<PAGE>
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
Date of Report (Date of earliest event reported): December 30, 1997
PHP HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
State or other jurisdiction of incorporation: Delaware
Commission File No.: 0-16235
I.R.S. Employer Identification No.: 54-1023168
Address of principal executive offices: 11440 Commerce Park Drive
Reston, VA 20191
Registrant's telephone number, including area code: (703) 758-3600
Former name or former address, if changed since last report: Not applicable
Page 1
Exhibit Index at Page 7
<PAGE>
ITEM 5. OTHER MATTERS.
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On December 30, 1997, PHP Healthcare Corporation ("PHP" or the "Company")
announced the completion of a private placement of shares of its Series B
Convertible Preferred Stock at a purchase price of $1,000 per share resulting in
gross proceeds to the Company of $70 million. The proceeds of the offering were
used to repay outstanding borrowings under senior credit facilities, to pay
related expenses and for working capital. The senior credit facilities were
established to finance the Company's acquisition of 18 health centers from HIP
of New Jersey, Inc.
The holders of the Series B Preferred Stock are not entitled to receive
dividends and, except as provided for by law, have no voting rights. The shares
of Series B Preferred Stock are convertible into shares of the Company's common
stock upon the earlier of April 1, 1998 or the date on which the registration
statement relating to the resale of the common stock issuable upon conversion of
the Series B Preferred Stock becomes effective. The shares of Series B Preferred
Stock will automatically convert into common stock on the fifth anniversary of
the date of original issuance to the extent any shares of Series B Preferred
Stock remain outstanding at that time. Each share of Series B Preferred Stock is
convertible into that number of shares of common stock equal to the quotient of
(i) $1,000 divided by (ii) the Conversion Price. Through May 31, 1998, the
Conversion Price will be $25. Thereafter, subject to the maximum Conversion
Price specified below, the Conversion Price will be equal to the lowest trading
price of the common stock for the 22 trading days immediately preceding the
conversion date, less a discount ranging from 5% (beginning June 1, 1998) to 9%
(on or after December 1, 1998). The maximum Conversion Price is the lesser of
(i) $30, (ii) 91% of the average of the daily low trading prices of the common
stock for all trading days in March, 1999, and (iii) 91% of the average of the
daily low trading prices for all trading days in September, 1999; provided,
however, that the maximum Conversion Price shall not be less than $25.
The number of shares that any holder of Series B Preferred Stock may
convert in any calendar month is limited according to a sliding scale percentage
of such holder's shares of Series B Preferred Stock determined by reference to
the highest of the daily low trading prices during such month.
<TABLE>
<CAPTION>
Highest of daily low trading Percentage convertible
prices during month during such month
<S> <C>
$25.00 or less 20%
$25.01 to $27.00 25%
$27.01 to $29.00 30%
$29.01 to $31.00 35%
$31.01 to $33.00 40%
</TABLE>
Page 2
<PAGE>
<TABLE>
<S> <C>
$33.01 to $35.00 45%
$35.01 to $37.00 50%
$37.01 or more 100%
</TABLE>
The number of shares which may be converted in any calendar month also includes
the number of shares which might have been but were not converted during earlier
calendar months.
If at any time the Conversion Price falls below $25, upon conversion of any
Series B Preferred Stock, the Company may, in lieu of the issuance of common
stock, make a payment in cash in an amount equal to the value of the common
stock based upon the high trading price of the common stock on the conversion
date.
The shares of Series B Preferred Stock will not be convertible into more
than 2,300,000 shares of common stock (approximately 19.9% of the number of
shares of common stock outstanding on October 31, 1997) (the "NYSE Cap") without
obtaining shareholder approval in accordance with New York Stock Exchange
listing requirements. If such shareholder approval is not obtained by May 31,
1998, the Company will be required to redeem, at a price equal to 110% of the
liquidation preference of such shares, the smallest number of shares of Series B
Preferred Stock which is sufficient, in the Company's reasonable judgment, such
that following such redemption, conversion of the remaining shares of Series B
Preferred Stock would not constitute a breach of the Company's obligations under
the New York Stock Exchange Rules.
The Company has agreed to register the shares of common stock issuable upon
conversion of the Series B Preferred Stock for resale under the Securities Act
of 1933 by April 1, 1998.
Each purchaser of the Series B Preferred Stock has agreed not to offer or
sell on any trading day, on a net basis, more than the following number of
shares of common stock: the greater of (i) 10% of the average daily trading
volume of the common stock for the five previous trading days, (ii) 10,000
shares, or (iii) 10% of the trading volume of the common stock on the day of
such sale. In addition, the purchasers of the Series B Preferred Stock and their
affiliates have agreed not to engage in any short sales, swaps, purchasing of
puts, or other hedging activities involving the common stock to hedge their
investment in the Series B Preferred Stock; however, any purchaser may write
call options if the call exercise price is greater than the lesser of (i) the
effective Conversion Price on the day that the call is written or (ii) the
closing price of the common stock on the day prior to the day that the call is
written. These hedging restrictions do not apply to certain short sales within
three days of conversion where the shares issuable upon conversion are used to
cover the short sale.
Page 3
<PAGE>
The Company intends to seek the approval of its stockholders to the
issuance of common stock issuable upon conversion of the Series B Preferred
Stock in accordance with its listing agreement with the New York Stock Exchange.
It is presently expected that such approval will be sought at a special meeting
of stockholders to be called solely for that purpose.
Page 4
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
Exhibits. The following exhibits are furnished as part of this report:
--------
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1 Certificate of Designations of Series B Convertible
Preferred Stock
4.1 Form of Preferred Stock Investment Agreement
</TABLE>
FORWARD LOOKING STATEMENTS
- --------------------------
This Report contains forward-looking statements. The words "believe,"
"expect" and "anticipate" and similar expressions identify such forward-looking
statements. These forward-looking statements reflect the Company's views with
respect to future events and financial performance. Such statements are subject
to risks and uncertainties that could cause the Company's actual results and
financial position to differ materially from those projected in the forward-
looking statements. Risks associated with the Company's forward-looking
statements include, but are not limited to, those risk factors described in the
Company's Form 10-K under the caption "Business -- Risk Factors." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Page 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHP HEALTHCARE CORPORATION
By: /s/ Kenneth H. Weixel
--------------------------------
Name: Kenneth H. Weixel
Title: Executive Vice President
Dated: January 5, 1998
Page 6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1 Certificate of Designations of Series B Convertible
Preferred Stock
4.1 Form of Preferred Stock Investment Agreement
</TABLE>
Page 7
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
PHP HEALTHCARE CORPORATION
a Delaware corporation
- --------------------------------------------------------------------------------
Pursuant to (S) 151(g) of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
PHP Healthcare Corporation (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of the
Corporation (the "Board") by Article 4 of the Amended and Restated Certificate
of Incorporation of the Corporation, and in accordance with Section 151(g) of
the General Corporation Law of the State of Delaware, a committee of the Board
of Directors of the Corporation, pursuant to authority conferred upon such
committee by the Board of Directors in accordance with Section 141(c) of the
General Corporation Law of the State of Delaware, adopted the following
resolution creating a series of Preferred Stock designated as Series B
Convertible Preferred Stock:
RESOLVED that there shall be a series of shares of the Preferred Stock
of the Corporation designated "Series B Convertible Preferred Stock"; that the
number of authorized shares of such series shall be 80,800 and that the rights
and preferences of such series (the "Series B Preferred") and the limitations or
restrictions thereon, shall be as follows:
1. Dividends. The holders of the Series B Preferred shall not be entitled
---------
to receive dividends.
<PAGE>
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series B
Preferred shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of the Common Stock
or any other class or series of shares except any class or series which is
entitled to priority over the Series B Preferred, the amount of $1,000 per share
plus any amounts accrued but unpaid under Section 1.4(b)(iv) of the Preferred
Stock Investment Agreement (the "Investment Agreement") under which shares of
the Series B Preferred were originally issued (the "Liquidation Preference").
(b) Subject to the last sentence of this Section, a consolidation or
merger of the Corporation with or into any other corporation or corporations, or
a sale of all or substantially all of the assets of the Corporation, shall, at
the option of the holders of the Series B Preferred, be deemed a liquidation,
dissolution or winding up within the meaning of this Section 2 if the shares of
stock of the Corporation (along with all derivative securities) outstanding
immediately prior to such transaction represent immediately after such
transaction less than a majority of the voting power of the surviving
corporation (or of the acquirer of the Corporation's assets in the case of a
sale of assets). Such option may be exercised by the vote or written consent of
holders of a majority of the Series B Preferred at any time within thirty
calendar days after written notice of the essential terms of such transaction
shall have been given to the holders of the Series B Preferred as provided in
Section 5 hereof. Such notice shall be given by the Corporation immediately
following determination of such essential terms. If such option is exercised,
the holders of the Series B Preferred shall be entitled to receive, in cash,
immediately upon the occurrence of such transaction, an amount per share equal
to the Liquidation Preference. This Section shall not apply to a business
combination in which substantially all the Common Stock of the Corporation is
converted into or exchanged for voting common stock of the corporation surviving
such business combination, if (i) such common stock of the surviving corporation
is listed and traded on the NASDAQ National Market or the New York Stock
Exchange, and (ii) the Board of Directors of the Corporation determines in good
faith that the conversion rights and other rights and preferences of the Series
B Preferred are preserved and not rendered of less value by the terms of such
business combination.
3. Mandatory Conversion. On the fifth anniversary of the date of
--------------------
issuance, all then outstanding shares of Series B Preferred shall be
automatically converted into Common Stock at the Conversion Price on such
anniversary date and otherwise pursuant to the applicable provisions set forth
in Section 4 hereof.
- 2 -
<PAGE>
4. Conversion. The holders of the Series B Preferred shall have optional
----------
conversion rights as follows:
(a) Accrual of Conversion Rights. The Conversion Period shall
----------------------------
commence on the first day of the fourth full calendar month after the date of
issuance, or (if earlier) the date that a Registration Statement covering resale
of the underlying shares of Common Stock has been declared effective by the
Securities and Exchange Commission, and shall continue thereafter for the life
of the issue. Each holder of record of Series B Preferred shares on the date of
commencement of the Conversion Period (an "Original Holder") shall be entitled
to convert in any calendar month the following percentage of the Series B
Preferred shares held by such holder on the date of commencement of the
Conversion Period, on a cumulative basis following commencement of the
Conversion Period. The percentage for each calendar month will be determined
based on the highest of the daily low trading prices of the Common Stock during
such month, as follows:
Highest of daily low trading Percentage convertible
prices during month during such month
$25.00 or less 20.0%
$25.01 to $27.00 25.0%
$27.01 to $29.00 30.0%
$29.01 to $31.00 35.0%
$31.01 to $33.00 40.0%
$33.01 to $35.00 45%
$35.01 to $37.00 50%
$37.01 or more 100%
The number of shares which may be converted in any calendar month shall include
the number of shares which might have been but were not converted during earlier
calendar months. In the case of transfers of shares by an Original Holder the
Corporation shall make such notations on its stock ownership records and on the
certificates for shares issued upon transfer so as to reflect the portion (if
any) of the transferred shares which have become convertible pursuant to this
provision, or the Corporation may at its election issue certificates
representing the Series B Preferred shares in such form, or with such
annotations, as to reflect the time or times at which the shares represented by
such certificates will become convertible.
(b) Removal of Limitations. The limitations set forth in Section
----------------------
4(a) hereof, with respect to the percentage of Series B Preferred shares which
may be converted during certain time periods, shall terminate and all the Series
B Preferred shares shall thereafter be fully convertible if any of the following
events or conditions shall occur or
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<PAGE>
exist: (i) an event described in Section 2(b) (subject to the exclusion in the
last sentence of such Section) shall occur, whether or not the holders of Series
B Preferred deem such event to be a liquidation; (ii) proceedings for relief
under any bankruptcy or similar law for the relief of debtors are instituted by
or against the Corporation or any of its significant subsidiaries and, if
instituted against the Corporation or such subsidiary, are consented to or not
dismissed within 30 days; (iii) the independent auditors of the Corporation
shall fail or be unwilling to express within 90 days after the end of the
Corporation's fiscal year a customary opinion on the financial statements of the
Corporation, or shall express such opinion subject to a "going concern"
qualification; (iv) the Common Stock of the Corporation shall cease to be listed
on either the NASDAQ National Market or the New York Stock Exchange; or
(v) there shall be a material breach by the Corporation of any of its
obligations hereunder or under the Preferred Stock Investment Agreements
pursuant to which the Series B Preferred was originally issued, which breach has
a material adverse effect on the holders of Series B Preferred.
(c) Right to Convert. At and after the time it has become
----------------
convertible, each share of Series B Preferred shall be convertible, at the
option of the holder thereof, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing (i) the liquidation
preference of the Series B Preferred share determined pursuant to Section 2(a)
hereof on the date the notice of conversion is given, by (ii) the Conversion
Price determined as hereinafter provided in effect on said date, provided
however, that a share of Series B Preferred shall not be converted into Common
Stock if following such conversion the holder thereof together with affiliates
of such holder would be the beneficial owners (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of 4.9% or more of the Common Stock of the
Corporation.
(d) Mechanics of Conversion. To convert shares of Series B Preferred
-----------------------
into shares of Common Stock, the holder shall give written notice to the
Corporation substantially in the form of the Notice of Conversion attached to
the Investment Agreement (which notice may be given by facsimile transmission)
that such holder elects to convert the same and shall state therein the number
of shares to be converted and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. Promptly
thereafter the holder (i) shall surrender the certificate or certificates
representing the shares to be converted, duly endorsed, at the office of the
Corporation or of any transfer agent for such shares, or at such other place
designated by the Corporation, and (ii) shall deliver to the Corporation a
certificate certifying that such holder and its affiliates have complied with
all of their obligations under the Investment Agreement, including Section 3.6
thereof with respect to certain hedging transactions, which certificate may be
included in the form of Notice of Conversion attached as an Exhibit to the
Investment Agreement. The Corporation shall, immediately upon receipt of such
notice and certificate,
- 4 -
<PAGE>
issue and deliver to or upon the order of such holder, against delivery of the
certificates representing the shares which have been converted, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, and a certificate representing the shares of Series B Preferred not
so converted, if any. The Corporation shall effect such issuance within 48 hours
and shall transmit the certificates by messenger or overnight delivery service
to reach the address designated by such holder within three trading days after
the receipt of such notice. Notice of conversion may be given by a holder at any
time of day up to 5:00 pm New York time, and such conversion shall be deemed to
have been made immediately prior to the close of business on the date such
notice of conversion is given (the "Conversion Date"). The person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at the close of business on the Conversion Date.
(e) Determination of Conversion Price.
---------------------------------
(i) On any Conversion Date prior to the first day of the sixth
full calendar month after the Closing, the Conversion Price shall be $25.00.
Subject to the foregoing sentence and to the provisions of subsection
(e)(iii) and subsection (f) of this Section 4, on any Conversion Date, the
Conversion Price shall be the lowest daily trading price of the Common Stock for
the 22 consecutive trading days (excluding any trading day on which the Dow
Jones Industrial Average closes 7% or more below its opening on that day and
excluding any trading day on which the New York Stock Exchange halts trading for
at least one hour because of the "Circuit Breakers" pursuant to its Rule 80A or
80B) ending with the trading day prior to the Conversion Date, reduced by the
Applicable Percentage (as defined below) in effect on the Conversion Date.
(ii) The Applicable Percentage shall be as follows:
5.00% starting on the first day of the sixth (6th) full calendar
month after Closing.
5.75% starting on the first day of the seventh (7th) full calendar
month after Closing.
6.25% starting on the first day of the eighth (8th) full calendar
month after Closing.
7.00% starting on the first day of the ninth (9th) full calendar
month after Closing.
7.50% starting on the first day of the tenth (10th) full calendar
month after Closing.
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<PAGE>
8.25% starting on the first day of the eleventh (11th) full calendar
month after Closing.
9.00% starting on the first day of the twelfth (12th) full calendar
month after Closing, and thereafter.
(iii) At any date on or after the first day of the sixth full
calendar month after Closing, the Maximum Conversion Price ("Conversion Cap")
shall be the lesser of (i) $30.00, or such lower number as the Company may
designate, at its option, by notice to the holders of Series B Preferred, (ii)
91% of the average of the daily low trading prices of the Common Stock for the
fifteenth calendar month after the Closing, or (iii) 91% of the average of the
daily low trading prices of the Common Stock for the twenty-first calendar month
after the Closing. The provisions of clauses (ii) and (iii) of the foregoing
sentence shall become effective at the end of the fifteenth and twenty-first
calendar months following the Closing, respectively. In no event, however,
shall the Conversion Cap be lower than $25.00.
(iv) The terms "high trading price", "low trading price" and
"last sale price" of the Common Stock on any day shall mean, respectively,
(A) the highest reported sale price, the lowest reported sale price and the last
reported sale price of the Common Stock on the principal stock exchange on which
the Common Stock is listed, or (B) if the Common Stock is not listed on a stock
exchange, the highest reported sale price, the lowest reported sale price and
the last reported sale price of the Common Stock on the principal automated
securities price quotation system on which sale prices of the Common Stock are
reported, or (C) if the Common Stock is not listed on a stock exchange and sale
prices of the Common Stock are not reported on an automated quotation system,
the highest asked price, the lowest bid price and the last bid price for the
Common Stock as reported by National Quotation Bureau Incorporated. If none of
the foregoing provisions are applicable, the "high trading price", "low trading
price" and "last sale price" of the Common Stock on a day will be the fair
market value of the Common Stock on that day as determined by a member firm of
the New York Stock Exchange, Inc., selected by the Board of Directors of the
Corporation. The term "trading day" means (x) if the Common Stock is listed on
at least one stock exchange, a day on which there is trading on the principal
stock exchange on which the Common Stock is listed, (y) if the Common Stock is
not listed on a stock exchange but sale prices of the Common Stock are reported
on an automated quotation system, a day on which trading is reported on the
principal automated quotation system on which sales of the Common Stock are
reported, or (z) if the foregoing provisions are inapplicable, a day on which
quotations are reported by National Quotation Bureau Incorporated. The "closing
price" of the Common Stock on any day means the "last sale price" as defined
above. The terms "highest trading price" and "lowest trading price" of the
- 6 -
<PAGE>
Common Stock for a period of several trading days mean, respectively, the
highest of the high or the lowest of the low trading prices for each of such
trading days.
(v) In the event that during any period of consecutive trading
days provided for herein, the Corporation shall declare or pay any dividend on
the Common Stock payable in Common Stock or in rights to acquire Common Stock,
or shall effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, then the Conversion Price
and the Conversion Cap shall be proportionately decreased or increased, as
appropriate, to give effect to such event, and like adjustment shall be made in
any price per share specified in dollars in Section 4(a) or elsewhere herein.
(f) Green Floor. If at any time the Conversion Price falls below
-----------
$25.00 (the "Green Floor Price" subject to change in accordance with this
Section 4(f)) the Corporation may at its option give written notice ("Cash
Conversion Notice") to the holders of the Series B Preferred at least five
trading days prior to the effective date specified in such Notice (the
"Effective Date") that the Corporation will honor any conversion request
otherwise properly made during the period that the Cash Conversion Notice
remains effective, at a Conversion Price lower than the Green Floor Price then
in effect, by a cash payment in lieu of the issuance of Common Stock in an
amount equal to the proceeds which would otherwise have been received by the
holder if conversion were in fact made into Common Stock and such Common Stock
were sold at the high trading price on the Conversion Date (the "Cash Conversion
Amount"). A Cash Conversion Notice shall constitute a representation and
warranty by the Corporation that it has funds available in cash or cash
equivalents (including without limitation amounts available to be drawn under
lines of credit or letters of credit) to pay the Cash Conversion Amount
(computed on the basis of the Green floor Price then in effect) upon conversion
of all the Series B Preferred shares eligible for conversion at that time, and
that such funds will be set aside and maintained for the exclusive purpose of
satisfying the Corporations's Cash Conversion obligations. The Cash Conversion
Notice may (but need not) specify an expiration date of such Notice, shall
specify the Green Floor Price that will be in effect until further notice is
given, and shall be given at least five trading days before the same becomes
effective. The Corporation may terminate the Cash Conversion Notice by a
further five trading day notice to the holders of Series B Preferred that the
Cash Conversion Notice will not be in effect after a specified date. The
Corporation may re-establish the Green Floor Price, at its option, by giving
five trading days notice to the holders of the Series B Preferred prior to the
notice becoming effective. If notice of conversion shall be given by a holder of
Series B Preferred shares on a date that a Cash Conversion Notice is in effect,
the Corporation shall within 48 hours following surrender of the share
certificate as provided in Section 4(d) hereof make payment of the Cash
Conversion Amount to such holder by wire transfer of immediately available funds
in U.S. dollars pursuant to such wire transfer instructions as may have been
- 7 -
<PAGE>
given by such holder, or in the absence of such instructions by mailing by
certified mail a bank cashiers' or certified check for the Cash Conversion
Amount to the record address of such holder. A Cash Conversion Notice shall
cease to be effective if the Corporation fails to make payment of the Cash
Conversion Amount to any holder entitled thereto in the manner and within the
time specified in the foregoing sentence, time being of the essence, and the
Corporation's right to give Cash Conversion Notices will thereupon terminate. If
the Corporation fails to make payment of the Cash Conversion Amount to any
holder entitled thereto in the manner and within the time specified above, time
being of the essence, (i) such holder shall be entitled to receive from the
Corporation in cash an amount equal to 3% of the Cash Conversion Amount, payable
seven days thereafter, without prejudice to the right of such holder to assert a
claim for damages in a larger amount than such payment, and (ii) such holder
shall be entitled (A) to elect to receive the Common Stock that would have been
issuable to him on the Conversion Date upon conversion of his Series B Preferred
shares if no Cash Conversion Notice had been given, such election to be made by
written notice to the Corporation not later than five trading days after the
date on which the holder receives notice that the Corporation has failed to make
payment to him of the Cash Conversion Amount, or (B) unless such holder has
elected the foregoing alternative (A), such holder shall be entitled to the
immediate return of the stock certificate or certificates representing the
Series B Preferred shares submitted by such holder for Cash Conversion, and then
and thereafter (whether or not such certificate or certificates have been
returned) such holder's notice of conversion shall be rescinded and of no
further effect, and such holder shall have the right to convert his Series B
Preferred shares into Common Stock of the Corporation without regard to the
provisions of this subsection (f). The number of shares that a holder is
entitled to convert, determined pursuant to subsections (a) and (b) of this
Section 4, shall not be affected by the giving or effectiveness of a Cash
Conversion Notice. Any Cash Conversion Notice shall be given as provided in
Section 5 hereof.
(g) Distributions. In the event the Corporation shall at any time or
-------------
from time to time make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation or any of its subsidiaries or other
property, other than cash dividends from earnings, then in each such event
provision shall be made so that the holders of Series B Preferred shall receive,
upon the conversion thereof, the securities or other property which they would
have received had they been the owners on the date of such event of the number
of shares of Common Stock issuable to them upon conversion.
(h) Certificates as to Adjustments. Upon the occurrence of any
------------------------------
adjustment or readjustment of the Conversion Price pursuant to Section 4(e)(v)
or Section 4(m) hereof, or any provision for distribution pursuant to Section
4(g) hereof, or any adjustment of the cash per-share prices specified herein,
the Corporation at its expense shall
- 8 -
<PAGE>
promptly compute such adjustment, readjustment or provision in accordance with
the terms hereof and prepare and furnish to each holder of Series B Preferred a
certificate setting forth such adjustment, readjustment or provision and showing
in detail the facts upon which such adjustment, readjustment or provision is
based. The Corporation shall, upon the written request at any time of any holder
of Series B Preferred, furnish or cause to be furnished to such holder a like
certificate prepared by the Corporation setting forth (i) such adjustments and
readjustments, and (ii) the number of other securities and the amount, if any,
of other property which at the time would be received upon the conversion of
Series B Preferred with respect to each share of Common Stock received upon such
conversion, which determination shall be binding on the holders absent manifest
error.
(i) Notice of Record Date. In the event of any taking by the
---------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive additional
shares of Common Stock, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or property, or
to receive any other right, the Corporation shall give notice to each holder of
Series B Preferred at least 10 days prior to such date specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution, security or right and the amount and character of such dividend,
distribution, security or right.
(j) Issue Taxes. The Corporation shall pay any and all issue and
-----------
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series B Preferred pursuant hereto; provided, however,
that the Corporation shall not be obligated to pay any transfer taxes resulting
from any transfer requested by any holder in connection with any such
conversion.
(k) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Preferred, such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Preferred, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in
- 9 -
<PAGE>
commercially reasonable efforts to obtain the requisite shareholder approval as
promptly as practicable.
(l) Fractional Shares. No fractional shares shall be issued upon the
-----------------
conversion of any share or shares of Series B Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series B Preferred by a holder thereof shall be aggregated for purposes
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors of the Corporation).
(m) Reorganization or Merger. In case of any reorganization or any
------------------------
reclassification of the capital stock of the Corporation or any consolidation or
merger of the Corporation with or into any other corporation or corporations or
a sale of all or substantially all of the assets of the Corporation to any other
person, and the holders of Series B Preferred do not elect to treat such
transaction as a liquidation, dissolution or winding up as provided in Section
2, then, as part of such reorganization, consolidation, merger or sale,
provision shall be made so that each share of Series B Preferred shall
thereafter be convertible into the number of shares of stock or other securities
or property (including cash) to which a holder of the number of shares of Common
Stock deliverable upon conversion of such share of Series B Preferred would have
been entitled upon the record date of (or date of, if no record date is fixed)
such event and, in any case, appropriate adjustment (as determined by the Board
of Directors) shall be made in the application of the provisions herein set
forth with respect to the rights and interests thereafter of the holders of the
Series B Preferred, to the end that the provisions set forth herein shall
thereafter be applicable, as nearly as equivalent as is practicable, in relation
to any shares of stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of Series B Preferred. The
Corporation shall have no obligation to obtain the prior consent of the holders
of Series B Preferred, individually or as a class, except as expressly provided
herein or as provided by applicable law.
(n) Rounding. All calculations under this Section 4 shall be made to
--------
the nearest cent or the nearest 1/100th of a share, as the case may be.
(o) Cancelled Shares. Shares of Series B Preferred converted into
----------------
Common Stock shall be cancelled and shall have the status of authorized but
unissued shares of undesignated preferred stock.
- 10 -
<PAGE>
5. Notices. Any notice to be given to the holders of the Series B
--------
Preferred shall be (i) mailed by first class mail postage prepaid to each holder
of Series B Preferred at the address shown on the records of the Corporation for
such holder, (ii) transmitted by telecopy or facsimile transmission to any
holder which has supplied a telecopy or facsimile address to the Corporation,
and (iii) unless receipted for by telecopy or facsimile on the date such notice
is given, shall be transmitted by an overnight delivery service or courier
service for delivery at the address shown on the records of the Corporation for
such holder on the first business day following the date such notice is given,
or if delivery in one business day to such address cannot be effected by such
delivery service, then on the earliest day on which such delivery can be made.
Any notice or other communication or deliveries hereunder shall be deemed given
and effective on the earliest of (1) the date of transmission, if delivered via
facsimile at the facsimile telephone number specified in the Investment
Agreement prior to 5:00 p.m. (New York Time) on a trading day, (ii) the trading
day after the transmission, if delivered via facsimile at the facsimile
telephone number specified in the Investment Agreement later than 5:00 p.m. (New
York Time) on any date and earlier than 11:59 p.m. (New York Time) on such date,
(iii) the trading day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
6. Other Provisions. For all purposes of this Resolution, the term
-----------------
"date of issuance" or "closing" shall mean the day on which shares of the Series
B Preferred are first issued by the Corporation, and the terms "trading price",
"high trading price", "low trading price", "closing price", "last trade price",
and "trading days" shall have the meanings given them in Section 4(e) hereof.
Any provision herein which conflicts with or violates any applicable usury law
shall be deemed modified to the extent necessary to avoid such conflict or
violation.
7. Restrictions and Limitations. The Corporation shall not undertake the
----------------------------
following actions without the consent of the holders of a majority of the Series
B Preferred: (i) modify its Certificate of Incorporation or Bylaws so as to
amend or change any of the rights, preferences, or privileges of the Series B
Preferred, (ii) authorize or issue any other equity security senior to the
Series B Preferred, or (iii) for a period of two years after the closing, pay
dividends in cash or property on, or purchase or otherwise acquire for value,
any Common Stock or other equity security of the Corporation either junior to or
on a parity with the Series B Preferred except from current or retained earnings
or from the net proceeds of sale of equity securities.
8. Voting Rights. Except as provided herein or as provided for by law,
--------------
the Series B Preferred shall have no voting rights.
- 11 -
<PAGE>
9. Attorneys' Fees. Any holder of Series B Preferred shall be entitled
---------------
to recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with enforcement by such holder of any
obligation of the Corporation hereunder, if such holder is the prevailing party
in an action or proceeding to compel such enforcement.
10. Limitation on Number of Conversion Shares. The Corporation shall not
------------------------------------------
be obligated to issue, in the aggregate, more than 2,300,000 shares of Common
Stock as presently constituted (the "NYSE Cap") upon conversion of the Series B
Preferred, if issuance of a larger number of shares would constitute a breach of
the Rules of the New York Stock Exchange. Subject to the obligation to effect
certain redemptions pursuant to the following provisions of this Section, if
further issuances of shares of Common Stock upon conversion of the Series B
Preferred would constitute a breach of the New York Stock Exchange Rules (i.e.,
all of the shares permitted to be issued under the NYSE Cap shall have been so
issued), then so long thereafter as such limitation shall continue to be
applicable and any shares of Series B Preferred are submitted for conversion
such shares shall receive in cash an amount equal to the Cash Conversion Amount
determined as provided in Section 4(f) hereof, in lieu of the Common Stock which
such shares would otherwise be entitled to receive upon conversion. Payment of
the Cash Conversion Amount shall be made no later than as specified in Section
4(f) and shall bear daily interest thereafter at the rate of one-tenth of one
percent per day until paid. The NYSE Cap shall be proportionately and equitably
adjusted in the event of stock splits, stock dividends, reverse stock splits,
reclassifications or other such events, in such manner as the Board of Directors
of the Corporation shall reasonably determine. If (A) the Corporation is unable
to obtain the requisite shareholder approval concerning the issuance of shares
of Common Stock upon conversion of the Series B Preferred to satisfy the New
York Stock Exchange Rules prior to March 31, 1998, then (B) the Corporation
shall immediately schedule another meeting of shareholders to obtain such
shareholder approval and shall use its best efforts to obtain such approval, and
(C) if such approval is not obtained by May 31, 1998, the Corporation shall
immediately redeem, at a "Special Redemption Price" equal to 110% of the
liquidation preference of such shares, the smallest number of Shares which is
sufficient, in the Corporation's reasonable judgment, such that following such
redemption, conversion of the remaining shares of Series B Preferred would not
constitute a breach of the Corporation's obligations under the New York Stock
Exchange Rules. Any redemption effected pursuant to the preceding sentence
shall require 15 days' notice and the Redemption Date shall be not more than 15
days after the date specified in Clause C of the preceding sentence. Such
redemption shall be made pro-rata. If there shall be a default in payment of
the Special Redemption Price, the amount so payable shall bear daily interest
from and after the Redemption Date at the rate of one-twentieth of one percent
per day until
- 12 -
<PAGE>
paid. Until the requisite stockholder approval is obtained, no purchaser of
Series B Preferred Shares pursuant to an Investment Agreement (each, a
"Purchaser" and, collectively, the "Purchasers") shall be issued, upon
conversion of the Series B Preferred Shares, a number of shares of Common Stock
("Conversion Shares") in an amount greater than the product of (A) the NYSE Cap
times (B) a fraction, the numerator of which is the number of Series B Preferred
Shares issued to such Purchaser pursuant to the Investment Agreements and the
denominator of which is the aggregate amount of all of the Series B Preferred
Shares issued to the Purchasers pursuant to the Investment Agreements (the
"Allocation Amount"). In the event that any Purchaser shall sell or otherwise
transfer any of such Purchaser's Series B Preferred Shares, the transferee shall
be allocated a pro rata portion of such Purchaser's Allocation Amount. In the
event that the number of Conversion Shares issued to a holder is, in the
aggregate, less than such holder's Allocation Amount, then the difference
between such holder's Allocation Amount and the number of Conversion Shares
actually issued to such holder shall be allocated to the respective Allocation
Amounts of the remaining holders of Series B Preferred Shares on a pro rata
basis in proportion to the number of Series B Preferred Shares then held by each
such holder.
[remainder of page intentionally blank]
- 13 -
<PAGE>
IN WITNESS WHEREOF, PHP Healthcare Corporation has caused this certificate
to be executed by Jack M. Mazur, its President, this 22nd day of December, 1997.
PHP HEALTHCARE CORPORATION
By:
---------------------------------
Jack M. Mazur, President
122202
- 14 -
<PAGE>
PREFERRED STOCK INVESTMENT AGREEMENT
AGREEMENT dated as of December __, 1997 between PHP Healthcare Corporation
(the "Company") and the investor whose name is set forth on the signature page
of this Agreement (the "Investor").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Preferred Stock
------------------------------------
Section I.1 Purchase and Sale of Preferred Stock. Upon the following terms
------------------------------------
and conditions, the Company shall issue and sell to the Investor shares of the
Company's Series B Convertible Preferred Stock (the "Shares") having the rights,
designations and preferences set forth in Schedule I hereto, and the Investor
shall purchase from the Company the number of Shares designated on the signature
page hereof.
Section I.2 Purchase Price. The purchase price for the Shares (the "Purchase
--------------
Price") shall be $1,000 per share.
Section I.3 The Closing.
-----------
(a) The closing of the purchase and sale of the Shares (the "Closing"),
shall take place at the offices of the Company, at 10:00 a.m., local time on the
later of the following: (i) the date on which the last to be fulfilled or waived
of the conditions set forth in Article IV hereof and applicable to the Closing
shall be fulfilled or waived in accordance herewith, or (ii) such other time and
place and/or on such other date as the Investor and the Company may agree. The
date on which the Closing occurs is referred to herein as the "Closing Date."
There shall be one closing date for all Shares initially issued to Investors.
(b) On the Closing Date, the Company shall issue and countersign, or
cause to be issued and countersigned by its transfer agent, for delivery upon
the order of the Investor certificates representing the number of Shares being
purchased by the Investor, registered in the name of the Investor, or deposit
such Shares into accounts designated by the Investor, and the Investor shall
deliver to the Company the Purchase Price for such Shares by cashier's check or
wire transfer in immediately available funds to such account as shall be
designated in writing by the Company. In addition, each party shall deliver all
documents, instruments and writings required to be delivered by such party
pursuant to this Agreement at or prior to the Closing.
Section I.4 Covenant to Register.
--------------------
(a) For purposes of this Section, the following definitions shall apply:
(i) The terms "register," "registered," and "registration" refer to
a registration under the Securities Act of 1933, as amended (the "Act"),
effected by preparing and filing a registration statement in compliance with the
Act, and the declaration or ordering of effectiveness of such registration
statement or amendment thereto.
(ii) The term "Registrable Securities" means (A) the shares of
common stock issued or issuable upon conversion of the Shares, or (B) any
securities of the Company or securities of any successor corporation issued
pursuant to the provisions of Schedule I hereto or issuable upon the conversion
or exercise of any warrant, right or other security that is issued as a dividend
or other distribution with respect to, or in exchange for or in replacement of
the Shares, which in either case (i) have not been resold pursuant to an
effective registration statement or pursuant to Rule 144 under the Act or
(ii) may not be resold pursuant to Rule 144(k) under the Act. For purposes of
this Agreement, securities will be considered ineligible for resale pursuant to
Rule 144(k) under the Act unless the Company's transfer agent has accepted an
instruction from the Company specifying that such securities are eligible for
sale pursuant to Rule 144(k).
(iii) The term "holder of Registrable Securities" includes any
person who holds Shares which are convertible into Registrable Securities.
(b) (i) The Company shall, as expeditiously as possible following the
Closing, file a registration statement on Form S-3, or if Form S-3 is not then
available, another appropriate form, covering the resale of all the Registrable
Securities under Rule 415 and, to the extent applicable, Rule 416. The number
of shares of Common Stock initially included in such registration statement
shall be not less than the number which would be issuable upon conversion of the
Shares including Shares subject to the Placement Agents' warrants if all thereof
were to be converted at a conversion price equal to the market price of the
Common Stock on the date the registration statement is filed. The
<PAGE>
Company shall use its best efforts to cause such registration statement to
become effective by April 1, 1998 (the "Initial Registration"). In the event
such registration is not so declared effective or if at any time thereafter it
does not include at least 100% of the number of Registrable Securities which
would then be issuable upon conversion of the Shares (or any successor security)
at the conversion price then in effect, any holder of Registrable Securities
shall have the right to require by notice in writing that the Company register
all or any part of the Registrable Securities held by such holder (a "Demand
Registration") and the Company shall thereupon effect such registration in
accordance herewith (which may include adding such shares to an existing shelf
registration). The parties agree that if the holder of Registrable Securities
demands registration of less than all of the Registrable Securities, the
Company, at its option, may nevertheless file a registration statement covering
all of the Registrable Securities. If such registration statement is declared
effective with respect to all Registrable Securities, then so long as the
Company is in compliance with its obligations under Subsection (d)(i) through
(v) hereof, the demand registration rights granted pursuant to this Subsection
(b) (i) shall not be applicable. The Company shall provide holders of
Registrable Securities a reasonable opportunity, but not in excess of 5 days, to
review any such registration statement or amendment or supplement thereto prior
to the filing thereof. If the Registrable Securities are registered initially on
a form other than Form S-3, the Company shall register the Registrable
Securities on Form S-3 as soon as use of such form is permissible.
(ii) The Company shall not be obligated to effect Demand
Registration under Subsection (b)(i) if (1) all of the Registrable Securities
held by the holder of Registrable Securities which are demanded to be covered by
the Demand Registration are, at the time of such demand, included in an
effective registration statement and the Company is in compliance with its
obligations under Subsection (d) (i) through (v) hereof, or (2) such holder is
not in compliance with its obligations under this Agreement, including without
limitation Section 3.6 hereof.
(iii) The Company may suspend the effectiveness of any such
registration effected pursuant to this Subsection (b) in the event, and for such
period of time as, such a suspension is required by the rules and regulations of
the Securities and Exchange Commission ("SEC"), and may suspend use of the
prospectus included in the Registration Statement if such prospectus ceases to
meet the requirements of Section 10 of the Act. The Company will immediately
advise the holders of the registered securities of any such suspension, and will
use its best efforts to cause such suspension to terminate at the earliest
possible date. The Investor agrees that following receipt of any such notice,
and until such suspension is terminated, the Investor will not make use of the
suspended prospectus and will make no sales requiring delivery of such
prospectus.
(iv) If the registration statement covering all Registrable
Securities is not effective by April 1, 1998, the Company shall pay the Investor
in cash an amount equal to 3% of the Purchase Price of the Shares then held by
the Investor for each 30 day period thereafter until such registration statement
is effective (pro-rata as to a period of less than 30 days). An amount equal to
0.1% of the total Purchase Price of Shares and any Registrable Securities then
held by Investor shall also be paid to the Investor in cash with respect to each
day in excess of 30 days in any calendar year that the effectiveness of the
Registration Statement or use of the prospectus is suspended as set forth in
Section 1.4 (b)(iii) or the prospectus is otherwise unavailable for use by
sellers of Registrable Securities including, without limitation, pursuant to
Section 1.4(b)(v). Any payment hereunder shall be made not later than five
business days after the end of the period with respect to which such payment is
due. The "Purchase Price" of Registrable Securities shall be, in the case of
Registrable Securities derived from conversion or substitution of Shares, the
Purchase Price of such Shares. This subsection is in addition to the provisions
of Section 7.2(a) hereof.
(v) Notwithstanding the foregoing Section 1.4(b)(i), subject to the
Investor's rights to receive payments under Section 1.4(b)(iv), if the Board of
Directors of the Company, in its good faith judgment, determines that any
registration of Registrable Securities should not be made or continued because
it would materially interfere with any material financing, acquisition,
corporate reorganization or merger or other material transaction involving the
Company or any of its subsidiaries (a "Valid-----Business Reason"), (x) the
---------------------------
Company may postpone filing a registration statement relating to the Registrable
Securities until such Valid Business Reason no longer exists, but in no event
for more than three months, and (y) in case a registration statement has been
filed relating to the Registrable Securities, the Company may cause such
registration statement to be withdrawn and its effectiveness terminated or may
postpone amending or supplementing such registration statement until such Valid
Business Reason no longer exists, but in no event for more than three months
(such period of postponement or withdrawal under sub clause (x) or (y) of this
Section 1.4(b)(v), the "Postponement Period"); and the Company shall give the
---------------------
Investor written notice of its determination to postpone or withdraw the
registration statement and of the fact that the Valid Business Reason for such
postponement or withdrawal no longer exists, in each case, promptly after the
occurrence thereof provided, however, that any such postponement or withdrawal
shall be subject to the payment by the Company of the payments provided for in
Section 1.4(b)(iv) hereof.
The Investor agrees that, upon receipt of any notice from the Company
that the Company has determined to withdraw any registration statement pursuant
to clause (y) above, the Investor will discontinue any disposition of
Registrable Securities pursuant to such registration statement and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in the Investor's possession
of the prospectus covering such Registrable Securities that was in effect at the
time of receipt of such notice.
2
<PAGE>
If the Company shall give any notice of withdrawal or postponement of a
registration statement, the Company shall, at such time as the Valid Business
Reason that caused such withdrawal or postponement no longer exists (but in no
event later than three months after the date of the postponement or withdrawal),
use its best efforts to effect the registration under the Securities Act of
Registrable Securities covered by the withdrawn or postponed registration
statement.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Investor)
any of its stock or other securities under the Act in connection with a public
offering of such securities (other than a registration on Form S-4, Form S-8 or
other limited purpose form) and all Registrable Securities have not theretofore
been included in a registration statement under Subsection (b) which remains
effective, the Company shall, at such time, promptly give all holders of
Registrable Securities written notice of such registration. Upon the written
request of any holder of Registrable Securities given within twenty (20) days
after receipt of such notice by the holder of Registrable Securities, the
Company shall use its reasonable best efforts to cause to be registered under
the Act all Registrable Securities that such holder of Registrable Securities
requests to be registered. However, the Company shall have no obligation under
this Subsection (c) to the extent that, with respect to registration of a public
offering for the account of the Company, the managing underwriter of such public
offering reasonably notifies such holder(s) in writing of its determination that
the Registrable Securities or a portion thereof should be excluded therefrom.
The rights of the Investor and the obligations of the Company under this
subsection are subject to any prior registration rights of other shareholders of
the Company which are disclosed in Exhibit A hereto.
(d) Whenever required under this Section to effect the registration of
any Registrable Securities, including, without limitation, the Initial
Registration, the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration to become effective as provided in Section 1.4(b)(i), and keep such
registration statement effective for so long as any holder of Registrable
Securities desires to dispose of the securities covered by such registration
statement, or, if earlier, until such Registrable Securities may be sold under
Rule 144(k) (provided that the Company's transfer agent has accepted an
instruction from the Company to such effect).
(ii) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement and notify the holders of the filing and effectiveness of
such Registration Statement and any amendments or supplements.
(iii) Furnish to each holder of Registrable Securities such numbers
of copies of a current prospectus conforming with the requirements of the Act,
copies of the registration statement, any amendment or supplement thereto and
any documents incorporated by reference therein and such other documents as such
holder of Registrable Securities may reasonably require in order to facilitate
the disposition of Registrable Securities owned by such holder of Registrable
Securities.
(iv) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such securities or "Blue
Sky" laws of such jurisdictions as shall be reasonably requested by a holder of
Registrable Securities and keep such registration or qualification effective as
long as required to permit sale of Registrable Securities thereunder, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(v) Notify each holder of Registrable Securities immediately of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its reasonable best efforts to promptly
update and/or correct such prospectus.
(vi) Furnish at the request of any holder of Registrable Securities
included therein (1) an opinion of counsel to the Company, dated the effective
date of the registration statement, covering compliance of the registration
statement, as to form, with the requirements of the Act and the rules
thereunder, and covering the matters covered in the opinion filed as an exhibit
to the registration statement, and (2) a letter or letters of the Company's
independent public accountants in form and substance reasonably satisfactory to
such holder.
(vii) Use its best efforts to list the Registrable Securities
covered by such registration statement with any national market or securities
exchange on which the Common Stock is then listed.
(viii) Make available for inspection by the holder of Registrable
Securities, upon
3
<PAGE>
request, all SEC Documents (as defined below) filed subsequent to the Closing
and require the Company's representatives to supply all information reasonably
requested by any holder of Registrable Securities in connection with such
registration statement.
(e) Each holder of Registrable Securities will furnish to the Company in
connection with any registration under this Section such information regarding
itself, the Registrable Securities and other securities of the Company held by
it, and the intended method of disposition of such securities as shall be
reasonably required to effect the registration of the Registrable Securities
held by such holder of Registrable Securities. The Investor shall provide such
data as of Closing. The intended method of disposition (Plan of Distribution) of
such securities as so provided by Investor shall be included without alteration
in the Registration Statement covering the Registrable Securities and shall not
be changed without written consent of the Investor.
(f) (i) The Company shall indemnify, defend and hold harmless each
holder of Registrable Securities which are included in a registration statement
pursuant to the provisions of Subsections (b) or (c) (each, a "Selling
Shareholder") and each of its officers, directors, employees, agents, partners
or controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all claims, suits, demands, causes of action, losses,
damages, liabilities, costs or expenses ("Liabilities") to which such
indemnified party may become subject under the Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading; provided, however, that the Company shall not be liable
--------
in any such case to the extent that any such Liability arises out of or is based
upon an untrue statement or omission so made in conformity with information
furnished by such indemnified party in writing specifically for use in the
registration statement; provided further, that the Company shall not be
----------------
liable in any such case to the extent that any such Liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in any preliminary prospectus if (i) a Selling
Shareholder under an obligation to send or deliver a copy of the prospectus with
or prior to the delivery of written confirmation of the sale of Registrable
Securities to the person asserting such Liability who purchased such Registrable
Securities which are the subject thereof from such Selling Shareholder failed to
do so and (ii) the prospectus would have corrected such untrue statement or
omission; and provided further, that the Company shall not be liable in any
----------------
such case to the extent that any Liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission in
the prospectus, if such untrue statement or alleged untrue statement, omission
or alleged omission is corrected in an amendment or supplement to the prospectus
and if, having previously been furnished by or on behalf of the Company with
copies of the prospectuses so amended or supplemented and having been obligated
to deliver such prospectuses, the Selling Shareholder thereafter failed to
deliver such prospectus as so amended or supplemented, prior to or concurrently
with the sale of Registrable Securities to the person asserting such Liability
who purchased such Registrable Securities which are the subject thereof from
such Selling Shareholder.
(ii) In the event of any registration under the Act of Registrable
Securities pursuant to Subsections (b) or (c), each holder of such Registrable
Securities hereby severally agrees to indemnify, defend and hold harmless the
Company, and its officers, directors, employees, agents, partners, or
controlling persons (within the meaning of the Act) (each, an "indemnified
party") from and against, and shall reimburse such indemnified party with
respect to, any and all Liabilities to which such indemnified party may become
subject under the Act or otherwise, arising from or relating to (A) any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or (B) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, that such holders will be liable in any such case to the
- --------
extent, and only to the extent, that any such Liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, prospectus or amendment or
supplement thereto in reliance upon and in conformity with written information
furnished in an instrument duly executed by such holder specifically for use in
the registration statement.
(iii) Promptly after receipt by any indemnified party of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against another party (the "indemnifying party")
hereunder, notify such party in writing thereof, but the omission so to notify
shall not relieve the indemnifying party from any Liability which it may have to
the indemnified party other than under this section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent it is actually prejudiced by such omission. In case any
such action shall be brought against any indemnified party and such indemnified
party shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to the indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to the indemnified
party under this section for any legal expenses subsequently incurred by the
indemnified party in
4
<PAGE>
connection with the defense thereof other than reasonable costs of liaison with
counsel so selected, provided, however, that if the defendants in any such
--------
action include both the indemnifying party and such indemnified party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense of
such action, with (subject to the following sentence) the reasonable expenses
and fees of such separate counsel and other reasonable expenses related to such
participation to be reimbursed by the indemnifying party as incurred. If the
Company is the indemnifying party it shall pay the reasonable expenses and fees
of only one separate counsel whose selection is approved by the largest group of
similarly situated indemnified parties as measured by the aggregate par value of
such Registrable Securities owned by such group. Any indemnified party who
chooses not to be represented by the foregoing separate counsel shall be
entitled, at its own expense, to be represented by counsel of its own selection.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsections (b) or (c), all fees, costs and
expenses of and incidental to such registration, inclusion and public offering
shall be borne by the Company; provided, however, that any Selling Shareholders
participating in such registration shall bear their own share of the
underwriting discounts and commissions, and transfer taxes if any, incurred by
them in connection with such registration.
(ii) The fees, costs and expenses of registration to be borne by the
Company as provided in this Subsection (g) shall include, without limitation,
all registration, filing and New York Stock Exchange ("NYSE") fees, printing
expenses, fees and disbursements of counsel and accountants for the Company, and
all legal fees and disbursements and other expenses of complying with state
securities or Blue Sky laws of any jurisdiction or jurisdictions in which
securities to be offered are to be registered and qualified. Subject to
appropriate agreements as to confidentiality, and upon reasonable advance notice
from the holder or its counsel, the Company shall make available to counsel for
the holders of Registrable Securities such documents and personnel as may be
required to permit reasonable due diligence. Fees and disbursements of counsel
and accountants for the Selling Shareholders shall be borne by the respective
Selling Shareholders. Nothing herein shall require the Company to postpone
filing the registration statement or delay its effectiveness.
(h) Subject to Section 2.2(d), the rights to cause the Company to
register all or any portion of Registrable Securities pursuant to this Section
may be assigned by Investor to a transferee or assignee of at least 1,000 Shares
or the entire amount held by the Investor (subject to adjustment for stock
splits, stock dividends and similar recapitalizations) or the Registrable
Securities derived from such Shares. Any transferee asserting registration
rights hereunder shall agree to be bound by the applicable provisions of this
Agreement.
(i) From and after the date of this Agreement, the Company shall not
agree to allow the holders of any securities of the Company to include any of
their securities in any registration statement filed by the Company pursuant to
Subsection (b) unless such inclusion will not reduce the amount of the
Registrable Securities included therein.
ARTICLE II
Representations and Warranties
------------------------------
Section II.1 Representations and Warranties of the Company. The Company
---------------------------------------------
hereby makes the following representations and warranties to the Investor:
(a) Organization and Qualification. The Company is a corporation duly
------------------------------
incorporated and existing in good standing under the laws of Delaware and has
the requisite corporate power to own its properties and to carry on its business
as now being conducted. The Company does not have any material subsidiaries
except as listed in Exhibit A hereto or in the SEC Documents (as hereinafter
defined). The Company and each such subsidiary, if any, is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary other than those in which the failure so to qualify
would not reasonably be expected to have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the business, operations,
properties, prospects, or financial condition of the Company and its
subsidiaries taken as a whole.
(b) Authorization; Enforcement. (i) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform this Agreement and to
issue the Shares in accordance with the terms hereof, (ii) the execution and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no further consent or authorization of the Company or its
Board of Directors or stockholders is required, (iii) this Agreement has been
duly executed and
5
<PAGE>
delivered by the Company, and (iv) this Agreement constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company consists
--------------
of 100,000,000 shares of Common Stock and 10,000,000 shares of preferred stock;
there are approximately 11,500,000 shares of Common Stock and no shares of
preferred stock issued and outstanding; and, upon issuance of the Shares in
accordance with the terms hereof and pursuant to similar agreements of like
tenor, there will be 11,500,000 shares of Common Stock and approximately 100,000
shares of Series B preferred stock issued and outstanding. All of the
outstanding shares of the Company's Common Stock have been validly issued and
are fully paid and nonassessable. Except as set forth in Exhibit A hereto or as
described in the SEC Documents, no shares of Common Stock are entitled to
preemptive rights or registration rights and there are no outstanding options,
convertible securities, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or contracts,
commitments, understandings, or arrangements by which the Company is or may
become bound to issue additional shares of capital stock of the Company or
options, warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible into shares, of capital
stock of the Company. The Company has furnished or made available to the
Investor true and correct copies of the Company's Certificate of Incorporation
as in effect on the date hereof (the "Charter"), and the Company's By-Laws, as
in effect on the date hereof (the "By-Laws").
(d) Issuance of Shares. The issuance of the Shares has been duly
------------------
authorized and, when paid for or issued in accordance with the terms hereof, the
Shares shall be validly issued, fully paid and non-assessable and entitled to
the rights and preferences set forth in Schedule I hereto. The Common Stock
issuable upon conversion of the Shares will be duly authorized and reserved for
issuance and, upon conversion in accordance with the Certificate of Designation
to be filed by the Company to establish the rights and preferences of the
Shares, will be validly issued, fully paid and non-assessable and not subject to
any preemptive rights or adverse claims, and the holders shall be entitled to
all rights and preferences accorded to a holder of Common Stock.
(e) No Conflicts. The execution, delivery and performance of this
------------
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) result in a violation
of the Company's Charter or By-Laws or (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its subsidiaries is a party, or result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including Federal and state securities laws and regulations)
applicable to the Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect); provided that, for purposes of such
representation as to Federal, state, local or foreign law, rule or regulation,
no representation is made herein with respect to any of the same applicable
solely to the Investor and not to the Company. The business of the Company is
not being conducted in violation of any law, ordinance or regulations of any
governmental entity, except for violations which either singly or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
The Company is not required under Federal, state or local law, rule or
regulation in the United States to obtain any consent, authorization or order
of, or make any filing (other than the filing of a Certificate setting forth the
terms of the Shares with the Delaware Secretary of State) or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Shares in
accordance with the terms hereof (other than any SEC, NYSE or state securities
filings which may be required to be made by the Company and any registration
statement which may be filed pursuant hereto); provided that, for purposes of
the representation made in this sentence, the Company is assuming and relying
upon the accuracy of the relevant representations and agreements of the Investor
herein. The Investor will not, solely as a result of the conversion of the
Shares, become an "Acquiring Person" under the Company's shareholder rights
plan, provided that the Investor complies with the provisions of this Agreement
and Schedule I.
(f) SEC Documents, Financial Statements. The Common Stock of the
-----------------------------------
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and, except as set forth on Exhibit A,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d), in addition to one or more registration statements and
amendments thereto heretofore filed by the Company with the SEC (all of the
foregoing including filings incorporated by reference therein being referred to
herein as the "SEC Documents"). The Company has delivered or made available to
the Investor true and complete copies of the quarterly and annual (including,
without limitation, proxy information and solicitation materials) SEC Documents
filed with the SEC since April 30, 1997. The Company has not provided to the
Investor any information which, according to applicable law, rule or regulation,
should have been disclosed publicly by the Company but which
6
<PAGE>
has not been so disclosed, other than with respect to the transactions
contemplated by this Agreement. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder except as set forth
on Exhibit A and other federal, state and local laws, rules and regulations
applicable to such SEC Documents, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except as
set forth on Exhibit A. The financial statements of the Company included in the
SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC or
other applicable rules and regulations with respect thereto, except as set forth
on Exhibit A,. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since October 31, 1997, the date through
--------------------------
which the most recent quarterly report of the Company on Form 10-Q has been
prepared and filed with the SEC, a copy of which is included in the SEC
Documents, no event which would reasonably be expected to have a Material
Adverse Effect has occurred or exists with respect to the Company or its
subsidiaries except as otherwise disclosed or reflected in other SEC Documents
prepared through or as of a date subsequent thereto, or as set forth on
Exhibit A.
(h) No Undisclosed Events or Circumstances. No event or circumstance
--------------------------------------
has occurred or exists with respect to the Company or its subsidiaries or their
respective businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed, except as set forth on Exhibit A.
(i) No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, or, to its knowledge, any person acting on its or their behalf
(including Cappello Capital Corp. and Saybrook Capital Corp. (the "Placement
Agents")), has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) in connection
with the offer or sale of the Shares.
(j) No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Shares under the Act.
(k) Approval Commitments. The Company has received binding assurance
--------------------
from its executive officers and directors and certain shareholders including
Jack M. Mazur, Michael D. Starr, Lynn Mazur, VACHR, Inc., Charles P. Reilly,
Michael Gallagher and Shamrock Investments to the effect that such persons will
vote all their shares in favor of such approval of the transactions contemplated
hereby as may be necessary to comply with any rule or regulation of the NYSE or
any other regulatory agency. The Company's voting agreement with Charles H.
Robbins, as described in the Company's most recent Proxy Statement, remains in
full force and effect.
(l) Stand-Off Commitments. The Company has received binding assurances
---------------------
from Jack M. Mazur, Lynn Mazur, VACHR, Inc., Charles P. Reilly, Michael
Gallagher and Shamrock Investments that none of them will sell more than 25,000
shares of Common Stock of the Company during the 8 1/2 month period following
the closing date without the approval of the placement agents, except for sales
at a net price in excess of $25 per share.
Section II.2 Representations and Warranties of the Investor. The Investor
----------------------------------------------
hereby makes the following representations and warranties to the Company:
(a) Authorization, Enforcement. (i) Such Investor has the requisite
--------------------------
power and authority to enter into and perform this Agreement and to purchase the
Shares being sold hereunder, (ii) the execution and delivery of this Agreement
by the Investor and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate or partnership
action, and (iii) this Agreement constitutes a valid and binding obligation of
the Investor enforceable against the Investor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
------------
Agreement and the consummation by the Investor of the transactions contemplated
hereby do not and will not (i) result in a violation of the Investor's charter
documents or By-Laws or (ii) conflict with any agreement, indenture or
instrument to which Investor is a party, or (iii) result in a violation of any
law, rule, or regulation, or any order, judgment or decree of any court or
7
<PAGE>
governmental agency applicable to Investor. The business of the Investor is not
being conducted in violation of any law or regulation of any governmental
entity, except for possible violations which either singly or in the aggregate
would not reasonably be expected to have a material adverse effect on the
Investor's ability to perform its obligations under this Agreement.. The
Investor is not required to obtain any consent or authorization of any
governmental agency in order for it to perform its obligations under this
Agreement. The data to be provided by the Investor in connection with
registering the Registrable Securities under the Act will be true and correct in
all material respects.
(c) Investment Representation. The Investor is purchasing the Shares
-------------------------
for its own account for investment and not with a view to distribution otherwise
than in compliance with the Act. Investor has no present intention to sell the
Shares and Investor has no present arrangement (whether or not legally binding)
to sell the Shares to or through any person or entity; provided, however, that
by making the representations herein, the Investor does not agree to hold the
Shares for any minimum or other specific term and reserves the right to dispose
of the Shares at any time in accordance with Federal and state securities laws
applicable to such disposition.
(d) Transfer Restriction. The Investor shall not, directly or
--------------------
indirectly sell, assign, transfer, encumber or otherwise dispose of
(collectively, "Transfer") or permit any Transfer to occur, or enter into any
contract, option or other arrangement or understanding with respect to the
Transfer of, any Shares, except as permitted by the following sentence. With the
prior written consent of the Company, which consent shall not be unreasonably
withheld, the Investor shall be permitted to Transfer Shares to a Person that
assumes all of the Investor's obligations under this Agreement pursuant to a
written instrument in the form attached as an Exhibit to this Agreement. If
Investor makes written application to the Company for such consent, designating
the name and address of the proposed transferee, and undertaking to obtain from
such transferee an instrument of assumption in the form attached as an Exhibit
to this Agreement, the Company shall state its consent or refusal to consent to
such transfer, in writing, not later than 2 business days after receipt of such
application by the Company. If the Company fails to respond within 2 business
days, Investor shall be free to proceed with the proposed transfer but shall
nevertheless obtain an instrument of assumption from the transferee.
Notwithstanding the foregoing provisions of this subsection, the Company's
consent to a transfer shall not be required if the Registrable Securities of the
Investor are not covered by an effective registration statement under which a
current prospectus is available. An Investor may transfer the lesser of (i) all
the Shares held by the Investor, or (ii) 1,000 shares, without the consent of
the Company, but shall obtain from the transferee an instrument of assumption in
the form attached as an Exhibit to this Agreement.
(e) Accredited Investor. The Investor is an accredited investor as
-------------------
defined in Rule 501 promulgated under the Act. The Investor has such knowledge
and experience in financial and business matters in general, and investments in
particular, so that the Investor is able to evaluate the merits and risks of an
investment in the Shares and to protect its own interests in connection with
such investment. In addition (but without limiting the effect of the Company's
representations and warranties contained herein), the Investor has received such
information as it considers necessary or appropriate for deciding whether to
purchase the Shares pursuant hereto. The Investor acknowledges that no
representation or warranty is made by the Placement Agents or any persons
representing the Placement Agents with respect to the Company or sale of the
Shares.
(f) Rule 144. The Investor understands that there is no public trading
--------
market for the Shares, that none is expected to develop, and that the Shares
must be held indefinitely unless such Shares or securities into which the Shares
are converted are registered under the Act or an exemption from registration is
available. The Investor has been advised or is aware of the provisions of Rule
144 promulgated under the Act.
ARTICLE III
Covenants
---------
Section III.1 Securities Compliance.
---------------------
(a) The Company shall notify the SEC and NYSE, in accordance with their
requirements, of the transactions contemplated by this Agreement, and shall take
all other necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Shares and Common Stock issuable upon conversion thereof to the Investor or
subsequent holder.
(b) The Investor understands that the Shares are being offered and
sold in reliance on a transactional exemption from the registration
requirements of Federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Investor set forth herein
in order to determine the applicability of such exemptions and the suitability
of the Investor to acquire the Shares.
8
<PAGE>
Section III.2 Registration and Listing. Until one (1) year after all Shares
------------------------
have been converted into Common Stock, the Company will cause its Common Stock
(or other securities into which the Shares are convertible) to continue to be
registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all
respects with its reporting and filing obligations under said act, will comply
with all requirements related to any registration statement filed pursuant to
this Agreement and will not take any action or file any document (whether or not
permitted by the Act or the Exchange Act or the rules thereunder) to terminate
or suspend such registration or to terminate or suspend its reporting and filing
obligations under said Acts, except as permitted herein. Until one (1) year
after all Shares have been converted into Common Stock the Company will use
commercially reasonable efforts to continue the listing or trading of its Common
Stock (or other securities into which the Shares are convertible) on the NYSE
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NYSE.
Section III.3 Stockholder Approval. The Company will use its commercially
--------------------
reasonable efforts to notice and hold a stockholders meeting as promptly as
practicable and in any event not later than February 28, 1998 to obtain any
stockholder approvals required by the Company (including those required by all
applicable agreements between the Company and the NYSE) to allow for issuance of
Common Stock upon conversion of the Shares.
Section III.4 Sale Restrictions. Following conversion of the Shares into
-----------------
Common Stock of the Company, Investor will not on any trading day offer or sell
publicly on NYSE or on the principal exchange on which the Common Stock is
traded, or on any other securities market or securities exchange, on a net
basis, more than the following number of such shares of Common Stock: the
greater of (i) 10% of the average daily trading volume of the Common Stock for
the five trading days immediately preceding such sale as reported by NYSE or by
such principal exchange, (ii) 10,000 shares, or (iii) 10% of the trading volume
of the Common Stock on the day of such sale, as reported by NYSE or by such
principal exchange.
Section III.5 Conversion Rights. Investor shall not be entitled to convert
-----------------
any Share into Common Stock of the Company if following conversion of such Share
the Investor and its affiliates (within the meaning of the Exchange Act) shall
be the beneficial owners (as defined in Rule 13d-3 under the Exchange Act) of 5%
or more of the Common Stock of the Company. The provisions of this Section
cannot be amended.
Section III.6 Hedging Restrictions. Investor and its affiliates agree not to
--------------------
engage in any short sales, swaps, purchasing of puts, or other hedging
activities that involve the direct or indirect use of the Common Stock to hedge
its investment in the Shares, but the Investor may write call options if the
call exercise price is greater than the lesser of the effective Conversion Price
on the day that the call is written or the closing price of the Common Stock on
the day prior to the day that the call is written. This Section shall not apply
to transactions not solicited or directed by Investor and in which Investor has
no beneficial interest made on behalf of third-party clients who are not holders
of Shares. This Section shall not apply to short sales made within 3 days of
Conversion of Shares in amounts not greater than the number of shares issuable
upon conversion, if the shares issuable upon conversion are used to cover the
short sale. The provisions of this Section are binding upon any affiliates of
the Investor and any affiliates of any transferee of any of the Shares.
ARTICLE IV
Conditions
----------
Section IV.1 Conditions Precedent to the Obligation of the Company to Sell
-------------------------------------------------------------
the Shares. The obligation hereunder of the Company to issue and/or sell the
- ----------
Shares to the Investor is subject to the satisfaction, at or before the Closing,
of each of the conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Investor's Representations and Warranties. The
---------------------------------------------------------
representations and warranties of the Investor shall be true and correct in
all material respects.
(b) Performance by the Investor. The Investor shall have performed all
---------------------------
agreements and satisfied all conditions required to be performed or satisfied by
the Investor at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
Section IV.2 Conditions Precedent to the Obligation of the Investor to
---------------------------------------------------------
Purchase the Shares. The obligation hereunder of the Investor to acquire and
- -------------------
pay for the Shares is subject to the satisfaction, at or before the Closing, of
each of the conditions set forth below. These conditions are for the Investor's
sole benefit and may be waived by the Investor at any time in its sole
discretion.
9
<PAGE>
(a) Accuracy of the Company's Representations and Warranties. The
--------------------------------------------------------
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Company. The Company shall have performed all
--------------------------
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing.
(c) Listing. The Company's Common Stock shall remain listed and
-------
continue to trade on the NYSE. Prior to the Closing Date, trading in the
Company's Common Stock shall not have been suspended by the SEC or the NYSE
(other than a temporary suspension of not more than one day) and trading in
securities generally as reported by the NYSE shall not have been suspended or
limited or minimum prices shall not have been established on securities whose
trades are reported by NYSE.
(d) No Injunction. No statute, rule, regulation, executive order,
-------------
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction
which prohibits the consummation of any of the transactions contemplated by
this Agreement.
(e) Opinion of Counsel, Etc. At the Closing the Investor shall have
-----------------------
received an opinion of counsel to the Company in the form attached hereto and
such other certificates and documents as the Investor or its counsel shall
reasonably require incident to the Closing.
ARTICLE V
Legend on Stock
---------------
Each certificate representing the Shares and, if appropriate, securities
issued upon conversion thereof, shall be stamped or otherwise imprinted with a
legend substantially in the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue certificates representing the Shares or, if
applicable, the securities issued upon conversion thereof without the legend set
forth above at such time as (i) the holder thereof is permitted to dispose of
such Shares (or securities issued upon conversion thereof) pursuant to Rule
144(k) under the Act, (ii) the securities are sold to a purchaser or purchasers
who (in the opinion of counsel to such purchasers, in form and substance
reasonably satisfactory to the Company and its counsel) are able to dispose of
such shares publicly without registration under the Act, or (iii) such
securities are sold pursuant to an effective registration statement under the
Act.
Each certificate representing the Shares shall also be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH
IN A PREFERRED STOCK INVESTMENT AGREEMENT BETWEEN THE CORPORATION AND
THE HOLDER HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE
CORPORATION.
ARTICLE VI
Termination
-----------
Section VI.1 Termination by Mutual Consent. This Agreement may be terminated
-----------------------------
at any time prior to the Closing by the mutual written consent of the Company
and the Investor.
Section VI.2 Other Termination. This Agreement may be terminated by action
-----------------
of the Board of Directors or other governing body of the Investor or the Company
at any time if the Closing shall not have been consummated by the fifth business
day following the date of this Agreement.
10
<PAGE>
Section VI.3 Automatic Termination. This Agreement shall automatically
---------------------
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth business day following the date of this
Agreement.
ARTICLE VII
Miscellaneous
-------------
Section VII.1 Fees and Expenses. Except as otherwise set forth in Section
-----------------
1.4 hereof, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company will compensate the Placement Agents
and will indemnify them against certain liabilities. The Placement Agent's
compensation includes a cash payment in an amount equal to approximately 5% of
the Purchase Price of Shares sold by the Company, and the issuance of warrants
to the Placement Agents to purchase that number of Shares equal to not more than
5% of the number of Shares sold. The Company shall pay all stamp and other
taxes and duties levied in connection with the issuance of the Shares pursuant
hereto.
Section VII.2 Specific Enforcement, Consent to Jurisdiction.
---------------------------------------------
(a) The Company and the Investor acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
(b) Each of the Company and the Investor (i) hereby irrevocably submits
to the jurisdiction of the United States District Court and other courts of the
United States sitting in New York for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Investor
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this paragraph
shall affect or limit any right to serve process in any other manner permitted
by law.
Section VII.3 Entire Agreement: Amendment. This Agreement contains the
---------------------------
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Investor makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
Section VII.4 Notices. Any notice or other communication required or
-------
permitted to be given hereunder shall be in writing and shall be effective
(a) upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
to the Company: Mr. Jack M. Mazur, President
PHP Healthcare Corporation
11440 Commerce Park Drive
Reston, Virginia 20191
Fax: (703) 758-0680
with a copy to: Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue
Suite 800
Washington, D.C. 20004
Attn: Andrew P. Varney
Fax: (202) 639-7003
to the Investor: At the address set forth at the foot of this
Agreement, with copies to Investor's counsel as
set forth at the foot of this Agreement or as
specified in writing by Investor
11
<PAGE>
with a copy to: Gerard K. Cappello
Cappello Capital Corp.
1299 Ocean Avenue, Suite 306
Santa Monica, California 90401
Fax: (310) 393-4838
Any party hereto may from time to time change its address for notices by giving
at least 10 days' written notice of such changed address to the other party
hereto.
Section VII.5 Waivers. No waiver by either party of any default with respect
-------
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
Section VII.6 Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section VII.7 Successors and Assigns. Except as otherwise provided herein,
----------------------
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. The parties hereto may amend this Agreement
without notice to or the consent of any third party.
Section VII.8 No Third Party Beneficiaries. This Agreement is intended for
----------------------------
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section VII.9 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the internal laws of New York without
regard to such state's principles of conflict of laws.
Section VII.10 Survival. The representations and warranties of the Company
--------
and the Investor contained in Article II and the agreements and covenants set
forth in Articles I, III, V and VII shall survive the Closing.
Section VII.11 Execution. This Agreement may be executed in two or more
---------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event any signature is delivered by facsimile
transmission, the party using such means of delivery shall cause the manually
executed signature page(s) to be physically delivered to the other party within
five days of the execution hereof.
Section VII.12 Publicity. The Company agrees that it will not disclose, and
---------
will not include in any public announcement, the name of the Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the date hereof.
PHP Healthcare Corporation
By:
------------------------------
Name: Jack M. Mazur
Its: President
Number of Shares THE INVESTOR
By:
- ------------------- ------------------------------
Name:
Dollar Amount at Its:
$1,000 per share Investor's address:
$
------------------ Name and address of Investor's counsel:
13
