<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
___________________
April 12, 1996
(Date of Report; Date of Earliest Event Reported)
CHAMPION HEALTHCARE CORPORATION
(Exact Name of Registrant as specified in its Charter)
Delaware 0-11851 59-2283872
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
515 W. Greens Road, Suite 800, Houston, Texas 77067
(Address of Principal Executive Offices) (Zip Code)
(713) 583-5491
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
<PAGE> 2
Items 1-4. Not Applicable.
Item 5. Other Events.
On April 15, 1996, Champion Healthcare Corporation, a
Delaware corporation (the "Company"), and Paracelsus Healthcare
Corporation, a California corporation ("Paracelsus"), announced that they
had entered into an Agreement and Plan of Merger, dated as of April 12,
1996 (the "Merger Agreement").
The Merger Agreement provides for, among other things, the
merger (the "Merger") of PC Merger Sub, Inc., a newly organized Delaware
corporation and a wholly-owned subsidiary of Paracelsus ("Merger Sub"),
with and into the Company upon the terms and subject to the conditions
contained in the Merger Agreement. Pursuant to the Merger Agreement, prior
to the Merger each share of common stock of Paracelsus, no stated value per
share ("Paracelsus Common Stock"), will be split (the "Paracelsus Common
Stock Split") into 67,156.513 shares of Paracelsus Common Stock, subject to
adjustment for the cashless exercise on or before May 13, 1996 of certain
outstanding warrants to purchase shares of common stock of the Company, par
value $.01 per share (the "Shares"). In the Merger, each Share (other than
Shares owned by Paracelsus or the Company) will automatically be converted
into one share of Paracelsus Common Stock and each share of Series C and of
Series D preferred stock (together, the "Preferred Shares") of the Company,
par value $.01 per
<PAGE> 3
share (other than shares owned by Paracelsus or the Company or by holders
who perfect their appraisal rights under Delaware law), will automatically
be converted into two shares of Paracelsus Common Stock. After giving
effect to the Paracelsus Common Stock Split and the issuance of Paracelsus
Common Stock in the Merger, Dr. Manfred George Krukemeyer ("Dr.
Krukemeyer"), currently the chairman of the board and sole shareholder of
Paracelsus, and members of Paracelsus management will own approximately 60%
of the Paracelsus Common Stock, and holders of Shares, Preferred Shares and
warrants and options to purchase Shares as of the effective time of the
Merger will own approximately 40% of the Paracelsus Common Stock (on a
fully diluted basis).
The Merger Agreement also requires the Company and Paracelsus
to pay certain amounts to each other in the event of certain terminations
of the Merger Agreement upon the occurrence of certain specified events.
The Merger is subject to the approval of the stockholders of
Paracelsus and the Company, antitrust approval and other customary closing
conditions.
In addition, the consummation of the Merger is conditioned
upon, among other things, Dr. Krukemeyer entering into a shareholder
agreement (the "Shareholder Agreement") with Paracelsus substantially in
the form attached as Exhibit A to the Merger Agreement, to be effective as
of the effective time of the Merger. The
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Shareholder Agreement will, among other things, set forth (i) restrictions
on certain acquisitions and dispositions of Paracelsus voting securities,
(ii) certain rights and obligations relating to board representation and
(iii) certain rights of first refusal for Dr. Krukemeyer. The Shareholder
Agreement will also impose certain other customary standstill restrictions.
On April 12, 1996, the Company and certain holders of its
securities (the "Participants") entered into an agreement in contemplation
of merger (the "Participants Agreement").
In the Participants Agreement, certain Participants who are
holders of the Company's Series C preferred stock (the "Series C Shares")
or are holders of the Company's Series D preferred stock (the "Series D
Shares") have, among other things, agreed with the Company to vote their
respective Series C Shares and Series D Shares in favor of the Merger.
Such Participants beneficially own approximately 389,519 Series C Shares
and 1,763,303 Series D Shares and together represented, as of the date of
the Participant Agreement, approximately 25 percent of the total
outstanding voting power of the Company entitled to vote on the Merger.
Also in the Participants Agreement, certain Participants who
are holders of the Company's 11% Senior Subordinated Series D Notes (the
"Series D Notes") or are
<PAGE> 5
holders of the Company's 11% Senior Subordinated Series E Notes (the
"Series E Notes") have, among other things, agreed with the Company to
amend certain terms of the Series D Note and Stock Purchase Agreement dated
December 31, 1993, as amended (the "Series D Agreement"), and the Series E
Note Purchase Agreement, dated May 1, 1995 (the "Series E Agreement"). The
terms of the Series D Notes and the Series E Notes are set forth in the
Series D Agreement and the Series E Agreement, respectively, attached as
Exhibits 4.3(a) and 4.3(b) hereto, respectively, and incorporated herein by
reference.
Such Participants who are holders of Series D Notes have, among
other things, agreed (i) to waive any rights to cause the Company to
purchase from such holders the Series D Notes in the event of a change of
control of the Company as described in the Series D Agreement and (ii) to
surrender their Series D Notes for prepayment at a premium depending upon
the year of such prepayment. Such Participants who are holders of Series E
Notes have, among other things, agreed (i) to waive any rights to cause the
Company to purchase from such holders the Series E Notes in the event of a
change of control of the Company as described in the Series E Agreement and
(ii) to surrender their Series E Notes for prepayment at a premium
depending upon the year of such prepayment and upon whether warrants to
purchase Shares are surrendered in connection with such prepayment.
<PAGE> 6
Such Participants hold approximately 95% of the outstanding
principal amount of the Series D Notes and 100% of the outstanding
principal amount of the Series E Notes.
The Company and Paracelsus issued a joint press release (the
"Joint Press Release") dated April 15, 1996, describing, among other things,
certain terms of the Merger, the Merger Agreement and the Shareholder
Agreement.
The foregoing description is qualified in its entirety by
reference to the Merger Agreement and the Shareholder Agreement (attached
as Exhibit A to the Merger Agreement), attached hereto as Exhibit 2.1 and
incorporated by reference herein, the Participants Agreement, attached
hereto as Exhibit 10.1 and incorporated by reference herein, the Series D
Agreement, attached hereto as Exhibit 4.3(a) and incorporated by reference
herein, the Series E Agreement, attached hereto as Exhibit 4.3(b) and
incorporated by reference herein and the Joint Press Release, attached
hereto as Exhibit 99.1 and incorporated by reference herein.
Item 6. Not Applicable.
Item 7. Financial Statements
Pro Forma Financial Information and Exhibits.
(a)-(b) Not Applicable.
<PAGE> 7
(c) Exhibits Required by Item 601 of Regulation S-K
2.1. Agreement and Plan of Merger, dated as of April 12, 1996,
among Champion Healthcare Corporation, Paracelsus Healthcare
Corporation and PC Merger Sub, Inc., including the form of
Shareholder Agreement attached as Exhibit A thereto.
4.3(a). Series D Note and Stock Purchase Agreement dated December
31, 1993, as amended, among the Company and the parties
listed therein.
4.3(b). Series E Note Purchase Agreement, dated May 1, 1995, among
the Company and the parties listed therein.
10.1. Agreement in Contemplation of Merger, dated as of April 12,
1996 among the Company and the parties listed therein.
99.1. Joint Press Release of Champion Healthcare Corporation and
Paracelsus Healthcare Corporation, dated April 15, 1996.
Item 8. Not Applicable.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: April 19, 1996
CHAMPION HEALTHCARE CORPORATION
By /s/ James G. VanDevender
James G. VanDevender
Executive Vice President and
Chief Financial Officer
<PAGE> 9
EXHIBIT INDEX
Exhibit No. Description
2.1. Agreement and Plan of Merger, dated as of April 12, 1996,
among Champion Healthcare Corporation, Paracelsus
Healthcare Corporation and PC Merger Sub, Inc., including
the form of Shareholder Agreement attached as Exhibit A
thereto.
4.3(a).* Series D Note and Stock Purchase Agreement dated December
31, 1993, as amended, among the Company and the parties
listed therein.
4.3(b).** Series E Note Purchase Agreement, dated May 1, 1995,
among the Company and the parties listed therein.
10.1. Agreement in Contemplation of Merger, dated as of April
12, 1996, among the Company and the parties listed
therein.
99.1. Joint Press Release of Champion Healthcare Corporation
and Paracelsus Healthcare Corporation, dated April 15,
1996.
* Filed with the Commission as Exhibit 10.5 on the Company's Form 8-K
dated December 6, 1994; such Exhibit is incorporated herein by
reference.
** Filed with the Commission as Exhibit 4.01(d) on the Company's Form
10-K for the year ended December 31, 1995; such Exhibit is
incorporated herein by reference.
<PAGE> 1
AGREEMENT AND PLAN
OF
MERGER
dated as of April 12, 1996
by and among
PARACELSUS HEALTHCARE CORPORATION,
CHAMPION HEALTHCARE CORPORATION
and
PC MERGER SUB, INC.
TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . 1
ARTICLE II
THE MERGER . . . . . . . . . . . . . 8
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.2 Effective Time . . . . . . . . . . . . . . . . . . . . 8
Section 2.3 Effects of the Merger . . . . . . . . . . . . . . . . 9
Section 2.4 Certificate of Incorporation and Bylaws . . . . . . . 9
Section 2.5 Company Directors and Officers . . . . . . . . . . . . 9
Section 2.6 Parent and Stock Split; Conversion of Company
Stock in Merger . . . . . . . . . . . . . . . . . . . 9
Section 2.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . 10
Section 2.8 Exchange of Shares . . . . . . . . . . . . . . . . . . . 11
Section 2.9 Time and Place of Closing . . . . . . . . . . . . . . . 13
Section 2.10 Deliveries at the Closing . . . . . . . . . . . . . . . 14
ARTICLE III
CORPORATE GOVERNANCE MATTERS
RELATING TO PARENT AND THE COMPANY
AT OR AFTER THE EFFECTIVE TIME . . . . . . . . . 14
Section 3.1 Charter Documents . . . . . . . . . . . . . . . . . . . 14
Section 3.2 Directors and Officers of Parent Following
the Effective Time . . . . . . . . . . . . . . . . . . . 14
Section 3.3 Rights Plan . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.4 Parent Shareholder Arrangements . . . . . . . . . . . . 15
<PAGE> 2
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY . . . . . . . . . . . . . 16
Section 4.1 Organization and Qualification . . . . . . . . . . . . . 16
Section 4.2 Capitalization . . . . . . . . . . . . . . . . . . . . . 16
Section 4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.4 Consents and Approvals; No Violation . . . . . . . . . . 18
Section 4.5 SEC Reports and Financial Statements . . . . . . . . . . 19
Section 4.6 Absence of Certain Changes or Events . . . . . . . . . . 20
Section 4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.8 Information Supplied . . . . . . . . . . . . . . . . . . 21
Section 4.9 Employee Benefit Plans; ERISA . . . . . . . . . . . . . 21
Section 4.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 4.12 Affiliate Agreements . . . . . . . . . . . . . . . . . . 25
Section 4.13 Opinion of Financial Advisor . . . . . . . . . . . . . . 26
Section 4.14 Brokers and Finders . . . . . . . . . . . . . . . . . . 26
Section 4.15 Vote Required . . . . . . . . . . . . . . . . . . . . . 26
Section 4.16 Medicare and Medicaid . . . . . . . . . . . . . . . . . 26
Section 4.17 Medicare Participation/Accreditation . . . . . . . . . . 27
Section 4.18 Medical Staff Matters . . . . . . . . . . . . . . . . . 27
Section 4.19 Takeover Statutes . . . . . . . . . . . . . . . . . . . 28
Section 4.20 Compliance with Laws . . . . . . . . . . . . . . . . . . 28
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT . . . . . . 28
Section 5.1 Organization and Qualification . . . . . . . . . . . . . 28
Section 5.2 Capitalization . . . . . . . . . . . . . . . . . . . . . 29
Section 5.3 Authority . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.4 Consents and Approvals; No Violation . . . . . . . . . . 30
Section 5.5 SEC Reports and Financial Statements . . . . . . . . . . 31
Section 5.6 Absence of Certain Changes or Events . . . . . . . . . . 32
Section 5.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . 32
Section 5.8 Information Supplied . . . . . . . . . . . . . . . . . . 32
Section 5.9 Employee Benefit Plans; ERISA . . . . . . . . . . . . . 33
Section 5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 36
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Section 5.11 Affiliate Agreements . . . . . . . . . . . . . . . . . . 36
Section 5.12 Brokers and Finders . . . . . . . . . . . . . . . . . . 36
Section 5.13 Vote Required . . . . . . . . . . . . . . . . . . . . . 37
Section 5.14 Medicare and Medicaid . . . . . . . . . . . . . . . . . 37
Section 5.15 Medicare Participation/Accreditation . . . . . . . . . . 37
Section 5.16 Medical Staff Matters . . . . . . . . . . . . . . . . . 38
Section 5.17 Takeover Statutes . . . . . . . . . . . . . . . . . . . 38
Section 5.18 Compliance with Laws . . . . . . . . . . . . . . . . . . 39
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS . . . . . . 39
Section 6.1 Conduct of Business of the Company Pending
the Effective Time . . . . . . . . . . . . . . . . . . . 39
Section 6.2 Conduct of Business of Parent Pending the
Effective Time . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS . . . . . . . . 43
Section 7.1 Company Takeover Proposals . . . . . . . . . . . . . . . 43
Section 7.2 Parent Takeover Proposals . . . . . . . . . . . . . . . 44
Section 7.3 Access to Information . . . . . . . . . . . . . . . . . 45
Section 7.4 Form S-4 and Proxy Statement . . . . . . . . . . . . . . 45
Section 7.5 Stockholder Approval; Recommendation . . . . . . . . . . 46
Section 7.6 Affiliates . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.7 Agreement to Cooperate; Further Assurances . . . . . . . 47
Section 7.8 Company Options, Rights and Warrants . . . . . . . . . . 48
Section 7.9 Parent Rights . . . . . . . . . . . . . . . . . . . . . 49
Section 7.10 Public Statements . . . . . . . . . . . . . . . . . . . 49
Section 7.11 Letter of Company's Accountants . . . . . . . . . . . . 50
Section 7.12 Letter of Parent's Accountants . . . . . . . . . . . . . 50
Section 7.13 Directors and Officers' Indemnification . . . . . . . . 50
Section 7.14 Stock Exchange Listing . . . . . . . . . . . . . . . . . 52
Section 7.15 Execution of the Other Agreements . . . . . . . . . . . 53
Section 7.16 Tax Treatment . . . . . . . . . . . . . . . . . . . . . 53
Section 7.17 Other Actions by the Company and/or Parent . . . . . . . 53
<PAGE> 4
ARTICLE VIII
CONDITIONS . . . . . . . . . . . . . . 54
Section 8.1 Conditions to Each Party's Obligation to
Effect the Merger . . . . . . . . . . . . . . . . . . . 54
Section 8.2 Conditions to Obligation of the Company to
Effect the Merger . . . . . . . . . . . . . . . . . . . 55
Section 8.3 Conditions to Obligations of Parent to Effect
the Merger . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER . . . . . . . . 57
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . 58
Section 9.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . 58
Section 9.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.5 Procedure for Certain Terminations . . . . . . . . . . . 59
Section 9.6 Fees and Expenses . . . . . . . . . . . . . . . . . . . 59
ARTICLE X
GENERAL PROVISIONS . . . . . . . . . . . . 62
Section 10.1 Non-Survival of Representations, Warranties
and Agreements . . . . . . . . . . . . . . . . . . . . . 62
Section 10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.3 Interpretation . . . . . . . . . . . . . . . . . . . . . 63
Section 10.4 Miscellaneous . . . . . . . . . . . . . . . . . . . . . 64
Section 10.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.6 Parties in Interest . . . . . . . . . . . . . . . . . . 64
Section 10.7 Severability . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.8 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . 64
<PAGE> 5
Schedules
Schedule 1.5 Terms of Company Investor Group
Registration Rights Agreement
Schedule 1.11 Terms of Employment Agreements
Schedule 1.20 Independent Director Designees
Schedule 1.26 Terms of Parent Shareholder Services Agreement
Schedule 1.28 Terms of Parent Shareholder
Registration Rights Agreement
Schedule 1.43 Terms of Voting Agreement
Schedule 2.4 Amendment to the Restated Certificate of Incorporation of
the Company
Exhibits
Exhibit A Form of Shareholder Agreement
Exhibit B Form of Parent Shareholder
Non-Compete Agreement
Exhibit C Form of Dividend and Note Agreement
Exhibit D Form of Restated Articles of Incorporation of Parent
Exhibit E Form of Bylaws of Parent
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of April 12, 1996 (the
"Agreement"), by and among PARACELSUS HEALTHCARE CORPORATION, a California
corporation ("Parent"), CHAMPION HEALTHCARE CORPORATION, a Delaware corpo-
ration (the "Company"), and PC MERGER SUB, INC., a Delaware corporation and
a wholly owned subsidiary of Parent ("Merger Sub").
WHEREAS, the board of directors of each of Parent, Merger Sub
and the Company deem it advisable and in the best interests of their
respective stockholders that Merger Sub be merged with and into the Company
(the "Merger") in accordance with the General Corporation Law of the State
of Delaware (the "DGCL") upon the terms and subject to the conditions of
this Agreement; and
WHEREAS, for Federal income tax purposes it is intended that
the Merger qualify as a reorganization within the meaning of section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder.
NOW, THEREFORE, in consideration of the foregoing, the mutual
representations, warranties, covenants and agreements set forth herein and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have
the following meanings:
Section 1.1 "Affiliate" shall mean, as to any person, any
other person that directly or indirectly controls, or is under common
control with or is controlled by such person. For the purpose of this
definition, "control," when used with respect to any specified person,
means the power to direct or cause the direction of the management and
policies of such person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and
<PAGE> 2
the terms "controlling" and "controlled" shall have meanings correlative to
the foregoing.
Section 1.2 "Agreement in Contemplation of Merger" shall mean
the Champion Healthcare Corporation Agreement in Contemplation of Merger,
dated as of April 12, 1996, by and among the Company and the parties named
therein.
Section 1.3 "BA Partners" shall mean BA Partners, financial
advisors to Parent.
Section 1.4 "Company Common Stock" shall mean the common
stock, par value $.01 per share, of the Company.
Section 1.5 "Company Investment Group Registration Rights
Agreement" shall mean the Registration Rights Agreement to be entered into
by Parent and certain stockholders of the Company at or prior to the
Closing on substantially the terms set forth in Schedule 1.5 attached
hereto.
Section 1.6 "Company Preferred Stock" shall mean,
collectively, the Series C Preferred Stock and the Series D Preferred
Stock.
Section 1.7 "Company Stock" shall mean, collectively, the
Company Common Stock and the Company Preferred Stock.
Section 1.8 "Confidentiality Agreement" shall mean,
collectively, the Confidentiality Agreements, each dated November 10, 1995,
by and among Parent and the Company.
Section 1.9 "Coopers & Lybrand" shall mean Coopers & Lybrand,
L.L.P., the Company's independent auditors.
Section 1.9A "Dividend and Note Agreement" shall mean the
Dividend and Note Agreement to be entered into between Parent and the
Parent Shareholder at or prior to the Closing, in the form attached as
Exhibit C hereto.
Section 1.10 "DLJ" shall mean Donaldson, Lufkin & Jenrette
Securities Corporation, financial advisor to the Company.
<PAGE> 3
Section 1.12 "Employment Agreements" shall mean the employment
agreements to be entered into prior to the time the Form S-4 becomes effective
under the Securities Act between Parent and each of Mr. R.J. Messenger,
Mr. Charles R. Miller, Mr. James G. VanDevender, Mr. Ronald R. Patterson and
Mr. Robert C. Joyner, in each case substantially on the terms set forth in
Schedule 1.11 attached hereto.
Section 1.12 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
Section 1.13 "ERISA Affiliate," with respect to any party,
shall mean any trade or business, whether or not incorporated, that
together with such party would be deemed a "single employer" within the
meaning of Section 4001(b)(1) of ERISA.
Section 1.14 "Ernst & Young" shall mean Ernst & Young LLP,
Parent's independent auditors.
Section 1.15 "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
Section 1.16 "Form S-4" shall mean the Registration Statement
on Form S-4 of Parent to be filed with the SEC under the Securities Act in
connection with the Merger for the purpose of registering the shares of
Parent Common Stock to be issued in the Merger.
Section 1.17 "GAAP" shall mean generally accepted accounting
principles as in effect from time to time in the United States of America.
Section 1.18 "Governmental Entity" shall mean any court,
administrative agency, commission or other governmental authority or
instrumentality, domestic or foreign.
Section 1.19 "HSR Act" shall mean the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Section 1.20 "Independent Designees" shall mean the persons
either identified on Schedule 1.20 hereto or designated in accordance with
the terms thereof to become directors of Parent no later than immediately
after the Effective Time.
<PAGE> 4
Section 1.21 "Material Adverse Effect," with respect to any
party, shall mean a material adverse effect (or any development which in
the future is reasonably likely to have a material adverse effect) on the
business, assets, financial or other condition or results of operations of
such party and its Subsidiaries, taken as a whole; provided, however, that
any such effect resulting from any change (i) in law, rule or regulation or
GAAP or interpretations thereof that applies to both Parent and the Company
or (ii) in economic or business conditions generally or in the health care
industry specifically that similarly affects both Parent and the Company
shall not be considered when determining if a Material Adverse Effect has
occurred.
Section 1.22 "Non-Compete Agreement" shall mean the non-
compete agreement to be entered into between Parent and the Parent
Shareholder at or prior to Closing in the form attached as Exhibit B
hereto.
Section 1.23 "Officers" shall mean the senior executive
officers of Parent at the Effective Time.
Section 1.24 "Parent Bylaws" shall mean the Bylaws to be
adopted by Parent at or prior to the Closing in the form attached as
Exhibit D hereto.
Section 1.25 "Parent Common Stock" shall mean the Common
Stock, no stated value per share, of Parent.
Section 1.26 "Parent Shareholder Services Agreement" shall
mean the Services Agreement to be entered into between Parent and the
Parent Shareholder at or prior to the Closing, substantially on the terms
set forth in Schedule 1.26 attached hereto.
Section 1.27 "Parent Shareholder" shall mean Dr. Manfred
George Krukemeyer.
Section 1.28 "Parent Shareholder Registration Rights
Agreement" shall mean the Registration Rights Agreement to be entered into
by Parent and the Parent Shareholder at or prior to the Closing
substantially on the terms set forth in Schedule 1.28 attached hereto.
Section 1.29 "PBGC" shall mean the Pension Benefit Guaranty
Corporation.
<PAGE> 5
Section 1.30 "Proxy Statement" shall mean the proxy statement/
prospectus included as part of the Form S-4 and filed by the Company pursuant
to Section 14(a) of the Exchange Act to be distributed to holders of shares of
Company Stock in connection with the meeting of such holders to be held in
connection with the transactions contemplated by this Agreement.
Section 1.31 "Registration Rights Agreements" shall mean,
collectively, the Parent Shareholder Registration Rights Agreement and the
Company Investment Group Registration Rights Agreement.
Section 1.32 "Restated Articles of Incorporation" shall mean
the amended and restated articles of incorporation to be adopted by Parent
at or prior to the Closing in the form attached as Exhibit C hereto.
Section 1.33 "Rights Plan" shall mean a rights plan to be
adopted and implemented by Parent as promptly as practicable following the
Closing meeting the requirements of Section 3.3 hereof.
Section 1.34 "SEC" shall mean the Securities and Exchange
Commission.
Section 1.35 "Securities Act" shall mean the Securities Act of
1933, as amended.
Section 1.36 "Series C Preferred Stock" shall mean the Series
C Preferred Stock, par value $.01 per share, of the Company.
Section 1.37 "Series D Preferred Stock" shall mean the Series
D Preferred Stock, par value $.01 per share, of the Company.
Section 1.38 "Shareholder Agreement" shall mean the
Shareholder Agreement to be entered into between Parent and the Parent
Shareholder at or prior to the Closing, in the form attached as Exhibit A
hereto.
Section 1.39 "Significant Subsidiary" shall have the meaning
set forth in Rule 1-02 of Regulation S-X of the SEC.
Section 1.40 "Subsidiary" shall have the meaning set forth in
Rule 1-02 of Regulation S-X of the SEC.
<PAGE> 6
Section 1.41 "Takeover Proposal" with respect to a person means
(i) any bona fide offer or proposal with respect to a merger, reorganization,
consolidation or other similar business combination or any transaction
involving the purchase of all or any significant portion of the assets, or 30%
or more of such person's equity securities (on a fully diluted basis), by
tender offer or otherwise (collectively, an "Acquisition"), of such person or
any of its Subsidiaries; (ii) any direct or indirect Acquisition by such person
involving either the issuance by such person or acquisition by such person
of 30% or more of the outstanding equity securities (on a fully diluted
basis) of it or another entity, or the acquisition of another entity or a
business for consideration in an amount valued at 30% or more of such
person's aggregate equity market capitalization (provided that this clause
(ii) shall not apply to hospital acquisitions made by such person so long
as such hospital acquisitions are not part of a series of transactions that
would otherwise be a Takeover Proposal), or (iii) any issuance of equity
securities of such person through which another person becomes the
beneficial owner (other than through underwriting arrangements) of 30% or
more of the outstanding equity securities (on a fully diluted basis), in
each case other than the transactions contemplated by this Agreement.
Section 1.42 "Third Party" shall mean any person or group that
is deemed to be a "person" within the meaning of Section 13(d) of the
Exchange Act, provided, that with respect to any person, "Third Party"
shall not include such person's Affiliates or Associates.
Section 1.43 "Voting Agreement" shall mean the Voting Agree-
ment among the Parent Shareholder, Mr. Charles R. Miller and Mr. James G.
VanDevender to be entered into at or prior to the Closing substantially on
the terms set forth in Schedule 1.43 attached hereto.
OTHER DEFINED TERMS
TERM SECTION
Acquisition 1.41
Agreement Recitals
AmeriHealth 4.2(a)
AMEX 7.14
Certificate 2.7(b)
Certificate of Merger 2.2
Cancelled Warrants 2.6(a)
<PAGE> 7
Company Recitals
Company Acquiring Party 9.6(c)
Company ERISA Plans 4.9(a)
Company Expenses 9.6(b)
Company Hospitals 4.17
Company Option Plans 4.2(a)
Company Options and Rights 7.8(b)
Company Options, Warrants or Rights 7.8(b)
Company Requisite Vote 4.15
Company SEC Reports 4.5
Company Warrants 4.2(a)
Code Recitals
Cost Reports 4.16
Costs 7.13(a)
Closing 2.9
DGCL Recitals
Dissenting Shares 2.7
Effective Time 2.2
Exchange Agent 2.8(a)
Exchange Ratio 2.6(b)
Expenses 9.6(c)
Government Antitrust Entity 7.7(b)
Indemnified Parties 7.13(a)
Independent Designees 2.5(a)
maximum amount 9.6(d)
Merger Recitals
New Parent Board 3.2(a)
NYSE 7.14
Parent Recitals
Parent Acquiring Party 9.6(c)
Parent ERISA Plans 5.9(a)
Parent Expenses 9.6(c)
Parent Hospitals 5.15
Parent Options, Warrants or Rights 7.8(b)
Parent Plans 5.9(a)
Parent PSAR Plan 7.9(b)
Parent Requisite Vote 5.13
Parent SEC Reports 5.5
Parent Stock Split 2.6(a)
payee 9.6(d)
<PAGE> 8
payor 9.6(d)
PPSUs 7.9(b)
PSARs 7.9(b)
Representative 7.1(a)
Series D Stockholder Agreement 4.2(b)
Series D and Series E Warrants 2.6(a)
SPD 4.9(b)
Split Ratio 2.6(a)
Surviving Subsidiary 2.1
Taxes 4.11(c)
Tax Returns 4.11(c)
Termination Date 9.1(b)
Termination Fee 9.6(b)
ARTICLE II
THE MERGER
Section 2.1 The Merger.
Upon the terms and subject to the satisfaction or waiver of the
conditions set forth in Article VIII and in accordance with the DGCL, at
the Effective Time, Merger Sub shall be merged with and into the Company.
As a result of the Merger, the separate corporate existence of Merger Sub
shall cease and the Company shall continue as the surviving corporation of
the Merger (the "Surviving Subsidiary") and shall become a wholly owned
subsidiary of Parent. From and after the Effective Time, the identity and
separate existence of Merger Sub shall cease, and the Company shall suc-
ceed, without other transfer, to all the rights, properties, debts and lia-
bilities of Merger Sub.
Section 2.2 Effective Time. At the time of the Closing, upon
the terms and subject to the satisfaction or waiver of the conditions set
forth in Article VIII, the parties shall cause the Merger to be consummated
by filing a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, in such form as required by,
and executed in accordance with the relevant provisions of, the DGCL (such
time and date are referred to herein as the "Effective Time").
<PAGE> 9
Section 2.3 Effects of the Merger. The Merger shall have the
effects set forth in the DGCL.
Section 2.4 Certificate of Incorporation and Bylaws. The
Certificate of Incorporation of the Surviving Subsidiary shall be the
Restated Certificate of Incorporation of the Company as in effect
immediately prior to the Effective Time, except that Article IV thereof
shall be amended to read in its entirety as set forth in Schedule 2.4
hereto. The bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Subsidiary, except that
the name of the corporation specified therein shall be "Champion Healthcare
Corporation."
Section 2.5 Company Directors and Officers. The directors and
officers of Merger Sub at the Effective Time shall be the directors and
officers, respectively, of the Surviving Subsidiary until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Section 2.6 Parent Stock Split; Conversion of Company Stock in
Merger.
(a) Subject to further adjustment as set forth below,
prior to the Effective Time Parent shall take all action necessary so that
each issued and outstanding share of Parent Common Stock shall be split
into and, without any action on the part of the holder thereof, shall
become and thereafter represent 67,156.513 shares (the "Split Ratio") of
Parent Common Stock (the "Parent Stock Split"). Not later than May 17,
1996, the Company shall notify Parent of the number of the Company's Series
D Warrants to purchase Company Common Stock and Series E Warrants to
purchase Company Common Stock (collectively, the "Series D and Series E
Warrants") that have been surrendered to the Company as payment for the
exercise price upon exercise of Series D and Series E Warrants since the
date hereof and on or prior to May 13, 1996 (the "Cancelled Warrants").
The final Split Ratio shall then be determined pursuant to the following
formula:
(21,207,320 - 0.9643n) (0.57)
Split Ratio = _____________________________
(450) (0.40)
Where n = the number of Cancelled Warrants.
<PAGE> 10
(b) At the Effective Time, following the adjustments to the
Parent Common Stock contemplated by Section 2.6(a), by virtue of the Merger
and without any action on the part of any holder of any capital stock of the
Company, Parent or Merger Sub (i) each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than any such
shares owned by Parent or any of its Subsidiaries, held in the Company's
treasury or owned by any Subsidiary of the Company) shall automatically be
converted into one share of Parent Common Stock (the "Exchange Ratio");
(ii) each share of Company Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any such shares owned
by Parent or any of its Subsidiaries, held in the Company's treasury or
owned by any Subsidiary of the Company, and other than Dissenting Shares)
shall automatically be converted into two shares of Parent Common Stock;
(iii) each share of Company Stock issued and outstanding immediately prior
to the Effective Time and owned by Parent or any of its Subsidiaries, held
in the Company's treasury or owned by any Subsidiary of the Company shall
be cancelled and cease to exist at and after the Effective Time by virtue
of the Merger and without any action on the part of the holder thereof and
no consideration shall be payable with respect thereto; and (iv) each share
of common stock, par value $.01 per share, of Merger Sub shall be converted
into and become one share of common stock, par value $.01 per share, of the
Surviving Subsidiary.
Section 2.7 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, shares of Company Preferred Stock which are
issued and outstanding immediately prior to the Effective Time and which
are held by a stockholder who has not voted such shares of Company
Preferred Stock in favor of the Merger and who is entitled by the DGCL to
appraisal rights, and who shall have properly demanded in writing appraisal
for such shares of Company Preferred Stock in accordance with Section 262
of the DGCL (collectively, the "Dissenting Shares"), shall not be converted
into or represent the right to receive shares of Parent Common Stock as set
forth in Section 2.6, unless and until such holder shall have failed to
perfect or shall have effectively withdrawn or lost his rights to appraisal
and payment under the DGCL. If any such holder shall have so failed to
perfect or shall have effectively withdrawn or lost such right, such
holder's shares of Company Preferred Stock shall thereupon be deemed to
have been converted into and to have become exchangeable for, at the Effec-
tive Time, shares of Parent Common Stock as set forth in Section 2.6(b).
Prior to the Effective Time, the Company shall not, except with the prior
written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands. Any payments relating to Dissenting
Shares shall be made solely by
<PAGE> 11
the Surviving Subsidiary and no funds or other property have been or will
be provided by the Company or any of its other direct or indirect Subsid-
iaries for such payment.
Section 2.8 Exchange of Shares.
(a) As of the Effective Time, Parent shall deposit with
a bank or trust company designated by Parent and the Company (the "Exchange
Agent"), for the benefit of holders of shares of Company Stock, for
exchange in accordance with this Article II, through the Exchange Agent,
certificates representing shares of Parent Common Stock issuable pursuant
to Section 2.6(b) in exchange for outstanding shares of Company Stock.
(b) As soon as reasonably practicable after the
Effective Time, the Surviving Subsidiary shall cause the Exchange Agent to
mail to each person who was, immediately prior to the Effective Time, a
holder of record of shares of Company Stock whose shares of Company Stock
were converted into shares of Parent Common Stock, (i) a letter of trans-
mittal (which shall specify that delivery shall be effected, and risk of
loss and title to a certificate which, immediately prior to the Effective
Time, represented any shares of the Company Stock (a "Certificate") shall
pass, only upon proper delivery of the Certificate to the Exchange Agent
and shall be in such form and have such other provisions consistent with
the terms of this Agreement as Parent and the Company may reasonably speci-
fy) and (ii) instructions for use in effecting the surrender of the
Certificate in exchange for certificates representing shares of Parent
Common Stock. Upon surrender to the Exchange Agent of a Certificate,
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and any other documents as may be
required pursuant to such instructions, including in the case of the
persons specified in Section 7.6 the agreements required to be delivered by
such persons thereunder, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing that number of
shares of Parent Common Stock that such holder has the right to receive
under Section 2.6(b), together with a check in the amount (after giving
effect to any required tax withholdings) of any cash dividends or other
dividends or distributions that such holder has the right to receive as
provided in the last sentence of Section 2.8(c), and the Certificate so
surrendered shall be cancelled. In the event of a transfer of ownership of
shares of Company Stock which is not registered in the transfer records of
the Company, a certificate representing the proper number of shares of
Parent Common Stock, and any related payment with respect to dividends or
distributions contemplated by the
<PAGE> 12
immediately preceding sentence, may be issued to a transferee if the
Certificate representing such shares of Company Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered in accordance with the provisions
of this Section 2.8, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the certificate representing shares of Parent Common Stock and any related
payment with respect to dividends or distributions as contemplated above.
(c) Subject to the effect of applicable laws, all shares
of Parent Common Stock to be issued pursuant to the Merger shall be deemed
issued and outstanding as of the Effective Time for purposes of determining
holders of record of shares of Parent Common Stock entitled to receive any
dividend or other distribution declared by Parent with a record date after
the Effective Time. No dividends or other distributions declared with
respect to shares of Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby until
the holder of such Certificate shall surrender such Certificate in
accordance with this Article II. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, (i) at the time
of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time and theretofore paid with respect to
such shares of Parent Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subse-
quent to surrender payable with respect to such shares of Parent Common
Stock.
(d) All shares of Parent Common Stock issued upon the
surrender for exchange of shares of Company Stock in accordance with the
terms hereof (including any dividends paid pursuant to Section 2.8(c))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Stock, subject, however, to the Sur-
viving Subsidiary's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which may have
been declared or made by the Company on such shares of Company Stock in
accordance with the terms of this Agreement or prior to the date hereof and
which remain unpaid at the Effective Time, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
<PAGE> 13
Subsidiary of shares of Company Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates
are presented to the Surviving Subsidiary for any reason, they shall be
cancelled and exchanged as provided in this Article II.
(e) Termination of Exchange Fund. Any certificates
representing shares of Parent Common Stock that Parent has deposited with
the Exchange Agent pursuant to Section 2.8(a) that remains unclaimed by the
stockholders of the Company for 180 days after the Effective Time shall be
delivered to Parent. Any holders of Certificates who have not theretofore
complied with this Article II shall thereafter look only to Parent for
payment of their shares of Parent Common Stock and any dividends and
distributions in respect of the Parent Common Stock payable as provided in
the last sentence of Section 2.8(c) upon due surrender of their
Certificates (or affidavits of loss in lieu thereof), in each case, without
any interest thereon. Notwithstanding the foregoing, none of Parent, the
Surviving Subsidiary, the Exchange Agent or any other person shall be
liable to any former holder of shares of Company Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(f) Lost, Stolen or Destroyed Certificates. In the
event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if and as required by Parent, the
posting by such person of a bond in customary amount as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock and any unpaid dividends or
other distributions in respect of Parent Common Stock pursuant to the last
sentence of Section 2.8(c).
(g) Affiliates. Notwithstanding anything herein to the
contrary, Certificates surrendered for exchange by any "affiliate" (as
determined pursuant to Section 7.6) of the Company shall not be exchanged
until Parent has received the written agreement from such person as
provided in Section 7.6.
Section 2.9 Time and Place of Closing. The closing (the
"Closing") of the transactions in connection with the Merger shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom, 300 South
Grand Avenue, Suite 3400, Los Angeles, California, at 10:00 a.m. (local
time) on or before the fifth business day following the date on which all
of the conditions to each party's
<PAGE> 14
obligations hereunder have been satisfied or waived or at such other place
or time as Parent and the Company may agree.
Section 2.10 Deliveries at the Closing. At the Closing:
(a) There shall be delivered to Parent and the Company
the certificates, opinions and other documents and instruments required to
be delivered hereunder; and
(b) Parent, the Company and Merger Sub shall cause the
Certificate of Merger to be filed with the Secretary of the State of the
State of Delaware in accordance with the relevant provisions of the DGCL.
ARTICLE III
CORPORATE GOVERNANCE MATTERS RELATING TO PARENT AND THE COMPANY AT OR AFTER
THE EFFECTIVE TIME
Section 3.1 Charter Documents. Parent shall adopt and take
any and all action necessary to make effective, immediately prior to the
Effective Time, the Restated Certificate of Incorporation and the Parent
Bylaws, which shall remain effective through the Effective Time and
thereafter may be amended only in accordance with their terms and appli-
cable law.
Section 3.2 Directors and Officers of Parent Following the
Effective Time.
(a) Governance.
(i) Parent shall take any and all actions
necessary (including without limitation obtaining the
resignation of any directors, as necessary) to cause the direc-
tors comprising the full board of directors of Parent (the "New
Parent Board") at the Effective Time to be comprised of nine
directors, in order to enable (w) Mr. Charles R. Miller and Mr.
James G. VanDevender to be appointed as directors in Class III
and Class II, respectively; (x) the Independent Directors to be
appointed as Directors, in the classes set forth on Schedule
1.20 hereto; and (y) the Parent Shareholder and Mr. R.J.
Messenger to be appointed as directors in
<PAGE> 15
Class III, and one person chosen by the Parent Shareholder to be appointed
as a director in each of Class II and Class I, in each case such appoint-
ments to be in accordance with the Restated Articles of Incorporation
effective immediately prior to the Effective Time and to remain effective
through and from the Effective Time in accordance with Parent's charter
documents and applicable law. Thereafter, all nominations and elections
shall be governed in accordance with the Shareholder Agreement, the
Restated Articles of Incorporation, the Parent Bylaws and applicable law,
each as amended from time to time.
(ii) Parent shall take any and all actions
necessary such that at the Effective Time the Officers shall
become the officers of Parent.
(b) Tenure. The officers and directors of Parent shall
hold their positions until their resignation or removal or the election or
appointment of their successors in the manner provided by each
corporation's respective charter documents and applicable law.
Section 3.3 Rights Plan. The parties shall, prior to the
Effective Time, present to the New Parent Board the Rights Plan and, as
approved by the New Parent Board subject to fiduciary duties and applicable
law, adopt and effect the Rights Plan. The Rights Plan shall have custom-
ary terms and conditions and such other provisions as may reasonably be
agreed to by Parent and the Company, provided that the Rights Plan shall
exempt (a) the Parent Shareholder's beneficial ownership of Parent Common
Stock at the Effective Time, (b) any acquisition of Parent Common Stock by
the Parent Shareholder in accordance with the Shareholder Agreement and (c)
any acquisition of Parent Common Stock by another Third Party in accordance
with the Shareholder Agreement.
Section 3.4 Parent Shareholder Arrangements. (a) The Company
acknowledges that prior to the Effective Time and not as part of the Merg-
er, Parent shall declare a cash dividend, payable to the Parent Shareholder
after the Effective Time, in an aggregate amount not to exceed $21,297,198,
plus, in the event that the dividend is paid after July 30, 1996, an
additional amount equal to $3,574.26 for each day from and including July
31, 1996 to the date such dividend is paid.
<PAGE> 16
(b) Prior to the Effective Time, Parent shall enter into
the Parent Shareholder Services Agreement substantially on the terms set forth
in Schedule 1.26 attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Company represents and warrants to Parent as follows:
Section 4.1 Organization and Qualification. Each of the
Company and its Significant Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted, and is duly qualified to do business and in good standing in
each jurisdiction in which the properties owned, leased or operated by it,
or where the nature of the business conducted by it make such qualification
necessary, except where the failure to so qualify or be in good standing
would not have a Material Adverse Effect on the Company. True and complete
copies of the certificate of incorporation and bylaws of the Company as in
effect on the date hereof, including all amendments thereto, have
heretofore been made available or delivered to Parent.
Section 4.2 Capitalization.
(a) The authorized capital stock of the Company consists
of 25,000,000 shares of Company Common Stock, 500,000 shares of Series C
Preferred Stock and 2,200,000 shares of Series D Preferred Stock. As of
the close of business on April 8, 1996, there were (i) 12,014,316 shares of
Company Common Stock issued and outstanding, all of which are validly
issued, fully paid and nonassessable and are not subject to and were not
issued in violation of any preemptive rights, (ii) 448,811 shares of Series
C Preferred Stock issued and outstanding, all of which are validly issued,
fully paid and nonassessable and are not subject to and were not issued in
violation of any preemptive rights, and which, as of the date hereof and at
or immediately prior to the Effective Time, in accordance with their terms,
are convertible into Company Common Stock at the rate of two shares of
Company Common Stock for every one share of Series C Preferred Stock, (iii)
2,159,365 shares of Series D Preferred Stock issued and outstanding, all of
which are validly issued, fully paid and nonassessable and are
<PAGE> 17
not subject to and were not issued in violation of any preemptive rights,
and which, as of the date hereof and at or immediately prior to the Effec-
tive Time, in accordance with their terms, are convertible into Company
Common Stock at the rate of two shares of Company Common Stock for every
one share of Series D Preferred Stock, (iv) an aggregate of 1,581,432
shares of Company Common Stock reserved for issuance upon exercise of
options that may be granted under the Company Option Plans, of which
options to purchase 1,440,514 shares of Company Common Stock are issued and
outstanding, (v) 81,250 shares of Company Common Stock reserved for
issuance in connection with the Brookside Non-Negotiable Exchangeable
Promissory Notes, (vi) 50,067 shares of Company Common Stock reserved for
issuance in connection with the Select Acquisition Convertible Notes, and
(vii) 3,190,736 shares of Company Common Stock reserved for issuance pursu-
ant to outstanding warrants to purchase shares of Company Common Stock
identified in Section 4.2(a) of the letter, dated the date hereof,
delivered by the Company to Parent in connection with this Agreement (the
"Company Disclosure Letter") (collectively, the "Company Warrants").
"Company Option Plans" shall mean the Company's Amended and Restated 1988
Non-Qualified Stock Option Plan, as modified May 27, 1993, the Company's
Employee Stock Option Plan, dated December 31, 1991, the Company's Employee
Stock Option Plan No. 2, dated May 27, 1992, the Company's Employee Stock
Option Plan No. 3, dated September 1992, the Company's Senior Executive
Stock Option Plan No. 4, dated January 5, 1994, the Company's Directors'
Stock Option Plan, dated December 8, 1992, options granted to certain
directors, officers and key employees of AmeriHealth, Inc. in December
1994, the Company's Selected Executive Stock Option Plan No. 5, approved
May 25, 1995, the Company's Founders Stock Option Plan, dated December
1990, and the Company's Physicians Stock Option Plan, dated May 27, 1993.
No Subsidiary of the Company holds any shares of Company Stock. Other than
as described in Section 4.2 of the Company Disclosure Letter, there has
been no change in the information set forth in the second sentence of this
Section 4.2(a) between the close of business on April 8, 1996 and the date
hereof.
(b) Except as set forth in Section 4.2(a) or pursuant
to the Agreement in Contemplation of Merger or the Series D Stockholders
Agreement, dated December 31, 1993, by and between the Company and the
holders of the Series C Preferred Stock, the holders of the Series D
Preferred Stock and certain other parties named therein (the "Series D
Stockholder Agreement"), there are not now, and at the Effective Time there
will not be, any outstanding shares of Company capital stock or any
options, warrants, calls, rights, subscriptions, convertible securities or
other rights or agreements, arrangements or commit
<PAGE> 18
ments of any kind obligating the Company or any of its Subsidiaries to
issue, transfer or sell any securities of the Company. All shares of
Company Common Stock subject to issuance as set forth in Section 4.2(a),
upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, will be duly authorized, validly
issued, fully paid and nonassessable. There are no outstanding contractual
or other obligations of the Company or any of its Subsidiaries to purchase,
redeem or otherwise acquire any shares of Company Stock. Except for the
Agreement in Contemplation of Merger and the Series D Stockholder Agree-
ment, there is not now, and at the Effective Time there will not be, any
stockholder agreement, voting trust or other agreement or understanding to
which the Company or any of its Subsidiaries is a party or bound relating
to the voting of any shares of the capital stock of the Company or any of
its Subsidiaries.
Section 4.3 Authority. The Company has all requisite corpo-
rate power and authority to execute and deliver this Agreement and, subject
to approval of this Agreement by the Company Requisite Vote, to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement, and the consummation by the Company of the transactions contem-
plated hereby, have been duly authorized by the Company's board of
directors and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement and the
consummation by the Company of the transactions contemplated hereby, except
for the approval of this Agreement by the Company Requisite Vote. This
Agreement has been duly and validly executed and delivered by the Company
and, assuming the due authorization, execution and delivery hereof by
Merger Sub and Parent, constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except that such enforceability may be subject to (i) bankruptcy, insol-
vency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to or affecting creditors' rights
generally and (ii) by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
Section 4.4 Consents and Approvals; No Violation. None of the
execution and delivery by the Company of this Agreement, the consummation
by Company of the transactions contemplated hereby or compliance by the
Company with any of the provisions hereof will (i) conflict with or result
in a breach of any provision of the respective charters or bylaws (or simi-
lar governing documents) of the Company or any of its Subsidiaries, (ii)
require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental
<PAGE> 19
Entity, except (A) pursuant to the Exchange Act, the Securities Act and the
HSR Act and (B) for filing the Certificate of Merger with respect to the
Merger pursuant to the DGCL, (iii) except as disclosed in Section 4.4 of
the Company Disclosure Letter, result in a default (or an event which with
notice or lapse of time or both would become a default) or give to any
third party any right of termination, cancellation, amendment or accelera-
tion under, or result in the creation of a lien or encumbrance on any of
the assets of the Company or any of its Subsidiaries pursuant to, any note,
license, agreement or other instrument or obligation to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective assets may be bound or affected, or
(iv) violate or conflict with any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company or any of its Subsidiaries or
any of their respective properties or assets, other than (A) such defaults,
rights of termination, cancellation, amendment or acceleration, liens and
encumbrances, violations and conflicts as set forth pursuant to (iii) and
(iv) above, and (B) such consents, approvals, authorizations, permits or
filings as set forth pursuant to (ii) above that are not obtained, which,
in the aggregate, would not have a Material Adverse Effect on the Company,
or would not prevent or delay in any material respect the consummation of
any of the transactions contemplated by this Agreement. Holders of not
less than 75% in aggregate principal amount of each of the Company's Series
D 11% Senior Subordinated Notes and 100% of the Series E 11% Senior
Subordinated Notes have entered into the Agreement in Contemplation of
Merger and such agreement is in full force and effect.
Section 4.5 SEC Reports and Financial Statements. Each form,
report, schedule, registration statement and definitive proxy statement
filed by the Company with the SEC since December 31, 1994 (as such
documents have since the time of their filing been amended, the "Company
SEC Reports"), which include all the documents (other than preliminary
material) that the Company was required to file with the SEC since such
date, as of their respective dates, complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such
Company SEC Reports. None of the Company SEC Reports contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, except for
such statements, if any, as have been modified by subsequent filings prior
to the date hereof. The financial statements of the Company included in
the Company SEC Reports comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
<PAGE> 20
of the SEC with respect thereto, have been prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q under the Securities Act) and fairly
present (subject, in the case of the unaudited quarterly financial
statements, to the absence of notes, and to normal, recurring audit adjust-
ments) the consolidated financial position of the Company and its
Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows (or changes in financial position prior to the
adoption of FASB 95) for the periods then ended. Since December 31, 1995,
neither the Company nor any of its Subsidiaries has incurred any liabili-
ties or obligations, whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due,
except (i) as disclosed in the Company SEC Reports filed after December 31,
1995 and prior to the date hereof, (ii) as incurred in connection with the
transactions contemplated, or as provided, by this Agreement, (iii) as
incurred after December 31, 1995 in the ordinary course of business and
consistent with past practices and not in violation of Section 6.1, or (iv)
except as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
Section 4.6 Absence of Certain Changes or Events. Since
December 31, 1995, except as disclosed in the Company SEC Reports filed
since December 31, 1995 and prior to the date hereof, the Company and its
Subsidiaries have conducted their respective businesses only in the
ordinary course, consistent with past practice, and there has not occurred
or arisen any event or events which, individually or in the aggregate, have
had or are reasonably likely to have, a Material Adverse Effect on the
Company or which is reasonably likely to prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement.
Section 4.7 Litigation. Except as disclosed in (i) Section
4.7 of the Company Disclosure Letter or (ii) the Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 filed by the Company, there is
no suit, action or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or
Affiliates (and the Company is not aware of any basis for any such suit,
action or proceeding) that, individually or in the aggregate, is reasonably
likely to (i) have a Material Adverse Effect on the Company or (ii) prevent
or delay in any material respect the Company from performing its obliga-
tions under, or consummating the transactions contemplated by, this
Agreement. There is not any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator out
<PAGE> 21
standing against the Company or any of its Subsidiaries which has had or is
reasonably likely to have any Material Adverse Effect on the Company.
Section 4.8 Information Supplied. The information supplied or
to be supplied by the Company or its Subsidiaries for inclusion or
incorporation by reference in the Form S-4 will not, either at the time the
Form S-4 is filed with the SEC or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading. The information supplied or to
be supplied by the Company or its Subsidiaries for inclusion or
incorporation by reference in the Proxy Statement, including any amendments
and supplements thereto, will not, either at the date mailed to stock-
holders or at the time of the meeting of stockholders of the Company to be
held in connection with the transactions contemplated by this Agreement and
the Merger Agreement, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement and the
Form S-4 will each comply as to form in all material respects with all
applicable laws, including the provisions of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder, except
that no representation is made by the Company with respect to information
supplied by Parent for inclusion or incorporation by reference therein.
Section 4.9 Employee Benefit Plans; ERISA.
(a) Section 4.9(a) of the Company Disclosure Letter
contains a true and complete list of each employment, bonus, deferred
compensation, incentive compensation, stock purchase, stock option,
severance or termination pay, hospitalization or other medical, life or
other insurance, supplemental unemployment benefits, profit-sharing,
pension, or retirement plan, program, agreement or arrangement, and each
other employee benefit plan, program, agreement or arrangement ("Plans"),
sponsored, maintained or contributed to or required to be contributed to by
the Company or any ERISA Affiliate for the benefit of any employee or
former employee of the Company or any of its Subsidiaries (the "Company
Plans"). Section 4.9(a) of the Company Disclosure Letter identifies each
of the Company Plans that is an "employee welfare benefit plan," or "em-
ployee pension benefit plan" as such terms are defined in sections 3(1) and
3(2) of ERISA (such plans being hereinafter referred to collectively as the
"Company ERISA Plans"). Neither the Company nor any of its ERISA Affiliates
<PAGE> 22
has any formal plan or commitment to create any additional Company
Plan or modify or change any existing Company Plan that would affect any
employee or terminated employee of the Company or any such ERISA Affiliate.
(b) With respect to each of the Company Plans, the
Company has heretofore delivered or made available to Parent true and com-
plete copies of each of the following documents:
(i) a copy of the Company Plan (including
all amendments thereto);
(ii) a copy of the annual report, if
required under ERISA, with respect to each such Company Plan
for the last three years;
(iii) a copy of the actuarial report, if re-
quired under ERISA, with respect to each such Company Plan for
the last three years;
(iv) a copy of the most recent summary plan
description ("SPD"), together with all summaries of material
modification issued with respect to such SPD, required under
ERISA with respect to such Company Plan;
(v) if the Company Plan is funded through a
trust or any other funding vehicle, a copy of the trust or
other funding agreement (including all amendments thereto) and
the latest financial statements thereof;
(vi) all contracts relating to the Company
Plans with respect to which the Company or any of its ERISA
Affiliates may have any liability, including, without limita-
tion, insurance contracts, investment management agreements,
subscription and participation agreements and record keeping
agreements; and
<PAGE> 23
(vii) the most recent determination letter received
from the Internal Revenue Service with respect to each Company Plan that is
intended to be qualified under section 401 of the Code.
(c) No Company ERISA Plan is subject to Title IV of
ERISA. No liability under Title IV of ERISA has been incurred by the
Company or any of its ERISA Affiliates since the effective date of ERISA
that has not been satisfied in full, and no condition exists that presents
a material risk to the Company or any such ERISA Affiliate of incurring a
liability under such Title, other than liability for premiums due the PBGC,
which payments have been or will be made when due. To the extent this
representation applies to sections 4064, 4069 or 4204 of Title IV of ERISA,
it is made not only with respect to the Company ERISA Plans but also with
respect to any employee benefit plan, program, agreement or arrangement
subject to Title IV of ERISA to which the Company or any of its ERISA
Affiliates made, or was required to make, contributions during the five-
year period ending on the last day of the Company's most recent fiscal
year.
(d) None of the Company, any of its ERISA Affiliates,
any of the Company ERISA Plans, any trust created thereunder nor any
trustee or administrator thereof has engaged in a transaction or has taken
or failed to take any action in connection with which the Company or any of
its ERISA Affiliates may be subject to either a civil penalty assessed
pursuant to section 409 or 502(i) of ERISA or a tax imposed pursuant to
section 4975, 4976 or 4980B of the Code.
(e) Full payment has been made, or will be made in
accordance with section 404(a)(6) of the Code, of all amounts which the
Company or any of its ERISA Affiliates is required to pay under the terms
of each of the Company ERISA Plans, and all such amounts properly accrued
through the Effective Time with respect to the current plan year thereof
will be paid by the Company on or prior to the Effective Time or will be
properly recorded in accordance with GAAP. No Company ERISA Plan is
subject to section 412 of the Code.
(f) Each of the Company Plans has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to ERISA and the Code.
<PAGE> 24
(g) Each of the Company ERISA Plans that is intended to be
"qualified" within the meaning of section 401(i) of the Code is so qualified.
(h) Each of the Company ERISA Plans that is intended to
satisfy the requirements of section 501(c)(9) of the Code has so satisfied
such requirements.
(i) Except as set forth in Section 4.9(a) of the Company
Disclosure Letter, no amounts payable or benefits accrued under the Company
Plans or any other agreement or arrangement to which the Company or any of
its ERISA Affiliates is a party will, as a result of the transactions
contemplated hereby (A) become payable, vested or exercisable on an
accelerated basis or (B) fail to be deductible for federal income tax pur-
poses by virtue of section 280G of the Code.
(j) No "leased employee," as that term is defined in
section 414(n) of the Code, performs services for the Company or any of its
ERISA Affiliates.
(k) Except as set forth in Section 4.9(k) of the Company
Disclosure Letter, no Company Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect
to current or former employees after retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that
term is defined in section 3(2) of ERISA, (iii) deferred compensation bene-
fits accrued as liabilities on the books of the Company or its ERISA
Affiliates, or (iv) benefits, the full cost of which is borne by the
current or former employee (or his beneficiary)).
(l) With respect to each Company Plan that is funded
wholly or partially through an insurance policy, there will be no material
liability of the Company or any of its ERISA Affiliates, as of the
Effective Time, under any such insurance policy or ancillary agreement with
respect to such insurance policy in the nature of a retroactive rate
adjustment, loss sharing arrangement or other actual or contingent liabil-
ity arising wholly or partially out of events occurring prior to the
Effective Time.
Section 4.10 Tax Matters. As of the date hereof, neither the
Company nor any of its Affiliates has taken or agreed to take any action,
nor does the Company have any knowledge of any fact or circumstance, that
would
<PAGE> 25
prevent the Merger and the other transactions contemplated by this
Agreement from qualifying as a "reorganization" within the meaning of
section 368(a) of the Code.
Section 4.11 Taxes.
(a) The Company and each of its Subsidiaries have timely
filed (or have had timely filed on their behalf) or will file or cause to
be timely filed, all material Tax Returns required by applicable law to be
filed by any of them on or before the date of the Effective Time of the
Merger, taking into account any extension of the time within which to file
such returns. All such Tax Returns are, or will be at the time of filing,
true, complete and correct in all material respects.
(b) The Company and each of its Subsidiaries have paid
(or have had paid on their behalf), or where payment is not yet due, have
established (or have had established on their behalf and for their sole
benefit and recourse), or will establish or cause to be established on or
before the date of the Effective Time of the Merger, an adequate accrual
for the payment of, all material Taxes due with respect to any period
ending on or before the date of the Effective Time of the Merger.
(c) For purposes of this Agreement, the following terms
shall have the following meanings:
(i) "Taxes" shall mean all Federal, state,
local and foreign taxes, and other assessments of a similar
nature (whether imposed directly or through withholding), in-
cluding any interest, additions to tax, or penalties applicable
thereto.
(ii) "Tax Returns" shall mean all Federal,
state, local and foreign tax returns, declarations, statements,
reports, schedules, forms and information returns and any
amended tax return relating to Taxes.
Section 4.12 Affiliate Agreements. Except for the Agreement
in Contemplation of Merger, the Series D Stockholder Agreement or as set
forth in Section 4.12 of the Company Disclosure Letter, as of the date of
this Agreement neither the Company nor any of its Subsidiaries is a party
to any oral or written agreement with any of its Affiliates, other than
with any of its Subsidiaries.
<PAGE> 26
Section 4.13 Opinion of Financial Advisor. The Company has
received the opinion of DLJ to the effect that, as of the date of such
opinion, the Exchange Ratio is fair to the holders of Company Common Stock
from a financial point of view.
Section 4.14 Brokers and Finders. Other than DLJ, whose fees
will be paid by the Company, none of the Company or any of its Subsidiar-
ies, nor any of their respective directors, officers or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or similar payments in con-
nection with the transactions contemplated by this Agreement.
Section 4.15 Vote Required. The only votes of the holders of
any class or series of Company capital stock necessary to approve the
Merger (the "Company Requisite Vote") are (i) the affirmative vote of the
holders of a majority of the outstanding shares of the Company Common
Stock, voting as a separate class, (ii) the affirmative vote of the holders
of at least 90% of the outstanding shares of each of the Series C Preferred
Stock and the Series D Preferred Stock, voting as separate classes, and
(iii) the affirmative vote of the holders of a majority of the voting power
represented by the outstanding shares of the Company Common Stock, the
Series C Preferred Stock and the Series D Preferred Stock, voting as a
single class.
Section 4.16 Medicare and Medicaid. The Company and its
Subsidiaries have complied with all Medicare and Medicaid laws, rules and
regulations and have timely filed all returns, cost reports and other
filings in the manner prescribed, except where the failure to do so would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company. All returns, cost reports and
other filings made by Company and its Subsidiaries to Medicare, Medicaid or
any other governmental health or welfare related entity or third party
payor are true and complete, except where the failure to be so true and
complete would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, and true and correct
copies of all such cost reports for the three most recent fiscal years of
the Company have been furnished to Parent. No deficiency in any such
returns, cost reports and other filings, including deficiencies for late
filings, has been asserted or to the best of the Company's knowledge, after
reasonable investigation, threatened by any Governmental Entity or other
provider reimbursement entities relating to Medicare or Medicaid or third
party payor claims, and to the best of the Company's knowledge, after
reasonable investigation, there is no basis
<PAGE> 27
for any successful claims or requests for reimbursement from any such
Governmental Entity, other entity or third party payor except for any
deficiencies or bases which are not reasonably expected to have, individu-
ally or in the aggregate, a Material Adverse Effect on the Company. Since
December 31, 1992, neither the Company nor any of its Subsidiaries has been
subject to any audit or investigation relating to fraudulent Medicare or
Medicaid procedure or practices, except audits or investigations which
would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company.
Section 4.17 Medicare Participation/Accreditation. All of the
hospitals and other healthcare providers owned, operated or managed by the
Company or any of its Subsidiaries are certified for participation or en-
rollment in the Medicare and Medicaid programs, have a current and valid
provider contract with the Medicare and Medicaid programs, are in substan-
tial compliance with the conditions of participation of such programs and
have received all approvals or qualifications necessary for capital
reimbursement of the Company and its Subsidiaries' assets. No validation
review or program integrity review related to any of the hospitals owned or
operated by the Company or any of its Subsidiaries (the "Company Hospi-
tals"), the operation thereof, or the consummation of the transactions
contemplated hereby has been conducted by any commission, board or agency
in connection with the Medicare or Medicaid programs, and to the knowledge
of the Company, no such reviews are scheduled, pending or threatened
against or affecting any Company Hospital or the consummation of the
transaction contemplated hereby. All of the Company Hospitals are in
compliance in all material respects with all rules, regulations and re-
quirements of all Governmental Entities having jurisdiction over any of the
Company Hospitals. All of the Company Hospitals are accredited by the
Joint Commission on Accreditation of Health Care Organizations (the "Joint
Commission on Accreditation") and the Company has delivered to Parent true
and complete copies of each of such hospital's most recent Joint Commission
on Accreditation survey report and deficiency list, if any, and the most
recent Statement of Deficiencies and Plan of Correction. All deficiencies
noted thereon have been cured in all material respects. Neither the
Company nor any of its Subsidiaries has received notice from the regulatory
authorities which enforce the statutory or regulatory provisions in respect
of either the Medicare or Medicaid program of any pending or threatened
investigations or surveys, and the Company has no reason to believe that
there are pending, threatened or imminent any such investigations or
surveys which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on the Company.
<PAGE> 28
Section 4.18 Medical Staff Matters. There are no pending, or to
the Company's knowledge, threatened disputes with medical staff applicants,
medical staff members or health professional affiliates which, individually
or in the aggregate, would reasonably be expected to have a Material Adverse
Effect on the Company, and all appeal periods in respect of any medical staff
member or applicant against whom an adverse action has been taken have expired.
Section 4.19 Takeover Statutes. No "fair price,"
"moratorium," "control share acquisition" or other similar antitakeover
statute or regulation enacted under state or federal laws in the United
States applicable to the Company (including, without limitation, Section
203 of the DGCL) is applicable to the Merger or the other transactions
contemplated hereby. The Board of Directors of the Company has taken all
appropriate action to exempt the transactions contemplated in this
Agreement from Section 203 of the DGCL.
Section 4.20 Compliance with Laws. Neither the Company nor
any of its Subsidiaries has violated or failed to comply with any statute,
law, ordinance, regulation, rule, judgment, decree or order of any
Governmental Entity applicable to its business or operations, except for
violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 5.1 Organization and Qualification.
(a) Each of Parent and its Significant Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business
and in good standing in each jurisdiction in which the properties owned,
leased or operated by it, or where the nature of the business conducted by
it make such qualification necessary, except where the failure to so
qualify or be in good standing would not have a Material Adverse Effect on
Parent. True and complete copies of the articles of incorporation and
bylaws of Parent as in effect on the date hereof, including
<PAGE> 29
all amendments thereto, have heretofore been made available or
delivered to the Company.
(b) Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Merger Sub has
been formed solely for the purpose of engaging in the Merger and has not
conducted any business prior to the date hereof and has no, and prior to
the Effective Time will have no, assets, liabilities or obligations of any
nature other than those incident to its formation and pursuant to this
Agreement and the Merger and the other transactions contemplated by this
Agreement.
Section 5.2 Capitalization.
(a) The authorized capital stock of Parent consists of
1,000 shares of Parent Common Stock. As of the date hereof, there are 450
shares of Parent Common Stock issued and outstanding, all of which are
validly issued, fully paid and nonassessable and are not subject to and
were not issued in violation of any preemptive rights and all of which are
beneficially owned by the Parent Shareholder. No Subsidiary of Parent
holds any shares of Parent Common Stock.
(b) Except as set forth in Section 5.2(b) of the letter,
dated the date hereof, delivered by Parent to the Company in connection
with this Agreement (the "Parent Disclosure Letter") or pursuant to this
Agreement, the options to be issued pursuant to Section 7.9 hereof, the
Shareholder Agreement, the Registration Rights Agreement and the rights
contemplated by the Rights Plan, there are not now, and at the Effective
Time there will not be, any outstanding shares of Parent capital stock or
any options, warrants, calls, rights, subscriptions, convertible securities
or other rights or agreements, arrangements or commitments of any kind
obligating Parent or any of its Subsidiaries to issue, transfer or sell any
securities of Parent. There are no outstanding contractual or other
obligations of Parent or any of its Subsidiaries to purchase, redeem or
otherwise acquire any shares of Parent Common Stock. Except as set forth
in Section 5.2(b) of the Parent Disclosure Letter or pursuant to the Share-
holder Agreement, the Registration Rights Agreement and the Voting
Agreement, there is not now, and at the Effective Time there will not be,
any stockholder agreement, voting trust or other agreement or understanding
to which Parent or any of its Subsidiaries is a party or bound relating to
the voting of any shares of the capital stock of Parent or any of its
Subsidiaries.
<PAGE> 30
(c) The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, par value $.01 per share, all of which are
validly issued and outstanding. All of the issued and outstanding capital
stock of Merger Sub is, and at the Effective Time will be, owned by Parent,
and there are (i) no other shares of capital stock or other voting securities
of merger Sub, (ii) no securities of Merger Sub convertible into or
exchangeable for shares of capital stock or voting securities of Merger Sub
and (iii) no options or other rights to acquire from Merger Sub, and no
obligations of Merger Sub to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of Merger Sub.
Section 5.3 Authority. Parent has all requisite corporate
power and authority to execute and deliver this Agreement and, subject to
approval of this Agreement by the Parent Requisite Vote, to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement, and the consummation by Parent of the transactions contemplated
hereby, have been duly authorized by Parent's board of directors and no
other corporate proceedings on the part of Parent are necessary to autho-
rize the execution and delivery of this Agreement and the consummation by
Parent of the transactions contemplated hereby and thereby, except for the
approval of this Agreement by the Parent Requisite Vote. This Agreement
has been duly and validly executed and delivered by Parent and Merger Sub,
and, assuming the due authorization, execution and delivery hereof by the
Company, constitutes a valid and binding agreement of Parent and Merger
Sub, enforceable against Parent and Merger Sub in accordance with its
terms, except that such enforceability may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to or affecting creditors'
rights generally and (ii) by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
Section 5.4 Consents and Approvals; No Violation. None of the
execution and delivery by Parent of this Agreement, the consummation by
Parent of the transactions contemplated hereby or compliance by Parent with
any of the provisions hereof will (i) conflict with or result in a breach
of any provision of the respective charters or bylaws (or similar governing
documents) of Parent or any of its Subsidiaries, (ii) except as disclosed
in Section 5.4 of the Parent Disclosure Letter, require any consent, ap-
proval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (A) pursuant to the Exchange Act, the
Securities Act and the HSR Act and (B) for filing the Certificate of Merger
with respect to the Merger pursuant to the DGCL, (iii) except as
<PAGE> 31
disclosed in Section 5.4 of the Parent Disclosure Letter, result in a
default (or an event which with notice or lapse of time or both would
become a default) or give to any third party any right of termination,
cancellation, amendment or acceleration under, or result in the creation of
a lien or encumbrance on any of the assets of Parent or any of its
Subsidiaries pursuant to, any note, license, agreement or other instrument
or obligation to which Parent or any of its Subsidiaries is a party or by
which Parent or any of its Subsidiaries or any of their respective assets
may be bound or affected, or (iv) violate or conflict with any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent or any
of its Subsidiaries or any of their respective properties or assets, other
than (A) such defaults, rights of termination, cancellation, amendment or
acceleration, liens and encumbrances, violations and conflicts as set forth
pursuant to (iii) and (iv) above, and (B) such consents, approvals,
authorizations, permits or filings, as set forth pursuant to (ii) above
that are not obtained, which, in the aggregate, would not have a Material
Adverse Effect on Parent, or would not prevent or delay in any material
respect the consummation of any of the transactions contemplated by this
Agreement or the Shareholder Agreement.
Section 5.5 SEC Reports and Financial Statements. Each form,
report, schedule, registration statement and definitive proxy statement
filed by Parent with the SEC since September 30, 1994 (as such documents
have since the time of their filing been amended, the "Parent SEC Re-
ports"), which include all the documents (other than preliminary material)
that Parent was required to file with the SEC since such date, as of their
respective dates, complied in all material respects with the requirements
of the Securities Act or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such Parent SEC
Reports. None of the Parent SEC Reports contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except for such
statements, if any, as have been modified by subsequent filings prior to
the date hereof. The financial statements of Parent included in the Parent
SEC Reports comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Form 10-Q under the Securities Act) and fairly present
(subject in the case of the unaudited quarterly financial statements, to
the absence of notes, and to normal, recurring audit adjustments) the
consolidated financial position of Parent and its Subsidiaries as at
<PAGE> 32
the dates thereof and the consolidated results of their operations and cash
flows (or changes in financial position prior to the adoption of FASB 95)
for the periods then ended. Since December 31, 1995, neither Parent nor
any of its Subsidiaries has incurred any liabilities or obligations,
whether absolute, accrued, fixed, contingent, liquidated, unliquidated or
otherwise and whether due or to become due, except (i) as disclosed in the
Parent SEC Reports filed since December 31, 1995 and prior to the date
hereof, (ii) as incurred in connection with the transactions contemplated,
or as provided, by this Agreement, (iii) as incurred after December 31,
1995 in the ordinary course of business and consistent with past practices
and not in violation of Section 6.2, or (iv) as would not, individually or
in the aggregate, have a Material Adverse Effect on Parent.
Section 5.6 Absence of Certain Changes or Events. Since
December 31, 1995, except as disclosed in the Parent SEC reports filed
prior to the date hereof, Parent and its Subsidiaries have conducted their
respective businesses only in the ordinary course, consistent with past
practice, and there has not occurred or arisen any event or events which,
individually or in the aggregate, have had or are reasonably likely to
have, a Material Adverse Effect on Parent or which is reasonably likely to
prevent or delay in any material respect the consummation of any of the
transactions contemplated by this Agreement.
Section 5.7 Litigation. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof or in Section 5.7 of the Parent
Disclosure Letter, there is no suit, action or proceeding pending or, to
the knowledge of Parent, threatened against or affecting Parent or any of
Parent's Subsidiaries or Affiliates (and Parent is not aware of any basis
for any of such suit, action or proceeding) that, individually or in the
aggregate, is reasonably likely to (i) have a Material Adverse Effect on
Parent or (ii) prevent or delay in any material respect Parent from per-
forming its obligations under, or consummating the transactions contem-
plated by, this Agreement. There is not any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against
Parent or any of its Subsidiaries which has had or is reasonably likely to
have a Material Adverse Effect on Parent.
Section 5.8 Information Supplied. The information supplied or
to be supplied by Parent or its Subsidiaries for inclusion or incorporation
by reference in the Form S-4 will not, either at the time the Form S-4 is
filed with the SEC or at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. The
<PAGE> 33
information supplied or to be supplied by Parent or its Subsidiaries for
inclusion or incorporation by reference in the Proxy Statement, including
any amendments and supplements thereto, will not, either at the date mailed
to shareholders of the Company or at the time of the meeting of sharehold-
ers of the Company to be held in connection with the transactions contem-
plated by this Agreement, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or neces-
sary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement and the
Form S-4 will each comply as to form in all material respects with all
applicable laws, including the provisions of the Securities Act and the Ex-
change Act and the rules and regulations promulgated thereunder, except
that no representation is made by Parent with respect to information
supplied by the Company for inclusion or incorporation by reference
therein.
Section 5.9 Employee Benefit Plans; ERISA.
(a) Section 5.9(a) of the Parent Disclosure Letter
contains a true and complete list of each Plan sponsored, maintained or
contributed to or required to be contributed to by Parent or any of its
ERISA Affiliates for the benefit of any employee or former employee of
Parent or any of its Subsidiaries (the "Parent Plans"). Section 5.9(a) of
the Parent Disclosure Letter identifies each of the Parent Plans that is an
"employee welfare benefit plan," or "employee pension benefit plan" as such
terms are defined in sections 3(1) and 3(2) of ERISA (such plans being
hereinafter referred to collectively as the "Parent ERISA Plans"). Neither
Parent nor any of its ERISA Affiliates has any formal plan or commitment to
create any additional Parent Plan or modify or change any existing Parent
Plan that would affect any employee or terminated employee of Parent or any
such ERISA Affiliate of Parent.
(b) With respect to each of the Parent Plans, Parent has
heretofore delivered or made available to the Company true and complete
copies of each of the following documents:
(i) a copy of the Parent Plan (including
all amendments thereto);
(ii) a copy of the annual report, if
required under ERISA, with respect to each such Parent Plan for
the last three years;
<PAGE> 34
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each such Parent Plan for the last three
years;
(iv) a copy of the most recent SPD, together
with all summaries of material modification issued with respect
to such SPD, required under ERISA with respect to such Parent
Plan;
(v) if the Parent Plan is funded through a
trust or any other funding vehicle, a copy of the trust or
other funding agreement (including all amendments thereto) and
the latest financial statements thereof;
(vi) all contracts relating to the Parent
Plans with respect to which Parent or any of its ERISA
Affiliates may have any liability, including, without limita-
tion, insurance contracts, investment management agreements,
subscription and participation agreements and record keeping
agreements; and
(vii) the most recent determination letter
received from the Internal Revenue Service with respect to each
Parent Plan that is intended to be qualified under section 401
of the Code.
(c) No Parent ERISA Plan is subject to Title IV of
ERISA. No liability under Title IV of ERISA has been incurred by Parent or
any of its ERISA Affiliates since the effective date of ERISA that has not
been satisfied in full, and no condition exists that presents a material
risk to Parent or any of its ERISA Affiliates of incurring a liability
under such Title, other than liability for premiums due the PBGC, which
payments have been or will be made when due. To the extent this repre-
sentation applies to sections 4064, 4069 or 4204 of Title IV of ERISA, it
is made not only with respect to the Parent ERISA Plans but also with re-
spect to any employee benefit plan, program, agreement or arrangement
subject to Title IV of ERISA to which Parent or any of its ERISA Affiliates
made, or was required to make, contributions during the five-year period
ending on the last day of Parent's most recent fiscal year.
(d) None of Parent, any of its ERISA Affiliates, any of
the Parent ERISA Plans, any trust created thereunder nor any trustee or
administrator
<PAGE> 35
thereof has engaged in a transaction or has taken or failed to take any
action in connection with which Parent or any of its ERISA Affiliates may
be subject to either a civil penalty assessed pursuant to section 409 or
502(i) of ERISA or a tax imposed pursuant to section 4975, 4976 or 4980B of
the Code.
(e) Full payment has been made, or will be made in
accordance with section 404(a)(6) of the Code, of all amounts which Parent
or any its ERISA Affiliates is required to pay under the terms of each of
the Parent ERISA Plans, and all such amounts properly accrued through the
Effective Time with respect to the current plan year thereof will be paid
by Parent on or prior to the Effective Time or will be properly recorded in
accordance with GAAP. No Parent ERISA Plan is subject to section 412 of
the Code.
(f) Each of the Parent Plans has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to ERISA and the Code.
(g) Each of the Parent ERISA Plans that is intended to
be "qualified" within the meaning of section 401(a) of the Code is so
qualified.
(h) Each of the Parent ERISA Plans that is intended to
satisfy the requirements of section 501(c)(9) of the Code has so satisfied
such requirements.
(i) Except as specifically contemplated by this
Agreement or as set forth in Section 5.9(i) of the Parent Disclosure
Letter, no amounts payable or benefits accrued under the Parent Plans or
any other agreement or arrangement to which Parent or any of its ERISA
Affiliates is a party will, as a result of the transactions contemplated
hereby (A) become payable, vested or exercisable on an accelerated basis or
(B) fail to be deductible for federal income tax purposes by virtue of
section 280G of the Code.
(j) No "leased employee," as that term is defined in
section 414(n) of the Code, performs services for Parent or any of its
ERISA Affiliates.
(k) No Parent Plan provides benefits, including without
limitation death or medical benefits (whether or not insured), with respect
to current or former employees after retirement or other termination of
service (other than (i) coverage mandated by applicable law, (ii) death
benefits or retirement benefits under any "employee pension plan," as that
term is defined in
<PAGE> 36
section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of Parent or any of its ERISA Affiliates, or
(iv) benefits, the full cost of which is borne by the current or former
employee (or his beneficiary)).
(l) With respect to each Parent Plan that is funded
wholly or partially through an insurance policy, there will be no material
liability of Parent or any of its ERISA Affiliates, as of the Effective
Time, under any such insurance policy or ancillary agreement with respect
to such insurance policy in the nature of a retroactive rate adjustment,
loss sharing arrangement or other actual or contingent liability arising
wholly or partially out of events occurring prior to the Effective Time.
Section 5.10 Taxes.
(a) Parent and each of its Subsidiaries have timely
filed (or have had timely filed on their behalf) or will file or cause to
be timely filed, all material Tax Returns required by applicable law to be
filed by any of them on or before the date of the Effective Time of the
Merger, taking into account any extension of the time within which to file
such returns. All such Tax Returns are, or will be at the time of filing,
true, complete and correct in all material respects.
(b) Parent and each of its Subsidiaries have paid (or
have had paid on their behalf), or where payment is not yet due, have
established (or have had established on their behalf and for their sole
benefit and recourse), or will establish or cause to be established on or
before the date of the Effective Time of the Merger, an adequate accrual
for the payment of, all material Taxes due with respect to any period
ending on or before the date of the Effective Time of the Merger.
Section 5.11 Affiliate Agreements. Except as set forth in
Section 5.11 of the Parent Disclosure Letter, as of the date of this
Agreement neither Parent nor any of its Subsidiaries is a party to any oral
or written agreement with any of its Affiliates, other than with any of its
Subsidiaries.
Section 5.12 Brokers and Finders. Other than BA Partners,
whose fees will be paid by Parent, none of Parent or any of its Subsidiar-
ies, nor any of their respective directors, officers or employees, has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees,
<PAGE> 37
commissions or similar payments in connection with the transactions contem-
plated by this Agreement.
Section 5.13 Vote Required. The affirmative vote of a majority
of the outstanding shares of Parent is the only vote of a holder of capital
stock of Parent required to approve this Agreement and the transactions
contemplated hereby (the "Parent Requisite Vote").
Section 5.14 Medicare and Medicaid. Parent and its Subsidiar-
ies have complied with all Medicare and Medicaid laws, rules and regula-
tions and have timely filed all returns, cost reports and other filings in
the manner prescribed, except where the failure to do so would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent. All returns, cost reports and other
filings made by Parent and its Subsidiaries to Medicare, Medicaid or any
other governmental health or welfare related entity or third party payor
are true and complete, except where the failure to be so true and complete
would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect on Parent, and true and correct copies of all
such reports for the three most recent fiscal years of Parent have been
furnished to the Company. No deficiency in any such returns, cost reports
and other filings, including deficiencies for late filings, has been
asserted or to the best of Parent's knowledge, after reasonable investi-
gation, threatened by any Governmental Entity or other provider reimburse-
ment entities relating to Medicare or Medicaid or third party payor claims,
and to the best of Parent knowledge, after reasonable investigation, there
is no basis for any successful claims or requests for reimbursement from
any such Governmental Entity, other entity or third party payor except for
any deficiencies or bases which are not reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
Since December 31, 1992, neither Parent nor any of its Subsidiaries has
been subject to any audit or investigation relating to fraudulent Medicare
or Medicaid procedure or practices, except audits or investigations which
would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect on Parent.
Section 5.15 Medicare Participation/Accreditation. All of the
hospitals and other healthcare providers owned, operated or managed by Par-
ent or its Subsidiaries, except the psychiatric facilities set forth in
Section 5.15 of the Parent Disclosure Letter, are certified for participa-
tion or enrollment in the Medicare and Medicaid programs, have a current
and valid provider contract with the Medicare and Medicaid programs, are in
substantial compliance with the conditions
<PAGE> 38
of participation of such programs and have received all approvals or
qualifications necessary for capital reimbursement of Parent and its
Subsidiaries' assets. No validation review or program integrity review
related to any of the hospitals owned or operated by Parent or any of its
Subsidiaries (the "Parent Hospitals"), the operation thereof, or the
consummation of the transactions contemplated hereby has been conducted by
any commission, board or agency in connection with the Medicare or Medicaid
programs, and to the knowledge of Parent, no such reviews are scheduled,
pending or threatened against or affecting any Parent Hospital or the
consummation of the transaction contemplated hereby. All of the Parent
Hospitals are in compliance in all material respects with all rules,
regulations and requirements of all Governmental Entities having jurisdic-
tion over any of the Parent Hospitals. Except as set forth in Section 5.15
of the Parent Disclosure Letter, all of the Parent Hospitals are accredited
by the Joint Commission on Accreditation and Parent has delivered to
Company true and complete copies of each of such hospital's most recent
Joint Commission on Accreditation survey report and deficiency list, if
any, and the most recent Statement of Deficiencies and Plan of Correction.
All deficiencies noted thereon have been cured in all material respects.
Neither Parent nor any of its Subsidiaries has received notice from the
regulatory authorities which enforce the statutory or regulatory provisions
in respect of either the Medicare or the Medicaid program of any pending or
threatened investigations or surveys, and Parent has no reason to believe
that there are pending, threatened or imminent any such investigations or
surveys which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Parent.
Section 5.16 Medical Staff Matters. There are no pending, or
to Parent's knowledge, threatened disputes with medical staff applicants,
medical staff members or health professional affiliates which, individually
or in the aggregate, would reasonably be expected to have a Material
Adverse Effect on Parent, and all appeal periods in respect of any medical
staff member or applicant against whom an adverse action has been taken
have expired.
Section 5.17 Takeover Statutes. No "fair price,"
"moratorium," "control share acquisition" or other similar antitakeover
statute or regulation enacted under state or federal laws in the United
States applicable to Parent (including without limitation pursuant to
Chapter 12 of the California General Corporation Law) is applicable to the
Merger, the Shareholder Agreement or the other transactions contemplated
hereby or thereby.
<PAGE> 39
Section 5.18 Compliance with Laws. Neither Parent nor any of
its Subsidiaries has violated or failed to comply with any statute, law,
ordinance, regulation, rule, judgment, decree or order of any Governmental
Entity applicable to its business or operations, except for violations and
failures to comply that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 Conduct of Business of the Company Pending the
Effective Time. Except as expressly permitted or contemplated by this
Agreement or as shall be consented to by Parent (which consent shall not be
unreasonably withheld or delayed), until the Effective Time the Company
shall, and shall cause each of its Subsidiaries to, conduct its operations
in the ordinary and usual course of business consistent with past practice
and use its reasonable best efforts (in the ordinary course of business
consistent with past practice) to preserve intact their respective business
organizations' goodwill, keep available the services of their respective
present officers and key employees, and preserve the goodwill and business
relationships with suppliers, distributors, customers and others having
business relationships with them. Without limiting the generality of the
foregoing, and except as otherwise permitted by this Agreement, prior to
the Effective Time, without the consent of Parent (which consent shall not
be unreasonably withheld), the Company will not, and will cause each of its
Subsidiaries not to:
(a) amend or propose to amend their respective charters
or bylaws (other than as contemplated by this Agreement); or split, combine
or reclassify their outstanding capital stock or declare, set aside or pay
any dividend or distribution in respect of any capital stock (other than
dividends paid by subsidiaries of the Company solely to the Company or
another wholly-owned subsidiary of the Company) or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock;
(b) (i) issue or authorize or propose the issuance of,
sell, pledge or dispose of, or agree to issue or authorize or propose the
issuance of, sell, pledge or dispose of, any additional shares of, or any
options (except for up
<PAGE> 40
to 40,000 directors' options), warrants or rights of any kind to acquire
any shares of their capital stock of any class or any debt or equity
securities convertible into or exchangeable for such capital stock, other
than any such issuance pursuant to options, warrants, rights or convertible
securities outstanding as of the date hereof in accordance with their terms
as in effect on the date hereof; (ii) acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets in each case which are material, individually or in the
aggregate, to Company and its Subsidiaries, taken as a whole; (iii) sell
(including by sale-leaseback), lease, pledge, dispose of or encumber any
assets or interests therein which are material, individually or in the
aggregate, to Company and its Subsidiaries, taken as a whole, other than in
the ordinary course of business and consistent with past practice; (iv)
incur or become contingently liable with respect to any material indebted-
ness for borrowed money or guarantee any such indebtedness or issue any
debt securities or otherwise incur any material obligation or liability
(absolute or contingent) other than short-term indebtedness in the ordinary
course of business and consistent with past practice; (v) redeem, purchase,
acquire or offer to purchase or acquire any (x) shares of its capital stock
or any options, warrants or rights of any kind to acquire any shares of
their capital stock or any debt or equity securities convertible into or
exchangeable for such capital stock or (y) long-term debt, other than as
required by the governing instruments relating thereto or as required by
the terms of the Company Plans, the Company Options or the Company Warrants
as in effect on the date hereof; or (vi) enter into any contract, agree-
ment, commitment or arrangement with respect to any of the foregoing;
(c) enter into or amend any employment, severance,
special pay arrangement with respect to termination of employment or other
arrangements or agreements with any directors, officers or key employees;
(d) adopt, enter into or amend any, or become obligated
under any new, bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, health care, employment or other
employee benefit plan, agreement, trust, fund or arrangement for the
benefit or welfare of any employee or retiree, except as required to comply
with changes in applicable law occurring after the date hereof and except,
with respect to all plans other than bonus plans, in the ordinary course of
business and consistent with past practice;
<PAGE> 41
(e) amend any agreements relating to its outstanding
indebtedness or capital stock, including without limitation the Agreement in
Contemplation of Merger or the Series D Stockholder Agreement; or
(f) make any material Tax election or settle any
material Tax audit or controversy.
Section 6.2 Conduct of Business of Parent Pending the Effec-
tive Time. Except as expressly permitted or contemplated by this Agreement
or as shall be consented to by the Company (which consent shall not be
unreasonably withheld or delayed), until the Effective Time Parent shall,
and shall cause each of its Subsidiaries to, conduct its operations in the
ordinary and usual course of business consistent with past practice and use
their reasonable best efforts to preserve intact their respective business
organizations' goodwill, keep available the services of their respective
present officers and key employees, and preserve the goodwill and business
relationships with suppliers, distributors, customers and others having
business relationships with them. Without limiting the generality of the
foregoing, and except as otherwise permitted by this Agreement, prior to
the Effective Time, without the consent of Company (which consent shall not
be unreasonably withheld), Parent will not, and will cause each of its
Subsidiaries not to:
(a) amend or propose to amend their respective charters
or bylaws (other than as contemplated by this Agreement); or split, combine
or reclassify their outstanding capital stock or declare, set aside or pay
any dividend or distribution in respect of any capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock (other than (i)
dividends paid by Subsidiaries of Parent solely to Parent or another
wholly-owned subsidiary of Parent, (ii) the Parent Stock Split, (iii) as
contemplated by Section 3.4(a) hereof or (iv) as set forth in Section
6.2(a) of the Parent Disclosure Letter);
(b) (i) except as contemplated by Article II or by
Sections 7.8 and 7.9, issue or authorize or propose the issuance of, sell,
pledge or dispose of, or agree to issue or authorize or propose the
issuance of, sell, pledge or dispose of, any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of their
capital stock of any class or any debt or equity securities convertible
into or exchangeable for such capital stock, other than any such issuance
pursuant to options, warrants, rights or convertible securities outstanding
as of the date hereof in accordance with their terms in effect on the
<PAGE> 42
date hereof; (ii) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets in
each case which are material, individually or in the aggregate, to Parent
and its Subsidiaries, taken as a whole, other than acquisitions of
facilities with respect to which Parent has entered into binding agreements
prior to the date hereof and which are described in Section 6.2 of the
Parent Disclosure Letter (it being understood that, as between the Company
and Parent, Parent shall not be obligated to consummate such acquisitions,
and the failure to consummate any such acquisition shall not affect any
obligation of the parties hereunder, nor shall it be taken into account in
determining whether a Material Adverse Effect with respect to Parent shall
have occurred); (iii) sell (including by sale-leaseback), lease, pledge,
dispose of or encumber any assets or interests therein, which are material,
individually or in the aggregate, to such party and its Subsidiaries, taken
as a whole, other than in the ordinary course of business and consistent
with past practice; (iv) except as contemplated by Section 7.17(b), or in
connection with the Agreement in Contemplation of Merger, incur or become
contingently liable with respect to any material indebtedness for borrowed
money or guarantee any such indebtedness or issue any debt securities or
otherwise incur any material obligation or liability (absolute or
contingent) other than short-term indebtedness in the ordinary course of
business and consistent with past practice; (v) redeem, purchase, acquire
or offer to purchase or acquire any (x) shares of its capital stock or any
options, warrants or rights of any kind to acquire any shares of their
capital stock or any debt or equity securities convertible into or
exchangeable for such capital stock or (y) long-term debt, other than as
required by the governing instruments relating thereto or as required by
the Parent PSAR Plan or Section 7.9; or (vi) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(c) enter into or amend any employment, severance,
special pay arrangement with respect to termination of employment or other
arrangements or agreements with any directors, officers or key employees,
except as contemplated by Section 3.4(b) or Section 7.15 hereof;
(d) adopt, enter into, amend or become obligated under
any new, bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, health care, employment or other
employee benefit plan, agreement, trust, fund or arrangement for the
benefit or welfare of any employee or retiree, except (i) as required to
comply with changes in applicable law occurring
<PAGE> 43
after the date hereof, (ii) with respect to all plans other than bonus
plans, in the ordinary course of business and consistent with past practice
or (iii) as permitted by Sections 7.9 and 7.13 hereof; or
(e) make any material Tax election or settle any
material Tax audit or controversy.
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
Section 7.1 Company Takeover Proposals.
(a) The Company shall not, nor shall it permit any of
its Subsidiaries to, nor shall it authorize or permit any officer, director
or employee of or any investment banker, attorney or other advisor or
representative (each a "Representative" and collectively, the
"Representatives") of, the Company or any of its Subsidiaries to, (i)
solicit, initiate or encourage or otherwise facilitate any inquiries or the
making of any proposal or offer with respect to a Takeover Proposal, (ii)
except in accordance with Section 9.1(c), enter into any agreement with
respect to any Takeover Proposal, (iii) participate in any discussions or
negotiations regarding, or furnish to any person any nonpublic information
with respect to, a Takeover Proposal or (iv) otherwise facilitate any
effort or attempt to make or implement any Takeover Proposal; provided,
however, that nothing contained in this Agreement shall prevent the Company
or its board of directors from (x) furnishing nonpublic information to, or
entering into discussions or negotiations with, any person in connection
with an unsolicited bona fide written Takeover Proposal to the Company or
its stockholders, or recommending such unsolicited bona fide written
Takeover Proposal to the stockholders of the Company, if and only to the
extent that (A) the board of directors of the Company determines in good
faith based on the written advice of its special outside legal counsel that
such action is necessary for the Company's directors to comply with their
respective fiduciary duties to the Company's stockholders under applicable
law and (B) prior to furnishing such nonpublic information to, or entering
into discussions or negotiations with, such person, the board of directors
of the Company receives from such person or entity an executed confiden-
tiality agreement with terms no less favorable to the Company than those
contained in the Confidentiality Agreement (it being understood that such
confidentiality agreement may permit the making by such person or entity of
the Takeover Proposal),
<PAGE> 44
or (y) complying with Rule 14e-2 promulgated under the Exchange Act with
regard to a Takeover Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preced-
ing sentence by any Representative of the Company or any of its Sub-
sidiaries shall be deemed to be a breach of this Section 7.1 by the Comp-
any. The Company shall immediately cease and cause to be terminated any
existing activities, discussions or negotiations by the Company or any of
its Representatives with any parties conducted heretofore with respect to
any of the foregoing.
(b) The Company shall promptly advise Parent orally and
in writing of any Takeover Proposal or any inquiry or request for
information with respect to or which could lead to any Takeover Proposal
and the identity of the person making such Takeover Proposal or inquiry.
The Company shall keep Parent promptly and fully informed in all material
respects of the status and details of any such Takeover Proposal or
inquiry.
Section 7.2 Parent Takeover Proposals.
(a) Parent shall not, nor shall it permit any of its
Subsidiaries to, nor shall it authorize or permit any Representative of
Parent or any of its Subsidiaries to, (i) solicit, initiate or encourage or
otherwise facilitate any inquiries or the making of any proposal or offer
with respect to a Takeover Proposal, (ii) except in accordance with Section
9.1(d), enter into any agreement with respect to any Takeover Proposal,
(iii) participate in any discussions or negotiations regarding, or furnish
to any person any nonpublic information with respect to, a Takeover
Proposal or (iv) otherwise facilitate any effort or attempt to make or
implement any Takeover Proposal; provided, however, that nothing contained
in this Agreement shall prevent Parent or its board of directors from fur-
nishing nonpublic information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited bona fide
written Takeover Proposal to Parent or its shareholders, or recommending
such unsolicited bona fide written Takeover Proposal to the shareholders of
Parent, if and only to the extent that (x) the board of directors of Parent
determines in good faith based on the written advice of its special outside
legal counsel that such action is necessary for Parent's directors to
comply with their fiduciary duties to the Parent Shareholder under applica-
ble law and (y) prior to furnishing such nonpublic information to, or
entering into discussions or negotiations with, such person, the board of
directors of Parent receives from such person or entity an executed
confidentiality agreement, with terms no less favorable to Parent than
those contained in the Confidentiality Agreement (it being understood that
such confidentiality
<PAGE> 45
agreement may permit the making by such person or entity of the
Takeover Proposal). Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding sentence by
any Representative of Parent or any of its Subsidiaries shall be deemed to
be a breach of this Section 7.2 by Parent. Parent shall immediately cease
and cause to be terminated any existing activities, discussions or negotia-
tions by Parent or any of its Representatives with any parties conducted
heretofore with respect to any of the foregoing.
(b) Parent promptly shall advise the Company orally and
in writing of any Takeover Proposal or any inquiry or request for
information with respect to or which could lead to any Takeover Proposal
and the identity of the person making such Takeover Proposal or inquiry.
Parent shall keep the Company promptly and fully informed in all material
respects of the status and details of any such Takeover Proposal or
inquiry.
Section 7.3 Access to Information. Subject to compliance with
applicable law, upon reasonable notice Parent and the Company shall each
(and shall cause each of their respective Subsidiaries to) afford to the
other and the officers, employees, accountants, counsel, financial advisors
and other representatives of the other, reasonable access during normal
business hours throughout the period prior to the Effective Time to all of
its properties, books, contracts, commitments and records and, during such
period, each of Parent and the Company shall (and shall cause each of their
respective Subsidiaries to) furnish promptly to the other or their counsel
(a) a copy of each filing made by such party with any Governmental Entity
in connection with this Agreement and the transactions contemplated hereby,
including without limitation each report, schedule, registration statement
and other document filed or received by it during such period pursuant to
the requirements of Federal securities laws, (b) frequent reports on
operational matters of materiality and the general status of ongoing
operations and (c) all other information concerning its businesses, proper-
ties and personnel as such other party may reasonably request. Unless
otherwise required by law, the parties will hold any such information which
is nonpublic in confidence pursuant to the terms of the Confidentiality
Agreement.
<PAGE> 46
Section 7.4 Form S-4 and Proxy Statement. As soon as is
reasonably practicable after the date hereof, the Company and Parent shall
prepare and file the Proxy Statement with the SEC and Parent shall promptly
prepare and file with the SEC the Form S-4 in which the Proxy Statement will
be included. Each of the Company and Parent shall use its best efforts to
have the Form S-4 declared effective under the Securities Act as promptly as
practicable after such filing. Parent shall also use its best efforts to
take any action required to be taken under applicable state securities and
blue sky laws in connection with the issuance of shares of Parent Common
Stock in the Merger and the other transactions contemplated by this Agreement.
Parent and the Company shall promptly furnish to each other all informa-
tion, and take such other actions, as may reasonably be requested in
connection with any action by any of them in connection with this Section 7.4.
Section 7.5 Stockholder Approval; Recommendation.
(a) Subject to the fiduciary obligations of its
directors under applicable law, the Company will take, in accordance with
applicable law and its certificate of incorporation and bylaws, all action
necessary to convene a meeting of holders of shares of Company Stock as
promptly as practicable after the Form S-4 is declared effective to
consider and vote upon the approval of this Agreement and the Merger.
Subject to its fiduciary obligations under applicable law, the Company's
board of directors shall recommend such approval and shall take all lawful
action to solicit such approval.
(b) Subject to the fiduciary obligations of its
directors under applicable laws, Parent will take, in accordance with
applicable law and its articles of incorporation and bylaws, all action
necessary to obtain the Requisite Parent Vote, whether by written consent
or at a meeting.
Section 7.6 Affiliates. The Company shall use its best
efforts to cause each principal executive officer, each director and each
other person who may be deemed to be an "affiliate," for purposes of Rule
145 under the Securities Act, of the Company to deliver to Parent on or
prior to the Effective Time a written agreement to the effect that such
person will not offer to sell, sell or otherwise dispose of any shares of
Parent Common Stock issued in the Merger, except, in each case, pursuant to
an effective registration statement or in compliance with Rule 145, as
amended from time to time, or in a transaction which, in the opinion of
legal counsel satisfactory to Parent, is exempt from the registration
requirements of the Securities Act.
<PAGE> 47
Section 7.7 Agreement to Cooperate; Further Assurances.
(a) Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and
regulations, subject to the requisite vote of the stockholders of Parent
and the Company, to consummate and make effective the transactions contem-
plated by this Agreement and to satisfy the conditions set forth in Article
VIII hereof including providing information and using reasonable efforts to
obtain all necessary or appropriate waivers, consents and approvals, and
effecting all necessary registrations and filings (including filings under
the HSR Act) and executing, or causing the execution of, such consents or
resolutions on the part of Merger Sub as may be necessary to consummate the
transactions contemplated hereby. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes
of this Agreement, the proper officers and directors of each party to this
Agreement shall take all necessary actions to the extent not inconsistent
with their other duties and obligations or applicable law.
(b) Without limiting the generality of the undertakings
pursuant to this Section 7.7, the Company (in the case of clauses (i) and
(iii)) and Parent (in all cases set forth below) agree to take or cause to
be taken the following actions: (i) provide promptly to any and all
Federal, state, local or foreign court or Government Entity with
jurisdiction over enforcement of any applicable antitrust laws ("Government
Antitrust Entity") information and documents requested by any Government
Antitrust Entity or necessary, proper or advisable to permit consummation
of the Merger and the transactions contemplated by this Agreement; (ii) if
necessary, the proffer by Parent of its willingness to promptly enter into
good faith negotiations with the relevant Government Antitrust Entity (and
to enter into agreements with the relevant Government Antitrust Entity with
respect thereto) with respect to actions reasonably necessary or advisable
to avoid the commencement of a proceeding to delay, restrain, enjoin or
otherwise prohibit consummation of the Merger by any Government Antitrust
Entity; and (iii) in the event that any permanent or preliminary injunction
or other order is entered or becomes reasonably foreseeable to be entered
in any proceeding which would make consummation of the Merger in accordance
with the terms of this Agreement unlawful or that would prevent or
materially delay consummation of the Merger or the other transactions
contemplated by this Agreement, use its best efforts to take promptly any
and all steps (including the appeal thereof, the posting of a bond or the
taking of the steps contemplated by clause (ii) of this
<PAGE> 48
paragraph) reasonably necessary to vacate, modify or suspend such
injunction or order so as to permit such consummation on a schedule as
close as possible to that contemplated by this Agreement.
Section 7.8 Company Options, Rights and Warrants.
(a) The Board of Directors of the Company shall not take
any action to cause or cause the transactions contemplated by this Agree-
ment to result in the acceleration of payment, vesting or exercisability of
any benefit under any Company Options, Warrants or Rights, or any other
incentive compensation arrangement or agreement other than as required
under the agreements evidencing or under which the Company Options,
Warrants or Rights were issued (or such other incentive compensation
arrangements or agreements), in each case as in effect on the date hereof.
(b) As of the Effective Time, each outstanding option to
purchase shares of Company Common Stock and each outstanding stock appreci-
ation right with respect to Company Common Stock (collectively the
"Company Options and Rights") (other than options to purchase 1,172,500
shares of Company Common Stock issued in February 1996 under the Champion
Healthcare Corporation 1996 Long-Term Incentive Stock-Based Award Plan (the
"Senior Executive Options")), and each outstanding Company Warrant (the
Company Warrants and the Company Options and Rights being referred to
herein collectively as the "Company Options, Warrants or Rights") as of the
Effective Time, shall be assumed by Parent and converted into options and
warrants to purchase shares of and stock appreciation rights with respect
to (collectively, "Parent Options, Warrants or Rights") that number of
shares of Parent Common Stock equal to the number of shares of Company Com-
mon Stock subject to such Company Options, Warrants or Rights (other than
the Senior Executive Options) at an exercise price equal to the per share
exercise price of the respective Company Options, Warrants or Rights, which
respective Parent Options, Warrants or Rights shall be subject as nearly as
possible to the same terms and conditions (including vesting schedule) as
the respective Company Options, Warrants or Rights. Prior to the Effective
Time of the Merger, the Senior Executive Options (whether vested or
unvested) shall no longer be outstanding or exercisable and, in lieu of
such options, equitable arrangements shall be made for persons who hold
such options in an aggregate amount not to exceed (i) $2,409,700 less (ii)
the amount of such sum in clause (i) attributable to the 40,000 directors'
options referenced in Section 6.1(b)(i), if any, that are issued prior to,
and converted into Parent Options, at the Effective Time.
<PAGE> 49
(c) As soon as practicable after the Effective Time,
Parent shall file a registration statement on Form S-8 (or any successor or
other appropriate forms) with respect to the shares of Parent Common Stock
subject to the Parent Options and Rights and shall use its reasonable
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus
or prospectuses contained therein) for so long as such Parent Options and
Rights remain outstanding. Parent shall use its best efforts to administer
the Parent Options and Rights assumed pursuant to this Section 7.8 in a
manner that complies with Rule l6b-3 promulgated under the Exchange Act,
but only to the extent the Company Options and Rights complied with such
Rule prior to the Merger.
(d) After the Effective Time, Parent shall use
reasonable efforts to prepare and file a registration statement on Form S-1
(or any successor or other appropriate forms) if the New Parent Board
determines that such action is commercially reasonable in light of Parent's
operational and strategic plans and reasonably necessary to provide
adequate liquidity in connection with resales of shares of Parent Common
Stock received by Affiliates of the Company in the Merger or by holders of
the Company Warrants or exercise of Warrants upon the exercise of the
Company Warrants.
Section 7.9 Parent Rights.
(a) Except as provided in Section 7.9(b) below or is
otherwise required under the agreements evidencing or under which such
benefits are provided, the board of directors of Parent shall not take any
action to cause the transactions contemplated by this Agreement to result
in the acceleration of payment, vesting or exercisability of any benefit
under the Parent PSAR Plan or any other incentive compensation arrangement
or agreement.
(b) Effective as of the Effective Time of the Merger,
the Board of Directors of Parent shall take such steps as may be necessary
to terminate the Paracelsus Healthcare Corporation Phantom Equity Long-Term
Incentive Plan (the "Parent PSAR Plan") and provide that, subject to the
receipt by Parent of all necessary consents and releases, each participant
under the Parent PSAR Plan shall receive in full satisfaction of all rights
accrued thereunder with respect to any outstanding Phantom Stock Apprecia-
tion Rights ("PSARs") (whether or not vested) and any outstanding Phantom
Preferred Stock Units ("PPSUs") credited to such participant under the
Parent PSAR Plan, an allocable portion of the following aggregate consider-
ation: (i) options to purchase that number of shares of
<PAGE> 50
Parent Common Stock equal to 3.0% of the number determined by dividing (a)
the product of 450 and the Split Ratio by (B) 0.57; and (ii) $15 million in
cash. All such options shall (x) be fully vested and exercisable, (y) have
an exercise price equal to $0.01 per share of Parent Common Stock subject
to such option, and (z) be issued pursuant to a new stock option plan
adopted by Parent prior to the time the Form S-4 becomes effective under
the Securities Act in compliance with the provisions of Rule 16b-3 promul-
gated under the Securities Act and section 162(m) under the Code and
subject to such other terms and conditions as may be set forth in such
plan.
Section 7.10 Public Statements. The parties shall consult
with each other prior to issuing any public announcement or statement with
respect to this Agreement or the transactions contemplated hereby and shall
not issue any such public announcement or statement prior to such consulta-
tion, except as may be required by law.
Section 7.11 Letter of Company's Accountants. The Company
shall use its best efforts to cause to be delivered to Parent letters of
Coopers & Lybrand, dated the date on which the Form S-4 shall become
effective and the third business day prior to the Effective Time and ad-
dressed to Parent, in form and substance reasonably satisfactory to Parent
and customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
Section 7.12 Letter of Parent's Accountants. Parent shall use
its best efforts to cause to be delivered to the Company letters of Ernst &
Young, dated the date on which the Form S-4 shall become effective and the
third business day prior to the Effective Time and addressed to the Comp-
any, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
Section 7.13 Directors' and Officers' Indemnification.
(a) From and after the Effective Time, Parent shall
indemnify and hold harmless, to the fullest extent permitted under
applicable law (and Parent shall also advance reasonable expenses as
incurred to the fullest extent permitted under applicable law provided that
prior to any such advance the person to whom expenses are so advanced
provides to Parent an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to
<PAGE> 51
indemnification), each present and former director, officer and employee of
the Company and its Subsidiaries (collectively, the "Indemnified Parties")
against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively,
"Costs") incurred in connection with any action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior
to the Effective Time, including the transactions contemplated by this
Agreement; provided that Parent shall not be required to indemnify any
Indemnified Party pursuant hereto unless the Indemnified Party acted in
good faith and in a manner such Indemnified Party reasonably believed to be
in, or not opposed to, the best interests of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
(b) For a period of six years after the Effective Time,
Parent shall cause to be maintained in effect policies of directors and
officers' liability insurance maintained by the Company for the benefit of
those persons who are currently covered by such policies on terms no less
favorable than the terms of such current insurance coverage; provided,
however, that Parent shall not be required to expend in any year an amount
in excess of 175% of the annual aggregate premiums currently paid by the
Company for such insurance, as disclosed by the Company in Section 7.14 of
the Company Disclosure Letter; and provided, further, that if the annual
premiums of such insurance coverage exceed such amount, Parent shall be
obligated to obtain a policy with the best coverage available, in the
reasonable judgment of the Parent Board, for a cost not exceeding such
amount.
(c) Any Indemnified Party wishing to claim indemnifica-
tion under paragraph (a) of this Section 7.13, upon learning of any such
claim, action, suit, proceeding or investigation, shall promptly notify
Parent thereof, but the failure to so notify shall not relieve Parent of
any liability it may have to such Indemnified Party if such failure does
not materially prejudice the indemnifying party. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time) (i) Parent or the Surviving Subsidiary shall have
the right to assume the defense thereof and Parent shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in connec-
tion with the defense thereof, except that if Parent or the Surviving
Subsidiary elects not to assume such defense or if Parent is a party to any
such action, suit or proceeding and counsel for the Indemnified Parties
advises Parent in writing that there are issues which raise conflicts of
interest between Parent or the
<PAGE> 52
Surviving Subsidiary and the Indemnified Parties, the Indemnified Parties
may retain counsel, and, subject to the provisions of Section 7.13(a) and
applicable law and with respect to the advancement of expenses, Parent or
the Surviving Subsidiary shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties as statements therefor are received;
provided, however, that Parent shall be obligated pursuant to this
paragraph (c) to pay for only one firm of counsel for all Indemnified
Parties, which counsel shall be reasonably satisfactory to Parent; (ii) the
Indemnified Parties shall cooperate in the defense of any such matter; and
(iii) neither Parent nor the Surviving Subsidiary shall be liable for any
settlement effected without their prior written consent (which shall not be
unreasonably withheld). Neither Parent nor the Surviving Subsidiary shall
have any obligation hereunder to any Indemnified Party if and when a court
of competent jurisdiction shall ultimately determine, and such determina-
tion shall have become final, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law.
(d) If Parent or the Surviving Subsidiary or any of its
successors or assigns (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (ii) shall
transfer all or substantially all of its properties and assets or any
individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of Parent or
the Surviving Subsidiary shall assume all of the obligations set forth in
this Section 7.13.
(e) The provisions of this Section 7.13 are intended to
be for the benefit of, and shall be enforceable by, each Indemnified Party,
his or her heirs and his or her representatives.
Section 7.14 Stock Exchange Listing. The parties shall use
their best efforts to cause the shares of Parent Common Stock to be issued
in the Merger and as otherwise contemplated by Sections 7.8 and 7.9 hereof
to be approved for listing on the New York Stock Exchange, Inc. (the
"NYSE"), or, if such listing would not be available to Parent immediately
following the Effective Time, the American Stock Exchange, Inc. (the
"AMEX"), in each case subject to official notice of issuance, prior to the
Effective Time. The Company shall use its best efforts to cause the shares
of Company Common Stock to be no longer listed on the AMEX and de-
registered under the Exchange Act as soon as practicable following the
Effective Time.
<PAGE> 53
Section 7.15 Execution of the Other Agreements. At or prior to
the Effective Time, Parent shall execute and deliver to the other parties
thereto (i) the Shareholder Agreement, (ii) the Voting Agreement, (iii) the
Parent Shareholder Registration Rights Agreement, (iv) the Company
Investment Group Registration Rights Agreement, (v) the Employment
Agreements, (vi) the Parent Shareholder Services Agreement, (vii) the
Non-Compete Agreement and (viii) the Dividend and Note Agreement.
Section 7.16 Tax Treatment. Each of the parties shall use its
reasonable best efforts, whether before or after the Effective Time, to
cause the Merger to qualify as a "reorganization" within the meaning of
section 368(a) of the Code and to obtain the opinions of counsel referred
to in Sections 8.2(d) and 8.3(d) and to provide counsel with such
representations as are customarily necessary to issue such opinions.
Section 7.17 Other Actions by the Company and/or Parent.
(a) Takeover Statute. If any takeover statute is or may
become applicable to the Merger, the Shareholder Agreement or the other
transactions contemplated by this Agreement, each of Parent and the Company
and its board of directors shall grant such approvals and take such actions
as are necessary so that such transactions may be consummated as promptly
as practicable on the terms contemplated by this Agreement or by the Merger
and otherwise act to eliminate or minimize the effects of such statute or
regulation on such transactions.
(b) Debt Restructuring. Parent and Company shall use
their reasonable best efforts to refinance, or obtain reasonable amendments
or waivers to, the currently outstanding debt of Parent and Company as
appropriate in order to effect the Closing and to facilitate the combined
operations of the companies after the Effective Time. Parent agrees that,
from and after the Effective Time, it shall guarantee the then outstanding
debt obligations of the Surviving Subsidiary if and to the extent required
by the Agreement in Contemplation of Merger.
<PAGE> 54
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect
the Merger. The respective obligations of each party to effect the Merger
shall be subject to the fulfillment or waiver, at or prior to the Effective
Time, of the following conditions:
(a) This Agreement and the transactions contemplated
hereby shall have been approved and adopted by (i) the Company Requisite
Vote and (ii) the Parent Requisite Vote;
(b) The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated;
(c) The Form S-4 shall have become effective in accor-
dance with the provisions of the Securities Act, and no stop order suspend-
ing such effectiveness shall have been issued and remain in effect;
(d) No temporary restraining order, preliminary or
permanent injunction or other order or decree by any court or Governmental
Entity of competent jurisdiction which prevents the consummation of the
Merger or the transactions contemplated hereby shall have been issued and
remain in effect;
(e) No action shall have been taken, and no statute,
rule or regulation shall have been enacted, by any state or Federal
government or governmental agency which would prevent the consummation of
the Merger or the transactions contemplated hereby;
(f) The shares of Parent Common Stock required to be
issued hereunder shall have been approved for listing on the NYSE or AMEX,
as the case may be, subject to official notice of issuance; and
(g) The Employment Agreements shall have been executed
and delivered by (i) Parent and (ii) each of the respective parties.
<PAGE> 55
Section 8.2 Conditions to Obligation of the Company to Effect
the Merger. The obligation of Company to effect the Merger shall be subject
to the fulfillment or waiver, at or prior to the Effective Time, of the
following additional conditions:
(a) Parent shall have performed in all material respects
its agreements contained in this Agreement required to be performed on or
prior to the Effective Time and the representations and warranties of
Parent contained in this Agreement shall be true and correct on and as of
the date of this Agreement and on and as of the Effective Time as if made
on and as of such date, except as contemplated or permitted by this Agree-
ment and the Company shall have received a certificate of the Chief
Executive Officer and the Chief Financial Officer of Parent to that effect;
(b) Parent shall have obtained the consent or approval
of each person whose consent or approval shall be required in connection
with the transactions contemplated hereby under any loan or credit
agreement, note, mortgage, indenture, lease, license or other agreement or
instrument, except those for which failure to obtain such consents and
approvals would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, or upon the consummation of the transactions
contemplated hereby;
(c) The Company shall have received the letter of Ernst
& Young referred to in Section 7.12 hereof;
(d) The Company shall have received an opinion from
Sullivan & Cromwell substantially to the effect that (i) the Merger will
qualify as a reorganization within the meaning of section 368(a) of the
Code and (ii) no gain or loss will be recognized by the Company
stockholders who receive shares of Parent Common Stock in the merger in
exchange for shares of Company Stock, except with respect to cash received
with respect to Dissenting Shares by holders of Company Preferred Stock who
properly exercise appraisal rights in accordance with Section 2.7;
(e) (i) Parent and the Parent Shareholder shall have
executed and delivered (x) the Shareholder Agreement, (y) the Non-Compete
Agreement and (z) the Dividend and Note Agreement; and (ii) Parent shall
have executed and delivered the Company Investment Group Registration
Rights Agreement; and
<PAGE> 56
(f) The Company shall have received an opinion from
Skadden, Arps, Slate, Meagher & Flom substantially to the effect that the
Restated Articles of Incorporation do not violate the applicable provisions
of the California General Corporation Law.
Section 8.3 Conditions to Obligations of Parent to Effect the
Merger. The obligations of Parent to effect the Merger shall be subject to
the fulfillment or waiver, at or prior to the Effective Time, of the
additional following conditions:
(a) The Company shall have performed in all material re-
spects its agreements contained in this Agreement required to be performed
on or prior to the Effective Time and the representations and warranties of
the Company contained in this Agreement shall be true and correct on and as
of the date of this Agreement and on and as of the Effective Time as if
made on and as of such date, except as contemplated by this Agreement, and
Parent shall have received a certificate of the Chief Executive Officer and
the Chief Financial Officer of the Company to that effect;
(b) The Company shall have obtained the consent or
approval of each person whose consent or approval shall be required in
connection with the transactions contemplated hereby under any loan or
credit agreement, note, mortgage, indenture, lease, license or other agree-
ment or instrument, except those for which failure to obtain such consents
and approvals would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, or upon the consummation of the transactions
contemplated hereby;
(c) Parent shall have received the letter of Coopers &
Lybrand referred to in Section 7.11 hereof;
(d) Parent shall have received an opinion from Skadden,
Arps, Slate, Meagher & Flom substantially to the effect that the Merger
will qualify as a reorganization under Section 368(a) of the Code;
(e) The following agreements shall have been executed
and delivered by the relevant parties thereto (other than Parent and the
Parent Shareholder): (i) the Voting Agreement, and (ii) the Parent
Shareholder Registration Rights Agreement.
<PAGE> 57
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after approval by
the stockholders of the Company:
(a) by the mutual written consent of Parent and the
Company;
(b) by either Parent or the Company if (i) at a duly
held stockholders meeting of the Company, or any adjournment or
postponement thereof, the Company's stockholders shall not have approved
the Merger by the Company Requisite Vote; (ii) the Parent Shareholder shall
not have approved this Agreement and the transactions contemplated hereby
by the Parent Requisite Vote; (iii) the Merger shall not have been consum-
mated on or before December 31, 1996 (the "Termination Date"); provided
that the right to terminate this Agreement under this Section 9.1(b)(iii)
shall not be available to any party whose willful and material failure to
fulfill any obligation under this Agreement has been the cause of or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date; (iv) in the event of a breach by the other party of any
representation, warranty, covenant or agreement set forth herein which (x),
would give rise to a failure of a condition set forth in Section 8.2(a) or
8.3(a), as applicable, and (y) cannot be or has not been cured within 30
days after the giving of written notice to the breaching party of such
breach (provided that the terminating party is not then in breach of any
representation, warranty, covenant or other agreement that would give rise
to a failure of a condition as described in clause (x) above); (v) any Gov-
ernmental Entity, the consent of which is a condition to the obligations of
Parent and the Company to consummate the transactions contemplated hereby
shall have determined not to grant its consent and all appeals of such
determination shall have been taken and have been unsuccessful; or (vi) any
court of competent jurisdiction in the United States or any State shall
have issued an order, judgment or decree (other than a temporary re-
straining order) restraining, enjoining or otherwise prohibiting either of
the Merger and such order, judgment or decree shall have become final and
nonappealable;
(c) by the Company if the board of directors of the
Company shall concurrently approve, and the Company shall concurrently
enter into, a binding written agreement concerning a transaction that
constitutes a Takeover
<PAGE> 58
Proposal; provided, however, that (i) the board of directors of the Company
shall have complied with Section 9.5 in connection with such Takeover
Proposal; (ii) no termination pursuant to this Section 9.1(c) shall be
effective unless the Company shall simultaneously make the payments re-
quired by Section 9.6; and (iii) the right to terminate this Agreement
under this Section 9.1(c) shall not be available to the Company if the
Company at such time is in material breach of any of the terms of this
Agreement.
(d) by Parent if the board of directors of Parent shall
concurrently approve, and Parent shall concurrently enter into, a binding
written agreement concerning a transaction that constitutes a Takeover
Proposal; provided, however, that (i) the board of directors of Parent
shall have complied with Section 9.5 in connection with such Takeover
Proposal; (ii) no termination pursuant to this Section 9.1 shall be effec-
tive unless Parent shall simultaneously make the payments required by
Section 9.6; and (iii) the right to terminate this Agreement under this
Section 9.1(d) shall not be available to Parent if Parent at such time is
in material breach of any of the terms of this Agreement.
Section 9.2 Effect of Termination. In the event of termi-
nation of this Agreement by either Parent or the Company as provided in
Section 9.1 hereof, this Agreement shall forthwith become void (except as
set forth in this Section 9.2 and in Article X, the last sentence of
Sections 7.3 and Section 9.6 hereof and in the Confidentiality Agreement,
all of which shall survive the termination) and there shall be no liability
on the part of Parent, the Company or Merger Sub or their respective
officers or directors except for any breach of any of its obligations under
this Section 9.2 and the last sentence of Section 7.3 and Section 9.6
hereof. Notwithstanding the foregoing, no party hereto shall be relieved
from liability for any willful, material breach of this Agreement.
Section 9.3 Amendment. This Agreement may be amended by the
parties hereto at any time before or after approval hereof by the share-
holders of Parent or the Company, provided that after any such approval, no
amendment shall be made which (a) changes the number of shares of Parent
Common Stock into which shares of Company Stock are converted pursuant to
the terms hereof or (b) in any way materially adversely affects the rights
of holders of shares of Parent Common Stock or Company Stock. This Agree-
ment may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
<PAGE> 59
Section 9.4 Waiver. At any time prior to the Effective Time,
the parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agree- ments or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid if set forth in
an instrument in writing signed on behalf of such party.
Section 9.5 Procedure for Certain Terminations. A terminating
party shall provide to the other party written notice prior to any
termination of this Agreement pursuant to Section 9.1(c) or 9.1(d), as
applicable, advising such other party (i) that the board of directors of
the terminating party intends to enter into a binding written agreement
concerning a Takeover Proposal in accordance with the terms of this
Agreement, and (ii) as to the material terms of any such Takeover Proposal.
At any time after five business days following receipt of such notice, the
terminating party may terminate this Agreement as provided in Section
9.1(c) or 9.1(d), as applicable, only if the board of directors of the
terminating party determines that such proposal is more favorable to its
shareholders than the transactions contemplated by this Agreement (taking
into account all terms of such Takeover Proposal and this Agreement,
including all conditions, and which determination shall be made in light of
any revised proposal made by the non-terminating party prior to the
expiration of such five business day period) and concurrently enters into a
binding written agreement providing for the implementation of the
transactions contemplated by such Takeover Proposal.
Section 9.6 Fees and Expenses.
(a) The Surviving Subsidiary shall pay all charges and
expenses of the Company and the Exchange Agent, in connection with the
transactions contemplated by Article II, and Parent shall reimburse the
Surviving Subsidiary for such charges and expenses. Except as otherwise
provided in this Section 9.6, whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement, the
Shareholder Agreement, the Voting Agreement and the other transactions
contemplated hereby and thereby shall be paid by the party incurring such
costs or expenses, except that expenses incurred in connection with the
filing fee for the Form S-4, printing and mailing the Proxy Statement and
the Form S-4 and actions required to be taken under applicable state
securities and blue sky laws shall be shared equally by Parent and the
Company.
<PAGE> 60
(b) If this Agreement is terminated (i) pursuant to
Section 9.1(d) hereof or (ii) pursuant to (x) Section 9.1(b)(ii), (y)
Section 9.1(b)(iii) (provided, that the Company shall not be entitled to
any Termination Fee or Company Expenses in connection with a termination
pursuant to Section 9.1(b)(iii) if (A) any conditions in Article VIII
(other than the condition in Section 8.1(a)(ii)) of Parent to consummate
the Merger have not been satisfied or waived and (B) as of the Termination
Date Parent shall have taken all actions required to be taken by it under
this Agreement and otherwise shall not be in material breach of its obliga-
tions under this Agreement; provided, further, that nothing herein shall be
construed to affect the parties' obligations under Section 7.7) or (z) Sec-
tion 9.1(b)(iv) hereof, and in each case within twelve months from such
termination a Takeover Proposal involving Parent shall be consummated, then
Parent shall (in the case of Section 9.6(b)(i) upon such termination, and
in the case of Section 9.6(b)(ii) upon the consummation of such Takeover
Proposal) promptly (and in any event within two days of receipt by Parent
of written notice from the Company) pay to the Company (by wire transfer of
immediately available funds to an account designated by the Company) a
termination fee of $7,500,000 (the "Termination Fee"), and shall reimburse
the Company for all documented out-of-pocket expenses (including all fees
and expenses of its counsel, advisors, accountants and consultants)
incurred by or on behalf of the Company in connection with the transactions
contemplated by this Agreement up to an additional $2,500,000 ("Company
Expenses"). Parent's payment shall be the sole and exclusive remedy of the
Company against Parent and any of its Subsidiaries and their respective
directors, officers, employees, agents, advisors or other representatives
with respect to the breach of any covenant or agreement giving rise to such
payment, other than with respect to any claims for willful breach or bad
faith by Parent or Merger Sub.
(c) If this Agreement is terminated (i) pursuant to
Section 9.1(c) hereof, or (ii) pursuant to (x) Section 9.1(b)(i), (y)
Section 9.1(b)(iii) (provided, that Parent shall not be entitled to any
Termination Fee or Parent Expenses in connection with a termination pursu-
ant to Section 9.1(b)(iii) if (A) any conditions in Article VIII (other
than the condition in Section 8.1(a)(i)) of Company to consummate the
Merger have not been satisfied or waived and (B) as of the Termination Date
Company shall have taken all actions required to be taken by it under this
Agreement and otherwise shall not be in material breach of its obligations
under this Agreement; provided, further, that nothing herein shall be
construed to affect the parties' obligations under Section 7.7) or (z)
Section 9.1(b)(iv) hereof, and in each case within twelve months from such
termination a Takeover Proposal involving the Company shall be consummated,
then the
<PAGE> 61
Company shall (in the case of Section 9.6(c)(i) upon such termination, and
in the case of Section 9.6(c)(ii) upon the consummation of such Takeover
Proposal) promptly (and in any event within two days of receipt by the
Company of written notice from Parent) pay to Parent (by wire transfer of
immediately available funds to an account designated by Parent) the
Termination Fee, and shall reimburse Parent for all documented out-of-
pocket expenses (including all fees and expenses of its counsel, advisors,
accountants and consultants) incurred by or on behalf of Parent in connec-
tion with the transactions contemplated by this Agreement up to an addi-
tional $2,500,000 ("Parent Expenses," and hereinafter "Expenses" shall mean
Parent Expenses or Company Expenses, as applicable). The Company's payment
shall be the sole and exclusive remedy of Parent against the Company and
any of its Subsidiaries and their respective directors, officers,
employees, agents, advisors or other representatives with respect to the
breach of any covenant or agreement giving rise to such payments, other
than with respect to any claim for willful breach or bad faith by the
Company.
(d) If payment of a Termination Fee and Expenses is
required hereunder in connection with a Takeover Proposal that is intended
to be accounted for as a "pooling of interests" under APB 16 and any
applicable interpretations thereof and, but for such payment of the Termi-
nation Fee and Expenses, such accounting treatment would be available for
the transaction involved in such Takeover Proposal, then such Termination
Fee and Expenses shall be reduced to the maximum amount that would permit
such accounting treatment (the "maximum amount"); provided, that, in order
for a party obligated to pay a Termination Fee and Expenses (a "payor") to
reduce the Termination Fee and Expenses pursuant to this Section 9.6(d),
(i) such payor shall (in the case of a termination pursuant to Sections
9.1(c) and (d), upon termination, and in the case of Section 9.1(b)(i),
(ii), (iii) or (iv), reasonably prior to the time such Termination Fee and
Expenses is payable) provide the party entitled to the Termination Fee and
Expenses (the "payee") a written opinion of a nationally recognized ac-
counting firm that such Takeover Proposal qualifies for such accounting
treatment and providing such firm's estimation of the maximum amount and
(ii) a nationally recognized accounting firm retained by the payee must not
reasonably object to such opinions. In the event of a disagreement between
the payor and payee accounting firms, those firms shall mutually agree on a
third nationally recognized accounting firm whose judgment as to these
matters shall be final.
<PAGE> 62
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Non-Survival of Representations, Warranties and
Agreements. Except for the last sentence of Section 7.7(a) and Sections
7.8(c) and (d), 7.13, 7.16 and 9.6(a), and this Article X, none of the
representations, warranties and agreements in this Agreement shall survive
the Effective Time.
Section 10.2 Notices. Any notices or other communications re-
quired or permitted hereunder shall be in writing and shall be deemed duly
given upon (a) transmitter's confirmation of a receipt of a facsimile
transmission, (b) confirmed delivery by a standard overnight carrier or
when delivered by hand, or (c) the expiration of five business days after
the day when mailed by certified or registered mail, postage prepaid,
addressed at the following addresses (or at such other address as the
parties hereto shall specify by like notice):
If to Parent, to:
Paracelsus Healthcare Corporation
155 North Lake Avenue
Suite 1100
Pasadena, California 91101
Telecopy No. (818) 304-9588
Attention: R.J. Messenger,
President and Chief Executive Officer
with a copy to: Robert C. Joyner,
Vice President and General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Los Angeles, California 90071
Telecopy No. (213) 687-5600
Attention: Thomas C. Janson, Jr.
<PAGE> 63
If to the Company, to:
Champion Healthcare Corporation
515 West Greens Road
Suite 800
Houston, Texas 77067
Telecopy No. (713) 878-6686
Attention: Charles R. Miller,
President and Chief Executive Officer
with a copy to: James G. VanDevender,
Executive Vice President and
Chief Financial Officer
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004-2498
Telecopy No. (212) 558-3588
Attention: Neil T. Anderson
and a copy to:
Michener, Larimore, Swindle, Whitaker
Flowers, Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Fort Worth, Texas 76102
Telecopy No. (817) 335-6935 or (817) 878-0706
Attention: Wayne Whitaker
Section 10.3 Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall
be deemed to be followed by the words "without limitation."
<PAGE> 64
Section 10.4 Miscellaneous. This Agreement (including the
documents and instruments referred to herein) (a) together with the
Shareholder Agreement, the Confidentiality Agreement and the Voting
Agreement, constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof; (b) shall not be
assigned by operation of law or otherwise without the prior written consent
of the other parties hereto; and (c) shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Delaware (without giving effect to the provisions thereof relating to
conflicts of law). The parties hereby acknowledge that, except as
hereinafter agreed to in writing, no party shall have the right to acquire
or shall be deemed to have acquired shares of capital stock of the other
party pursuant to the Merger until consummation thereof.
Section 10.5 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original,
but all of which shall constitute one and the same agreement.
Section 10.6 Parties in Interest. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns and, except as
otherwise specifically provided in Section 7.13 hereof, nothing in this
Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 10.7 Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as
to that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as
is enforceable.
Section 10.8 Attorneys' Fees. If any action at law or equity,
including an action for declaratory relief, is brought to enforce or
interpret any provision of this Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and expenses from the other
party, which fees and expenses shall be in addition to any other relief
which may be awarded.
<PAGE> 65
IN WITNESS WHEREOF, Parent, the Company and Merger Sub have
caused this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
PARACELSUS HEALTHCARE CORPORATION
By /s/ R.J. MESSENGER
Name: R.J. Messenger
Title: President and Chief Executive Officer
CHAMPION HEALTHCARE CORPORATION
By /s/ CHARLES R. MILLER
Name: Charles R. Miller
Title: President and Chief Executive Officer
PC MERGER SUB, INC.
By /s/ R.J. MESSENGER
Name: R.J. Messenger
Title: President
<PAGE> 1
EXHIBIT A
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (this "Agreement") is entered into
as of ________ __, 1996, between _____________, [a ___________ corporation]
(the "Shareholder"), and Paracelsus Healthcare Corp., a California
corporation ("Paracelsus").
WHEREAS, Paracelsus, Champion Healthcare Corporation, a
Delaware corporation ("Champion"), and PC Merger Sub, Inc., a Delaware
corporation ("Merger Sub"), have entered into an Agreement and Plan of
Merger, dated as of April 12, 1996 (the "Merger Agreement"), providing for,
among other things, the merger (the "Merger") of Merger Sub with and into
Champion pursuant to the terms and conditions of the Merger Agreement, and
setting forth certain representations, warranties, covenants and agreements
of the parties thereto in connection with the Merger; and
WHEREAS, upon consummation of the Merger, the Shareholder will
continue to Beneficially Own Voting Securities of Paracelsus constituting a
majority of the Total Voting Power of Paracelsus;
NOW, THEREFORE, for good and valuable consideration, the
receipt, sufficiency and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. Certain Definitions. (a) For the purposes of this
Agreement, the following terms shall have the following meanings:
"Affiliate" and "Associate" when used with reference to any
Person shall have the meanings assigned to such terms in Rule 12(b)-2 of
the Exchange Act as in effect on the date hereof; provided, that Paracelsus
and its Subsidiaries and existing directors and executive officers of
Champion and Paracelsus who become and remain directors and executive
officers of Paracelsus shall not, solely as a result of holding such
office, be deemed Affiliates or Associates of any Investor for purposes of
this Agreement.
"Acquisition Proposal" shall mean any bona fide offer or
proposal for (i) a merger or other business combination (other than a
Surviving Company Merger) involving Paracelsus, (ii) the acquisition of any
Voting Securities representing more than 50% of the Total Voting Power of
Paracelsus after giving effect to such Acquisition
<PAGE> 2
Proposal or (iii) the acquisition of all or substantially all of the assets
of Paracelsus.
"Approved Acquisition Proposal" shall mean an Acquisition
Proposal that is approved and recommended (and, immediately prior to
consummation of such Acquisition Proposal, that continues to be
recommended) by a vote of 75% of the entire Board and by a majority of the
Independent Directors.
A Person shall be deemed the "Beneficial Owner" and to have
"Beneficial Ownership" of, and to "Beneficially Own", any Voting Securities
as to which such Person or any of such Person's Affiliates or Associates is
or may be deemed to be the beneficial owner pursuant to Rule 13d-3 or 13d-5
under the Exchange Act, as such rules are in effect on the date of this
Agreement, as well as any Voting Securities as to which such Person or any
of such Person's Affiliates or Associates has the right to become
Beneficial Owner (whether such right is exercisable immediately or only
after the passage of time or the occurrence of conditions) pursuant to any
agreement, arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with respect to a
bona fide public offering of securities), or upon the exercise of
conversion rights, exchange rights, rights (other than the rights under the
Rights Plan), warrants or options, or otherwise; provided, however, that a
Person shall not be deemed the "Beneficial Owner", or to have "Beneficial
Ownership" of, or to "Beneficially Own", any Voting Security (i) solely
because such Voting Security has been tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered Voting Security is accepted for payment or
exchange or (ii) solely because such Person or any of such Person's
Affiliates or Associates has or shares the power to vote or direct the
voting of such Voting Security pursuant to a revocable proxy or consent
given in response to a public proxy or consent solicitation made pursuant
to, and in accordance with, the applicable rules and regulations under the
Exchange Act, except if such power (or the arrangements relating thereto)
is then reportable under Item 6 of Schedule 13D under the Exchange Act (or
any similar provision of a comparable or successor report). For purposes
of this Agreement, in determining the percentage of the outstanding Voting
Securities with respect to which a Person is the Beneficial Owner, all
shares as to which such Person is deemed the Beneficial Owner shall be
deemed outstanding.
<PAGE> 3
"Board" shall mean the Board of Directors of Paracelsus.
"Closing Date" shall mean the date upon which the Closing (as
defined in the Merger Agreement) shall occur.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Group" shall have the meaning assigned to such term in Rule
13(d)-3 of the Exchange Act as in effect on the date hereof.
"Independent Directors" shall mean those directors of the
Board who are not Shareholder Directors, Transferee Directors or officers
of Paracelsus or any of its Subsidiaries and who do not have (and are not
an Affiliate of any Person who has) any material financial interest
with respect to the matter under consideration.
"Investor" shall mean the Shareholder and any Permitted
Transferee.
"Minority Shareholders" shall mean Beneficial Owners of Voting
Securities who are not an Investor, Affiliates or Associates of an Investor
or any member of a Group of which an Investor, or Affiliates or Associates
of the Investor, are members with respect to Shares (in each case for each
Investor and Affiliates and Associates of such Investor only for so long as
this Agreement is in effect with respect to the respective Investor).
"Minority Shares" shall mean the Shares Beneficially Owned by
Minority Shareholders.
"Permitted Transferee" shall mean a permitted transferee under
Section 5(a), the proviso of Section 5(c), Section 5(f), Section 5(g),
Section 5(h) or Section 5(i).
"Person" shall mean an individual, corporation, partnership,
limited liability company, association, trust or other entity or
organization, including a governmental or political subdivision or an
agency or instrumentality thereof.
"Qualified Parties" shall mean any (i) trust described in
Section 664 of the Code (or any substantially
<PAGE> 4
similar entity under non-U.S. tax laws) of which the Investor or Family
Members of the Investor are income beneficiaries and (ii) any charitable
organization described in Section 501(c)(3) of the Code (or any
substantially similar entity under non-U.S. tax laws), in both cases that
is or simultaneously agrees to be bound as an Investor under this
Agreement.
"Rights Plan" shall have the meaning assigned thereto in the
Merger Agreement.
"Shares" shall mean the shares of common stock, no par value
per share, of Paracelsus, to be issued in the Merger.
"Subsidiary" shall mean, with respect to any Person, any entity
at least 50% of the Voting Securities of which are owned directly or
indirectly by such Person.
"Surviving Company Merger" shall mean any merger or other
business combination or reorganization (i) where the transaction has been
approved by a unanimous vote of the entire Board or (ii) where the holders
of Voting Securities of Paracelsus prior to such transaction will
beneficially own (solely for the purpose of this definition, as determined
pursuant to Rule 13d-3 or Rule 13d-5 of the Exchange Act) in the aggregate
at least 60% of the surviving corporation's Total Voting Power immediately
giving effect to such transaction.
"Transfer" shall mean any direct or indirect sale, transfer,
assignment, pledge, hypothecation, mortgage, or other disposition,
including those by operation or succession of law, merger or otherwise, or
any encumbrance (other than encumbrances arising by operation of law).
"Total Voting Power" shall mean the non-diluted aggregate
number of votes that may be cast by the holders of outstanding Voting
Securities.
"Voting Securities" shall mean all securities entitled to vote
in the ordinary course in the election of directors or of Persons serving
in a similar governing capacity, including the voting rights attached to
such securities and rights or options to acquire such securities.
"Wholly-Owned Subsidiary" shall mean, with respect to any
Person, a Subsidiary all of the Voting Securities of which are owned,
directly or indirectly, by such Person.
<PAGE> 5
(b) For the purposes of this Agreement, the following terms
shall have the meanings assigned to them in the corresponding
Sections of this Agreement:
"Acceptance Notice" Section 7(b)
"Amended Proposal Notice" Section 7(a)
"Champion Capital Stock" Section 2(b)
"Champion Common Stock" Section 2(b)
"Eligible Person" Section 9(a)
"Fair Proposal" Section 6
"Fair Value" Section 6(b)
"Family Members" Section 5(h)
"Heirs" Section 5(h)
"Initiation Date" Section 6(a)
"Investor Appraiser" Section 6(a)
"Higher Appraised Amount" Section 6(c)
"Lower Appraised Amount" Section 6(c)
"Mutually Appraised Amount" Section 6(c)
"Mutually Designated Appraiser" Section 6(c)
"Offer Price" Section 7(a)
"Paracelsus Appraiser" Section 6(a)
"Paracelsus Common Stock" Section 2(a)
"Price" Section 6(c)
"Proposal Notice" Section 7(a)
"Shareholder Directors" Section 9(a)
"Shareholder Proposal" Section 7(a)
"Transferee Directors" Section 9(g)
<PAGE> 6
2. Representations of the Shareholder. As of the date
hereof, the Shareholder represents and warrants to Paracelsus that:
(a) such Shareholder Beneficially Owns all of the outstanding
shares of common stock, no par value per share, of Paracelsus
("Paracelsus Common Stock");
(b) such Shareholder does not Beneficially Own any shares of
common stock, par value $.01 per share, of Champion ("Champion Common
Stock") or any shares of Series C Preferred Stock or Series D
Preferred Stock of Champion (collectively, the "Champion Capital
Stock");
(c) this Agreement has been duly executed and delivered by the
Shareholder and, assuming due execution by Paracelsus, this Agreement
is a legal, valid and binding obligation, enforceable against the
Shareholder in accordance with its terms; and
(d) The execution, delivery and performance by the Shareholder
of this Agreement do not and will not contravene or conflict with any
provision of any law, regulation, judgment, injunction, order or
decree binding upon the Shareholder or any agreement, contract or
other instrument to which the Shareholder is a party, other than any
such contraventions or conflicts that would not prevent or materially
delay the performance of the Shareholder's obligations hereunder.
3. Representations of Paracelsus. As of the date hereof,
Paracelsus represents and warrants to the Shareholder that the execution,
delivery and performance of this Agreement by it has been duly and validly
authorized by all necessary corporate action on its part and, assuming due
execution by the Shareholder, that this Agreement is a legal, valid and
binding obligation, enforceable against Paracelsus in accordance with its
terms.
4. Standstill Provisions. An Investor shall not, and shall
not suffer or permit any Affiliates or Associates of such Investor to,
whether acting alone or in concert with others:
(a) make, or in any way participate in, directly or
indirectly, any "solicitation" of "proxies" (as such terms are used
in Regulation 14A promulgated under the Exchange Act) to vote or
consent with respect to any
<PAGE> 7
Voting Securities of Paracelsus in any way that is inconsistent
with the provisions of this Agreement;
(b) unless Paracelsus shall be in material breach of
Section 9, become a "participant" in any "election contest" (as such
terms are defined or used in Rule 14a-11 under the Exchange Act) in
opposition to a Board slate of Paracelsus nominated by the Board;
(c) initiate or propose the approval of one or more
shareholder proposals with respect to Paracelsus as described in
Rule 14a-8 under the Exchange Act, or induce or attempt to induce any
other Person to initiate any shareholder proposal with respect to
Paracelsus;
(d) except in accordance with Section 9 or solely in
connection with the termination of an executive employment contract,
seek election to or seek to place a representative on the Board or
seek the removal of any member of the Board;
(e) in any way that is inconsistent with the terms of this
Agreement, (i) solicit, seek to effect, negotiate with or provide
non-public information to any other Person with respect to, (ii) make
any statement or proposal, whether written or oral, to the Board or
any director or officer of Paracelsus with respect to or
(iii) otherwise make any public announcement or proposal whatsoever
with respect to, any form of business combination transaction (with
any Person) involving Paracelsus or the acquisition of a substantial
portion of the equity securities or assets of Paracelsus or any
Subsidiary of Paracelsus, including a merger, consolidation, tender
offer, exchange offer or liquidation of Paracelsus's assets, or any
restructuring, recapitalization or similar transaction with respect
to Paracelsus or any material Subsidiary of Paracelsus; provided,
however, that the foregoing shall not (x) apply to any discussion
between or among the Investor and Paracelsus or any of their
respective Affiliates, Associates, officers, employees agents or
representatives or (y) in the case of clause (ii) above, be
interpreted to limit the ability of the Investor, or any Shareholder
Director or Transferee Director to make any such statement or
proposal or to discuss any such proposal with any officer or director
of or advisor to Paracelsus or advisor to the Board unless, in either
case, it would reasonably be expected to require Paracelsus to make a
<PAGE> 8
public announcement regarding such discussion, statement or proposal;
(f) form, join or participate in or encourage the formation of
a Group with respect to any Voting Securities of Paracelsus, other
than a Group consisting solely of the Investors, Paracelsus and
Affiliates and Associates of the Investors and Paracelsus; provided,
that, except in connection with a Fair Proposal in accordance with
Section 6, no Investor nor Affiliates or Associates of such investor
shall in any case form, join or participate in or encourage the
formation of any Group of which the members, together with all of
such members' respective Affiliates and Associates, will, together
with the Investor and the Affiliates and Associates of the Investor,
Beneficially Own 66-2/3% or more of the Total Voting Power of
Paracelsus;
(g) except in compliance with Section 5, deposit any Voting
Securities of Paracelsus into a voting trust or subject any such
Voting Securities to any arrangement or agreement with respect to the
voting thereof, other than any such trust, arrangement or agreement
(i) the only parties to, or beneficiaries of, which are the Investor,
Qualified Parties, Paracelsus or Affiliates and Associates of the
Investor or Paracelsus and (ii) the terms of which do not require or
expressly permit any party thereto to act in a manner inconsistent
with this Agreement; provided that all of the Voting Securities
deposited into any such trust or subjected to any arrangement or
agreement, the parties to or beneficiaries of which include Qualified
Parties, shall be deemed to be Beneficially Owned by the respective
Investor for all purposes of this Agreement; or
(h) publicly disclose any intention, plan or arrangement
inconsistent with the terms of this Agreement, or make any such
disclosure privately if it would reasonably be expected to require
Paracelsus to make a public announcement regarding such intention,
plan or arrangement.
5. Voting Security Transfers. An Investor shall not, and
shall not suffer or permit any Affiliates or Associates of such Investor
to, Transfer, in any single transaction or group of related transactions,
any Voting Securities, except for a Transfer that complies with any of the
following subsections:
<PAGE> 9
(a) to any Person who owns 100% of the Total Voting Power of
the Investor and to any Wholly-Owned Subsidiary of the Investor or
any such Person; provided, that such transferee becomes a party to
this Agreement as an Investor and, in the case of a Transfer to a
Wholly-Owned Subsidiary, the Transferring Investor guarantees to
Paracelsus the performance of all obligations of such transferee
under this Agreement;
(b) to any Person such that, after such Transfer, such Person,
together with the Affiliates and Associates of such Person, will not
Beneficially Own, after giving effect to such Transfer, Voting
Securities of Paracelsus constituting 25% or more of the Total Voting
Power of Paracelsus; provided that, so long as this Agreement is in
effect with respect to such Investor, except in connection with a
Fair Proposal in accordance with Section 6 or a Shareholder Proposal
in accordance with Section 7, such Investor, or any Affiliates or
Associates of the Investor, shall not in any case, form, join or
participate in or encourage the formation of a Group with such
Person, or any Affiliates or Associates of such Person, of which the
members, together with all of such members' respective Affiliates and
Associates, will, together with such Investor and all Affiliates and
Associates of such Investor, Beneficially Own 25% or more of the
Total Voting Power of Paracelsus;
(c) in a bona fide pledge of such Voting Securities to a
financial institution to secure borrowings as permitted by applicable
laws, rules and regulations; provided, that, if such pledge results
in a pledge of more than 25% of the Total Voting Power of Paracelsus
to such financial institution, such financial institution agrees to
be bound by the obligations of the Investor under this Agreement (but
shall not have any of the rights of an Investor under this Agreement
until such pledgee acquires such Voting Securities upon foreclosure
pursuant to the terms of the pledge agreement, in which case such
pledgee may transfer such Voting Securities in accordance with this
Section as if such pledgee were an Investor hereunder and cause a
transferee to have all rights and obligations of a Permitted
Transferee hereunder);
(d) to underwriters in connection with an underwritten public
offering of such Voting Securities on a firm commitment basis
registered under the Securities Act of 1933, as amended, pursuant
<PAGE> 10
to which the sale of such Voting Securities will be in a manner to
effect a broad distribution;
(e) to Paracelsus or a Wholly-Owned Subsidiary of Paracelsus;
(f) to a Person so long as either immediately after or
simultaneously with the acquisition of such Voting Securities, such
Person or an Affiliate of such Person makes an Acquisition Proposal
to acquire all outstanding Shares at the same price and on equivalent
terms offered to the Investor and the Investor's Affiliates and
Associates that is made in compliance with the Exchange Act and the
rules and regulations thereunder; provided, that (i) other than with
respect to the Shares to be Transferred by the Investor or the
Investor's Affiliates or Associates, such Person may not purchase any
Shares in the Acquisition Proposal and the Acquisition Proposal may
not otherwise be consummated unless it is approved and recommended
(and, immediately prior to consummation of the Acquisition Proposal,
continues to be recommended) by a majority of the Independent
Directors, (ii) if the Acquisition Proposal is a tender or exchange
offer that is approved and recommended (and, immediately prior to
consummation of the Acquisition Proposal, continues to be
recommended) by a majority of the Independent Directors, the terms of
such tender shall provide that such Person shall, and such Person
shall be required to, accept for payment and purchase all Shares
validly tendered and not withdrawn upon expiration of the offer if a
majority of the Minority Shares are validly tendered and not
withdrawn upon expiration of the offer and (iii) such Person shall
agree to be bound as an Investor by all obligations of the Investor
under this Agreement and shall remain so obligated notwithstanding
the termination of this Agreement with respect to any other Investor
in accordance with Section 16(e). In addition to the foregoing, for
a period of one year from the Closing Date, other than with respect
to the Shares to be Transferred by the Investor or the Investor's
Affiliates or Associates, (A) if the Acquisition Proposal is not a
tender or exchange offer, the Acquisition Proposal may not be
consummated unless it is approved by holders of a majority of the
Minority Shares at a meeting duly called therefor, in addition to any
vote required by law, or (B) if the Acquisition Proposal is a tender
or exchange offer, such Person may not accept for payment or purchase
any Shares in connection with the offer unless a majority of the
<PAGE> 11
Minority Shares have been tendered and not withdrawn upon
expiration of the offer;
(g) to any Qualified Parties; provided, that (i) at the time
of such Transfer, the Investor or the Family Members of the Investor
constitute a sufficient number of the directors or trustees, as the
case may be, of such Qualified Parties to permit approval of matters
by such Qualified Parties without the approval of any other director
or trustee of such Qualified Parties;
(h) in the case of a Transfer by an Investor who is a natural
Person, a Transfer (A) in the case of the death of such Investor, to
such Investor's executors, administrators, testamentary trustees,
heirs, devisees, intestates and legatees ("Heirs") and (B) to such
Investor's current or future spouse, parents, siblings or descendants
of such parents', siblings' or spouses (the "Family Members");
provided that such Heirs and Family Members, as the case may be,
simultaneously agree to be bound as an Investor to all of the
obligations of the Investor under this Agreement; or
(i) to any Person in connection with an Approved Acquisition
Proposal or Surviving Company Merger.
6. Prohibited Acquisitions and Circumstances Permitting
Acquisitions. An Investor shall not, and shall not suffer or permit any
Affiliates or Associates of the Investor to, acquire, or agree or offer to
purchase or otherwise acquire, in a transaction or group of related
transactions, any Voting Securities of Paracelsus such that the Investor,
together with the Affiliates and Associates of the Investor, after giving
effect to such transaction or transactions, will Beneficially Own 66-2/3%
or more of the Total Voting Power of Paracelsus, except pursuant to a Fair
Proposal (as hereinafter defined). For the purposes of this Agreement, a
"Fair Proposal" shall mean (i) an Acquisition Proposal by such Investor (or
such Investor's Affiliates or Associates) that is approved by the unanimous
vote of the Independent Directors or (ii) a transaction to acquire all of
the outstanding Shares that complies with all of the following provisions
of this Section:
<PAGE> 12
(a) Appraisers. The Investor shall make a written request
expressing the Investor's desire to acquire Beneficial Ownership of
Voting Securities to the Board. Promptly after the Board's receipt
of such written request, the Independent Directors will designate an
investment banking firm (the date of such designation, the
"Initiation Date") of recognized national standing that does not
Beneficially Own (excluding securities held on behalf of third
parties) a material amount of the securities of Paracelsus (the
"Paracelsus Appraiser") and the Investor will designate an investment
banking firm of recognized national standing that does not
Beneficially Own (excluding securities held on behalf of third
parties) a material amount of the securities of Paracelsus (the
"Investor Appraiser"), in each case to determine the fair value
(determined in accordance with the procedures described below) per
Share.
(b) Definition of Fair Value. The Investor acknowledges that
the consideration that would constitute fair value per Share is the
price per Share (including control premium) that an unrelated third
party would pay if it were to acquire all outstanding Shares
(including the Shares held by the Investor and Affiliates and
Associates of the Investor) in an arm's-length transaction, assuming
that Paracelsus was being sold in a manner reasonably designed to
solicit all possible participants and permit all interested parties
an opportunity to participate and to achieve the best value
reasonably available to the Shareholders at that time, taking into
account all then existing circumstances. Each of the investment
banking firms referred to in this Section will be instructed to
determine fair value per Share in this manner.
(c) Determination of Price. Within 30 days after the
Initiation Date, the Paracelsus Appraiser and the Investor Appraiser
will each determine its initial view as to the fair value per Share
and consult with one another with respect thereto. By the 45th day
after the Initiation Date, the Paracelsus Appraiser and the Investor
Appraiser will each have determined its final view as to the fair
value per Share. At that point, if the difference between the Higher
Appraised Amount (as defined below) and the Lower Appraised Amount
(as defined below) is not greater than 10% of the Higher Appraised
Amount, the price per Share (the "Price") will be the average of
those two views. Otherwise, the Paracelsus Appraiser and the
Investor Appraiser will agree upon and jointly designate a third
<PAGE> 13
investment banking firm of recognized national standing that does not
Beneficially Own (excluding securities held on behalf of third
parties) a material amount of the securities of Paracelsus (the
"Mutually Designated Appraiser") to determine such fair value. The
Mutually Designated Appraiser will, no later than the 60th day
after the Initiation Date, determine such fair value (the "Mutually
Appraised Amount"), and the Price will be (x) the Mutually Appraised
Amount, if such amount falls within the range of values that is
greater than one-third and less than two-thirds of the way between
the Lower Appraised Amount and the Higher Appraised Amount, or
(y) the average of the Mutually Appraised Amount and the other
Appraised Amount (Lower or Higher) that is closest to the Mutually
Appraised Amount, if the Mutually Appraised Amount does not fall
within that range; provided, that if the Price so determined is less
than the Lower Appraised Amount or more than the Higher Appraised
Amount, the Price shall be the Lower Appraised Amount or the Higher
Appraised Amount, as the case may be. During such 60 day period,
Paracelsus will not, subject to fiduciary duties and applicable law,
enter into or recommend to its shareholders any other Acquisition
Proposal.
As used herein, "Lower Appraised Amount" means the lower of the
respective final views of the Paracelsus Appraiser and the Investor
Appraiser as to fair value per Share and "Higher Appraised Amount"
means the higher of such respective final views.
(d) Fair Proposal.
(i) Once the Price is determined as provided above, the
Investor will have 15 days to notify the Board whether he
desires to proceed with a Fair Proposal at the Price.
(ii) If the Investor decides not to proceed with a Fair
Proposal, (x) he shall promptly notify the Board in writing of
such fact (it being understood that the failure to notify the
Board within 15 days shall constitute notification to the Board
that the Investor and the Affiliates and Associates of the
Investor do not desire to proceed with a Fair Proposal) and (y)
the Investor and the Affiliates and Associates of the Investor
shall not make a written request for an Acquisition Proposal to
the Board under this Section for a period of six months from
the date the Investor notifies (or is deemed to notify) the
<PAGE> 14
Board of his intent not to proceed with a Fair Proposal, provided
that the Investor and the Investor's Affiliates and Associates shall
not at any time be restricted from making a written request for an
Acquisition Proposal to the Board under this Section at a price that
is equal to or in excess of the last determined Price or from
exercising their rights under Section 7.
(iii) If the Investor decides to proceed with a Fair
Proposal, the Investor may pay or cause to be paid the Price in
cash or non-cash consideration or any combination of cash and
non-cash consideration that the Investor Appraiser and the
Paracelsus Appraiser mutually agree within 15 days will have an
aggregate market value, on a fully distributed basis, of not
less than the Price; provided, that in the event such
appraisers shall fail to reach such agreement, they shall
within five business days designate the Mutually Agreed
Appraiser to make such determination within ten days after such
designation, whose determination shall be final.
(e) Meeting of Shareholders; Tender Offer. If the Investor
determines to proceed with a Fair Proposal as set forth above, the
Investor and Paracelsus agree that each will enter into an agreement
with the other therefor (containing customary terms and conditions
applicable in a situation in which the acquiror has an ownership
position comparable to the Investor's ownership interest in
Paracelsus) and, if the Fair Proposal is not to be consummated
pursuant to a tender or exchange offer for all of the outstanding
Shares, will cause a meeting of shareholders of Paracelsus to be held
as soon as practicable to consider and vote thereon; provided, that,
for a period of one year following the Closing Date, no Fair Proposal
may be consummated unless (i) if the Fair Proposal is not a tender or
exchange offer, it is approved by the affirmative vote of the holders
of a majority of the Minority Shares at a meeting duly called
therefor, in addition to any vote required by law, or (ii) if the
Fair Proposal is a tender or exchange offer, a majority of the
Minority Shares have been validly tendered and not withdrawn and are
accepted for payment as of the expiration date (as may be extended)
of the offer. In the event that the Fair Proposal is not approved or
insufficient Shares are tendered to consummate the Fair Proposal in
accordance with the terms hereof within 180 days from the Initiation
Date (which period may be
<PAGE> 15
extended by a vote of 75% of the entire Board and a majority of the
Independent Directors of the Board), the Investor shall terminate
the Fair Proposal and shall not make a written request for an
Acquisition Proposal to the Board under this Section for a period of
one year from the Initiation Date; provided that the Investor and
the Investor's Affiliates and Associates shall not at any time be
restricted from exercising their rights under Section 7. Paracelsus
agrees, subject to fiduciary duties and in accordance with applicable
law, to promptly call and to take all other action necessary to hold
the shareholder meeting referred to above.
(f) Judgment of Independent Directors. Notwithstanding
anything to the contrary in the foregoing Sections 6(a)-(e), in the
event that the Independent Directors unanimously determine, in the
good faith exercise of their fiduciary duties, based upon the facts
and the circumstances existing at the time of such determination,
that is in the best interests of Paracelsus and the holders of the
Shares that the Independent Directors approve and recommend, in
accordance with the terms hereof, an Acquisition Proposal at a lower
price than the Price, then such unanimously approved Acquisition
Proposal shall be a Fair Proposal and the price at which the Investor
may consummate the Acquisition Proposal hereunder shall be the price
so determined by the Independent Directors.
7. Right of First Offer.
(a) Notification. After the Effective Time (as defined in the
Merger Agreement), Paracelsus will not enter into or recommend any
Approved Acquisition Proposal without first notifying the Shareholder
in writing (a "Proposal Notice") of such Approved Acquisition
Proposal and providing the Shareholder (including for purposes of
this Section 7, Affiliates of such Shareholder) the opportunity (as
hereinafter provided) to consummate an Acquisition Proposal on terms
substantially equivalent to and, if the Approved Acquisition Proposal
is a cash offer, at a cash price or, if the Approved Acquisition
Proposal includes non-cash consideration, at a price (in either case,
the "Offer Price") equal to the sum of the amount of any cash plus
the fair market value of any other consideration offered in such
prospective Approved Acquisition Proposal, as the same may be amended
or modified from time to time (a "Shareholder Proposal").
<PAGE> 16
The Proposal Notice shall set forth the identity of the proposed
purchaser and the material terms of the proposed Approved Acquisition
Proposal. In the event that the proposed Approved Acquisition
Proposal is amended or modified, Paracelsus shall promptly notify the
Shareholder in writing (an "Amended Proposal Notice"); provided that,
if the Shareholder does not provide an Acceptance Notice (as defined
below) after receipt of a Proposal Notice or any required Amended
Proposal Notice, no Amended Proposal Notice will be required unless
the terms of such amendments or modifications are less favorable in
any material respects to Paracelsus than those contained in the
Proposal Notice or any prior Amended Proposal Notices. Any required
Amended Proposal Notice shall set forth the identity of the proposed
purchaser and the material terms of the amended or modified proposed
Approved Acquisition Proposal.
(b) Response. Within 6 business days after receipt of the
Proposal Notice or any required Amended Proposal Notice, the
Shareholder shall notify (an "Acceptance Notice") the Board in
writing of his good faith intention to enter into negotiations
regarding a Shareholder Proposal pursuant to subsection (c) below.
The failure to notify the Board in such period shall constitute
notice of the Shareholder's intention not to pursue a Shareholder
Proposal. If the Shareholder fails to deliver an Acceptance Notice
after the Proposal Notice or, if applicable, the Amended Proposal
Notice, (i) the Disinterested Directors and the Board shall have the
right to approve and recommend the Approved Acquisition Proposal to
the shareholders of Paracelsus and (ii) Paracelsus shall have the
right to enter into such agreements and take such actions in
furtherance of consummating, and to consummate, the Approved
Acquisition Proposal at the Offer Price at any time within one year
from the date the Approved Acquisition Proposal was first made to
Paracelsus.
(c) Negotiation. For a period of 15 days from the date of the
last Acceptance Notice, the Shareholder shall have the non-exclusive
right to negotiate the Shareholder Proposal in good faith with the
Independent Directors of the Board and their representatives. If at
the end of that 15 day period, a majority of the Independent
Directors shall in the good faith exercise of their fiduciary duties
determine that the competing Approved Acquisition Proposal is
superior to the Shareholder Proposal or if the Shareholder Proposal
is accepted and is then terminated in accordance with its
<PAGE> 17
terms, (i) the Independent Directors and the Board shall have the
right to approve and recommend such competing Approved Acquisition
Proposal to the shareholders of Paracelsus and (ii) Paracelsus shall
have the right to enter into such agreements and take such actions
in furtherance of consummating, and to consummate, such competing
Approved Acquisition Proposal at the Offer Price at any time within
one year from the date the Acquisition Proposal was first made to
Paracelsus.
(d) Non-Cash Valuation. If the consideration offered by the
prospective purchaser or transferee or, if permitted, offered by the
Shareholder, includes non-cash consideration, Paracelsus and the
Shareholder shall in good faith seek to agree upon the value of such
non-cash consideration. If Paracelsus and the Shareholder fail to
agree on such value within 15 days following receipt by the
Shareholder of the Proposal Notice, then the Independent Directors
and the Shareholder shall appoint a nationally recognized investment
banking firm mutually acceptable to the Independent Directors and the
Shareholder which shall resolve the issues in dispute; provided, that
if the Independent Directors and the Shareholder cannot agree on an
investment banking firm then each shall appoint a nationally
recognized investment banking firm which together shall within five
business days mutually agree on another nationally recognized
investment banking firm to which the items in dispute shall be
referred and which shall make a final and binding determination
within ten days. The value of any securities shall be the fair
market value of such securities and the value of any property other
than securities shall be the fair market value of such property. If
a determination under this paragraph (d) is required, any deadline
for acceptance provided for in this Section shall be postponed until
the third business day after the date of such determination. The
Shareholder and Paracelsus shall share equally in payment of all
expenses of such investment banking firms. All determinations made
pursuant to this paragraph (c) shall be final and binding on the
Paracelsus and the Shareholder.
(e) No Permitted Transferees. It is agreed and understood
that the provisions of this Section shall inure to the benefit of
only Paracelsus and the Shareholder and not to the benefit of any
Permitted Transferees hereunder.
<PAGE> 18
8. Agreement to Sell Voting Securities. Subject to the rights
of the Shareholder to propose, negotiate and consummate a Shareholder
Proposal in accordance with Section 7, the Shareholder agrees that the
Shareholder will, and will cause any Affiliates or Associates of the
Shareholder to, sell in, tender into and vote in favor of, as the case may
be, any Approved Acquisition Proposal and any Shareholder Proposal approved
by the Independent Directors in accordance with Section 7 all Voting
Securities of Paracelsus Beneficially Owned by the Investor or any
Affiliate or Associate of the Investor. It is agreed and understood that
the provisions of this Section shall not be binding upon any Permitted
Transferees hereunder so long as, if the Shareholder continues to be
subject to this Agreement, such Permitted Transferee is not an Affiliate or
Associate of the Shareholder.
9. Board Representation.
(a) The Board; Shareholder Directors. The Board as of the
Effective Time shall number nine directors and may be increased by
the Board pursuant to the terms of this clause (a) and the by-laws of
Paracelsus. The Board shall be divided into three classes, with the
number of directors divided as equally as possible among those
classes. The Shareholder may request that Paracelsus include, and
Paracelsus shall include, as nominees for the Board slate recommended
by the Board, up to four persons designated by the Shareholder who
are Eligible Persons (the "Shareholder Directors"), one of whom shall
be a Class I director with an original term expiring in 1997, one of
whom shall be a Class II director with an original term expiring in
1998 and two of whom shall be Class III directors with original terms
expiring in 1999. If the Shareholder, together with his Affiliates
and Associates, shall cease to Beneficially Own (i) 35% of the Total
Voting Power of Paracelsus, the Shareholder agrees to vote, and to
use its best efforts to cause all Shareholder Directors to vote,
immediately to increase the size of the Board to 10 directors, (ii)
32.5% of the Total Voting Power of Paracelsus, the Shareholder agrees
to vote, and to use its best efforts to cause all Shareholder
Directors to vote, immediately to increase the size of the Board to
11 directors and (iii) 30% of the Total Voting Power of Paracelsus,
the Shareholder agrees to vote, and to use its best efforts to cause
all Shareholder Directors to vote, immediately to increase the size
of the Board to 12 directors; provided that each Investor hereby
agrees that any vacancies created by any such enlargement of the
Board shall be in Class III, Class II and Class I, respectively,
<PAGE> 19
and the nominees to such vacancies shall be Independent Directors.
For the purposes hereof, an "Eligible Person" shall mean (x)
the Shareholder and (y) any other person (A) other than a person
whose election to the Board, in the written opinion of counsel for
Paracelsus, is reasonably likely to violate or be in conflict with,
or result in any material limitation on the ownership or operation of
any business or assets of Paracelsus or its Subsidiaries under, any
statute, law, ordinance, regulation, rule, judgment, decree or order
of any court or governmental or regulatory authority and (B) who has
agreed in writing with Paracelsus, subject to his or her fiduciary
duties, to comply with the provisions of this Section.
(b) Committees; Quorum. Each committee of the Board shall
contain such numbers of Shareholder Directors or Transferee Directors
(as defined below) so that the number of Shareholder Directors and
Transferee Directors, when taken together, on each such committee
shall be as nearly as possible proportional to the total number of
Shareholder Directors and Transferee Directors on the Board. The
quorum required for the transaction of business by the Board shall
include at least one Shareholder Director or one Transferee Director
and one director who is an Independent Director, or their designees,
attending in person or, if necessary, via teleconference call.
(c) Resignation. Upon the Shareholder ceasing to Beneficially
Own, together with all Affiliates and Associates of the Shareholder
at least 10% of the Total Voting Power of Paracelsus, Paracelsus may
request that all or any of the Shareholder Directors then on the
Board resign as directors of Paracelsus, and upon such request by
Paracelsus, the Shareholder shall use his best efforts to cause such
Shareholder Directors, except Dr. Manfred George Krukemeyer, who
shall resign at the next annual shareholder meeting for election to
his class, to resign immediately and relinquish all rights and
privileges as a member of the Board. Upon the Shareholder ceasing to
Beneficially Own, together with all Affiliates and Associates of the
Shareholder, at least 25% of the Total Voting Power of Paracelsus,
Paracelsus may request that all or any of the Shareholder Directors
then on the Board resign as directors of Paracelsus at the next
annual shareholder meeting for election to their respective class,
and upon such request by Paracelsus, the Shareholder shall
<PAGE> 20
use his best efforts to cause such Shareholder Directors to resign at
such respective times and thereupon relinquish all rights and
privileges as a member of the Board. Upon termination of this
Agreement with respect to any Permitted Transferee, Paracelsus may
request that all of the Transferee Directors then on the Board resign
as directors of Paracelsus, and upon such request by Paracelsus, the
Permitted Transferee shall use best efforts to cause such Transferee
Directors to resign immediately and relinquish all rights and
privileges as a member of the Board.
(d) Non-Independent and non-Shareholder Directors. Two
members of the Board may be directors who are not Independent
Directors, Shareholder Directors or Transferee Directors.
(e) Independent Directors. Immediately following the
Effective Time, three members of the Board will be Independent
Directors as set forth in the Merger Agreement, and each of such
Independent Directors shall be elected to one of the three classes of
the Board. Vacancies among the Independent Directors occurring prior
to the expiration of their respective terms of office or created for
Independent Directors as a result of increasing the size of the Board
as provided in clause (a) of this Section shall be filled by a vote
of 75% of the entire remaining Board. Independent Directors to be
nominated for election at each annual meeting of Paracelsus will be
nominated by a vote of 75% of the entire Board or, in the event that
the Board cannot so agree, by the unanimous agreement of the
Independent Directors then in office.
(f) Efforts to Nominate and Elect Directors. Paracelsus shall
nominate and shall use its best efforts to take and cause to be taken
all necessary action (corporate and other) to elect to the Board the
individuals required to be nominated for election as directors in
accordance with the terms hereof. The Investor shall nominate and
shall use its best efforts, and shall use best efforts to cause the
Shareholder Directors and Transferee Directors, as the case may be,
and the Affiliates and Associates of the Investor to use their
respective reasonable efforts, to take and cause to be taken all
necessary action (corporate and other), which efforts shall include
the voting of all Voting Securities Beneficially Owned by the
Investor and the Affiliates and Associates of the Investor and
voting, subject to his or her fiduciary duties, as a
<PAGE> 21
Shareholder Director or Transferee Director, to nominate and elect
to the Board the individuals nominated by the Board in accordance
with any nomination provisions hereof then in effect and the terms
of any employment contracts between Paracelsus and its executive
officers so long as such employment agreements remain in effect.
(g) Transferee Directors. If the Investor consummates a
Transfer to a Permitted Transferee who shall become an Investor
hereunder, such Investor shall have the right, upon written notice to
Paracelsus, to enter into such agreements and understandings with
such Permitted Transferee so that such Investor relinquishes the
right to nominate Shareholder Directors or Transferee Directors, as
the case may be, and such Permitted Transferee shall be entitled to
nominate, in place of the relinquished Shareholder Directors or
Transferee Directors, as the case may be, such number of persons for
whom the Investor has in such written notice relinquished the right
to nominate who are Eligible Persons (such persons from time to time
being the "Transferee Directors"); provided, that (i) the number of
Shareholder Directors or Transferee Directors, as the case may be,
entitled to be nominated by such Investor under this Agreement shall
be reduced by the number of directors relinquished in favor of the
Permitted Transferee and (ii) in no event will all or any one or any
combination of the Investors, together with their respective
Affiliates and Associates, at any time have more than four
representatives on the Board, whether pursuant to the terms hereof,
any right of director appointment as set forth in any employment
agreement between any such representative and Paracelsus or
otherwise.
10. Additional Agreements.
(a) No Amendment or Waiver. The Investor shall not, and shall
cause Affiliates and Associates of such Investor not to, publicly
request Paracelsus or any of its agents or representatives, directly
or indirectly, to amend or waive any provision of this Agreement.
(b) Rights Plan. The Shareholder acknowledges that the Rights
Plan shall be adopted by Paracelsus.
(c) No Relief of Liabilities. No Transfer by the Investor of
Beneficial Ownership of any Voting Securities of Paracelsus shall
relieve the Investor of any liabilities or obligations to Paracelsus
<PAGE> 22
that arose or accrued prior to the date of such Transfer.
(d) Securities Subject to Agreement; Ineffective Transfers.
All Voting Securities of Paracelsus that are Beneficially Owned by
the Investor and the Affiliates and Associates of such Investor shall
be subject to this Agreement. No Transfer or acquisition of any
Voting Securities of Paracelsus in violation of any provision of this
Agreement shall be effective to pass any title to, or create any
interest in favor of, any Person, but the Investor, in attempting to
effect or in permitting or suffering such Transfer or acquisition
(otherwise than inadvertently and in good faith, without any
knowledge thereof), shall be deemed to have committed a material
breach hereof.
(e) Further Assurances. Paracelsus and each Investor shall
execute and deliver such additional instruments and other documents
and shall take such further actions as may be necessary or
appropriate to effectuate, carry out and comply with all of the terms
of this Agreement and the transactions contemplated hereby.
(f) Investor Voting on Other Matters. Unless such action is
recommended by the Board, the Investor shall not, and shall cause the
Affiliates and Associates of the Investor not to, vote any Voting
Securities of Paracelsus to amend or repeal the Restated Articles of
Incorporation of Paracelsus or the By-laws of Paracelsus or to call
or request any special meeting of Paracelsus' shareholders. The
Investor shall cause all Voting Securities of Paracelsus owned by the
Shareholder and all Affiliates and Associates of such Investor to be
represented, in person or by proxy, at all meetings of holders of
Voting Securities of which the Investor has actual notice, so that
such Voting Securities may be counted for the purpose of determining
the presence of a quorum at such meetings.
11. Legends. (a) The Investor agrees that all certificates
representing the Voting Securities subject to this Agreement shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A STOCKHOLDER AGREEMENT DATED _______ __, 1996 (A
COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY)
WHICH PROVIDES, AMONG OTHER THINGS, FOR CERTAIN RESTRICTIONS ON
TRANSFER THEREOF. THE SECURITIES REPRESENTED BY
<PAGE> 23
THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY SALE OR
OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT SHALL
BE VOID."
(b) Upon termination with respect to the Investor of this
Agreement in accordance with its terms and upon request by such Investor,
Paracelsus shall issue new certificates with the foregoing legend removed.
12. Specific Performance. Each party hereto acknowledges
that it will be impossible to measure in money the damage to the other
party if a party hereto fails to comply with any of the obligations imposed
by this Agreement, that every such obligation is material and that, in the
event of any such failure, the other party will not have an adequate remedy
at law or damages. Accordingly, each party hereto agrees that injunctive
relief or other equitable remedy, in addition to remedies at law or
damages, is the appropriate remedy for any such failure and will not oppose
the granting of such relief on the basis that the other party has an
adequate remedy at law. Each party hereto agrees that it shall not seek,
and agrees to waive any requirement for, the securing or posting of a bond
in connection with any other party's seeking or obtaining such equitable
relief.
13. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns and shall not be assignable (by operation of law or
otherwise) without the written consent of all other parties hereto;
provided, that in the event of a Surviving Company Merger where Paracelsus
is not the surviving corporation, (x) this Agreement shall be assigned to
and shall inure to the benefit of and be binding upon such surviving
corporation and (y) any reference herein to Paracelsus shall be deemed to
be a reference to such surviving corporation; provided, further, that the
rights and obligations under this Agreement (excluding Section 7) may be
assigned by an Investor to a Permitted Transferee in accordance with the
terms of the Transfer to such Permitted Transferee, which assignment shall
not terminate any portion of this Agreement with respect to such assignor
except in accordance with Section 15(e).
14. Entire Agreement; Amendment; Waiver. This Agreement
(including any exhibits hereto), the Merger Agreement (including
<PAGE> 24
any exhibits, annexes and schedules thereto) and the Confidentiality
Agreement (as defined in the Merger Agreement) supersede all prior
agreements, written or oral, among the parties hereto with respect
to the subject matter hereof and contains the entire agreement among
the parties with respect to the subject matter hereof. This Agreement
may not be amended, supplemented or modified, and no provisions hereof
may be modified or waived, except by an instrument in writing signed
by Paracelsus and approved by the unanimous vote of the Independent
Directors and, with respect to each Investor, by such Investor. No waiver
of any provisions hereof by any party shall be deemed a waiver of any other
provisions hereof by any such party, nor shall any such waiver be deemed a
continuing waiver of any provision hereof by such party.
15. Miscellaneous.
(a) Governing Law. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH AND SUBJECT TO THE LAWS OF THE STATE OF
INCORPORATION OF PARACELSUS, WITHOUT REFERENCE TO CONFLICTS OF LAWS
PRINCIPLES.
(b) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed
given (i) on the first business day following the date received, if
delivered personally or by telecopy (with telephonic confirmation of
receipt by the addressee), (ii) on the business day following timely
deposit with an overnight courier service, if sent by overnight
courier specifying next day delivery and (iii) on the first business
day that is at least five days following deposit in the mails, if
sent by first class mail, to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
If to the Shareholder, to:
[ ]
Facsimile: ( ) -
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
300 South Grand Avenue
Suite 3400
Los Angeles, California 90071
Facsimile: (213) 687-5600
Attention: Thomas C. Janson, Jr., Esq.
<PAGE> 25
If to Paracelsus, to:
Paracelsus Healthcare Corp.
155 North Lake Avenue
Suite 1000
Pasadena, CA 91101
Facsimile: (818) 304-9588
Attention: General Counsel
with a copy to:
Michener, Larimore, Swindle, Whitaker,
Flowers, Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower
301 Commerce Street
Fort Worth, Texas 76102
Facsimile: (817) 335-6935
Attention: Wayne Whitaker, Esq.
and a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Facsimile: (212) 558-3588
Attention: Neil T. Anderson, Esq.
(c) Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the
other provisions hereof. If any provision of this Agreement, or the
application thereof to any Person or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be
substituted therefor in order to carry out, so far as may be valid
and enforceable, the intent and purpose of such invalid or
<PAGE> 26
unenforceable provision and (ii) the remainder of this Agreement
and the application of such provision to other Persons or
circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
(d) Counterparts. For the convenience of the parties hereto,
this Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which shall
together constitute the same agreement.
(e) Termination. With respect to a particular Investor (but
not with respect to any other Person who may at such time be bound by
the terms hereof), this Agreement shall terminate automatically
without any action by any party upon the earliest to occur of (i) the
Investor, together with all Affiliates and Associates of such
Investor, ceasing to Beneficially Own at least 25% of the Total
Voting Power of Paracelsus (but Sections 9 (c), (d) and (f) shall
not, with respect to the Shareholder terminate until the Shareholder,
together with all Affiliates and Associates of the Shareholder,
ceases to Beneficially Own at least 10% of the Total Voting Power of
Paracelsus) and (ii) the Investor, together with all Affiliates and
Associates of such Investor, Beneficially Owning at least 90% of the
Total Voting Power of Paracelsus; provided that in the event of a
termination pursuant to clause (ii) of this subsection, the Investor
shall remain obligated to and shall promptly acquire all of the
remaining Voting Securities of Paracelsus (other than any such Voting
Securities properly exercising any appraisal or dissenters rights) at
a price equal to or in excess of any price paid by the Investor or
Affiliates or Associates of such Investor for such Voting Securities
in the 90-day period preceding such acquisition; provided, further,
that in the event of a termination pursuant to clause (i) of this
subsection, the Investor shall remain subject to the obligations of
Sections 9(c), 9(d) and 9(f).
(f) Headings. All Section headings and the recitals herein
are for convenience of reference only and are not part of this
Agreement, and no construction or reference shall be derived
therefrom.
<PAGE> 27
(g) Other Agreements. The parties hereto agree that there is
not and has not been any other agreement, arrangement or
understanding between the parties hereto with respect to the matters
set forth herein.
(h) THIRD PARTY BENEFICIARIES. NOTHING IN THIS AGREEMENT,
EXPRESS OR IMPLIED, IS INTENDED TO CONFER UPON ANY THIRD PARTY
(INCLUDING ANY HOLDER OF VOTING SECURITIES OF PARACELSUS) ANY RIGHTS
OR REMEDIES OF ANY NATURE WHATSOEVER UNDER OR BY REASON OF THIS
AGREEMENT; PROVIDED, THAT THE FOREGOING SHALL NOT IN ANY WAY RESTRICT
OR LIMIT ANY HOLDER OF VOTING SECURITIES OF PARACELSUS FROM BRINGING
A SHAREHOLDER DERIVATIVE ACTION TO SEEK OR COMPEL THE DIRECTORS OF
PARACELSUS TO CAUSE PARACELSUS TO ENFORCE ANY OBLIGATIONS OF AN
INVESTOR HEREUNDER OR TO EXERCISE ANY RIGHTS OR REMEDIES OF
PARACELSUS HEREUNDER.
<PAGE> 28
IN WITNESS WHEREOF, Paracelsus and each Investor have executed
and delivered this Agreement, or a counterpart hereof, as of the date first
written above or, where applicable, across from the Investor's signature on
such counterpart.
PARACELSUS HEALTHCARE CORPORATION
By:___________________________________
Name:
Title:
[ ]
By:___________________________________
Name:
Title:
As Guarantor of the obligations
of the Shareholder:
______________________________________
Dr. Manfred George Krukemeyer
<PAGE> 1
CHAMPION HEALTHCARE CORPORATION
AGREEMENT IN CONTEMPLATION OF MERGER
This Agreement In Contemplation of Merger (the "Agreement"), dated
as of April 12, 1996 by and among CHAMPION HEALTHCARE CORPORATION, a
Delaware corporation (the "Company"), and the respective parties whose
names and signatures appear on Schedule 1 of this Agreement
(individually, a "Participant" and collectively, the "Participants").
Witnesseth:
WHEREAS, as of the date above, (i) Paracelsus Healthcare Corporation,
a California corporation ("Paracelsus"), PC Merger Sub, Inc., a
Delaware corporation, and the Company are entering into an Agreement
and Plan of Merger dated as of the date hereof (the "Merger
Agreement"), providing for, among other things, the merger of PC Merger
Sub, Inc. with and into the Company with the Company being the
surviving corporation (the "Merger") and setting forth certain
representations, warranties, covenants and agreements of the parties
thereto;
WHEREAS, in connection with the Merger, the Company and the Participants
who are parties to the following instruments wish to establish certain
agreements concerning the Series D Note and Stock Purchase Agreement,
dated December 31, 1993, as amended (the "D Agreement"), pursuant to
which 11% Senior Subordinated Notes due December 31, 2003 (the "D
Notes") were issued, detachable warrants to purchase common stock $.01
par value of the Company (the "Company Common Stock" and as to the
warrants the "D Warrants") were issued and Series D Cumulative
Convertible Preferred Stock $.01 par value (the "D Preferred") was
issued, whereby the Participants who are holders of the D Notes will,
among other things, agree not to declare the D Notes due and payable.
WHEREAS, in connection with the Merger the Company and the Participants
who are parties to the following instruments wish to establish certain
agreements concerning the Series E Note Purchase Agreement dated May 1,
1995, as amended (the "E Agreement"), pursuant to which the Series E 11%
Senior Subordinated Notes due December 31, 2003 (the "E Notes") were
issued, together with detachable warrants to purchase Company Common
Stock (the "E Warrants"), whereby the Participants who are holders of
the E Notes will, among other things, agree not to declare the E Notes
due and payable;
WHEREAS, in connection with the Merger, the Company and the Participants
who are holders of the Series C Cumulative Convertible Preferred Stock
("C Preferred") wish to establish certain agreements concerning the C
Preferred whereby the Participants who are holders of the C Preferred
will agree to vote such shares held by them in favor of the Merger; and
WHEREAS, in connection with the Merger, the Company and the Participants
who are holders of warrants to purchase Company Common Stock issued
pursuant to the Note and Stock Purchase Agreement dated May 27, 1992,
as the same have been amended and reissued as
<PAGE> 2
Replacement Warrants pursuant to the Agreement to Exchange and Amend
Warrants dated April 29, 1993 as amended ("Replacement Warrants" and
collectively with the D Warrants and the E Warrants, the "Warrants")
wish to establish certain agreements concerning the Replacement
Warrants.
NOW, THEREFORE, for good and sufficient consideration the receipt and
adequacy of which is hereby acknowledged, with the following terms,
conditions and covenants, the Company and the Participants hereby agree
as follows:
1 Definitions. For the purposes of this Agreement the
following terms shall have the following meanings:
1.1 "Effective Date of the Merger" shall mean the date
on which the Merger is effective under Delaware
law.
1.2 "Increased Applicable Rate" shall mean the greater
of (i) the Applicable Rate (as such term is defined
in the D Agreement and E Agreement as to the
respective D Notes and E Notes) plus two percentage
points (2%) or (ii) the rate per annum determined
as of the business day immediately preceding the
date on which the Applicable Rate is first
increased pursuant to Section 2.4 hereof which is
the average between the Salomon Brothers and Lehman
Brothers High Yield BB Bond Indices most recently
published and having a remaining average life to
maturity (determined in accordance with standard
financial practice) which is the same as the Notes
(or if no such maturity is available in the Indices
an interest rate interpolated or extrapolated, as
the case may be, from the two maturities closest to
the Notes), plus two percentage points (2%). Once
determined, the Increased Applicable Rate shall not
change, except as provided in Section 2.4
1.3 "Notes" shall mean the D Notes and E Notes.
1.4 "Parent Change in Control Event" shall mean (i) the
sale, lease or transfer of all or substantially all
of the Paracelsus Healthcare Corporation, a
California corporation ("Parent")'s assets to any
person or group (as such term is used in
Section 13(d)(3) of the Exchange Act) (other than
the Principal or his Related Parties both as
defined in the public indenture of the Parent in
effect on the date hereof), (ii) the liquidation or
dissolution of the Parent, (iii) the acquisition by
any person or group (as such term is used in
Section 13(d)(3) of the Exchange Act) (other than
the Principal and his Related Parties of a direct
or indirect majority in interest (more than 50%) of
the total voting power entitled to vote generally
in the election of directors of the Parent or
(iv) the Principal and his Related Parties
beneficially own less, directly or indirectly, than
51% of the voting power of the voting stock of the
Parent beneficially owned by the Principal directly
or indirectly, on the date of the Indenture of the
Parent in effect on the date hereof.
<PAGE> 3
1.5 "Prepayment Rate" shall mean (i) 106% through the
earlier of (x) the sixth month anniversary date of
the Effective Date of the Merger or (y) January 31,
1997, and (ii) increasing by one percentage point
(1%) at the beginning of each thirty (30) day
period following the expiration of the period in
(i), not to exceed 112% at any time.
1.6 "Qualified Debt Offering" shall mean a public
offering of not less than $100,000,000 principal
amount of indebtedness (i) having a final maturity
more than one year from the date of issue thereof,
and (ii) on terms and conditions reasonably
customary in the public high yield debt market for
instruments similar to such indebtedness at the
time of such offering.
1.7 "Standstill Period" shall mean that period
commencing upon the Effective Date of the Merger
and ending on the Standstill Termination Date,
unless sooner terminated in accordance with the
terms of the Agreement.
1.8 "Standstill Termination Date" shall be the date on
which there is the first to occur of (i) the
business day immediately following completion by
Paracelsus of a Qualified Debt Offering, (ii) there
is a breach of any covenant of, or occurrence of a
default or event of default under, the Series D
Agreement or Series E Agreement by the Company or
Paracelsus not waived by the terms hereof, (iii)
there is a breach by the Company or Paracelsus of
the terms of this Agreement, or (iv) there occurs a
Parent Change in Control Event.
2 Waivers Under E Agreement and D Agreement. Subject at
all times to the terms and conditions stated herein:
2.1 Series E Agreement. The Participants who are
holders of E Notes agree, for themselves and for
each subsequent transferee of E Notes, that with
respect to the E Agreement:
(i) the option granted to the holders of the
E Notes in Article IV. paragraphs C. and D.
resulting from the occurrence of a Change in
Control Event (as such term in defined in the
E Agreement) in connection with the Merger is
hereby waived during the Standstill Period
(but not thereafter) and the period for the
exercise of the option shall run from the
date that notice is received by such holder
that the Standstill Termination Date has
occurred, until the 90th day following such
receipt of notice; provided, however, that
notwithstanding anything to the contrary
herein or in the E Agreement, in the event
that the Company defaults in its obligations
to tender prepayment upon the exercise of
such option, the E Notes shall bear interest
at the Increased Applicable Rate as adjusted
<PAGE> 4
pursuant to Section 2.4 hereof, plus two
percent (2%) compounded annually, or until
such obligations are satisfied in full,
(ii) any breach or violation of Article V.
paragraph J. resulting from the Merger is
hereby waived during the Standstill Period
(but not thereafter),
(iii) any breach or violation of Article V.
paragraph AA. resulting from the amounts which
the holder of the D Notes may receive under
Section 2.3 is hereby waived during the
Standstill Period (but not thereafter),
(iv) the definitions of "Bank Agreement" and
"Senior Indebtedness" in Article IX. paragraph
A. are hereby amended to also include any
indebtedness of a corporation which,
directly or indirectly, owns all of the
outstanding stock of the Company for which
the Company is liable as a guarantor, which,
and to the extent, such indebtedness had been
incurred by the Company would be Senior
Indebtedness, provided in no event shall the
aggregate Senior Indebtedness under the E
Agreement exceed $200,000,000, and
(v) any breach or violation of Article V.
paragraph B. resulting from any distributions
made on account of fractional shares or upon
exercise of dissenters rights in connection
with the Merger or as otherwise required by
the terms of the Merger Agreement is hereby
waived during the Standstill Period (but not
thereafter).
2.2 Series D Agreement. The Participants who are
holders of D Notes agree, for themselves and for
each subsequent transferee of D Notes, that, with
respect to the D Agreement:
(i) the option granted to the holders of the
D Notes in Article IV. paragraphs C. and D.
resulting from the occurrence of a Change in
Control Event (as such term in defined in the
D Agreement) in connection with the Merger is
hereby waived during the Standstill Period
(but not thereafter) and the period for the
exercise of the option shall run from the
date that notice is received by such holder
that the Standstill Termination Date has
occurred, until the 90th day following such
receipt of notice; provided, however, that
notwithstanding anything to the contrary
contained herein or in the D Agreement, in
the event that the Company defaults in its
obligations to tender prepayment upon the
exercise of such option, the D Notes shall
bear interest at the Increased Applicable
Rate as adjusted pursuant to Section 2.4
hereof, plus two percent (2%) compounded
annually, until such obligations are
satisfied in full.
<PAGE> 5
(ii) any breach or violation of Article V.
paragraph J. resulting from the Merger is
hereby waived during the Standstill Period
(but not thereafter),
(iii) any breach or violation of Article V.
paragraph Z. resulting from the amounts which
the holder of the E Notes may receive under
Section 2.3 is hereby waived during the
Standstill Period (but not thereafter),
(iv) the definitions of "Bank Agreement" and
"Senior Indebtedness" in Article IX. paragraph
9. are hereby amended to also include a
corporation which, directly or indirectly,
owns all of the outstanding stock of the
Company any indebtedness for which the
Company is liable as a guarantor, which, and
to the extent, such indebtedness had been
incurred by the Company would be Senior
Indebtedness, provided in no event shall the
aggregate Senior Indebtedness under the D
Agreement exceed $200,000,000, and
(v) any breach or violation of Article V.
paragraph B. resulting from any distributions
made on account of fractional shares or upon
exercise of dissenters rights in connection
with the Merger or as otherwise required by
the terms of the Merger Agreement is hereby
waived during the Standstill Period (but not
thereafter).
2.3 Prepayment Upon Qualified Debt Offering. At such
time as Paracelsus completes a Qualified Debt
Offering, the closing and funding of which occurs
during the Standstill Period,
2.3.1 D Notes. The Participants who are holders of
the D Notes shall, in lieu of any other
rights provided for in Article IV of the D
Agreement, be prepaid at the price determined
in accordance with the provisions of Article
IV. paragraph C.(b) of the D Agreement;
provided, however, the applicable percentage
as referenced in such Article IV. paragraph
C.(b) shall be the Prepayment Rate during all
periods and the holders of the D Notes shall
not be required to surrender any Warrants for
cancellation, and
2.3.2 E Notes. The Participants who are holders of
the E Notes shall, in lieu of any other
rights provided for in Article IV of the E
Agreement, be prepaid at either of the
following two amounts as each such
Participant may elect, (i) the price
determined in accordance with the provisions
of Article IV. paragraph C.(b) of the E
Agreement; provided, however, the applicable
percentage as referenced in such Article IV.
paragraph C.(b) shall be the Prepayment Rate
during all periods and the holders of the E
Notes shall not be required to surrender any
Warrants for cancellation, or (ii) the
<PAGE> 6
price determined in accordance with the
provisions of Article IV. paragraph C.(b) of
the E Agreement; provided, however, the
applicable percentage as referenced in such
Article IV. paragraph C.(b) shall be 112.5%
during all periods and the holders of the E
Notes shall be required, as required by such
section, to surrender Warrants for
cancellation.
2.3.3 Payment of Interest. With respect to any
prepayments of Notes under Sections 2.3.1 or
2.3.2, Paracelsus shall pay in cash accrued
interest to and including the date of the
prepayment of the Notes.
2.4 Increase in Applicable Rate. From and after the
earlier of (i) July 31, 1997 or (ii) the first
anniversary of the Effective Date of the Merger, the
Applicable Rate (as defined in the respective D
Agreement and E Agreement) of each Note held by the
Participants shall without further action of the
Participants be changed to the Increased Applicable
Rate. From and after the Applicable Rate changing
to the Increased Applicable Rate, and on each six
month anniversary date thereafter, the Increased
Applicable Rate shall increase by one-half
percentage point (1/2%).
2.5 Parent Change in Control. From and after the
Effective Date of the Merger, the D Agreement and
the E Agreement are amended such that the
definition of Change of Control Event contained
therein shall in addition include a Parent Change
in Control Event.
3 Consent to Assumption of Warrants by Paracelsus. The
Participants who are holders of the Warrants hereby agree
as of the Effective Date of the Merger to the replacement
of the Company with Paracelsus as a party to such
Warrants and the assumption by Paracelsus in the name,
place and stead of the Company of the obligation to issue
shares of Paracelsus common stock upon exercise of the
Warrants upon the same terms and conditions as currently
apply to the Company under such Warrants, as amended, but
subject to the anti-dilution provisions of such Warrants,
and Paracelsus agrees as of the Effective Date of the
Merger it will assume in the name, place and stead of the
Company the obligations to issue shares of Paracelsus
common stock upon the exercise of the Warrants upon the
same terms and conditions as currently apply to the
Company under such Warrants, as amended, but subject to
the anti-dilution provisions of such Warrants, and in
accordance with the Merger Agreement.
4 Termination of D Stockholders Agreement. As of the
Effective Date of the Merger, the Company and each
Participant, in every capacity to which they are a party
to the D Stockholders Agreement, as amended, agree such
agreement shall be and it is hereby terminated.
<PAGE> 7
5 Conditions to Obligations of Participants. Each
Participant's obligations and agreements contained
herein is subject to the conditions contained in Sections
5.1, 5.2, 5.3, 5.4, 5.5, 5.6 and 5.7.
5.1 E Agreement Acceptance. The execution and delivery
hereof to the Company by holders of E Notes who
hold not less than 66.7% in the aggregate principal
amount outstanding of the E Notes.
5.2 D Agreement Acceptance. The execution and delivery
hereof to the Company by holders of D Notes who
hold not less than 66.7% in the aggregate principal
amount outstanding of the D Notes.
5.3 Representations of Company True and Correct. The
representations and warranties contained in Section
6 hereof shall be true and correct on the date
hereof and as of the Effective Date of the Merger .
5.4 Compliance with this Agreement. The Company and
all other Participants shall have performed and
complied in all material respects with all
agreements, covenants and conditions contained
herein and in any other document contemplated
hereby or thereby which are required to be
performed or complied with by the Company and all
other Participants.
5.5 Proceedings. All corporate and other proceedings
taken or to be taken in connection with the
transactions contemplated hereby and all documents
incident thereto shall be satisfactory in form and
substance to the Participants, and the Participants
shall have received all such counterpart originals
or certified or other copies of such documents as
they may reasonably request.
5.6 Assumption and Guaranty by Paracelsus. Paracelsus
shall on and as of the Effective Date of the Merger
(i) guarantee, in form and substance reasonably
satisfactory to the Participants who are holders of
the Notes, the payment of the D Notes and E Notes.
(The obligations of the Company under the D Notes
and E Notes shall be subordinated to Paracelsus'
senior indebtedness, and the foregoing guarantee
shall be pari passu with Paracelsus' existing
senior subordinated indebtedness), (ii) enter into
an agreement, in form and substance reasonably
satisfactory to the Participants, in favor of each
of the Participants pursuant to which it agrees
(a) to assume and perform all the obligations
hereunder stated to be the obligations of
Paracelsus, and (b) to use its reasonable best
efforts to complete a Qualified Debt Offering on
the Effective Date of the Merger or as soon
thereafter as reasonably possible, subject to the
terms of such Qualified Debt Offering being
reasonably acceptable to it, (iii) enter into and
deliver to such Participant, if requested by a
Participant, new warrants (the "New Warrants") in
exchange for the Warrants, each of which New
Warrants shall be
<PAGE> 8
for purchase of one share of Paracelsus common
stock, and shall be in the same form and on the
same terms and conditions, including provisions for
the adjustment of the Exercise Price thereunder, as
the Warrants being exchanged, (iv) enter into and
deliver to each Participant who is a holder of the
D Warrants a stock registration agreement, which
stock registration agreement shall be in form and
substance reasonably satisfactory to the holders of
the D Warrants and in any event contain such terms
as shall be customary in similar agreements,
pursuant to which Paracelsus shall agree, upon the
request of more than 50% of the outstanding Share
Equivalents of the outstanding Restricted
Securities attributable to the D Warrants (such
terms having the same meaning as assigned thereto
in the Series D Stock Registration Agreements dated
as of December 31, 1993, as amended (the "D Stock
Registration Agreement"), between the Company and
the holders of the D Warrants, but with application
to Paracelsus and the D Warrants), to effect once
as to all Participants who are holders of
D Warrants the registration of the Restricted
Securities under the Securities Act of 1933, or any
successor Federal statute, then in effect and the
rules and regulations of the Securities and
Exchange Commission, or successor entity,
thereunder for disposition in accordance with the
intended method of disposition stated in such
request and pursuant to which Paracelsus will grant
"piggy-back registration" rights substantially the
same as contained in the Series D Stock
Registration Agreements but with respect to the
Restricted Securities attributable to the
D Warrants, (v) enter into and deliver to each
Participant who is a holder of the E Warrants a
stock registration agreement, which stock
registration agreement shall be in form and
substance reasonably satisfactory to the holders of
the E Warrants and in any event contain such terms
as shall be customary in similar agreements,
pursuant to which Paracelsus shall agree, upon the
request of more than 50% of the outstanding Share
Equivalents of the outstanding Restricted
Securities attributable to the Warrants (such terms
having the same meaning as assigned thereto in the
Series E Stock Registration Agreements dated as of
May 1, 1995 (the "E Stock Registration Agreement")
between the Company and the holders of the E
Warrants, but with application to Paracelsus and
the E Warrants), to effect once as to all
Participants who are holders of E Warrants the
registration of the Restricted Securities under the
Securities Act of 1933, or any successor Federal
statute, then in effect and the rules and
regulations of the Securities and Exchange
Commission, or successor entity, thereunder for
disposition in accordance with the intended method
of disposition stated in such request and pursuant
to which Paracelsus will grant "piggy-back
registration" rights substantially the same as
contained in the E Stock Registration Agreement but
with respect to the Restricted Securities
attributable to the E Warrants and (vi) enter into
and deliver to each Participant who (A) is the
Holder of Company Common Stock, C Preferred, D
Preferred and/or Warrants and (B) immediately
following the merger beneficially owns more than 1%
of the outstanding shares of Paracelsus Common
Stock (such beneficial ownership being calculated
<PAGE> 9
in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) ("Significant
Holders"), a stock registration agreement, which
stock registration agreement shall be in form and
substance reasonably satisfactory to the
Significant Holders and in any event contain such
terms as shall be customary in similar agreements
pursuant to which Paracelsus shall agree, upon the
request of Significant Holders holding at least 25%
of the Paracelsus Common Stock (on a fully diluted
basis) held by all Significant Holders, to effect
once as to all Participants who are Significant
Holders the registration of the Paracelsus Common
Stock (including shares issuable upon exercise of
Warrants) held by the Significant Holders under the
Securities Act of 1933, or any successor Federal
statute then in effect, and the rules and
regulations of the Securities and Exchange
Commission, or successor entity, thereunder for
disposition in accordance with the intended method
of disposition stated in such request and pursuant
to which Paracelsus will grant "piggy back
registration" rights but with respect to the
Paracelsus securities held by Significant Holders.
All of the registration rights agreements
referenced above shall, among other things,
obligate Paracelsus to use its best efforts to keep
any such registration statement effective for at
least 120 days. A Participant's participation in
any demand registration pursuant to any of the
registration rights agreements contained in this
Section 5.6 shall not preclude such Participant's
participation in a demand registration pursuant to
any other registration right which is set forth in
this Section 5.6 or otherwise.
5.7 Execution of Merger Agreement. The Company,
Paracelsus and PC Merger Sub., Inc. shall have
executed the Merger Agreement in a form and with
such terms that do not materially differ from those
set forth in the form of Merger Agreement
referenced in Section 6.1 hereof
6 Representations, Covenants and Warranties of the Company.
The Company represents, covenants and warrants to the
Participants the following:
6.1 Delivery of Merger Documents. The Company has
delivered in substantially final form to each
Participant the form of the Merger Agreement and
the form of the Stockholder Agreement between
Paracelsus and Dr. Krukemeyer (collectively the
"Draft Documents").
6.2 Commitment to Pursue Public Financing. Paracelsus
shall use its best efforts to complete a Qualified
Debt Offering on the Effective Date of the Merger
or as soon thereafter as reasonably possible,
subject to the terms and conditions thereof being
reasonably acceptable to Paracelsus. The Company
shall, prior to the Effective Date of the Merger,
use its best efforts to cause Paracelsus to comply
with the foregoing sentence.
<PAGE> 10
6.3 Organization. The Company is a corporation duly
organized and existing in good standing under the
laws of the State of Delaware; each subsidiary
having assets in excess of $100,000, or annual
revenues in excess of $100,000 in any of its last
two fiscal years, is duly organized and existing in
good standing under the laws of the jurisdiction in
which it is incorporated; and the Company has and
each subsidiary has the corporate power to own its
respective property and to carry on its respective
business as now being conducted. The Company has
duly executed and delivered this Agreement. As
used in this agreement, the term "subsidiary" shall
include any corporation which the Company owns
directly or indirectly more than 50% of the stock
thereof.
6.4 Qualification. The Company is and each of its
subsidiaries is duly qualified and in good
standing as a foreign corporation to do business in
every jurisdiction where the character of the
properties owned or leased by it or the nature of
any business transacted by it makes such
qualification necessary and where such
nonqualification or lack of good standing would
have a material adverse effect on the business of
the Company and its consolidated subsidiaries taken
as a whole.
6.5 Authorization and Power. The Company has taken all
actions necessary to authorize it to enter into and
perform its obligations under this Agreement and
the other agreements referenced herein and to
consummate the transactions contemplated hereby and
thereby, subject only to the required stockholder
approval of the Merger Agreement. The Company has
full right, power and authority to execute and
perform its obligations under the Agreement and the
other agreements referenced herein and the
Agreement and such agreements constitute the legal,
valid and binding obligations of the Company,
enforceable against the Company in accordance with
their respective terms.
6.6 Capital Stock.
6.6.1 As of April 1, 1996 the Company has
authorized a total of 27,700,000 shares of
its capital stock of all classes, consisting
of 25,000,000 shares of Common Stock,
2,700,000 shares of Preferred Stock divided
into the following classes: 500,000 shares
of Series C Preferred Stock, and 2,200,000
shares of Series D Preferred Stock As of
March 25, 1996, 11,963,366 shares of Common
Stock are issued and outstanding, 448,811
shares of Series C Preferred Stock are issued
and outstanding, and 2,156,903 shares of
Series D Preferred Stock are issued and
outstanding. The Company holds no shares of
its capital stock in its treasury. All of
such outstanding shares have been validly
issued and are fully paid and nonassessable.
The Company has reserved such number of
shares of Common Stock for issuance pursuant
to such instruments or agreements as are set
forth in Schedule 6.6 hereto.
<PAGE> 11
6.6.2 None of the shares of the Company's capital
stock outstanding on April 1, 1996 (i) were
subject to preemptive rights when issued or
(ii) provide the holders thereof with any
preemptive rights with respect to any capital
stock of the Company or any capital stock
referred to in the immediately following
subsection hereof.
6.6.3 Except as otherwise stated in this section or
disclosed on Schedule 6.6 and except for
shares reserved for issuance in connection
with options and warrants outstanding on the
date hereof, the Company has not granted or
issued, or agreed to grant or issue, any
options, warrants or similar rights to
acquire or receive any of the authorized but
unissued shares of its capital stock of any
class or any securities convertible into
shares of its capital stock of any class. As
of the date hereof, no person holds of record
or beneficially owns 5% or more of the
outstanding shares of Company Common Stock
(assuming conversion or exercise of all
securities of the Company which are so
exercisable or convertible into shares of
Company Common Stock) except as set forth in
Schedule 6.6 hereto. Schedule 6.6 sets forth
as of the date hereof the exercise price or
the conversion price, after taking into
account any adjustments to such exercise
price or conversion price required by the
terms thereof (and assuming all holders of
Warrants have executed this Agreement), of
the C Preferred and D Preferred and the
Warrants.
6.6.4 All shares of Company Common Stock issued and
outstanding on the effective date hereof are
listed for trading on the American Stock
Exchange, Inc. ("AMEX"), and all shares of
Company Common Stock, or Paracelsus common
stock if after the Merger, issuable upon the
exercise of the Warrants will be, when issued,
listed for trading on the AMEX or the New
York Stock Exchange. All shares of common
stock of Paracelsus held by a Participant and
outstanding on the Effective Date of the
Merger, including any shares of common stock
of the Company received by the Warrant
holders upon the exercise of their Warrants
prior to the Effective Date of the Merger,
will be registered securities under the
Securities Act of 1933 and as to such
Paracelsus shares received by the E Warrant
holders upon the exercise of their Warrants
prior to the Effective Date of the Merger,
will be freely tradable thereafter.
6.7 Valid Issuance. All shares of Company Common Stock
issued and outstanding are validly issued and fully
paid and nonassessable.
6.8 Actions Pending. There is no action, suit,
investigation or proceeding pending or, to the
knowledge of the Company, threatened against the
Company or any of its subsidiaries before any
court, arbitrator or administrative or governmental
<PAGE> 12
body that (i) questions the validity of this
Agreement, the Notes, the Warrants, the D
Preferred, the shares of Company Common Stock or
any action taken or to be taken pursuant hereto or
thereto or (ii) except as disclosed in Schedule
6.8, that materially and adversely affects, or as
to which there is a reasonable possibility of an
adverse decision that would materially and
adversely affect, either individually or
collectively, the business, property, assets or
condition of the Company and its consolidated
subsidiaries taken as a whole. Neither the Company
nor any subsidiary is in violation of any judgment,
order, writ, injunction, decree, rule or regulation
of any court or governmental department,
commission, board, bureau, agency or
instrumentality, the violation of which might,
either individually or collectively, materially and
adversely affect the business, property, assets or
financial position of the Company and its
consolidated subsidiaries taken as a whole. No
action or determination is pending, or threatened,
with the AMEX with respect to the authority of the
Company Common Stock to be listed for trading
thereon. To the knowledge of the Company no action
is pending or threatened against any Participant
which relates to this Agreement or the transactions
contemplated herein.
6.9 Outstanding Debt; No Default. Neither the Company
nor any of its subsidiaries has outstanding any
indebtedness except as set forth in the
consolidated balance sheet of the Company and its
consolidated subsidiaries as at December 31, 1995
or incurred since then in the normal course of
business or as set forth in Schedule 6.9. There
exists no monetary event of default and there
exists no other event of default by the Company or
any subsidiary under the provisions of any
instrument evidencing indebtedness the effect of
which would have a material adverse effect on the
Company and its subsidiaries taken as a whole.
Without limiting the generality of the foregoing,
no Default or Event of Default under the E
Agreement or the D Agreement (other than any
Default or Event of Default waived by the terms
hereof) has occurred and is continuing; and upon
the consummation of the Merger, no Default or Event
of Default under the E Agreement or the D Agreement
(other than any Default or Event of Default waived
by the terms hereof) shall have occurred and be
continuing.
6.10 Title, Liens. The Company has, and each of its
subsidiaries has, good and marketable title to its
respective properties and assets reflected in the
consolidated balance sheet of the Company and its
consolidated subsidiaries as at December 31,
1995 (other than properties and assets disposed of
in the ordinary course of business, equity
interests owned by others in subsidiaries of the
Company, the transfer of Autauga Medical Center and
Autauga Health Care Center in exchange for Jordan
Valley Hospital, and as set forth on Schedule 6.10)
and except for property purchased under title
retention transactions or capitalized leases.
Neither the Company nor any subsidiary has pledged
or mortgaged its assets to secure any indebtedness
other than (i) to Banque Paribas, Agent under a an
amended and
<PAGE> 13
restated loan agreement dated as of May 31, 1995,
as amended, (ii) to Health Care REIT, Inc. that was
assumed with the acquisition of Psychiatric
Healthcare Corporation, (iii) purchase money
indebtedness, (iv) mortgages to secure the assets
being acquired, (v) capital leases, (vi) deposits
in the ordinary course or (vii) as otherwise
disclosed to the Participants in any exhibit or
schedule hereto.
6.11 Taxes. The Company has, and each of its
subsidiaries has, timely filed all Federal, State
and other income and payroll tax returns that, to
the knowledge of the Company, are required to be
filed, and each has paid all taxes as shown on said
returns and on all assessments received by it to
the extent that such taxes have become due except
for taxes or assessments the payment of which is
being contested in good faith by proper action and
against which adequate accounting reserves are
being maintained. The Company is not aware of any
proposed tax assessment against it or any
subsidiary and all tax liabilities are provided for
with adequate reserves.
6.12 Governmental Consent. Except for the filing and
clearance of the Company's proxy statement and
Paracelsus' registration statement with the
Securities and Exchange Commission in connection
with the Merger and the filing and approval
necessary under the Hart-Scott-Rodino Antitrust
Improvements Act, neither the nature of the Company
or of any subsidiary, nor any of their respective
businesses or properties, nor any relationship
between the Company or any subsidiary and any other
person, nor any circumstance in connection with the
consummation of the terms of this Agreement and the
other agreements referred to herein, is such as to
require any consent, approval or authorization of,
or any notice to, or filing, registration or
qualification with, any court or administrative or
governmental body in connection with the execution
and delivery of this Agreement,
6.13 Holding Company Status. Neither the Company nor
any subsidiary is a "holding company," or a
subsidiary or affiliate of a "holding company," or
a "subsidiary company" of a "holding company," or a
"public utility," within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or
a "public utility" within the meaning of the
Federal Power Act, as amended.
6.14 Investment Company Status. Neither the Company nor
any subsidiary is an "investment company" or a
company "controlled" by an "investment company"
within the meaning of the Investment Company Act of
1940, as amended, or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940,
as amended.
6.15 ERISA. All of the "employee pension benefit plans"
within the meaning of Section 3(2) of ERISA which
are maintained by or contributed to by the
<PAGE> 14
Company, any of its Subsidiaries or any ERISA
Affiliate and which are intended to meet the
requirements of Section 401(a) of the Code are
disclosed in the Company's financial statements.
Any such plan intending to qualify under Section
401(a) or 401(k) of the Code does so qualify.
Neither the Company nor any of its subsidiaries nor
any ERISA Affiliate maintains, contributes to or
has contributed to a Multiemployer Plan or any
other plan subject to Title IV of ERISA or Section
412 of the Code. All material employee benefit
plans and arrangements covered by ERISA, maintained
by or contributed to by the Company, any of its
subsidiaries or any ERISA Affiliate are in
substantial compliance with all applicable law,
including any reporting requirements. Except as
disclosed on Schedule 6.15, neither the Company nor
any subsidiary has any liability with respect to
retiree medical or death benefits or other benefits
payable after termination of employment. Neither
the Company, nor any of its subsidiaries nor any
other person, including any fiduciary, has engaged
in any transaction prohibited by Section 4975 of
the Code or Section 406 of ERISA which could
subject the Company or any of its subsidiaries or
any person the Company or any of its subsidiaries
have an obligation to indemnify to any material tax
or penalty imposed under Section 4975 of the Code
or Section 502 of ERISA.
6.16 Financial Statements. (i) The Company has
previously furnished the Participants the
consolidated balance sheets of the Company and its
consolidated subsidiaries as at December 31, 1995
and the related consolidated statements of income,
stockholders' equity and cash flows of the Company
and its consolidated subsidiaries for the fiscal
year ended December 31, 1995, all certified by
Coopers & Lybrand, including in each case the
related schedules and notes.
(ii) Except as disclosed on Schedule 6.16, all
such financial statements (including any related
schedules and/or notes) have been prepared in
accordance with generally accepted accounting
principles consistently applied, except to the
extent set forth in the notes to such financial
statements, throughout the periods involved and to
the extent required by such principles show all
liabilities, direct and contingent, of the Company
and its consolidated subsidiaries. Except as
disclosed on Schedule 6.16, the balance sheets and
the related schedules and notes fairly present on a
consolidated basis the financial condition of the
Company and its consolidated subsidiaries as at the
respective dates thereof; and the statements of
income and stockholders' equity and the related
schedules and notes and the key operating
indicators fairly present on a consolidated basis
the results of the operations of the Company and
its consolidated subsidiaries for the respective
periods indicated.
(iii) Except as disclosed on Schedule 6.16, there
have been no material adverse changes in the
business, operations, property, assets, prospects,
condition,
<PAGE> 15
financial or other, of the Company and its
subsidiaries, on a consolidated basis, since
December 31, 1995.
6.17 Broker's or Finder's Commissions. No broker's,
finder's, advisor's or placement fee or commission
will be payable with respect to the transactions
contemplated hereby, and the Company will hold the
Participants harmless from any claim, demand or
liability for broker's, finder's, advisor's or
placement fees or commissions alleged to have been
incurred in connection with the transactions
contemplated hereby. The Company will pay
Donaldson Lufkin & Jenrette Securities Corporation
an investment banking fee in connection with the
Merger and a Qualified Debt Offering..
6.18 SEC Filings. The Company has timely filed all
reports and schedules required to be filed by it
pursuant to the Securities Exchange Act of 1934, as
amended.
6.19 Compliance with Outstanding Agreements. Except as
set forth in Schedule 6.19, the execution, delivery
and performance by the Company of this Agreement
and any other document contemplated hereby or
thereby, including the Merger Agreement, will not
conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a
default under, or result in the creation of any
lien upon any of the properties or assets of the
Company or any subsidiary pursuant to, or otherwise
violate, any (a) instrument evidencing any
indebtedness of the Company or any of its
subsidiaries or any agreement relating thereto, or
(b) any other agreement to which the Company or any
of its subsidiaries is a party.
6.20 Disclosure. Neither this Agreement and the
Schedule and Exhibits attached hereto nor any other
document, certificate or statement furnished to any
Participant by or on behalf of the Company in
connection herewith contains any untrue statement
of a material fact or omits to state a material
fact necessary in order to make the statements
contained herein and therein, in the light of the
circumstances under which made, not misleading.
Except as set forth in Schedule 6.20, there is no
fact peculiar to the Company or its subsidiaries
and known to the Company which materially adversely
affects or in the future may (so far as the Company
can now foresee) materially adversely affect the
business, operations, property, assets, prospects,
or condition, financial or other, of the Company
and its subsidiaries, taken as a whole, which has
not been set forth in this Agreement and the
Schedules and Exhibits attached hereto or in the
other documents described herein and furnished to
each of the Participants by or on behalf of the
Company in connection with the transactions
contemplated hereby.
6.21 D Stockholders Agreement. At the Effective Date of
the Merger the D Stockholders Agreement, as
amended, shall no longer have any binding legal
effect on any Participant who is a party thereto
which will result in any liability
<PAGE> 16
to a Participant or otherwise restrict or encumber
any shares of Paracelsus common stock any
Participant receives under the terms of the Merger.
6.22 Notice. The Company shall provide each
Participant (i) written notice of the Standstill
Termination Date not more than two (2) business
days thereafter and (ii) written notice of the
closing and funding of a Qualified Debt Offering
not less than three (3) business days prior
thereto.
7 Covenants of the Participants
7.1 Agreement to Give Consents. The Participants who
are holders of the Notes agree that upon, or
immediately prior to, repayment in full of the
Notes as herein provided, they will take or agree
to take or give their consent to the amendment of
any or all provisions of the D Agreement and E
Agreement for which such action may be taken, as
may be requested by Paracelsus or the Company;
provided, however, that the Participants shall not
be required, hereunder, to agree to take or give
their consent to any such amendment which affects
any provision which continues to be binding and
effective notwithstanding the payment in full of
any or all of the Notes held by a Participant,
including, without limitation, any and all
provisions relating to indemnity and expense
reimbursement; provided, further, that any consent
or amendment effected pursuant to this Section 7.1
shall be deemed ineffective if either (i) any
Participant's Notes are not repaid in full as
herein provided, or (ii) any amounts paid on
account of any Participant's Notes is recovered
from such Participant as a result of any voidable
preference or similar action or remedy.
7.2 Provide Notice to Transferees. Each Participant
agrees that no assignment, transfer or other
disposition of the D Notes or E Notes shall be made
and any such assignment or transfer shall be
without effect, without first providing any such
transferee with a copy of this Agreement and
obtaining a written agreement by such transferee to
be bound by the terms hereof. The Participants
agree that any D Note or E Note submitted to the
Company for transfer may have a legend placed upon
any such reissued Note giving notice of the
requirement of this Section 7.2.
7.3 Agreement to Vote. Provided the definitive terms
of the Merger Agreement do not change in any
material respect, each Participant as to itself
agrees that it will vote all shares of C Preferred
and D Preferred, over which it has voting control,
in favor of the Merger (provided such transaction
is consummated on terms substantially identical to
the terms set forth in the Draft Documents) at any
meeting of stockholders called for that purpose.
<PAGE> 17
7.4 Authority. Each Participant as to itself
represents and warrants that it has the power and
is authorized or otherwise duly qualified to
execute this Agreement.
7.5 Participant Share Ownership. Each Participant
represents and warrants to the Company and each
other that it has the right to vote not less
than the number of the shares of C Preferred and D
Preferred Stock set forth beside its name on
Schedule 7.3. Nothing herein shall prevent a
Participant from transferring or otherwise
disposing of any of such share holdings provided
any transferee agrees in writing to be bound by the
terms hereof.
8 Termination. The Company may terminate this Agreement at
anytime for any reason on or before the Effective Date of
the Merger. This Agreement shall terminate if the
Effective Date of the Merger does not occur on or before
December 31, 1996.
9 Miscellaneous.
9.1 Limitation on Waiver During Standstill. The
amendments, waivers and other agreements of the
Participants granted herein are conditioned upon
and limited to the terms specifically contained
herein and no other or further waiver or amendment
is granted or implied. All other provisions of the
D Agreement and E Agreement, the Notes and Warrants
shall remain in effect.
9.2 Waiver of Notice and Consent to Transactions. The
Company and the Participants, as to those
agreements to which each may be a party, hereby
waive any notice provision in any of the agreements
the amendment or waiver with respect thereto
would otherwise be required in respect of the
transactions contemplated by this Agreement and the
Exhibits and Schedules hereto.
9.3 Transaction Expenses. The Company agrees, whether
or not the transactions hereby contemplated shall
be consummated, to pay, and save the Participants
harmless against liability for the payment of, all
out-of-pocket expenses arising in connection with
(but not from) the execution and delivery of this
Agreement and the other agreements, amendments,
waivers and consents contemplated herein, limited
to the reasonable fees and expenses of (i) Chapman
and Cutler as counsel to the holders of the E
Warrants and E Notes, (ii) Rudnick & Wolfe, as
counsel to the holders of the D Notes, (iii)
Sonnenschein Nath & Rosenthal, as counsel to the
holders of the D Preferred and D Warrants. The
agreement of the Company contained in this Section
9.3 shall survive any termination of this agreement
whether in accordance with its terms or by
operation of law.
9.4 Survival of Representations and Warranties. All
representations and warranties contained herein or
made in writing by the Company and the
<PAGE> 18
Participants in connection herewith shall survive
the execution and delivery of this Agreement.
9.5 Successors and Assigns. All covenants and
agreements in this Agreement contained by or on
behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors,
assigns, or transferees of any D Note, D Warrant, D
Preferred, E Note, E Warrant, or C Preferred by the
parties hereto whether so expressed or not;
provided, that the Company may not assign any of
its rights, duties or obligations under this
Agreement, except as may be specifically provided
for herein or with the Participants' written
consent.
9.6 Notices. All notices and other communications
provided for or given or made hereunder shall be in
writing and shall be effective when received upon
the earlier of: (i) by hand or by first class mail
(or registered mail, if required), (ii) by
electronic facsimile transmission, (iii) by courier
or (iv) actual receipt if to the Participants at
their address set forth on Schedule 1 hereto, to
transferees of the Participants at their address
set forth in the records of the Company or the
transfer agent of the Company, and if to the
Company or after the Merger to Paracelsus, at 515
W. Greens Road, Suite 800, Houston, Texas 77067, or
to such other address with respect to any such
party as such party shall give notice in writing.
9.7 Governing Law. This Agreement shall be construed
and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the
State of Delaware without regard to its conflict of
law provisions. This Agreement may not be amended,
and neither the Company nor, following the Merger,
Paracelsus may take any action herein prohibited,
or omit to perform any act herein required to be
performed by it, unless the written consent to such
amendment, action or omission to act is given by
(i) the Company, (ii) the holder or holders of at
least two-thirds of the aggregate principal amount
of the D Notes at the time outstanding, (iii) the
holder or holders of at least two-thirds of the
aggregate principal amount of the E Notes at the
time outstanding and (iv) following the Merger,
Paracelsus; provided, however, that without the
written consent of the holder of Notes currently
held by Participants which are at the time
outstanding, no amendment to this Agreement shall
change the principal of, or the rate or time of
payment of interest or any premium payable with
respect to, any Note, or affect the time or amount
of any required prepayments or modify the
subordination provisions in a manner adverse to the
holders of Notes, or change the transfer
restrictions with respect to the Notes, or reduce
the proportion of the principal amount of the Notes
required with respect to any consent.
9.8 Headings. The descriptive headings of the several
sections of this Agreement are inserted for
convenience only and do not constitute a part of
this Agreement.
<PAGE> 19
9.9 Gender and Number. Whenever the context of this
Agreement requires, the gender of all words herein
shall include the masculine, feminine and neuter,
and the number of all such words herein shall
include the singular and plural.
9.10 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, all of
which shall be deemed but one and the same
instrument and each of which shall be deemed an
original, and it shall not be necessary in making
proof of this Agreement to produce or account for
more than one such counterpart.
<PAGE> 20
In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of
the day and year first above written.
CHAMPION HEALTHCARE CORPORATION
/s/ James G. VanDevender
James G. VanDevender, Executive Vice President
[Participants' signatures appear on Schedule 1]
<PAGE> 1
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company,
its General Partner
By: /s/ Laura P. Pearl
Laura P. Pearl
Title: General Partner
FRONTENAC DIVERSIFIED III LIMITED
PARTNERSHIP
By: Frontenac Company,
its General Partner
By: /s/ Laura P. Pearl
Laura P. Pearl
Title: General Partner
EQUITY-LINKED INVESTORS, L.P.
By: Rohit M. Desai Associates
its General Partner
By: /s/ Frank J. Pados, Jr.
Name: Frank J. Pados, Jr.
Title: Attorney-in-Fact
EQUITY-LINKED INVESTORS-II
By: Rohibt M. Desai Associates-II
its General Partner
By: /s/ Frank J. Pados, Jr.
Name: Frank J. Pados, Jr.
Title: Attorney-in-Fact
<PAGE> 2
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
OLYMPUS PRIVATE PLACEMENT FUND, L.P.
By: OGP Partners, L.P.
Its General Partner
By: /s/ James A. Conroy
James A. Conroy
Title: General Partner of the General Partner
EQUUS II INCORPORATED
By: /s/ Nolan Lehmann
Nolan Lehmann, President
EQUUS CAPITAL PARTNERS
By: /s/ Equus Capital Corporation
Its General Partner
By: /s/ Nolan Lehmann
Nolan Lehmann, President
WPG CORPORATE DEVELOPMENT ASSOCIATES III, L.P.
By: WPG CDA III, L.P.
By:
Peter B. Pfister
Title: General Partner
<PAGE> 3
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
WPG CORPORATE DEVELOPMENT
ASSOCIATES III (OVERSEAS), LIMITED
By:
Robin Jarvis
Title: Director
RFE CAPITAL PARTNERS, L.P.
By: Norcon Associates
its General Partner
By: /s/ James A. Parsons
James P. Parsons
Title: General Partner
RFE INVESTMENT PARTNERS IV, L.P.
By: RFE Associates IV, L.P.
Its General Partner
By: /s/ Michael J. Foster
Michael J. Foster
Title: General Partner
WILLIAM BLAIR VENTURE PARTNERS III
By: William Blair Venture
Management, its General Partner
By: /s/ Gregg S. Newmark
Gregg S. Newmark
Title: General Partner
<PAGE> 4
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
KELLY E. CURRY LIVING TRUST dated
December 9, 1993
By: Kelly E. Curry, Trustee
JOHN HANCOCK VENTURE CAPITAL FUND LIMITED
PARTNERSHIP II
By: Back Bay L.P.
its General Partner
By: John Hancock Venture Capital
Management, Inc.
By: /s/ Carol Anderson
Carol Anderson
Its: Authorized Officer
HANCOCK VENTURE PARTNERS III L.P.
By: Back Bay Partners V L.P.
its General Partner
By: John Hancock Venture Capital
Management, Inc.
By: /s/ Carol Anderson
Carol Anderson
Its: Authorized Officer
BAKER, FENTRESS & COMPANY
By: /s/ Scott E. Smith
Scott E. Smith
Title: Vice President
<PAGE> 5
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
ORACLE PARTNERS, L.P.
By:
Name: Larry N. Feinberg
Title: General Partner
BAHRAIN INTERNATIONAL BANK E.C.
By: /s/ William Khouri
Name: William Khouri
Title: Assistant General Manager
BANK OF AMERICA ILLINOIS
By: /s/ Ford S. Bartholow
Ford S. Bartholow
Title: Managing Director
/s/ Ford S. Bartholow, As Attorney-in-Fact
Christopher J. Perry
/s/ Robert F. Perille
Robert F. Perille
/s/ Ford S. Bartholow, As Attorney-in-Fact
M. Ann O'Brien
/s/ Ford S. Bartholow
Ford S. Bartholow
<PAGE> 6
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
/s/ Jeffrey M. Mann
Jeffrey M. Mann
/s/ Matthew W. Clary
Matthew W. Clary
/s/ Ford S. Bartholow, As Attorney-in-Fact
Thomas E. Van Pelt, Jr.
VIRGINIA RETIREMENT SYSTEM
By: /s/ William H. Leighty
Name: William H. Leighty
Title: Director
/s/ Ronald R. Pattterson
RONALD R. PATTERSON
/s/ Wesley W. Lang, Jr.
WESLEY W. LANG, JR.
/s/ Matthew M. Meehan
MATTHEW M. MEEHAN
<PAGE> 7
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
THEODORE STOLBERG
RALPH J. WATTS
/s/ David Wertheimer
DAVID WERTHEIMER
/s/ William F. Geiger
WILLIAM F. GEIGER
RALPHEAL A. LUCCASEN, JR.
/s/ C. David Rhoton
C. DAVID RHOTON
KATHY A. CONNOR
<PAGE> 8
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
SPROUT GROWTH II, L.P.
By: DLJ CAPITAL CORPORATION
its Managing General Partner
By: /s/ Janet A. Hickey
Janet A. Hickey
Title: Attorney-in-Fact
SPROUT CAPITAL VI, L.P.
By: DLJ CAPITAL CORPORATION
its Managing General Partner
By: /s/ Janet A. Hickey
Janet A. Hickey
Title: Attorney-in-Fact
SPROUT GROWTH, L.P.
By: DLJ Growth Associates
Its General Partner
By: /s/ Janet A. Hickey
Janet A. Hickey
Title: General Partner
VENTURTECH II LIMITED PARTNERSHIP
By: /s/ Carl J. Matthews
Carl J. Matthews
Title: Managing Director
<PAGE> 9
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
THOMAS M. RODGERS, JR.
DLJ FIRST ESC L.L.C.
By: DLJ LBO Plans Management Corporation
Its Manager
By: /s/ Robert E. Diemar
Robert E. Diemar, Jr.
Title: Authorized Signator
DONALDSON, LUFKIN & JENRETTE, INC.
By: /s/ Robert E. Diemar
Robert E. Diemar, Jr.
Title: Authorized Signator
DLJ SECURITIES CORPORATION
By: /s/ Robert E. Diemar
Robert E. Diemar, Jr.
Title: Authorized Signator
DLJ CAPITAL VENTURE FUND II, L.P.
By: DLJ Fund Associates II
Its General Partner
By: /s/ Janet A. Hickey
Janet A. Hickey
Title: General Partner
<PAGE> 10
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
DLJ CAPITAL CORPORATION
By: /s/ Robert E. Diemar
Robert E. Diemar, Jr.
Title: Authorized Signator
Robert E. Diemar, Jr.
*W. Patrick McMullan
*Vanessa J. Burgess
*Stephen J. Ketchum
*Evan B. Ratner
*Kenneth A. Tucker
*James D. Hann & Bonnie J. Hann JT Ten
*Hoyt Davidson
*Howard S. Rimerman
*Matthew Sirovich
*Nicole Sinek Arnaboldi & Leo Peter Arnaboldi, III
*Paul B. Queally
*Sabin C. Streeter
*John J. Veatch, Jr.
*Keith B. Geeslin
*Jon Stone
*Janet H. Tague
*Robert Finzi
*J. Kent Sweezey
*Larry E. Reeder
*Warren C. Woo
*Michael K. Hooks
*Sean Deson
*David L. Dennis
*James T. Sington
<PAGE> 11
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
*Colin R. Knudsen
*J. Brian Mullen & Elizabeth H. Mullen JT Ten
*Ralph L. DeGroff, Jr.
*Thomas G. McGonagle
*By: /s/ Robert E. Diemar
Robert E. Diemar, Jr.
Pursuant to Irrevocable Proxy
and Power of Attorney
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By Lincoln National Investment Management
Company, Its Attorney-In-Fact
By: /s/ William Holmes
Its: Vice President
SECURITY-CONNECTICUT LIFE INSURANCE COMPANY
By Lincoln National Investment Management
Company, Its Attorney-In-Fact
By: /s/ William Holmes
Its Vice President
LINCOLN NATIONAL INCOME FUND, INC.
By: /s/ David C. Fischer
Its President
<PAGE> 12
SCHEDULE I
PARTICIPANTS TO AGREEMENT IN CONTEMPLATION OF MERGER
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By: /s/ J. Thomas Christofferson
Its:
INDOSUEZ CAPITAL FUNDING I, LIMITED
(Beneficial Owner, held in nominee name OBIE & CO.)
By: /s/ John G. Popp
John G. Popp, Its Collateral Manager
INDOSUEZ HIGH YIELD PARTNERS
By: /s/ John G. Popp
John G. Popp, Its Partner
VOTING TRUSTEE:
FIRST INTERSTATE BANK OF CALIFORNIA,
Trustee,
By: Supranee Krausz
Title:
INDOSUEZ CAPITAL ASSET ADVISORS, INC.
By: /s/ John Popp
John Popp, its President
INDOSUEZ CAPITAL FUNDING II, LIMITED
(Beneficial owner, held in nominee name OBIE & CO.)
By: /s/ John Popp
John Popp, its Portfolio Advisor
<PAGE> 1
PARACELSUS HEALTHCARE AND
CHAMPION HEALTHCARE TO MERGE
April 15, 1996 - CHAMPION HEALTHCARE CORPORATION, Texas (AMEX: CHC) and
PARACELSUS HEALTHCARE CORPORATION, Pasadena, California, announced today
that they had entered into a definitive Merger Agreement to combine the two
companies.
The Merger Agreement provides that each outstanding share of Champion
Common Stock will be converted into one share of Paracelsus Common Stock
and each outstanding share of Champion Preferred Stock will be converted
into two shares of Paracelsus Common Stock. Prior to the merger, Paracelsus
will split the existing Paracelsus Common Stock into a number of shares of
Paracelsus Common Stock such that, immediately after giving effect to the
shares to be issued in the merger, Dr. Manfred George Krukemeyer, currently
the chairman of the board and sole shareholder of Paracelsus, and members
of Paracelsus management will own approximately 60%, and former Champion
security holders will own approximately 40% of the Paracelsus Common Stock
(on a fully diluted basis). The merger is intended to be tax free to the
Champion stockholders. It is expected that the Paracelsus Common Stock
will be listed on the AMEX.
At the time of the merger, Dr. Krukemeyer will enter into a Shareholder
Agreement that will restrict certain acquisitions and dispositions by him
of Paracelsus securities. In addition the agreement will provide for
rights and obligations relating to board representation and, under certain
circumstances, rights of first refusal. The agreement will also impose
certain other customary standstill restrictions.
The board of directors of Champion has determined that the merger and the
other related transactions are fair to and in the best interests of
Champion stockholders. The merger, which is expected to close within 120
days, is subject to certain conditions, including approval by the
stockholders of each company, termination of the waiting period under the
HSR Act and other customary conditions. Certain holders of Champion
Preferred Stock have agreed to vote their shares in favor of the merger.
In the event that the Merger Agreement is terminated, under certain
circumstances Paracelsus and Champion have agreed to pay a termination fee
to the other. No shareholder meeting dates have been determined.
Upon completion of the merger, the surviving corporation will retain the
Paracelsus name. Dr. Manfred George Krukemeyer will become chairman of the
combined Company and Mr. R.J. Messenger, currently president and chief
executive officer of Paracelsus, will be vice chairman and chief executive
officer.
<PAGE> 2
Mr. Charles R. Miller, chairman, president and chief executive of Champion
will be named to the board of the combined Company and will serve as
president and chief operating officer with direct responsibility for all of
the combined Company's operations. Champion's executive vice-president and
chief financial officer, Mr. James G. VanDeventer will become executive
vice-president and chief financial officer of the combined Company and will
also be named a director.
Commenting jointly on the merger, Dr. Krukemeyer and Mr. Messenger said,
"This merger represents a historic milestone for both companies and we
believe is an eminently logical response to the sweeping changes which are
transforming the delivery of healthcare in this country. Including
hospital acquisitions under contract, the combination of Champion and
Paracelsus will create a publicly held hospital management company with 31
hospitals in 11 states. The combined Company will have a significant
presence in Utah, Texas, Tennessee, North Dakota, and California. Further,
18 of its hospitals will have a preeminent position in nine attractive
geographic locations. For example, with the announced agreement to acquire
the FHP Hospital by Paracelsus, we will be able to better serve consumers
and managed care organizations in the fast-growing Salt Lake area with a
third healthcare network alternative consisting of five hospitals, six
satellite clinics and a major home health system. We look forward to
joining with Champion in creating a national healthcare company that will
be a respected major force in the industry and the ensuing benefits which
will be realized by our respective employees, medical staffs, communities
and stockholders."
Mr. Miller stated, "In the current healthcare environment, which is marked
by increased cost containment pressures and a rapid pace of consolidation,
we believe the potential benefits of this merger to stockholders are
substantial. By combining the two companies to produce a larger public
company, we will have a stronger balance sheet, improve our access to
capital and have greater visibility and financial resources to compete more
effectively for new acquisitions. Moreover, we intend to maintain our
focus on improving margins to enhance stockholder value by capitalizing on
the synergies and cost reduction opportunities which the merger provides.
We are very enthusiastic and optimistic regarding the merits of this
transaction for both companies."
Paracelsus Healthcare Corporation presently owns and operates 21 hospitals
and four skilled nursing facilities in eight states. For the fiscal year
ended September 30, 1995, the Company reported net revenues of
approximately $500 million and net income of approximately $13 million.
<PAGE> 3
Champion Healthcare Corporation currently owns and operates nine hospitals,
including one hospital partnership, in six states. For the year ended
December 31, 1995 the Company reported $167.5 million in net revenues, net
income before extraordinary items of $3.4 million and net income of $2.3
million.
