
If to SHS, to:
1620 Century Center Parkway, Ste. 109
Memphis, Tennessee 38134
52
<PAGE>
Facsimile No.: (901) 385-3776
Attention: Mr. David D. Stevens
with a copy to:
Armstrong, Allen, Prewitt, Gentry,
Johnston & Holmes
Brinkley Plaza
80 Monroe Avenue, Suite 700
Memphis, Tennessee 38103-2467
Facsimile No.: (901) 524-4936
Attention: Thomas W. Bell, Jr., Esq.
and to:
Alan J. Olson, Esq.
at his Chicago address
If to any Purchaser, to its address appearing in Annex I hereto, with a
copy to:
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Facsimile No.: (212) 841-5725
Attention: William J. Hewitt, Esq.
or such other address or addresses as any party shall have designated by notice
in writing to the other parties. All notices shall be deemed to have been or
made when delivered by hand or courier or when sent by facsimile, or, if mailed,
five business days after being so mailed.
SECTION 9.05 Waivers. Either LHS or WCAS VII may, by
written notice to the other, and without the consent of any other party
hereto, (i) extend the time for the performance of any of the obligations or
other actions of the other under this Agreement, (ii) waive any inaccuracies
in the representations or warranties of the other contained in this Agreement
or in any document delivered pursuant to this Agreement, (iii) waive
compliance with any of the conditions or covenants of the other contained in
this Agreement, or (iv) waive performance of any of the obligations of the
other under this Agreement. Except as provided in the preceding sentence and
in
53
<PAGE>
Section 7.01, no action taken pursuant to this Agreement, including without
limitation any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
SECTION 9.06 Amendments. This Agreement may be amended,
without the consent of any other party, only by an instrument in writing
signed by WCAS VII, the Company and LHS.
SECTION 9.07 Entire Agreement. This Agreement, its
Exhibits, Schedules and Annexes, the other agreements referred to in Section
5.01 and the documents and agreements executed on the Closing Date in
connection herewith, constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral and written, between the parties hereto
with respect to the subject matter hereof other than paragraph 10 of the
letter dated December 20, 1995, among WCAS VII, LHS and NFI, which shall
continue to apply only in so far as it relates to full-time officers or
managers of LHS.
SECTION 9.08 APPLICABLE LAW. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, EXCLUSIVE OF THE CONFLICTS OF LAWS PROVISIONS THEREOF.
SECTION 9.09 Binding Effect; Benefits. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
SECTION 9.10 Assignability. Neither this Agreement nor any
of the parties' rights hereunder shall be assignable by any party hereto
without the prior written consent of the other parties hereto.
54
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
NOVA HOLDINGS, INC.
By: /s/ Nova Holdings, Inc.
--------------------------------
Title:
LE BONHEUR HEALTH SYSTEMS, INC.
By: /s/ Le Bonheur Health Systems, Inc.
--------------------------------
Title:
SOUTHERN HEALTH SYSTEMS, INC.
By: /s/ Southern Health Systems, Inc.
----------------------------------
Title:
WELSH CARSON, ANDERSON &
STOWE VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By: /s/ WCAS VII Partners, L.P.
--------------------------------
<PAGE>
Exhibit 10.15
MODIFICATION AGREEMENT
In connection with, and in modification of, the Stock Purchase
Agreement, dated as of May 31, 1996, among Le Bonheur Health Systems, Inc.
("LHS"), Southern Health Systems, Inc., Nova Holdings, Inc. (the "Company) and
Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII"), (the "Agreement") the
undersigned hereby agree as follows:
1. Terms which are defined in the Agreement are used herein
with their meanings as so defined.
2. Pursuant to Section 1.01 of the Agreement, the Purchase
Price has been adjusted downward by $858,032.
3. Closing Date Cash, as shown on the Estimated Closing
Balance Sheet delivered pursuant to Section 1.03(a) of the Agreement, is
$1,500,000.
4. The Estimated Closing Balance Sheet shows Closing Date
Equity of $2,873,562.
5. Pursuant to Section 1.03 of the Agreement, the Purchase
Price is accordingly further adjusted downward by $426,438 to $38,715,530.
6. WCAS VII hereby confirms that the Purchasers have today
transferred the adjusted Purchase Price of $38,715,530 to Reboul, MacMurray,
Hewitt, Maynard & Kristol, ("RMHMK") counsel for the Purchasers and the Company,
to be held for the account of the Company. RMHMK acknowledges receipt of such
amount. The Company hereby unconditionally promises to pay $38,715,530 to LHS,
or order, by wire transfer of immediately available funds on Monday, June 3,
1996, and irrevocably instructs and authorizes RMHMK to transfer such amount by
wire to or for the account of LHS in satisfaction of such obligation, such
transfer to be in accordance with instructions received by RMHMK from Eugene K.
Cashman, president of LHS. RMHMK further agrees to pay to LHS the interest
actually earned on investment of such amount for the period May 31 - June 3
promptly after the same has been received.
7. If the above described funds are not paid to the order of
LHS prior to the close of business on June 3, 1996, then the closing of the
Agreement shall be deemed not to have occurred and the Agreement shall be
automatically terminated.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Modification Agreement as of May 31, 1996.
NOVA HOLDINGS, INC.
By: /s/ Nova Holdings, Inc.
----------------------------------
Title:
LE BONHEUR HEALTH SYSTEMS, INC.
By: /s/ Le Bonheur Health Systems, Inc.
------------------------------------
Title:
SOUTHERN HEALTH SYSTEMS, INC.
By: /s/ Southern Health Systems, Inc.
----------------------------------
Title:
WELSH CARSON, ANDERSON &
STOWE VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By: /s/ WCAS VII Partners, L.P.
----------------------------------
REBOUL, MACMURRAY, HEWITT,
MAYNARD & KRISTOL
(Solely with respect to its
obligations under Section 6.)
By: /s/ Reboul, MacMurray, Newitt, Maynard & Kristol
------------------------------------------------
<PAGE>
Exhibit 10.16
AGREEMENT
This AGREEMENT is made and entered into as of this 31st day of
May, 1996, by and among, Le Bonheur Health Systems, Inc., a Tennessee
not-for-profit corporation ("LHS"); PharmaThera, Inc., a Tennessee corporation
("PharmaThera"); Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware limited
partnership ("WCAS VII"); Southern Health Systems, Inc., a Tennessee corporation
("SHS"); Nova Factor, Inc., a Tennessee corporation ("Nova Factor"); and Nova
Holdings, Inc., a Delaware corporation (the "Company"). SHS, Nova Factor and the
Company are referred to herein as the "Purchaser Group."
WHEREAS, LHS, SHS, WCAS VII, and the Company have entered into
a Stock Purchase Agreement pursuant to which the Company will purchase all of
the shares of capital stock of SHS owned by LHS (the "Purchase Agreement");
WHEREAS, prior to closing of the Purchase Agreement, LHS will
acquire PharmaThera from SHS;
WHEREAS, in order to protect the value of PharmaThera and Nova
Factor after closing of the Purchase Agreement the parties agreed to certain
covenants set forth herein;
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions
1.1 In this Agreement, the following terms shall mean
the following:
(a) "Distributed Drugs Business" shall mean the business of
marketing, advertising, selling, distributing or otherwise providing (1) the
drugs listed on Schedule 1.1(b) (which shall be deemed to include all present or
future hemophilia drugs) and (2) prescribed Premium drugs distributed or sold
pursuant to a contract whereby the drug's manufacturer or distributor has
granted the pharmacy an exclusive or Preferred right to distribute or act as a
dealer, agent or representative for one or more drugs, whether or not title to
such drug passes to the pharmacy. A Preferred right is defined as a right
granted to four or fewer entities to distribute drugs from the manufac-
<PAGE>
turer or the manufacturer's distributor. A Premium drug is a pharmaceutical with
an average monthly sales price per patient exceeding $749. The Distributed Drugs
Business also includes those ancillary medical supplies and oral medications
that are prescribed with the disease therapy which uses such drugs listed on
Schedule 1.1(b) or such Premium Drugs.
(b) "Infusion Therapy Business" shall mean the business of
marketing, advertising, selling, leasing, renting, distributing or otherwise
providing prescribed services ordered by a physician in the provision of the
following drugs and therapies: parenteral and enteral nutrition therapy,
antibiotics, anti-infectives, chemotherapeutic agents, narcotic analgesics,
drugs for congestive heart failure, terbutaline drug therapy, hydration therapy,
pain management therapy, and chelation therapy, along with the required medical
equipment and supplies to administer, provide care or monitor patients.
(c) "Territory" shall mean the states of Alabama, Arkansas,
Florida, Georgia, Mississippi, Tennessee or Texas, and a radius of two hundred
(200) miles from any of PharmaThera's current pharmacies, offices, warehouses or
other staffed locations, regardless of which states such territory may include.
1.2 In addition to the terms defined in Section 1.1 hereof,
other terms defined elsewhere in this Agreement shall have the meanings set
forth therein. Terms defined in the Purchase Agreement but not defined herein
shall have the meanings set forth in the Purchase Agreement, including the terms
"Excluded Group" and "Acquired Group".
2. Confidentiality
(i) Proprietary and Confidential Information
of Company .
Except as permitted under this Agreement, the Purchase
Agreement or any agreement entered into pursuant to the Purchase Agreement, WCAS
VII and each member of the Purchaser Group agrees, severally and not jointly,
that from and after the date hereof (which agreement shall be binding on any
purchaser of all or substantially all of their respective assets), it shall not,
directly or indirectly, use or disclose to any third party any of the
proprietary or confidential information of PharmaThera or its consolidated
partnerships, (Texas Health Infusion Resources, Teddy Bear Home Care/Infusion
2
<PAGE>
or Campus Home Care/Infusion L.L.C.), except when, after, and only to the extent
that: (a) such proprietary or confidential information is or becomes generally
available to the public through no fault of it; or (b) such information is
required to be used or disclosed in connection with any tax returns heretofore
or hereafter filed, or (c) which use or disclosure is required by court order or
applicable law. As used herein, the term "proprietary or confidential
information" shall include present or prospective market, sales, product,
customer and referral source information; prices and pricing structure;
contractual arrangements; operating information, policies, procedures and
practices; financial information; product and process knowledge; cost and
supplier information; personnel data; and any strategy or plans related to any
of the foregoing) which has not been generally available or disclosed to the
public by PharmaThera.
(ii) Proprietary and Confidential Information
of Nova Factor .
Except as permitted under this Agreement, the Purchase
Agreement or any agreement entered into pursuant to the Purchase Agreement, each
of LHS and Pharmathera agrees that from and after the date hereof, it shall not,
directly or indirectly, use or disclose to any third party any of the
proprietary or confidential information of SHS, Nova Factor, CM Factor Care,
Kid's Home Care Partnership, Texas Health Pharmaceutical Resources, Teddy Bear
Home Care/Drug Therapies, or Campus Home Health Care Home Hemophilia L.L.C.,
except when, after, and only to the extent that: (a) such proprietary or
confidential information is or becomes generally available to the public through
no fault of it; or (b) such information is required to be used or disclosed in
connection with any tax returns heretofore or hereafter filed, or (c) which use
or disclosure is required by court order or applicable law. As used herein, the
term "proprietary or confidential information" shall include present or
prospective market, sales, product, customer and referral source information;
prices and pricing structure; contractual arrangements; operating information,
policies, procedures and practices; financial information; product and process
knowledge; cost and supplier information; personnel data; and any strategy or
plans related to any of the foregoing) which has not been generally available or
disclosed to the public by WCAS VII, the Company, SHS or Nova Factor.
3
<PAGE>
2.1 No Solicitation.
(i) Commencing on the date hereof and continuing for a period
of three years thereafter, each member of the Purchaser Group agrees, severally
and not jointly, that it shall not directly or indirectly, hire, offer to hire,
or entice away, or in any other manner persuade or attempt to persuade, any
officer or manager of the Excluded Group who devotes a majority of his or her
time to the Infusion Therapy Business in the Territory to discontinue his or her
relationship with such entity. It is understood and agreed that the prohibitions
contained in this Section 2.1(i) shall apply to all current and future officers
and managers of the Excluded Group (including, but not limited to, any former
officer or manager of the Excluded Group), whether or not any such person is
then currently an officer or manager of the Excluded Group or whether any such
prohibited activity is in connection with employment, an offer of employment or
other action within or outside the Territory.
(ii) Commencing on the date hereof and continuing for a period
of three years thereafter, PharmaThera agrees that it shall not directly or
indirectly, hire, offer to hire, or entice away, or in any other manner persuade
or attempt to persuade, any officer or manager of the Acquired Group, to
discontinue his or her relationship with such entity. It is understood and
agreed that the prohibitions contained in this Section 2.1 (ii) shall apply to
all current and future officers and managers of such entities (including, but
not limited to any former officer or manager of such company or entity), whether
or not any such person is then currently an officer or manager of such company
or whether any such prohibited activity is in connection with employment, an
offer of employment or other action within or outside the Territory.
3. Covenants Not to Compete
3.1 Covenant.
(a) Each member of the Purchaser Group agrees (which
covenants shall be binding on any purchaser of all or substantially all of their
respective assets), severally and not jointly, that, commencing on the date
hereof and continuing for a period of three (3) years thereafter, it will not,
directly or indirectly, engage in the Infusion Therapy Business in the
Territory. For purposes of this Article 3, PharmaThera shall
4
<PAGE>
include Texas Health Infusion Resources, Teddy Bear Home Care/Infusion and
Campus Home Care/Infusion, L.L.C.
(b) Without limiting the generality of the provisions of
Section 3.1(a) hereof, this Covenant Not to Compete shall be construed so that a
member of the Purchaser Group shall also be in breach hereof if (i) it is a
controlling shareholder, investor, trustee, agent, principal or partner of, or a
consultant or advisor to or for, or a manager for, a person, firm, corporation,
partnership, joint venture, association, trust or other entity which is engaged
in the Infusion Therapy Business in the Territory, or (ii) it consents, in its
capacity as a general partner, to a change of the purposes of a consolidated
general partnership to enable such partnership to enter the Infusion Therapy
Business in the Territory. Notwithstanding anything to the contrary contained in
this Section 3.1(b), a member of the Purchaser Group shall not be deemed to be
in breach of this Covenant Not to Compete (i) solely by reason of owning an
interest of less than one percent (1%) of the shares of any company traded on a
national securities exchange or in the over the counter market, or (ii) if it
engages in Infusion Therapy Business activities for patients of physicians who
(or whose practices) are, or become associated with or receive management or
administrative services from Care Matrix Group, a California corporation or
subsidiaries or affiliates thereof.
(c) PharmaThera hereby agrees, commencing on the date
hereof and continuing for a period of three (3) years not to, directly or
indirectly, engage in the Drug Distribution Business within the United
States, nor sell or distribute (i) Pulmozyme-Registered Trademark- for
patients of any consolidated partnerships or entities managed by Nova Factor
or (ii) Lilly Humatrope-Registered Trademark- growth hormone for patients of
any of the consolidated partnerships or entities managed by Nova Factor.
(d) Without limiting the generality of the provisions of
Section 3.1 (c) hereof, the PharmaThera Covenant Not To Compete shall be
construed so that PharmaThera shall also be in breach thereof if (i) it is a
controlling shareholder, investor, trustee, agent, principal or partner of, or a
consultant or advisor to or for, or a manager for, a person, firm, corporation,
partnership, joint venture, association, trust or other entity which is engaged
in the Drug Distribution Business or (ii) it consents, in its capacity as a
general partner, to a change of the purposes of a consolidated general
partnership to enable such partnership to enter the Drug Distribution Business
in the
5
<PAGE>
Territory. Notwithstanding anything to the contrary contained in this Section
3.1(c), PharmaThera shall not be deemed to be in breach of this Covenant Not to
Compete solely by reason of owning an interest of less than one percent (1%) of
the shares of any company traded on a national securities exchange or in the
over the counter market.
(e) The prohibitions of this Article 3 shall not include
Lupron-Registered Trademark-.
3.2 Remedies.
Each party agrees that the remedy at law for any breach of
obligation under this Covenant Not to Compete will be inadequate and that in
addition to any other rights and remedies to which it may be entitled hereunder,
at law or in equity, each party shall be entitled to injunctive relief, and
reimbursement for all reasonable attorneys' fees and other expenses incurred in
connection with the enforcement hereof. It is the intention of the parties that
these Covenants Not to Compete be fully enforceable in accordance with these
terms and that the provisions thereof be interpreted so as to be enforceable to
the maximum extent permitted by applicable law. To the extent that any
obligation to refrain from competing within an area for a period of time is held
invalid or unenforceable, it shall, to the extent that it is invalid or
unenforceable, be deemed void ab initio. The remaining obligations imposed by
the provisions of the Covenants Not to Compete shall be fully enforceable as if
such invalid or unenforceable provisions had not been included herein and shall
be construed, to the extent possible, such that the purpose of the Covenants Not
to Compete, as intended by the Parties, can be achieved in a lawful manner.
4. Governing Law
The interpretation and performance of this Agreement shall be
governed by the laws of the State of Tennessee, without giving effect to its
conflicts of law provisions. Each party hereby agrees that any claims, demands,
lawsuits, proceedings and controversies arising from or relating to this
Agreement shall exclusively be brought and heard in federal or state courts of
general jurisdiction located in Shelby County in the State of Tennessee, and
each party hereby consents to the subject matter and personal jurisdiction of
such courts in respect thereof.
5. Notice
6
<PAGE>
All notices, requests, demands, reports, statements, consents,
approvals, or other communications required to be given hereunder or relating to
this Agreement shall be given as provided in the Purchase Agreement.
6. Non-Waiver
The failure of any party hereto to enforce at any time any of
the provisions of this Agreement shall not be construed to be a waiver of any
such provisions, nor in any way affect the validity of this Agreement or any
part hereof or the right of any party thereafter to enforce any such provisions.
No waiver of any breach of this Agreement shall be deemed a waiver of any other
or subsequent breach, whether of the same provision or otherwise.
7. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding on the parties hereto and their respective successors
and assigns.
8. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
Le Bonheur Health Systems, Inc.
By: /s/ Le Bonheur Health Systems, Inc.
--------------------------------------
Title:
Southern Health Systems, Inc.
By: /s/ Southern Health Systems, Inc.
--------------------------------------
Title:
Nova Factor, Inc.
By: /s/ Nova Factor, Inc.
--------------------------------------
Title:
PharmaThera, Inc.
By: /s/ PharmaThera, Inc.
--------------------------------------
Title:
Welsh, Carson, Anderson
& Stowe VII, L.P.
By: /s/ Welsh, Carson, Anderson & Stowe VII, L.P.
----------------------------------------------
Title:
Nova Holdings, Inc.
By: /s/ Nova Holdings, Inc.
--------------------------------------
Title:
8
<PAGE>
Schedule 1.1(b)
- - Protropin-Registered Trademark-, Nutropin-Registered Trademark-
- - Ceredase-Registered Trademark-, Cerezyme-Registered Trademark-
- - Avonex-Registered Trademark-, Betaseron-Registered Trademark-,
Copaxone-Registered Trademark-
- - Myotrophin-Registered Trademark-
- - Rilutek-Registered Trademark-
- - Hemophilia industry: distribution of any blood clotting
pharmaceutical, ancillary medical supplies and other related products
and services as prescribed by a physician and required for the
administration of product to hemophilia patients.
9
<PAGE>
Exhibit 10.17
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
among
DIANNE R. MARTZ
A.B. CHARLTON, III
NOVA HOLDINGS, INC.
and
HORIZON HEALTH SYSTEMS, INC.
Dated as of June 5, 1997
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of June 5, 1997 among DIANNE MARTZ
("Martz"), A. B. CHARLTON, III ("Charlton"), NOVA HOLDINGS, INC., a Delaware
Corporation and an affiliate of Welsh Carson Anderson & Stowe VII, L.P. (the
"Company"), and HORIZON HEALTH SYSTEMS, INC. ("Horizon"). Martz and Charlton
are sometimes referred to herein individually as "Seller" and collectively as
"Sellers"."
WHEREAS, Sellers collectively own all of the issued and outstanding
capital stock of Horizon; and
WHEREAS, Sellers wish to sell to the Company, and the Company wishes to
purchase from Sellers, all of the shares of capital stock of Horizon owned by
Sellers for cash on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I.
PURCHASE OF HORIZON SHARES BY THE COMPANY FROM SELLERS;
ADJUSTMENT TO PURCHASE PRICE;
CLOSING DATE
SECTION 1.01 Purchase and Sale of Horizon Shares. Subject to the terms
and conditions hereinafter set forth, on the Closing Date, Sellers agree to
sell to the Company, and the Company agrees to purchase from Sellers, all of
the issued and outstanding shares (consisting of 100 shares of No Par Common
Stock), of Horizon (the "Shares"), for an aggregate price of Twenty-Nine
Million ($29,000,000.00) Dollars (the "Purchase Price"), such price being
subject to increase or decrease as provided in Section 1.03. As payment in
full for the shares, the Company shall, against delivery of a certificate or
certificates evidencing the Shares from Martz and Charlton registered in the
Company's name, pay an amount equal to the aggregate purchase price for the
Shares as follows:
(a) Two Million Nine Hundred Thousand ($2,900,000.00) Dollars shall
be placed in escrow to be disbursed pursuant to the Escrow Agreement which
is attached hereto as Annex I and made a part hereof. Upon the first
anniversary of the Closing Date if no claims have been made against the
escrowed funds, the amount held in escrow shall be
2
<PAGE>
reduced by one half to One Million Four Hundred Fifty Thousand
($1,450,000.00) Dollars.
(b) A part of the Purchase Price equal to the balance of the Refunds
Payable, as defined in Section 4.01(d), which remain outstanding
at the Closing Date shall be placed in a separate escrow fund to be
dispersed pursuant to the Refunds Payable Escrow Agreement which is
attached hereto as Annex II and made a part hereof.
(c) 79% of the balance of the Purchase Price as adjusted shall be paid
to Martz and 21% of the balance of the Purchase Price as adjusted
shall be paid to Charlton.
Sellers and Horizon acknowledge that in connection with its acquisition
of the Stock, the Company intends to obtain certain financing from
NationsBank of Tennessee, N.A. (the "Bank"). In order to facilitate the
Company's transaction with the Bank, the closing of the sale of the Stock
shall be conducted in three steps, which are intended to occur immediately
one after the other as follows:
(a) The Purchase Price to be paid at Closing pursuant to this Section
1.01 shall be paid to the respective Sellers in the form of notes
(the "Temporary Notes"), in substantially the form of Exhibit 1.01
hereto, in an aggregate principal amount of the Purchase Price,
payable 79% to Martz and 21% to Charlton. The Temporary Notes shall
be secured only by a pledge to Sellers of 79 shares and 21 shares
of Stock, respectively.
(b) Immediately after the delivery of the Temporary Notes Buyer shall
consummate its loan transaction with the Bank.
(c) Immediately following the events described in (a) and (b) above,
Buyer shall retire the Temporary Notes in accordance with the terms
thereof.
SECTION 1.02 Other Agreements. In addition to the transactions to occur
on the Closing Date pursuant to Section 1.01, each of the Other Agreements
listed in Schedule 5.01 shall be executed and delivered by the parties
thereto on the Closing Date concurrently with the consummation of such
transactions.
SECTION 1.03 Adjustment to Purchase Price.
(a) Horizon shall have delivered to Company five (5) days prior to
Closing an estimated balance sheet of Horizon as of the Closing Date (the
"Estimated Closing Balance Sheet") which is
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attached as Schedule 1.03. The Estimated Closing Balance Sheet was prepared,
based on good faith estimates, in accordance with generally accepted
accounting principles consistently applied with those used in the preparation
of the audited and unaudited financial statements for Horizon referred to in
Section 2.05, and (i) is intended to fairly present, in all material
respects, the estimated balance sheet of Horizon as of the Effective Date.
Refunds Payable, as defined in Section 4.01(d) shall be shown as a liability
on the Estimated Closing Balance Sheet to the extent not paid prior to the
Effective Date, and the Four Hundred Fifty Thousand ($450,000.00) Dollars
accrued payable to the Martz for the 1996 bonus shall have been paid or
otherwise eliminated. Horizon will consult with Company and the Memphis
office of Ernst & Young LLP ("E&Y") as to all pro forma adjustments (and will
provide all such information and supporting data in connection therewith as
Company or E&Y may request.
(b) If the Estimated Closing Balance Sheet shows (i) Cash other than
Eight Hundred Thousand ($800,000.00) Dollars, or (ii) Equity other than Four
Million Five Hundred Thousand ($4,500,000.00) Dollars, then on the Closing
Date the Purchase Price, shall be adjusted as and to the extent provided in
the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Equity Cash Balance Purchase Price Adjustment
<S> <C> <C>
- --------------------------------------------------------------------------------
4.5 million $800,000.00 None
- --------------------------------------------------------------------------------
4.5 million More than $800,000.00 None
- --------------------------------------------------------------------------------
4.5 million Less than $800,000.00 Reduce by cash shortfall
- --------------------------------------------------------------------------------
More than 4.5 million $800,000.000 None
- --------------------------------------------------------------------------------
More than 4.5 million More than $800,000.00 Increase by cash excess,
but not more than equity
excess
- --------------------------------------------------------------------------------
More than 4.5 million Less than $800,000.00 Reduce by cash shortfall
- --------------------------------------------------------------------------------
Less than 4.5 million $800,000.00 Reduce by equity shortfall
- --------------------------------------------------------------------------------
Less than 4.5 million More than $800,000.00 Reduce by equity shortfall
- --------------------------------------------------------------------------------
Less than 4.5 million Less than $800,000.00 Reduce by greater shortfall
- --------------------------------------------------------------------------------
</TABLE>
In addition, if at the Effective Date the external bank indebtedness of
Horizon is less than Two Million Five Hundred Thousand ($2,500,000.00)
Dollars, the amount by which said external bank debt is less than Two Million
Five Hundred Thousand ($2,500,000.00) Dollars shall be added to the Purchase
Price to be paid at the Closing. Conversely, if the external bank debt of
Horizon shall exceed Two Million Five hundred Thousand ($2,500,000.00)
Dollars at the Effective Date, the Purchase Price shall be reduced dollar for
dollar for all external bank debt in
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excess of Two Million Five Hundred Thousand ($2,500,000.00) Dollars.
(c) As promptly as practicable, but in no event later than sixty (60)
days after the Closing Date, Horizon will cause to be prepared and delivered
to Sellers a final balance sheet for Horizon as of the Effective Date (the
"Final Closing Balance Sheet"). The Final Closing Balance Sheet will be
audited by Price & Associates and, except as indicated therein, will be
prepared in accordance with generally accepted accounting principles applied
consistently with those used in the preparation of the audited financial
statements of Horizon, and will (i) fairly present, in all material respects,
the actual balance sheet of Horizon as of the Effective Date, (ii) reflect
any other modification, change or addition agreed to between Sellers and the
Company, and (iii) include a recalculation of Cash and Equity. Refunds
Payable, as defined in Section 4.01(d) shall be shown as a liability on the
Final Closing Balance Sheet to the extent not paid prior to the Effective
Date, and the Four Hundred Fifty Thousand ($450,000.00) Dollars accrued
payable to Martz for the 1996 bonus shall be paid or eliminated. Sellers
will consult with the Company as to all final adjustments which shall be
reasonably satisfactory to Sellers. The Final Closing Balance Sheet shall be
accompanied by a report of Price & Associates stating that the Final Closing
Balance Sheet has been prepared in accordance with this Section 1.03(c) and
shall be subject to Section 1.03(e).
(d) If the Final Closing Balance Sheet shows (y) Cash other than as
shown on on the Estimated Closing Balance Sheet, or (z) Equity other than as
shown on the Estimated Closing Balance Sheet, the Purchase Price shall be
recalculated as provided in the table in Section 1.03(b), and any further
increase or decrease in the Purchase Price, after giving effect to the
adjustment provided in Section 1.03(b), shall be paid in cash by the Company
to the Sellers, or by Sellers to the Company, as the case may be. Any such
cash payment shall be made by the Company or Sellers, as the case may be, ten
(10) days after the later of delivery of the Final closing Balance Sheet
pursuant to paragraph (c) hereof or the resolution of any dispute in
accordance with Subsection (e) below by payment of such amount, in
immediately available funds, by wire transfer to an account designated in
writing by the Company or Sellers, as the case may be.
(e) In the event of a disagreement between Company and Martz and
Charlton as to the amounts determined pursuant to the Final Closing Balance
Sheet, Company and Sellers agree that they will designate another firm of
nationally recognized public accountants (other than Ernst & Young LLP and
any other firm with a material relationship to any of the parties) mutually
acceptable to Company and Sellers to review the Final Closing Balance Sheet
and the adjustments provided therein. Company and Sellers further agree that
the determinations of such accounting firm as to any disputed
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amounts shall be conclusive. The expenses of Price & Associates incurred in
connection with the matters described in Sections 1.03(a) and (c) above shall
be borne by Horizon (and an accrual therefor shall be reflected on the Final
Closing Balance Sheet), the expense of E&Y hereunder shall be borne by the
Company, and the expenses incurred by the accounting firm retained pursuant
to this Section 1.03(e) shall be shared by Sellers and the Company equally.
SECTION 1.04 Closing Date. The closing (herein the "Closing") of the
transactions described in Section 1.01 shall take place at the offices of
Bass, Berry & Sims, PLC, Nashville, Tennessee on June 5, 1997, effective as
of Midnight, May 31, 1997, Memphis time, ("Effective Date") or at such other
date and time as may be mutually agreed upon among the Company and Sellers
(such actual date and time of closing being herein called the "Closing Date").
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF SELLERS
Martz and Charlton hereby severally and jointly represent and warrant to
the Company as follows: (The representations and warranties of the Sellers
regarding matters pertaining to themselves in Sections 2.01, 2.02, 2.03, 2.04
or 2.35 are made severally and not jointly by Martz and Charlton,
respectively, each as to herself, or himself, and not as to the other.)
SECTION 2.01 Organization, Qualification and Corporate Power;
Subsidiaries.
(a) Martz is a resident of Nashville, Davidson County, Tennessee and
Charlton is a resident of Knoxville, Knox County, Tennessee, and each has the
power and authority to own the Shares and to execute, deliver and perform
this Agreement and the Other Agreements (as defined in Section 5.01(j)) to
which he or she is a party and to consummate the transactions contemplated
hereby and thereby.
(b) Horizon is a corporation duly incorporated and validly existing
under the laws of the State of Tennessee and is duly licensed or qualified as
a foreign corporation and is in good standing in each other jurisdiction in
which it owns or leases any real property or in which the nature of business
transaction by it makes such licensing or qualification necessary. Horizon
has the corporate power and authority to own and operate its properties and
to carry on its business as currently conducted, to execute, deliver and
perform this Agreement and the Other Agreements to
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which it is a party and to consummate the transactions contemplated hereby
and thereby.
(c) Except as set forth on Schedule 2.01(c) Horizon does not own any
shares of any corporation or other equity interest, either of record,
beneficially or equitably, in any association, partnership, limited liability
company, joint venture or other legal entity, or have any commitment to
acquire any such interest or to make any loans or capital contributions to
any such entity.
(d) Annexed hereto as Schedule 2.01(d) is a list of all Horizon Ventures
(each as hereinafter defined) setting forth the jurisdiction of its formation
and the record and beneficial ownership of all equity interests in such
entity. As used herein, the term "Horizon Venture" means any partnership,
limited liability company, joint venture or other entity in which Horizon
owns an equity interest.
Each Horizon Venture is duly organized under the laws of the
jurisdiction of its formation, validly existing and in good standing under
the laws of such jurisdiction. Each Horizon Venture has the requisite power
and authority, and the legal right, to own and operate its properties and to
carry on its business as currently conducted, and to execute and deliver any
of the Other Agreements to which it may be a party and to consummate the
transactions contemplated thereby. Each Horizon Venture is duly qualified to
do business and is in good standing in each jurisdiction in which the
property owned, leased or operated by it or the nature of its business, as
now being conducted, makes such qualification necessary. Except as set forth
in Schedule 2.01(d), no Horizon Venture owns any shares of any corporation or
any equity interest, either of record, beneficially or equitably, in any
association, partnership, limited liability company, joint venture or other
legal entity, or has any commitment to acquire any such interest or to make
any loans or capital contributions to any such entity.
SECTION 2.02 Authorization of Agreements, Etc. Except as set forth on
Schedule 2.02 the execution and delivery by Sellers and Horizon of this
Agreement and the Other Agreements to which it is a party, and the
performance by Sellers and Horizon of their obligations hereunder and
thereunder, have been duly authorized by all requisite corporate, shareholder
and other entity action required on the part of each and will not violate any
provision of law or any order of any court or other agency of government
applicable to Sellers or Horizon, the Charter or By-laws of Horizon, or any
provision of any indenture, agreement or other instrument to which Horizon or
Sellers or any of their respective properties or assets is bound, or conflict
with, result in a breach of, create any right of termination under or
constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument, or result in the creation
7
<PAGE>
or imposition of any lien, charge or encumbrance of any nature whatsoever
upon any of the properties or assets of Horizon or Sellers or result in any
suspension, revocation, impairment, forfeiture or nonrenewal of, or any
requirement to obtain, any Governmental Permit (as hereinafter defined).
SECTION 2.03 Validity. This Agreement has been duly executed and
delivered by Sellers and Horizon, and, subject to due execution by the
Company, constitutes, and with the Other Agreements, when executed and
delivered by Sellers and Horizon as contemplated hereby, subject to the due
execution by the other parties thereto (other than Horizon or Sellers), will
constitute, the legal, valid and binding obligations of Horizon and Sellers,
enforceable against them in accordance with their respective terms, except as
enforceability may be limited by bankruptcy or other laws affecting
creditors' rights generally and limitations on the availability of equitable
remedies.
SECTION 2.04 Capitalization: Ownership of Capital Stock.
(a) As of the date hereof, the authorized capital stock of Horizon
consists of One Thousand (1,000) shares of no par value Stock. One Hundred
(100) shares of stock have been duly and validly issued and are outstanding
and fully paid and non-assessable.
(b) The Shares are owned by Sellers free and clear of all liens,
charges, security interests or other encumbrances of any nature whatsoever
("Encumbrances"). All right, title and interest in and to the Shares is being
sold, assigned, transferred and delivered to the Company, and the Company
will receive valid title thereto, free and clear of any and all Encumbrances.
(c) Except as otherwise set forth in Schedule 2.04(c) hereto (i) no
subscription, warrant, option, convertible security or other right
(contingent or other) to purchase or acquire any shares of any class of
capital stock of Horizon is authorized or outstanding, (ii) there is not any
commitment of Horizon to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets, and (iii) Horizon has no obligation
(contingent or other to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
SECTION 2.05 Financial Statements. Horizon has previously delivered to
Company (i) audited financial statements for Horizon as of and for the years
ending December 31, 1995 and December 31, 1996, and (ii) unaudited financial
statements for Horizon as of, and for the three month period ended March 31,
1997 (collectively, with the reports thereon included therewith, the
"Financial Statements"). The Financial Statements (i) were prepared from the
8
<PAGE>
books and records of Horizon, and (ii) except as otherwise set forth in
Schedule 2.05 present fairly the financial position of Horizon as of the
respective dates specified therein, and the income, cash flows and
stockholders' equity for the respective periods then ended, all in conformity
with generally accepted accounting principles applied on a consistent basis.
Except as set forth in Schedule 2.05, since March 31, 1997, there has been no
material adverse change in the business, operations, properties or condition
(financial or other) of Horizon.
SECTION 2.06 Absence of Undisclosed Liabilities. Except as and to the
extent (i) reflected in the most recent balance sheet included in the
financial statements referred to in Section 2.05 hereof, (ii) incurred by
Horizon since the date of such balance sheet in the ordinary course of
business and consistent with past practice, or (iii) set forth in Schedule
2.06 hereto, Horizon has not incurred any material liabilities or obligations
of any kind or nature, whether known or unknown or secured or unsecured
(whether absolute, accrued, contingent or otherwise, and whether due or to
become due), of a nature customarily accrued, reserved against or disclosed
in a corporate balance sheet prepared in accordance with generally accepted
accounting principles, including without limitation any and all tax
liabilities due or to become due, whether incurred in respect of or measured
by the assets, income or receipts of Horizon for any period prior to the
close of business on May 31, 1997, or arising out of transactions entered
into or any state of facts existing prior thereto or transactions
contemplated by this Agreement.
SECTION 2.07 Absence of Certain Changes or Events. Since the date of
its most recent balance sheet referred to in Section 2.05 (the "Interim
Balance Sheet Date"). except (i) as otherwise set forth in Schedule 2.07
hereto, (ii) as otherwise expressly contemplated in this Agreement, or (iii)
as disclosed in the materials accompanying the Estimated Closing Balance
Sheet, Horizon has not.
(a) changed or amended its Charter or By-laws;
(b) borrowed any amount or incurred any material obligation or
liability (absolute or contingent), that would be required to be disclosed on
a balance sheet as of the date hereof prepared in accordance with generally
accepted accounting principles, except current liabilities incurred, and
liabilities under contracts entered into, in the ordinary course of business
and consistent with past practice;
(c) discharged or satisfied any lien, security interest, charge or
other encumbrance or incurred or paid any obligation or liability (absolute
or contingent), other than current liabilities shown on such balance sheet
and current liabilities incurred since
9
<PAGE>
that date in the ordinary course of business and consistent with the past
practice;
(d) mortgaged, pledged or subjected to any lien, security interest,
charge or other encumbrance any of its assets or properties (other than
Permitted LIens as defined in Section 2.09 below);
(e) sold, transferred, assigned, leased or otherwise disposed of any of
its material assets or properties, except for fair consideration in the
ordinary course of business and consistent with past practice, or acquired
any assets or properties, except in the ordinary course of business and
consistent with past practice;
(f) declared, set aside or paid any distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock
or redeemed or otherwise acquired any of its capital stock or split, combined
or otherwise similarly changed its capital stock or authorized the creation
or issuance of or issued or sold any capital stock or any securities or
obligations convertible into or exchangeable therefor, or given any person
any right to acquire any capital stock of such member, or agreed to take any
such action;
(g) made any distribution (whether in cash or property or any
combination thereof and whether in redemption or liquidation of an interest
or otherwise) to any person other than as permitted hereunder;
(h) made any investment of a capital nature, whether by purchase of
stock or securities, contributions to capital, property transfers or
otherwise, in any partnership, limited liability company, corporation or
other entity, or purchased any material property or assets;
(i) canceled or compromised any debt or claim other than in the
ordinary course of business consistent with past practice;
(j) waived or released any rights of material value, including without
limitation, any Intangible Rights (as defined in Section 2.10(b) below);
(k) transferred or granted any rights under or with respect to any
Intangible Rights, or permitted any license, permit or other form of
authorization relating to an Intangible Right to lapse;
(l) made or granted any wage or salary increase applicable to any group
or classification of employees generally, entered into any employment
contract with, made any loan to, or entered into any material transaction of
any other nature with, any officer or employee of Horizon;
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(m) suffered any casualty loss or damage (whether or not such loss or
damage shall have been covered by insurance) which affects in any material
respect its ability to conduct its business;
(n) suffered any material losses, or waived any rights of substantial
value, whether or not in the ordinary course of business;
(o) received notification of cancellation, or cancelled or waived any
rights which, individually or in the aggregate, are material with respect to
any currently existing agreement, contract, right or understanding to which
Horizon is a party; or
(p) entered into any transaction except in the ordinary course of
business; or conducted the business of Horizon in any manner other than the
ordinary course of business consistent with past practices, including without
limitation, maintenance of inventory levels, collection of third party
accounts receivable and payments of accounts payable.
(q) suffered any other change, event, or condition which, in any case or
in the aggregate, has had or is reasonably expected to have a material
adverse effect on its condition (financial or otherwise), properties, assets,
liabilities, operations, business or prospects.
Notwithstanding these restrictions, Horizon may have made cash
disbursements outside the ordinary course of business provided that the
minimum financial requirements set out in Sections 5.01(e) and (m) are
satisfied on the Closing Date, after giving effect to the adjustment
provisions of Section 1.03 above.
SECTION 2.08 Governmental Approvals. Except as set forth in Schedule
2.08 hereto and other than pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended from time to time (the
"Hart-Scott-Rodino Act"), if applicable, no order, authorization, approval,
license or consent from, or filing with, any federal or state governmental or
public body or other authority having jurisdiction over Sellers or Horizon,
(i) is required for the execution, delivery and performance of this Agreement
or any of the Other Agreements, (ii) is required for the consummation of the
transactions contemplated hereby and thereby, (iii) is necessary in order to
ensure the legality, validity, binding effect or enforceability of this
Agreement or any of the Other Agreements to which Sellers or Horizon is a
party.
SECTION 2.09 Title to Properties, Absence of Liens and Encumbrances.
Horizon does not own any real property. Horizon has (or upon consummation of
the transactions to occur on the Closing Date pursuant to Section 1.10, will
have) good and valid title to all its other assets and properties, in each
case free and clear of all Encumbrances, other than (w) as set forth in
Schedule 2.09, (x)
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liens for taxes not yet due or, if due, being contested in good faith by
appropriate proceedings, or (y) mechanics', materialmen's, landlord's and
similar statutory liens arising in the ordinary course of business, or
(z) liens, pledges or deposits under workers' compensation, unemployment
insurance, social security or similar legislation, and all of which, in the
aggregate, would not have a material adverse effect on the business,
properties or condition (financial or other) of Horizon (a "Material Adverse
Effect") (the liens described in clauses (w), (x), (y) and (z) above,
together with liens that are released at or before Closing, being referred to
herein as "Permitted Liens").
SECTION 2.10 List of Properties, Contracts and Other Data. Attached
hereto as Schedule 2.10 is a list setting forth the following:
(a) a description of all leases of real or personal property to which
Horizon is a party, either as lessee or lessor, including a description of
the parties to each such lease, the property to which each such lease
relates, and the rental term and monthly (or other) rents payable under each
such lease;
(b) (i) all patents, trademarks and trade names, business names,
trademark and trade name registrations, logos, service mark registrations,
copyright registrations, trade secrets and all other material proprietary
rights other than such rights relating to Software (as hereinafter defined)
set forth in Schedule 2.13 hereto (collectively, "Intangible Rights") owned
by Horizon (specifying the nature of the rights therein), and (ii) all
licenses granted by or to Horizon and all other material agreements to which
Horizon is a party that relate, in whole or in part, to any Intangible Rights
mentioned in clause (i) above or to other proprietary rights material to
Horizon, whether owned by Horizon or otherwise;
(c) all collective bargaining agreements, employment and consulting
agreements, independent contractor agreements (other than such agreements
entered into in the ordinary course of business and which are terminable
without penalty upon not more than 30 days notice), executive compensation
plans, bonus plans, deferred compensation agreements, severance obligations,
employee pension plans or retirement plans, employee profit sharing plans,
employee stock purchase and stock option plans, group life insurance,
hospitalization insurance or other similar plans or arrangements maintained
for or providing benefits to employees of, or independent contractors or
other agents for, Horizon; and
(d) all contracts, including without limitation guarantees, mortgages,
indentures and loan agreements, to which Horizon is a party, or to which
Horizon or any of its assets or properties is subject and which are not
specifically referred to in clauses (a), (b), or (c) above, provided however,
that there need not be listed in said Schedule 2.10 pursuant to this clause
(d) any sales
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contracts, supply contracts with suppliers and other such contracts incurred
in the ordinary course of business and consistent with past practice, other
than any such contract which (i) is a contract or group of related contracts
which exceeds $10,000.00 in amount, (ii) contains warranties by Horizon in
excess of those customary in its business, or (iii) cannot be performed in
the normal course within 12 months after the Closing Date without breach or
penalty.
True and complete copies of all documents and complete descriptions of
all binding oral commitments (if any) referred to in said Schedule 2.10 have
been made available to the Company and its counsel. All material provisions
of the contracts referred to in such Schedule are valid and enforceable
obligations of Horizon, and, to the knowledge of Sellers of the other parties
thereto. As used in this Agreement, "to the knowledge of Sellers" or any
similar phrase shall in regard to Martz mean, include and refer to such
knowledge as: (i) is actually possessed by Martz, or (ii) which should be
known to Martz through the exercise of reasonable diligence. Martz is deemed
to have knowledge of information contained in the books and records of
Horizon and any information actually known to any director of Horizon or Kyle
Callahan, Vice President; Donna Ligda, Vice President; David Price, Chief
Financial Officer; Deborah Rogers, Manager of Administrative Services; Roger
Bryan, Manager of Purchasing and Inventory; Carolyn Eaton, Director of
Pharmacy and Reimbursement; the two Regional Sales Managers of Horizon and
Nona Eastman, the former Controller. As used in this Agreement "to the
knowledge of Sellers", or any similar phrase shall in regard to Charlton,
mean, include and refer to such knowledge as is actually possessed by
Charlton. Except as set forth in Schedule 2.10, neither Sellers nor Horizon
has been notified of any claim that any contract referred to in such Schedule
is not valid and enforceable in accordance with its terms for the periods
stated therein, or that there is under any such contract any existing
material default or event of default or event which, with notice or lapse of
time or both, would constitute such a default.
SECTION 2.11 Third Party Payer and Supplier Contracts. Except as set
forth in Schedule 2.11, Horizon has not lost any customer, third-party payer
or drug supplier contract since March 31, 1997, or suffered any diminution in
its relationship with any third party payer since that date, and, to the
knowledge of Sellers and, Sellers have received no express indication that
any specific customer, third-party payer or drug supplier intends to cease
doing business with Horizon in the event of a sale or change of ownership of
Horizon.
SECTION 2.12 Intangible Rights. Except as set forth in Schedule 2.12
(i) there are no outstanding options, licenses or agreements of any kind
relating to the Intangible Rights, and Horizon is in compliance with its
material contractual obligations relating to the protection of such of the
Intangible Rights used by
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it pursuant to licenses or other contracts, (ii) Horizon owns or has the
right to use its Intangible Rights to provide and sell the goods and services
provided and sold by it, and to conduct its business as heretofore conducted,
and the consummation of the transactions contemplated hereby will not alter
or impair its ownership or right to use any such Intangible Rights, (iii) the
use of said Intangible Rights by Horizon is without infringement of the
rights of others, and no claims are currently being asserted with respect to
the use by Horizon of any of the Intangible Rights for patent, copyright or
trademark infringement, and (iv) to the knowledge of Sellers, no person is
infringing on or violating the Intangible Rights or know-how owned by Horizon.
To the knowledge of Sellers, no Horizon employee is obligated under any
contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict with his or her obligation to use
his best efforts to promote the interest of Horizon or that would conflict
with the business of Horizon now conducted. Neither the execution and
delivery of this Agreement nor the carrying on of the business of Horizon by
the employees of Horizon, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated.
SECTION 2.13 Software. The operating and applications computer software
programs and databases used by Horizon in the conduct of its business
(collectively, the "Software") are listed on Schedule 2.13 hereto. Except as
set forth in Schedule 2.13 hereto, Horizon holds valid licenses to all copies
of such Software material to its business, and has not sold, licensed, leased
or otherwise transferred or granted any interest or rights to any thereof.
Except as set forth in Schedule 2.13 hereto, none of the Software owned by
Horizon infringes upon or violates any patent, copyright, trade secret or
other proprietary right of any other person and no claim with respect to any
such infringement or violation is threatened.
Upon consummation of the transactions contemplated by this Agreement,
Horizon will continue to own all the Software owned by it and material to its
business, free and clear of all claims, liens, encumbrances, obligations and
liabilities (other than Permitted Liens) and, with respect to all agreements
for the lease or license of Software which require consent or other actions
as a result of the consummation of the transactions contemplated by this
Agreement in order for Horizon to continue to use and operate such Software
after the Closing Date, Horizon will have obtained such consents or taken
such other actions so required except where the failure to obtain such
consent would not have a Material Adverse Effect on Horizon.
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SECTION 2.14 Litigation.
(a) Schedule 2.14 hereto sets forth a complete list and an accurate
description of all claims, actions, suits, proceedings and investigations
pending or, to the knowledge of Sellers, threatened, by or against Horizon or
any of its properties, assets, rights, or businesses. No such pending
threatened claims, actions, suits, proceedings or investigations, if adversely
determined, would individually or in the aggregate, have a Material Adverse
Effect.
(b) There are no actions, suits, proceedings or claims pending before
or by any court, arbitrator, regulatory authority or government agency
against or affecting Sellers or Horizon that might enjoin or prevent the
consummation of the transactions contemplated by this Agreement or the Other
Agreements to which Sellers or Horizon is a party.
SECTION 2.15 Taxes.
(a) Except as set forth in Schedule 2.15, (i) Horizon has duly and timely
filed or caused to be filed all tax returns, reports, estimates and
information and other statements or returns (collectively, "Tax Returns"), of
which the failure to file would have a Material Adverse Effect on Horizon,
required to be filed by or on behalf of its (and all such Tax Returns with
respect to which Horizon or its assets and properties may be liable or
otherwise subject), pursuant to any applicable federal, state, and local tax
laws for all years and periods for which such Tax Returns have become due
(with extensions) as of the date hereof, and (ii) all such Tax Returns
(including all informational Tax Returns) were true, correct and complete in
all material respects as filed and correctly reflect in all material respects
the Tax or Taxes required to be paid or collected by Horizon.
(b) For purposes of this Agreement, "Tax" and "Taxes" shall mean any
net income, unincorporated business, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, prescription,
transfer, gains, franchise, profits, withholding on amounts paid or received,
payroll, employment, excise, severance, stamp, occupation, property, windfall
profit or other taxes, or other like assessments or charges of any kind
whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental authority (domestic or foreign)
responsible for the imposition of any such taxes.
(c) Except as set forth in Schedule 2.15, (i) Horizon has paid all
Taxes shown as owed by it on the Tax Returns referred to in Section 2.15(a)
to the appropriate taxing authorities, or where payments of Taxes is not yet
due, has established or will establish an adequate reserve on its books and
records for the payment of all such Taxes with respect to all taxable periods
(or portions
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thereof) through the Closing Date, and (ii) Horizon has not been the subject
of a tax ruling (or made a request therefor) or entered into any closing
agreement under Section 7121 of the Code, which ruling or closing agreement
has a material adverse effect on the Taxes of Horizon on or after the Closing
Date.
(d) Except as set forth in Schedule 2.15, (i) no extensions of time have
been granted to Horizon to file any Tax Return required by applicable law to
be filed by it or on its behalf on or prior to the Closing Date which have
expired, or will expire, on or before the Closing Date without such tax
Return having been filed, (ii) no deficiency or adjustment for any Taxes has
been proposed, asserted or assessed against Horizon, and no federal, state
or local audits or other administrative proceedings or court proceedings are
pending with regard to any such Taxes, (iii) there is no pending or, to the
knowledge of Sellers, threatened dispute or claim concerning any Taxes of
Horizon with respect to any taxable period, or portion thereof ending on or
prior to the Closing Date, (iv) no waiver or consent extending any statute
of limitations for the assessment or collection of any Taxes has been
executed by or on behalf of Horizon, nor are any requests for such waivers or
consents pending, and (v) no federal income tax returns of Horizon for any
year have been examined by the Internal Revenue Service.
(e) Each Horizon Venture that is a partnership, for all taxable periods
(and any portions thereof) from its respective date of organization through
the Closing Date, has been taxable as a partnership, and not as an
association taxable as a corporation, for federal, state and local income Tax
purposes.
(f) Except as set forth in Schedule 2.15, Horizon is not a party to any
tax-sharing or allocation agreement that will survive the Closing Date, nor
does Horizon owe any amount to any entity under any tax-sharing or allocation
agreement.
(g) Except as set forth in Schedule 2.15, Horizon is not a party to any
agreement, contract or arrangement that would result, by reason of the
consummation of any of the transactions contemplated herein, separately or in
the aggregate in the payment of any "excess parachute payment" within the
meaning of Section 280G of the Code.
(h) Horizon (i) has not been a member of an affiliated group filing a
consolidated federal income Tax Return, nor (ii) has any liability for the
Taxes of any person under Treasury Regulation Section 1.1502-6 (or any
similar provision of state or local law), as a transferee or successor, by
contract, or otherwise.
(i) Except as set forth in Schedule 2.15, the books and records of
Horizon made available for review by the Company and its representatives
provide information adequate to determine: (i) the
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basis of Horizon in each of its assets; (ii) the basis of Sellers in the
stock immediately preceding Closing (or the amount of any "excess loss
account" pursuant to applicable Treasury Regulations under Section 1502 of
the Code); and (iii) the amount of any net operating loss, net capital loss,
or unused investment or other credit with respect to Horizon.
(j) Since incorporation of Horizon, Sellers have filed all elections
necessary for Horizon to be taxed as a Subchapter S Corporation and Horizon
has been recognized as a Subchapter S Corporation by the Internal Revenue
Service and Sellers know of no basis for any challenge to the status of
Horizon as a Subchapter S Corporation.
SECTION 2.16 Governmental Authorizations and Regulations.
(a) Except as set forth in Schedule 2.16 hereto, Horizon has all
material governmental licenses, franchises and permits, including without
limitation all licenses, franchises, permits, accreditations, certificates of
need and provider or supplier agreements as may be required under Titles
XVIII and XIX of the Social Security Act and other applicable laws for
reimbursement of services rendered or goods sold, or required under
applicable federal or state laws and regulations for the conduct of its
business as currently conducted (collectively, "Governmental Permits"), and
(b) Horizon has at all times conducted its business in compliance with
all applicable laws, ordinances, rules and regulations of all governmental
authorities relating to its properties or applicable to its businesses,
including without limitation the terms of all Governmental Permits and
federal securities laws, other than minor non-compliance that has not and
will not adversely affect the business of Horizon as it is currently
conducted. Except as set forth in Schedule 2.16 hereto, Horizon is not in
violation of any law, regulation or rule of any foreign, federal, state,
municipal or other government, governmental department, commission board,
bureau, agency or instrumentality other than such violations that have not
and will not adversely affect the business of Horizon as it is currently
conducted.
(c) Except as set forth in Schedule 2.16, neither Horizon nor any of its
properties, operations or businesses is subject to any order, judgment,
injunction or decree to which Horizon is a party or which names Horizon. To
the knowledge of Sellers, (i) no action has been taken or recommended by any
governmental or regulatory official, body or authority, either to revoke,
withdraw or suspend any certificate of need or any license to operate Horizon
or to terminate or decertify any participation of Horizon in the Medicare,
Medicaid or CHAMPUS programs, nor (ii) is there any
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decision not to renew any Medicare, Medicaid or CHAMPUS provider or supplier
agreement related to Horizon.
(d) Listed on Schedule 2.16 are all licenses and Government Payor
Provider Numbers held by Horizon.
SECTION 2.17 Labor Matters.
(a) No collective bargaining agreement is applicable to any employees
of Horizon. There are not any disputes between Horizon and any such
employees that could reasonably be expected to materially adversely affect
the conduct of its business or any unresolved labor union grievances or
unfair labor practice or labor arbitration proceedings pending, or
threatened, relating to the business of Horizon. There are not any
organizational efforts presently being made or threatened involving any of
such employees. Except as set forth in Schedule 2.17 hereto, Horizon has
fully complied with all laws relating to employment, including any provisions
thereof relating to wages, hours, collective bargaining, the payment of
social security and other payroll or similar taxes, equal employment
opportunity, employment discrimination or harassment and employment safety,
and Horizon is not liable for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing.
(b) There are no proceedings pending or, to the knowledge of Sellers or
Horizon, threatened before the National Labor Relations Board with respect to
any employees of Horizon. Except as set forth in Schedule 2.17 hereto, there
are no discrimination or harassment charges (relating to sex, age, religion,
race, national origin, ethnicity, handicap or veteran status) pending before
any federal or state agency or authority against Horizon.
SECTION 2.18 Use of Real Property. The leased real properties listed
in Schedule 2.18 hereto are the only properties occupied by Horizon and are
used and operated by Horizon in material compliance and conformity with all
applicable leases.
SECTION 2.19 Condition of Assets. All items of tangible personal
property, fixtures and equipment comprising the assets of Horizon and
necessary to the conduct of its businesses are in a good state of repair
(ordinary wear and tear excepted) and operating condition, in all material
respects.
SECTION 2.20 Accounts Receivable. Except as set forth in schedule
2.20, the accounts receivable reflected in the most recent balance sheet for
Horizon, separately included in the financial statements referred to in
Section 2.05 hereof, and all accounts receivable arising between March 31,
1997 and the date hereof, arose from bona fide transactions in the ordinary
course of business. Except as set forth in Schedule 2.20, the accounts
receivable reflected on such balance sheet, have been recorded and
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reserved against in accordance with generally accepted accounting principles
consistently applied and consistent with past practice. Except as set forth
in Schedule 2.09, no such account receivable has been assigned or pledged to
any other person, firm or corporation or, to the knowledge of the Sellers, is
subject to any right of set-off. Except as set forth in Schedule 2.20,
adequate provision has been made in the Financial Statements for collection
losses, contractual discounts and other adjustments from third party payers.
Except as set forth on Schedule 2.20, Horizon has not claimed or received
reimbursements from the Medicare program, the Medicaid program or any other
third-party payer in excess of the amounts permitted by law, except as and to
the extent that such liability for such overpayment has already been
disclosed in Section 4.01(d), satisfied or for which adequate provision has
been made in the Financial Statements.
SECTION 2.21 Books and Records. The books and records of Horizon,
including without limitation, the books of account, minute books, stock
certificate books and stock ledgers, are complete and correct in all
respects and there have been no transactions involving Horizon which properly
should have been set forth therein and which have not been so set forth.
SECTION 2.22 Employee Benefit Plans
(a) Schedule 2.22 attached hereto lists each employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974 ("ERISA") maintained by Horizon (the "Plans" or "Plan"). Horizon
has complied and currently is in compliance in all material respects, both as
to form and operation, with the applicable provisions of ERISA and the
Internal Revenue Code of 1986, as amended, ("Code") with respect to each of
the Plans.
(b) With respect to each of the Plans which is intended to qualify
under Section 401(a) of the Code, Horizon has received favorable and
unrevoked determination letters from the Internal Revenue Service to the
effect that such Plan does so qualify and that the related trust is exempt
from taxation pursuant to Section 502(a) of the Code.
(c) Horizon has not at any time maintained, adopted, or established,
contributed to or been required to contribute to, or otherwise participated
in or been required to participate in, any employee benefit plan or other
program or arrangement subject to Title IV of ERISA (including, without
limitation, a "Multiemployer plan" (as defined in Section 3(37) of ERISA) and
a defined benefit plan (as defined in Section 3(35) of ERISA)).
(d) Except as set forth on Schedule 2.22 hereto, and notwithstanding
anything else set forth herein, Horizon has not incurred any liability with
respect to any Plan under ERISA
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(including, without limitation, Title I or Title IV of ERISA), the Code or
other applicable law, which has not been satisfied in full on a timely basis,
and no event has occurred, and there exists no condition or set of
circumstances which could reasonably be anticipated to result in the
imposition of any material liability under ERISA (including, without
limitation, Title I or Title IV of ERISA), the Code or other applicable law
with respect to any of the Plans.
(e) No Plan, other than a Plan which is an employee pension benefit
plan (within the meaning of Section 3(2)(A) of ERISA), provides benefits,
including without limitation, death, health or medical benefits (whether or
not insured), with respect to current or former employees of Horizon beyond
their retirement or other termination of service with Horizon (other than (i)
coverage mandated by applicable law, (ii) deferred compensation benefits
accrued as liabilities on the books of Horizon, (iii) benefits the full cost
of which is borne by the current or former employee (or his beneficiary)).
(f) Except as set forth on Schedule 2.22, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current
or former employee or officer of Horizon to severance pay, unemployment
compensation or any other payment, or (ii) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee or
officer.
(g) As a result of the transactions contemplated hereby, no portion of
any amount paid or payable by Horizon to a "disqualified individual" (within
the meaning of Section 280G(c) of the Code and the regulations promulgated
thereunder), whether paid or payable in cash, securities or otherwise and
whether considered alone or in conjunction with any other amount paid or
payable to such a "disqualified individual", constitutes an "excess parachute
payment" within the meaning of Section 280G(b) of the Code (without regard to
subsection (b)(4) thereof) and the regulations promulgated thereunder.
(h) Horizon has provided to the Company true and complete copies of the
following for each Plan: (i) the Plan; (ii) summary plan description of the
Plan; (iii) the trust agreement, insurance policy or other instruments
relating to the funding of the Plan; (iv) the two most recent Annual Reports
(Form 5500 series) and accompanying schedules filed with the Internal Revenue
Service or United States Department of Labor with respect to the Plan; (v)
the most recent unaudited financial statement for the Plan; (vi) the most
recent actuarial report of the Plan; (vii) the policy of fiduciary liability
insurance (and agreements related thereto) maintained in connection with the
Plan; and (viii) the most recent determination letter issued by the Internal
Revenue Service with respect to the Plan that is intended to qualify under
Section 401(a) of the Code.
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SECTION 2.23 Insurance. All policies of fire, liability (including
product liability), workers' compensation, malpractice and professional
liability and other forms of insurance providing insurance coverage to or for
Horizon are listed in Schedule 2.23 hereto, and (i) Horizon is a named
insured under such policies, (ii) all premiums with respect thereto covering
all periods up to and including the Closing Date have been paid or accrued
for, and (iii) no notice of cancellation or termination has been received
with respect to any such policy. All such policies are in full force and
effect and will remain in full force and effect to and including the Closing
Date. All such policies are underwritten by the insurers listed in Schedule
2.23 hereto, and are sufficient for all applicable requirements of law.
SECTION 2.24 Environmental Matters: Medical Waste.
(a) For the purpose of this Section 2.24, the following terms shall
have the following meanings:
"Environmental Law" means any current federal, state or local
statute, law, ordinance, rule or regulation of the United States and any
other jurisdiction within the United States now effective and any order,
to which Horizon is a party or is otherwise directly bound, of the United
States or other jurisdiction within the United States now effective
relating to: (i) pollution or protection of the environment, including
natural resources; or (ii) exposure of person, including employees, to
Hazardous Substances;
"Hazardous Substances" means any substance, whether liquid, solid
or gas (i) listed, identified or designated as hazardous or toxic under
any Environmental Law, (ii) which, applying criteria specified in any
Environmental Law, is hazardous or toxic, or (iii) the use or disposal
of which is regulated under Environmental Law.
(b) No Hazardous Substances have been, or have been threatened to be,
discharged, released or emitted into the air, water, surface water, ground
water, land surface or subsurface strata or placed, held, stored on or
transported to or from the property of Horizon except in compliance in all
material respects with Environmental Law and except for incidental release of
Hazardous Substances in amount or concentrations which would not reasonably be
expected to give rise to any claims or liabilities against Horizon under any
Environmental Law.
(c) Horizon has not received any written notification from a
governmental agency that there is any violation of any Environmental Law
with respect to its business and properties and Horizon has not received any
written notification from a governmental agency pursuant to Section 104, 106
or 107 of the
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Comprehensive Environmental Response Compensation and Liability Act, as
amended.
(d) Horizon is not in violation of or, the subject of, any
investigation, inquiry or enforcement action by any governmental authority
under the Medical Waste Tracking Act, 42 U.S.C. Section 6992 et seq., or any
applicable state or local governmental statue, ordinance or regulation
dealing with the disposal of medical wastes ("Medical Waste Laws"). Horizon
has obtained and is in compliance with any permits related to medical waste
disposal required by the Medical Waste Laws, and has taken reasonable steps
to determine, and has determined, that all disposal of medical waste by it
has been in compliance with the Medical Waste Laws.
(e) There are no Hazardous Substances on, in or under the property
currently occupied by Horizon (or Sellers have fully disclosed to the Company
in writing the existence, extent and nature of any hazardous substances which
Horizon is legally authorized to maintain on, in or under the property or in
connection therewith).
(f) Horizon and all property occupied by Horizon is in full compliance
with, and Horizon has not incurred any liability under, federal, state or
local Environmental Laws.
SECTION 2.25 Related Party Transactions. Except as set forth in Schedule
2.25 hereto, there are not existing arrangements or proposed transactions
other than (a) any transactions contemplated by the Other Agreements (as
hereinafter defined) (b) relating to such person's employment, or (c) entered
into on an arms' length basis in the ordinary course of business between
Horizon, and (i) any officer or director of Horizon or any member of the
immediate family of any of the foregoing persons (such officers, directors
and family members being hereinafter individually referred to as a "Related
Party"), (iii) any business (corporate or otherwise) which a Related Party
owns, or controls directly or indirectly, or in which a Related Party has an
ownership interest, or (iv) between any Related party and any business
(corporate or otherwise) with which Horizon regularly does business.
SECTION 2.26 Places of Business. Horizon has done business only as
Horizon Health Systems, Inc. and Hemophilia Health Services, Inc. at any time
during the six (6) year period immediately prior to Closing (including all
predecessor or merged entities and all trade and assumed names). During the
six (6) year period immediately prior to Closing, Horizon has conducted its
business only at those offices and warehouses identified on Schedule 2.26,
and maintains inventory only at those locations identified on Schedule 2.26.
SECTION 2.27 Changes in Laws. To Sellers' actual knowledge (there are
no pending changes in applicable law or regulations that
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would prevent Horizon from conducting its business in substantially the same
manner as the business is currently conducted by Horizon which are not
actually known to Company.
SECTION 2.28 Contributions. Neither Horizon nor to the knowledge of
Sellers any officer thereof has used any corporate funds for unlawful
contributions, gifts, entertainment or other expenses relating to political
activity or otherwise, or has made any direct or indirect unlawful payment to
governmental officials or employees from the corporate funds or been
reimbursed from corporate funds for any such payment, or is aware that any
other person associated with or acting on behalf of Horizon has engaged in
any such activities.
SECTION 2.29 Controlled Substances. Horizon and its officers,
directors, and employees and persons who provide professional services under
agreements with Horizon have not, in connection with their activities
directly or indirectly related to Horizon, engaged in any activities which
are prohibited under the Federal Controlled Substances Act, 21 U.S.C. Section
801 et seq. or the regulations promulgated pursuant to such statute or any
related state or local statutes or regulations concerning the dispensing and
sale of controlled substances.
SECTION 2.30 Disclosure of Certain Financial Relationships. Schedule
2.30 lists all material financial relationships (whether or not memorialized
in a writing) that Horizon has had with a person known by Horizon to be a
physician or an immediate family member of a physician since January 1, 1993.
For purposes of this Section 2.30, the term "financial relationship" has the
meaning set forth in 42 USC Section 1395nn. The operation of Horizon is in
compliance with and does not otherwise violate the federal Medicare and
Medicaid statutes regarding health professional self-referrals, 42 U.S.C.
Section 1395nn and 42 U.S.C. Section 1396b, or the regulations promulgated
pursuant to such statute, or similar state or local statutes or regulations.
SECTIONS 2.31 Brokers' or Finders' Fees. Except for the financial
advisory services provided to Sellers by Healthcare Capital Advisors and
Price Consulting, LLC, all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried out by Sellers directly
with the Company, without the intervention of any person on behalf of either
Sellers or Horizon in such manner as to give rise to any claim by any person
against Horizon or the Company for a finder's fee, brokerage commission or
similar payment and all fees shall be satisfied by Sellers on the Closing
Date as provided in Section 9.01 hereof.
SECTION 2.32 Disclosure. Neither this Agreement, nor any exhibit
hereto, nor any certificate or document furnished or to be furnished to
Company by or on behalf of Sellers or Horizon, pursuant to, or in connection
with, the transactions contemplated
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by this Agreement, when read together, contains, or will contain, any
misstatement of a material fact or omits, or will omit, a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were or will be made, not misleading.
SECTION 2.33 Zoning. The real property currently occupied by Horizon
is not subject to any lien, encumbrance, easement, right of way, building or
use restriction, reservation or limitation, ordinance, or other law, order or
regulation which in any material respect would interfere with or impair the
carrying out of the business of Horizon.
Section 2.34 Ownership of Stock. To the actual knowledge of Sellers
and unless actually known to Company, the ownership by Company of the stock
in Horizon will not cause Horizon to be unable to conduct its business as
proposed to be conducted in any of the states in which Horizon is now
operating or proposes to operate because of any state or federal law, rule or
administrative regulation.
SECTION 2.35 Financial Interests. Except as set forth on Schedule 2.35
hereto, the Sellers have no financial interest (whether as owner (of more
than a 1% interest in the case of a publicly traded company), partner,
officer, director, affiliate, employee or otherwise) in any person, firm or
corporation which is, or during the past five years was, directly or
indirectly, engaged in any business engaged in by Horizon; party to any
agreement (other than this Agreement or any Other Agreement) to which Horizon
is also a party; a lessor/lessee, supplier, distributor, sales agent, client,
or customer engaged in transactions with Horizon; the owner of any tangible
or intangible property used by Horizon in Horizon's business; or has or had a
cause of action or claim whatsoever against, or owes any amount to, Horizon.
Section 2.36 Absence of Certain Business Practices. Neither Horizon
nor to the knowledge of Sellers, any officer, director, employee or agent of
Horizon, nor to the knowledge of Sellers, any other person or entity acting
on behalf of Horizon, acting alone or together, has (i) received, directly or
indirectly, any rebates, payments, commissions, promotional allowances or any
other economic benefits, regardless of their nature or type, from any
customer, governmental employee or other person or entity with whom Horizon
has done business directly or indirectly, or (ii) directly or indirectly,
given or agreed to give any gift or similar benefit to any customer,
governmental employee or other person or entity who is or may be in a
position to help or hinder the business of Horizon (or assist Horizon in
connection with any actual or proposed transactional) which, in the case of
either clause (i) or clause (ii) above, would reasonably be expected to
subject Horizon to any damage or penalty in any civil, criminal or
governmental litigation or proceeding.
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SECTION 2.37 Fraud and Abuse. Neither Horizon nor, any officer,
director, employee or agent of Horizon, nor any other person or entity known
or authorized to be acting on behalf of Horizon, acting alone or together,
have engaged in any activities which are prohibited under federal Medicare
and Medicaid statutes, 42 U.S.C. Sections 1320a-7, 1320a-7a and 1320a-7b, the
federal CHAMPUS statute, or the regulations promulgated pursuant to such
statutes or related state or local statutes or regulations, 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) presenting or causing to be presented a claim for reimbursement
for services that is for an item or service that was known or should have been
known to be (i) not provided as claimed, or (ii) false or fraudulent;
(d) failing to disclose knowledge of the occurrence of any event
affecting the initial or continued right to any benefit or payment on its own
behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment;
(e) knowingly and willfully offering, paying, soliciting or receiving
any renumeration (including any kickback, bribe, or rebate), directly or
indirectly, overly or covertly, in cash or in kind (i) 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 CHAMPUS, Medicare, Medicaid, or other state health care programs,
or (ii) 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 CHAMPUS, Medicare,
Medicaid or other state health care programs; or
(f) knowingly and willfully making or causing to be made or inducing or
seeking to induce the making of any false statement or representation (or
omit to state a fact required to be stated therein or necessary to make the
statements contained therein not misleading) of a material fact with respect
to (i) a facility in order that the facility may qualify for CHAMPUS,
Medicare, Medicaid or other state health care program certification, or (ii)
information required to be provided under 42 U.S.C. Section 1320a-3.
SECTION 2.38 Charter and By-Laws. Schedule 2.38 contains a true,
complete and correct copy of the Charter and By-Laws of
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Horizon, including all amendments thereto, as currently in effect. The
Charter of Horizon has been amended since the date of the last amendment
contained in Schedule 2.38.
SECTION 2.39 Insurance Coverage. Except as set forth on Schedule
2.39, since the incorporation of Horizon, Horizon has continuously maintained
general professional liability (including product liability), insurance
coverage on an occurrence basis, or on a claims made basis with tail coverage
upon each change in carrier, at a level equal to or greater than that shown
on the Certificate of Insurance attached hereto as Schedule 2.39.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Sellers as follows:
SECTION 3.01 Organization, Power, Etc. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of
the State of Delaware. The Company has the corporate power and authority to
execute and deliver this Agreement and the other Agreements to which it is a
party, and to perform its obligations hereunder and thereunder.
SECTION 3.02 Authorization of Agreements. (a) The Company has duly
approved this Agreement and all the Other Agreements to which the Company is
to be a party, and has duly authorized the execution and delivery of this
Agreement and the Other Agreements to which the Company is to be a party, and
the consummation of the transactions contemplated hereby and thereby. Neither
the execution and delivery by the Company of this Agreement or the Other
Agreements to which the Company is to be a party, nor the consummation of the
transactions contemplated hereby and thereby, will violate any provision of
law, any order of any court or other agency of government, the Certificate of
Incorporation or By-laws of the Company, or any judgement, award or decree or
any indenture, agreement or other instrument to which the Company is a party,
or by which it or any of its properties or assets is bound or affected, or
result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
SECTION 3.03 Validity. This Agreement has been duly executed and
delivered by the Company, and, subject to due execution by the other parties
thereto, constitutes, and the Other Agreements to which the Company is a
party, when executed and delivered by the Company as contemplated hereby,
subject to due execution by the
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other parties thereto, will constitute, the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy or other laws affecting creditors' rights generally and
limitations on the availability of equitable remedies.
SECTION 3.04 Governmental Approvals. Other than pursuant to the
Hart-Scott-Rodino Act, no order, authorization, approval or consent from or
filing with, any federal or state governmental or public body or other
authority having jurisdiction over the Company is required to be made or
obtained by the Company for the execution, delivery and performance of this
Agreement or is necessary in order to ensure the legality, validity, binding
effect or enforceability of this Agreement or the Other Agreements to which
the Company is a party.
SECTION 3.05 Brokers' or Finders' Fees. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out
by the Company directly with the Sellers without the intervention of any
person on behalf of the Company in such manner as to give rise to any claim
by any person against the Sellers for a finder's fee, brokerage commission or
similar payment.
SECTION 3.06 Investment Representation. The Company is acquiring the
Stock for investment and not with a view to the distribution thereof.
ARTICLE IV.
COVENANTS
SECTION 4.01 Certain Covenants of Sellers.
(a) Except for asset and liability transfers consistent with minimizing
adjustments to the Purchase Price pursuant to Section 1.03 (d), during the
period form the date of this Agreement to the Closing Date, Sellers will
cause Horizon to (x) conduct its business and operations according to its
ordinary course of business consistent with past practice, including without
limitation the maintenance of inventory levels, the collection of third party
accounts receivable and the payment of third party accounts payable, (y) use
its best efforts to preserve its relationships with employees, customers and
suppliers, and (z) continue to provide its services to customers. Without
limiting the generality of the foregoing, during the period from the date of
this Agreement to the Closing Date, Sellers will not permit Horizon to do any
of the things listed in paragraphs (a) through (p) of Section 2.07, except as
otherwise contemplated by this Agreement.
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(b) Between the date hereof and the Closing Date, Sellers shall provide
reasonable access during normal business hours to the representatives of the
Company, and their counsel and accountants, to the financial, accounting and
legal records of Horizon, and, with the prior express written consent of
Martz, Kyle Callahan, Sam Stumpf, Esq., Price Paschall or David Price, to key
employees of Horizon designated by Company, and, in connection therewith,
shall permit their respective representatives to visit the premises of
Horizon.
(c) Unless otherwise contemplated by this Agreement, between the date
hereof and the Closing Date, Sellers will not permit Horizon to enter into
any transaction, make any agreement or commitment, or take any action, which
they know would result in any of the representations, warranties or covenants
of Sellers or Horizon contained in this Agreement not being true and correct
in all material respects at and as of the time immediately after the
occurrence of such transaction, event or action.
(d) Between the date hereof and the Closing Date, Sellers shall cause
Horizon to consult with Company regarding the repayment of, and to make
consistent diligent efforts to repay the Two Million Eight Hundred
Forty-Seven Thousand Six Hundred Fifty-Two ($2,847,652.00) Dollars "refunds
payable" amount reflected on Horizon's March 31, 1997 balance sheet ("Refunds
Payable") and to obtain receipts and releases from the applicable third party
payors, if in the reasonable judgment of Company and Horizon, such release
and receipts are obtainable.
(e) Sellers hereby agree to take such further actions and execute such
further documents as may, in the future, be reasonably requested by Company or
horizon in order to carry out the obligations of Sellers hereunder and to
confirm and further document the transactions contemplated herein.
SECTION 4.02 Covenants of the Company
(a) Between the date hereof and until the consummation of the
transaction contemplated by Section 1.01, the Company shall not enter into
any transaction, make any agreement or commitment, or take or omit to take
any action, which it knows would result in any of the representations or
warranties of the Company contained in this Agreement not being true and
correct in all material respects at and as of the time immediately after the
occurrence of such transaction, event, action or omission.
(b) Company will cause Horizon to continue employment of all employees
who currently are employed in the operations of Horizon for a period of three
months after closing at their current levels of salaries and with a benefits
program comparable to that offered by Company's affiliate, Nova Factor, Inc.,
subject however to said employees being terminated during that period for
cause.
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Notwithstanding the foregoing provision, Sara Meyers will resign as an
employee of Horizon and become an employee of Martz.
(c) After the closing, (x) Company will cause Horizon to operate as a
stand alone subsidiary of Company separate and apart from Nova Factor, Inc.
and Southern Health Systems, Inc. (and will be so referred to in public
statements, including, without limitation, public statements announcing the
transaction effected under this Agreement); (y) Company will continue to
utilize Horizon's name; and (z) Horizon will continue to operate Horizon's
business in Nashville, Tennessee. Further, the Company will cause the
existing hemophilia patients of Nova Factor, Inc. which are serviced from
Memphis, Tennessee to be serviced by Horizon as soon after Closing as can be
accomplished in an orderly fashion, and will also use commercially reasonable
efforts to consolidate in Nashville the hemophilia operations currently
conducted by the Company's two (2) joint ventures in Texas and one joint
venture in Florida. The foregoing provisions shall remain in effect unless
and to the extent the Board of Directors of the Company (by action of a
majority of the entire Board including at least two members thereof who are
not employees of Nova Factor) determine that, as a result of a change in the
business or prospects of Horizon or a change in industry or regulatory
conditions affecting Horizon or in order to effect a disposition of the stock
of Horizon or the Company or of their respective assets or to effect a public
offering of securities of Horizon or the Company or other financing
transaction and after giving consideration to the impact such determination
will have on the business methods and corporate culture of Horizon in effect
on the date hereof, it is in the best interest of the Company to deviate from
compliance with any portion of this Section 4.02(c). Notwithstanding the
above, none of these provisions of this Section 4.02(c) shall be binding upon
NationsBank of Tennessee, N.A., First Tennessee National Bank or any other
Bank from time to time having a security interest in the Stock of Horizon as
collateral for money borrowed and for any other obligations incident to such
borrowing.
(d) For so long as Kyle Callahan is President of Horizon, Horizon shall
retain control over the process of paying Refunds Payable as defined in
Section 4.01(d). Horizon shall communicate with and consult with the Sellers
with regard to all significant matters affecting such process. If Kyle
Callahan shall no longer serve as President of Horizon, Martz shall cause the
law firm of Bass Berry & Sims, PLC, acting through its healthcare section, or
such other law firm (the "Designated Law Firm")as Martz shall designate and
Company shall approve, shall, on behalf of Martz, and at Sellers' cost,
prepare a recommendation as to how to settle and resolve the Refunds Payable
so that Horizon shall have no further liability for said Refunds Payable.
Bass Berry & Sims, PLC or such Designated Law Firm shall submit its
recommendations to Horizon for prior approval, such approval not to be
unreasonably withheld or delayed. Upon Horizon's approval, Horizon and Bass
Berry & Sims,
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PLC or such Designated Law Firm, as applicable, shall implement such
recommendation.
SECTION 4.03 HART-SCOTT-RODINO ACT. Each of the parties shall file
any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the
Hart-Scott-Rodino Act, shall use its reasonable best efforts to obtain an
early termination of the applicable waiting period, and shall make any
further filings pursuant thereto that may be necessary, proper or advisable.
SECTION 4.04 TAX MATTERS.
(a) TRANSFER TAXES. Any Tennessee transfer taxes incurred by Sellers
in connection with the sale of the capital stock of Horizon to the Company
pursuant to this Agreement shall be borne by Sellers. Sellers shall prepare
and file, at their own expense, all necessary tax returns and other
documentation with respect to all such transfer taxes.
(b) TAX RETURNS. (i) Sellers shall prepare (or cause to be prepared)
and Horizon shall timely file for all taxable periods ending on or before the
Effective Date (a "Pre-Closing Period") all Tax Returns required to be filed
after the Effective Date by or on behalf of Horizon (the "Pre-Closing Period
Tax Returns"). The preparation of such Tax Returns and the positions taken
thereon shall be consistent in all respects with Horizon's past tax
accounting principles and practices.
(ii) The Company shall prepare and timely file (or cause to be
prepared and timely filed) for all taxable periods beginning before and
ending after the close of the Effective Date (a "Straddle Period"), all Tax
Returns required to be filed after the Effective Date by Horizon. For
purposes of this Agreement, the portion of the Straddle Period ending on and
including the Effective Date shall be referred to as the "Pre-Closing
Straddle Period" and the portion of the Straddle Period beginning after the
Effective Date shall be referred to as the "Post-Closing Straddle Period".
Any such Taxes for a Straddle Period with respect to Horizon shall be
apportioned to the Pre-Closing Straddle Period based on the actual operations
of Horizon during the portion of such period ending on and including the
Effective Date, determined as though Horizon's books closed at the close of
the Effective Date. The cost and expenses of preparing any Tax Returns for a
Straddle Period shall be borne by the Company.
(iii) All Tax Returns referred to in Sections 4.04(b)(i) shall be
subject to review and approval by the Company, and all Tax Returns referred
to in Section 4.04(b)(ii) which affect the liability of Sellers for Taxes
pursuant to this Agreement or otherwise shall be subject to review and
approval by Sellers, in
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each case prior to filing, and such approval shall not be unreasonably
withheld or delayed by either such party. The party charged with
responsibility to prepare a Tax Return subject to review (the "Preparing
Party") shall present such Tax Return to the other party (the "Reviewing
Party") no less than fifty (50) days prior to the due date (including
extensions) for filing the Tax Return. The parties shall cooperate with one
another by making available for review all related work papers and analyses
utilized in preparing the Tax Return and all related books, records and
personnel for this purpose without cost. Within fifteen (15) days after
receipt of the Tax Return, the Reviewing Party shall communicate to the
Preparing Party as to whether it concurs with the Tax Return or, if not,
stating its exceptions thereto, together with the reasons and supporting
information relating to such exceptions. If there are no such exceptions or
such exceptions are resolved by the parties, then such resolution shall be
the final determination. If such exceptions cannot be resolved by the
parties within ten (10) business days after delivery of the list of
exceptions, the dispute shall be submitted to an independent tax consultant
who shall make a final determination in accordance with the terms of this
Agreement within fifteen (15) days after submission to such independent tax
consultant. The independent tax consultant shall be one of the "Big Six"
public accounting firms or a law firm with a nationally recognized tax
practice with no material relationship to the parties or their affiliates,
and such independent tax consultant shall be chosen by agreement of the
parties, or if they are unable to agree, chosen by lot from an equal number
of nominees submitted by each party. The fees and expenses of the
independent tax consultant shall be allocated by it in inverse proportion to
the adjustment granted the Reviewing Party. For example, if such tax
consultant grants a portion of the exceptions proposed by the Reviewing Party
that results in an adjustment to the amount of Taxes owed that is 25% of the
total adjustment to the amount of Taxes owed that would have occurred had all
of the Reviewing Party's proposed exceptions been granted, it shall assess
the Reviewing Party with 75% of its fees and expenses. The independent tax
consultant's decision shall be final and binding upon, and non-appealable by,
the parties.
(c) TAX PAYMENTS. Sellers shall pay all Taxes with respect to all Tax
Returns described in Section 4.04(b) attributable to Pre-Closing Period or
apportioned to Pre-Closing Straddle Periods pursuant to Section 4.04 (b)(ii),
to the extent not accrued for on the Final Closing Balance Sheet, ten (10)
days prior to the respective due dates (excluding extensions or waivers
thereof) for such Taxes or , if later, when the respective Tax Returns
reporting such Taxes are filed, other than any Taxes payable (the "Excluded
Taxes") as the result of any (i) events occurring on or after the Effective
Date outside of the ordinary course of business, (ii) any increase in Taxes
resulting from Horizon amending any Pre-Closing Tax Returns without the prior
written permission of Sellers, and
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(iii) Taxes which were previously paid though estimated Tax payments.
(d) REFUNDS. The Company agrees to, and shall cause Horizon to,
cooperate in obtaining any refunds of Taxes (other than any Excluded Taxes)
for Pre-Closing Tax Returns and the Pre-Closing Straddle Periods and to
promptly remit to Sellers any such refunds received by the Company, or
Horizon net of any Taxes incurred by the Company, or Horizon provided that
such refunds were not reflected on the Final Closing Balance Sheet. Any
reasonable out-of-pocket costs or expenses incurred by the Company or Horizon
in obtaining such refunds shall be borne by Sellers. In no event shall
Sellers be entitled to file an amended return or otherwise make a claim for
refund (or have such an amended return filed or such claim made on its
behalf) without the prior approval of the Company (which approval shall not
be unreasonably withheld) to the extent that such action would increase the
Tax liability of the Company for any taxable period or portion thereof
following the Effective Date.
(e) TAX CHARACTERIZATION. Any payments made pursuant to (i) this
Section 4.04, (ii) the indemnity provisions of Article VII or (iii) the
purchase price adjustment provisions of this Agreement, shall be treated by
each of the parties hereto as an adjustment to the purchase price paid by the
Company for the Shares for all Tax and financial accounting purposes. The
parties hereto agree to account for the transactions contemplated herein in a
manner consistent with all the provisions of this Agreement when filing their
respective Tax Returns and the Tax Returns of Horizon.
(f) POST-CLOSING AUDITS AND OTHER PROCEEDINGS. (i) Sellers, on the one
hand, and Company on the other hand, each agree, at its own expense (except
to the extent such expense, incurred to third parties, is subject to
indemnification pursuant Section 7.02), to furnish or cause to be furnished
to each other, upon request, as promptly as practicable, such information and
assistance (including access to books and records) relating to Horizon as is
reasonably necessary or is reasonably requested for the preparation of any
return for Taxes, any claim for refund or any audit, and the prosecution or
defense of any claim, suit or proceeding relation to any proposed adjustment.
(ii) Sellers on the one hand, and the Company, on the other hand, each
agree to give prompt notice to each other of any written inquiry by a Tax
authority, scheduling of an examination or proposed adjustment with respect
to Taxes for any Pre-Closing Period or any Pre-Closing Straddle period.
Sellers and the Company shall cooperate with each other in the conduct of any
Tax audit or other Tax proceedings involving Horizon for such periods and
each participate at its own expense; provided, however, that Sellers shall
have the right to control the conduct of any such audits or proceeding to he
extend such audits or proceedings relate to a
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proposed adjustment that could adversely affect the liability of Sellers for
Taxes pursuant to this Agreement or otherwise. The Company also may, at its
own expense, be present in any such audit or proceeding and, if Sellers do
not assume the defense of any such audit or proceeding, the Company may
defend the same in such manner as it may deem appropriate, including, but not
limited to, settling such audit or proceeding after giving thirty (30) days'
prior written notice to Sellers setting forth the terms and conditions of
settlement, provided that Sellers have not objected within fifteen (15) days
of receipt of such notice and assumed control of the audit. In the event
that a potential adjustment is present in an audit or proceeding (otherwise
controlled by the Sellers) for which the Company would be liable and not
entitled to indemnification hereunder, the Company shall have the right, at
its expense, to control the audit or proceeding with respect to such proposed
adjustment. With respect to a proposed adjustment which could adversely
affect the liability of Sellers for Taxes pursuant to this Agreement or
otherwise, on the one hand, and the liability of the Company for Taxes
pursuant to this Agreement or otherwise, on the other hand, (i) Sellers and
the Company each may participate in the audit or proceeding, and (ii) any
issues with respect to the proposed adjustment or otherwise pertaining to the
audit or proceeding shall be decided jointly by Sellers and the Company.
Notwithstanding the foregoing provisions of this Section, the parties to this
Agreement shall endeavor to agree on a joint representative or
representatives in any proceeding in which each is entitled to and desires to
be represented.
(g) 338(h)(10) Election - All parties hereto agree that the Company's
purchase of all of the issued and outstanding shares (consisting of 100
shares of No Par Common Stock) of Horizon is a "qualified stock purchase" as
defined in IRC section 338(d)(3). The parties hereto also agree that this
"qualified stock purchase" will be treated as a deemed asset sale pursuant to
IRC Section 338(h)(10) and Treasury Reg. Section 1.338(h)(10)-1.
Accordingly, the Sellers agree to cooperate in the joint filing (as required
by Treasury Reg. Section 1.338(h)(10(-1(d)) of a Section 338(h)(10) election
with Company as a condition to closing.
ARTICLE V.
CONDITIONS PRECEDENT
SECTION 5.10 Conditions Precedent to the Obligations of the Company.
The obligations of the Company to consummate the transactions contemplated by
this Agreement on the Closing Date are subject, at the option of the Company,
to the satisfaction at or prior to the Closing Date of each of the following
conditions:
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(a) Accuracy of Representations and Warranties. The representations and
warranties of Sellers and Horizon contained in this Agreement, or in any
certificate or document delivered to the Company pursuant hereto or thereto
shall be true and correct in all material respects on and as of the Closing
Date as though made at and as of that date except as to items which are
specific as to time, and Sellers shall each have so certified to the Company
in writing.
(b) Compliance With Covenants. Sellers and Horizon shall have performed
and complied in all material respects with all terms, agreements, covenants
and conditions of this Agreement to be performed or complied with by them at
or prior to the Closing Date and Sellers shall have so certified to the
Company in writing.
(c) No Material Adverse Change. Except for the transfer of assets and
liabilities intended to minimize adjustments to the Purchase Price pursuant
to Sections 1.03(d), on the Closing Date there shall not have been any
material adverse change since March 31, 1997, (i) in the financial condition
or results of operations of the business of Horizon or (ii) in the capacity
of Horizon to conduct its business in a manner consistent with past practice,
and Sellers shall have certified to such effect to the Company in writing.
(d) Estimated Balance Sheet; Minimum Financial Requirements. The
Estimated Balance Sheet shall have been delivered to the Company.
(e) Outstanding Indebtedness. Except for external bank indebtedness in
the principal amount not to exceed Two Million Five Hundred Thousand
($2,500,000.00) Dollars Horizon shall not have any existing indebtedness for
borrowed money to any party or any liability under any guaranty of any
indebtedness of any party.
(f) All Proceedings To Be Satisfactory. All proceedings to be taken by
Sellers and Horizon in connection with the transactions contemplated hereby
and all documents incident thereto shall be reasonably satisfactory in form
and substance to the Company and its counsel. Armstrong Allen Prewitt Gentry
Johnston & Holmes, and said counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may
reasonably request.
(g) Opinions of Counsel for Sellers. The Company shall have received the
opinions of Bass Berry & Sims, PLC addressed to the Company and dated the
Closing Date, satisfactory in form and substance to the Company and its
counsel substantially in the form attached as Schedule 5.01(g)(1) hereto.
(h) Consents and Approvals. All authorizations, consents, waivers and
approvals required to be obtained by Horizon without
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which Horizon would not be able to conduct its business after the Closing
Date in substantially the same manner as theretofore conducted shall have
been duly obtained and shall be in form and substance reasonably satisfactory
to counsel for the Company.
(i) Legal Actions or Proceedings. No legal action or proceeding shall
have been instituted or threatened by any private party or by any
governmental department, agency or authority, in either case seeking to
restrain, prohibit, invalidate or otherwise affect the consummation of the
transactions contemplated hereby or seeking damages or which would, if
adversely decided, cause a Material Adverse Effect.
(j) Other Agreements. Each of the agreements listed in Schedule 5.01
(collectively the "Other Agreements") shall have been duly executed and
delivered by all parties thereto other than the Company.
(k) Antitrust Improvements Act. The waiting period under the
Hart-Scott-Rodino Act, if applicable, shall have expired or been terminated.
(l) Supporting Documents. On or prior to the Closing Date, the Company
and its counsel shall have received copies of the following supporting
documents:
(i) (1) the charter documents of Horizon, certified as of a recent
date by the Security of State of the State of Tennessee; and (2) a
certificate of the Secretary of State or other appropriate official of
the State of Tennessee as to the due incorporation and existence of such
corporation, and listing all documents on file with said official;
(ii) a certificate of the Secretary or an Assistant Secretary of
Horizon, dated the Closing Date and certifying (1) that attached thereto
is a true and complete copy of the Charter and By-laws of Horizon as in
effect on the date of such certification; (2) that the Charter of such
corporation has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i) (2)
above; (3) that attached thereto is a true and complete copy of the
resolutions adopted by the Board of Directors of such corporation,
authorizing the execution, delivery and performance of this Agreement
and the Other Agreements to which such corporation is a party and the
consummation of the transactions contemplated hereby and thereby; and
(4) as to the incumbency and specimen signature of each officer of
Horizon executing this Agreement, any Other Agreement, and any
certificate or instrument furnished pursuant hereto, and a certification
by another officer of said corporation as to the incumbency and
signature of the officer signing the certificate referred to in this
paragraph (ii); and
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(iii) such additional supporting documents and other information with
respect to the operations and affairs of Horizon as the Company or its
counsel may reasonably request.
All such documents shall be reasonably satisfactory in form and substance
to the Company and its counsel.
(m) Bonus. The $450,000.00 accrued payable to Ms. Dianne Martz for the
1996 bonus shall be paid or otherwise eliminated prior to Closing.
(n) Stock Power. Sellers shall deliver possession of the stock in
Horizon to Company at Closing, together with executed stock powers conveying
unencumbered title to said shares to Company.
(o) Resignations. Martz shall have tendered her resignation as a
director and officer of Horizon; and all other directors shall have tendered
their resignations.
(p) Employment Contract. Kyle Callahan shall have executed an employment
contract with Horizon in the form attached hereto as Exhibit Annex III.
(q) Searches. The Company shall have received uniform commercial code
financing statement searches conducted in the Office of the Secretary of
State of Tennessee and such other locations as determined by Company, dated
within five (5) days of the date of closing, which searches shall show no
financing statements filed against Horizon.
(r) Insurance. A Certificate from each insurance company providing
coverage to Horizon, setting forth all coverages in effect together with the
amount thereof.
SECTION 5.02 Conditions Precedent to the Obligations of Sellers. The
obligation of Sellers to consummate the transactions contemplated by this
Agreement on the Closing Date are subject, at the option of Sellers, to the
satisfaction at or prior to the Closing Date of each of the following
conditions:
(a) Accuracy of Representations and Warranties. The representations and
warranties of the Company contained in this Agreement or in any certificate
or document delivered to Sellers pursuant hereto shall be true and correct in
all material respects on and as of the Closing Date as though made at and as
of that date except for items which are specific as to time and the Company
shall have so certified to Sellers in writing.
(b) Compliance with Covenants. The Company shall have performed and
complied in all material respects with all terms, agreements, covenants and
conditions of this Agreement to be
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performed or complied with by it at or prior to the Closing Date, and the
Company shall have so certified to Sellers in writing.
(c) Legal Actions or Proceedings. No legal action or proceeding shall
have been instituted or threatened by any private party, by any governmental
department, agency or authority, in either case seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated hereby or seeking damages which would, if adversely decided,
cause a Material Adverse Effect.
(d) Other Agreements. Each of the Other Agreements shall have been
duly executed and delivered by the Company and the other party thereto.
(e) Antitrust Improvements Act. The waiting period under the
Hart-Scott-Rodino Act, if applicable, shall have expired or been terminated.
(f) Supporting Documents. On or prior to the Closing Date, Sellers and
its counsel shall have received copies of the following supporting documents:
(i) (1) the charter documents of the Company certified as of a
recent date by the Secretary of State of the State of Delaware; and
(2) a certificate of the Secretary of State or other appropriate
official of the State of Delaware as to the due incorporation and
good standing of the Company, and listing all documents on file
with said official;
(ii) a certificate of the Secretary of an Assistant Secretary of
the Company, dated the Closing Date and certifying (1) that
attached thereto is a true and complete copy of the Certificate of
Incorporation and By-laws of the Company as in effect on the date
of such certification; (2) that the Certificate of Incorporation of
the Company has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to
clause (i)(2) above; (3) that attached thereto is a true and
complete copy of the resolutions adopted by the Board of Directors
of the Company, authorizing the execution, delivery and performance
of this Agreement and the Other Agreements to which the Company is
a party and the consummation of the transactions contemplated
hereby and thereby; and (4) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement,
any Other Agreement, and any certificate or instrument furnished
pursuant hereto, and a certification by another officer of the
Company as to the incumbency and signature of the officer signing
the certificate referred to in this paragraph (ii); and
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(iii) such additional supporting documents and other information
with respect to the operation and affairs of Company as Sellers or
its counsel may reasonably request.
All such document shall be reasonably satisfactory in form and substance
to Sellers and their counsel.
(g) No Breach. Company shall not have asserted any breach by Sellers
of any representation or warranty contained in this Agreement or any document
delivered pursuant to this Agreement or any failure by Sellers to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by Sellers hereunder.
(h) All Proceedings To Be Satisfactory. All proceedings to be taken by
Company, in connection with the transactions contemplated hereby and all
documents incident thereto shall be reasonably satisfactory in form and
substance to sellers and its counsel, Bass Berry & Sims, PLC and Sellers and
said counsel shall have received all such counterpart originals or certified
or other copies of such documents as they may reasonably request.
(i) Employment Contract. Company shall have executed an employment
contract with Kyle Callahan in the form attached hereto as Exhibit Annex III.
(j) Donna Ligda. Company shall have executed an employment contract
with Donna Ligda in the form attached hereto as Annex IV.
(k) Opinion. The Sellers shall have received the opinions of Armstrong
Allen Prewitt Gentry Johnston & Holmes, PLLC addressed to the Sellers and
dated the Closing Date, satisfactory in form and substance to the Sellers and
its counsel substantially in the form attached as Schedule 5.02(k) hereto.
ARTICLE VI.
INTENTIONALLY OMITTED.
ARTICLE VII.
INDEMNIFICATION
SECTION 7.01 Survival of Representations and Warranties. None of the
parties to this Agreement shall be deemed to have made any representation,
warranty, covenant or agreement except as expressly set forth in this
Agreement. Without limiting the
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generality of the foregoing, and except as expressly stated in Article II, no
party to this Agreement will be liable or bound in any manner by any expressed
or implied representation, warranty, covenant or agreement that is made to
Company by any employee, agent or other person representing or purporting to
represent such party. All covenants, representations and warranties made by
Sellers in this Agreement or pursuant hereto or in any certificate delivered
pursuant hereto SHALL SURVIVE the Closing Date, for the time periods
indicated in this Article VII. The representations, warranties, covenants and
agreements made by either of the Sellers shall not be affected or deemed
waived by reason of the fact that Company or its representatives should have
known that any such representations, warranties, covenants or agreements are
or might be inaccurate in any respect. Any furnishing of information to
Company by either of the Sellers, or Horizon, pursuant to, or otherwise in
connection with, this Agreement shall not waive Company's right to rely on
any representation, warranty, covenant or agreement made by either of the
Sellers.
SECTION 7.02 Tax Indemnity.
(a) Sellers jointly and severally agree and shall indemnify and hold
harmless the Company and Horizon (collectively the "Indemnitees"), from and
against any and all Taxes (other than Excluded Taxes) (i) imposed on or
incurred by Sellers or Horizon for any taxable year or taxable period ending
on or prior to the close of the Closing Date (including any short period up
to and including the close of the Closing Date and any Pre-Closing Straddle
Period: (ii) imposed on or incurred by Company or Horizon (with the exception
of transfer Taxes incurred by the Company other than as provided in Section
4.04(a)) arising out of the purchase contemplated hereby, (iii) imposed on or
incurred by the Company, or Sellers with respect to reasonable attorneys'
fees and expenses with respect to contesting any of the indemnified Taxes
referred to in clause (i) and (ii), above incurred by the Company, or
Horizon, as well as any applicable interest, penalty or additional charge
with respect to such Taxes. Sellers jointly and severally agree and shall
indemnify Indemnitees from and against any and all sales, transfer and other
like taxes and recording fees payable in connection with this Agreement or
the transactions contemplated hereby. The indemnity obligations of Sellers
set out in this Section 7.02(a) shall survive indefinitely.
(b) Sellers shall not be required to indemnify the Indemnitees in
respect of any Tax until there occurs a Final Determination (as defined
below) of the liability of the Indemnitees for the Tax (and any interest,
penalties and additions to the Tax) asserted to be payable as a result of any
proposed adjustment, unless Sellers elect not to contest or defend against
the proposed adjustment of the Tax. A "Final Determination" shall mean (i) a
decision, judgment decree or other order by any court of competent
jurisdiction, which decision, judgment, or decree or
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other order has become final after all allowable appeals by either party to
the action have been exhausted or the time for filing such appeal has
expired, (ii) a closing agreement entered into under Section 7121 of the
Internal Revenue Code or other State Authority, or any other settlement
agreement entered into in connection with an administrative or judicial
proceeding with the consent of Sellers, or (iii) the expiration of the time
for instituting a claim for refund, or if such claim was filed, the
expiration of the time for instituting a suit with respect thereto. If
Sellers elect to protest a proposed adjustment Sellers shall deposit an
amount equal to the taxes in dispute with the Indemnitees (a "Tax Deposit"),
and the Indemnitees shall, upon the receipt of such Tax Deposit from Sellers,
promptly remit such Tax Deposit to the tax authority or court, as requested
by Sellers and properly designate the nature of such amount. Any interest
expense which is stopped as a result of such Tax Deposit shall be for the
account of Sellers. If the Indemnitees subsequently receive a refund, in
whole or in part, of the Tax Deposit or interest, penalties, or additions to
Tax paid with funds advanced by Sellers, the Indemnitees shall within thirty
(30) days of such receipt pay to Sellers the amount of such refund, plus the
amount of any additional interest received from the Internal Revenue Service
thereon. Within (30) days after a Final Determination of, or the election of
Sellers not to contest or defend against, the liability of the Indemnitees
for which Sellers are required to make an indemnity payment hereunder Sellers
shall pay the Indemnitees any excess of such full amount due over any
advances or Tax Deposits previously made by Sellers (net of any prior return
to Sellers of such advances or Tax Deposits) pursuant to this indemnity and
any other payments previously made by Sellers with respect to such Taxes.
The Company shall cooperate fully with Sellers in obtaining any refund or
return of any Tax Deposits previously made by Sellers where so requested by
Sellers. In the event that any Tax Deposit made by Sellers has been applied
to any Taxes payable by the Company or Horizon which are not subject to
indemnification under this Section 7.02, the Company shall pay to Sellers an
amount equal to the portion of the Tax Deposit so applied, together with any
applicable interest savings actually realized by the Company or Horizon as a
result of such application of the Tax Deposit, within (30) days following the
day on which such Taxes would have otherwise been paid, but for the
application of such Tax Deposit, by the Company or Horizon as the case may be.
(c) If, as a result of a governmental audit or examination or
adjustment, an item of income is accelerated into a Pre-Closing Straddle
Period or an earlier period from a Post-Closing Straddle Period or later
period, or an item of deduction or credit is disallowed or deferred from a
Pre-Closing Straddle Period or earlier period into a Post-Closing Straddle
Period or later period, and shift in taxable periods shall not give rise to
an indemnifiable claim by Company or Horizon. If, as a result of a
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governmental audit or examination or adjustment, an item of income is
deferred from a Pre-Closing Straddle Period or earlier period to a
Post-Closing Straddle Period or later period, or an item of deduction or
credit is disallowed or accelerated from a Post-Closing Straddle Period or
later period into a Pre-Closing Straddle Period or earlier period, the
Company shall be entitled to file an amended Tax Return or otherwise claim a
refund or credit, and retain all such amounts for its own account, in respect
of any reduction in Taxes in such Pre-Closing Straddle Period or earlier
period to the extent attributable to such shift in Tax items.
(d) Anything in this Agreement to the contrary notwithstanding, the
provisions of Section 4.04 and this Section 7.02 shall survive until the
expiration of the applicable tax statute of limitation period (including any
extensions thereof) for the Taxes referred to herein, and any Taxes subject
to indemnification under this Section 7.02 shall not be subject to the
provisions of Sections 7.03 and 7.04 hereof.
SECTION 7.03 Sellers General Indemnity. (a) Subject to the terms and
conditions of this Article VII, Sellers jointly and severally agree to and
will indemnify, defend and hold the Company and Horizon harmless from and
against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including without
limitation, interest, penalties and reasonable attorneys' fees and expenses
(hereinafter collectively called "Damages"), asserted against, resulting to,
imposed upon or incurred by the Company, and/or Horizon, related to,
resulting from or arising out of Horizon's obligation to pay Refunds Payable
as defined in Section 4.01(d) inclusive of the obligation to pay the Refunds
Payable. The obligations of Sellers under this Section 7.03(a) shall survive
indefinitely.
(b) Subject to the terms and conditions of this Article VII, Sellers
jointly and severally agree to and will indemnify, defend and hold the
Company and Horizon harmless from and against all demands, claims, actions or
causes of actions, assessments, losses, damages, liabilities, costs and
expenses, including without limitation, interest, penalties and reasonable
attorney fees and expenses (hereinafter collectively called "Damages"),
asserted against, resulting to, imposed upon or incurred by the Company
and/or Horizon related to, resulting from or arising out of, (i) a breach of
the representations and warranties made by the Sellers in Sections 2.05,
2.07, 2.08, 2.10, 2.11, 2.12, 2.13, 2.18, 2.19, 2.20, 2.23, 2.26, 2.27, 2.31,
2.33, 2.34 and 2.38 herein, or (ii) the nonfulfillment of any undertaking,
agreement or covenant on the part of the Sellers hereunder, pursuant to
Article IV, Section 1.03 and Section 9.02. The obligations of Sellers under
this Section 7.03(b) shall survive and shall terminate at the close of
business on the second anniversary of the Closing Date ("First Indemnity
Period"), except that Sellers shall continue to be responsible after such
date for those specific claims and losses of which
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Company or Horizon shall have given Sellers the notices required by this
Section prior to the end of the First Indemnity Period referred to herein.
In the event that Sellers receive actual notice, prior to the expiration of
the above-referenced First Indemnity Period, of a claim which ultimately
results in a loss to Company or Horizon referenced in this Section 7.03(b),
such notice shall be deemed to constitute the notice required to be given by
Company or Horizon hereunder, the same as if Company or Horizon had timely
given such notice to Sellers, Sellers' indemnity obligations shall not be
terminated as to those liabilities, losses, damages and expenses incurred by
Company or Horizon as a result of said claim and such indemnity obligation
shall survive until such claim shall have been finally resolved and all
damages shall have been fully satisfied.
(c) Subject to the terms and conditions of this Article VII, Sellers
jointly and severally agree to and will indemnity, defend and hold the
Company and Horizon harmless from and against all demands, claims, actions or
causes of actions, assessments, losses, damages, liabilities, costs and
expenses, including without limitation, interest, penalties and reasonable
attorney fees and expenses (hereinafter collectively called "Damages"),
asserted against, resulting to, imposed upon or incurred by the Company
and/or Horizon related to, resulting from or arising out of, a breach of the
representations and warranties made by the Sellers in Sections 2.06, 2.09,
2.14, 2.17, 2.21, 2.22, 2.25, 2.28, 2.32 and 2.39 herein. The obligations of
Sellers under this Section 7.03(c) shall survive and shall terminate at the
close of business on the third anniversary of the Closing Date ("Second
Indemnity Period"), except that Sellers shall continue to be responsible
after such date for those specific claims and losses of which Company or
Horizon shall have given Sellers the notices required by this Section prior
to the end of the Second Indemnity Period referred to herein. In the event
that Sellers receive actual notice, prior to the expiration of the
above-referenced Second Indemnity Period, of a claim which ultimately results
in a loss to Company or Horizon referenced in this Section 7.03(c), such
notice shall be deemed to constitute the notice required to be given by
Company or Horizon hereunder, the same as if Company or Horizon had timely
given such notice to Sellers, Sellers' indemnity obligations shall not be
terminated as to those liabilities, losses, damages and expenses incurred by
Company or Horizon as a result of said claim and such indemnity obligation
shall survive until such claim shall have been finally resolved and all
damages shall have been fully satisfied. Notwithstanding the above
provisions, Sellers shall not be liable for indemnity for damages related to,
resulting from or arising out of a breach of the representation and warranty
in Section 2.32 herein if said breach is within the scope of Section 7.03(b)
and in such event, the remedy for a breach of the representation and warranty
set out in Section 2.32 shall be limited to the remedies provided in Section
7.03(b). Similarly, if Sellers are liable for Damages relating to, resulting
from or arising out of a breach of
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the representation and warranty in Section 2.32 which is also a breach of a
representation or warranty set out in Section 7.04, the remedies set out in
Section 7.04 shall govern the rights of Company and Horizon as a result of
the breach.
(d) Subject to the terms and conditions of this Article VII, Sellers
jointly and severally agree to and will indemnity, defend and hold the
Company and Horizon harmless from and against all demands, claims, actions or
causes of actions, assessments, losses, damages, liabilities, costs and
expenses, including without limitation, interest, penalties and reasonable
attorney fees and expenses (hereinafter collectively called "Damages"),
asserted against, resulting to, imposed upon or incurred by the Company
and/or Horizon related to, resulting from or arising out of, a breach of the
representations and warranties made by the Sellers in Sections 2.01, 2.02,
2.03, 2.04, and 2.15 herein. The obligations of Sellers under this Section
7.03(d) shall survive indefinitely.
SECTION 7.04 Regulatory and Missing Insurance Indemnity. Subject to the
terms and conditions of this Article VII, Sellers jointly and severally agree
to and will indemnity, defend and hold the Company and Horizon harmless from
and against all demands, claims, actions or causes of actions, assessments,
losses, damages, liabilities, costs and expenses, including without
limitation, interest, penalties and reasonable attorney fees and expenses
(hereinafter collectively called "Damages"), asserted against, resulting to,
imposed upon or incurred by the Company and/or Horizon related to, resulting
from or arising out of, a breach of the representations and warranties made
by the Sellers in Sections 2.16, 2.24, 2.29, 2.30, 2.35, 2.36, and 2.37
herein or a Missing Insurance Claim.
The obligations of Sellers under this Section 7.04 shall survive and
shall terminate at the close of business on the seventh anniversary of the
Closing Date ("Third Indemnity Period"), except that as to Missing Insurance
Claims the Third Indemnity Period shall extend until the tenth anniversary of
the Closing Date, and except, further, that Sellers shall continue to be
responsible after such date for those specific claims and losses of which
Company or Horizon shall have given Sellers the notices required by this
Section prior to the end of the Third Indemnity Period referred to herein. In
the event that Sellers receive actual notice, prior to the expiration of the
above-referenced Third Indemnity Period, of a claim which ultimately results
in a loss to Company or Horizon referenced in this Section 7.04, such notice
shall be deemed to constitute the notice required to be given by Company or
Horizon hereunder, the same as if Company or Horizon had timely given such
notice to Sellers, Sellers' indemnity obligations shall not be terminated as
to those liabilities, losses, damages and expenses incurred by Company or
Horizon as a result of said claim and such indemnity obligation shall survive
until such claim
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shall have been finally resolved and all damages shall have been fully
satisfied.
"Missing Insurance Claim" means any claim based on an occurrence arising
between the time of inception of Horizon and September 2, 1993, which would
have been covered by an insurance policy of general and professional
liability (including products liability) if Horizon had maintained such
coverage, but such a claim shall be a Missing Insurance Claim only up to the
amount of the Minimum Coverage (as defined below). "Minimum Coverage" means
coverage of not less than $1,000,000 per occurrence, $2,000,000 aggregate and
$2,000,000 excess liability. In the event that at any time subsequent to the
date hereof and prior to the Company's or Horizon's incurrence of any loss in
respect of a Missing Insurance Claim, Sellers shall establish the existence
of insurance coverage for such Missing Insurance Claim, then to the extent of
such insurance so established, such claim shall cease to be a Missing
Insurance Claim.
SECTION 7.05 Conditions of Indemnification. The obligations and
liabilities of Sellers (herein sometimes called the "indemnifying party"), to
the Company and Horizon (herein sometimes collectively called the "party to
be indemnified") under Section 7.03 and 7.04 hereof with respect to claims
resulting from the assertion of liability by third parties shall be subject
to the following terms and conditions:
(a) within 20 days after receipt of notice of (i) commencement of any
action or (ii) the assertion of any claim by a third party, or (iii) the
party to be indemnified obtains actual knowledge that an event giving rise to
an indemnity obligation has arisen, the party to be indemnified shall give
the indemnifying party written notice thereof specifying the factual basis of
the claim in reasonable detail to the extent then known to the party to be
indemnified, together with a copy of such claim, process or other legal
pleading, if applicable, (provided that failure so to notify the indemnifying
party of the assertion of a claim within such period shall not affect its
indemnity obligation hereunder except as and to the extent that such failure
shall adversely affect the defense of such claim), and the identifying party
shall have the right to undertake the defense thereof by representatives of
its own choosing who shall be reasonably satisfactory to the indemnified
party;
(b) in the case of a third party claim, in the event that the
indemnifying party, by the 30th day after receipt of notice of any such claim
(or, if earlier, by the tenth day preceding the day on which an answer or
other pleading must be served in order to prevent judgment by default in
favor of the person asserting such claim) does not elect to defend against
such claim, the party to be indemnified will (upon further notice to the
indemnifying party) have the right to undertake the defense, compromise or
settlement
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of such claim on behalf of and for the account and risk of the indemnifying
party, subject to the right of the indemnifying party, with the consent of
the indemnifying party, to assume the defense of such claim at any time prior
to settlement, compromise or final determination thereof;
(c) anything in this Section 7.04 to the contrary notwithstanding, (i)
if there is a reasonable probability that a claim may materially and
adversely affect the indemnified party other than as a result of money
damages or other money payments, the indemnified party shall have the right,
at its own cost and expense, to compromise or settle such claim, but (ii) the
indemnified party shall not, without the prior written consent of the
indemnifying party, settle or compromise any claim or consent to the entry of
any judgment which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the indemnifying party a release
from all liability in respect of such claim; and
(d) in connection with any such indemnification, the indemnified party
will cooperate in all reasonable requests of the indemnifying party.
SECTION 7.06 General Provisions Relating to Indemnification.
(a) The party entitled to indemnification shall take all reasonable
steps to mitigate all indemnifiable liabilities and damages upon and after
becoming aware of any event which could reasonably be expected to give rise
to any liabilities or damages that are indemnifiable hereunder. No party
shall be entitled to indemnification to the extent of any insurance, federal
or state income tax deductions or credits arising from the indemnifiable
event (to the extent that any savings from such deduction or credit is
actually realized) or net proceeds of actions against third parties by
Company or Horizon based on pre-Closing Date facts; such indemnified party
agrees to timely notify the insurance carrier and diligently prosecute claims
against the insurance carrier without regard to the possibility of
indemnification hereunder.
(b) Neither Company, nor Horizon shall make any claim against Sellers
for indemnification to the extent that the basis thereof has resulted in a
purchase price adjustment pursuant to Section 1.03 hereof.
SECTION 7.07 Exclusive Remedies. The rights of the Sellers on the one
hand, and Horizon and the Company on the other hand, under Article I and
Section 4.04 and the indemnification rights provided in this Section VII
shall be the exclusive remedy of these parties pursuant to this Agreement
with respect to any dispute arising out of or related to this Agreement,
except for (a) the right to seek specific performance of any of the
agreements contained herein, or (b) in any case where one party has been
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guilty of fraud in connection with this transaction. As used herein, fraud
shall exclude conduct which would only give rise to a claim for negligent
misrepresentation. Notwithstanding any other provision herein purporting to
create a greater liability, Charlton shall not be liable for an amount in
excess of 21% of the Purchase Price unless Charlton was actively engaged in
fraud, or had actual knowledge of fraud by Martz. In the event that Charlton
was actively engaged in fraud or had actual knowledge of fraud by Martz,
Charlton's liability hereunder shall not be limited by this Agreement to any
amount or in any manner whatsoever. No provision contained in this Article
VII shall apply to a breach of the terms of any Other Agreement executed by
the Sellers and the parties to the Other Agreements shall have all rights and
remedies with respect to such Other Agreements provided to them by law or
equity without any limitation imposed hereby.
SECTION 7.08. Escrow Agreements. The funds held in escrow by the
escrow agent pursuant to the Escrow Agreement are intended to give security
to Company and Horizon in case either of the Sellers shall become liable,
after the Closing Date, for any amounts for which Company or Horizon is
entitled to indemnification by such Seller pursuant to Sections 7.02, 7.03
and 7.04 hereof. The funds held in escrow by the escrow agent pursuant to the
Refunds Payable Escrow Agreement are intended to give security to Company and
Horizon in case either of the Sellers shall become liable, after the Closing
Date, for any amounts for which Company or Horizon is entitled to
indemnification by such Seller pursuant to Section 7.03 (a) hereof. Company
may set off any amount to which it is entitled under the Article VII (except
Section 7.03 (a)) against the escrowed funds in the Escrow Agreement and may
set off amounts to which it is entitled under Section 7.03(a) against the
escrowed funds in the Refunds Payable Escrow Agreement. The rights and
remedies of Company and Horizon under the Escrow Agreement and the Refunds
Payable Escrow Agreement shall be in addition to, and not exclusive of, any
other rights and remedies that Company and Horizon may have against either of
the Sellers for a breach of any provision of this Agreement or with respect
to any of the items enumerated above. However, Company and Horizon agree that
they will first exhaust their rights to receive the funds in the Escrow
Agreement and the Refunds Payable Escrow Agreement, as applicable, before
seeking to recover damages against the Sellers under this Article VII.
SECTION 7.09. Overall Limit. Notwithstanding anything in this
Agreement to the contrary, Sellers shall not be liable for any claim against
them for indemnity under Sections 7.03(b) and (c) or 7.04 of this Agreement,
either as asserted or as ultimately determined, equal to or less than
$50,000.00 in the aggregate for all claims under those Sections, and the
maximum collective liability of Sellers for any and all claims against them
for indemnity under Sections 7.03(b) and (c) and 7.04 of this Agreement,
shall not exceed Twenty-Five Million ($25,000,000.00) Dollars, provided that
claims for which Sellers are not liable by
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virtue of the $50,000.00 exclusion provided above in this Section shall not
be counted as a claim in determining said maximum liability.
Sellers liability under Subsection 7.03(b) shall not exceed in the
aggregate Five Million ($5,000,000.00) Dollars, and Sellers will have no
liability with respect to the indemnification set forth in Subsection 7.03(b)
for any amount of claims which in the aggregate exceeds Five Million
($5,000,000.00) Dollars.
Sellers liability under Subsection 7.03(c) shall not exceed in the
aggregate Ten Million ($10,000,000.00) Dollars, and Sellers will have no
liability with respect to the indemnification set forth in Subsection 7.03(c)
for any amount of claims which in the aggregate exceeds Ten Million
($10,000,000.00) Dollars.
Sellers liability under Section 7.04 shall not exceed in the aggregate
Twenty-Five Million ($25,000,000.00) Dollars, and Sellers will have no
liability with respect to the indemnification set forth in Section 7.04 for
any amount of claims which in the aggregate exceeds Twenty-Five Million
($25,000,000.00) Dollars.
SECTION 7.10. Allocation of Indemnity Obligation. In the event that
Sellers are liable for indemnity under Sections 7.02, 7.03 or 7.04 of this
Agreement, the individual liability of Charlton shall be limited to 21% of
the amount of the indemnity claimed and the individual liability of Martz
shall be limited to 79% of the amount of the indemnity claimed.
SECTION 7.11. General Company Indemnity. Subject to the terms and
conditions of this Article VII, the Company agrees to and will indemnify,
defend and hold Sellers harmless from and against all Damages asserted
against, resulting to, imposed upon or incurred by Sellers, resulting from or
arising out of (i) a breach of the representations, warranties or covenants
made by the Company in this Agreement or any document delivered by or for it
pursuant to this Agreement, or (ii) any event or claim occurring or arising
out of the operation of Horizon after the Closing Date.
ARTICLE VIII.
TERMINATION AND ABANDONMENT
SECTION 8.01. Termination. This Agreement may be terminated at any
time prior to the closing on the Closing Date:
(a) by the mutual consent of the Company and Sellers; or
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(b) by either the Company or Sellers if the Closing Date shall not have
occurred on or before June 5, 1997 or such later date as may be agreed upon
by them; provided, however, that the right to terminate this Agreement under
this clause (b) shall not be available to any party (a "Defaulting Party")
whose failure (or whose affiliate's or affiliates' failure) to fulfill any
obligation under this Agreement has been the cause of, or resulted in the
failure of the Closing to occur on or before such date.
No such termination shall affect the liability hereunder of any
Defaulting Party.
SECTION 8.02. Procedure and Effect of Termination. In the event of
termination of this Agreement and abandonment of the transactions
contemplated hereby pursuant to Section 8.01 above, written notice thereof
shall forthwith be given to the other parties to this Agreement and this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided in this Agreement:
(a) the parties hereto will promptly redeliver all documents, work
papers and other material of any other party relating to the transactions
contemplated hereby, whether obtained before or after the execution hereof,
to the party furnishing the same; and
(b) no party shall have any liability or further obligation to any other
party to this Agreement pursuant to this Agreement except as provided in
Section 8.01 above or Section 9.01.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01. Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, Sellers and Company shall
split the cost of filing fees under the Hart-Scott-Rodino Act, but otherwise,
none of the parties hereto shall have any obligation to pay any of the fees
and expenses of any other party incident to the negotiation, preparation and
execution of this Agreement, including the fees and expenses of counsel,
accountants, investment bankers and other experts, except as hereinafter
provided or as otherwise provided in Section 1.03(e). If such transactions
are consummated, then the Company shall pay the fees and expenses of (i)
Armstrong Allen Prewitt Gentry Johnston & Holmes for its legal services to
the Company, (ii) Epstein, Becker & Green, P.C. for its legal services to the
Company, and (iii) subject to the provisions of Section 1.03(e), E&Y for its
accounting and other related services to the Company. Sellers will
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pay the fees and expenses of (i) Healthcare Capital Advisors for its
financial advisory services to Sellers, (ii) Bass Berry & Sims for its legal
services to Sellers and (iii) Price & Associates for its services to Sellers.
Sellers will indemnify the Company, and, to the extent the transactions
contemplated by this Agreement are consummated, Horizon and hold each of them
harmless from and against any claims for finders' fees or brokerage
commissions in relation to or in connection with such transactions as a
result of any agreement or understanding between Sellers or Horizon and any
third party. The Company will indemnify Sellers and hold each of them
harmless from and against any claims for finders' fees or brokerage
commissions in relation to or in connection with such transactions as a
result of any agreement or understanding between the Company and any third
party.
SECTION 9.02. Publicity. The parties hereto agree to cooperate in
issuing any press release or other public announcement concerning this
Agreement or the transactions contemplated hereby. Each party shall furnish
to the other drafts of all such press releases or announcements prior to
their release. In the case of any press release or communication proposed to
be made (i) by Sellers relating to the transactions contemplated by this
Agreement, the prior consent (which shall not be unreasonably withheld) of
Company shall be obtained with respect to the timing and contents thereof, or
(ii) by the Company relating to the transactions contemplated by this
Agreement, the prior consent (which shall not be unreasonably withheld) of
Sellers shall be obtained with respect to the timing and contents thereof.
Nothing contained herein shall prevent any party from at any time furnishing
any information required by any governmental authority.
SECTION 9.03. Execution in Counterparts. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 9.04. Notices. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if (i) delivered personally, (ii) mailed by
registered or certified mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier service or (iv) sent
via facsimile confirmed in writing to the recipient, in each case as follows:
If to Sellers to:
Ms. Dianne Martz
401 Wayside Court
Nashville, Tennessee 37205
and
A.B. Charlton, III
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11132 Outlet Drive
Knoxville, Tennessee 37932
with a copy to:
Bass Berry & Sims, PLC
270F first American Center
Nashville, Tennessee 37238
Attn: Samuel E. Stumpf, Esq.
Facsimile No.: 615-742-6298
If to Company or Horizon, to:
1620 Century Center Parkway, Ste. 109
Memphis, Tennessee 38134
Facsimile No.: (901) 385-3780
Attention: Mr. David D. Stevens
with a copy to:
Armstrong, Allen, Prewitt, Gentry,
Johnston & Holmes
Brinkley Plaza
80 Monroe Avenue, Suite 700
Memphis, Tennessee 38103-2467
Facsimile No.: (901) 524-4936
Attention: Thomas W. Bell, Jr., Esq.
or such other address or addresses as any party shall have designated by
notice in writing to the other parties. All notices shall be deemed to have
been given or made when delivered by hand or courier or when sent by
facsimile, or, if mailed, five business days after being so mailed.
SECTION 9.05. Waivers. Either Sellers or Company may, by written
notice to the other, and without the consent of any other party hereto, (i)
extend the time for the performance of any of the obligations or other
actions of the other under this Agreement, (ii) waive any inaccuracies in the
representations or warranties of the other contained in this Agreement or in
any document delivered pursuant to this Agreement, (iii) waive compliance
with any of the conditions or covenants of the other contained in this
Agreement, or (iv) waive performance of any of the obligations of the other
under this Agreement. Except as provided in the preceding sentence and in
Section 7.01, no action taken pursuant to this Agreement, including without
limitation any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party
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taking such action, of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
SECTION 9.06. Amendments. This Agreement may be amended, without the
consent of any other party, only by an instrument in writing signed by the
Company and Sellers.
SECTION 9.07. Entire Agreement. This Agreement, its Exhibits, Schedules
and Annexes, the Other Agreements referred to in Section 5.01 and the
documents and agreements executed on the Closing Date in connection herewith,
constitute the entire agreement between the parties hereto with respect to
the subject matter hereof and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect to
the subject matter hereof.
SECTION 9.08. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE, EXCLUSIVE OF
THE CONFLICTS OF LAWS PROVISIONS THEREOF.
SECTION 9.09. Binding Effect: Benefits. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
[Rest of page intentionally left blank]
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SECTION 9.10 Assignability. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
NOVA HOLDINGS, INC.
By: /s/ Paul D. Steven
------------------------------
Title: CEO
-----------------------
HORIZON HEALTH SYSTEMS, INC.
By: /s/ Dianne R. Martz
------------------------------
Title: President
-----------------------
/s/ Dianne R. Martz
-----------------------------------
DIANNE R. MARTZ
/s/ A.B. Charlton, III
-----------------------------------
A.B. CHARLTON, III
<PAGE>
Exhibit 10.18
NONDISCLOSURE AND NON-COMPETE AGREEMENT
This Agreement is made and entered into this 5th day of June, 1997
by and among Horizon Health Systems, Inc. ("Horizon"), Nova Holdings, Inc.
("NHI"), and Dianne Martz ("Restricted Party").
W I T N E S S E T H :
WHEREAS, Horizon is a corporation organized under the laws of the
State of Tennessee; and
WHEREAS, Horizon, NHI, Martz and A.B. Charlton, III have entered into a
Stock Purchase Agreement dated as of the date of this Agreement ("Purchase
Agreement"), pursuant to which, among other things, NHI has agreed to purchase
from Martz and Charlton; and Martz and Charlton have agreed to sell to NHI, one
hundred percent of the outstanding shares in Horizon; and
WHEREAS, it was a condition to the closing of the purchase of stock in
Horizon, that the Restricted Party enter into the non-compete and
confidentiality restrictions set forth herein;
NOW, THEREFORE, for and in exchange of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE>
1. Covenant of Non-Disclosure of Confidential Information. Restricted
Party recognizes that she has access to, and knowledge of, matters concerning
the business which is and will be operated by Horizon, including, but not
limited to, contents of manuals, procedures, methods of doing business, the
identity of development sources and suppliers, customer records, information
contained in the books and records of Horizon, financial information, trade
secrets, patient mailing lists, and the names and addresses of patients. All
such information is hereinafter referred to as "Confidential Information."
Restricted Party acknowledges that this information is considered valuable,
proprietary and confidential by Horizon and NHI, and that Horizon and NHI have
paid substantial consideration to acquire or develop such information.
Restricted Party agrees that as between the parties hereto such information
shall be treated as valuable, proprietary and confidential regardless of whether
third parties would consider it valuable, proprietary and confidential.
Restricted Party agrees that she will not at any time, disclose or make known to
any person or entity, or otherwise use, any Confidential Information, or
permit any person to examine and/or make copies of any documents that contain or
are derived from Confidential Information, without the prior written consent of
NHI, subject to requirements of applicable law. Restricted Party represents that
she has returned to Horizon, all writings and all records of whatever nature,
including computer records, and mailing lists, containing Confidential
Information kept by her or in her possession,
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whether originals or copies, it being agreed that said records are the sole and
exclusive property of Horizon. Notwithstanding the preceding restrictions,
Restricted Party may use Confidential Information to prepare tax returns, to
defend litigation, and to respond to governmental inquiries.
Furthermore, during the three month term of the Consulting Agreement
entered into between Restricted Party and Horizon, Restricted Party may have
access to such Confidential Information as Horizon shall determine to be needed
by Restricted Party to perform her consulting duties for Horizon. However, all
such writings and all records of whatever nature containing Confidential
Information shall be returned to Horizon at the end of the three month term of
the Consulting Agreement.
2. Covenant Against Competition. Restricted Party hereby
acknowledges that Horizon's business is highly competitive and that she
is knowledgeable about the methods of doing business employed by Horizon, the
names and histories of customers served by Horizon, and manuals, procedures,
programs, development sources, and advisors, pricing strategies, customer
records, business plans, financial information, and other information which
Horizon deems to be confidential, proprietary and a trade secret. Restricted
Party further recognizes that should she enter into competition with Horizon in
the Restricted Area referred to hereinbelow, she would have a competitive
advantage as a result of the knowledge gained,
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<PAGE>
and the exposure acquired, prior to the sale of Horizon. Therefore, in
consideration of the benefits conveyed hereunder, and the purchase by NHI of the
stock in Horizon, Restricted Party agrees that during the Restricted Period set
forth below, and within the Restricted Area defined herein, Restricted Party
shall not, directly or indirectly, jointly or individually, on her own behalf or
as an agent, employee, owner, partner, joint venturer, shareholder, independent
contractor, investor, consultant, employer or adviser engage in, assist others
in engaging in, or establish or own any interest in, any business, trade or
occupation engaging in competition with, the business which is carried on by
Horizon; provided however, that the provisions of this Section 2 shall not be
deemed to prohibit Restricted Party's ownership of not more than one percent
(1%) of any publically held Company. For this purpose the business which is
carried on by Horizon shall mean the sale, marketing, distribution, promotion,
provision, and distribution of blood clotting pharmaceuticals, ancillary medical
supplies, and other products and services related to hemophilia as prescribed by
a physician and required for the administration of product to hemophilia
patients, whether or not such products and services are provided in the
hospital, home or other medical facilities.
Restricted Area shall mean the United States of America. As part of the
preceding covenant, and not in limitation thereof, Restricted Party further
agrees that during the Restricted Period, she will not in any capacity, directly
or indirectly, call upon or
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<PAGE>
otherwise solicit clients or prospective clients of Horizon within the
Restricted Area for the purpose of competing with Horizon for the business of
said clients or prospective clients or for the purpose of influencing patients
to cease using the services of Horizon, and further will not directly or
indirectly induce or solicit employees of Horizon to leave their employment with
Horizon or in any way interfere with the relationship between Horizon and any
employee thereof. For the purpose of this agreement, the Restricted Period shall
mean the period beginning on the date of this Agreement and ending ten (10)
years from the Closing Date as defined in the Purchase Agreement.
Notwithstanding any provision herein to the contrary, Restricted Party
may engage or continue to engage in those activities specified on Exhibit A
attached hereto, without violating the terms of this Section 2.
3. Affiliates. As used herein, Restricted Party shall include
Affiliates of Dianne Martz. An Affiliate shall mean any individual, corporation,
partnership, LLC, trust, unincorporated organization, association or other
entity that, directly or indirectly through one or more intermediaries, is
controlled by, or is under common control with Dianne Martz. Diane Martz
covenants and agrees to take all actions necessary to insure that her affiliates
and their officers and directors abide by the terms of this agreement.
5
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4. Duty of Cooperation. Restricted Party further agrees that from and
after the date of this Agreement, she will refrain from making disparaging or
derogatory comments regarding Horizon, NHI, any affiliates of Horizon or NHI, or
any directors, officers or employees of Horizon, NHI or any affiliates thereof.
Restricted Party agrees that she will not attempt to discourage any patient or
referral source from doing business with Horizon, NHI or any affiliate thereof.
5. Enforcement of, and Acknowledgement of Reasonableness of, Covenants.
Restricted Party has carefully read and considered the provisions of Sections 1,
2, 3, and 4 and, having done so, agrees that the terms of the covenants are fair
and reasonable and are reasonably required for the protection of the interests
of Horizon and NHI, their business, their officers, their directors, and their
employees. The Restricted Party further agrees that NHI would not have purchased
the stock of Horizon unless Restricted Party entered into the restrictions set
out in this Agreement and that she has received valuable and adequate
consideration in exchange for entering into the restrictions set out in this
Agreement.
Restricted Party specifically acknowledges and agrees that in the event
that she should breach these covenants, NHI and Horizon would suffer irreparable
harm which would be difficult to measure and that NHI and Horizon would not have
an adequate remedy at law. It is therefore specifically agreed that these
covenants may be
6
<PAGE>
enforced by NHI or Horizon, by equitable process of injunction, without posting
bond or other security, in addition to such other remedies as may be provided to
NHI or Horizon. Restricted Party specifically recognizes and acknowledges that
either NHI or Horizon shall have the right to enforce these covenants in its own
name, with or without the other entities' involvement.
Restricted Party further agrees that if suit is brought to enforce this
Agreement or to seek damages for its breach, Restricted Party will pay to
Horizon or NHI, in addition to any other damages caused to Horizon or NHI, all
attorney fees incurred by Horizon or NHI in seeking such relief.
If Restricted party shall violate any covenant contained in Section 2,
the duration of any such covenant so violated automatically shall be extended
with respect to the Restricted Party for a period equal to the period during
which such Restricted Party shall have been in violation of such covenant.
6. Waiver, Modification. No failure to exercise, and no delay in
exercising, by either party hereto, any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. This Agreement
7
<PAGE>
may not be modified or amended except by an instrument in writing signed by the
parties hereto.
7. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Tennessee
(excluding choice of law rules).
8. Effect. This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective heirs, legal
representatives, executors, administrators, successors and assigns.
9. Unenforceability. If any provision of this Agreement (including,
without limitation, any portion of Sections 1, 2 or 3 is held invalid, such
invalidity shall not affect any other provision of this Agreement, not held
invalid, and each such other provision shall to the full extent consistent with
law continue in full force and effect. To the extent that Section 2 shall be
held by a court of competent jurisdiction to be unenforceable as written, the
parties stipulate and agree that the provisions of said Section shall be
retroactively amended to conform to the maximum restrictions allowed by law, the
same as if said Section as amended had originally been included herein.
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10. Headings. All headings herein are for ease of reference only
and shall not be construed to enlarge or limit the provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto, having acted through their duly
authorized officers, have executed this Agreement on the date and year first
above written.
HORIZON HEALTH SYSTEMS, INC.
By: /s/ Kyle J. Callahan
-----------------------------------
Kyle J. Callahan
Title: Secretary, Board of Directors
--------------------------------
NOVA HOLDINGS, INC.
By: David S. Steven
-----------------------------------------
David S. Steven
Title: CEO
--------------------------------------
/s/ Dianne Martz
--------------------------------------------
DIANNE MARTZ
9
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EXHIBIT A
The following Restricted Party's activities are not restricted under
the Nondisclosure and Non-compete Agreement and the Restricted Party may engage
or continue to engage in these activities:
1. Be active with Hemophilia Opportunities for Personal
Empowerment ("HOPE"), a non-profit entity, provided that HOPE
continues to engage only in providing general education to
Hemophilia patients and families in the same manner as
currently provided and in a manner that compliments Horizon's
business, and in such new activities in the future as are not
competitive with Horizon or Nova Holdings, Inc.
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<PAGE>
Exhibit 10.19
GRANT AGREEMENT
This Agreement is made and entered into this 5th day of June, 1997,
by and between Kyle Callahan ("Executive") and Nova Holdings, Inc. ("NHI").
WHEREAS, NHI has purchased 100% of the outstanding capital stock
of Horizon Health Systems, Inc. ("Horizon"), and Executive is being
employed by Horizon pursuant to a written Employment Contract of even
date herewith, and
WHEREAS, as condition of the purchase of stock in Horizon and in
conjunction with the employment of Executive, NHI has agreed to grant
certain stock options to Executive as more particularly set out herein.
NOW THEREFORE, for and in consideration of the mutual promises
contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
hereto agree as follows:
1. NHI agrees that it will grant within 90 days following the
date hereof 30,000 incentive stock options in NHI to Executive pursuant
to the terms of the Stock Option and Restricted Stock Purchase Plan
("Option Plan"), a copy of which is attached hereto as Exhibit A. The
grant price shall be equal to the price per share at which the Common
Capital Stock of NHI is being sold to Ken Melcus, an outside party who
will become a member of the Board of Directors. 15,000 of these
options shall be time vested pro rata over four years. The remaining
15,000 options shall be cliff vested after five years with vesting
acceleration based upon NHI obtaining preestablished financial
performance goals with the exercise price for said options to be
determined based upon the fair market value of NHI as of the grant
date.
2. As a condition to the grant of said options, Executive agrees
that he will execute an Incentive Stock Option Agreement ("Option
Agreement") in the form attached hereto as Exhibit B and that he will
execute a Restrictive Covenant and Confidentiality Agreement in the
form attached hereto as Exhibit C. The execution of these Agreements,
and compliance with the terms thereof, are conditions precedent to the
issuance of the incentive stock options referenced herein. The terms
and provisions of the Option Agreement and the Option Plan shall govern
all options granted pursuant to this Grant Agreement.
3. This Agreement shall be governed by and in accordance with the
laws of the State of Tennessee.
4. This Agreement may not be assigned by either party hereto
without the consent of the other.
<PAGE>
5. This Agreement may be executed in two or more counter-parts,
each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
Executed on the day and year first above written.
NOVA HOLDINGS, INC.
By: Daniel J. Steven
----------------------------------------
Title: CEO
-------------------------------------
Kyle J. Callahan
-------------------------------------------
KYLE CALLAHAN
2
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Exhibit 10.20
SUBSCRIPTION AND RESTRICTION AGREEMENT
This Agreement is made and entered into this 5th day of
June, 1997, by ad between Nova Holdings, Inc. ("NHI") and Kyle Callahan
("Callahan").
WITNESSETH
1. Subject to the closing of the sale of 100% of the outstanding
stock in Horizon Health Systems, Inc. to Nova Holdings, Inc. Nova
Holdings, Inc. will sell that number of shares of Common Capital Stock,
$.01 par value of Nova Holdings, Inc. that shall be determined by
dividing $250,000.00 by a per share price equal to that per share price
at which the Common Capital Stock $.01 par value is being sold to Ken
Melcus, an outside party who will become a member of the Board of
Directors of NHI ("Shares"). In exchange for the sale of these Shares,
Callahan will pay to NHI the cash sum of $250,000.00. It is also a
condition of this sale that the Shares be sold to Callahan personally
and that Callahan agree to the restrictions herein below.
2. The sale of the Shares by NHI shall take place within sixty
(60) days of the date of this letter.
3. Callahan shall not transfer, sell, give, pledge, assign or
encumber the Shares to any person, entity, firm, corporation or
otherwise without the consent of NHI, and any such gift, transfer,
assignment or sale shall be null and void. If Callahan receives a bona
fide offer to acquire the Shares, Callahan shall first make the offer
to sell to NHI set out hereinbelow:
(a) Callahan shall first offer in writing to sell the
Shares to NHI or to NHI's designee and shall attach to
said writing the name and address of the prospective
purchaser that has made the bona fide offer, the number
of Shares involved in the proposed transfer, and the
terms of such transfer. Within thirty days after
receipt of such offer, NHI or its designee, may at its
option, elect in writing to purchase the Shares, said
sale to be closed within thirty days of said
acceptance.
(b) The purchase price for the Shares to be purchased shall
be equal to the bona fide third party offer to purchase
the Shares. Closing of the purchase shall take place
at the principal office of NHI and the purchase price
shall be paid in the same manner and upon the same
terms as contained in the bona fide third party offer.
(c) If NHI declines to exercise its right to acquire the
shares within the thirty day period, Callahan
<PAGE>
shall be released from the restriction herein and may sell
the Shares to the third party identified to NHI upon the
terms set out in the bona fide third party offer
communicated to NHI provided that such sale shall close
within sixty days after the end of the thirty day
option period granted to NHI. In the event that such
sale does not close within said sixty day period, the
shares shall again become subject to the restriction
set out herein.
4. In the event of Callahan's death, his estate will sell the
Shares to NHI and NHI shall be required to buy such Shares from his
estate at a price equal to the fair market value of the stock as
determined in good faith by the Board of Directors of NHI. Such sale
shall close at the offices of NHI within 120 days after the opening of
the descendant's estate.
5. NHI will use reasonable efforts to grant Callahan registration
rights in the same manner as granted to those parties to the
Registration Rights Agreement dated May 31, 1996, a copy of which is
attached hereto. It is understood and agreed that NHI cannot grant
these rights without the written consent of the holders of 66 2/3% of
the Restricted Stock as defined in the Registration Rights Agreement
and NHI will use reasonable efforts to obtain the consent of holders of
66 2/3% of the Restricted Stock to allow Callahan to obtain rights on
a parity with the rights of the holders of Restricted Stock granted
under the Registration Rights Agreement, subject only to the additional
restrictions set forth herein. The provisions of, and restrictions set
out in, Sections 3 and 4 shall no longer apply in the event of a public
offering of NHI Stock.
6. Callahan hereby acknowledges that the Shares have not been
registered under the Securities Act of 1933 (the "Act") and that the Shares
cannot be resold unless they are registered under the Act or unless an exemption
from registration is available. Callahan further recognizes that the Shares have
not been registered under the securities laws of any state, and may not be
resold unless an exemption from such registration is available. Callahan
therefore recognizes that he must bear the economic risk of this investment
indefinitely. Callahan further acknowledges that NHI has furnished him with all
requested information concerning NHI and its operations.
7. To induce NHI to issue the shares to Callahan, Callahan
represents and agrees that:
(a) He is acquiring the Shares for investment only and not with
a view to effecting a distribution of all or any part of the
Shares, as the phrase "Investment Only" and "Distribution"
have meaning under the Act;
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(b) He has no commitments which make a disposition of the Shares
likely and he intends to hold the shares indefinitely;
(c) He shall make no disposition of any of the Shares except in
accordance with (i) an effective registration statement
under the Act and any applicable state securities law and
prospectus then meeting the requirements of the Act and any
applicable state securities laws, or (ii) a writing
delivered to NHI in advance of the disposition describing a
proposed disposition which proposed disposition is, in the
opinion of counsel for NHI, as communicated to Callahan in
writing, exempt from the registration requirements of the
Act and any applicable state securities laws;
(d) Any writing describing a proposed disposition shall be
accurate and shall not contain any untrue statement nor omit
any statement necessary to make the statements made not
false or misleading;
(e) He shall furnish NHI or its counsel all evidence reasonably
requested to substantiate any fact on which a claim to
exemption from the registration requirements of the Act and
any applicable state securities laws is based;
(f) In the event the restrictive legend referred to below is
removed from the certificates representing the Shares by NHI
in anticipation of a disposition free of the restrictions
contained herein, then at the request of NHI, Callahan shall
submit the certificates for relegending in the event the
Shares are not disposed of as anticipated;
(g) No other person has any interest in this subscription or the
Shares and Callahan is acquiring these shares for himself
only;
(h) Callahan shall indemnify and hold harmless NHI, its officers
and directors, and each person controlling NHI, jointly or
severally, against any loss, liability, damage or expense
(including reasonable attorney fees) arising out of a breach
of any of the foregoing representations and agreements.
8. Callahan agrees that the certificates representing the Shares
shall bear a legend to restrict their transferability under the Act to
circumstances permitted thereunder, and that NHI may refuse to permit
the transfer of the Shares unless the Shares are registered under the
Act and a prospectus meeting the requirements of the Act is then
available, or in the opinion of counsel for NHI, an exemption from
registration is available. Callahan also agrees that certificates
representing the Shares shall bear a legend to restrict their
transferability pursuant to the requirements of this Agreement.
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<PAGE>
9. Unless and until Callahan is made a party to the Registration
Rights Agreement, Callahan understands that (i) NHI is under no
obligation to register the Shares under the Act, but NHI may include
the Shares in any registration it may hereafter effect under the Act at
the Company's expense, and (ii) NHI is not required to file reports
under the Securities Exchange Act of 1934 or do anything which may be
of assistance to Callahan in securing an exemption from the
registration requirements of the Act.
10. Callahan understands the speculative nature of his investment
in the Shares and he represents that he has adequate means of providing
for his needs (including contingencies, without a return on or sale of
the Shares).
11. This Agreement shall be governed by Tennessee law.
12. This Agreement is binding upon and shall inure to the benefit
of the parties hereto and their respective successors, survivors, heirs
and assigns.
NOVA HOLDINGS, INC.
By: /s/ Daniel S. Steven
--------------------------------
Title: CEO
-------------------------------
/s/ Kyle J. Callahan
-------------------------------------
KYLE CALLAHAN
4
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Exhibit 10.21
CONSULTING AND TRANSITION AGREEMENT
This Agreement dated this 5 day of June, 1997 is made and
entered into by and between Dianne R. Martz (hereinafter called
"Consultant") and Horizon Health Systems, Inc. (hereinafter called
"HHS").
WITNESSETH
WHEREAS, Consultant has worked in the hemophilia services and
products industry for a number of years as President of HHS and
Consultant has agreed to sell her stock in HHS and to resign as a
director, officer and employee of HHS, and
WHEREAS, HHS desires to retain Consultant as a consultant to
assist HHS in HHS's business and Consultant is amenable to providing
consulting services to HHS pursuant to the terms contained herein.
NOW THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
1. Consulting Services. During the term hereof, Consultant shall
render consulting services to HHS in connection with the business
carried on by HHS. Consultant shall provide such services when and as
requested by HHS. Consultant agrees to render all consulting services
requested by HHS on a timely basis; however, subject to the requirement
that services be provided in a timely fashion, Consultant shall select
and determine the times when the consulting services are performed.
Consultant shall normally perform consulting services by telephone,
correspondence or at Consultant's offices, however, Consultant agrees
that she will be available to render consulting services at such other
locations as may be requested by HHS. Notwithstanding any provision
herein, Consultant's obligation to provide consulting services shall be
limited to providing a maximum of 400 hours of time availability in the
three month term of this Agreement. All materials needed by Consultant
in fulfilling her obligations hereunder shall be provided by Consultant
and Consultant shall determine the methods by which the consulting
services are rendered by her. To the extent that the Consultant is
required to travel outside of the greater Nashville, Tennessee area as
part of her consulting duties, HHS shall reimburse Consultant for the
reasonable costs of such out of town travel which is approved in
advance by HHS in writing. Consultant shall, at her expense, retain her
own secretary, who shall not be an employee of HHS. Consultant's
Secretary shall report to Consultant and shall not be under the
direction or control of HHS. Consultant and her secretary shall
maintain, at Consultant's expense, such office space as Consultant
shall require in performing her duties hereunder.
<PAGE>
Specifically, Consultant's consulting duties shall include, but
not be limited to, the following:
(i) Assisting the President of HHS in his transition from
Vice President of HHS to President;
(ii) Assisting with marketing functions upon request by the
President of HHS;
(iii) Identifying potential candidates for the Vice President
- Marketing Services position at HHS.
2. Term. This Agreement shall be effective on the date of
execution specified herein above and shall continue for a non-
cancelable term of three months from the date of execution. This
Agreement shall not be renewed and all parties hereto agree that at the
expiration of the term hereof, Consultant shall have no right to
continue and no expectation to continue, her role as a consultant for
HHS.
3. Compensation. For and in exchange of the provision by
Consultant of consulting services, HHS shall pay to Consultant an
amount equal to:
(a) $12,500.00 for the month of June, 1997;
(b) $6,250.00 for the month of July, 1997;
(c) $3,125.00 for the month of August, 1997.
In addition to the amounts set out above, HHS shall pay to
Consultant an amount equal to a percentage of the base salary of Sara
Meyers at HHS as in effect on the day immediately preceding the date of
this Agreement, as follows:
(a) 100% of the base monthly salary for the month of June, 1997;
(b) 50% of the base monthly salary for the month of July, 1997;
(c) 25% of the base monthly salary for the month of August,
1997.
The amounts due Consultant hereunder shall be paid to Consultant
on or before the 10th day of the month for which such payment is due.
4. Independent Contractor. It is agreed the Consultant is an
independent contractor and not an employee, partner, joint venturer, or
agent of HHS. Consultant shall have no authority to bind or commit HHS
in any manner whatsoever. HHS shall not be responsible for the acts of
Consultant while Consultant is performing consulting services under
this Agreement and Consultant is solely responsible for federal and
state tax withholding, social
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security taxes withholding, workers' compensation benefits and fringe benefits
for Consultant and Consultant's employees.
Consultant is engaged in rendering services to other clients. HHS
acknowledges and agrees that this Agreement is not an exclusive
agreement, that Consultant shall not be required to devote her full
time and attention to the performance of duties under this Agreement
and that Consultant may continue to render services to other clients so
long as such services are not in breach of the terms of this Agreement.
5. Assignability. The rights, duties and responsibilities of the
parties hereto are personal in nature and Consultant's duties and
responsibilities hereunder shall not be assigned without the express
written consent of HHS.
6. Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of Tennessee and the laws of the
State of Tennessee shall govern the rights, duties, liabilities and
responsibilities created hereunder.
7. Headings. All headings used herein are for ease of reference
only and shall in no way be construed as interpreting, decreasing or
enlarging the provisions of this Agreement.
8. Effect. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, their successors, administrators,
trustees and assigns.
9. Modification. This Agreement may be changed or modified only
with the written consent of both parties.
10. Waivers. A waiver of the breach of any provision of this
Agreement shall not be deemed a waiver of any other breach of the same
or any other provisions hereof.
11. Notices. Any notice required to be given hereunder shall be
in writing and shall be sent by certified U.S. mail, postage prepaid,
return receipt requested to the party at her or its primary business
address as set out hereinbelow. Notice shall be effective when mailed.
12. Construction. Should any provision of this Agreement require
judicial interpretation, the parties hereto agree that the Court
interpreting or construing the same shall not apply a presumption that
the terms hereof shall be more strictly construed against one party by
reason of the rule of construction that a document is to be more
strictly construed against the party who, itself or through its agents,
prepared the same, it being agreed that both parties and their
respective agents have participated in the preparation hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date hereinabove written.
/s/ Dianne R. Martz
HORIZON HEALTH SYSTEMS, INC. ----------------------------------------
DIANNE R. MARTZ
By: /s/ Kyle J. Callahan
-------------------------------- Address: 401 Wayside Court
Title: Secretary, Board of Directors -------------------------
------------------------------ Nashville, Tennessee
Address: 108 Deerhurst Court -------------------------
---------------------------
Nashville, TN 37221
---------------------------
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Exhibit 10.22
June 3, 1997
Mr. Kyle Callahan
Horizon Health Systems, Inc.
6820 Charlotte Pike
Suite 100
Nashville, Tennessee 37209
Dear Kyle:
This will confirm that we will vote our shares of stock in Nova
Holdings, Inc. and will cause Welsh, Carson, Anderson & Stowe, VII, L.P. to
vote its shares of stock in Nova Holdings, Inc. to elect you to the Board of
Directors of Nova Holdings, Inc. at the next stockholders meeting of Nova
Holdings, Inc.
Sincerely,
/s/ Andrew M. Paul
----------------------------
Andrew M. Paul
Patrick J. Welsh
<PAGE>
Exhibit 10.23
LEASE
THIS LEASE ("Lease"), made the 1st day of September, 1994, between
DIANNE R. MARTZ, ("Landlord") and HORIZON HEALTH SYSTEMS, INC., a Tennessee
corporation ("Tenant")
W I T N E S S E T H:
--------------------
1. Premises, Term, and Rent. Landlord leases to Tenant and Tenant
leases from Landlord the first floor (other than common areas and the
portion thereof being leased to Ren Corporation-USA) (the "Premises") of the
structure located at 6820 Charlotte Pike, Nashville, Tennessee (the
"Building"). The Premises contain approximately 16,930 square feet. The term
of this Lease shall be from the 1st day of November, 1994 to the 31st day of
October, 1999, at an annual rental of $215,857.50, payable in monthly
installments of $17,988.13 each, which rental Tenant covenants to pay as and
when due. All monthly installments ("monthly rental") shall be paid in
advance, on or before the last day of each month, without demand, to Landlord
at the address set forth hereafter. If not paid when due said rental shall
bear interest at the maximum legal contract rate. (Each period commencing on
November 1 and ending on the next October 31 is referred to herein as a
"Lease Year".)
2. Appurtenances. Landlord grants to Tenant and covenants that Tenant
shall have during the term of this Lease, at no additional cost to Tenant,
the non-exclusive use of the parking spaces in the parking lot adjoining the
Building and the non-exclusive use of any and all public restrooms,
elevators, and common areas. Landlord will furnish Tenant with cards so as to
enable Tenant and its employees to use the Building's security system.
3. Renewal Term. Provided Tenant is not then in default hereunder,
Tenant may at its option renew this Lease for one (1) five (5) year period
commencing on the 1st day of November, 1999, upon all terms, conditions, and
obligations set forth herein except as provided in Section 4 hereof. Tenant
shall provide Landlord with notice at least ninety (90) days before the
expiration of the original term of this Lease if it desires to exercise said
option.
4. Renewal Rent. Base Rental during the renewal term will be as
follows:
(a) Landlord and Tenant shall first attempt to agree, prior to ninety
days before the expiration of the initial term, on the annual rental to be
paid during the renewal term should Tenant exercise its option to renew. In
the event Tenant and Landlord are unable to agree on such rental, if Tenant
exercises its option, the annual rental that Landlord shall pay during such
extended term shall be $213,817.50 per year plus any increase as determined
in accordance with the provisions of subdivision (b) of this Section.
<PAGE>
(b) (1) As promptly as practicable after the end of the initial term of
this Lease (or the immediately preceding renewal term, as appropriate),
Landlord shall compute the increase, if any, in the cost of living since the
commencement of this lease based upon the Consumer Price Index--United
States (1982 = 100), All Urban Consumers (the "Index"), published by the
Bureau of Labor Statistics of the United States Department of Labor.
(2) The Index number for the month immediately preceding the
commencement of this Lease, shall be the "base Index number", and the
corresponding Index number for the first month of the renewal term in
question shall be the "current Index number."
(3) The current Index number shall be divided by the base Index
number. From the quotient thereof, there shall be subtracted the number 1,
and any resulting positive number multiplied by 100 shall be deemed to be the
percentage of increase in the cost of living.
(4) The percentage of increase multiplied by $213,817.50 shall be
the increase required to be determined by subdivision (a) of this Section.
(5) Landlord shall, within a reasonable time after obtaining the
appropriate data necessary for computing such increase, give Tenant notice of
any increase so determined, and Landlord's computation thereof shall be
conclusive and binding (but shall not preclude any adjustment that may be
required in the event of a published amendment of the Index figures upon
which the computation was based) unless Tenant shall, within sixty (60) days
after the giving of such notice, notify Landlord of any claimed error
therein.
(c) The annual rent, as so determined (i.e., the aggregate of
$213,817.50 and the "increase" calculated in accordance with subparagraphs
(1) to (4) of subdivision (b) of this Section, inclusive, shall be due and
payable to Landlord in equal monthly installments commencing with the first
month of the renewal term in question (any retroactive payments then due
being payable within five days after giving of such notice), and in the event
of any subsequent redetermination of such amount the adjustment thus
indicated shall be made promptly between Landlord and Tenant.
(d) If publication of the Index shall be discontinued, the parties shall
thereafter accept comparable statistics on the cost of living for the City of
Nashville, Tennessee, they shall be computed and published by an agency of
the United States or by a responsible financial periodical of recognized
authority then to be selected by the parties. In the event of (1) use of
comparable statistics in place of the Index as above mentioned, or (2)
publication of the Index figure at other than monthly intervals, there shall
be made in the method of computation herein provided such revisions as the
circumstances may require to carry out the intent of this Section.
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5. Additional Rent. For the purposes of this Section, the term,
"Base Year Expenses" shall mean the sum total of the following expenses
("Expenses") attributable to the first Lease Year: All real estate taxes and
special assessments levied on the real property of which the Premises are a
part, fire and casualty insurance premiums, utilities that are not
separately metered to tenants, and all other expenses of maintaining and
operating the Building and the property of which the Building is a part to be
borne by Landlord pursuant to Section 7 or otherwise. Tenant agrees to pay to
Landlord as additional rent in all Lease Years after the first Lease Year.
Tenant's pro-rata share (based on square footage) of the amount by which the
sum of the foregoing Expenses exceed Base Year Expenses.
Expenses shall not include costs incurred in connection with capital
improvements, except to the extent that capital improvements result in a
decrease in Expenses. Moreover, it is not intended that Tenant be required to
pay its share of any increased tax assessments resulting from additional
improvements constructed for other tenants in the Building after the Building
has been fully completed and assessed.
Landlord shall be entitled to estimate the total amount of Expenses to
be paid by Tenant during each Lease Year and, upon notice to Tenant of such
estimate, to collect such estimate in twelve (12) equal installments, each
such installment to be due and payable with each monthly rental installment
payable under this Lease.
Within a reasonable time after the end of each Lease Year, Landlord
shall submit to Tenant a statement of the actual amount of Expenses and
amount due from Tenant hereunder for such Lease Year, and within thirty (30)
days after receipt of such statement, Tenant shall pay the difference between
the actual amount owed and the estimates paid during such Lease Year, or in
the event of overpayment, Landlord shall credit the amount of such
overpayment toward the next monthly rental installments. Tenant may review
Landlord's records relating to Operating Expenses, at Tenant's expense,
during normal business hours.
6. Lessee's Repairs and Utilities. Tenant will keep the Premises,
including without limitation, interior walls, floors, same are at the
commencement of this term or may be put in during the continuance thereof,
reasonable wear and tear and damage by fire, other casualty, or condemnation
excepted, and will promptly replace all glass broken during the said term
with glass of the same quality.
To the extent separately metered to Tenant, Tenant shall be responsible
for the payment of all bills and/or assessments for electrical, natural gas,
water and sewer and other utilities serving the Premises. To the extent that
Landlord shall be billed for any such services by the provider thereof Tenant
shall reimburse Landlord for the amount thereof within fifteen (15) days of
being furnished with a statement from Landlord with respect thereto. If the
amount due as shown on such statement is not paid when due, it shall bear
interest at the maximum legal contract rate until paid.
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7. Lessor's Repairs. Landlord shall maintain and keep in good repair and
working order the roof, exterior walls, sprinkler system, HVAC system,
electrical wiring, and plumbing system of the Building, the adjoining yard
and parking lot, and all underground water and sewerage pipes. Landlord will
keep the Building insured against damage by fire and other casualty. Landlord
will furnish Tenant with janitorial service.
8. Right of Entry. Landlord may at reasonable times and on reasonable
notice to Tenant enter the Premises to inspect them and make any repairs
required by Section 7 or required by Section 6 that Tenant has failed to
make, and during the ninety (90) days preceding the expiration of this Lease,
may show the Premises to persons who may wish to lease same, provided Tenant's
occupancy is not interfered with. If Landlord makes any repairs required to
be made by Tenant under Section 6, Tenant shall pay Landlord as additional
rent a sum equal to the amounts expended by Landlord plus interest thereon at
the maximum legal contract rate within ten (10) days after Landlord presents
Tenant with a statement setting forth the repairs made and the amounts
expended.
9. Renovations and Alterations of Premises. Subject to Landlord's
approval of all plans and specifications for material renovations and
alterations and subject to the condition that Tenant shall allow no lien to
be place against the Premises [of the Building], Tenant shall have the right,
as its sole cost and expense, to renovate, alter, and use the Premises in
connection with its business and to make related improvements. All
alterations, additions, repairs, replacements and improvements made to or
upon the Premises shall be deemed to be part of the Premises and shall become
the property of Landlord upon the expiration or termination of this Lease;
provided, however, that trade fixtures, machinery, and equipment that are
installed by Tenant and removable without materially injuring the Premises
shall remain the property of Tenant.
10. Fire or Other Casualty. If the Premises should be damaged or
destroyed by fire or other casualty so as to cause a material alteration in
the character of the Premises and to prevent Tenant from using them in
substantially the manner theretofore used, either Landlord or Tenant may
terminate this Lease upon giving notice to the other within fourteen (14) days
after the casualty occurs. Should such termination occur on any day other
than the last day of a monthly rental period, any unearned prepaid rental
shall be refunded to Tenant.
If the Premises are materially damaged by fire or other casualty and
neither party elects to terminate this Lease, or if the Premises should be
damaged by fire or other casualty and still be fit for Tenant's continued use
in substantially the same manner as theretofore used, then this Lease shall
continue in effect and the Premises shall be restored by Landlord. If the
event causing damage was not caused by the fault of Tenant, while such
restoration is in progress, Tenant shall be entitled to a fair and appropriate
abatement of the rental to be paid, said abatement to be based on the amount
and value of the Premises used by Tenant. Should the damage necessitating
such restoration occur on any day other than the last day of a monthly rental
period, then the amount of prepaid rental to be refunded to Tenant shall be
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based on the amount and value of undamaged space used by Tenant during the
remainder of said monthly rental period.
11. Surrender of Premises. At the expiration of the term of this
Lease, Tenant shall peaceably yield up to Landlord the Premises and all
erections and additions made thereto except as hereinbefore provided, in good
repair in all respects, reasonable use, wear and tear and damage by fire or
other casualty or by condemnation excepted.
12. Holding Over. Should Tenant hold over the term hereby created
with the consent of Landlord, Tenant shall become a tenant from month to
month at the monthly rental then payable hereunder and otherwise upon the
covenants and conditions in this Lease contained, and shall continue to be
such tenant until thirty (30) days after either party serves upon the other
notice of intention to terminate such monthly tenancy. Should such
termination occur on any day other than the last day of any rental period,
any unearned prepaid rent shall immediately following surrender of the
Premises to the Landlord, be refunded to Tenant.
13. Use of Premises. The Premises shall be used only for general
office use and purposes relating to Tenant's business as now conducted.
Tenant will not, however, at any time use or occupy the Premises in violation
of laws, ordinances, or regulations of any government or agency having
jurisdiction or in violation of Landlord's insurance contract(s).
14. Insurance. All property of any kind that may at any time be used,
left or placed on the Premises during the term of this Lease shall be at the
sole risk of the Tenant. Tenant shall carry contents coverage insurance on
its contents.
To the extent not covered by insurance, Tenant will save, indemnify and
hold Landlord free and harmless from any and all liability or any injury, loss,
or damage to person or property arising out of any cause associated with its
business or use of the Premises, including its omission to act.
Tenant agrees to provide public liability insurance naming Landlord as
additional insured to protect Landlord from loss customarily covered by such
insurance in at least the following amount:
$1,000,000 - Combined Single Limit
15. Quiet Enjoyment. As long as Tenant is not in default hereunder,
Landlord covenants that Tenant shall peaceably hold and enjoy the Premises,
subject to the terms of this Lease. All entrances, exits, approaches, and
means of entrance and approach, and all access to light and air now enjoyed
by the Premises, shall be and remain intact and uninterrupted by any act of
Landlord during the term of this Lease.
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16. Eminent Domain. If the whole of the Premises shall be taken or
condemned by any competent authority for any public use or purpose or if such
portion thereof shall be taken or condemned as shall materially change the
character of the Premises so as to prevent Tenant from using them in
substantially the same manner as theretofore used, the term hereby granted
shall cease on the day prior to the taking of possession by such authority or
the day prior to vesting of title in such authority, whichever first occurs,
and an appropriate pro rata portion of any rent paid in advance by Tenant
shall be refunded.
If a portion of the Premises shall be condemned or taken, and if such
taking does not result in a material alteration in the character of the
Premises so as to prevent Tenant from using them in substantially the same
manner as theretofore used, then this Lease shall continue in effect, and any
damage to the Premises shall be repaired by Landlord. After the date Tenant
is required to surrender possession of the portion taken, the rental payable
hereunder shall be reduced in proportion to the decrease in the fair rental
value of the Premises.
If all or a portion of the adjoining parking area shall be condemned or
taken so as to deprive Tenant of necessary parking or so as to in some other
way materially affect the Tenant's ability to conduct its business, then
Tenant may at its option cancel and terminate this Lease upon giving the
Landlord notice within thirty (30) days of such taking. In the event Tenant
shall elect not to cancel and remain in possession and occupation of the
Premises, however, the terms and conditions of this Lease shall remain in
full force and effect.
The entire award of damages or compensation for a taking of the
Premises, whether such taking be in whole or in part, shall belong to and be
the property of Landlord, except for such compensation as may be made for
Tenant's moving or relocation expenses, Tenant's business interruption
losses, and for the taking of Tenant's trade fixtures, which compensation
shall belong to and be the property of Tenant.
If the Premises shall be taken or condemned by any governmental
authority for temporary use or occupancy, this Lease shall continue in full
force and effect without reduction or abatement of rent, and the rights of
the parties shall be unaffected by the other provisions of this Section. In
the event of such temporary taking the entire award of damages in respect of
the Premises shall belong to Tenant and Landlord assigns Tenant any and all
interest it may have in such award. To the extent Tenant is prevented by such
temporary taking or occupancy from fulfilling its obligations hereunder,
Tenant's failure to do so shall not be deemed a default under this Lease.
17. Assignment and Subleasing. The Tenant may not assign or encumber
this Lease or sublet the Premises, either in whole or in part, without the
prior written consent of Landlord and of Ren Corporation-USA or its assigns
so long as it or its assigns is the beneficiary of the first deed of trust
encumbering the real property of which the Building is a part. Such consent
will not be unreasonably withheld. Consent to one assignment or subletting
will not be deemed a consent to any other. The transfer of the majority of the
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voting stock of Tenant if Tenant is a corporation, the transfer of a majority
of the partnership interests in Tenant if Tenant is a partnership, and any
transfer by operation of law will be deemed "assignments" requiring
Landlord's consent. In the event of any assignment or subleasing, Tenant shall
remain fully responsible under this Lease.
18. Attorney's Fees. In the event it becomes necessary for Landlord to
employ an attorney to enforce collection of the rents agreed to be paid, or
to enforce compliance with any of the covenants or agreements herein
contained, Tenant shall be liable for reasonable attorney's fees, costs and
expenses incurred by the Landlord.
19. Notice. Any notices required to be sent hereunder shall be hand
delivered or sent by certified mail to the following addresses:
LESSOR: Dianne Martz
401 Wayside Court
Nashville, TN 37205
LESSEE: Horizon Health Systems, Inc.
6820 Charlotte Pike
Nashville, TN 37209
A copy of any such notice will be sent to Ren Corporation-USA at 6820
Charlotte Pike, Nashville, Tennessee 37209 or such other address as Ren
Corporation-USA may designate.
20. Default and Remedies. Each of the following events shall constitute
a default or breach of this Lease by Tenant:
(a) If Tenant, or any successor or assignee of Tenant while in
possession, shall file a petition in bankruptcy or insolvency or for
reorganization under any bankruptcy act, or shall voluntarily take advantage
of any such act or shall make assignment for the benefit of creditors.
(b) If involuntary proceedings under any bankruptcy laws or
insolvency act shall be instituted against Tenant, or if a receiver or
trustee shall be appointed for all or substantially all of the property of
Tenant, and such proceedings shall not be dismissed or the receivership or
trusteeship vacated within sixty (60) days after the institution or
appointment.
(c) If Tenant shall fail to pay Landlord any rent or additional
rent together with any interest thereon within (5) days after Landlord
notifies Tenant that it is unpaid.
(d) If Tenant shall fail to perform or comply with any of the other
conditions of this Lease within thirty (30) days after notice by Landlord to
Tenant specifying the condition to performed or complied with; or, if the
performance cannot be reasonably
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had within the 30-day period, Tenant shall not in good faith have commenced
performance within the 30-day period and shall not diligently proceed to
completion of performance.
In the event of any default hereunder, Landlord at any time thereafter,
may re-enter the Premises and expel, remove, and put out Tenant or any person
or persons occupying the Premises and may remove all personal property
therefrom. Upon re-entry Landlord may, at its option, relet the Premises or
any part thereof as the agent of Tenant, and Tenant shall pay Landlord the
difference between the rent hereby reserved for the portion of the term
remaining at the time of re-entry and the amount received under such
reletting for such portion of the term. Upon re-entry Landlord may at its
option, terminate this Lease and at any time thereafter recover from Tenant
all sums then due as well as the amount by which all rent and other payments
to be made by Tenant exceed the reasonable rental value of the Premises for
the remainder of the Lease term.
All actions taken by Landlord pursuant to this Section shall be without
prejudice to any other remedies that otherwise might be used for the
collection of arrears of rent or for the preceding breach of covenant or
conditions.
Landlord may elect, but shall not be obligated, to comply with any
condition, agreement, or term required hereby to be performed by Tenant, and
Landlord shall have the right to enter the Premises for the purpose of
correcting or remedying any such default and to remain until the default has
been corrected or remedied, but any expenditure for such correction by
Landlord shall not be deemed to waive or release the default of Tenant or the
right of Landlord to take any action as may be otherwise permissible
hereunder in the case of any default.
21. No Waiver. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed a waiver of any preceding breach of any
obligation hereunder by Tenant other than the failure to pay the particular
rental so accepted, and the waiver of any breach of any covenant or condition
by Landlord shall not constitute a waiver of any other breach regardless of
knowledge thereof.
22. Gender. Wherever appropriate herein, the words "Landlord" and
"Tenant" and the pronouns referring thereto, shall be construed singular or
plural, masculine, feminine, or neuter as the facts warrant.
23. Broker. Landlord and Tenant warrant that they have dealt with no
broker in connection with this Lease.
23. Waiver of Subrogation. Landlord and Tenant hereby waive all
rights of recovery and causes of action that either has or may have or that
may arise hereafter against the other, whether caused by negligence,
intentional misconduct, or otherwise, for any damage to premises, property or
business caused by any perils covered by fire and extended coverage,
building, contents, and business interruption insurance, or for which either
party
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may be reimbursed as a result of insurance coverage affecting any loss
suffered by it; provided, however, that the foregoing waivers shall apply
only to the extent of any recovery made by the paries hereto under any policy
of insurance now or hereafter issued, and further provided that the foregoing
waivers shall be ineffective if they invalidate any policy of insurance of
the parties hereto, now or hereafter issued. Landlord and Tenant will use
their best efforts to have their respective insurance companies waive their
rights of subrogation as contemplated herein.
24. Signs. Tenant shall have the right to erect, affix or paint signs
on or about the Premises and the right at its option to remove said signs
upon the termination of this Lease, it being agreed that Tenant shall repair
any damage to the exterior of the Building caused by the removal of said
signs.
25. Subordination. Upon written notice by Landlord to Tenant, this
Lease shall be and become subject and subordinate to any and all mortgages or
deeds of trust now existing, or that hereafter may be executed, covering the
Building or the Premises, for the full amount of all advances made or to be
made thereunder and without regard to the time or character of such advances,
together with interest thereon, and subject to all the terms and provisions
thereof. Tenant agrees to execute, acknowledge and deliver upon request any
and all documents or instruments requested by Landlord or necessary or proper
to insure the subordination of this Lease to any such mortgages or deeds of
trust. Tenant acknowledges that this Lease will be subject and subordinate to
the first deed of trust in favor of Ren Corporation-USA.
26. Estoppel Letters. Either party hereto shall at any time and from
time to time upon not less than ten (10) days prior written notice from the
other execute, acknowledge and deliver to the requesting party a statement in
writing certifying that this Lease is unmodified and in full force and effect
(or if modified, stating the nature of such modification and certifying that
this Lease, as so modified, is in full force and effect), and the dates to
which the rental and other charges are paid in advance, if any, and
acknowledging that there are not, to the certifying party's knowledge, any
uncured defaults on the part of the other party hereunder, and that no event
has occurred that, by the giving of notice or the passage or time or both,
would constitute a default, or specifying such defaults or events if they are
claimed. Any such statement requested by either party may be relied upon by
any prospective purchaser or encumbrancer of the Building or the Premises.
Failure of a party to deliver such statement within such time shall be
conclusive upon such party that this Lease is in full force and effect,
without modification, except as may be represented by the requesting party,
that there are no uncured defaults in the requesting party's performance, and
that not more than two months rental has been paid in advance. Ren
Corporation-USA or its assigns may request such an estoppel certificate and
will be provided copies of all other such certificates as long as it or its
assigns is the beneficiary of the first deed of trust encumbering the real
property of which the Building is a part.
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27. Entire Agreement. The entire understanding between the parties is
set out in this Lease, this Lease supersedes and voids all prior proposals,
letters and agreements, oral or written, and no modification or alteration of
this Lease shall be effective unless evidenced by an instrument in writing
signed by both parties. The law of the State of Tennessee shall be applicable.
28. Heirs, Successors and Assigns. All the terms, covenants, and
conditions hereof shall be binding upon and inure to the benefit of the
heirs, executors, administrators, successors, and assigns of the parties
hereto.
29. Memorandum Lease. This Lease shall not be recorded, but, upon the
request of either party, a short form lease will be executed and recorded.
IN WITNESS WHEREOF, the parties hereto have set their respective hands
or caused this instrument to be duly executed on or as of the day and date
first above written.
LESSOR:
/s/ Dianne Martz
-------------------------
DIANNE MARTZ
LESSEE:
HORIZON HEALTH SYSTEMS, INC.
By: /s/ Dianne R. Martz
-------------------------
Title: President
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Exhibit 10.24
ADDENDUM TO LEASE
That certain Lease dated September 1, 1994 between DIANNE R. MARTZ as
"Landlord" and HORIZON HEALTH SYSTEMS, INC. as "Tenant" is amended as follows:
i. Paragraph 1 is amended to provide that the Premises contain
approximately 23, 709 square feet.
ii. Paragraph 1 is amended to provide that the annual rental is
$302,277.00 payable in monthly installments of $25,189.75 each.
In all other respects, said Lease will remain in full force and effect.
/s/ Dianne R. Martz
Date: March 1, 1997 ------------------------------
DIANNE R. MARTZ
HORIZON HEALTH SYSTEMS, INC.
Date: March 1, 1997 By: /s/ Kyle J. Callahan
---------------------------
Title: Secretary, Board of Directors
<PAGE>
Exhibit 10.25
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made and entered into this 5th
day of June, 1997 among First American National Bank (the "Escrow Agent"),
Nova Holdings, Inc., a Delaware corporation ("Purchaser"), and Dianne Martz
and A.B. Charlton, III ("Sellers").
WHEREAS, Sellers and Purchaser are parties to a Stock Purchase Agreement,
dated as of June 5, 1997 (the "Purchase Agreement"), providing the terms,
conditions and provisions for the purchase by Purchaser of 100% of the stock
("Stock") of Horizon Health Systems, Inc. ("Horizon");
WHEREAS, Purchaser and Sellers desire to appoint the Escrow Agent, and the
Escrow Agent is willing to accept such appointment, on the terms and
conditions of this Agreement, to act as escrow agent to hold, administer and
disburse the Escrowed Funds (as hereinafter defined).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement
hereby agree as follows:
<PAGE>
1. Definitions.
When used in this Agreement, the following terms shall be defined as
follows:
"Sellers' Representative" shall mean Sam Stumpf, Esq. and David Price or
such other authorized representative of Sellers as shall be designated in
written notice from Sellers received by the Escrow Agent.
"Escrowed Funds" shall mean a portion of the Purchase Price paid for the
Stock in the amount of Two Million Nine Hundred Thousand ($2,900,000.00)
Dollars deposited with the Escrow Agent simultaneously with the execution
hereof, plus any interest or other income earned on the foregoing during the
term of this Agreement, less any disbursements made pursuant to the term of
this Agreement, and all instruments representing the investment or
reinvestment, if any, of such cash.
"Purchaser's Representative" shall mean Joel Kimbrough and David
Stevens, or such other persons as shall subsequently be designated by written
notice from Purchaser received by the Escrow Agent.
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2. Establishment of Escrow.
(a) Simultaneously with the execution of this Agreement, Purchaser has
delivered Escrowed Funds to the Escrow Agent in cash, receipt of which is
hereby acknowledged by the Escrow Agent.
(b) Pursuant to Sections 1.01 and Article VII of the Purchase Agreement,
Purchaser and Sellers appoint Escrow Agent as escrow agent for the purpose of
receiving communications from Purchaser and Sellers, and disbursing the
Escrowed Funds to Purchaser and Sellers pursuant to the terms of the Purchase
Agreement and the terms of this Escrow Agreement. Purchaser, Sellers and the
Escrow Agent agree that the Escrow Agent shall hold, administer and disburse
the Escrowed Funds on the terms and conditions of this Agreement.
3. Investment of Escrow.
All funds received by the Escrow Agent pursuant to this Agreement shall be
invested, to the extent practicable, in a fully liquid instrument of deposit
with the Escrow Agent. Unless otherwise directed in writing by the Seller
Representative and Buyer Representative, the escrow funds held hereunder
shall be invested in Escrow Agent's U.S. Treasury Fund, currently called
"Ameristar Treasury Fund".
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The cost and expenses incurred by the Escrow Agent in the investment or
reinvestment of all or any portion of the Escrowed Funds shall be paid from
the Escrowed Funds and the Escrow Agent is hereby authorized to pay such
cost and expense form the escrowed Funds.
4. Disbursement of Escrowed Funds.
(a) The parties agree that all of the Escrowed Funds are available to
satisfy the obligation of Sellers to indemnify Horizon and Purchaser for
those items set out in Sections 7.02, 7.03 and 7.04 of the Purchase Agreement.
The Escrow Agent shall release all or a portion of the Escrow Deposit to
Purchaser twenty (20) days following receipt by Escrow Agent of a written
statement form Purchaser's Representative, a copy of which shall be provided
simultaneously to Sellers stating (i) the dollar amount of any
indemnification owed to Purchaser by either Seller under the Purchase
Agreement, (ii) a concise statement of the facts giving rise to such claim
for indemnification, (iii) that Purchaser has made a claim for such
indemnification pursuant to the terms of the Purchase Agreement and (iv) that
Purchaser has not received payment of such indemnification amounts within
twenty (20) days after delivery of such claim to the Sellers; provided that
if such sworn written statement shall be disputed by Sellers in writing
delivered to
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Escrow Agent with a copy to Purchaser's Representative within fifteen (15)
days after Escrow Agent's receipt of such written statement from Purchaser's
Representative, the Escrow Agent shall continue to hold in escrow the portion
of the Escrow Deposit subject to such dispute until the dispute shall have
been finally resolved by mutual agreement or by a court of competent
jurisdiction. Any notice disputing the Purchaser's sworn written statement
shall set forth a concise statement of the facts upon which Sellers are
relying in disputing said sworn statement.
The Escrowed Funds to be delivered to Purchaser in accordance with the
preceding paragraph shall be disbursed to Purchaser or Horizon as directed by
Purchaser. Except as expressly set forth in the Stock Purchase Agreement,
Purchaser's failure to claim, or delay in claiming, Escrowed Funds shall not
be a waiver of Purchaser's rights and shall in no way affect or prejudice
Purchaser's rights and remedies against Sellers to recover any amounts due
Purchaser.
(b) In the case of any dispute between Sellers and Purchaser as to any
claim or demand for payment hereunder, Escrow Agent shall withhold an amount
sufficient to cover such claims or demands, until a settlement has been
effected or a final judicial determination has been made.
(c) On the first anniversary of the date of this Escrow Agreement
("Anniversary Date"), the amount held in escrow shall be
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reduced by one half to One Million Four Hundred Fifty Thousand
($1,450,000.00) Dollars, provided that no claims have been made against the
Escrowed Funds. In such event, the sum of One Million Four Hundred Fifty
Thousand ($1,450,000.00) Dollars, shall be disbursed to the Sellers with the
Escrow Agent continuing to hold One Million Four Hundred Fifty Thousand
($1,450,000.00) Dollars for the remaining twelve months of the escrow,
subject to the payment of claims as provided in Section 4(a). If however,
claims have been made against the Escrowed Funds on or before the Anniversary
Date, whether or not said Claims have been paid, the amount of One Million
Four Hundred Fifty Thousand ($1,450,000.00) Dollars to be paid out of escrow
to Sellers on the Anniversary Date shall be reduced by the amount of said
claims, so that the Escrowed Funds which remain in escrow after the
Anniversary Date shall equal the lesser of (i) the sum of One Million Four
Hundred Fifty Thousand ($1,450,000.00) Dollars, plus the amount of claims
made against the Escrowed Funds during the first year of the escrow, or (ii)
Two Million Nine Hundred Thousand ($2,900,000.00) Dollars.
(d) The parties agree that Purchaser shall have the right to make claims
to the Escrowed Funds for a period of two years after Closing ("Claim
Deadline"). In the event that the aggregate of (1) claims of Purchaser paid
from Escrowed Funds (2) amounts withheld to cover disputed claims and demands
and (3) unpaid fees and expenses of the Escrow Agent, does not exceed the
proceeds deposited, Escrow Agent, on the Claim Deadline, shall pay to
6
<PAGE>
Sellers out of the Escrowed Funds a sum equal to the amount, if any, by which
the proceeds deposited exceeds the aggregate of (1) amounts paid to or
claimed by Purchaser prior to the Claim Deadline and (2) amounts withheld to
cover disputed claims and (3) any fees due Escrowed Agent.
(e) Notwithstanding anything to the contrary which might be set forth
in this Agreement, if Escrow Agent receives any dividends, distributions,
interest or other income in respect of the investment of the Escrowed Funds,
Escrow Agent shall pay to Sellers no more frequently than monthly, any such
dividends, distributions, interest or other income Escrow Agent has received
in respect to the investment of the Escrowed Funds.
5. Certain Provisions Relating to Escrow Agent.
(a) The Escrow Agent shall be entitled to receive fees for its
service under this Agreement in the amount of $1,500.00 for each twelve month
period during which this Agreement shall remain in effect ("Annual Fee"). The
Annual Fee shall be paid by Purchaser with the Annual Fee for the first twelve
month period being due on the date of this Agreement and the Annual Fee for
the second twelve month period being due on the first anniversary of the date
hereof. The Escrow Agent shall also be entitled to be reimbursed for the
reasonable expenses incurred by it in the performance of its obligations
under this Agreement, including the
7
<PAGE>
reasonable fees of legal counsel which the Escrow Agent may deem necessary to
advise it in connection with its obligations under this Agreement. All
expenses of the Escrow Agent shall be paid by the Purchaser unless
reimbursement for these expenses is claimed as an indemnity item pursuant to
Section 4 above.
(b) The Escrow Agent shall not be liable for any diminution of value of
the Escrowed Funds due to investments, if any, made as provided herein. the
Escrow Agent shall have no authority to disburse or otherwise dispose of the
Escrowed Funds except as provided herein.
(c) Notwithstanding any provision of this Agreement to the contrary,
the Escrow Agent may at all times act upon and in accordance with the joint
written instructions of Sellers' Representative and Purchaser's
Representative. The Escrow Agent shall not be liable for any act done or
omitted by it in accordance with such instructions or the advice of counsel
of its selection.
(d) The duties and responsibilities of the Escrow Agent shall be
limited to those expressly set forth in this Agreement and instructions
given to the Escrow Agent pursuant to this Agreement, and no additional
duties shall be inferred herefrom or implied hereby. The Escrow Agent shall
not be subject to, or obliged to recognize, any other agreement between any
or all of the parties hereto even though reference to such agreement may be
made herein.
8
<PAGE>
With, and only with, the written consent of the Escrow Agent, this Agreement
may be amended at any time or times by an instrument in writing signed by
Sellers' Representative and Purchaser's Representative.
(e) The Escrow Agent may act in reliance upon any written notice,
demand, certificate or document which it reasonably in good faith believes to
be genuine, without being required to determine the authenticity thereof or
the correctness of any fact stated therein or the propriety or validity of
the service thereof, and may assume that any person purporting to give any
such written notice, demand, certificate or document has been duly authorized
to do so.
(f) The Escrow Agent is authorized, in its sole discretion, to disregard
any and all notices or instructions given by any of the undersigned or by any
other person, firm, or corporation, except only such notices or instructions
as are herein provided for and the orders or process of any court. If any
property subject hereto is at any time attached, garnished, or levied upon
under any court order, or in case the payment, assignment, transfer,
conveyance or delivery of any such property shall be stayed or enjoined by
any court order, or in case any order, judgment or decree shall be made or
entered by a court affecting such property or any part hereof, then and in
any of such events, the Escrow Agent is authorized, in its sole discretion,
to rely upon and
9
<PAGE>
comply with any such order, writ, judgment or decree, and it shall not be
liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance even though such order, writ,
judgment or decree may be subsequently reversed, modified, annulled, set
aside or vacated.
The Escrow Agent shall not be required to institute or defend any action
involving any matter referred to herein or which affects it or its duties or
liabilities hereunder unless and until requested to do so by any party to
this Escrow Agreement and then only upon receiving full indemnity, in amount
and character satisfactory to the Escrow Agent, against any and all claims,
liabilities and expenses, including attorney's fees, in relation thereto.
(g) The Escrow Agent shall have no liability under this Agreement to
any party other than for its gross negligence or fraud or the gross
negligence or fraud of its agents, servants or employees.
(h) Purchaser and Sellers hereby jointly and severally agree to defend,
indemnify and hold harmless the Escrow Agent from and against any and all
losses, damages, deficiencies or expenses, including court costs and
attorney's fees, arising out of or by reason of this Agreement, the execution
and delivery of this Agreement, the Escrow Agent's execution of its duties
pursuant to
10
<PAGE>
this Agreement, or any claim against the Escrowed Funds, except those as
arise out or or by reason of gross negligence or fraud.
(i) Escrow Agent shall have no obligation for payment to any person or
entity except from, and to the extent of, Escrowed Funds.
(j) The Escrow Agent may resign by giving thirty (30) days written
notice to Purchaser and Sellers and thereafter shall deliver the Escrowed
Funds to such substitute escrow agent as Purchaser and Sellers shall jointly
direct in writing. If such direction to deliver the Escrowed Funds to a
substitute escrow agent is not received by the Escrow Agent within thirty
(30) days after mailing such notices of resignation, the Escrow Agent may in
its sole discretion, interplead all or such portion of the Escrowed Funds
into a court of competent jurisdiction.
6. Termination of Escrow.
When all of the Escrowed Funds shall have been disbursed by the Escrow
Agent, this Agreement and the escrow established by this Agreement shall
terminate and the Escrow Agent shall be relieved and discharged of all
further responsibilities, obligations and liabilities under this Agreement.
11
<PAGE>
7. Notices.
(a) All notices, requests, demands and other communications under this
Agreement shall be in writing and delivered in person or sent by telegraph or
certified mail, return receipt requested, and properly addressed as follows:
(a) if to Sellers, to them at:
Ms. Dianne Martz
401 Wayside Court
Nashville, Tennessee 37205
Mr. A.B. Charlton, III
11132 Outlet Drive
Knoxville, Tennessee 37932
with a copy to:
Bass, Berry & Sims, PLC
2700 First American Center
Nashville, Tennessee 37238
Attn: Samuel E. Stumph, Jr., Esq.
(b) if to Purchaser to it at:
Nova Holdings, Inc.
1620 Century Center Parkway
Suite 109
Memphis, Tennessee 38134
with a copy to:
Armstrong Allen Gentry Johnson Prewitt & Holmes
80 Monroe Avenue
Suite 700
Memphis, Tennessee 38103
Attention: Thomas W. Bell, Jr.
(c) if to the Escrow Agent, to it at:
First American National Bank
Corporate Trust Department
400 First American Center
12
<PAGE>
Nashville, Tennessee 37237-0404
All notices and other communications required or permitted under this
Agreement which are addressed as provided in this Section shall be effective
upon delivery.
(b) Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no such
change shall be deemed to have been given until it is actually received by
the party sought to be charged with the contents.
8. General
(a) The rights of Purchaser and Sellers hereunder are cumulative and are
not exclusive of any other rights Sellers or Purchaser may have under the
Purchase Agreement or otherwise.
(b) This Agreement shall be governed by and construed under the laws of
the State of Tennessee.
(c) This Agreement shall inure to the benefit of and be enforceable by and
against Purchaser, Sellers and the Escrow Agent and their respective
successors and assigns.
13
<PAGE>
(d) This Agreement may be executed by the parties in several
counterparts, each of which shall be deemed to be an original and one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above written.
FIRST AMERICAN NATIONAL BANK /s/ Dianne Martz
--------------------------
DIANNE MARTZ
By: /s/ Tamara L. Johnston
-------------------------
Title: Vice President
-------------------------
NOVA HOLDINGS, INC. /s/ A.B. Charlton, III
--------------------------
A.B. Charlton, III
By: [illegible]
-------------------------
Title: CEO
-------------------------
14
<PAGE>
Exhibit 10.26
REFUNDS PAYABLE
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") is made and entered into this 5th
day of June, 1997 among First American National Bank (the "Escrow Agent"),
Nova Holdings, Inc., a Delaware corporation ("Purchaser"), and Dianne R.
Martz and A.B. Charlton, III ("Sellers").
WHEREAS, Sellers and Purchaser are parties to a Stock Purchase Agreement,
dated as of June 5, 1997 (the "Purchase Agreement"), providing the terms,
conditions and provisions for the purchase by Purchaser of 100% of the stock
("Stock") of Horizon Health Systems, Inc. ("Horizon");
WHEREAS, Purchaser and Sellers desire to appoint the Escrow Agent, and the
Escrow Agent is willing to accept such appointment, on the terms and
conditions of this Agreement, to act as escrow agent to hold, administer and
disburse the Escrowed Funds (as hereinafter defined).
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties to this Agreement
hereby agree as follows:
<PAGE>
1. Definitions.
When used in this Agreement, the following terms shall be defined as
follows:
"Sellers' Representative" shall mean Sam Stumpf, Esq. and David Price or
such other authorized representative of Sellers as shall be designated in
written notice from Sellers received by the Escrow Agent.
"Escrowed Funds" shall mean a portion of the Purchase Price paid for the
Stock in the amount of Two Million Eight Hundred Forty-Seven Thousand Six
Hundred Fifty-Two ($2,847,652.00) Dollars deposited with the Escrow Agent
simultaneously with the execution hereof, plus any interest or other income
earned on the foregoing during the term of this Agreement, less any
disbursements made pursuant to the term of this Agreement, and all
instruments representing the investment or re-investment, if any, of such
cash.
"Purchaser's Representative" shall mean Joel Kimbrough and David
Stevens, or such other persons as shall subsequently be designated by written
notice from Purchaser received by the Escrow Agent.
"Refunds Payable" shall mean the unpaid balance of the Two Million Eight
Hundred Forty-Seven Thousand Six Hundred Fifty-Two
2
<PAGE>
($2,847,652.00) Dollars "refunds payable" amount reflected on Horizon's March
31, 1997 balance sheet.
2. Establishment of Escrow.
(a) Simultaneously with the execution of this Agreement, Purchaser has
delivered Escrowed Funds to the Escrow Agent in cash, receipt of which is
hereby acknowledged by the Escrow Agent.
(b) Pursuant to Sections 1.01 and 7.03 of the Purchase Agreement,
Purchaser and Sellers appoint Escrow Agent as escrow agent for the purpose of
receiving communications from Purchaser and Sellers, and disbursing the
Escrowed Funds to Purchaser and Sellers pursuant to the terms of the Purchase
Agreement and the terms of this Escrow Agreement. Purchaser, Sellers and the
Escrow Agent agree that the Escrow Agent shall hold, administer and disburse
the Escrowed Funds on the terms and conditions of this Agreement.
3. Investment of Escrow.
All funds received by the Escrow Agent pursuant to this Agreement shall
be invested, to the extent practicable, in a fully
3
<PAGE>
liquid instrument of deposit with the Escrow Agent. Unless otherwise directed
in writing by the Seller Representative and Buyer Representative, the escrow
funds held hereunder shall be invested in Escrow Agent's U.S. Treasury Fund,
currently called "Ameristar Treasury Fund".
The cost and expenses incurred by the Escrow Agent in the investment or
reinvestment of all or any portion of the Escrowed Funds shall be paid from
the Escrowed Funds and the Escrow Agent is hereby authorized to pay such cost
and expense from the Escrowed Funds.
4. Disbursement of Escrowed Funds.
(a) The parties agree that all of the Escrowed Funds are available to
satisfy the obligation of Sellers to indemnify Horizon and Purchaser for
Horizon's obligation to pay Refunds Payable as set out in Section 7.03 of the
Purchase Agreement.
The Escrow Agent shall release all or a portion of the Escrow Deposit to
Purchaser fifteen (15) days following receipt by Escrow Agent of a written
statement from Purchaser's Representative, a copy of which shall be provided
simultaneously to
4
<PAGE>
Sellers stating (i) the dollar amount of any indemnification owed to
Purchaser by either Seller under the Purchase Agreement, (ii) a concise
statement of the facts giving rise to such claim for indemnification, (iii)
that Purchaser has made a claim for such indemnification pursuant to the
terms of the Purchase Agreement, and (iv) that Purchaser has not received
payment of such indemnification amounts within fifteen days after delivery of
such claim to the Sellers; provided that if such sworn written statement
shall be disputed by Sellers in writing delivered to Escrow Agent with a copy
to Purchaser's Representative within ten (10) days after Escrow Agent's
receipt of such written statement from Purchaser's Representative, the Escrow
Agent shall continue to hold in escrow the portion of the Escrow Deposit
subject to such dispute until the dispute shall have been finally resolved by
mutual agreement or by a court of competent jurisdiction. Any notice
disputing the Purchaser's sworn written statement shall set forth a concise
statement of the facts upon which Sellers are relying in disputing said sworn
statement. The Escrowed Funds may be disbursed to Purchaser or by check made
payable directly to the governmental agencies to which the Refunds Payable
are due as directed in the Purchaser's statement referenced above. Except as
expressly set forth in the Stock Purchase Agreement, Purchaser's failure to
claim, or delay in claiming Escrowed Funds shall not be a waiver of Purchaser's
rights and shall in no way affect or prejudice Purchaser's rights and
remedies against Sellers to recover any amounts due Purchaser.
5
<PAGE>
(b) In the case of any dispute between Sellers and Purchaser as to any
claim or demand for payment hereunder, Escrow Agent shall withhold an amount
sufficient to cover such claims or demands, until a settlement has been
effected or a final judicial determination has been made.
(c) The parties agree that Purchaser shall have the right to make claims
to the Escrowed Funds for so long as Refunds Payable are due ("Claim
Deadline"). Refunds Payable shall no longer be due when Sellers and Purchaser
agree in writing delivered to the Escrow Agent that Refunds Payable have been
(i) paid in full, (ii) compromised and settled or (iii) the liability of
Horizon therefor has been otherwise eliminated. In the even that the
aggregate of (1) claims of Purchaser paid from Escrowed Funds (2) amounts
withheld to cover disputed claims and demands and (3) fees and expenses of
the Escrow Agent, does not exceed the proceeds deposited, Escrow Agent, on
the Claim Deadline, shall pay to Sellers out of the Escrow Funds a sum equal
to the amount, if any, by which the proceeds deposited exceeds the aggregate
of (1) amounts paid to or claimed by Purchaser prior to the Claim Deadline
and (2) amounts withheld to cover disputed claims and (3) any fees due Escrow
Agent.
(d) Notwithstanding anything to the contrary which might be set forth in
this Agreement, if Escrow Agent receives any dividends, distributions,
interest or other income in respect of the investment of the Escrowed Funds,
Escrow Agent shall pay to
6
<PAGE>
Sellers no more frequently than monthly, any such dividends, distributions,
interest or other income Escrow Agent has received in respect to the
investment of the Escrowed Funds.
5. Certain Provisions Relating to Escrow Agent.
(a) The Escrow Agent shall be entitled to receive fees for its service
under this Agreement in the amount of $1,500.00 for each twelve month period
during which this Agreement shall remain in effect ("Annual Fee"). The Annual
Fee shall be paid by Sellers with the Annual Fee for the first twelve month
period being due on the date of this Agreement and the Annual Fee for the
second twelve month period being due on the first anniversary of the date
hereof. The Escrow Agent shall also be entitled to be reimbursed for the
reasonable expenses incurred by it in the performance of its obligations
under this Agreement, including the reasonable fees of legal counsel which
the Escrow Agent may deem necessary to advise it in connection with its
obligations under this Agreement. All fees and expenses of the Escrow Agent
shall be paid by the Sellers.
(b) The Escrow Agent shall not be liable for any diminution of value of
the Escrowed Funds due to investments, if any, made as provided herein. The
Escrow Agent shall have no authority to disburse or otherwise dispose of the
Escrowed Funds except as provided herein.
7
<PAGE>
(c) Notwithstanding any provision of this Agreement to the contrary,
the Escrow Agent may at all times act upon and in accordance with the joint
written instructions of Sellers' Representative and Purchaser's
Representative. The Escrow Agent shall not be liable for any act done or
omitted by it in accordance with such instructions or the advise of counsel
of its selection.
(d) The duties and responsibilities of the Escrow Agent shall be
limited to those expressly set forth in this Agreement and instructions given
to the Escrow Agent pursuant to this Agreement, and no additional duties
shall be inferred herefrom or implied hereby. The Escrow Agent shall not be
subject to, or obliged to recognize, any other agreement between any or all
of the parties hereto even though reference to such agreement may be made
herein. With, and only with, the written consent of the Escrow Agent, this
Agreement may be amended at any time or times by an instrument in writing
signed by Sellers' Representative and Purchaser's Representative.
(e) The Escrow Agent may act in reliance upon any written notice,
demand, certificate or document which it reasonably in good faith believes to
be genuine, without being required to determine the authenticity thereof or
the correctness of any fact stated therein or the propriety or validity of the
service thereof, and may assume that any person purporting to give any such
written
8
<PAGE>
notice, demand, certificate or document has been duly authorized to do so.
(f) The Escrow Agent is authorized, in its sole discretion, to
disregard any and all notices or instructions given by any of the undersigned
or by any other person, firm, or corporation, except only such notices or
instructions as are herein provided for and the orders or process of any
court. If any property subject hereto is at any time attached, garnished, or
levied upon under any court order, or in case the payment, assignment,
transfer, conveyance or delivery of any such property shall be stayed or
enjoined by any court order, or in case any order, judgment or decree shall be
made or entered by a court affecting such property or any part hereof, then
and in any of such events, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ, judgment or
decree, and it shall not be liable to any of the parties hereto or to any
other person, firm or corporation by reason of such compliance even though
such order, writ, judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated.
The Escrow Agent shall not be required to institute or defend any
action involving any matter referred to herein or which affects it or its
duties or liabilities hereunder unless and until requested to do so by any
party to this Escrow Agreement and then only upon receiving full indemnity,
in amount and character
9
<PAGE>
satisfactory to the Escrow Agent, against any and all claims, liabilities and
expenses, including attorney's fees, in relation thereto.
(g) The Escrow Agent shall have no liability under this Agreement to any
party other than for its gross negligence or fraud or the gross negligence or
fraud of its agents, servants or employees.
(h) Purchaser and Sellers hereby jointly and severally agree to defend,
indemnify and hold harmless the Escrow Agent from and against any and all
losses, damages, deficiencies or expenses, including court costs and
attorney's fees, arising out of or by reason of this Agreement, the execution
and delivery of this Agreement, the Escrow Agent's execution and delivery of
this Agreement, the Escrow Agent's execution of its duties pursuant to this
Agreement, or any claim against the Escrowed Funds, except those as arise out
of or by reason of gross negligence or fraud.
(I) Escrow Agent shall have no obligation for payment to any person or
entity except from, and to the extent of, Escrowed Funds.
(j) The Escrow Agent may resign by giving thirty (30) days written notice
to Purchaser and Sellers and thereafter shall deliver the Escrowed Funds to
such substitute escrow agent as Purchaser and Sellers shall jointly direct in
writing. If such direction to deliver the Escrowed Funds to a substitute
escrow
10
<PAGE>
agent is not received by the Escrow Agent within thirty (30) days after
mailing such notices of resignation, the Escrow Agent may in its sole
discretion, interplead all or such portion of the Escrowed Funds into a court
of competent jurisdiction.
6. Termination of Escrow.
When all of the Escrowed Funds shall have been disbursed by the Escrow
Agent, this Agreement and the escrow established by this Agreement shall
terminate and the Escrow Agent shall be relieved and discharged of all
further responsibilities, obligations and liabilities under this Agreement.
7. Notices.
(a) all notices, requests, demands and other communications under this
Agreement shall be in writing and delivered in person or sent by telegraph or
certified mail, return receipt requested, and properly addressed as follows:
(a) if to Sellers, to them at:
Ms. Dianne Martz
401 Wayside Court
Nashville, Tennessee 37205
Mr. A.B. Charlton, III
11132 Outlet Drive
Knoxville, Tennessee 37932
with a copy to:
11
<PAGE>
Bass, Berry & Sims, PLC
2700 First American Center
Nashville, Tennessee 37238
Attn: Samuel E. Stumph, Jr., Esq.
(b) if to Purchaser to it at:
Nova Holdings, Inc.
1620 Century Center Parkway
Suite 109
Memphis, Tennessee 38134
with a copy to:
Armstrong Allen Gentry Johnson Prewitt & HOlmes
80 Monroe Avenue
Suite 700
Memphis, Tennessee 38103
Attention: Thomas W. Bell, Jr.
(c) if to the Escrow Agent, to it at:
First American National Bank
Corporate Trust Department
400 First American Center
Nashville, Tennessee 37137-0404
All notices and other communications required or permitted under this
Agreement which are addressed as provided in this Section shall be effective
upon delivery.
(b) Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no
such change shall be deemed to have been given until it is actually received
by the party sought to be charged with the contents.
8. General
12
<PAGE>
Bass, Berry & Sims, PLC
2700 First American Center
Nashville, Tennessee 37238
Attn: Samuel E. Stumph, Jr., Esq.
(b) if to Purchaser to it at:
Nova Holdings, Inc.
1620 Century Center Parkway
Suite 109
Memphis, Tennessee 38134
with a copy to:
Armstrong Allen Gentry Johnson Prewitt & Holmes
80 Monroe Avenue
Suite 700
Memphis, Tennessee 38103
Attention: Thomas W. Bell, Jr.
(c) if to the Escrow Agent, to it at:
First American National Bank
Corporate Trust Department
400 First American Center
Nashville, Tennessee 37237-0404
All notices and other communications required or permitted under this
Agreement which are addressed as provided in this Section shall be effective
upon delivery.
(b) Any party may from time to time change its address for the purpose of
notices to that party by a similar notice specifying a new address, but no
such change shall be deemed to have been given until it is actually received
by the party sought to be charged with the contents.
8. General
12
<PAGE>
(a) The rights of Purchaser and Sellers hereunder are cumulative and are
not exclusive of any other rights Sellers or Purchaser may have under the
Purchase Agreement or otherwise.
(b) This Agreement shall be governed by and construed under the laws of
the State of Tennessee.
(c) This Agreement shall inure to the benefit of and be enforceable by and
against Purchaser, Sellers and the Escrow Agent and their respective
successors and assigns.
(d) This Agreement may be executed by the parties in several counterparts,
each of which shall be deemed to be an original and one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date above written.
FIRST AMERICAN NATIONAL BANK
By: /s/Tamaia L. Nohiston
---------------------
Title: Vice President
---------------
13
<PAGE>
NOVA HOLDINGS, INC.
By: Patrick Steven
------------------------
Title: CEC
---------------------
/s/Dianne Martz
------------------------
Dianne Martz
/s/A.B. Charlton, III
------------------------
A.B. Charlton, III
14
<PAGE>
Exhibit 10.40
(Multicurrency--Cross Border)
ISDA-Registered Trademark-
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of August 7, 1997
----------------
NationsBank of Tennessee, N.A. and Nova Holdings, Inc.
- -------------------------------------- ----------------------------------
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other
confirming evidence (each a "Confirmation") exchanged between the parties
confirming those Transactions.
Accordingly, the parties agree as follows: --
1. Interpretation
(a) Definitions. The terns defined in Section 14 and in the Schedule will
have the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions
of the Schedule and the other provisions of this Master Agreement, the
Schedule will prevail. In the event of any inconsistency between the
provisions of any Confirmation and this Master Agreement (including the
Schedule), such Confirmation will prevail for the purpose of the relevant
Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the
fact that this Master Agreement and all Confirmations form a single agreement
between the parties (collectively referred to as this "Agreement"), and the
parties would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for
value on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the
required currency. Where settlement is by delivery (that is, other than
by payment), such delivery will be made for receipt on the due date in the
manner customary for the relevant obligation unless otherwise specified
in the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to
(1) the condition precedent that no Event of Default or Potential Event
of Default with respect to the other party has occurred and is
continuing, (2) the condition precedent that no Early Termination Date
in respect of the relevant Transaction has occurred or been effectively
designated and (3) each other applicable condition precedent specified
in this Agreement.
Copyright -C- 1992 by International Swap Dealers Association, Inc.
<PAGE>
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to
which such change applies unless such other party gives timely notice of a
reasonable objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:--
(i) in the same currency and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to
make payment of any such amount will be automatically satisfied and
discharged and, if the aggregate amount that would otherwise have been
payable by one party exceeds the aggregate amount that would otherwise have
been payable by the other party, replaced by an obligation upon the party by
whom the larger aggregate amount would have been payable to pay to the other
party the excess of the larger aggregate amount over the smaller aggregate
amount.
The parties may elect in respect of two or more Transactions that a net
amount will be determined in respect of all amounts payable on the same date
in the same currency in respect of such Transactions, regardless of whether
such amounts are payable in respect of the same Transaction. The election may
be made in the Schedule or a Confirmation by specifying that subparagraph
(ii) above will not apply to the Transactions identified as being subject to
the election, together with the starting date (in which case subparagraph
(ii) above will not, or will cease to, apply to such Transactions from such
date). This election may be made separately for different groups of
Transactions and will apply separately to each pairing of Offices through
which the parties make and receive payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-up. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such
deduction or withholding is required by any applicable law, as modified
by the practice of any relevant governmental revenue authority, then in
effect. If a party is so required to deduct or withhold, then that party
("X") will:--
(1) promptly notify the other party ("Y") of such requirement.
(2) pay to the relevant authorities the full amount required to be
deducted or withhold (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y
under this Section 2(d)) promptly upon the earlier of
determining that such deduction or withholding is required or
receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified
copy), or other documentation reasonably acceptable to Y,
evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to
the payment to which Y is otherwise entitled under this
Agreement, such additional amount as is necessary to ensure
that the net amount actually received by Y (free and clear of
Indemnifiable Taxes, whether assessed against X or Y) will
equal the full amount Y would have received had no such
deduction or withholding been required. However, X will not be
required to pay any additional amount to Y to the extent that
it would not be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to
Section 3(f) to be accurate and true unless such failure
would not have occurred but for (I) any action taken by a
taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction
is entered into (regardless of whether such action is
taken or brought with respect to a party to this
Agreement) or (II) a Change in Tax Law.
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(ii) Liability. If:--
(1) X is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, to
make any deduction or withholding in respect of which X would
not be required to pay an additional amount to Y under
Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly
against X,
then, except to the extent Y has satisfied or then satisfies the
liability resulting from such Tax, Y will promptly pay to X the
amount of such liability (including any related liability for
interest, but including any related liability for penalties only
if Y has failed to comply with or perform any agreement contained
in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or
effective designation of an Early Termination Date in respect of the relevant
Transaction, a party that defaults in the performance of any payment
obligation will, to the extent permitted by law and subject to Section 6(c),
be required to pay interest (before as well as after judgment) on the overdue
amount to the other party on demand in the same currency as such overdue
amount, for the period from (and including) the original due date for payment
to (but excluding) the date of actual payment, at the Default Rate. Such
interest will be calculated on the basis of daily compounding and the actual
number of days elapsed. If, prior to the occurrence or effective designation
of an Early Termination Date in respect of the relevant Transaction, a party
defaults in the performance of any obligation required to be settled by
delivery, it will compensate the other party on demand if and to the extent
provided for in the relevant Confirmation or elsewhere in this agreement.
3. Representations
Each party represents to the other party (which representations will be
deemed to be repeated by each party on each date on which a Transaction is
entered into and, in the case of the representations in Section 3(f), at all
times until the termination of this Agreement) that--
(a) Basic Representations
(i) Status. It is duly organised and validly existing under the
laws of the jurisdiction of its organisation or incorporation and, if
relevant under such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any
other documentation relating to this Agreement to which it is a party,
to deliver this Agreement and any other documentation relating to
this Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it
has under any Credit Support Document to which it is a party and has
taken all necessary action to authorise such execution, delivery and
performance;
(iii) No Violation or Conflict. Such execution, delivery and
performance do not violate or conflict with any law applicable to it,
any provision of its constitutional documents, any order or judgment
of any court or other agency of government applicable to it or any of
its assets or any contractual restriction binding on or affecting it
or any of its assets;
(iv) Consents. All governmental and other consents that are
required to have been obtained by it with respect to this Agreement or
any credit Support Document to which it is a party have been obtained
and are in full force and effect and all conditions of any such
consents have been complied with; and
(v) Obligations Binding. Its obligations under this Agreement and
any Credit Support Document to which it is a party constitute its
legal, valid and binding obligations, enforceable in accordance with
their respective terms (subject to applicable bankruptcy,
reorganisation, insolvency, moratorium or similar laws affecting
creditors' rights generally and subject, as to enforceability, to
equitable principles of general application (regardless of whether
enforcement is sought in a proceeding in equity or at law)).
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(b) Absence of Certain Events. No Event of Default or Potential Event of
Default or, to its knowledge, Termination Event with respect to it has
occurred and is continuing and no such event or circumstance would occur as a
result of its entering into or performing its obligations under this
Agreement or any Credit Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding
at law or in equity or before any court, tribunal, governmental body, agency
or official or any arbitrator that is likely to affect the legality, validity
or enforceability against it of this Agreement or any Credit Support Document
to which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is
identified for the purpose of this Section 3(d) in the Schedule is, as of the
date of the information, true, accurate and complete in every material
respect.
(e) Payer Tax Representation. Each representation specified in the Schedule
as being made by it for the purpose of this Section 3(e) is accurate and true.
(f) Payee Tax Representations. Each representation specified in the
Schedule as being made by it for the purpose of this Section 3(f) is
accurate and true.
4. Agreements
Each party agrees with the other that, so long as either party has or may
have any obligation under this Agreement or under any Credit Support Document
to which it is a party:--
(a) Furnish Specified Information. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified
in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation;
and
(iii) upon reasonable demand by such other party, any form or document
that may be required or reasonably requested in writing in order to
allow such other party or its Credit Support Provider to make a payment
under this Agreement or any applicable Credit Support Document without
any deduction or withholding for or on account of any Tax or with such
deduction or withholding at a reduced rate (so long as the completion,
execution or submission of such form or document would not materially
prejudice the legal or commercial position of the party in receipt of
such demand), with any such form or document to be accurate and
completed in a manner reasonably satisfactory to such other party and to
be executed and to be delivered with any reasonably required
certification,
in each case by the date specified in the Schedule or such Confirmation or,
if none is specified, as soon as reasonably practicable.
(b) Maintain Authorizations. It will use all reasonable efforts to maintain
in full force and effect all consents of any governmental or other authority
that are required to be obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party and will use all reasonable
efforts to obtain any that may become necessary in the future.
(c) Comply with Laws. It will comply in all material respects with all
applicable laws and orders to which it may be subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(D) Tax Agreement. It will give notice of any failure of a representation
made by it under Section 3(f) to be accurate and true promptly upon learning
of such failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of
this Agreement by a jurisdiction in which it is incorporated,
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organized, managed and controlled, or considered to have its seal, or in
which a branch or office through which it is acting for the purpose of this
Agreement is located ("Stamp Tax Jurisdiction") and will indemnify the
other party against any Stamp Tax levied or imposed upon the other party or
in respect of the other party's execution or performance of this Agreement by
any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction
with respect to the other party.
5. Events of Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any of the following events constitutes an event of
default (an "Event of Default") with respect to such party:--
(i) Failure to Pay or Deliver. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or
2(e) required to be made by it if such failure is not remedied on or
before the third Local Business Day after notice of such failure is
given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any
payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
or to give notice of a Termination Event or any agreement or obligation
under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or
performed by the party in accordance with this Agreement if such failure
is not remedied on or before the thirtieth day after notice of such
failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such
party to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document
or the failing or ceasing of such Credit Support Document to be in
full force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms,
disclaims, repudiates or rejects, in whole or in part, or
challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made
or repeated by the party or any Credit Support Provider of such party in
this Agreement or any Credit Support Document proves to have been
incorrect or misleading to any material respect when made or repeated or
deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to
any applicable notice requirement or grace period, there occurs a
liquidation of, an acceleration of obligations under, or an early
termination of, that Specified Transaction, (2) defaults, after giving
effect to any applicable notice requirement or grace period, in making
any payment or delivery due on the last payment, delivery or exchange
date of, or any payment on early termination of, a Specified Transaction
(or such default continues for at least three Local Business Days if
there is no applicable notice requirement or grace period) or (3)
disaffirms, disclaims, repudiates or rejects, in whole or in part, a
Specified Transaction (or such action is taken by any person or entity
appointed or empowered to operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default,
event of default or other similar condition or event (however
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described) in respect of such party, any Credit Support Provider of such
party or any applicable Specified Entity of such party under one or more
agreements or instruments relating to Specified Indebtedness of any of
them (individually or collectively) in an aggregate amount of not less
than the applicable Threshold Amount (as specified in the Schedule)
which has resulted in such Specified Indebtedness becoming, or becoming
capable at such time of being declared, due and payable under such
agreements or instruments before it would otherwise have been due and
payable or (2) a default by such party, such Credit Support Provider or
such Specified Entity (individually or collectively) in making one or
more payments on the due date thereof in an aggregate amount of not less
than the applicable Threshold Amount under such agreements or
instruments (after giving effect to any applicable notice requirement or
grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party
or any applicable Specified Entity of such party;--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to pay
its debts or fails or admits in writing its inability generally to
pay its debts as they become due; (3) makes a general assignment,
arrangement or composition with or for the benefit of its
creditors; (4) institutes or has instituted against it a
proceeding seeking a judgement of insolvency or bankruptcy or any
other relief under any bankruptcy or insolvency law or other
similar law affecting creditors' rights, or a petition is
presented for its winding-up or liquidation, and, in the case of
any such proceeding or petition instituted or presented against
it, such proceeding or petition (A) results in a judgment of
insolvency or bankruptcy or the entry of an order for relief or
the making of an order for its winding-up or liquidation or (B) is
not dismissed, discharged, stayed or restrained in each case
within 30 days of the institution or presentation thereof; (5) has
a resolution passed for its winding-up, official management or
liquidation (other than pursuant to a consolidation, amalgamation
or merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver,
trustee, custodian or other similar official for it or for all or
substantially all its assets; (7) has a secured party take
possession of all or substantially all its assets or has a
distress, execution, attachment, requestration or other legal
process levied, enforced or sued on or against all or
substantially all its assets and such secured party maintains
possession, or any such process is not dismissed, discharged,
stayed or restrained, in each case within 30 days thereafter; (8)
causes or is subject to any event with respect to it which, under
the applicable laws of any jurisdiction, has an analogous effect
to any of the events specified in clauses (1) to (7) (inclusive);
or (9) takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the foregoing
acts; or
(viii) Merger Without Assumption. The party for any Credit Support
Provider of such party consolidates or amalgamates with, or merges with
or into, or transfers all or substantially all its assets to, another
entity and, at the time of such consolidation amalgamation, merger or
transfer:--
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it or
its predecessor was a party by operation of law or pursuant to an
agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party) to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party
or, if applicable, any Credit Support Provider of such party or any Specified
Entity of such party of any event specified below constitutes an illegality
if the event is specified in (i) below, a Tax Event if the event is specified
in (ii) below or a Tax Event Upon Merger if the event is specified to (iii)
below, and, if specified to be applicable, a Credit Event
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) Illegality. Due to the adoption of, or any change in any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent jurisdiction
of any applicable law after such date, it becomes unlawful (other than as
a result of a breach by the party of Section 4(b)) for such party (which
will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in respect
of such Transaction or to comply with any other material provision
of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party (or
such Credit Support Provider) has under any Credit Support
Document relating to such Transaction.
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y) a
Change in Tax Law, the party (which will be the Affected Party) will, or
there is a substantial likelihood that it will, on the next succeeding
Scheduled Payment Date (1) be required to pay to the other party an
additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii)
or 6(e)) or (2) receive a payment from which an amount is required to be
deducted or withheld for or on account of a Tax (except in respect of
interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount
is required to be paid in respect of such Tax under Section 2(d)(i)(4)
(other than by reason of Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to pay
an additional amount in respect of an Indemnifiable Tax under Section
2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or
6(e)) or (2) receive a payment from which an amount has been deducted or
withheld for or on account of any Indemnifiable Tax in respect of which
the other party is not required to pay an additional amount (other than
by reason of Section 2(d)(i)(4)(A) or (B)). In either case as a result
of a party consolidating or amalgamating with, or merging with or into,
or transferring all or substantially all its assets to, another entity
(which will be the Affected Party) where such action does not constitute
an event described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of X
consolidates or amalgamates with, or mergers with or into, or transfers
all or substantially all its assets to, another entity and such action
does not constitute an event described in Section 5(a)(viii) but the
creditworthiness of the resulting, surviving or transferee entity is
materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action
(and, in such event, X or its successor or transferee, as appropriate;
will be the Affected Party); or
(v) Additional Termination Event. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying, the
occurrence of such event (and, in such event, the Affected Party or
Affected Parties shall be as specified for such Additional Termination
Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which
would otherwise constitute or give rise to an Event of Default also
constitutes an Illegality, it will be treated as an Illegality and will not
constitute an Event of Default.
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6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event
of Default with respect to a party (the "Defaulting Party") has occurred and
is then continuing, the other party (the "Non-defaulting Party") may, by not
more than 20 days notice to the Defaulting Party specifying the relevant
Event of Default, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all outstanding
Transactions. If, however, "Automatic Early Termination" is specified in the
Schedule as applying to a party, then an Early Termination Date in respect of
all outstanding Transactions will occur immediately upon the occurrence with
respect to such party of an Event of Default specified in Section
5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as
of the time immediately preceding the institution of the relevant proceeding
or the presentation of the relevant petition upon the occurrence with respect
to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to
the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) Transfer to Avoid Termination Event. If either an Illegality under
Section 5(b)(i)(I) or a Tax Event occurs and there is only one Affected
Party, or if a Tax Event Upon Merger occurs and the Burdened Party is
the Affected Party, the Affected Party will, as a condition to its right
to designate an Early Termination Date under Section 6(b)(iv), use all
reasonable efforts (which will not require such party to incur a loss,
excluding immaterial, incidental expenses) to transfer within 20 days
after it gives notice under Section 6(b)(i) all its rights and
obligations under this Agreement in respect of the Affected Transactions
to another of its Offices or Affiliates so that such Termination Event
ceases to exist.
If the Affected party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject
to and conditional upon the prior written consent of the other party,
which consent will not be withheld if such other party's policies in
effect at such time would permit it to enter into transactions with the
transferee on the terms proposed.
(iii) Two Affected Parties. If an illegality under Section 5(b)(i)(I) or
a Tax Event occurs and there are two Affected Parties, each party will
use all reasonable efforts to reach agreement within 30 days after
notice thereof is given under Section 6(b)(i) on action to avoid that
Termination Event.
(iv) Right to Terminate. If:--
(1) a transfer under Section 6(b)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i): or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected Party.
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected Party in the case of a Tax
Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the case
of a Credit Event Upon Merger or an Additional Termination Event if
there is only one Affected Party may, by not more than 20 days notice to
the other party and provided that the relevant Termination Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and will
provide to the other party a statement (I) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving details
of the relevant account to which any amount payable to it is to be paid.
In the absence of written confirmation from the source of a quotation
obtained in determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the existence
and accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day
that notice of the amount payable is effective (in the case of an Early
Termination Date which is designated or occurs as a result of an Event
of Default) and on the day which is two Local Business Days after the
day on which notice of the amount payable is effective (in the case of
an Early Termination Date which is designated as a result of a
Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well
as after judgment) in the Termination Currency, from (and including) the
relevant Early Termination Date to (but excluding) the date such amount
is paid, at the Applicable Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the
Schedule of a payment measure, either "Market Quotation" or "Loss", and a
payment method, either the "First Method" or the "Second Method". If the
parties fail to designate a payment measure or payment method in the
Schedule, it will be deemed that "Market Quotation" or the "Second Method",
as the case may be, shall apply. The amount, if any, payable in respect of an
Early Termination Date and determined pursuant to this Section will be
subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an
Event of Default:--
(1) First Method and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Termination Currency Equivalent
of the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the
Defaulting Party will pay to the Non-defaulting Party, a positive
number, the Non-defaulting Party's Loss in respect of this
Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A) the
sum of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party less (B) the Termination Currency Equivalent of
the Unpaid Amounts owing to the Defaulting Party. If that amount is a
positive number, the Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative number, the Non-defaulting Party will pay
the absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in
respect of this Agreement. If that amount is a positive number, the
Defaulting Party will pay it to the Non-defaulting Party; if it is a
negative number, the Non-defaulting Party will pay the absolute value
of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies,
except that, in either case, references to the Defaulting Party and to
the Non-defaulting Party will be deemed to be references to the
Affected Party and the party which is not the Affected Party,
respectively, and, if Loss applies and fewer than all the Transactions
are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and
an amount will be payable equal to (I) the sum of (a) one-half of
the difference between the Settlement Amount of the party with the
higher Settlement Amount ("X") and the Settlement Amount of the
party with the lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the Unpaid
Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in
respect of this Agreement (or, if fewer than all the Transactions
are being terminated, in respect of all Terminated Transactions)
and an amount will be payable equal to one-half of the difference
between the Loss of the party with the higher Loss ("X") and the
Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it
is a negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early
Termination Date occurs because "Automatic Early Termination" applies in
respect of a party, the amount determined under this Section 6(e) will be
subject to such adjustments as are appropriate and permitted by law to
reflect any payments or deliveries made by one party to the other under this
Agreement (and retained by such other party) during the period from the
relevant Early Termination Date to the date for payment determined under
Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an
amount recoverable under this Section 6(e) is a reasonable pre-estimate of
loss and not a penalty. Such amount is payable for the loss of bargain and
the loss of protection against future risks and except as otherwise provided
in this Agreement neither party will be entitled to recover any additional
damages as a consequence of such losses.
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7. Transfer
Subject to Section 6(b)(ii), neither this Amendment nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of
the other party, except that-
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to
any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest
in any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be
void.
8. Contractual Currency
(a) Payment in the Contractual Currency. Each payment under this
Agreement will be made in the relevant currency specified in this Agreement
for that payment (the "Contractual Currency"). To the extent permitted by
applicable law, any obligation to make payments under this Agreement in the
Contractual Currency will not be discharged or satisfied by any tender in any
currency other than the Contractual Currency, except to the extent such
tender results in the actual receipt by the party to which payment is owed,
acting in a reasonable manner and in good faith in converting the currency so
tendered into the Contractual Currency, of the full amount in the Contractual
Currency of all amounts payable in respect of this Agreement. If for any
reason the amount in the Contractual Currency so received falls short of the
amount in the Contractual Currency payable in respect of this Agreement, the
party required to make the payment will, to the extent permitted by
applicable law, immediately pay such additional amount in the Contractual
Currency as may be nessary to compensate for the shortfall. If for any reason
the amount in the Contractual Currency so received exceeds the amount in the
Contractual Currency payable in respect of this Agreement, the party receiving
the payment will refund promptly th amount of such excess.
(b) Judgments. To the extent permitted by applicable law, if any
judgment or order expressed in a currency other than the Contractual
Currency is rendered (i) for the payment of any amount owing in respect of
this Agreement, (ii) for the payment of any amount relating to any early
termination in respect of this Agreement or (iii) in respect of a judgment or
order of another court for the payment of any amount described in (i) or (ii)
above, the party seeking recovery, after recovery in full of the aggregate
amount to which such party is entitled pursuant to the judgement or order,
will be entitled to receive immediately from the other party the amount of
any shortfall of the Contractual Currency received by such party as a
consequence of sums paid in such other currency and will refund promptly to
the other party any excess of the Contractual Currency received by such party
as a consequence of sums paid in such other currency if such shortfall or
such excess arises or results from any variation between the rate of exchange
at which the Contractual Currency is converted into the currency of the
judgment or order for the purposes of such judgment or order and the rate of
exchage at which such party is able, acting in a reasonable manner and in
good faith in converting the currency received into the Contractual Currency,
to purchase the Contractual Currency with the amount of the currency of the
judgment or order actually received by such party. The term "rate of
exchange" includes, without limitation, any premiums and costs of exchange
payable in connection with the purchase of or conversion into the Contractual
Currency.
(c) Seperate Indemnities. To the extent permitted by applicable law,
these indemnities constitute seperate and independent obligations from the
other obligations in this Agreement, will be enforceable as separate and
independent causes of action, will apply notwithstanding any indulgence
granted by the party to which any payment is owed and will not be affected by
judgment being obtained or claim or proof being made for any other sums
payable in respect of this Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be
sufficient for a party to demonstrate that it would have suffered a loss had
an actual exchange or purchase been made.
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9. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and
supersedes all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced
by a facsimile transmission) and executed by each of the parties or confirmed
by an exchange of telexes or electronic messages on an electronic messaging
system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in
respect of it) may be executed and delivered in counterparts (including
by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of
each Transaction from the moment they agree to those terms (whether
orally or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts (including
by facsimile transmission) or be created by an exchange of telexes or by
an exchange of electronic messages on an electronic messaging system,
which in each case will be sufficient for all purposes to evidence a
binding supplement to this Agreement. The parties will specify therein
or through another effective means that any such counterpart, telex or
electronic message constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power
or privilege in respect of this Agreement will not be presumed to operate as
a waiver, and a single or partial exercise of any right, power or privilege
will not be presumed to preclude any subsequent or further exercise, of that
right, power or privilege or the exercise of any other right, power or
privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying, each party
that enters into a Transaction through an Office other than its head or home
office represents to the other party that, notwithstanding the place of
booking office or jurisdiction of incorporation or organisation of such
party, the obligations of such party are the same as if it had entered into the
Transaction through its head or home office. This representation will be
deemed to be repeated by such party on each date on which a Transaction is
entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a
Transaction will be specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other
party for and against all reasonable out-of-pocket expenses, including legal
fees and Stamp Tax, incurred by such other party by reason of the enforcement
and protection of its rights under this Agreement or any Credit Support
Document
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to which the Defaulting Party is a party or by reason of the early
termination of any Transaction, including, but not limited to, costs of
collection.
12. Notices
(a) Effectiveness. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) If in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas)
or the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered
(or attempted) or received, as applicable, after the close of business on a
Local Business Day, in which case that communication shall be deemed given
and effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change
the address, telex or facsimile number or electronic messaging system details
at which notices or other communications are to be given to it.
13. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating
to this Agreement ("Proceedings"), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this Agreement
is expressed to be governed by English law, or to the non-exclusive
jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in New York
City, if this Agreement is expressed to be governed by the laws of the
State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any claim
that such proceedings have been brought in an inconvenient forum and
further waives the right to object, with respect to such Proceedings,
that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be
governed by English law, the Contracting States, as defined in Section I(3)
of the Civil Jurisdiction and Judgments Act 1982 or any modification,
extension or re-enactment thereof for the time being in force) nor will the
bringing of Proceedings in any one or more jurisdictions preclude the bringing
of Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent
(if any) specified opposite its name in the Schedule to receive, for it and
on its behalf, service of process in any Proceedings. If for any
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reason any Party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute
process agent acceptable to the other party. The parties irrevocably
consent to service of process given in the manner provided for notices in
Section 12. Nothing in this Agreement will affect the right of either party
to serve process in any other manner permitted by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest
extent permitted by applicable law, with respect to itself and its
revenues and assets (irrespective of their use or intended use), all immunity
on the grounds of sovereignty or other similar grounds from (i) suit,
(ii) jurisdiction of any court, (iii) relief by way of injunction, order for
specific performance or for recovery of property, (iv) attachment of its
assets (whether before or after judgment) and (v) execution or enforcement of
any judgment to which it or its revenues or assets might otherwise be
entitled in any Proceedings in the courts of any jurisdiction and irrevocably
agrees, to the extent permitted by applicable law, that it will not claim any
such immunity in any Proceedings.
14. Definitions
As used in this Agreement:--
"Additional Termination Event" has the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and
(b) with respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any
person, any entity controlled, directly or indirectly, by the person, any
entity that controls, directly or indirectly, the person or any entity
directly or indirectly under common control with the person. For this
purpose, "control" of any entity or person means ownership of a majority of
the voting power of the entity or person.
"Applicable Rate" means:--
(a) in respect of obligations payable or deliverable (or which would have
been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of
either party from and after the date (determined in accordance with Section
6(d)(ii) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which
would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the
Non-default Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" has the meaning specified in Section 5(b).
"Change in Tax Law" means the enactment, promulgation, execution or
ratification of, or any change in or amendment to, any law (or in the
application or official interpretation of any law) that occurs on or after
the date on which the relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified
as such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by IO if it
were to fund or of funding the relevant amount plus 1% per annum.
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"Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event Of Default" has the meaning specified in Section 5(a) and, if
applicable, in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifiable Tax" means any Tax other than a Tax that would not be imposed
in respect of a payment under this Agreement but for a present or former
connection between the jurisdiction of the government or taxation authority
imposing such Tax and the recipient of such payment or a person related to
such recipient (including, without limitation, a connection arising from such
recipient or related person being or having been a citizen or resident of
such jurisdiction, or being or having been organised, present or engaged in a
trade or business in such jurisdiction, or having had a permanent
establishment or fixed place of business in such jurisdiction, but excluding
a connection arising solely from such recipient or related person having
executed, delivered, performed its obligations or received a payment under,
or enforced, this Agreement or a Credit Support Document).
"law" includes any treaty, law, rule, or regulation (as modified, in the case
of tax matters, by the practice of any relevant governmental revenue
authority) and "lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which
commercial banks are open for business (including dealings in foreign
exchange and foreign currency deposits) (a) in relation to any obligation
under Section 2(a)(i), in the place(s) specified in the relevant Confirmation
or, if not so specified, as otherwise agreed by the parties in writing or
determined pursuant to provisions contained, or incorporated by reference in
the Agreement, (b)in relation to any other payment, in the place where the
relevant account is located and, if different, in the principal financial
centre, if any, of the currency of such payment, (e) in relation to any
notice or other communication, including notice contemplated under Section
5(a)(i), in the city specified in the address for notice provided by the
recipient and, in the case of a notice contemplated by Section 2(b), in the
place where the relevant new account is to be located and (d) in relation to
Sections 5(a)(y)(2), in the relevant locations for performance with respect
to such Specified Transaction.
"Loss" means. with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be
its total losses and costs (or gain, in which case expressed as a negative
number) in connection with this Agreement or that Terminated Transaction or
group of Terminated Transactions, as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but without
duplication, loss or cost incurred as a result of its terminating,
liquidating, obtaining or reestablishing any hedge or related trading
position (or any gain resulting from any of them). Loss includes losses and
costs (or gains) in respect of any payment or delivery required to have been
made (assuming satisfaction of each applicable condition precedent) on or
before the relevant Early Termination Date and not made, except, so as to
avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies.
Loss does not include a party's legal fees and out-of-pocket expenses
referred to under Section 11. A party will determine its Loss as of the
relevant Early Termination Date, or, if that is not reasonably practicable,
as of the earliest date thereafter as is reasonably practicable. A party may
(but need not) determine its Loss by reference to quotations of relevant
rates or prices from one or more leading dealers in the relevant markers.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an
amount, if any, that would be paid to such party (expressed as a negative
number) or by such party (expressed as a positive number) in consideration of
an agreement between such party (taking into account any existing Credit
Support Document with respect to the obligations of such party) and the
quoting Reference Market-maker to enter into a transaction (the "Replacement
Transaction") that would have the effect of preserving for such party the
economic equivalent of any payment or delivery (whether the underlying
obligation was absolute or contingent and assuming the satisfaction of each
applicable condition precedent) by the parties under Section 2(a)(i) in
respect of such Terminated Transaction or group of Terminated Transactions
that would, but for the occurrence of the relevant Early Termination Date,
have
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination, Date have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is
to be included. The Replacement Transaction would be subject to such
documentation as such party and the Reference Market-maker may, in good
faith, agree. The party making the determination (or its agent) will request
each Reference Market-maker to provide its quotation to the extent reasonably
practicable as of the same day and time (without regard to different time
zones) on or as soon as reasonably practicable after the relevant Early
Termination Date. The day and time as of which those quotations are to be
obtained will be selected in good faith by the party obliged to make a
determination under Section 6(e), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without
regard to the quotations having the highest and lowest values. If exactly
three such quotations are provided, the Market Quotation will be the
quotation remaining after disregarding the highest and lowest quotations. For
this purpose, if more than one quotation has the same highest value or lowest
value, then one of such quotations shall be disregarded. If fewer than three
quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"Non-Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it)
if it were to fund the relevant amount.
"Non-Defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's head
or home office.
"Potential Event of Default" means any event which, with the giving of notice
or the lapse of time or both, would constitute an Event of Default.
"Reference Market-Makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria
that such party applies generally at the time in deciding whether to offer or
to make an extension of credit and (b) to the extent practicable, from among
such dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a)
in which the party is incorporated, organised, managed and controlled or
considered to have its seat, (b) where an Office through which the party is
acting for purposes of this Agreement is located, (c) in which the party
executes this Agreement and (d) in relation to any payment, from or through
which such payment is made.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention
or withholding or similar right or requirement to which the payer of an
amount under Section 6 is entitled or subject (whether arising under this
Agreement, another contract, applicable law or otherwise) that is exercised
by, or imposed on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to
any Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not
(in the reasonable belief of the party making the determination) product a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
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"Specified Indebtedness" means, subject to the Schedule, any obligation
(whether present or future, contingent or otherwise, as principal or surety
or otherwise) in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter
entered into between one party to this agreement (or any Credit Support
Provider of such party or any applicable Specified Entity of such party) and
the other party to this Agreement (or any Credit Support Provider of such
other party or any applicable Specified Entity of such other party) which is
a rate swap transaction, basis swap, forward rate transaction, commodity
swap, option, equity or equity index swap, equity or equity index option,
bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of these
transactions), (b) any combination of these transactions and (c) any other
transaction identified as a Specified Transaction in this Agreement or the
relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment
or fee of any nature (including interest, penalties and additions thereto)
that is imposed by any government or other taxing authority in respect of any
payment under this Agreement other than a stamp, registration, documentation
or similar tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date
(a) if resulting from a Termination Event, all Affected Transactions and (b)
if resulting from an Event of Default, all Transactions (in either case) in
effect immediately before the effectiveness of the notice designating that
Early Termination Date (or, if "Automatic Early Termination" applies,
immediately before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated
in the Termination Currency, such Termination Currency amount and, in respect
of any amount denominated in a currency other than the Termination Currency
(the "Other Currency"), the amount in the Termination Currency determined by
the party making the relevant determination as being required to purchase
such amount of such Other Currency as at the relevant Early
Termination Date, or, if the relevant Market Quotation or Loss (as the case
may be), is determined as of a later date, that later date, with the
Termination Currency at the rate equal to the spot exchange rate of the
foreign exchange agent (selected as provided below) for the purchase of such
Other Currency with the Termination Currency at or about 11:00 a.m. (in the
city in which such foreign exchange agent is located) on such date as would
be customary for the determination of such a rate for the purchase of such
Other Currency for value on the relevant Early Termination Date or that
later date. The foreign exchange agent will, if only one party is obliged to
make a determination under Section 6(e), be selected in good faith by that
party and otherwise will be agreed by the parties.
"Termination Event" means an illegality, a Tax Event or a Tax Event Upon
Merger or, if specified to be applicable, a Credit Event Upon Merger or an
Additional Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as
certified by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early
Termination Date, the aggregate of (a) in respect of all Terminated
Transactions, the amounts that become payable (or that would have become
payable but for Section 2(a)(iii) to such party under Section 2(a)(i) on or
prior to such Early Termination Date and which remain unpaid as at such Early
Termination Date and (b) in respect of each Terminated Transaction, for each
obligation under Section 2(a)(i) which was (or would have been but for
Section 2(a)(iii) required to be settled by delivery to such party on or
prior to such Early Termination Date and which has not been so settled as at
such Early Termination Date, an amount equal to the fair market
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value of that which was (or would have been) required to be delivered as of
the originally scheduled date for delivery, in each case together with (to
the extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or
would have been required to have been paid or performed to (but excluding)
such Early Termination Date, at the Applicable Rate. Such amounts of interest
will be calculated on the basis of daily compounding and the actual number
of days elapsed. The fair market value of any obligation referred to in
clause (b) above shall be reasonably determined by the party obliged to make
the determination under Section 6(e) or, if each party is so obliged, it shall
be the average of the Termination Currency Equivalents of the fair market
values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page
of this document.
NationsBank of Tennessee, N.A. Nova Holdings, Inc.
- ------------------------------------ ------------------------------------
(Name of Party) (Name of Party)
By: /s/ R. Vaughan Dodd By: /s/ Joel R. Kimbrough
-------------------------------- -------------------------------
Name: R. Vaughan Dodd Name: Joel R. Kimbrough
Title: Senior Vice President CFO
Date: October 7, 1997 October 2, 1997
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SCHEDULE to the MASTER AGREEMENT
dated as of August 7, 1997 between
NATIONSBANK OF TENNESSEE, N.A. ("Party A") and
NOVA HOLDINGS, INC. ("Party B")
PART 1: Termination Provisions and Certain Other Matters
(a) "Credit Agreement" means the Loan and Security Agreement dated as of
June 5, 1997 among Nova Holdings, Inc., its Subsidiaries, NationsBank of
Tennessee, N.A., and First Tennessee Bank National Association, as modified,
amended, restated or replaced from time to time.
(b) "Specified Entity" means in relation to Party A for the purpose of:
Section 5(a)(v), none;
Section 5(a)(vi), none;
Section 5(a)(vii), none; and
Section 5(a)(iv), none;
in relation to Party B for the purpose of:
Section 5(a)(v), any Affiliate of Party B;
Section 5(a)(vi), any Affiliate of Party B;
Section 5(a)(vii), any Affiliate of Party B; and
Section 5(a)(iv), any Affiliate of Party B.
(c) "Specified Transaction" will have the meaning specified in Section 14.
(d) The "Cross-Default" provisions of Section 5(a)(vi) will apply to Party A
and Party B and each Specified Entity of Party B. In connection therewith,
"Specified Indebtedness" will have the meaning specified in Section 14,
except that such term shall not include obligations in respect of deposits
received in the ordinary course of a party's banking business, and "Threshold
Amount" means with respect to Party A, an amount equal to three percent of
Party A's shareholders' equity, determined in accordance with generally
accepted accounting principles in such party's jurisdiction of incorporation
or organization, consistently applied, as at the end of such party's most
recently completed fiscal year, and with respect to Party B, $100,000.
With respect to Party B, an Event of Default (with Party B being the
Defaulting Party) shall also occur under this Agreement upon the occurrence
of any Event of Default specified in the Credit Agreement, as amended from
time to time after the date hereof with the consent of Party A.
(e) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will apply
to Party A and Party B and each Specified Entity of Party B.
(f) The "Automatic Early Termination" provision of Section 6(a) will not
apply to Party A or Party B.
(g) Payments on Early Termination. For the purpose of Section 6(e):
(i) Loss will apply.
(ii) The Second Method will apply.
(h) "Termination Currency" means United States Dollars.
1
<PAGE>
(i) Additional Termination Event. Additional Termination Event will not apply.
PART 2: TAX REPRESENTATIONS
Not applicable.
PART 8: AGREEMENT TO DELIVER DOCUMENTS
For the purpose of Section 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents:
(a) Tax forms, documents or certificates to be delivered are: none.
(b) Other documents to be delivered are:
<TABLE>
<CAPTION>
Party required Form/ Date by Covered by
to deliver Document/ which to be Section 3(d)
document Certificate delivered Representation
- -------------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
Party A and Certified copies of all Upon execution and Yes
Party B corporate authorizations delivery of this
and any other documents Agreement
with respect to the
execution, delivery and
performance of this
Agreement
Party A and Certificate of authority and Upon execution and Yes
Party B specimen signatures of delivery of this
individuals executing this Agreement and
Agreement and Confirmations. thereafter upon request
of the other party
</TABLE>
PART 4: Miscellaneous
(a) Address for Notices. For the purpose of Section 12(a) of this Agreement:
Address for notice or communications to Party A:
NationsBank, N.A.
100 N. Tryon St., NC1-007-13-01
Charlotte, North Carolina 28255
Attention: Derivatives Documentation Unit
(Telex No.: 669959; Answerback; NATIONSBK CHA)
Address for notice or communications to Party B:
2
<PAGE>
Nova Holdings, Inc.
1620 Century Center Parkway, Suite 109
Memphis, TN 38134
Attention: Joel Kimbrough, Chief Financial Officer
Telephone No.: 901-385-3616
Facsimile No.: 901-385-3780
(b) Process Agent. For the purpose of Section 13(c):
Party A appoints as its Process Agent: Not applicable.
Party B appoints as its Process Agent: Not applicable.
(c) Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(c) of this Agreement:
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) Calculation Agent. The Calculation Agent is Party A, unless otherwise
specified in a Confirmation in relation to the relevant Transaction.
(f) Credit Support Document. Details of any Credit Support Document:
The Collateral Documents, as defined in the Credit Agreement and the Stock
Pledge Agreement entered into on June 5, 1997 by and between Nova Holdings,
Inc. and NationsBank of Tennessee, N.A.
(g) Credit Support Provider. Credit Support Provider means in relation to
Party A.
Not applicable.
Credit Support Provider means in relation to Party B,
Each Guarantor, as defined in the Credit Agreement.
(h) Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York (without reference to that
jurisdiction's choice of law doctrine).
(i) Netting of Payments. Subparagraph (ii) of Section 2(c) will not apply
to any Transaction unless specified in the relevant Confirmation.
(j) "Affiliate" will have the meaning specified in Section 14 of this
Agreement.
PART 5: Other Provisions
(a) Set-off. Nothing in this Agreement shall be treated as restricting or
negating any right of set-off, lien, counterclaim or other right or remedy
which might otherwise be available to either party.
(b) Payments. Notwithstanding the provisions of any Transaction, in the
event an Event of Default or an event that with the giving of notice or lapse
of time (or both) would become an Event of Default shall have occurred and be
continuing with respect to a party ("Party X"), or material adverse change in
the business, operations, assets or financial or other condition of Party X
shall
3
<PAGE>
have occurred, then, upon written notice being given to Party X by the other
party ("Party Y") (or automatically, without any requirement for the giving
of notice, in the case of an Event of Default or Potential Event of Default
described in Section 5(a)(vii)), the following modifications shall be made,
effective as of the date such notice is given or deemed to be given, to each
Transaction where the originally scheduled Payment Dates for Party Y occur
more frequently than the Payment Dates for Party X; (i) Compounding shall
apply; (ii) Party Y's Payment Dates shall be changed to coincide with party
X's Payment Dates; (iii) the Compounding Dates shall be the same dates as
Party Y's originally-scheduled Payment Dates; and (iv) for purposes of
calculating the amount of the payment to be made by Party Y on the Payment
Date for Party Y (as modified hereby) next succeeding the effective date of
the modifications provided for in this paragraph, the Calculation Period in
respect of which such payment is being made will be deemed to have commenced
on the date of the most recent payment made by Party Y.
(c) EXCHANGE OF CONFIRMATIONS. For each Transaction entered into hereunder,
Party A shall promptly send to Party B a Confirmation, via telex or facsimile
transmission. Party B agrees to respond to such Confirmation within three (3)
Business Days, either confirming agreement thereto or requesting a correction
of any error(s) contained therein. Failure by Party B to respond within such
period shall not affect the validity or enforceability of such Transaction
and shall be deemed to be an affirmation of the terms contained in such
Confirmation, absent manifest error. The Parties agree that any such exchange
of telexes or facsimile transmissions shall constitute a Conformation for
all purposes hereunder.
(d) NOTICE BY FACSIMILE TRANSMISSION. Section 12(a) is hereby amended by
inserting the words "or 18(c)" between the number "6" and the word "may" in
the second line thereof.
(e) WAIVER OF RIGHT TO TRIAL BY JURY. Each party hereby irrevocably waives
any and all rights to trial by jury with respect to any legal proceeding
arising out of or a relating to this Agreement or any Transaction
contemplated hereby.
(f) RECORDING OF CONVERSATIONS. Each party to this Agreement acknowledges and
agrees to the tape or electronic recording of conversations between the
parties to this Agreement whether by one or other or both of the parties, and
that any such recordings may be submitted in evidence in any action or
proceeding relating to the Agreement or any Transaction.
(g) ELIGIBLE SWAP PARTICIPANT. Each party represents to the other that it is
an "eligible swap participant" as defined under the regulations of the
Commodity Futures Trading Commission currently at 17 C.F.R. Section
85.1(b)(2).
(h) RELATIONSHIP BETWEEN PARTIES. Each party represents to the other party
and will be deemed to represent to the other party on the date on which it
enters into a Transaction that (absent a written agreement between the
parties that expressly imposes affirmative obligations to the contrary for
the Transaction):
(i) NON-RELIANCE. It is acting for its own account, and it has made its
own independent decisions to enter into that Transaction and as to whether
that Transaction is appropriate or proper for it based upon its own judgment
and upon advice from such advisors as it has deemed necessary. It is not
relying on any communication (written or oral) of the other party as
investment advice or as a recommendation to enter into that Transaction; it
being understood that information and explanations related to the terms and
conditions of a Transaction shall not be considered investment advice or a
recommendation to enter into that Transaction. Further, such party has not
received from the other party any assurance or guarantee as to the expected
results of that Transaction.
(ii) EVALUATION AND UNDERSTANDING. It is capable of evaluating and
understanding (on its own behalf or through independent professional advice),
and understands and accepts, the
4
<PAGE>
terms, conditions and risks of that Transaction. It is also capable of
assuming, and assumes, the financial and other risks of that Transaction.
(iii) Status of Parties. The other party is not acting as an agent,
fiduciary or advisor for it in respect of that Transaction.
(i) Incorporation by Reference of Terms of Credit Agreement. The covenants,
terms and provisions of, including all representations and warranties of
Party B contained in, the Credit Agreement, as in effect as of the date of
this Agreement, are hereby incorporated by reference in, and made part of,
this Agreement, to the same extent as if such covenants, terms, and
provisions were set forth in full herein. Party B hereby agrees that, during
the period commencing with the date of this Agreement through and including
such date on which all of Party B's obligations under this Agreement, are
fully performed, Party B will (a) observe, perform, and fulfill each and
every such covenant, term, and provision applicable to Party B, as such
covenants, terms, and provisions, may be amended from time to time after the
date of this Agreement with the consent of Party A and (b) deliver to Party A
at the address for notices to Party A provided in Part 4 each notice,
document, certificate or other writing as Party B is obligated to furnish to
any other party to the Credit Agreement. In the event the Credit Agreement
terminates or becomes no longer binding on Party B prior to the termination
of this Agreement, such covenants, terms, and provisions (other than those
requiring payments in respect of amounts owed under the Credit Agreement)
will remain in force and effect for purposes of this Agreement as though set
forth in full herein until the date on which all of Party B's obligations
under this Agreement are fully performed, and this Agreement is terminated.
Accepted and agreed:
NATIONSBANK OF TENNESSEE, N.A. NOVA HOLDINGS, INC.
/s/ R. Vaughn Dodd /s/ Joel R. Kimbrough
- ------------------------------ ------------------------
Name: R. Vaughn Dodd Name: Joel R. Kimbrough
Title: Senior Vice President Title: CFO
5
<PAGE>
Exhibit 10.46
NOVA HOLDINGS, INC.
Incentive Stock Option Agreement
May 31, 1996
Employee/Optionee: David D. Stevens
Number of shares of
Common Stock subject
to this Agreement: 271,429
Pursuant to the Nova Holdings, Inc. and its Subsidiaries
Stock Option and Restricted Stock Purchase Plan (the "Plan"), the Board of
Directors of Nova Holdings, Inc. (the "Company") has granted to you on this
date an option (the "Option") to purchase the number of shares of the
Company's Common Stock, $.01 par value ("Common Stock"), set forth above.
Such shares (as the same may be adjusted as described in Section 12 below)
are herein referred to as the "Option Shares." The Option shall constitute
and be treated at all times by you and the Company for Federal income tax
purposes as an "incentive stock option" as defined under Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code") except to the
extent that Section 422(d) of the Code may be applicable; provided that
nothing herein shall be deemed to obligate you to adhere to any holding
periods set forth in Section 422(a)(1) of the Code. The terms and conditions
of the Option are set out below.
1. Date of Grant. The Option is granted to you on
June 1, 1996.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events
on the earlier of (i) ten years from date of grant or (ii) the date provided
in Section 10 below in the event you cease to be employed by the Company or
any subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $3.00 per share (subject to adjustment as provided in
Section 13 below).
4. Tranche A Vesting Provisions. With respect to an
<PAGE>
aggregate 190,000 Option Shares (the "Tranche A Option Shares"), except as
provided in Section 6 below, you will not be entitled to exercise the Option
(and purchase any such Option Shares) prior to May 31, 1997. Commencing on May
31, 1997, and on each of the three succeeding anniversaries of that date on
which you shall continue to be employed on a full-time basis by the Company or
any subsidiary or parent thereof, you shall become entitled to exercise the
Option with respect to 25% of such Tranche A Option Shares (as the same may be
adjusted from time to time pursuant to Section 13 below, and rounded to the
nearest whole share) until the Option expires and terminates pursuant to Section
2 hereof.
5. Tranche B Vesting. (a) With respect to an aggregate 81,429
of Option Shares (the "Tranche B Option Shares"), except as hereinafter provided
in this Section 5 and in Section 6 below, you will not be entitled to exercise
the Option (and purchase any Tranche B Option Shares) prior to May 31, 2002.
Commencing on May 31, 2002 and provided that you shall continue to be employed
on a full time basis by the Company or any subsidiary or parent thereof, you
shall be entitled to exercise the Option with respect to 100% of such Tranche B
Option Shares (as the same may be adjusted from time to time pursuant to Section
13 below, and rounded to the nearest whole share) until the Option expires and
terminates pursuant to Section 2 hereof.
(b) In the event that Actual EBT (as hereinafter defined) for
any full fiscal year beginning with the fiscal year ending June 30, 1997, equals
or exceeds the Target EBT (as hereinafter defined) for such fiscal year, then,
as of the August 1 next following the last day of such fiscal year, you shall
become entitled (subject to the calculation of Actual EBT for such fiscal year
by the Board of Directors of the Company as provided in Section 5(d) below) to
exercise the Option with respect to 25% of the Tranche B Option Shares (rounded
to the nearest whole share) until the Option expires and terminates pursuant to
Section 2 hereof.
(c) In the event that (i) Actual EBT for any of the full
fiscal years ending June 30, 1997, 1998 and 1999 (the "Shortfall Year") is less
than the Target EBT for such year, and (ii) the sum of (x) Actual EBT for the
Shortfall Year plus (y) Actual EBT for the immediately succeeding fiscal year
(the "Make-up Year") equals or exceeds the sum of the Target EBT for the
Shortfall Year and the Make-up Year combined, then, as of the September 1 next
following the last day of the Make-up Year, you shall become entitled (subject
to the calculation of Actual EBT for the Make-up Year by the Board of Directors
of the Company as provided in Section 5(d) hereof) to exercise the Option with
respect to 25% of the Tranche B Option Shares (rounded to the nearest whole
share) until the Option expires and terminates
<PAGE>
pursuant to Section 2 hereof. Your right to exercise the Option with respect to
any Tranche B Option Shares pursuant to this Section 5(c) shall be in addition
to your right to exercise the Option with respect to the Make-up Year as
provided in Section 5(b) above.
(d) For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Actual EBT" means, with respect to any fiscal year, EBT (as
hereinafter defined) for such fiscal year as calculated by the Board of
Directors of the Company based on the audited consolidated financial
statements of the Company and its subsidiaries for such fiscal year,
which financial statements shall be conclusive and binding upon the
Company and you.
"EBT" means, with respect to any fiscal year (i) the net
income (determined in accordance with generally accepted accounting
principles applied consistently with the Company's audited financial
statements, but excluding the effect of any extraordinary or other
material non-recurring gain (but not loss) outside the ordinary course
of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net
Income") plus (ii) to the extent deducted in determining Consolidated
Net Income for such period, the amount of the provision for income
taxes for such period.
"Target EBT" means, (i) for the fiscal year ending June 30,
1997 - $8,500,000, (ii) for the fiscal year ending June 30, 1998 -
$10,600,000, (iii) for the fiscal year ending June 30, 1999 -
$13,300,000 and (iv) for the fiscal year ending June 30, 2000 -
$16,600,000. Notwithstanding the "Target EBT" amounts set forth above,
if at any time or from time to time after the date hereof the Company
or any of its subsidiaries acquires a business, substantially all of
the assets of a business, or any assets material to the business of the
Company or any of its subsidiaries, the Board of Directors of the
Company shall make such adjustments to the Target EBT amounts, if any,
as the Board of Directors of the Company in its discretion deems
equitable in light of each such acquisition. Any such determination by
the Board of Directors shall be effective and binding for all purposes
of this Agreement and the Plan.
(e) The satisfaction of any and all conditions set forth in
this Section 5 regarding your right to exercise the Option for Tranche B Option
Shares (and purchase any Tranche B Option Shares) shall be reasonably determined
in good faith by
<PAGE>
the Board of Directors of the Company.
(f) Notwithstanding anything contained herein to the contrary,
no new rights to exercise the Option with respect to any Tranche B Option Shares
shall be acquired under this Section 5 after the date on which you cease to be
employed on a full-time basis by the Company or any subsidiary or parent
thereof.
6. Accelerated Vesting for Change of Control. (a) Concurrently
with the occurrence of any "Change of Control" (as defined below) in connection
with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall achieve
an "Internal Rate of Return" (as defined below) of 35% or more, you shall become
entitled to exercise the Option with respect to all the Option Shares (with the
effect that you shall be deemed to be entitled to exercise the Option
immediately prior to the consummation of such Change of Control with respect to
all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation,
preferred stock whether or not convertible) of the Company purchased by WCAS
VII. For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction described in clause (a) of the definition of Change of
Control, having due regard for the price per share reflected in the last
transaction or event giving rise to such Change of Control, unless such price
was established on other than an arm's-length basis, and in the case of a
transaction described in clause (b) of such definition, assuming liquidation of
the Company
<PAGE>
immediately after such acquisition of assets. Internal Rates of Return shall be
determined from the date the "cash in" is deemed to occur to the date the "cash
out" is deemed to occur. For this purpose, "cash ins" shall be deemed to occur
on the date that securities are purchased from the Company or the holder thereof
and the purchase price therefor paid in full, and "cash outs" shall be deemed to
occur on the date on which any income or gain is realized or capital recovered
or, if later, the date of a Change of Control.
7. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4, 5 and 6 hereof, such right will continue until the date on which
the Option expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4, 5 or 6
hereof at which the Option may be exercised by you with respect to any Option
Shares.
8. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Com-pany,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
9. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
10. Termination of Employment. (a) In the event that (i) the
Company or any subsidiary or parent thereof terminates your employment by such
entity "for cause" or (ii) you terminate your employment by such entity for any
reason whatsoever (other than as a result of your death or "disability" (within
the meaning of Section 22(e)(3) of the Code), then the Option may only be
exercised within three months after such termination, and only to the same
extent that you were entitled to exercise the Option on the date your employment
was so terminated and had not
<PAGE>
previously done so.
(b) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent thereof as a result of the
termination of your employment by the Company or any subsidiary or parent
thereof at any time other than "for cause" or as a result of your death or
"disability" (within the meaning of Section 22(e)(3) of the Code) the Option may
only be exercised within three months after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such termination
and had not previously done so.
(c) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent thereof by reason of a
"disability" (within the meaning of Section 22(e)(3) of the Code), the Option
may only be exercised within one year after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such disability and
had not previously done so.
(d) In the event that you die while employed by the Company or
any subsidiary or parent thereof (or (i) within a period of one month after
ceasing to be employed by the Company or any subsidiary or parent thereof for
any reason described in Section 10(a) above, (ii) within a period of ninety (90)
days after ceasing to be employed by the Company or any subsidiary or parent
thereof for any reason described in Section 10(b) above or (iii) within a period
of one year after ceasing to be employed by the Company for any reason described
in Section 10(c) hereof), the Option may only be exercised within one year after
your death. In such event, the Option may be exercised during such one-year
period by the executor or administrator of your estate or by any person who
shall have acquired the Option through bequest or inheritance, but only to the
same extent that you were entitled to exercise the Option immediately prior to
the time of your death and you had not previously done so.
(e) Notwithstanding any provision contained in this Section 10
to the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
11. Representations. (a) You represent and warrant to the
Company that, upon exercise of the Option, you will be acquiring the Option
Shares for your own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, and you understand that
<PAGE>
(i) neither the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issuance in a transaction
exempt from the registration requirements and (ii) the Option Shares must be
held indefinitely by you unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration. The stock
certificates for any Option Shares issued to you will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you as a result of any
"disqualifying disposition" of any Option Shares acquired upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes as a result of any such "disqualifying disposition", you hereby
agree that the Company may deduct from any payments of any kind otherwise due to
you an amount equal to the total Federal, state and local taxes required to be
so withheld, or if such payments are inadequate to satisfy such Federal, state
and local taxes, or if no such payments are due or to become due to you, then
you agree to provide the Company with cash funds or make other arrangements
satisfactory to the Company regarding such payment. It is understood that all
matters with respect to the total amount of taxes to be withheld in respect of
any such compensation income shall be determined by the Board of Directors in
its sole discretion.
12. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the Option.
13. Reorganization, Reclassification, Consolidation, Merger or
Sale. (a) In the event that, after the date hereof,
<PAGE>
the outstanding shares of the Company's Common Stock shall be increased or
decreased or changed into or exchanged for a different number or kind of shares
of stock or other securities of the Company or of another corporation through
reorganization, merger or consolidation, recapitalization, reclassification,
stock split, split-up, combination or exchange of shares or declaration of any
dividends payable in Common Stock, the Board of Directors of the Company shall
appropriately adjust the number of shares of Common Stock (and the option price
per share) subject to the unexercised portion of the Option (to the nearest
possible full share), and such adjustment shall be effective and binding for all
purposes of this Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) 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, reclassification, consolidation, merger or
sale not taken place.
14. Continuation of Employment. Neither the Plan nor the
Option shall confer upon you any right to continue in the employ of the Company
or any subsidiary or parent thereof, or limit in any respect the right of the
Company or any subsidiary or parent thereof to terminate your employment or
other relationship with the Company or any subsidiary or parent thereof, as the
case may be, at any time.
15. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing the
enclosed copy of this Agreement in the space provided below and returning it
promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
---------------------------------------
Name: Andrew M. Paul
Title: President
Accepted and Agreed to
of May 31, 1996:
- ----------------------------------
Employee/Optionee
<PAGE>
231759.1
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
-----------------------------------------------
OPTION EXERCISE FORM
I, , a Participant under the Nova Holdings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"), do
hereby exercise the right to purchase __________ shares of Common Stock, $.01
par value, of Nova Holdings, Inc. pursuant to the Option granted to me on May
31, 1996 under the Plan.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $ , an amount equal to the
total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of Common
Stock of the Company, together with stock powers and other
documentation requested by the Company, for a number of shares
of Common Stock which the undersigned has owned for not less
than six months having a fair value as of the date hereof
equal to the total exercise price for the shares of Common
Stock being purchased pursuant to this Option Exercise Form.
Date:
----------------------------------- --------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.47
NOVA HOLDINGS, INC.
Incentive Stock Option Agreement
May 31, 1996
Employee/Optionee: Joel R. Kimbrough
Number of shares of
Common Stock subject
to this Agreement: 135,714
Pursuant to the Nova Holdings, Inc. and its Subsidiaries
Stock Option and Restricted Stock Purchase Plan (the "Plan"), the Board of
Directors of Nova Holdings, Inc. (the "Company") has granted to you on this
date an option (the "Option") to purchase the number of shares of the
Company's Common Stock, $.01 par value ("Common Stock"), set forth above.
Such shares (as the same may be adjusted as described in Section 12 below)
are herein referred to as the "Option Shares." The Option shall constitute
and be treated at all times by you and the Company for Federal income tax
purposes as an "incentive stock option" as defined under Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code") except to the
extent that Section 422(d) of the Code may be applicable; provided that
nothing herein shall be deemed to obligate you to adhere to any holding
periods set forth in Section 422(a)(1) of the Code. The terms and conditions
of the Option are set out below.
1. Date of Grant. The Option is granted to you on
June 1, 1996.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events
on the earlier of (i) ten years from date of grant or (ii) the date provided
in Section 10 below in the event you cease to be employed by the Company or
any subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $3.00 per share (subject to adjustment as provided in
Section 13 below).
4. Tranche A Vesting Provisions. With respect to an
<PAGE>
aggregate 95,000 Option Shares (the "Tranche A Option Shares"), except as
provided in Section 6 below, you will not be entitled to exercise the Option
(and purchase any such Option Shares) prior to May 31, 1997. Commencing on May
31, 1997, and on each of the three succeeding anniversaries of that date on
which you shall continue to be employed on a full-time basis by the Company or
any subsidiary or parent thereof, you shall become entitled to exercise the
Option with respect to 25% of such Tranche A Option Shares (as the same may be
adjusted from time to time pursuant to Section 13 below, and rounded to the
nearest whole share) until the Option expires and terminates pursuant to Section
2 hereof.
5. Tranche B Vesting. (a) With respect to an aggregate 40,714
of Option Shares (the "Tranche B Option Shares"), except as hereinafter provided
in this Section 5 and in Section 6 below, you will not be entitled to exercise
the Option (and purchase any Tranche B Option Shares) prior to May 31, 2002.
Commencing on May 31, 2002 and provided that you shall continue to be employed
on a full time basis by the Company or any subsidiary or parent thereof, you
shall be entitled to exercise the Option with respect to 100% of such Tranche B
Option Shares (as the same may be adjusted from time to time pursuant to Section
13 below, and rounded to the nearest whole share) until the Option expires and
terminates pursuant to Section 2 hereof.
(b) In the event that Actual EBT (as hereinafter defined) for
any full fiscal year beginning with the fiscal year ending June 30, 1997, equals
or exceeds the Target EBT (as hereinafter defined) for such fiscal year, then,
as of the August 1 next following the last day of such fiscal year, you shall
become entitled (subject to the calculation of Actual EBT for such fiscal year
by the Board of Directors of the Company as provided in Section 5(d) below) to
exercise the Option with respect to 25% of the Tranche B Option Shares (rounded
to the nearest whole share) until the Option expires and terminates pursuant to
Section 2 hereof.
(c) In the event that (i) Actual EBT for any of the full
fiscal years ending June 30, 1997, 1998 and 1999 (the "Shortfall Year") is less
than the Target EBT for such year, and (ii) the sum of (x) Actual EBT for the
Shortfall Year plus (y) Actual EBT for the immediately succeeding fiscal year
(the "Make-up Year") equals or exceeds the sum of the Target EBT for the
Shortfall Year and the Make-up Year combined, then, as of the September 1 next
following the last day of the Make-up Year, you shall become entitled (subject
to the calculation of Actual EBT for the Make-up Year by the Board of Directors
of the Company as provided in Section 5(d) hereof) to exercise the Option with
respect to 25% of the Tranche B Option Shares (rounded to the nearest whole
share) until the Option expires and terminates
<PAGE>
pursuant to Section 2 hereof. Your right to exercise the Option with respect to
any Tranche B Option Shares pursuant to this Section 5(c) shall be in addition
to your right to exercise the Option with respect to the Make-up Year as
provided in Section 5(b) above.
(d) For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Actual EBT" means, with respect to any fiscal year, EBT (as
hereinafter defined) for such fiscal year as calculated by the Board of
Directors of the Company based on the audited consolidated financial
statements of the Company and its subsidiaries for such fiscal year,
which financial statements shall be conclusive and binding upon the
Company and you.
"EBT" means, with respect to any fiscal year (i) the net
income (determined in accordance with generally accepted accounting
principles applied consistently with the Company's audited financial
statements, but excluding the effect of any extraordinary or other
material non-recurring gain (but not loss) outside the ordinary course
of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net
Income") plus (ii) to the extent deducted in determining Consolidated
Net Income for such period, the amount of the provision for income
taxes for such period.
"Target EBT" means, (i) for the fiscal year ending June 30,
1997 - $8,500,000, (ii) for the fiscal year ending June 30, 1998 -
$10,600,000, (iii) for the fiscal year ending June 30, 1999 -
$13,300,000 and (iv) for the fiscal year ending June 30, 2000 -
$16,600,000. Notwithstanding the "Target EBT" amounts set forth above,
if at any time or from time to time after the date hereof the Company
or any of its subsidiaries acquires a business, substantially all of
the assets of a business, or any assets material to the business of the
Company or any of its subsidiaries, the Board of Directors of the
Company shall make such adjustments to the Target EBT amounts, if any,
as the Board of Directors of the Company in its discretion deems
equitable in light of each such acquisition. Any such determination by
the Board of Directors shall be effective and binding for all purposes
of this Agreement and the Plan.
(e) The satisfaction of any and all conditions set forth in
this Section 5 regarding your right to exercise the Option for Tranche B Option
Shares (and purchase any Tranche B Option Shares) shall be reasonably determined
in good faith by
<PAGE>
the Board of Directors of the Company.
(f) Notwithstanding anything contained herein to the contrary,
no new rights to exercise the Option with respect to any Tranche B Option Shares
shall be acquired under this Section 5 after the date on which you cease to be
employed on a full-time basis by the Company or any subsidiary or parent
thereof.
6. Accelerated Vesting for Change of Control. (a) Concurrently
with the occurrence of any "Change of Control" (as defined below) in connection
with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall achieve
an "Internal Rate of Return" (as defined below) of 35% or more, you shall become
entitled to exercise the Option with respect to all the Option Shares (with the
effect that you shall be deemed to be entitled to exercise the Option
immediately prior to the consummation of such Change of Control with respect to
all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation,
preferred stock whether or not convertible) of the Company purchased by WCAS
VII. For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction described in clause (a) of the definition of Change of
Control, having due regard for the price per share reflected in the last
transaction or event giving rise to such Change of Control, unless such price
was established on other than an arm's-length basis, and in the case of a
transaction described in clause (b) of such definition, assuming liquidation of
the Company
<PAGE>
immediately after such acquisition of assets. Internal Rates of Return shall be
determined from the date the "cash in" is deemed to occur to the date the "cash
out" is deemed to occur. For this purpose, "cash ins" shall be deemed to occur
on the date that securities are purchased from the Company or the holder thereof
and the purchase price therefor paid in full, and "cash outs" shall be deemed to
occur on the date on which any income or gain is realized or capital recovered
or, if later, the date of a Change of Control.
7. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4, 5 and 6 hereof, such right will continue until the date on which
the Option expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4, 5 or 6
hereof at which the Option may be exercised by you with respect to any Option
Shares.
8. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Com-pany,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
9. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
10. Termination of Employment. (a) In the event that (i) the
Company or any subsidiary or parent thereof terminates your employment by such
entity "for cause" or (ii) you terminate your employment by such entity for any
reason whatsoever (other than as a result of your death or "disability" (within
the meaning of Section 22(e)(3) of the Code), then the Option may only be
exercised within three months after such termination, and only to the same
extent that you were entitled to exercise the Option on the date your employment
was so terminated and had not
<PAGE>
previously done so.
(b) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent thereof as a result of the
termination of your employment by the Company or any subsidiary or parent
thereof at any time other than "for cause" or as a result of your death or
"disability" (within the meaning of Section 22(e)(3) of the Code) the Option may
only be exercised within three months after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such termination
and had not previously done so.
(c) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent thereof by reason of a
"disability" (within the meaning of Section 22(e)(3) of the Code), the Option
may only be exercised within one year after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such disability and
had not previously done so.
(d) In the event that you die while employed by the Company or
any subsidiary or parent thereof (or (i) within a period of one month after
ceasing to be employed by the Company or any subsidiary or parent thereof for
any reason described in Section 10(a) above, (ii) within a period of ninety (90)
days after ceasing to be employed by the Company or any subsidiary or parent
thereof for any reason described in Section 10(b) above or (iii) within a period
of one year after ceasing to be employed by the Company for any reason described
in Section 10(c) hereof), the Option may only be exercised within one year after
your death. In such event, the Option may be exercised during such one-year
period by the executor or administrator of your estate or by any person who
shall have acquired the Option through bequest or inheritance, but only to the
same extent that you were entitled to exercise the Option immediately prior to
the time of your death and you had not previously done so.
(e) Notwithstanding any provision contained in this Section 10
to the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
11. Representations. (a) You represent and warrant to the
Company that, upon exercise of the Option, you will be acquiring the Option
Shares for your own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, and you understand that
<PAGE>
(i) neither the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issuance in a transaction
exempt from the registration requirements and (ii) the Option Shares must be
held indefinitely by you unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration. The stock
certificates for any Option Shares issued to you will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you as a result of any
"disqualifying disposition" of any Option Shares acquired upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes as a result of any such "disqualifying disposition", you hereby
agree that the Company may deduct from any payments of any kind otherwise due to
you an amount equal to the total Federal, state and local taxes required to be
so withheld, or if such payments are inadequate to satisfy such Federal, state
and local taxes, or if no such payments are due or to become due to you, then
you agree to provide the Company with cash funds or make other arrangements
satisfactory to the Company regarding such payment. It is understood that all
matters with respect to the total amount of taxes to be withheld in respect of
any such compensation income shall be determined by the Board of Directors in
its sole discretion.
12. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the Option.
13. Reorganization, Reclassification, Consolidation, Merger or
Sale. (a) In the event that, after the date hereof,
<PAGE>
the outstanding shares of the Company's Common Stock shall be increased or
decreased or changed into or exchanged for a different number or kind of shares
of stock or other securities of the Company or of another corporation through
reorganization, merger or consolidation, recapitalization, reclassification,
stock split, split-up, combination or exchange of shares or declaration of any
dividends payable in Common Stock, the Board of Directors of the Company shall
appropriately adjust the number of shares of Common Stock (and the option price
per share) subject to the unexercised portion of the Option (to the nearest
possible full share), and such adjustment shall be effective and binding for all
purposes of this Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) 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, reclassification, consolidation, merger or
sale not taken place.
14. Continuation of Employment. Neither the Plan nor the
Option shall confer upon you any right to continue in the employ of the Company
or any subsidiary or parent thereof, or limit in any respect the right of the
Company or any subsidiary or parent thereof to terminate your employment or
other relationship with the Company or any subsidiary or parent thereof, as the
case may be, at any time.
15. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing the
enclosed copy of this Agreement in the space provided below and returning it
promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
---------------------------------------
Name: Andrew M. Paul
Title: President
Accepted and Agreed to
of May 31, 1996:
/s/ Joel R. Kimbrough
- ----------------------------------
Employee/Optionee
<PAGE>
231759.1
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
-----------------------------------------------
OPTION EXERCISE FORM
I, , a Participant under the Nova Holdings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"), do
hereby exercise the right to purchase __________ shares of Common Stock, $.01
par value, of Nova Holdings, Inc. pursuant to the Option granted to me on May
31, 1996 under the Plan.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $ , an amount equal to the
total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of Common
Stock of the Company, together with stock powers and other
documentation requested by the Company, for a number of shares
of Common Stock which the undersigned has owned for not less
than six months having a fair value as of the date hereof
equal to the total exercise price for the shares of Common
Stock being purchased pursuant to this Option Exercise Form.
Date:
----------------------------------- --------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.48
NOVA HOLDINGS, INC.
Incentive Stock Option Agreement
May 31, 1996
Employee/Optionee: John R. Grow
Number of shares of
Common Stock subject
to this Agreement: 135,714
Pursuant to the Nova Holdings, Inc. and its Subsidiaries
Stock Option and Restricted Stock Purchase Plan (the "Plan"), the Board of
Directors of Nova Holdings, Inc. (the "Company") has granted to you on this
date an option (the "Option") to purchase the number of shares of the
Company's Common Stock, $.01 par value ("Common Stock"), set forth above.
Such shares (as the same may be adjusted as described in Section 12 below)
are herein referred to as the "Option Shares." The Option shall constitute
and be treated at all times by you and the Company for Federal income tax
purposes as an "incentive stock option" as defined under Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code") except to the
extent that Section 422(d) of the Code may be applicable; provided that
nothing herein shall be deemed to obligate you to adhere to any holding
periods set forth in Section 422(a)(1) of the Code. The terms and conditions
of the Option are set out below.
1. Date of Grant. The Option is granted to you on
June 1, 1996.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events
on the earlier of (i) ten years from date of grant or (ii) the date provided
in Section 10 below in the event you cease to be employed by the Company or
any subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $3.00 per share (subject to adjustment as provided in
Section 13 below).
4. Tranche A Vesting Provisions. With respect to an
<PAGE>
aggregate 95,000 Option Shares (the "Tranche A Option Shares"), except as
provided in Section 6 below, you will not be entitled to exercise the Option
(and purchase any such Option Shares) prior to May 31, 1997. Commencing on May
31, 1997, and on each of the three succeeding anniversaries of that date on
which you shall continue to be employed on a full-time basis by the Company or
any subsidiary or parent thereof, you shall become entitled to exercise the
Option with respect to 25% of such Tranche A Option Shares (as the same may be
adjusted from time to time pursuant to Section 13 below, and rounded to the
nearest whole share) until the Option expires and terminates pursuant to Section
2 hereof.
5. Tranche B Vesting. (a) With respect to an aggregate 40,714
of Option Shares (the "Tranche B Option Shares"), except as hereinafter provided
in this Section 5 and in Section 6 below, you will not be entitled to exercise
the Option (and purchase any Tranche B Option Shares) prior to May 31, 2002.
Commencing on May 31, 2002 and provided that you shall continue to be employed
on a full time basis by the Company or any subsidiary or parent thereof, you
shall be entitled to exercise the Option with respect to 100% of such Tranche B
Option Shares (as the same may be adjusted from time to time pursuant to Section
13 below, and rounded to the nearest whole share) until the Option expires and
terminates pursuant to Section 2 hereof.
(b) In the event that Actual EBT (as hereinafter defined) for
any full fiscal year beginning with the fiscal year ending June 30, 1997, equals
or exceeds the Target EBT (as hereinafter defined) for such fiscal year, then,
as of the August 1 next following the last day of such fiscal year, you shall
become entitled (subject to the calculation of Actual EBT for such fiscal year
by the Board of Directors of the Company as provided in Section 5(d) below) to
exercise the Option with respect to 25% of the Tranche B Option Shares (rounded
to the nearest whole share) until the Option expires and terminates pursuant to
Section 2 hereof.
(c) In the event that (i) Actual EBT for any of the full
fiscal years ending June 30, 1997, 1998 and 1999 (the "Shortfall Year") is less
than the Target EBT for such year, and (ii) the sum of (x) Actual EBT for the
Shortfall Year plus (y) Actual EBT for the immediately succeeding fiscal year
(the "Make-up Year") equals or exceeds the sum of the Target EBT for the
Shortfall Year and the Make-up Year combined, then, as of the September 1 next
following the last day of the Make-up Year, you shall become entitled (subject
to the calculation of Actual EBT for the Make-up Year by the Board of Directors
of the Company as provided in Section 5(d) hereof) to exercise the Option with
respect to 25% of the Tranche B Option Shares (rounded to the nearest whole
share) until the Option expires and terminates
<PAGE>
pursuant to Section 2 hereof. Your right to exercise the Option with respect to
any Tranche B Option Shares pursuant to this Section 5(c) shall be in addition
to your right to exercise the Option with respect to the Make-up Year as
provided in Section 5(b) above.
(d) For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Actual EBT" means, with respect to any fiscal year, EBT (as
hereinafter defined) for such fiscal year as calculated by the Board of
Directors of the Company based on the audited consolidated financial
statements of the Company and its subsidiaries for such fiscal year,
which financial statements shall be conclusive and binding upon the
Company and you.
"EBT" means, with respect to any fiscal year (i) the net
income (determined in accordance with generally accepted accounting
principles applied consistently with the Company's audited financial
statements, but excluding the effect of any extraordinary or other
material non-recurring gain (but not loss) outside the ordinary course
of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net
Income") plus (ii) to the extent deducted in determining Consolidated
Net Income for such period, the amount of the provision for income
taxes for such period.
"Target EBT" means, (i) for the fiscal year ending June 30,
1997 - $8,500,000, (ii) for the fiscal year ending June 30, 1998 -
$10,600,000, (iii) for the fiscal year ending June 30, 1999 -
$13,300,000 and (iv) for the fiscal year ending June 30, 2000 -
$16,600,000. Notwithstanding the "Target EBT" amounts set forth above,
if at any time or from time to time after the date hereof the Company
or any of its subsidiaries acquires a business, substantially all of
the assets of a business, or any assets material to the business of the
Company or any of its subsidiaries, the Board of Directors of the
Company shall make such adjustments to the Target EBT amounts, if any,
as the Board of Directors of the Company in its discretion deems
equitable in light of each such acquisition. Any such determination by
the Board of Directors shall be effective and binding for all purposes
of this Agreement and the Plan.
(e) The satisfaction of any and all conditions set forth in
this Section 5 regarding your right to exercise the Option for Tranche B Option
Shares (and purchase any Tranche B Option Shares) shall be reasonably determined
in good faith by
<PAGE>
the Board of Directors of the Company.
(f) Notwithstanding anything contained herein to the contrary,
no new rights to exercise the Option with respect to any Tranche B Option Shares
shall be acquired under this Section 5 after the date on which you cease to be
employed on a full-time basis by the Company or any subsidiary or parent
thereof.
6. Accelerated Vesting for Change of Control. (a) Concurrently
with the occurrence of any "Change of Control" (as defined below) in connection
with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall achieve
an "Internal Rate of Return" (as defined below) of 35% or more, you shall become
entitled to exercise the Option with respect to all the Option Shares (with the
effect that you shall be deemed to be entitled to exercise the Option
immediately prior to the consummation of such Change of Control with respect to
all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation,
preferred stock whether or not convertible) of the Company purchased by WCAS
VII. For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction described in clause (a) of the definition of Change of
Control, having due regard for the price per share reflected in the last
transaction or event giving rise to such Change of Control, unless such price
was established on other than an arm's-length basis, and in the case of a
transaction described in clause (b) of such definition, assuming liquidation of
the Company
<PAGE>
immediately after such acquisition of assets. Internal Rates of Return shall be
determined from the date the "cash in" is deemed to occur to the date the "cash
out" is deemed to occur. For this purpose, "cash ins" shall be deemed to occur
on the date that securities are purchased from the Company or the holder thereof
and the purchase price therefor paid in full, and "cash outs" shall be deemed to
occur on the date on which any income or gain is realized or capital recovered
or, if later, the date of a Change of Control.
7. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4, 5 and 6 hereof, such right will continue until the date on which
the Option expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4, 5 or 6
hereof at which the Option may be exercised by you with respect to any Option
Shares.
8. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Com-pany,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
9. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
10. Termination of Employment. (a) In the event that (i) the
Company or any subsidiary or parent thereof terminates your employment by such
entity "for cause" or (ii) you terminate your employment by such entity for any
reason whatsoever (other than as a result of your death or "disability" (within
the meaning of Section 22(e)(3) of the Code), then the Option may only be
exercised within three months after such termination, and only to the same
extent that you were entitled to exercise the Option on the date your employment
was so terminated and had not
<PAGE>
previously done so.
(b) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent thereof as a result of the
termination of your employment by the Company or any subsidiary or parent
thereof at any time other than "for cause" or as a result of your death or
"disability" (within the meaning of Section 22(e)(3) of the Code) the Option may
only be exercised within three months after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such termination
and had not previously done so.
(c) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent thereof by reason of a
"disability" (within the meaning of Section 22(e)(3) of the Code), the Option
may only be exercised within one year after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such disability and
had not previously done so.
(d) In the event that you die while employed by the Company or
any subsidiary or parent thereof (or (i) within a period of one month after
ceasing to be employed by the Company or any subsidiary or parent thereof for
any reason described in Section 10(a) above, (ii) within a period of ninety (90)
days after ceasing to be employed by the Company or any subsidiary or parent
thereof for any reason described in Section 10(b) above or (iii) within a period
of one year after ceasing to be employed by the Company for any reason described
in Section 10(c) hereof), the Option may only be exercised within one year after
your death. In such event, the Option may be exercised during such one-year
period by the executor or administrator of your estate or by any person who
shall have acquired the Option through bequest or inheritance, but only to the
same extent that you were entitled to exercise the Option immediately prior to
the time of your death and you had not previously done so.
(e) Notwithstanding any provision contained in this Section 10
to the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
11. Representations. (a) You represent and warrant to the
Company that, upon exercise of the Option, you will be acquiring the Option
Shares for your own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, and you understand that
<PAGE>
(i) neither the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issuance in a transaction
exempt from the registration requirements and (ii) the Option Shares must be
held indefinitely by you unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration. The stock
certificates for any Option Shares issued to you will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you as a result of any
"disqualifying disposition" of any Option Shares acquired upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes as a result of any such "disqualifying disposition", you hereby
agree that the Company may deduct from any payments of any kind otherwise due to
you an amount equal to the total Federal, state and local taxes required to be
so withheld, or if such payments are inadequate to satisfy such Federal, state
and local taxes, or if no such payments are due or to become due to you, then
you agree to provide the Company with cash funds or make other arrangements
satisfactory to the Company regarding such payment. It is understood that all
matters with respect to the total amount of taxes to be withheld in respect of
any such compensation income shall be determined by the Board of Directors in
its sole discretion.
12. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the Option.
13. Reorganization, Reclassification, Consolidation, Merger or
Sale. (a) In the event that, after the date hereof,
<PAGE>
the outstanding shares of the Company's Common Stock shall be increased or
decreased or changed into or exchanged for a different number or kind of shares
of stock or other securities of the Company or of another corporation through
reorganization, merger or consolidation, recapitalization, reclassification,
stock split, split-up, combination or exchange of shares or declaration of any
dividends payable in Common Stock, the Board of Directors of the Company shall
appropriately adjust the number of shares of Common Stock (and the option price
per share) subject to the unexercised portion of the Option (to the nearest
possible full share), and such adjustment shall be effective and binding for all
purposes of this Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) 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, reclassification, consolidation, merger or
sale not taken place.
14. Continuation of Employment. Neither the Plan nor the
Option shall confer upon you any right to continue in the employ of the Company
or any subsidiary or parent thereof, or limit in any respect the right of the
Company or any subsidiary or parent thereof to terminate your employment or
other relationship with the Company or any subsidiary or parent thereof, as the
case may be, at any time.
15. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing the
enclosed copy of this Agreement in the space provided below and returning it
promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
---------------------------------------
Name: Andrew M. Paul
Title: President
Accepted and Agreed to
of May 31, 1996:
/s/ John R. Grow
- ----------------------------------
Employee/Optionee
<PAGE>
231759.1
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
-----------------------------------------------
OPTION EXERCISE FORM
I, , a Participant under the Nova Holdings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"), do
hereby exercise the right to purchase __________ shares of Common Stock, $.01
par value, of Nova Holdings, Inc. pursuant to the Option granted to me on May
31, 1996 under the Plan.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $ , an amount equal to the
total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of Common
Stock of the Company, together with stock powers and other
documentation requested by the Company, for a number of shares
of Common Stock which the undersigned has owned for not less
than six months having a fair value as of the date hereof
equal to the total exercise price for the shares of Common
Stock being purchased pursuant to this Option Exercise Form.
Date:
----------------------------------- --------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.49
NOVA HOLDINGS, INC.
Incentive Stock Option Agreement
September 3, 1997
Employee/Optionee: Kyle Callahan
Number of shares of
Common Stock subject
to this Agreement: 30,000
Pursuant to the Nova Holdings, Inc. and its Subsidiaries Stock
Option and Restricted Stock Purchase Plan (the "Plan"), the Board of Directors
of Nova Holdings, Inc. (the "Company") has granted to you on this date an option
(the "Option") to purchase the number of shares of the Company's Common Stock,
$.01 par value ("Common Stock"), set forth above. Such shares (as the same may
be adjusted as described in Section 12 below) are herein referred to as the
"Option Shares." The Option shall constitute and be treated at all times by you
and the Company for Federal income tax purposes as an "incentive stock option"
as defined under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code") except to the extent that Section 422(d) of the Code may be
applicable; provided that nothing herein shall be deemed to obligate you to
adhere to any holding periods set forth in Section 422(a)(1) of the Code. The
terms and conditions of the Option are set out below.
1. Date of Grant. The Option is granted to you on
September 3, 1997.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events on
the earlier of (i) ten years from date of grant or (ii) the date provided in
Section 10 below in the event you cease to be employed by the Company or any
subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $6.00 per share (subject to adjustment as provided in
Section 13 below).
<PAGE>
4. Tranche A Vesting Provisions. With respect to an aggregate
15,000 Option Shares (the "Tranche A Option Shares"), except as provided in
Section 6 below, you will not be entitled to exercise the Option (and purchase
any such Option Shares) prior to May 31, 1998. Commencing on May 31, 1998, and
on each of the three succeeding anniversaries of that date on which you shall
continue to be employed on a full-time basis by the Company or any subsidiary or
parent thereof, you shall become entitled to exercise the Option with respect to
25% of such Tranche A Option Shares (as the same may be adjusted from time to
time pursuant to Section 13 below, and rounded to the nearest whole share) until
the Option expires and terminates pursuant to Section 2 hereof.
5. Tranche B Vesting. (a) With respect to an aggregate 15,000
of Option Shares (the "Tranche B Option Shares"), except as hereinafter provided
in this Section 5 and in Section 6 below, you will not be entitled to exercise
the Option (and purchase any Tranche B Option Shares) prior to May 31, 2002.
Commencing on May 31, 2002 and provided that you shall continue to be employed
on a full time basis by the Company or any subsidiary or parent thereof, you
shall be entitled to exercise the Option with respect to 100% of such Tranche B
Option Shares (as the same may be adjusted from time to time pursuant to Section
13 below, and rounded to the nearest whole share) until the Option expires and
terminates pursuant to Section 2 hereof.
(b) In the event that Actual EBT (as hereinafter defined) for
any full fiscal year beginning with the fiscal year ending June 30, 1997, equals
or exceeds the Target EBT (as hereinafter defined) for such fiscal year, then,
as of the August 1 next following the last day of such fiscal year, you shall
become entitled (subject to the calculation of Actual EBT for such fiscal year
by the Board of Directors of the Company as provided in Section 5(d) below) to
exercise the Option with respect to 25% of the Tranche B Option Shares (rounded
to the nearest whole share) until the Option expires and terminates pursuant to
Section 2 hereof.
(c) In the event that (i) Actual EBT for any of the full
fiscal years ending June 30, 1997, 1998 and 1999 (the "Shortfall Year") is less
than the Target EBT for such year, and (ii) the sum of (x) Actual EBT for the
Shortfall Year plus (y) Actual EBT for the immediately succeeding fiscal year
(the "Make-up Year") equals or exceeds the sum of the Target EBT for the
Shortfall Year and the Make-up Year combined, then, as of the September 1 next
following the last day of the Make-up Year, you shall become entitled (subject
to the calculation of Actual EBT for the Make-up Year by the Board of Directors
of the Company as provided in Section 5(d) hereof) to exercise the Option with
respect to 25% of the Tranche B Option Shares (rounded to the
<PAGE>
nearest whole share) until the Option expires and terminates pursuant to Section
2 hereof. Your right to exercise the Option with respect to any Tranche B Option
Shares pursuant to this Section 5(c) shall be in addition to your right to
exercise the Option with respect to the Make-up Year as provided in Section 5(b)
above.
(d) For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Actual EBT" means, with respect to any fiscal year, EBT (as
hereinafter defined) for such fiscal year as calculated by the Board of
Directors of the Company based on the audited consolidated financial
statements of the Company and its subsidiaries for such fiscal year,
which financial statements shall be conclusive and binding upon the
Company and you.
"EBT" means, with respect to any fiscal year (i) the net
income (determined in accordance with generally accepted accounting
principles applied consistently with the Company's audited financial
statements, but excluding the effect of any extraordinary or other
material non-recurring gain (but not loss) outside the ordinary course
of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net
Income") plus (ii) to the extent deducted in determining Consolidated
Net Income for such period, the amount of the provision for income
taxes for such period.
"Target EBT" means, (i) for the fiscal year ending June 30,
1997 - $8,500,000, (ii) for the fiscal year ending June 30, 1998 -
$10,600,000, (iii) for the fiscal year ending June 30, 1999 -
$13,300,000 and (iv) for the fiscal year ending June 30, 2000 -
$16,600,000. Notwithstanding the "Target EBT" amounts set forth above,
if at any time or from time to time after the date hereof the Company
or any of its subsidiaries acquires a business, substantially all of
the assets of a business, or any assets material to the business of the
Company or any of its subsidiaries, the Board of Directors of the
Company shall make such adjustments to the Target EBT amounts, if any,
as the Board of Directors of the Company in its discretion deems
equitable in light of each such acquisition. Any such determination by
the Board of Directors shall be effective and binding for all purposes
of this Agreement and the Plan.
(e) The satisfaction of any and all conditions set forth in
this Section 5 regarding your right to exercise the
<PAGE>
Option for Tranche B Option Shares (and purchase any Tranche B Option Shares)
shall be reasonably determined in good faith by the Board of Directors of the
Company.
(f) Notwithstanding anything contained herein to the contrary,
no new rights to exercise the Option with respect to any Tranche B Option Shares
shall be acquired under this Section 5 after the date on which you cease to be
employed on a full-time basis by the Company or any subsidiary or parent
thereof.
6. Accelerated Vesting for Change of Control. (a) Concurrently
with the occurrence of any "Change of Control" (as defined below) in connection
with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall achieve
an "Internal Rate of Return" (as defined below) of 35% or more, you shall become
entitled to exercise the Option with respect to all the Option Shares (with the
effect that you shall be deemed to be entitled to exercise the Option
immediately prior to the consummation of such Change of Control with respect to
all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation,
preferred stock whether or not convertible) of the Company purchased by WCAS
VII. For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction described in clause (a) of the definition of Change of
Control, having due regard for the price per share reflected in the last
transaction or event giving rise to such Change of Control, unless such price
was established on other than an arm's-length
<PAGE>
basis, and in the case of a transaction described in clause (b) of such
definition, assuming liquidation of the Company immediately after such
acquisition of assets. Internal Rates of Return shall be determined from the
date the "cash in" is deemed to occur to the date the "cash out" is deemed to
occur. For this purpose, "cash ins" shall be deemed to occur on the date that
securities are purchased from the Company or the holder thereof and the purchase
price therefor paid in full, and "cash outs" shall be deemed to occur on the
date on which any income or gain is realized or capital recovered or, if later,
the date of a Change of Control.
7. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4, 5 and 6 hereof, such right will continue until the date on which
the Option expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4, 5 or 6
hereof at which the Option may be exercised by you with respect to any Option
Shares.
8. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Com-pany,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
9. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
10. Termination of Employment. (a) In the event that (i) the
Company or any subsidiary or parent thereof terminates your employment by such
entity "for cause" or (ii) you terminate your employment by such entity for any
reason whatsoever (other than as a result of your death or "disability" (within
the meaning of Section 22(e)(3) of the Code), then the Option may only be
exercised within three months after such termination, and
<PAGE>
only to the same extent that you were entitled to exercise the Option on the
date your employment was so terminated and had not previously done so.
(b) In the event that you cease to be employed on a full-time basis
by the Company or any subsidiary or parent thereof as a result of the
termination of your employment by the Company or any subsidiary or parent
thereof at any time other than "for cause" or as a result of your death or
"disability" (within the meaning of Section 22(e)(3) of the Code) the Option may
only be exercised within three months after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such termination
and had not previously done so.
(c) In the event that you cease to be employed on a full-time basis
by the Company or any subsidiary or parent thereof by reason of a "disability"
(within the meaning of Section 22(e)(3) of the Code), the Option may only be
exercised within one year after the date you cease to be so employed, and only
to the same extent that you were entitled to exercise the Option on the date you
ceased to be so employed by reason of such disability and had not previously
done so.
(d) In the event that you die while employed by the Company or any
subsidiary or parent thereof (or (i) within a period of one month after ceasing
to be employed by the Company or any subsidiary or parent thereof for any reason
described in Section 10(a) above, (ii) within a period of ninety (90) days after
ceasing to be employed by the Company or any subsidiary or parent thereof for
any reason described in Section 10(b) above or (iii) within a period of one year
after ceasing to be employed by the Company for any reason described in Section
10(c) hereof), the Option may only be exercised within one year after your
death. In such event, the Option may be exercised during such one-year period by
the executor or administrator of your estate or by any person who shall have
acquired the Option through bequest or inheritance, but only to the same extent
that you were entitled to exercise the Option immediately prior to the time of
your death and you had not previously done so.
(e) Notwithstanding any provision contained in this Section 10
to the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
11. Representations. (a) You represent and warrant to the
Company that, upon exercise of the Option, you will be acquiring the Option
Shares for your own account for the purpose of investment and not with a view to
or for sale in connection
<PAGE>
with any distribution thereof, and you understand that (i) neither the Option
nor the Option Shares have been registered with the Securities and Exchange
Commission by reason of their issuance in a transaction exempt from the
registration requirements and (ii) the Option Shares must be held indefinitely
by you unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from such registration. The stock certificates for
any Option Shares issued to you will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you as a result of any
"disqualifying disposition" of any Option Shares acquired upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes as a result of any such "disqualifying disposition", you hereby
agree that the Company may deduct from any payments of any kind otherwise due to
you an amount equal to the total Federal, state and local taxes required to be
so withheld, or if such payments are inadequate to satisfy such Federal, state
and local taxes, or if no such payments are due or to become due to you, then
you agree to provide the Company with cash funds or make other arrangements
satisfactory to the Company regarding such payment. It is understood that all
matters with respect to the total amount of taxes to be withheld in respect of
any such compensation income shall be determined by the Board of Directors in
its sole discretion.
12. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the Option.
13. Reorganization, Reclassification, Consolidation,
<PAGE>
Merger or Sale. (a) In the event that, after the date hereof, the outstanding
shares of the Company's Common Stock shall be increased or decreased or changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation through reorganization,
merger or consolidation, recapitalization, reclassification, stock split,
split-up, combination or exchange of shares or declaration of any dividends
payable in Common Stock, the Board of Directors of the Company shall
appropriately adjust the number of shares of Common Stock (and the option price
per share) subject to the unexercised portion of the Option (to the nearest
possible full share), and such adjustment shall be effective and binding for all
purposes of this Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) 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, reclassification, consolidation, merger or
sale not taken place.
14. Continuation of Employment. Neither the Plan nor the
Option shall confer upon you any right to continue in the employ of the Company
or any subsidiary or parent thereof, or limit in any respect the right of the
Company or any subsidiary or parent thereof to terminate your employment or
other relationship with the Company or any subsidiary or parent thereof, as the
case may be, at any time.
15. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
16. Restrictive Covenant & Confidentiality Agreement. You
acknowledge and agree that as a condition to the grant of any options pursuant
to the Plan that you either be bound by or execute and become bound by a
Restrictive Covenant and Confidentiality Agreement with Nova Holdings, Inc.;
receipt of a copy of which you hereby acknowledge.
<PAGE>
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing in the
space provided below and returning it promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
---------------------------------
Name: David D. Stevens
Title: Chief Executive Officer
Accepted and Agreed to
as of September 3, 1997:
- ----------------------------------
Employee/Optionee
<PAGE>
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
-----------------------------------------------
OPTION EXERCISE FORM
I, ___________ , a Participant under the Nova Holdings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"), do
hereby exercise the right to purchase __________ shares of Common Stock, $.01
par value, of Nova Holdings, Inc. pursuant to the Option granted to me on
September 3, 1997 under the Plan.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $____, an amount equal to the
total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of Common
Stock of the Company, together with stock powers and other
documentation requested by the Company, for a number of shares
of Common Stock which the undersigned has owned for not less
than six months having a fair value as of the date hereof
equal to the total exercise price for the shares of Common
Stock being purchased pursuant to this Option Exercise Form.
Date:
--------------------------------------- --------------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.50
NOVA HOLDINGS, INC.
Non-Qualified Stock Option Agreement
February 9, 1998
Director/Optionee: Patrick J. Welsh
Number of shares of
Common Stock subject
to this Agreement: 20,000
Pursuant to the Nova Holdings, Inc. and its Subsidiaries Stock
Option and Restricted Stock Purchase Plan (the "Plan"), the Board of Directors
of Nova Holdings, Inc. (the "Company") has granted to you on this date an option
(the "Option") to purchase the number of shares of the Company's Common Stock,
$.01 par value ("Common Stock"), set forth above. Such shares (as the same may
be adjusted as described in Section 12 below) are herein referred to as the
"Option Shares." The Option shall constitute and be treated at all times by you
and the Company as a "non-qualified stock option" for Federal income tax
purposes. The terms and conditions of the Option are set out below.
1. Date of Grant. The Option is granted to you on
February 9, 1998.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events on
the earlier of (i) ten years from date of grant or (ii) the date provided in
Section 9 below in the event you cease to serve as a director of the Company or
any subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $6.00 per share (subject to adjustment as provided in
Section 12 below).
4. Vesting Provisions. Except as provided in Section 5 below,
you will not be entitled to exercise the Option (and purchase any Option Shares)
prior to February 9, 1999. Commencing on February 9, 1999, and on each of the
three succeeding anniversaries of that date on which you shall continue to serve
as a director of the Company or any subsidiary or parent
<PAGE>
thereof, you shall become entitled to exercise the Option with respect to 25% of
the Option Shares (as the same may be adjusted from time to time pursuant to
Section 12 below, and rounded to the nearest whole share) until the Option
expires and terminates pursuant to Section 2 hereof.
5. Accelerated Vesting for Change of Control. (a) Concurrently
with the occurrence of any "Change of Control" (as defined below) in connection
with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall achieve
an "Internal Rate of Return" (as defined below) of 35% or more, you shall become
entitled to exercise the Option with respect to all the Option Shares (with the
effect that you shall be deemed to be entitled to exercise the Option
immediately prior to the consummation of such Change of Control with respect to
all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation,
preferred stock whether or not convertible) of the Company purchased by WCAS
VII. For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction described in clause (a) of the definition of Change of
Control, having due regard for the price per share reflected in the last
transaction or event giving rise to such Change of Control, unless such price
was established on other than an arm's-length basis, and in the case of a
transaction described in clause (b) of such definition, assuming liquidation of
the Company immediately after such acquisition of assets. Internal Rates of
Return shall be determined from the date the "cash in" is deemed
<PAGE>
to occur to the date the "cash out" is deemed to occur. For this purpose, "cash
ins" shall be deemed to occur on the date that securities are purchased from the
Company or the holder thereof and the purchase price therefor paid in full, and
"cash outs" shall be deemed to occur on the date on which any income or gain is
realized or capital recovered or, if later, the date of a Change of Control.
6. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4 and 5, such right will continue until the date on which the Option
expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4 or 5
hereof at which the Option may be exercised by you with respect to any Option
Shares.
7. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Company,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
8. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
9. Cessation of Service as a Director. In the event that you
cease to serve as a director of the Company or any subsidiary or parent thereof
at any time the Option may only be exercised within three months after the date
you cease to so serve, and only to the same extent that you were entitled to
exercise the Option on the date you ceased to so serve as a director and had not
previously done so. Notwithstanding any provision contained in this Section 9 to
the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
<PAGE>
10. Representations. (a) You represent and warrant to the
Company that, upon exercise of the Option, you will be acquiring the Option
Shares for your own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, and you understand that
(i) neither the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act and (ii) the
Option Shares must be held indefinitely by you unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration. The stock certificates for any Option Shares issued to you will
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes, you hereby agree that the Company may deduct from any payments
of any kind otherwise due to you an amount equal to the total Federal, state and
local taxes required to be so withheld, or if such payments are inadequate to
satisfy such Federal, state and local taxes, or if no such payments are due or
to become due to you, then you agree to provide the Company with cash funds or
make other arrangements satisfactory to the Company regarding such payment. It
is understood that all matters with respect to the total amount of taxes to be
withheld in respect of any such compensation income shall be determined by the
Board of Directors in its sole discretion.
11. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the Option.
<PAGE>
12. Reorganization, Reclassification, Consolidation, Merger or
Sale. (a) In the event that, after the date hereof, the outstanding shares of
the Company's Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors of the Company shall appropriately adjust
the number of shares of Common Stock (and the option price per share) subject to
the unexercised portion of the Option (to the nearest possible full share), and
such adjustment shall be effective and binding for all purposes of this
Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) 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, reclassification, consolidation, merger or
sale not taken place.
13. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing the
enclosed copy of this Agreement in the space provided below and returning it
promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
----------------------------------
Name: David D. Stevens
Title: Chairman and CEO
Accepted and Agreed to
as of February 9, 1998:
- ----------------------------------
Director/Optionee
<PAGE>
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
-----------------------------------------------
OPTION EXERCISE FORM
I, , a Participant under the Nova Holdings, Inc. and
its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"),
do hereby exercise the right to purchase __________ shares of Common Stock,
$.01 par value, of Nova Holdings, Inc. pursuant to the Option granted to me on
February 9, 1998.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $________, an amount equal to
the total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of Common
Stock of the Company, together with stock powers and other
documentation requested by the Company, for a number of shares
of Common Stock which the undersigned has owned for not less
than six months having a fair value as of the date hereof
equal to the total exercise price for the shares of Common
Stock being purchased pursuant to this Option Exercise Form.
Date:
------------------ -----------------------------------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.51
NOVA HOLDINGS, INC.
Non-Qualified Stock Option Agreement
February 9, 1998
Director/Optionee: Ken Melkus
Number of shares of
Common Stock subject
to this Agreement: 20,000
Pursuant to the Nova Holdings, Inc. and its Subsidiaries Stock
Option and Restricted Stock Purchase Plan (the "Plan"), the Board of Directors
of Nova Holdings, Inc. (the "Company") has granted to you on this date an option
(the "Option") to purchase the number of shares of the Company's Common Stock,
$.01 par value ("Common Stock"), set forth above. Such shares (as the same may
be adjusted as described in Section 12 below) are herein referred to as the
"Option Shares." The Option shall constitute and be treated at all times by you
and the Company as a "non-qualified stock option" for Federal income tax
purposes. The terms and conditions of the Option are set out below.
1. Date of Grant. The Option is granted to you on
February 9, 1998.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events on
the earlier of (i) ten years from date of grant or (ii) the date provided in
Section 9 below in the event you cease to serve as a director of the Company or
any subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $6.00 per share (subject to adjustment as provided in
Section 12 below).
4. Vesting Provisions. Except as provided in Section 5 below,
you will not be entitled to exercise the Option (and purchase any Option Shares)
prior to February 9, 1999. Commencing on February 9, 1999, and on each of the
three succeeding anniversaries of that date on which you shall continue to serve
as a director of the Company or any subsidiary or parent
<PAGE>
thereof, you shall become entitled to exercise the Option with respect to 25% of
the Option Shares (as the same may be adjusted from time to time pursuant to
Section 12 below, and rounded to the nearest whole share) until the Option
expires and terminates pursuant to Section 2 hereof.
5. Accelerated Vesting for Change of Control. (a) Concurrently
with the occurrence of any "Change of Control" (as defined below) in connection
with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall achieve
an "Internal Rate of Return" (as defined below) of 35% or more, you shall become
entitled to exercise the Option with respect to all the Option Shares (with the
effect that you shall be deemed to be entitled to exercise the Option
immediately prior to the consummation of such Change of Control with respect to
all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation,
preferred stock whether or not convertible) of the Company purchased by WCAS
VII. For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction described in clause (a) of the definition of Change of
Control, having due regard for the price per share reflected in the last
transaction or event giving rise to such Change of Control, unless such price
was established on other than an arm's-length basis, and in the case of a
transaction described in clause (b) of such definition, assuming liquidation of
the Company immediately after such acquisition of assets. Internal Rates of
Return shall be determined from the date the "cash in" is deemed
<PAGE>
to occur to the date the "cash out" is deemed to occur. For this purpose, "cash
ins" shall be deemed to occur on the date that securities are purchased from the
Company or the holder thereof and the purchase price therefor paid in full, and
"cash outs" shall be deemed to occur on the date on which any income or gain is
realized or capital recovered or, if later, the date of a Change of Control.
6. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4 and 5, such right will continue until the date on which the Option
expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4 or 5
hereof at which the Option may be exercised by you with respect to any Option
Shares.
7. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Company,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
8. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
9. Cessation of Service as a Director. In the event that you
cease to serve as a director of the Company or any subsidiary or parent thereof
at any time the Option may only be exercised within three months after the date
you cease to so serve, and only to the same extent that you were entitled to
exercise the Option on the date you ceased to so serve as a director and had not
previously done so. Notwithstanding any provision contained in this Section 9 to
the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
<PAGE>
10. Representations. (a) You represent and warrant to the
Company that, upon exercise of the Option, you will be acquiring the Option
Shares for your own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, and you understand that
(i) neither the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act and (ii) the
Option Shares must be held indefinitely by you unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration. The stock certificates for any Option Shares issued to you will
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes, you hereby agree that the Company may deduct from any payments
of any kind otherwise due to you an amount equal to the total Federal, state and
local taxes required to be so withheld, or if such payments are inadequate to
satisfy such Federal, state and local taxes, or if no such payments are due or
to become due to you, then you agree to provide the Company with cash funds or
make other arrangements satisfactory to the Company regarding such payment. It
is understood that all matters with respect to the total amount of taxes to be
withheld in respect of any such compensation income shall be determined by the
Board of Directors in its sole discretion.
11. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the Option.
<PAGE>
12. Reorganization, Reclassification, Consolidation, Merger or
Sale. (a) In the event that, after the date hereof, the outstanding shares of
the Company's Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors of the Company shall appropriately adjust
the number of shares of Common Stock (and the option price per share) subject to
the unexercised portion of the Option (to the nearest possible full share), and
such adjustment shall be effective and binding for all purposes of this
Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) 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, reclassification, consolidation, merger or
sale not taken place.
13. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing the
enclosed copy of this Agreement in the space provided below and returning it
promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By_______________________________
Name: David D. Stevens
Title: Chairman and CEO
Accepted and Agreed to
as of February 9, 1998:
- ----------------------------------
Director/Optionee
<PAGE>
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
OPTION EXERCISE FORM
I, _____________ , a Participant under the Nova Holdings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"), do
hereby exercise the right to purchase __________ shares of Common Stock, $.01
par value, of Nova Holdings, Inc. pursuant to the Option granted to me on
February 9, 1998.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $ ___, an amount equal to the
total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of Common
Stock of the Company, together with stock powers and other
documentation requested by the Company, for a number of shares
of Common Stock which the undersigned has owned for not less
than six months having a fair value as of the date hereof
equal to the total exercise price for the shares of Common
Stock being purchased pursuant to this Option Exercise Form.
Date:____________ _____________________________________________
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.52
NOVA HOLDINGS, INC.
Incentive Stock Option Agreement
February 9,1998
Employee/Optionee: Kyle J. Callahan
Number of shares of
Common Stock subject
to this Agreement: 10,000
Pursuant to the Nova Holdings, Inc. and its Subsidiaries Stock
Option and Restricted Stock Purchase Plan (the "Plan"), the Board of Directors
of Nova Holdings, Inc. (the "Company") has granted to you on this date an option
(the "Option") to purchase the number of shares of the Company's Common Stock,
$.01 par value ("Common Stock"), set forth above. Such shares (as the same may
be adjusted as described in Section 12 below) are herein referred to as the
"Option Shares." The Option shall constitute and be treated at all times by you
and the Company for Federal income tax purposes as an "incentive stock option"
as defined under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code") except to the extent that Section 422(d) of the Code may be
applicable; provided that nothing herein shall be deemed to obligate you to
adhere to any holding periods set forth in Section 422(a)(1) of the Code. The
terms and conditions of the Option are set out below.
1. Date of Grant. The Option is granted to you on
February 9, 1998.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events on
the earlier of (i) ten years from date of grant or (ii) the date provided in
Section 10 below in the event you cease to be employed by the Company or any
subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $6.00 per share (subject to adjustment as provided in
Section 13 below).
<PAGE>
4. Tranche A Vesting Provisions. With respect to an aggregate
7,000 Option Shares (the "Tranche A Option Shares"), except as provided in
Section 6 below, you will not be entitled to exercise the Option (and purchase
any such Option Shares) prior to May 31, 1999. Commencing on May 31, 1999, and
on each of the three succeeding anniversaries of that date on which you shall
continue to be employed on a full-time basis by the Company or any subsidiary or
parent thereof, you shall become entitled to exercise the Option with respect to
25% of such Tranche A Option Shares (as the same may be adjusted from time to
time pursuant to Section 13 below, and rounded to the nearest whole share) until
the Option expires and terminates pursuant to Section 2 hereof.
5. Tranche B Vesting. (a) With respect to an aggregate 3,000
of Option Shares (the "Tranche B Option Shares"), except as hereinafter provided
in this Section 5 and in Section 6 below, you will not be entitled to exercise
the Option (and purchase any Tranche B Option Shares) prior to May 31, 2002.
Commencing on May 31, 2002 and provided that you shall continue to be employed
on a full time basis by the Company or any subsidiary or parent thereof, you
shall be entitled to exercise the Option with respect to 100% of such Tranche B
Option Shares (as the same may be adjusted from time to time pursuant to Section
13 below, and rounded to the nearest whole share) until the Option expires and
terminates pursuant to Section 2 hereof.
(b) In the event that Actual EBT (as hereinafter defined) for
any full fiscal year beginning with the fiscal year ending June 30, 1999, equals
or exceeds the Target EBT (as hereinafter defined) for such fiscal year, then,
as of the August 1 next following the last day of such fiscal year, you shall
become entitled (subject to the calculation of Actual EBT for such fiscal year
by the Board of Directors of the Company as provided in Section 5(d) below) to
exercise the Option with respect to 25% of the Tranche B Option Shares (rounded
to the nearest whole share) until the Option expires and terminates pursuant to
Section 2 hereof.
(c) In the event that (i) Actual EBT for any of the full
fiscal years ending June 30, 1999 and 2000 (the "Shortfall Year") is less than
the Target EBT for such year, and (ii) the sum of (x) Actual EBT for the
Shortfall Year plus (y) Actual EBT for the immediately succeeding fiscal year
(the "Make-up Year") equals or exceeds the sum of the Target EBT for the
Shortfall Year and the Make-up Year combined, then, as of the September 1 next
following the last day of the Make-up Year, you shall become entitled (subject
to the calculation of Actual EBT for the Make-up Year by the Board of Directors
of the Company as provided in Section 5(d) hereof) to exercise the Option with
respect to 25% of the Tranche B Option Shares (rounded to the nearest whole
<PAGE>
share) until the Option expires and terminates pursuant to Section 2 hereof.
Your right to exercise the Option with respect to any Tranche B Option Shares
pursuant to this Section 5(c) shall be in addition to your right to exercise the
Option with respect to the Make-up Year as provided in Section 5(b) above.
(d) For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Actual EBT" means, with respect to any fiscal year, EBT (as
hereinafter defined) for such fiscal year as calculated by the Board of
Directors of the Company based on the audited consolidated financial
statements of the Company and its subsidiaries for such fiscal year,
which financial statements shall be conclusive and binding upon the
Company and you.
"EBT" means, with respect to any fiscal year (i) the net
income (determined in accordance with generally accepted accounting
principles applied consistently with the Company's audited financial
statements, but excluding the effect of any extraordinary or other
material non-recurring gain (but not loss) outside the ordinary course
of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net
Income") plus (ii) to the extent deducted in determining Consolidated
Net Income for such period, the amount of the provision for income
taxes for such period.
"Target EBT" means, (i) for the fiscal year ending June 30,
1999 - $13,300,000, (ii) for the fiscal year ending June 30, 2000 -
$16,600,000, and (iii) for the fiscal year ending June 30, 2001 - (as
determined by the Board of Directors)." Notwithstanding the "Target
EBT" amounts set forth above, if at any time or from time to time after
the date hereof the Company or any of its subsidiaries acquires a
business, substantially all of the assets of a business, or any assets
material to the business of the Company or any of its subsidiaries, the
Board of Directors of the Company shall make such adjustments to the
Target EBT amounts, if any, as the Board of Directors of the Company in
its discretion deems equitable in light of each such acquisition. Any
such determination by the Board of Directors shall be effective and
binding for all purposes of this Agreement and the Plan.
<PAGE>
(e) The satisfaction of any and all conditions set forth in
this Section 5 regarding your right to exercise the Option for Tranche B Option
Shares (and purchase any Tranche B Option Shares) shall be reasonably determined
in good faith by the Board of Directors of the Company.
(f) Notwithstanding anything contained herein to the contrary,
no new rights to exercise the Option with respect to any Tranche B Option Shares
shall be acquired under this Section 5 after the date on which you cease to be
employed on a full-time basis by the Company or any subsidiary or parent
thereof.
6. Accelerated Vesting for Change of Control. (a) Concurrently
with the occurrence of any "Change of Control" (as defined below) in connection
with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall achieve
an "Internal Rate of Return" (as defined below) of 35% or more, you shall become
entitled to exercise the Option with respect to all the Option Shares (with the
effect that you shall be deemed to be entitled to exercise the Option
immediately prior to the consummation of such Change of Control with respect to
all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation,
preferred stock whether or not convertible) of the Company purchased by WCAS
VII. For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction described in clause (a) of the definition of Change of
Control,
<PAGE>
having due regard for the price per share reflected in the last transaction or
event giving rise to such Change of Control, unless such price was established
on other than an arm's-length basis, and in the case of a transaction described
in clause (b) of such definition, assuming liquidation of the Company
immediately after such acquisition of assets. Internal Rates of Return shall be
determined from the date the "cash in" is deemed to occur to the date the "cash
out" is deemed to occur. For this purpose, "cash ins" shall be deemed to occur
on the date that securities are purchased from the Company or the holder thereof
and the purchase price therefor paid in full, and "cash outs" shall be deemed to
occur on the date on which any income or gain is realized or capital recovered
or, if later, the date of a Change of Control.
7. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4, 5 and 6 hereof, such right will continue until the date on which
the Option expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4, 5 or 6
hereof at which the Option may be exercised by you with respect to any Option
Shares.
8. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Com-pany,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
9. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
10. Termination of Employment. (a) In the event that (i) the
Company or any subsidiary or parent thereof terminates your employment by such
entity "for cause" or (ii) you terminate your employment by such entity for any
reason whatsoever (other
<PAGE>
than as a result of your death or "disability" (within the meaning of Section
22(e)(3) of the Code), then the Option may only be exercised within three months
after such termination, and only to the same extent that you were entitled to
exercise the Option on the date your employment was so terminated and had not
previously done so.
(b) In the event that you cease to be employed on a full-time basis
by the Company or any subsidiary or parent thereof as a result of the
termination of your employment by the Company or any subsidiary or parent
thereof at any time other than "for cause" or as a result of your death or
"disability" (within the meaning of Section 22(e)(3) of the Code) the Option may
only be exercised within three months after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such termination
and had not previously done so.
(c) In the event that you cease to be employed on a full-time basis
by the Company or any subsidiary or parent thereof by reason of a "disability"
(within the meaning of Section 22(e)(3) of the Code), the Option may only be
exercised within one year after the date you cease to be so employed, and only
to the same extent that you were entitled to exercise the Option on the date you
ceased to be so employed by reason of such disability and had not previously
done so.
(d) In the event that you die while employed by the Company or any
subsidiary or parent thereof (or (i) within a period of one month after ceasing
to be employed by the Company or any subsidiary or parent thereof for any reason
described in Section 10(a) above, (ii) within a period of ninety (90) days after
ceasing to be employed by the Company or any subsidiary or parent thereof for
any reason described in Section 10(b) above or (iii) within a period of one year
after ceasing to be employed by the Company for any reason described in Section
10(c) hereof), the Option may only be exercised within one year after your
death. In such event, the Option may be exercised during such one-year period by
the executor or administrator of your estate or by any person who shall have
acquired the Option through bequest or inheritance, but only to the same extent
that you were entitled to exercise the Option immediately prior to the time of
your death and you had not previously done so.
(e) Notwithstanding any provision contained in this Section 10
to the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
11. Representations. (a) You represent and warrant
<PAGE>
to the Company that, upon exercise of the Option, you will be acquiring the
Option Shares for your own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof, and you
understand that (i) neither the Option nor the Option Shares have been
registered with the Securities and Exchange Commission by reason of their
issuance in a transaction exempt from the registration requirements and (ii) the
Option Shares must be held indefinitely by you unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration. The stock certificates for any Option Shares issued to you will
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you as a result of any
"disqualifying disposition" of any Option Shares acquired upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes as a result of any such "disqualifying disposition", you hereby
agree that the Company may deduct from any payments of any kind otherwise due to
you an amount equal to the total Federal, state and local taxes required to be
so withheld, or if such payments are inadequate to satisfy such Federal, state
and local taxes, or if no such payments are due or to become due to you, then
you agree to provide the Company with cash funds or make other arrangements
satisfactory to the Company regarding such payment. It is understood that all
matters with respect to the total amount of taxes to be withheld in respect of
any such compensation income shall be determined by the Board of Directors in
its sole discretion.
12. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the
<PAGE>
Option.
13. Reorganization, Reclassification, Consolidation, Merger or
Sale. (a) In the event that, after the date hereof, the outstanding shares of
the Company's Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors of the Company shall appropriately adjust
the number of shares of Common Stock (and the option price per share) subject to
the unexercised portion of the Option (to the nearest possible full share), and
such adjustment shall be effective and binding for all purposes of this
Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) 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, reclassification, consolidation, merger or
sale not taken place.
14. Continuation of Employment. Neither the Plan nor the
Option shall confer upon you any right to continue in the employ of the Company
or any subsidiary or parent thereof, or limit in any respect the right of the
Company or any subsidiary or parent thereof to terminate your employment or
other relationship with the Company or any subsidiary or parent thereof, as the
case may be, at any time.
15. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
16. Restrictive Covenant & Confidentiality Agreement. You
acknowledge and agree that as a condition to the grant of any options pursuant
to the Plan that you either be bound by or
<PAGE>
execute and become bound by a Restrictive Covenant and Confidentiality Agreement
with Nova Holdings, Inc.; receipt of a copy of which you hereby acknowledge.
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing in the
space provided below and returning it promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
----------------------------------
Name: David D. Stevens
Title: Chief Executive Officer
Accepted and Agreed to
as of February 9, 1998:
- ----------------------------------
Employee/Optionee
<PAGE>
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
OPTION EXERCISE FORM
I, ____________, a Participant under the Nova Holdings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"), do
hereby exercise the right to purchase __________ shares of Common Stock, $.01
par value, of Nova Holdings, Inc. pursuant to the Option granted to me on
February 9, 1998 under the Plan.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $____, an amount equal to the
total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of Common
Stock of the Company, together with stock powers and other
documentation requested by the Company, for a number of shares
of Common Stock which the undersigned has owned for not less
than six months having a fair value as of the date hereof
equal to the total exercise price for the shares of Common
Stock being purchased pursuant to this Option Exercise Form.
Date:
---------------------- ------------------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.53
NOVA HOLDINGS, INC.
Non-Qualified Stock Option Agreement
February 9, 1998
Director/Optionee: Andrew M. Paul
Number of shares of
Common Stock subject
to this Agreement: 20,000
Pursuant to the Nova Holdings, Inc. and its Subsidiaries Stock
Option and Restricted Stock Purchase Plan (the "Plan"), the Board of Directors
of Nova Holdings, Inc. (the "Company") has granted to you on this date an option
(the "Option") to purchase the number of shares of the Company's Common Stock,
$.01 par value ("Common Stock"), set forth above. Such shares (as the same may
be adjusted as described in Section 12 below) are herein referred to as the
"Option Shares." The Option shall constitute and be treated at all times by you
and the Company as a "non-qualified stock option" for Federal income tax
purposes. The terms and conditions of the Option are set out below.
1. Date of Grant. The Option is granted to you on February 9,
1998.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events on
the earlier of (i) ten years from date of grant or (ii) the date provided in
Section 9 below in the event you cease to serve as a director of the Company or
any subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $6.00 per share (subject to adjustment as provided in
Section 12 below).
4. Vesting Provisions. Except as provided in Section 5 below,
you will not be entitled to exercise the Option (and purchase any Option Shares)
prior to February 9, 1999. Commencing on February 9, 1999, and on each of the
three succeeding anniversaries of that date on which you shall continue to serve
as a director of the Company or any subsidiary or parent
<PAGE>
thereof, you shall become entitled to exercise the Option with respect to 25% of
the Option Shares (as the same may be adjusted from time to time pursuant to
Section 12 below, and rounded to the nearest whole share) until the Option
expires and terminates pursuant to Section 2 hereof.
5. Accelerated Vesting for Change of Control. (a) Concurrently
with the occurrence of any "Change of Control" (as defined below) in connection
with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall achieve
an "Internal Rate of Return" (as defined below) of 35% or more, you shall become
entitled to exercise the Option with respect to all the Option Shares (with the
effect that you shall be deemed to be entitled to exercise the Option
immediately prior to the consummation of such Change of Control with respect to
all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation,
preferred stock whether or not convertible) of the Company purchased by WCAS
VII. For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction described in clause (a) of the definition of Change of
Control, having due regard for the price per share reflected in the last
transaction or event giving rise to such Change of Control, unless such price
was established on other than an arm's-length basis, and in the case of a
transaction described in clause (b) of such definition, assuming liquidation of
the Company immediately after such acquisition of assets. Internal Rates of
Return shall be determined from the date the "cash in" is deemed
<PAGE>
to occur to the date the "cash out" is deemed to occur. For this purpose, "cash
ins" shall be deemed to occur on the date that securities are purchased from the
Company or the holder thereof and the purchase price therefor paid in full, and
"cash outs" shall be deemed to occur on the date on which any income or gain is
realized or capital recovered or, if later, the date of a Change of Control.
6. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4 and 5, such right will continue until the date on which the Option
expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4 or 5
hereof at which the Option may be exercised by you with respect to any Option
Shares.
7. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Company,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
8. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
9. Cessation of Service as a Director. In the event that you
cease to serve as a director of the Company or any subsidiary or parent thereof
at any time the Option may only be exercised within three months after the date
you cease to so serve, and only to the same extent that you were entitled to
exercise the Option on the date you ceased to so serve as a director and had not
previously done so. Notwithstanding any provision contained in this Section 9 to
the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
<PAGE>
10. Representations. (a) You represent and warrant to the
Company that, upon exercise of the Option, you will be acquiring the Option
Shares for your own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, and you understand that
(i) neither the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act and (ii) the
Option Shares must be held indefinitely by you unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration. The stock certificates for any Option Shares issued to you will
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes, you hereby agree that the Company may deduct from any payments
of any kind otherwise due to you an amount equal to the total Federal, state and
local taxes required to be so withheld, or if such payments are inadequate to
satisfy such Federal, state and local taxes, or if no such payments are due or
to become due to you, then you agree to provide the Company with cash funds or
make other arrangements satisfactory to the Company regarding such payment. It
is understood that all matters with respect to the total amount of taxes to be
withheld in respect of any such compensation income shall be determined by the
Board of Directors in its sole discretion.
11. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the Option.
<PAGE>
12. Reorganization, Reclassification, Consolidation, Merger or
Sale. (a) In the event that, after the date hereof, the outstanding shares of
the Company's Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors of the Company shall appropriately adjust
the number of shares of Common Stock (and the option price per share) subject to
the unexercised portion of the Option (to the nearest possible full share), and
such adjustment shall be effective and binding for all purposes of this
Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately theretofore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) 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, reclassification, consolidation, merger or
sale not taken place.
13. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing the
enclosed copy of this Agreement in the space provided below and returning it
promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
-------------------------------
Name: David D. Stevens
Title: Chairman and CEO
Accepted and Agreed to
as of February 9, 1998:
- ----------------------------------
Director/Optionee
<PAGE>
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
OPTION EXERCISE FORM
I, ________, a Participant under the Nova Holdings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"),
do hereby exercise the right to purchase __________ shares of Common Stock,
$.01 par value, of Nova Holdings, Inc. pursuant to the Option granted to me
on February 9, 1998.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $ , an amount equal to the
total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of Common
Stock of the Company, together with stock powers and other
documentation requested by the Company, for a number of shares
of Common Stock which the undersigned has owned for not less
than six months having a fair value as of the date hereof
equal to the total exercise price for the shares of Common
Stock being purchased pursuant to this Option Exercise Form.
Date:
-------------------------- -----------------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.54
NOVA HOLDINGS, INC.
-------------------
Non-Qualified Stock Option Agreement
------------------------------------
April 30, 1998
Director/Optionee: Kenneth R. Masterson
--------------------
Number of shares of
Common Stock subject
to this Agreement: 20,000
------
Pursuant to the Nova Holdings, Inc. and its Subsid iaries
Stock Option and Restricted Stock Purchase Plan (the "Plan"), the Board of
Directors of Nova Holdings, Inc. (the "Company") has granted to you on this date
an option (the "Op tion") to purchase the number of shares of the Company's
Common Stock, $.01 par value ("Common Stock"), set forth above. Such shares (as
the same may be adjusted as described in Section 12 below) are herein referred
to as the "Option Shares." The Option shall constitute and be treated at all
times by you and the Company as a "non-qualified stock option" for Federal
income tax purposes. The terms and conditions of the Option are set out below.
1. Date of Grant. The Option is granted to you on April 30,
1998.
2. Termination of Option. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events on
the earlier of (i) ten years from date of grant or (ii) the date provided in
Section 9 below in the event you cease to serve as a director of the Company or
any subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $6.00 per share (subject to adjust ment as provided in
Section 12 below).
4. Vesting Provisions. Except as provided in Section 5
below, you will not be entitled to exercise the Option (and purchase any Option
Shares) prior to April 30, 1999. Commencing on April 30, 1999, and on each of
the three succeeding anniversa ries of that date on which you shall continue to
serve as a director of the Company or any subsidiary or parent thereof,
<PAGE>
you shall become entitled to exercise the Option with respect to 25% of the
Option Shares (as the same may be adjusted from time to time pursuant to Section
12 below, and rounded to the nearest whole share) until the Option expires and
terminates pursuant to Section 2 hereof.
5. Accelerated Vesting for Change of Control. (a)
Concurrently with the occurrence of any "Change of Control" (as defined below)
in connection with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII")
shall achieve an "Internal Rate of Return" (as defined below) of 35% or more,
you shall become entitled to exercise the Option with respect to all the Option
Shares (with the effect that you shall be deemed to be entitled to exercise the
Option immediately prior to the consummation of such Change of Control with
respect to all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation, pre
ferred stock whether or not convertible) of the Company purchased by WCAS VII.
For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction de scribed in clause (a) of the definition of Change
of Control, having due regard for the price per share reflected in the last
transaction or event giving rise to such Change of Control, unless such price
was established on other than an arm's-length basis, and in the case of a
transaction described in clause (b) of such definition, assuming liquidation of
the Company immedi ately after such acquisition of assets. Internal Rates of
Return shall be determined from the date the "cash in" is deemed
<PAGE>
to occur to the date the "cash out" is deemed to occur. For this purpose, "cash
ins" shall be deemed to occur on the date that securities are purchased from the
Company or the holder thereof and the purchase price therefor paid in full, and
"cash outs" shall be deemed to occur on the date on which any income or gain is
realized or capital recovered or, if later, the date of a Change of Control.
6. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4 and 5, such right will continue until the date on which the Option
expires and termi nates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4 or 5
hereof at which the Option may be exercised by you with respect to any Option
Shares.
7. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased as
a result of such exercise, together with payment of the full option price for
the Option Shares being purchased. Payment of the option price may be made, at
your election, (i) in cash or by check, (ii) by delivery to the Company of a
number of shares of Common Stock which shall have been owned by you for not less
than six months at the date of delivery having a fair value as of the date of
exercise, as determined in good faith by the Board of Directors of the Company,
equal to the option price, or (iii) by tendering such other consideration as may
be acceptable to the Board of Directors of the Company.
8. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
9. Cessation of Service as a Director. In the event that you
cease to serve as a director of the Company or any subsidiary or parent thereof
at any time the Option may only be exercised within three months after the date
you cease to so serve, and only to the same extent that you were entitled to
exercise the Option on the date you ceased to so serve as a director and had not
previously done so. Notwithstanding any provision contained in this Section 9 to
the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the date of grant.
<PAGE>
10. Representations. (a) You represent and warrant to the
Company that, upon exercise of the Option, you will be acquiring the Option
Shares for your own account for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, and you understand that
(i) nei ther the Option nor the Option Shares have been registered with the
Securities and Exchange Commission by reason of their issu ance in a transaction
exempt from the registration requirements of the Securities Act and (ii) the
Option Shares must be held indefinitely by you unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration. The stock certificates for any Option Shares issued to you will
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you under stand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exer cise of the Option and purchase of Option Shares, and
the subse quent sale or other disposition of any Option Shares. In addi tion,
you understand that the Company will be required to with hold Federal, state or
local taxes in respect of any compensation income realized by you upon exercise
of the Option granted hereunder. To the extent that the Company is required to
with hold any such taxes, you hereby agree that the Company may deduct from any
payments of any kind otherwise due to you an amount equal to the total Federal,
state and local taxes required to be so withheld, or if such payments are
inadequate to satisfy such Federal, state and local taxes, or if no such
payments are due or to become due to you, then you agree to provide the Company
with cash funds or make other arrangements satisfactory to the Company regarding
such payment. It is understood that all matters with respect to the total amount
of taxes to be withheld in respect of any such compensation income shall be
determined by the Board of Directors in its sole discretion.
11. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the Option.
<PAGE>
12. Reorganization, Reclassification, Consolidation, Merger or
Sale. (a) In the event that, after the date hereof, the outstanding shares of
the Company's Common Stock shall be in creased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another corporation through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors of the Company shall appropriately adjust
the number of shares of Common Stock (and the option price per share) subject to
the unexercised portion of the Option (to the nearest possible full share), and
such adjustment shall be effective and binding for all purposes of this
Agreement and the Plan.
(b) If any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all its assets to
another corporation, shall be effected after the date hereof in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then you shall thereafter have
the right to receive upon the basis and upon the terms and conditions specified
in the Option and in lieu of the shares of Common Stock of the Company
immediately thereto fore receivable upon the exercise of the Option, such shares
of stock, securities or assets (including cash) as may be issued or payable with
respect to or in exchange for a number of outstand ing shares of such Common
Stock equal to the number of shares of such stock immediately theretofore so
receivable had such reorga nization, reclassification, consolidation, merger or
sale not taken place.
13. Plan Documents. This Agreement is qualified in its
entirety by reference to the provisions of the Plan, which are incorporated
herein by reference.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one or
more provisions of this Agreement shall be found to be illegal or unenforceable
in any respect, the validity and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing the
enclosed copy of this Agreement in the space provided below and returning it
promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
-------------------------
Name: David D. Stevens
Title: Chairman and CEO
Accepted and Agreed to
as of April 30, 1998:
- ----------------------------------
Director/Optionee
<PAGE>
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
-----------------------------------------------
OPTION EXERCISE FORM
I, , a Participant under the Nova Holdings, Inc. and its Subsidiaries
Stock Option and Restricted Stock Purchase Plan (the "Plan"), do hereby exercise
the right to purchase __________ shares of Common Stock, $.01 par value, of Nova
Holdings, Inc. pursuant to the Option granted to me on April 30, 1998.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $_______, an amount equal to
the total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of
Common Stock of the Company, together with stock powers
and other documentation requested by the Company, for a
number of shares of Common Stock which the undersigned
has owned for not less than six months having a fair
value as of the date hereof equal to the total exercise
price for the shares of Common Stock being purchased
pursuant to this Option Exercise Form.
Date:
----------------- ------------------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<PAGE>
Exhibit 10.55
NOVA HOLDINGS, INC.
-------------------
Incentive Stock Option Agreement
--------------------------------
July 10, 1998
Employee/Optionee: Thomas W. Bell, Jr.
Number of shares of
Common Stock subject
to this Agreement: 50,000
Pursuant to the Nova Holdings, Inc. and its Subsid iaries
Stock Option and Restricted Stock Purchase Plan (the "Plan"), the Board of
Directors of Nova Holdings, Inc. (the "Company") has granted to you on this
date an option (the "Op tion") to purchase the number of shares of the
Company's Common Stock, $.01 par value ("Common Stock"), set forth above.
Such shares (as the same may be adjusted as described in Section 12 below)
are herein referred to as the "Option Shares." The Option shall constitute
and be treated at all times by you and the Company for Federal income tax
purposes as an "incentive stock option" as defined under Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code") except to the
extent that Section 422(d) of the Code may be applicable; provided that
nothing herein shall be deemed to obligate you to adhere to any holding
periods set forth in Section 422(a)(1) of the Code. The terms and conditions
of the Option are set out below.
1. Date of Grant. The Option is granted to you on July 10,
1998.
2. Termination of Option. Your right to exercise the
Option (and to purchase the Option Shares) shall expire and terminate in all
events on the earlier of (i) ten years from date of grant or (ii) the date
provided in Section 10 below in the event you cease to be employed by the
Company or any subsidiary or parent thereof.
3. Option Price. The purchase price to be paid upon the
exercise of the Option is $6.00 per share (subject to adjust ment as provided
in Section 13 below).
<PAGE>
4. Tranche A Vesting Provisions. With respect to an
aggregate 35,000 Option Shares (the "Tranche A Option Shares"), except as
provided in Section 6 below, you will not be entitled to exercise the Option
(and purchase any such Option Shares) prior to May 31, 1999. Commencing on
May 31, 1999, and on each of the three succeeding anniversaries of that date
on which you shall continue to be employed on a full-time basis by the
Company or any subsidiary or parent thereof, you shall become entitled to
exercise the Option with respect to 25% of such Tranche A Option Shares (as
the same may be adjusted from time to time pursuant to Section 13 below, and
rounded to the nearest whole share) until the Option expires and terminates
pursuant to Section 2 hereof.
5. Tranche B Vesting. (a) With respect to an aggregate
15,000 of Option Shares (the "Tranche B Option Shares"), except as
hereinafter provided in this Section 5 and in Section 6 below, you will not
be entitled to exercise the Option (and purchase any Tranche B Option Shares)
prior to May 31, 2002. Commencing on May 31, 2002 and provided that you
shall continue to be employed on a full time basis by the Company or any
subsid iary or parent thereof, you shall be entitled to exercise the Option
with respect to 100% of such Tranche B Option Shares (as the same may be
adjusted from time to time pursuant to Section 13 below, and rounded to the
nearest whole share) until the Option expires and terminates pursuant to
Section 2 hereof.
(b) In the event that Actual EBT (as hereinafter defined)
for any full fiscal year beginning with the fiscal year ending June 30, 1999,
equals or exceeds the Target EBT (as hereinafter defined) for such fiscal
year, then, as of the August 1 next following the last day of such fiscal
year, you shall become entitled (subject to the calculation of Actual EBT for
such fiscal year by the Board of Directors of the Company as provided in
Section 5(d) below) to exercise the Option with respect to 25% of the Tranche
B Option Shares (rounded to the nearest whole share) until the Option expires
and terminates pursuant to Section 2 hereof.
(c) In the event that (i) Actual EBT for any of the full
fiscal years ending June 30, 1999 and 2000 (the "Shortfall Year") is less
than the Target EBT for such year, and (ii) the sum of (x) Actual EBT for the
Shortfall Year plus (y) Actual EBT for the immediately succeeding fiscal year
(the "Make-up Year") equals or exceeds the sum of the Target EBT for the
Shortfall Year and the Make-up Year combined, then, as of the September 1
next following the last day of the Make-up Year, you shall become entitled
(subject to the calculation of Actual EBT for the Makeup Year by the Board of
Directors of the Company as provided in Section 5(d) hereof) to exercise the
Option with respect to 25% of the Tranche B Option Shares (rounded to the
nearest whole
<PAGE>
share) until the Option expires and terminates pursuant to Section 2 hereof.
Your right to exercise the Option with respect to any Tranche B Option Shares
pursuant to this Section 5(c) shall be in addition to your right to exercise
the Option with respect to the Make-up Year as provided in Section 5(b) above.
(d) For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Actual EBT" means, with respect to any fiscal year, EBT (as
hereinafter defined) for such fiscal year as calcu lated by the Board
of Directors of the Company based on the audited consolidated financial
statements of the Company and its subsidiaries for such fiscal year,
which financial statements shall be conclusive and binding upon the
Company and you.
"EBT" means, with respect to any fiscal year (i) the net
income (determined in accordance with generally accepted accounting
principles applied consistently with the Company's audited financial
statements, but excluding the effect of any extraordinary or other
material non-recurring gain (but not loss) outside the ordinary course
of business) of the Company and its consolidated subsidiaries,
determined on a consolidated basis for such period ("Consolidated Net
Income") plus (ii) to the extent deducted in determining Consolidated
Net Income for such period, the amount of the provision for income
taxes for such period.
"Target EBT" means, (i) for the fiscal year ending June 30,
1999 - $13,300,000, (ii) for the fiscal year ending June 30, 2000 -
$16,600,000, and (iii) for the fiscal year ending June 30, 2001 - (as
determined by the Board of Directors)." Notwithstanding the "Target
EBT" amounts set forth above, if at any time or from time to time
after the date hereof the Company or any of its subsidiaries acquires
a business, substantially all of the assets of a business, or any
assets material to the business of the Company or any of its sub
sidiaries, the Board of Directors of the Company shall make such
adjustments to the Target EBT amounts, if any, as the Board of
Directors of the Company in its discretion deems equitable in light of
each such acquisition. Any such determination by the Board of
Directors shall be effective and binding for all purposes of this
Agreement and the Plan.
<PAGE>
(e) The satisfaction of any and all conditions set forth in
this Section 5 regarding your right to exercise the Option for Tranche B Option
Shares (and purchase any Tranche B Option Shares) shall be reasonably determined
in good faith by the Board of Directors of the Company.
(f) Notwithstanding anything contained herein to the contrary,
no new rights to exercise the Option with respect to any Tranche B Option Shares
shall be acquired under this Section 5 after the date on which you cease to be
employed on a full-time basis by the Company or any subsidiary or parent
thereof.
6. Accelerated Vesting for Change of Control. (a)
Concurrently with the occurrence of any "Change of Control" (as defined below)
in connection with which Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII")
shall achieve an "Internal Rate of Return" (as defined below) of 35% or more,
you shall become entitled to exercise the Option with respect to all the Option
Shares (with the effect that you shall be deemed to be entitled to exercise the
Option immediately prior to the consummation of such Change of Control with
respect to all Option Shares not theretofore purchased by you).
For purposes of the foregoing, the term "Change of Control"
means the acquisition of (a) beneficial ownership of more than 50% of the voting
equity securities of the Company or any successor to the Company (by merger or
otherwise) or (b) all or substantially all the assets of the Company, by any
person or entity (including, without limitation, any group within the meaning of
Section 13(d)(3) of the Securities Exchange Act, as amended) other than WCAS VII
and WCAS Healthcare Partners, L.P., or their respective affiliates.
For purposes of the foregoing, the term "Internal Rate of
Return" means, as of any date, an internal rate of return or discount factor
that nets to zero, calculated on a daily basis, a cash flow stream consisting of
"cash ins" and "cash outs." For this purpose, "cash ins" equal (i) the aggregate
purchase price of all equity securities (including, without limitation, pre
ferred stock whether or not convertible) of the Company purchased by WCAS VII.
For this purpose, "cash outs" equal the sum of (x) the aggregate amounts of
income and gain realized and capital recovered by WCAS VII in respect of its
investment in the Company as of such specified date, plus (y) the aggregate fair
market value of all equity securities of the Company held by WCAS VII at the
close of business on the date of a Change of Control. Such fair market value
shall be determined in good faith by the Board of Directors of the Company, in
the case of a transaction de scribed in clause (a) of the definition of Change
of Control,
<PAGE>
having due regard for the price per share reflected in the last transaction
or event giving rise to such Change of Control, unless such price was
established on other than an arm's-length basis, and in the case of a
transaction described in clause (b) of such definition, assuming liquidation
of the Company immedi ately after such acquisition of assets. Internal Rates
of Return shall be determined from the date the "cash in" is deemed to occur
to the date the "cash out" is deemed to occur. For this purpose, "cash ins"
shall be deemed to occur on the date that securities are purchased from the
Company or the holder thereof and the purchase price therefor paid in full,
and "cash outs" shall be deemed to occur on the date on which any income or
gain is realized or capital recovered or, if later, the date of a Change of
Control.
7. Additional Provisions Relating to Exercise. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as provided
in Sections 4, 5 and 6 hereof, such right will continue until the date on which
the Option expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Section 4, 5 or 6
hereof at which the Option may be exercised by you with respect to any Option
Shares.
8. Exercise of Option. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased
as a result of such exercise, together with payment of the full option price
for the Option Shares being purchased. Payment of the option price may be
made, at your election, (i) in cash or by check, (ii) by delivery to the
Company of a number of shares of Common Stock which shall have been owned by
you for not less than six months at the date of delivery having a fair value
as of the date of exercise, as determined in good faith by the Board of
Directors of the Company, equal to the option price, or (iii) by tendering
such other consideration as may be acceptable to the Board of Directors of
the Company.
9. Transferability of Option. The Option may not be
transferred by you (other than by will or the laws of descent and distribution)
and may be exercised during your lifetime only by you.
10. Termination of Employment. (a) In the event that (i) the
Company or any subsidiary or parent thereof terminates your employment by such
entity "for cause" or (ii) you terminate your employment by such entity for any
reason whatsoever (other
<PAGE>
than as a result of your death or "disability" (within the mean ing of Section
22(e)(3) of the Code), then the Option may only be exercised within three months
after such termination, and only to the same extent that you were entitled to
exercise the Option on the date your employment was so terminated and had not
previously done so.
(b) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent there of as a result of the
termination of your employment by the Company or any subsidiary or parent
thereof at any time other than "for cause" or as a result of your death or
"disability" (within the meaning of Section 22(e)(3) of the Code) the Option
may only be exercised within three months after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such termination
and had not previously done so.
(c) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent there of by reason of a
"disability" (within the meaning of Section 22(e)(3) of the Code), the Option
may only be exercised within one year after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such disabili ty
and had not previously done so.
(d) In the event that you die while employed by the Company or
any subsidiary or parent thereof (or (i) within a period of one month after
ceasing to be employed by the Company or any subsidiary or parent thereof for
any reason described in Section 10(a) above, (ii) within a period of ninety
(90) days after ceasing to be employed by the Company or any subsidiary or
parent thereof for any reason described in Section 10(b) above or (iii)
within a period of one year after ceasing to be employed by the Company for
any reason described in Section 10(c) hereof), the Option may only be
exercised within one year after your death. In such event, the Option may be
exercised during such one-year period by the executor or administrator of
your estate or by any person who shall have acquired the Option through
bequest or inheritance, but only to the same extent that you were entitled to
exercise the Option immediately prior to the time of your death and you had
not previously done so.
(e) Notwithstanding any provision contained in this Section 10 to
the contrary, in no event may the Option be exer cised to any extent by anyone
after the tenth anniversary of the date of grant.
11. Representations. (a) You represent and warrant
<PAGE>
to the Company that, upon exercise of the Option, you will be acquiring the
Option Shares for your own account for the purpose of investment and not with
a view to or for sale in connection with any distribution thereof, and you
understand that (i) nei ther the Option nor the Option Shares have been
registered with the Securities and Exchange Commission by reason of their
issu ance in a transaction exempt from the registration requirements and (ii)
the Option Shares must be held indefinitely by you unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration. The stock certificates for any Option Shares issued to you
will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you under stand
the Federal, state and local income tax consequences of the granting of the
Option to you, the acquisition of rights to exercise the Option with respect
to any Option Shares, the exer cise of the Option and purchase of Option
Shares, and the subse quent sale or other disposition of any Option Shares.
In addi tion, you understand that the Company will be required to with hold
Federal, state or local taxes in respect of any compensation income realized
by you as a result of any "disqualifying disposi tion" of any Option Shares
acquired upon exercise of the Option granted hereunder. To the extent that
the Company is required to withhold any such taxes as a result of any such
"disqualifying disposition", you hereby agree that the Company may deduct
from any payments of any kind otherwise due to you an amount equal to the
total Federal, state and local taxes required to be so withheld, or if such
payments are inadequate to satisfy such Federal, state and local taxes, or if
no such payments are due or to become due to you, then you agree to provide
the Company with cash funds or make other arrangements satisfactory to the
Company regarding such payment. It is understood that all matters with
respect to the total amount of taxes to be withheld in respect of any such
compensation income shall be determined by the Board of Directors in its sole
discretion.
12. Notice of Sale. You agree to give the Company prompt
notice of any sale or other disposition of any Option Shares that occurs (i)
within two years from the date of the granting of the Option to you, or (ii)
within one year after the transfer of such Option Shares to you upon the
exercise of the
<PAGE>
Option.
13. Reorganization, Reclassification, Consolidation, Merger
or Sale. (a) In the event that, after the date hereof, the outstanding shares
of the Company's Common Stock shall be in creased or decreased or changed
into or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another corporation through reorganization,
merger or consolidation, recapitalization, reclassification, stock split,
split-up, combination or exchange of shares or declaration of any dividends
payable in Common Stock, the Board of Directors of the Company shall
appropriately adjust the number of shares of Common Stock (and the option
price per share) subject to the unexercised portion of the Option (to the
nearest possible full share), and such adjustment shall be effective and
binding for all purposes of this Agreement and the Plan.
(b) If any capital reorganization or reclassification of
the capital stock of the Company or any consolidation or merger of the
Company with another corporation, or the sale of all or substantially all its
assets to another corporation, shall be effected after the date hereof in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then
you shall thereafter have the right to receive upon the basis and upon the
terms and conditions specified in the Option and in lieu of the shares of
Common Stock of the Company immediately thereto fore receivable upon the
exercise of the Option, such shares of stock, securities or assets (including
cash) as may be issued or payable with respect to or in exchange for a number
of outstand ing shares of such Common Stock equal to the number of shares of
such stock immediately theretofore so receivable had such reorga nization,
reclassification, consolidation, merger or sale not taken place.
14. Continuation of Employment. Neither the Plan nor the
Option shall confer upon you any right to continue in the employ of the
Company or any subsidiary or parent thereof, or limit in any respect the
right of the Company or any subsidiary or parent thereof to terminate your
employment or other relation ship with the Company or any subsidiary or
parent thereof, as the case may be, at any time.
15. Plan Documents. This Agreement is qualified in
its entirety by reference to the provisions of the Plan, which
are incorporated herein by reference.
16. Restrictive Covenant & Confidentiality Agreement. You
acknowledge and agree that as a condition to the grant of any options pursuant
to the Plan that you either be bound by or
<PAGE>
execute and become bound by a Restrictive Covenant and Confidentiality Agreement
with Nova Holdings, Inc.; receipt of a copy of which you hereby acknowledge.
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee. If any one
or more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby.
<PAGE>
Please acknowledge receipt of this Agreement by signing in the
space provided below and returning it promptly to the Secretary of the Company.
NOVA HOLDINGS, INC.
By
--------------------------------
Name: David D. Stevens
Title: Chief Executive Officer
Accepted and Agreed to
as of July 10, 1998:
- ----------------------------------
Employee/Optionee
<PAGE>
NOVA HOLDINGS, INC. AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
-----------------------------------------------
OPTION EXERCISE FORM
I, , a Participant under the Nova Hold ings, Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"), do
hereby exercise the right to purchase __________ shares of Common Stock, $.01
par value, of Nova Holdings, Inc. pursuant to the Option granted to me on July
10, 1998 under the Plan.
Enclosed herewith is (indicate one):
[ ] Cash or a check in the amount of $ , an amount equal to the
total exercise price for the shares of Common Stock being
purchased pursuant to this Option Exercise Form.
OR
[ ] A certificate of certificates representing shares of
Common Stock of the Company, together with stock powers
and other documentation requested by the Company, for a
number of shares of Common Stock which the undersigned
has owned for not less than six months having a fair
value as of the date hereof equal to the total exercise
price for the shares of Common Stock being purchased
pursuant to this Option Exercise Form.
Date:
----------------- -------------------------------
Signature
Send a completed copy of this Option Exercise Form to:
Nova Holdings, Inc.
1620 Century Center Parkway
Memphis, Tennessee 38134
Attention: Secretary
<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 reports dated (i) August 12, 1998, except for Note 12, as to which
the date is , 1998, with respect to the consolidated financial
statements and schedule of Accredo Health, Incorporated, (ii) August 30, 1996
with respect to the financial statements and schedule of Nova Factor, Inc. (iii)
July 30, 1998 with respect to the financial statements of Horizon Health
Systems, Inc. and (iv) August 21, 1998 with respect to the financial statements
and schedule of Texas Health Pharmaceutical Resources, in the Registration
Statement (Form S-1) and related Prospectus of Accredo Health, Incorporated for
the registration of shares of its common stock.
Ernst & Young LLP
Memphis, Tennessee
, 1998
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 12 to the consolidated
financial statements.
/s/ Ernst & Young LLP
Memphis, Tennessee
September 1, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCREDO
HEALTH, INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 5,087
<SECURITIES> 0
<RECEIVABLES> 40,062
<ALLOWANCES> 3,430
<INVENTORY> 12,131
<CURRENT-ASSETS> 57,878
<PP&E> 2,793
<DEPRECIATION> 665
<TOTAL-ASSETS> 118,990
<CURRENT-LIABILITIES> 34,502
<BONDS> 36,418
29,792
0
<COMMON> 56
<OTHER-SE> 17,615
<TOTAL-LIABILITY-AND-EQUITY> 118,990
<SALES> 170,002
<TOTAL-REVENUES> 180,958
<CGS> 154,046
<TOTAL-COSTS> 172,090
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,165
<INTEREST-EXPENSE> 3,552
<INCOME-PRETAX> 5,316
<INCOME-TAX> 2,495
<INCOME-CONTINUING> 2,821
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,821
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
