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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number: 0-19442
OXFORD HEALTH PLANS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 06-1118515
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
800 Connecticut Avenue, Norwalk, Connecticut 06854
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(Address of principal executive offices) (Zip Code)
(203) 852-1442
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
Par Value $.01
Per Share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 24, 1998, there were 79,507,439 shares of common stock issued and
outstanding. The aggregate market value of such stock held by nonaffiliates, as
of that date, was $1,228,350,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement to be
filed pursuant to Regulation 14A (Part III)
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PART I
Item 1. BUSINESS
General
Oxford Health Plans, Inc. ("Oxford" or the "Company"), incorporated under
the laws of the State of Delaware on September 17, 1984, is a health care
company providing health benefit plans in New York, New Jersey, Pennsylvania,
Connecticut, New Hampshire, Florida, and Illinois. The Company's product line
includes its point-of-service plans, the Freedom Plan and the Liberty Plan,
traditional health maintenance organizations ("HMOs"), preferred provider
organizations ("PPOs"), Medicare and Medicaid plans, third-party administration
of employer-funded benefit plans ("self-funded health plans") and dental plans.
The Company's principal executive offices are located at 800 Connecticut Avenue,
Norwalk, Connecticut 06854, and its telephone number is (203) 852-1442. Unless
the context otherwise requires, references to Oxford or the Company include its
subsidiaries.
In July 1995, a wholly-owned subsidiary of the Company merged with OakTree
Health Plan, Inc. ("OakTree"), a Philadelphia-based HMO. The merger was
accounted for as a pooling of interests, and accordingly, all data in the
paragraphs that follow have been restated to include the operations and accounts
of OakTree for all periods prior to the merger.
The Company offers its products through its HMO subsidiaries, Oxford
Health Plans (NY), Inc. ("Oxford NY"), Oxford Health Plans (NJ), Inc. ("Oxford
NJ"), Oxford Health Plans (CT), Inc. ("Oxford CT"), Oxford Health Plans (NH),
Inc. ("Oxford NH"), Oxford Health Plans (PA), Inc. ("Oxford PA"), Oxford Health
Plans (FL), Inc. ("Oxford FL"), and through Oxford Health Insurance, Inc.
("OHI") and Oxford Health Plans (IL), Inc. ("Oxford IL"), the Company's health
insurance subsidiaries. OHI has been granted a license to operate as an accident
and health insurance company by the Departments of Insurance of New York, New
Jersey, Connecticut, New Hampshire, Florida and Pennsylvania. Oxford IL is
licensed by the Illinois Department of Insurance as an accident and health
insurance company with authority to offer HMO products. The Company is not
dependent on any single employer or group of employers, as the largest employer
group contributed less than 1% of total premiums earned during 1997 and the ten
largest employer groups contributed 4.4% of total premiums earned during 1997.
The Company's business is managed through regional management structures in New
York, New Jersey, Connecticut, New Hampshire, Florida, Illinois and Pennsylvania
(including southern New Jersey counties in the Philadelphia metropolitan area).
Recent Developments
Net Losses
As more fully discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the Company incurred a net loss
of $291 million in 1997 and expects to incur additional losses in 1998, the
extent of which cannot be predicted at this time. As a result of its losses in
1997, the Company has had to make capital contributions to certain of its HMO
and insurance subsidiaries and expects that additional capital contributions
will be required in 1998.
Financings
On February 6, 1998, the Company issued a $100 million senior secured
increasing rate note due February 6, 1999 ("Bridge Note") and on March 30, 1998,
issued an additional $100 million Bridge Note, pursuant to a Bridge Securities
Purchase Agreement, dated as of February 6, 1998, between the Company and an
affiliate of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as
amended on March 30, 1998 (the "Bridge Agreement"). The Company used the
proceeds of the Bridge Notes to make capital contributions to certain of its HMO
subsidiaries, to pay expenses in connection with the issuance and for general
corporate purposes. For a description of terms of the Bridge Notes, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". The Company intends to retire
the Bridge Notes with a portion of the proceeds of the Proposed Financing
referred to below.
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The Company and TPG Oxford LLC ("TPG"), an affiliate of Texas Pacific
Group, have entered into an Investment Agreement, dated as of February 23, 1998
(the "Investment Agreement"), pursuant to which TPG is to make a $350 million
investment in Oxford. Such investment will consist of ten-year Preferred Stock
and Warrants to purchase up to 22,530,000 shares of the Company's common stock.
For additional information regarding the Preferred Stock and the Warrants, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". This financing is subject to
various conditions, including receipt of regulatory approvals, absence of a
Material Adverse Effect (as defined) and completion of debt financing in the
amount of $350 million.
In connection with the debt financing required as a condition to the
investment under the Investment Agreement, the Company has engaged DLJ to act
as arranger for a senior secured term loan and as placement agent for a senior
unsecured financing, in the aggregate amount of $350 million. These
transactions are subject to the negotiation and execution of definitive
agreements, which are expected to contain various conditions, including, among
others, receipt of regulatory approvals and absence of material adverse change,
and the senior unsecured financing is also subject to placement of the
financing with investors. The terms of these transactions will depend on market
conditions and other factors beyond the Company's control. There can be no
assurance that definitive agreements will be executed or, if such agreements
are executed, that the conditions specified therein will be satisfied.
The investment under the Investment Agreement and the debt financings
described in the preceding paragraph are herein collectively called the
"Proposed Financing". See "Cautionary Statement Regarding Forward-Looking
Statements-Proposed Financing".
Management Changes
Dr. Norman C. Payson has agreed to become Chief Executive Officer of the
Company upon consummation of the Proposed Financing. Prior to closing, Dr.
Payson is working as a consultant to the Company. At the closing, Dr. Payson
will purchase 643,915 shares of the Company's common stock for an aggregate
purchase price of $10 million. Dr. Payson was formerly a founder and the
President and Chief Executive Officer of Healthsource, Inc. Upon consummation of
the Proposed Financing, William M. Sullivan will serve as President of the
Company. On March 30, 1998, Marv Rich agreed to become Chief Administrative
Officer of the Company.
In February 1998, Fred F. Nazem, a director and formerly Chairman of the
Executive Committee of the Company's Board of Directors, was elected
non-executive Chairman of the Board, and the Executive Committee was disbanded.
Stephen F. Wiggins, founder and formerly Chairman of the Board, continues to
serve as a director. On March 30, 1998, Marv Rich agreed to become Chief
Administrative Officer of the Company. Mr. Rich was previously an Executive
Vice President at K-Mart, Inc. and was an Executive Vice President at Wellpoint
Heaalth Networks, Inc. in charge of specialty companies and financial and
information services.
Upon consummation of the Proposed Financing, the number of directors will
be increased to twelve, Dr. Payson will become a director, and TPG will be
entitled to nominate four directors.
Status of Information Systems
In September 1996, the Company converted a significant part of its
business operations to a new computer operating system developed at Oxford over
several years. Unanticipated software and hardware problems arising from the
conversion created significant delays in the Company's claims payment, delayed
billing functions and telephone service and adversely affected the Company's
claims payment and billing. For information regarding the Company's plans with
respect to its information systems, see "Business - Status of Information
Systems".
Turnaround Plan
The Company intends to focus its resources on employer group products in
the Northeast and particularly the New York Metropolitan Tri-State area. The
Company intends to attempt to improve operating margins for these products over
the next few years by, among other things, strengthening commercial
underwriting, reducing administrative and medical costs and, where appropriate,
refining benefit plans and increasing premiums.
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The Company further intends to attempt to reduce losses in its Medicare
and Medicaid lines of business and in the New York mandated individual HMO and
point of service plans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company has withdrawn from the
Connecticut and New Jersey Medicaid programs effective April 1, 1998 and July 1,
1998, respectively. In its Pennsylvania Medicaid program, the Company has
entered into an agreement to transfer the medical risk in that program to a
third party. The Company has filed with the New York State Insurance Department
proposed rate increases of 50% and 64% for its New York mandated individual HMO
and point of service plans, respectively, as a result of rapidly rising medical
costs in those plans. In the Medicare line of business, the Company does not
intend to promote growth at the level of prior years as a consequence of
significant operating losses in those programs in certain geographic areas. The
Company is also actively pursuing certain provider contracts pursuant to which a
significant portion of the medical cost risk of some of the Company's Medicare
enrollment will be transferred to network providers.
In 1997, the Company entered new markets in Florida and Illinois with the
acquisitions of Riscorp Health Plans, Inc. and Compass PPA, Incorporated,
respectively. The Company is evaluating its expansion efforts in all markets and
intends to reduce the level of its future investment in the Florida and Illinois
subsidiaries. The Company has scaled back its plans to offer dental HMO and life
insurance products and is evaluating its financial commitment to certain ongoing
initiatives.
The Company may, in certain cases, attempt to improve its contracts with
some of its largest vendors and providers and may implement certain medical
management programs in an effort to reduce medical costs. The Company is also
studying its administrative cost structure and currently intends to attempt to
reduce administrative costs as a percentage of operating revenue over the long
term through operating efficiencies and reduction in employment levels
associated with scaled-back initiatives and operations. The Company expects,
however, that administrative costs will remain high during the foreseeable
future as the result of consulting and other expenses associated with
strengthening the Company's operations.
There can be no assurance that the Company will be successful in
implementing the foregoing measures, in receiving the New York State Insurance
Department's approval for premium increases for the mandated individual product,
in implementing medical cost control measures and provider contracting
initiatives, or in reducing administrative costs. Moreover, the Company cannot
predict the impact of adverse publicity, legal and regulatory proceedings or
other future events on the Company's operations and financial results, including
ongoing financial losses. See "Management's Discussion and Analysis and Results
of Operations-Liquidity and Capital Resources."
Legal Proceedings
See "Legal Proceedings" for a description of litigation, and regulatory
investigations and examinations involving the Company and certain of its
directors and officers.
Products
Freedom Plan
Oxford's Freedom Plan is a point-of-service health care plan that combines
the benefits of Oxford's HMOs with some of those of conventional indemnity
health insurance. Oxford's Freedom Plan gives members the option at any time of
using Oxford's HMO plan or exercising their freedom to choose physicians not
affiliated with Oxford. The Freedom Plan, first offered in January 1988 in New
York, has grown to approximately 1,333,500 members at December 31, 1997 compared
with 1,015,100 at the end of 1996. As a percentage of total premiums earned,
Freedom Plan premiums were 59.2% in 1997, 61.2% in 1996 and 64.2% in 1995. The
flexibility of this program has enabled Oxford to market successfully health
care coverage to employer groups who have not previously offered HMO products.
The largest employer group offering the Freedom Plan accounted for approximately
1.4% of Freedom Plan premiums earned during 1997, and the ten largest employer
groups offering the Freedom Plan accounted for 6.5% of Freedom Plan premiums
earned in 1997.
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Oxford has targeted small to medium-size employers (10 to 1,500 employees)
for this product. New York Freedom Plan enrollment accounts for almost 80% of
all Freedom Plan enrollment. In New York and Pennsylvania, each Freedom Plan
member receives two forms of coverage - HMO coverage through the appropriate
Oxford HMO and conventional insurance through OHI. In New Jersey and
Connecticut, each member receives Freedom Plan coverage through one contract.
For Freedom Plan coverage, employers receive one monthly bill and have both the
in-network and out-of-network coverage centrally administered by Oxford.
The New Jersey Freedom Plan was introduced in New Jersey in January 1991.
During 1992, the Company introduced the Connecticut Freedom Plan which, until
1993, was underwritten by an independent insurer and marketed and administered
by Oxford, with Oxford retaining substantially all of the profits or losses
arising from the product. In 1993, the Company received a license to directly
offer its Freedom Plan and HMO products in Connecticut and now fully markets its
products in such state. The Company commenced offering its Freedom Plan in
Pennsylvania in December 1995 and in Florida in 1997.
HMOs
Oxford offers HMO plans in each of the states in which it operates. The
largest HMO commercial employer group accounted for 4.6% of total HMO premiums
earned during 1997, while the ten largest HMO groups accounted for 22.0% of
total HMO premiums earned in 1997. Commercial HMO membership approximated
270,400 members at December 31, 1997 compared with 192,300 members at the end of
1996. As a percentage of total premiums earned, HMO revenues were 11.1 % in
1997, 10.7% in 1996 and 11.2% in 1995.
Liberty Plan
In response to demand for more economical health plans, the Company
introduced the Liberty Plan, a point-of-service plan, in late 1993. This plan
offers savings of up to 17% over the standard Freedom Plan and HMO plans by
allowing member groups to choose from a smaller network of highly qualified
providers. The Liberty Plan provider network, while smaller than the Freedom
Plan network, is competitive in size and quality with networks of certain other
health plans in the New York metropolitan area. Liberty Plan premiums earned
represented less than 5% of total premiums earned in 1997.
Other Products
The Company currently offers preferred provider organization products in
Pennsylvania, New Jersey, and New Hampshire and anticipates offering similar
products in New York and Illinois in the coming year.
Medicare and Medicaid
The Company offers the Oxford Medicare Advantage plan to Medicare eligible
individuals through its New York, New Jersey and Connecticut HMO subsidiaries.
Under risk contracts with the federal Health Care Financing Administration
("HCFA"), Oxford is paid a fixed per member per month capitation amount by HCFA
based upon a formula of the projected medical expense of each Medicare member.
The Company bears the risk that the actual costs of health care services may
exceed the per member per month capitation amount received by the Company.
Medicare risk contracts provide revenues which are generally higher per
member than those for non-Medicare members, and thus provide an opportunity for
increased profits and cash flow. Such risk contracts, however, also carry
certain risks such as higher comparative medical costs, government regulatory
and reporting requirements, the possibility of reduced or insufficient
government reimbursement in the future, and higher marketing and advertising
costs per member as the result of marketing to individuals rather than to
groups. The Company has developed a network of physicians and other providers to
serve its Medicare enrollees. At December 31, 1997, the Company had
approximately 161,000 members enrolled in its Medicare plans compared with
125,000 members at the end of 1996. Medicare premiums accounted for
approximately 22.0% of total premiums earned for the year ended December 31,
1997 compared with 19.8% in 1996 and 14.2% in 1995. See "Management's Discussion
and Analysis of Financial Conditions and Results of
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Operations" for a description of operating losses incurred in the Company's
Medicare program and "Legal Proceedings" for a description of a recent site
visit by HCFA.
Oxford also offers a Medicaid Healthy Start plan to individuals eligible
for Medicaid benefits in New York, New Jersey, Metropolitan Philadelphia, and
Connecticut. The Company receives fixed monthly premiums per member under a risk
contract with the respective state agencies administering the Medicaid program.
The Company bears the risk that the actual costs of health care exceed the per
member per month capitation amounts received by the Company. Medicaid plans also
involve the risk of reduced or insufficient government reimbursement and higher
marketing and advertising costs per member as a result of marketing to
individuals rather than to groups. At December 31, 1997, approximately 189,600
members were enrolled in the Company's Medicaid plans compared with 162,000
members at the end of 1996. Medicaid premiums accounted for approximately 7.7%
of total premiums earned for the year ended December 31, 1997 compared with 8.3%
in 1996 and 10.4% in 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of operating
losses incurred in the Company's Medicaid programs. The Company has withdrawn
from the Medicaid program in New Jersey and Connecticut, effective July 1, 1998
and April 1, 1998, respectively. In its Pennsylvania Medicaid program, the
Company has entered into an agreement to transfer the medical risk in that
program to a third party.
See "Cautionary Statement Regarding Forward-Looking Statements."
Self-Funded Health Plans
Oxford's self-funded health plans have the same flexible plan designs as
the Company's fully-insured programs, yet retain the cash flow advantage of
self-funding for the employer. The employer self-insures health care expenses
and pays for health claims only as they are incurred. In exchange for
administration fees, Oxford provides claims processing and health care cost
containment services through its provider network and utilization management
programs. Unlike most third-party administrators, the Company's self-funded
health plans enable employers to access Oxford's provider network and to realize
savings through certain of Oxford's discounted fee arrangements and medical cost
containment capabilities, while allowing employers to design custom health
benefit plans in accordance with their own requirements and objectives.
Specialty Care Management
In 1996, the Company formed Oxford Specialty Holdings, Inc. as a
majority-owned subsidiary (taken together with its subsidiaries, "Specialty
Holdings") which was established to manage specialty medical costs in distinct
specialties, such as cardiology, oncology and orthopedics. Specialty Holdings
provides the Company with advisory services from panels of expert specialists,
case rate reimbursement contracts for diseases and cases in particular medical
specialties, and services related to the management of individual diseases and
conditions. Expert panels provide advice as to appropriate diagnoses and
treatment at the disease or specialty level and also provide certain case
management services. With the assistance of each expert panel, Specialty
Holdings develops case rate contracts with physicians and other providers, which
cover the full spectrum of treatment for a specific case or disease for a fixed
"case rate." The Company has contracted with Specialty Holdings for advisory
services and procures care for its members at case rates from Specialty Holdings
in an effort to reduce the medical costs associated with each specialty.
Other Investments
In October 1997, the Company disposed of its interest in Health Partners,
Inc., a company established to provide management and administrative services to
physicians, medical groups and other providers of health care, recognizing a
pretax gain of approximately $25,168,000 ($20,463,000 after taxes, or $.26 per
share).
On November 7, 1995, Oxford completed the acquisition of a 19% equity
interest in St. Augustine Health Care, Inc. ("St. Augustine"), a health
maintenance organization offering health benefit plans to Medicaid beneficiaries
in eleven counties in Florida. During 1996, St. Augustine received approval of
its application to offer commercial programs and began offering such programs in
1997. Under the terms of the securities purchase agreement, Oxford has provided
$14.3 million in equity and debt financing to St. Augustine and has
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the right to make future equity investments in St. Augustine. As part of the
Company's decision to reduce the level of its future investment in expansion
markets, the Company reduced by $14.3 million the carrying value of its
investment in St. Augustine as of December 31, 1997.
Marketing and Sales
Oxford distributes its products through its direct sales force and its
telemarketing representatives and through its network of independent insurance
brokers and agents.
Direct Sales Force; Telemarketing
The Company maintains a direct sales staff of account executives and group
service representatives. Account executives sell traditional HMO programs, the
Company's Freedom and Liberty Plans, and self-funded medical plans. The direct
sales force is organized into units in each of the Company's regions. Separate
regional sales executives are responsible for each direct sales unit. The
Company's marketing department develops television advertising, as well as
direct mail advertising, targeted print advertisements and internally generated
marketing publications for use by the direct sales force and by independent
brokers and agents.
Group service representatives are also organized on a regional basis and
are responsible for servicing accounts. Group service representatives become the
principal administrative contact for employers and their benefit managers by
conducting on-site employee meetings and by providing reporting and
troubleshooting services.
The Company also employs a staff of telemarketing representatives who
generate leads for the direct sales force and who sell directly to small group,
individual and government program customers.
Independent Insurance Agents and Brokers
The primary distribution system for the group health insurance industry in
the Company's service areas has been independent insurance agents and brokers.
Oxford markets its commercial products through approximately 7,300 independent
insurance agents and brokers (compared with 4,500 at the end of 1996) who are
paid a commission on sales. Independent insurance agents and brokers have been
responsible for a significant portion of Oxford's Freedom Plan enrollment growth
over the past four years, and the Company expects to continue using independent
insurance agents and brokers in its marketing system over the next several
years. The Company believes that the New York metropolitan market, in
particular, is influenced significantly by independent agents and brokers, and
that utilization of this distribution system is an integral part of a successful
marketing strategy in the region.
Physician Network
The Company's HMO and point of service health care programs are designed
around "primary care" physicians, who assume overall responsibility for the care
of members, and determine or recommend the nature and extent of services
provided to any given member. Primary care physicians provide preventive and
routine medical care and are also responsible for making referrals to contracted
specialist physicians, hospitals and other providers. Medical care provided
directly by primary care physicians includes the treatment of illnesses not
requiring referrals, as well as periodic physical examinations, routine
immunizations, maternity and well child care and other preventive health
services. Oxford also offers products which do not require referrals from
primary care physicians.
Oxford maintains a network of approximately 65,000 individual physicians,
with approximately 23,100 in New York, 10,700 in New Jersey, 6,500 in
Pennsylvania, 6,300 in Connecticut, 9,000 in Illinois, 7,500 in Florida and
1,900 in New Hampshire. The majority of Oxford's physicians have contracted
individually and directly with Oxford, although Oxford also has contracts with
management service organizations, individual practice associations and physician
groups.
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Private Practice Partnerships; Risk Sharing Groups
The Company's Private Practice Partnership program (the "Partnerships"),
was first introduced in 1993 to organize physicians into groups which promote
efficient, quality care. The Partnerships initiative organizes private practice
physicians within a community into small medical groups, in an effort to promote
the efficiencies and quality control of much larger medical groups, while
remaining in their own private offices. These groups also allow the Company to
introduce new forms of payment to physicians that encourage more efficient
patient care. These forms of payment vary among the Partnerships and include
risk sharing and incentive payments which reward the provision of quality, cost
effective care. Each Partnership is responsible for establishing a management
committee to oversee the operation of the group. The Company attempts to provide
utilization information to the Partnerships in order to promote cost-effective,
quality care and allow the Partnerships to measure performance. The Company's
goal in developing the Partnerships is to enable physicians to achieve optimal
cost and quality performance, while giving them greater authority and
responsibility for a patient's full range of health care needs. By the end of
1997, a total of 225 Partnerships with approximately 4,700 primary care
physicians and 4,800 specialists had been established. Effective January 1,
1997, the Company reduced the number of risk sharing Partnerships from 30 to
15, primarily as a consequence of adverse experience for certain partnerships,
difficulties experienced by the Company in providing timely utilization and
other data to risk sharing Partnerships and new government regulations. These
operational challenges, as well as limitations on certain Partnerships' ability
to manage medical cost risk, will limit the Company's ability to expand the
number of risk sharing Partnerships.
In an effort to control increasing medical costs in its Medicare and
Medicaid lines of business, the Company is actively pursuing provider contracts
pursuant to which a significant portion of the medical cost risk of some of the
Company's Medicare and Medicaid enrollment will be transferred to network
providers or other risk sharing groups. The Company has entered into a contract
transferring medical cost risk for its Pennsylvania Medicaid program to a third
party. There can be no assurance that the Company will be successful in
procuring such contracts and the operational difficulties experienced with risk
sharing Partnerships described above could limit or delay the implementation of
these contracts. There are also risks inherent in risk transfer arrangements,
including the risk of nonperformance or insolvency of the party assuming risk
and the risk that member satisfaction is negatively impacted. Further, the
implementation of these contracts may require regulatory approval, and there can
be no assurance such approval will be received without delay or the imposition
of burdensome conditions.
Physician Compensation
Exclusive of the Partnerships and risk sharing groups and case rate
reimbursement for specialty care, Oxford currently compensates its participating
physicians based upon a fixed, discounted fee schedule, under which physicians
receive payment for specific procedures and services. The Company's discounted,
fee-for-service reimbursement program for participating physicians was designed
to achieve delivery of cost-effective, quality health care by its physician
network. Prior to March 1, 1996, the Company generally withheld 20% of agreed
compensation to primary care physicians, and 15% of agreed compensation to
specialist physicians. The Company returned to the physicians a portion of such
withhold, at its discretion, based upon system-wide and individual physician
medical costs compared to actuarially budgeted expenditures. In March 1996,
Oxford shifted to a modified fee schedule under which withholds were eliminated
for most participating physicians.
Certain of Oxford's Partnerships and risk sharing groups are compensated
based on global budgeting and risk sharing for serving enrollees in Oxford's
commercial, Medicare and Medicaid plans receiving care through Partnerships or
risk sharing groups. For Partnerships that meet the Company's requirements for
risk sharing and for risk sharing groups, these agreements allocate a fixed,
periodic sum on a per member per month basis, adjusted for certain demographics,
or percentage of the premium received by the Company without regard to the
amount or scope of the services rendered. Such agreements shift a portion of the
Company's health cost risks to these Partnerships and risk sharing groups,
recognizing the providers' role and capabilities in the area of cost
containment. These arrangements are subject to compliance with new risk sharing
regulations adopted by HCFA, which require disclosure and reinsurance for
specified levels of risk sharing, and proposed state regulation which could
affect physician risk sharing. The Company has also developed an
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incentive program for non-risk sharing Partnerships based on quality and
efficiency measures, and a large number of Partnerships are currently operating
under this program.
The Company, through Specialty Holdings, is also working with specialists
who provide comprehensive treatment for specific diseases or cases at a
predetermined case rate. These providers will be responsible for care from the
initial diagnosis through post-treatment procedures and will establish contracts
with hospitals, specialists, and ancillary providers involved in each case.
Delays in payment of provider claims and claims payment errors by the
Company have created a significant number of provider complaints and a backlog
in responding to such complaints. In addition, several medical societies have
filed or stated that they intend to file purported "mass arbitrations" against
the Company to resolve claims related issues of members physicians. See "Legal
Proceedings." The Company is presently pursuing resolution of these issues but
is unable to predict whether these developments or adverse publicity concerning
the Company will have an adverse effect on its relations with its network
providers, or cause provider disenrollment. For a description of advances made
by the Company to certain network providers, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources".
Control of Health Care Costs
Oxford's medical review program attempts to measure and, in some cases,
influence utilization of certain out-patient services, elective surgeries and
hospitalizations provided to Oxford members. Under the medical review program,
for most of Oxford's plans, physicians and members are obligated to contact
Oxford prior to providing or receiving specified treatments. Utilizing
standardized protocols on a procedure-specific basis, Oxford's staff of
registered nurses and physicians may review the proposed treatment for
consistency with established norms and standards.
Oxford's out-patient cost control program is based on the primary care
system of health care coordination, which promotes consistency and continuity in
the delivery of health care. For most plans sold, each person who enrolls in an
Oxford plan must select a participating primary care physician who serves as
the manager of the member's total health care needs. Members generally see
their primary care physician for routine and preventive medical services. The
primary care physician either provides necessary services directly or
authorizes referrals for specialist physicians, diagnostic tests and
hospitalizations. Except in life-threatening situations, all elective
hospitalizations and surgical procedures must be authorized in advance by a
member's primary care physician and, in order to receive the highest level of
benefits, must be delivered by providers who have contracted with Oxford. For
out-of-network services, the member must obtain approval directly from Oxford.
In connection with its review of certain claims, the Company may compare
the services rendered by its participating physicians to an independently
developed pattern of treatment standards. This pattern of treatment analysis
may allow the Company to identify procedures that were not consistent with a
patient's diagnoses, as well as billing abuses. Separate claims auditing
systems are utilized for certain hospital diagnosis related group payments and
other surgical payments. Oxford utilizes a hospital bill audit program which
has yielded significant savings with respect to hospital claims, through
pricing reviews, medical chart audits and on-site hospital reviews. Oxford's
claim auditing program includes a computer program that also seeks to identify
aberrant physician billing practices, and helps isolate specific physicians who
are not practicing and billing in a manner consistent with Oxford's health care
philosophy. In addition, the Company maintains management information systems
which help identify aberrant medical care costs. Not all cost control
procedures are applied to all claims, depending on the size and type of claim,
existing claim backlogs and other factors.
Status of Information Systems
In September 1996, the Company converted a significant part of its
business operations to a new computer operating system developed at Oxford known
as "Pulse". From September 1996, most business functions at the Company were
operated on the Pulse system, with the exception of the processing of claims,
which continued to operate on the previous system, known as "Pick". Since the
conversion, the Company must
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transmit claims, provider, membership and other data from Pulse to Pick in order
to process claims, and processed claims data is transmitted from Pick to Pulse
where checks are prepared. This transmission of data between systems is known as
"backbridging".
Unanticipated software and hardware problems arising in connection with
the conversion resulted in significant delays in the Company's claims payments
and group and individual billing and adversely affected claims payment and
billing. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". The Company implemented a number of systems and
operational improvements during 1996 and 1997 which had the effect of improving
claims turnaround times, and reducing claims backlogs and claims and billing
errors. However, the backbridging process continues to create issues relating
to transfer of data, which continues to cause delays for certain claims, and
there have been delays in delivering all needed functionality under the Pulse
system. The Company is continuing to seek improvements in the process referred
to above and to add needed functionality.
The Company has undertaken a thorough review of its information systems
needs and capabilities with the assistance of independent experts. As a result
of this review, the Company has decided not to continue the development of
claims processing functionality in Pulse because of the risks associated with
the development, integration and support of this functionality. The Company has
also determined that significant risks would be involved in integrating other
claims processing systems available from third parties with the existing Pulse
system.
Accordingly, the Company has decided to pursue a strategy of evaluating
alternative information system approaches, including an outsourcing of certain
system functions to a third party or a complete replacement of the Pulse and
Pick operating systems with a system or systems available on the market from
third party vendors. The Company currently believes that it will take between
12 and 18 months to identify and implement alternative systems solutions.
Accordingly, the Company's resources are currently focused on making
improvements to the Pulse and Pick systems to improve performance and provide
additional needed functionality during this time period.
There can be no assurance that the Company will be successful in
mitigating the existing system problems that have resulted in payment delays and
claims processing errors. Moreover, operating and other issues can lead to data
problems that affect performance of important functions, including claims
payment and group and individual billing. There can also be no assurance that
the process of identifying information systems alternatives and improving
existing systems will not be delayed or that additional systems issues will not
arise in the future.
For information as to the "Year 2000" date conversion, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Year 2000 Date Conversion".
Quality Management
The majority of Oxford's physicians in its commercial and Medicare rosters
are board certified in his or her specialty (by passing certifying examinations
in his or her specialty as recognized by the American Board of Specialties) or
become board certified within five years of becoming eligible. Board
certification is one of the few objective measures of a physician's expertise.
Additionally, Oxford has a credentialing procedure that consists of: primary
verification of all credentials; query of the National Practitioner Data Bank,
state medical boards and admitting hospitals for malpractice history,
disciplinary actions and/or restrictions of hospital privileges; and on-site
office evaluation to determine compliance with Oxford standards. Oxford also
biennially recredentials all providers. The recredentialing review consists of
repeating the initial credentialing process as well as a review of the
provider's practice history with Oxford. This process also includes evaluating
the results of quality assurance reviews, complaints from members concerning the
provider, utilization patterns and the provider's compliance with Oxford's
administrative protocols.
The Company's physician contracts require adherence to Oxford's Quality
Assurance and Medical Review Programs. Oxford's Quality Management Committees,
which are composed of distinguished physicians from within Oxford's network of
providers, advise the Company's Vice President of Medical Affairs concerning the
development of credentialing and other medical criteria. The committees also
provide oversight of Oxford's Quality Management and Utilization Management
Programs through peer review and ongoing review of performance indicators.
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The Company seeks to evaluate the quality and appropriateness of medical
services provided to its members by performing member and physician
satisfaction studies. The Company conducts on-site review of medical records at
physician offices facilitating retrieval of statistical information which
allows for problem resolution in the event of member or physician complaints
and for retrieval of data when conducting focused studies.
Risk Management
The Company limits in part the risk of catastrophic losses by maintaining
reinsurance coverage. Current reinsurance arrangements cover 50% to 90% of
annual medical expenses beyond an annual deductible of $150,000 for each member,
up to a lifetime maximum of $2,000,000 per member.
The Company also maintains general liability, property, employee fidelity,
directors and officers, and professional liability insurance coverage in amounts
the Company deems prudent. The Company requires contracting physicians,
physician groups and hospitals to maintain professional liability and
malpractice insurance in an amount at least equal to industry standards.
Government Regulation
The Company's HMO subsidiaries in New York, New Jersey, Pennsylvania,
Connecticut, Florida and New Hampshire are each subject to substantial federal
and state government regulation. The Company's New York domiciled insurance
subsidiary, OHI, is subject to regulation by the New York State Insurance
Department. In addition, OHI is subject to regulation as a foreign
insurer by New Jersey, Pennsylvania, Connecticut, Florida and New Hampshire. The
Company's Illinois domiciled insurance subsidiary, Oxford IL, is subject to
regulation by the Illinois Department of Insurance.
Federal Regulation
One of the most significant applicable federal laws is the Health
Maintenance Organization Act of 1973, as amended (the "HMO Act"), and the rules
and regulations promulgated thereunder. The HMO Act governs federally qualified
HMOs and competitive medical plans ("CMPs"), and prescribes the manner in which
such HMOs and CMPs must be organized and operated in order to maintain federal
qualification and/or to be eligible to enter into Medicare contracts with the
federal government. Oxford NY, Oxford NJ and Oxford CT are qualified CMPs under
the HMO Act. In order to maintain this status, Oxford NY, Oxford NJ and Oxford
CT must remain in compliance with certain financial, reporting and
organizational requirements under applicable federal statutes and regulations in
addition to meeting the requirements established pursuant to applicable state
law.
The Company's health plans that have Medicare risk contracts, Oxford NY,
Oxford NJ and Oxford CT, are subject to regulation by HCFA, a branch of the
United States Department of Health and Human Services. HCFA has the right to
audit health plans operating under Medicare risk contracts to determine each
health plan's compliance with HCFA's contracts and regulations and the quality
of care being rendered to the health plan's Medicare members. Health plans that
offer a Medicare risk product must also comply with requirements established by
peer review organizations ("PROs"), which are organizations under contract with
HCFA to monitor the quality of health care received by Medicare members. PRO
requirements relate to quality assurance and utilization review procedures. For
a description of a recent site examination by HCFA, see "Legal Proceedings".
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The Company's health plans that have Medicaid contracts, Oxford NY,
Oxford NJ, Oxford PA and Oxford CT, are subject to both federal and state
regulation regarding services to be provided to Medicaid enrollees, payment for
those services and other aspects of the Medicaid program.
State Regulation
Oxford's HMO subsidiaries are licensed to operate as HMOs by the insurance
departments, and, in some cases, health departments, in the states in which
they operate. Applicable state statutes and regulations require Oxford's HMO
subsidiaries to file periodic reports with the relevant state agencies and
contain requirements relating to the operation of their HMOs, the rates and
benefits applicable to their products and their financial condition and
practices. In addition, state regulations require the subsidiaries to maintain
restricted cash or available cash reserves and restrict their abilities to make
dividend payments, loans or other transfers of cash to the Company. For a
description of regulatory capital requirements, see "Management's Discussion and
Analysis of Financial Conditions and Results of Operations-Liquidity and
Capital Resources." State regulatory authorities exercise oversight regarding
the Company's HMOs' provider networks, medical care delivery and quality
assurance programs, form contracts and financial condition. The Company's HMOs
are also subject to periodic examination by the relevant state regulatory
authorities. For a description of recent examinations, see "Legal Proceedings".
OHI is an accident and health insurance company licensed by the New York
State Insurance Department and licensed as a foreign insurer by the insurance
departments of New Jersey, Pennsylvania, Connecticut, Florida, and New
Hampshire. Oxford IL is an accident and health insurance company licensed by
the Illinois Department of Insurance with authority to offer HMO products.
Applicable state laws and regulations contain requirements relating to OHI's
and Oxford IL's financial condition, reserve requirements, premium rates, form
contracts, and the periodic filing of reports with the applicable insurance
departments. OHI's and Oxford IL's affairs and operations are also subject to
periodic examination by the applicable departments. For a description of recent
examinations, see "Legal Proceedings".
State regulations generally require that HMOs utilize standard "community
rates" in determining HMO premiums. Such community rates are generally revised
annually by the HMO, and, in most cases, must be approved in advance by the
applicable state insurance department. The methodology employed in determining
premiums for the Company's Freedom Plan products utilizing an HMO must also be
approved in advance by the applicable state insurance department and must
combine the relevant community rate with traditional indemnity insurance rating
criteria.
Applicable federal and state regulations also contain licensing and other
requirements relating to the offering of the Company's products in new markets
and offerings by the Company of new products, which may restrict the Company's
ability to expand its business. The failure of the Company's subsidiaries to
comply with existing laws and regulations or a significant change in such laws
or regulations could materially and adversely affect the operations, financial
condition and prospects of the Company.
Applicable New York statutes and regulations require the prior approval of
the New York State Commissioner of Health and the New York State Superintendent
of Insurance for any change of control of Oxford NY or the Company and the
prior approval of the New York State Superintendent of Insurance for any change
of control of OHI or the Company. Similar laws in New Jersey, Pennsylvania,
Connecticut, Florida, Illinois and New Hampshire require insurance department
approval of any change in control of the Company or the relevant subsidiary.
For purposes of these statutes and regulations, generally "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity. Control is presumed to
exist when a person, group of persons or entity acquires the power to vote 10%
or more of the voting securities of another entity. Therefore, prior approval
is required for any person to acquire the power to vote 10% or more of the
voting securities of the Company. Applications for approval of TPG's investment
in the Company have been filed with the appropriate regulatory authorities in
New York, New Jersey, Connecticut, Pennsylvania, New Hampshire, Florida and
Illinois, which may approve or disapprove, or impose conditions on,
consummation of the investment.
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Recent Regulatory Developments
State and federal government authorities are continually considering
changes to laws and regulations applicable to Oxford's HMO subsidiaries, OHI
and Oxford IL. The Federal Health Insurance Portability and Accountability Act
of 1996: (i) insures portability of health insurance to individuals changing
jobs or moving to individual coverage by limiting application of preexisting
condition exclusions, (ii) guarantees availability of health insurance to
employees in the small group market and (iii) prevents exclusion of individuals
from coverage under group plans based on health status. The act also permits
offering Medical Savings Account plans on a pilot basis and includes programs
targeting fraud and abuse. The provisions were effective beginning July 1,
1997. Similar state law provisions in New York limit preexisting condition
exclusions for new group and individual enrollees who had continuous prior
coverage and require issuance of group coverage to small group employers.
In 1997, the Clinton Administration and Congressional leadership reached
an agreement on legislation aimed at balancing the Federal budget, which
includes provisions for $115 billion in savings from Medicare programs over the
next five years. This agreement was enacted into law as the Balanced Budget Act
of 1997 (the "1997 Act"). The legislation changes the way health plans are
compensated for Medicare members by eliminating over five years amounts paid for
graduate medical education and increasing the blend of national cost factors
applied in determining local reimbursement rates over a six-year phase-in
period. Both changes will have the effect of reducing reimbursement in high cost
metropolitan areas with a large number of teaching hospitals, such as the
Company's service areas; however, the legislation includes provision for a
minimum increase of 2% annually in health plan Medicare reimbursement for the
next five years. The legislation also provides for expedited licensure of
provider-sponsored Medicare plans and a repeal in 1999 of the rule requiring
health plans to have one commercial enrollee for each Medicare or Medicaid
enrollee. This legislation also requires that health plans serving Medicare
beneficiaries make medically necessary care available 24 hours a day, provide
emergency coverage a "prudent lay person" would deem necessary and provide
grievance and appeal procedures and prohibits such plans from restricting
providers' advice concerning medical care. These changes could have the effect
of increasing competition in the Medicare market.
In 1998, the Company will receive a 2% increase in Medicare premiums,
minus the user fee assessment of .428% of the Company's gross monthly Medicare
premium. The user fee is applied to all Medicare risk contractors by HCFA to
cover HCFA's costs relating to beneficiary enrollment, dissemination of
information and certain counseling and assistance programs. On March 2, 1998,
HCFA announced a 2% increase in premiums in 1999 for all plans in the Company's
service areas. However, the user fee for 1999 has not been determined and may
increase since the Clinton Administration is seeking legislation authorizing it
to collect additional funds. Under the authority provided by the 1997 Act, HCFA
has begun to collect hospital encounter data from Medicare risk contractors.
The data will be used to develop and implement a new risk adjustment mechanism
by January 1, 2000. Given the relatively high Medicare risk premium levels in
the Company's market areas, the Company is in significant jeopardy that the new
risk adjustment mechanism to be developed could significantly and adversely
affect the Company's Medicare premium rate going forward.
President Clinton has proposed expanding Medicare coverage to individuals
between the ages of 55 and 64. There is significant opposition to his proposal,
and the Company cannot predict the outcome of the legislative process or the
impact of the proposal on the Company's results of operations. In addition,
long-term structural changes to the Medicare program are currently being
considered by a National Bipartisan Commission on the Future of Medicare. This
Commission is required to submit a report to the President and Congress by
March 1, 1999.
The Newborns' and Mothers' Health Protection Act of 1996 ("NMHPA") was
signed into law on September 26, 1996. This law applies to group health plans
and health insurance issuers and becomes effective for plan years beginning on
or after January 1, 1998. Consistent with many state law requirements, NMHPA
prohibits group health plans and health insurance issuers from restricting
benefits for a mother's or newborn child's hospital stay in connection with
childbirth to less than 48 hours for a vaginal delivery and for less than 96
hours for a cesarean section. Authorization and precertification requirements
cannot be imposed for these mandatory minimum hospital stays. Federal
regulations implementing NMHPA have not yet been promulgated.
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The Mental Health Parity Act of 1996 ("MPHA") was signed into law on
September 26, 1996. This law applies to group health plans and health insurance
issuers and becomes effective for plan years beginning on or after January 1,
1998. MPHA prohibits group health plans and health insurance issuers providing
mental health benefits from imposing lower aggregate annual or lifetime
dollar-limits on mental health benefits than any such limits for medical or
surgical benefits. MPHA's requirements do not apply to small employers who have
between 2 and 50 employees or to any group health plan whose costs increase one
percent or more due to the application of these requirements.
In 1996, HCFA promulgated regulations which prohibit HMOs with Medicare or
Medicaid contracts from including any direct or indirect payment to physicians
or groups as an inducement to reduce or limit medically necessary services to
Medicare beneficiaries and Medicaid recipients. These regulations impose
reinsurance, disclosure and other requirements relating to physician incentive
plans that place physicians participating in a Medicare or Medicaid HMO plan at
substantial financial risk.
Effective January 22, 1998, New York implemented prompt payment
requirements which require health plans to pay interest on delayed claims at a
rate of 12% per annum commencing on the forty-sixth day after a clean claim is
received by the plan. Effective January 1, 1998, New York passed legislation
mandating coverage of chiropractic benefits. The New York legislature also
recently passed legislation related to operation of managed care plans, which
contains provisions relating to, among other things, utilization review,
consumer disclosure and right of hearing on termination of physicians from
health plan networks.
In 1997, New Jersey updated its HMO regulations and passed the Health Care
Quality Act which, among other things, require health plans to make certain
disclosures to members, to establish certain policies governing removal of
providers from the network and appeals processes for both providers and members
and to offer a point of service plans in commercial group markets.
In 1997, Connecticut passed an Act Concerning Managed Care which, among
other things, established legislation concerning consumer disclosure,
utilization review, provider contract requirements and certain mandated coverage
for biologically based mental health conditions.
Many states in which Oxford operates are currently considering regulations
or legislation relating to mandatory benefits, provider compensation
arrangements, health plan liability to members who do not receive appropriate
care, disclosure and composition of physician networks, and Congress is
considering significant changes to both the Medicare and Medicaid programs,
including changes which would significantly reduce reimbursement to HMOs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Over the past year, bills have been introduced in the legislature
in New York, New Jersey, Connecticut, Illinois, Florida and Pennsylvania
including some form of the so-called "Any Willing Provider" initiative which
would require HMOs such as the Company's HMO subsidiaries to allow any physician
meeting their credentialing criteria to join their physician network regardless
of geographic need, hospital admitting privileges and other important factors.
Certain of these bills have also included provisions relating to mandatory
disclosure of medical management policies and physician reimbursement
methodologies. Numerous other health care proposals have been introduced in the
U.S. Congress and in state legislatures. These include provisions which place
limitations on premium levels, impose health plan liability to members who do
not receive appropriate care, increase minimum capital and reserves and other
financial viability requirements, prohibit or limit capitated arrangements or
provider financial incentives, mandate benefits (including mandatory length of
stay with surgery or emergency room coverage) and limit the ability to manage
care. If enacted, certain of these proposals could have an adverse effect on the
Company.
Recently enacted legislation and the proposed regulatory changes described
above, if enacted, could increase health care costs and administrative expenses,
and reductions could be made in Medicare and Medicaid reimbursement rates. See
"Cautionary Statement Regarding Forward-Looking Statements-Government
Regulation; Reimbursement".
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Competition
HMOs and health insurance companies operate in a highly competitive
environment. The Company has numerous competitors, including for-profit and
not-for-profit HMOs, preferred provider organizations ("PPOs"), and indemnity
insurance carriers, some of which have substantially larger enrollments and
greater financial resources than the Company. The Company competes with
independent HMOs, such as Health Insurance Plan of New York and United Health
Care, each of which has significant enrollment in the New York metropolitan area
and, in the case of the latter, greater financial resources than the Company.
The Company also competes with HMOs and managed care plans sponsored by large
health insurance companies, such as The Prudential Insurance Company, The New
York Life Insurance Company, Aetna U.S. Healthcare Inc. and Blue Cross/Blue
Shield. Aetna U.S. Healthcare, Inc. has announced an agreement to acquire the
health plan business of The New York Life Insurance Company, and additional
consolidation of competitors is likely. Additional competitors may enter the
Company's markets in the future. The Company believes the size and quality of
its physician network are an important competitive factor. However, the cost of
providing benefits is in many instances the controlling factor in obtaining and
retaining employer groups, and certain of Oxford's competitors have set premium
rates at levels below Oxford's rates for comparable products. Oxford anticipates
that premium pricing will continue to be highly competitive. Recent developments
concerning the Company may also adversely affect the Company's ability to
compete for commercial group business.
To address rising health care costs, some large employer groups have
consolidated their health benefits programs and have considered a variety of
health care options to encourage employees to use the most cost-effective form
of health care services. These options, which include traditional indemnity
insurance plans, HMOs, point-of-service plans, and PPO plans, may be provided
by third parties or may be self-funded by the employer. Point-of-service plans
have gained favor with some employer groups because they allow for the
consolidation of health benefit programs. The Company believes that employers
will seek to offer health plans, similar to the Company's Freedom and Liberty
Plans, that provide for "in plan" and "out-of-plan" options while encouraging
members to use the most cost-effective form of health care services through
increased copayments, deductibles and coinsurance. Although the Company's
point-of-service products, the Freedom Plan and Liberty Plan, offer this
alternative to employers, there is no assurance that the Company will be able
to continue to compete effectively for the business of employer groups.
The Company also competes with other health plans to contract with
physicians and other providers. Recent developments concerning the Company may
adversly affect its ability to compete for such contracts.
Employees
At December 31, 1997, the Company had approximately 7,200 employees, none
of whom is represented by a labor union. The Company has experienced no work
stoppages and believes that its employee relations are good.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in "Business" or "Management's Discussion
and Analysis of Financial Condition and Results of Operations", including
statements concerning future premium rates for commercial, Medicare and
Medicaid business, future medical-loss ratio levels, the Company's ability to
control health care costs, the Proposed Financing, the Turnaround Plan, the
Company's information systems, proposed efforts to control health care and
administrative costs, government regulation and the future of the health care
industry, and the impact on the Company of recent events, legal proceedings,
and regulatory investigations and examinations, and other statements contained
herein regarding matters that are not historical facts, are forward-looking
statements (as such term is defined in the Securities Exchange Act of 1934, as
amended). Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed below.
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Proposed Financing
Implementation of the Company's Turnaround Plan depends on its ability to
complete the Proposed Financing or an alternative financing, or to implement
measures to reduce its medical and administrative costs below existing levels.
The Company currently believes that, in the event such financing could not be
completed on a timely basis, it has the ability and intent to reduce certain
costs, including those specified in the Turnaround Plan and others, and
otherwise to generate funds to enable it to support its operations through 1998.
Although the Company currently expects to complete the Proposed Financing, there
can be no assurance that all relevant conditions will be satisfied. If the
Proposed Financing cannot be completed, the Company's ability to obtain other
financing, and the timing, form and terms thereof, would depend on a number of
factors beyond the Company's control, including, among others, general economic
and market conditions and the possible need for regulatory approvals.
Control Over and Predictability of Health Care Costs
Oxford's future results of operations depend, in part, on its ability to
predict and maintain effective control over health care costs (through, among
other things, appropriate benefit design, utilization review and case management
programs and its case rate and risk-sharing arrangements with providers) while
providing members with quality health care. Factors such as utilization, new
technologies and health care practices, hospital costs, changes in demographics
and trends, selection biases, major epidemics, inability to establish acceptable
compensation arrangements with providers, operational and regulatory issues
which could delay, prevent or impede those arrangements, and numerous other
factors may affect Oxford's ability to control such costs. There can be no
assurance that Oxford will be successful in mitigating the effect of any or all
of the above-listed or other factors.
Medical costs payable in Oxford's financial statements include reserves
for incurred but not reported claims ("IBNR") which are estimated by Oxford.
Oxford estimates the amount of such reserves using standard actuarial
methodologies based upon historical data including the average interval between
the date services are rendered and the date claims are paid and between the date
services are rendered and the date claims are received by the Company, expected
medical cost inflation, seasonality patterns and increases in membership. The
estimates for submitted claims and IBNR are made on an accrual basis and
adjusted in future periods as required. Oxford believes that its reserves for
IBNR are adequate in order to satisfy its ultimate claim liability. However,
Oxford's rapid growth, delays in paying claims, paying or denying claims in
error and changing speed of payment affect the Company's ability to rely on
historical information in making IBNR reserve estimates. There can be no
assurances as to the ultimate accuracy of such estimates. Any adjustments to
such estimates could adversely affect Oxford's results of operations in future
periods.
Administrative Costs
The Company expects that results will continue to be adversely affected
by high administrative costs, including substantial consulting and other costs
associated with the Company's efforts to strengthen its operations. However,
no assurance can be given that the Company will not continue to experience
significant service and systems infrastructure problems in 1998 and beyond.
Government Regulation; Reimbursement
The health care industry in general, and HMOs and health insurance
companies in particular, are subject to substantial federal and state government
regulation, including, but not limited to, regulation relating to cash reserves,
minimum net worth, licensing requirements, approval of policy language and
benefits, mandatory products and benefits, provider compensation arrangements,
member disclosure, premium rates and periodic examinations by state and federal
agencies. Oxford's ability to declare and pay dividends is limited by state
regulations (although Oxford has not paid cash dividends in the past and does
not anticipate paying cash dividends in the foreseeable future). In 1996, and
1997 significant federal and state legislation affecting the Company's business
was enacted. See "Business-Government Regulation-Recent Regulatory
Developments." Moreover, state and federal government authorities are
continually considering changes to laws and regulations applicable to Oxford
and are currently considering regulation relating to mandatory benefits,
provider compensation, health plan liability to members who fail to receive
appropriate care, disclosure and composition of physician networks which would
apply to the Company. In addition, Congress is considering significant changes
to Medicare and Medicaid legislation and has in the past considered, and may in
the future consider, proposals relating to health care reform. Changes in
federal and state laws or regulations, if enacted, could increase health care
costs and administrative expenses and reductions could be made in Medicare and
Medicaid reimbursement rates. Oxford is unable to predict the ultimate impact
on the Company of recently enacted and future legislation and regulations but
such legislation and regulations, particularly in New York, could have a
material
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<PAGE> 17
adverse impact on the Company's operations, financial condition and prospects.
See "Business-Government Regulation."
Premiums for Oxford's Medicare and Medicaid programs are determined
through formulas established by HCFA for Oxford's Medicare contracts and by
state government agencies in the case of Medicaid. Medicaid premiums in New York
were significantly reduced in 1996, and federal legislation enacted in 1997
provides for future adjustment of Medicare reimbursement by HCFA which could
reduce the reimbursement received by the Company. Premium reductions or premium
rate increases in a particular region which are lower than the rate of increase
in health care service expenses for Oxford's Medicare or Medicaid members in
such region, could adversely affect Oxford's results of operations. Oxford's
Medicare programs are subject to certain risks relative to commercial programs,
such as higher comparative medical costs and higher levels of utilization.
Oxford's Medicare and Medicaid programs are subject to higher marketing and
advertising costs associated with selling to individuals rather than to groups.
Competition
HMOs and health insurance companies operate in a highly competitive
environment. Oxford has numerous competitors, including for-profit and
not-for-profit HMOs, PPOs and indemnity insurance carriers, some of which have
substantially larger enrollments and greater financial resources than Oxford.
Oxford also competes with HMOs and managed care plans sponsored by large health
insurance companies. Many of these competitors offer flexible plans that permit
employers to self-fund the medical risk of their plans. Additional competitors
may enter Oxford's markets in the future. The cost of providing benefits is in
many instances the controlling factor in obtaining and retaining employer groups
and certain of Oxford's competitors have set premium rates at levels below
Oxford's rates for comparable products. Oxford anticipates that premium pricing
will continue to be highly competitive. See "Business-Competition."
Recent Events and Related Publicity
Recent events at the Company in the last several months have resulted in
adverse publicity. Such events and related publicity may adversely affect the
Company's provider network and future enrollment in the Company's health benefit
plans.
Litigation and Governmental Proceedings
The Company is a defendant in a large number of purported securities
class action lawsuits and shareholder derivative lawsuits which have been filed
after the substantial decline in the price of the Company's common stock on
October 27, 1997. Such lawsuits may adversely affect the Company's results of
operations. The Company is also the subject of examinations, investigations and
inquiries by several governmental agencies, including the New York State
Insurance Department, the New York State Attorney General, the federal Health
Care Financing Administration and the Securities and Exchange Commission, and
other state departments of insurance. These governmental inquiries could
adversely affect the Company's result of operations. For additional
information, see "Legal Proceedings".
As a result of the investigations of the Company by various regulators,
the National Committee for Quality Assurance ("NCQA") has advised that it will
conduct a discretionary review of the Company.
Management of Growth
Over the past five years the Company has experienced rapid growth in its
business and in its staff and the Company will be affected by its ability to
manage growth effectively, including its ability to continue to develop
processes and systems to support its growing operations. See "Business-Status of
Information Systems." The Company does not intend to promote growth at the level
of prior years because the Company's priority in 1998 will be to strengthen its
service and systems infrastructure. However, no assurance can be given that
the Company will not continue to experience significant service and systems
infrastructure problems in 1998 and beyond.
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Item 2. PROPERTIES
Oxford occupies as its principal executive offices approximately 210,000
square feet of office space at 800 Connecticut Avenue, Norwalk, Connecticut
under two long-term leases expiring February 28, 1999 through February 28, 2001.
Additionally, the Company has long-term leases to occupy (a) approximately
115,000 square feet of sales and administrative office space at 1133 Avenue of
the Americas in New York City expiring July 31, 2009; (b) approximately 39,000
square feet of sales office space in Melville, Long Island, New York expiring
June 30, 2002; (c) approximately 127,000 square feet of sales office space in
Edison, New Jersey expiring December 1, 1999 through March 31, 2002; (d)
approximately 180,000 square feet of administrative office space in two
locations in Nashua, New Hampshire expiring May 31, 2003 through June 30, 2004;
(e) approximately 58,000 square feet of sales and administrative office space in
Philadelphia, Pennsylvania expiring April 30, 2009; (f) approximately 363,000
square feet of sales and administrative office space in White Plains, New York
expiring November 30, 2004; (g) approximately 352,000 square feet of
administrative office space in two locations in Trumbull, Connecticut expiring
February 28, 2003 through May 31, 2003; (h) approximately 121,000 square feet of
administrative office space in Hooksett, New Hampshire expiring November 30,
2002; (i) approximately 183,000 square feet of administrative office space in
Milford, Connecticut expiring January 31, 2006; (j) approximately 22,000 square
feet of office space in Mullingar, Ireland expiring September 30, 2006; (k)
approximately 76,000 square feet of office space in Hidden River, Florida
expiring January 12, 2008; (l) approximately 31,000 square feet of office space
in Rosemont, Illinois, expiring April 30, 2004; (m) approximately 43,000 square
feet of office space in Woodbridge, New Jersey, expiring March 31, 2006; (n)
approximately 46,000 square feet of office and warehouse space in Edison, New
Jersey, expiring April 30, 2005; and (o) approximately 13,000 square feet of
sales and administrative office space in Chicago, Illinois, expiring December
31, 2000.
Item 3. LEGAL PROCEEDINGS
Securities Class Action Litigation
As previously reported by the Company, following the October 27, 1997
decline in the price per share of the Company's common stock, purported
securities class action lawsuits were filed on October 28, 29, and 30, 1997
against the Company and certain of its officers in the United States District
Courts for the Eastern District of New York, the Southern District of New York
and the District of Connecticut. Since that time, plaintiffs have filed
additional securities class actions (see below) against Oxford and certain of
its directors and officers in the United States District Courts for the Southern
District of New York, the Eastern District of New York, the Eastern District of
Arkansas, and the District of Connecticut.
The complaints in these lawsuits purport to be class actions on behalf of
purchasers of Oxford's securities during varying periods beginning on February
6, 1996 through December 9, 1997. The complaints generally allege that
defendants violated Section 10(b) of the Securities Exchange Act of 1934
("Exchange Act") and Rule 10b-5 thereunder by making false and misleading
statements and failing to disclose certain allegedly material information
regarding changes in Oxford's computer system, and the Company's membership
enrollment, revenues, medical expenses, and ability to collect on its accounts
receivable. Certain of the complaints also assert claims against the individual
defendants alleging violations of Section 20(a) of the Exchange Act and claims
against all of the defendants for negligent misrepresentation. The complaints
also allege that certain of the individual defendants disposed of Oxford's
common stock while the price of that stock was artificially inflated by
allegedly false and misleading statements and omissions. The complaints seek
unspecified damages, attorneys' and experts' fees and costs, and such other
relief as the court deems proper.
The complaints filed in the United States District Court for the Southern
District of New York are Metro Services, Inc., et al. v. Oxford Health Plans,
Inc., et al., No. 97 Civ. 08023 (filed Oct. 29, 1997); Worldco, LLC, et al. v.
Oxford Health Plans, Inc., et al., No. 97 Civ. 8494 (filed Nov. 14, 1997);
Jerovsek, et al. v. Oxford Health Plans, Inc., et al., No. 97 Civ. 8882 (filed
Dec. 2, 1997); North River Trading Co., LLC v. Oxford Health Plans, Inc., et
al., No. 97 Civ. 9372 (filed Dec. 22, 1997); National Industry Pension Fund v.
Oxford Health Plans, Inc., et al., No. 97 Civ. 9566 (filed Dec. 31, 1997);
Scheinfeld v. Oxford Health Plans, Inc., et al., No. 98 Civ. 1399 (originally
filed Dec. 31, 1997 in the United States District Court for the District of
Connecticut and transferred); and Paskowitz v. Oxford Health Plans, Inc., et
al., No. 98 Civ. 1991 (filed March 19, 1998).
18
<PAGE> 19
The complaints filed in the United States District Court for the Eastern
District of New York are Koenig v. Oxford Health Plans, et al., No. 97 Civ. 6188
(filed Oct. 29, 1997); Wolper v. Oxford Health Plans, Inc., et al., No. 97 Civ.
6299 (filed Oct. 29, 1997); Tawil v. Oxford Health Plans, Inc., et al., No. 97
Civ. 7289 (filed Dec. 11, 1997); and Winters, et al. v. Oxford Health Plans,
Inc., et al., No. 97 Civ. 7449 (filed Dec. 18, 1997).
The complaints filed in the United States District Court for the District
of Connecticut are Heller v. Oxford Health Plans, Inc., et al., No. 397 CV 02295
(filed Oct. 28, 1997); Fanning v. Oxford Health Plans, Inc., et al., No. 397 CV
02300 (filed Oct. 29, 1997); Lowrie, IRA v. Oxford Health Plans, Inc., et al.,
No. 397 CV 02299 (filed Oct. 29, 1997); Barton v. Oxford Health Plans, Inc., et
al., No. 397 CV 02306 (filed Oct. 30, 1997); Sager v. Oxford Health Plans, Inc.,
et al., No. 397 CV 02310 (filed Oct. 30, 1997); Cohen v. Oxford Health Plans,
Inc., et al., No. 397 CV 02316 (filed Oct. 31, 1997); Katzman v. Oxford Health
Plans, Inc., et al., No. 397 CV 02317 (filed Oct. 31, 1997); Shapiro v. Oxford
Health Plans, Inc., et al., No. 397 CV 02324 (filed Oct. 31, 1997); Willis v.
Oxford Health Plans, Inc., et al., No. 397 CV 02326 (filed Oct. 31, 1997); Saura
v. Oxford Health Plans, Inc., et al., No. 397 CV 02329 (filed Nov. 3, 1997);
Selig v. Oxford Health Plans, Inc., et al., No. 397 CV 02337 (filed Nov. 4,
1997); Brandes v. Oxford Health Plans, Inc., et al., No. 397 CV 02343 (filed
Nov. 4, 1997); Ross v. Oxford Health Plans, Inc., et al., No. 397 CV 02344
(filed Nov. 4, 1997); Sole v. Oxford Health Plans, Inc., et al., No. 397 CV
02345 (filed Nov. 4, 1997); Henricks v. Wiggins, et al., No. 397 CV 02346 (filed
Nov. 4 1997); Williams v. Oxford Health Plans, Inc., et al., No. 397 CV 02348
(filed Nov. 5, 1997); Direct Marketing Day in New York, Inc. v. Oxford Health
Plans, Inc., et al., No. 397 CV 02349 (filed Nov. 5, 1997); Howard Vogel
Retirement Plans, Inc., et al. v. Oxford Health Plans, Inc., et al., No. 397 CV
02325 (filed Oct. 31, 1997 and amended Dec. 17, 1997); Serbin v. Oxford Health
Plans, Inc., et al., No. 397 CV 02426 (filed Nov. 18, 1997); Hoffman v. Oxford
Health Plans, Inc., et al., No. 397 CV 02458 (filed Nov. 24, 1997); Armstrong v.
Oxford Health Plans, Inc., et al., No. 397 CV 02470 (filed Nov. 25, 1997);
Roeder, et al. v. Oxford Health Plans, Inc., et al., No. 397 CV 02496 (filed
Nov. 26, 1997); Braun v. Oxford Health Plans, Inc., et al., No. 397 CV 02510
(filed Dec. 1, 1997); Blauvelt, et al. v. Oxford Health Plans, Inc., et al., No.
397 CV 02512 (filed Dec. 2, 1997); Hobler et al. v. Oxford Health Plans, Inc.,
et al., No. 397 CV 02535 (filed Dec. 3, 1997); Bergman v. Oxford Health Plans,
Inc., et al., No. 397 CV 02564 (filed Dec. 8, 1997); Pasternak v. Oxford Health
Plans, Inc., et al., No. 397 CV 02567 (filed Dec. 8, 1997); Perkins Partners I,
Ltd. v. Oxford Health Plans, Inc., et al., No. 397 CV 02573 (filed Dec. 9,
1997); N.I.D.D., Ltd. v. Oxford Health Plans, Inc., et al., No. 397 CV 02584
(filed Dec. 9, 1997); Burch v. Oxford Health Plans, Inc., et al., No. 397 CV
02585 (filed Dec. 9, 1997); Mark v. Oxford Health Plans, Inc., et al., No. 397
CV 02594 (filed Dec. 11, 1997); Ross, et al. v. Oxford Health Plans, Inc., et
al., No. 397 CV 02613 (filed Dec. 12, 1997); Lerchbacker v. Oxford Health Plans,
Inc., et al., No. 397 CV 02670 (filed Dec. 22, 1997); State Board of
Administration of Florida v. Oxford Health Plans, Inc., et al., No. 397 CV 02709
(filed Dec. 29, 1997) (the complaint, although purportedly not brought on behalf
of a class of shareholders, invites similarly situated persons to join as
plaintiffs); and Ceisler v. Oxford Health Plans, Inc., et al., No. 397 CV 02729
(filed Dec. 31, 1997).
The complaint filed in the United States District Court for the Eastern
District of Arkansas is Rudish v. Oxford Health Plans, Inc., et al., No.
LR-C-97-1053 (filed Dec. 29, 1997).
The Company anticipates that additional class action complaints containing
similar allegations may be filed in the future.
On January 6, 1998, certain plaintiffs filed an application with the
Judicial Panel on Multidistrict Litigation ("JPML") to transfer most of these
actions for consolidated or coordinated pretrial proceedings before Judge
Charles L. Brieant of the United States District Court for the Southern District
of New York. The Oxford defendants subsequently filed a similar application with
the JPML seeking the transfer of all of these actions for consolidated or
coordinated pretrial proceedings, together with the shareholder derivative
actions discussed below, before Judge Brieant. The JPML heard argument on the
applications on March 27, 1998. As these applications are not opposed in any
material respect, the Company anticipates that these actions will be transferred
for consolidated or coordinated pretrial proceedings before Judge Brieant.
The outcomes of these actions cannot be predicted at this time, although
the Company believes that it and the individual defendants have substantial
defenses to the claims asserted and intends to defend the actions vigorously.
19
<PAGE> 20
Shareholder Derivative Litigation
As previously reported by the Company, in December, 1997, purported
shareholder derivative actions were filed on behalf of the Company in
Connecticut Superior Court against the Company's directors and certain of its
officers (and the Company itself as a nominal defendant). Several additional
purported shareholder derivative actions (see below) subsequently were filed on
behalf of Oxford in Connecticut Superior Court and in the United States
District Courts for the Southern District of New York and the District of
Connecticut against the Company's directors and certain of its officers (and
the Company itself as a nominal defendant).
These derivative complaints generally allege that defendants breached
their fiduciary obligations to the Company, mismanaged the Company and wasted
its assets in planning and implementing certain changes to Oxford's computer
system, by making misrepresentations concerning the status of those changes in
Oxford's computer system, by failing to design and to implement adequate
financial controls and information systems for the Company, and by making
misrepresentations concerning Oxford's membership enrollment, revenues, profits
and medical costs in Oxford's financial statements and other public
representations. The complaints further allege that certain of the defendants
breached their fiduciary obligations to the Company by disposing of Oxford
common stock while the price of that common stock was artificially inflated by
their alleged misstatements and omissions. The complaints seek unspecified
damages, attorneys' and experts' fees and costs and such other relief as the
court deems proper. None of the plaintiffs has made a demand on the Company's
Board of Directors that Oxford pursue the causes of action alleged in the
complaint. Each complaint alleges that plaintiff's duty to make such a demand
was excused by the directors' alleged conflict of interest with respect to the
matters alleged therein.
The complaints filed in Connecticut Superior Court are Reich v. Wiggins,
et al., No. CV 97-485145 (filed on or about Dec. 12, 1997); Gorelkin v. Wiggins,
et al., No. CV-98-0163665 S (filed on or about Dec. 24, 1997); and Kellmer v.
Wiggins, et al., No. CV 98-0163664 S HAS (filed on or about Jan. 28, 1998).
The complaints filed in the United States District Court for the Southern
District of New York are Roth v. Wiggins, et al., No. 98 Civ. 0153 (filed Jan.
12, 1998); Plevy v. Wiggins, et al., No. 98 Civ. 0165 (filed Jan. 12, 1998);
Mosson v. Wiggins, et al., No. 98 Civ. 0219 (filed Jan. 13, 1998); Boyd, et al.
v. Wiggins, et al., No. 98 Civ. 0277 (filed Jan. 16, 1998); and Glick v.
Wiggins, et al., No. 98 Civ. 0345 (filed Jan. 21, 1998).
The complaints filed in the United States District Court for the District
of Connecticut are Mosson v. Wiggins, et al., No. 397 CV 02651 (filed Dec. 22,
1997), and Fisher, et al. v. Wiggins, et al., No. 397 CV 02742 (filed Dec. 31,
1997).
The Company anticipates that additional purported shareholder derivative
actions containing similar allegations may be filed. Although the outcome of
these actions cannot be predicted at this time, the Company believes that the
defendants have substantial defenses to the claims asserted in the complaints.
On March 16, 1998, Oxford and certain of the individual defendants filed a
motion to dismiss or, alternatively, to stay two of the purported derivative
actions pending in Connecticut Superior Court. On March 23, 1998, Oxford and
certain of the individual defendants filed a motion to dismiss or,
alternatively, to stay the third purported derivative action pending in
Connecticut Superior Court. On January 27, 1998, defendants filed an application
with the JPML to transfer the federal derivative actions for consolidated or
coordinated pretrial proceedings before Judge Charles L. Brieant of the Southern
District of New York. The JPML heard argument on the application on March 27,
1998. As these applications are not opposed in any material respect, the Company
anticipates that the federal purported derivative actions will be transferred
for consolidated or coordinated pretrial proceedings before Judge Brieant. New
York State Insurance Department.
As previously reported by the Company, the New York State Insurance
Department ("NYSID") is presently conducting its triennial examination and
market conduct examination of Oxford's New York HMO and insurance subsidiaries.
As previously reported, in December 1997, the Company made additions of $164
million to the reserves of its New York subsidiaries at the direction of the
NYSID. The NYSID also issued a Market Conduct Report identifying several alleged
violations of state law and NYSID regulations. The NYSID
20
<PAGE> 21
and Oxford entered into a stipulation under which Oxford promised to take
certain corrective measures and to pay restitution and paid a $3 million fine.
The stipulation provides that the NYSID will not impose any other fines for
Oxford's conduct up to November 1, 1997. The NYSID has continued to review
market conduct issues, including, among others, those relating to claims
processing. At this time the Company cannot predict the outcome of such
continuing review. The NYSID has directed the Company's New York subsidiaries
to obtain notes or other written evidence of agreements to repay from each
provider who has received an advance The NYSID is presently conducting an
examination of Oxford's finances and will focus on adequacy of reserves for
medical costs payable, premiums receivable and provider advances. The NYSID is
expected to issue a report in the coming months.
The Company is also subject to ongoing examinations with respect to
financial condition and market conduct for its HMO and insurance subsidiaries in
other states where it conducts business. The outcome of these examinations
cannot be predicted at this time.
New York State Attorney General
As previously reported, on November 5, 1997, the New York State Attorney
General served a subpoena duces tecum on the Company requiring the production of
various documents, records and materials "in regard to matters relating to the
practices of the [Company] and others in the offering, issuance, sale,
promotion, negotiation, advertisement, distribution or purchase of securities in
or from the State of New York." Since then, Oxford has produced a substantial
number of documents in response to the Subpoena, and expects to produce
additional documents.
As previously reported, the Company entered into an Assurance of
Discontinuance, effective July 25, 1997, with the Attorney General under which
the Company agreed to pay interest at 9% per annum on provider clean claims not
paid by Oxford within 30 days on its New York commercial and Medicaid lines of
business until January 22, 1998. Thereafter, the Company's obligations to make
prompter payments would be governed by applicable New York law. See "Recent
Regulatory Developments". In addition, contemporaneously, the Company agreed to
pay varying interest rates to providers in Connecticut, New Jersey, New
Hampshire and Pennsylvania.
The Company has subsequently responded to a number of inquiries by the
Attorney General with respect to Oxford's compliance with the Assurance of
Discontinuance. On February 2, 1998, the Attorney General served a subpoena
duces tecum on Oxford seeking production of certain documents relating to
complaints from providers and subscribers regarding nonpayment or untimely
payment of claims, interest paid under the Assurance, accounts payable, provider
claims processing, and suspended accounts payable. Oxford has produced a number
of documents in response to the Subpoena, and expects to produce additional
documents.
The Company intends to cooperate fully with the Attorney General's
inquiries, the outcome of which cannot be predicted at this time.
Securities and Exchange Commission
As previously reported, the Company received an informal request on
December 9, 1997 from the Securities and Exchange Commission's Northeast
Regional Office seeking production of certain documents and information
concerning a number of subjects, including disclosures made in the Company's
October 27, 1997 press release announcing a loss in the third quarter. Oxford
has produced documents in response to this informal request.
On January 30, 1998, pursuant to a formal order, the Commission served a
subpoena duces tecum on Oxford for documents concerning a number of subjects,
including internal and external audits, uncollectible premium receivables,
timing of payments to vendors, doctors and hospitals, late payments to medical
providers, computer system problems, agreements with the New York State Attorney
General, and policies and procedures relating to the sale of Oxford securities
by officers and directors. Oxford has produced documents in response to this
subpoena, and intends to cooperate fully with the Commission. Oxford cannot
predict the outcome of the Commission's investigation at this time.
21
<PAGE> 22
Health Care Financing Administration
From February 9, 1998 through February 13, 1998, the Health Care Financing
Administration ("HCFA") conducted an enhanced site visit at Oxford to assess
Oxford's compliance with federal regulatory requirements for HMO eligibility and
Oxford's compliance with its obligations under its contract with HCFA. During
the visit, HCFA monitored, among other things, Oxford's administrative and
managerial arrangements, Oxford's quality assurance program, Oxford's health
services delivery program, and all aspects of Oxford's implementation of the
Medicare risk program. In its exit interview with the Company, HCFA expressed
concern over claims payment delays and various other regulatory issues,
including HCFA requirements regarding enrollment and disenrollment documentation
and provider contracts. To the extent that alleged violations of regulatory
requirements or contractual obligations are identified, HCFA may seek corrective
action, impose fines, limit enrollment in the Company's Medicare plans and
impose other sanctions. The Company has not received a final report from HCFA
and cannot predict at this time any action HCFA might take as a result of its
site visit.
Arbitration Proceedings
On February 3, 1998, the New York County Medical Society ("NYCMS")
initiated an arbitration proceeding before the American Arbitration Association
("AAA") in New York against Oxford alleging breach of the written agreements
between Oxford and some NYCMS physician members and failure to adopt standards
and practices consistent with the intent of those agreements. The notice of
intention to Arbitrate was subsequently amended on February 23 and 27, 1998 to
join eleven additional New York medical associations as co-claimants. NYCMS and
the other claimants seek declaratory and injunctive relief requiring various
changes to Oxford's internal practices and policies, including practices in the
processing and payment of claims submitted by physicians. Oxford has petitioned
the New York State Supreme Court for a permanent stay of this proceeding; the
outcome of this motion cannot be predicted at this time. The NYCMS and other
claimants also announced their intention to seek arbitration on behalf of
physicians having particular claim disputes or seeking payment of delayed claims
from Oxford.
The Company has been informed that on March 9, 1998, a purported class
action arbitration was brought by two physicians before the AAA in Connecticut
against Oxford alleging breach of contract and violation of the Connecticut
Unfair Insurance Practices Act. The Company has not yet received a copy of the
Demand for Arbitration.
Jeffrey S. Oppenheim, M.D., et al. v. Oxford Health Plans, Inc., et al.,
Index No. 97/109088
On May 19, 1997, Oxford was served with a purported "Class Action
Complaint" filed in the New York State Supreme Court, New York County by two
physicians and a medical association of five physicians. Plaintiffs alleged that
Oxford (i) failed to make timely payments to plaintiffs for claims submitted for
health care services and (ii) improperly withheld from plaintiffs a portion of
plaintiffs' agreed compensation. Plaintiffs alleged causes of action for common
law fraud and deceit, negligent misrepresentation, breach of fiduciary duty,
breach of implied covenants and breach of contract. The complaint sought an
award of an unspecified amount of compensatory and exemplary damages, an
accounting, and equitable relief.
On July 24, 1997, Oxford and plaintiffs reached a settlement in
principle of the class claims wherein Oxford agreed to pay, from September 1,
1997 to January 1, 2000, interest at certain specified rates to physicians who
did not receive payments from Oxford within certain specified time periods
after submitting "clean claims" (a term that was to be applied in a manner
consistent with certain industry guidelines). Moreover, Oxford agreed to
provide to plaintiffs' counsel, on a confidential basis, certain financial
information that Oxford believed would demonstrate that Oxford acted within its
contractual rights in making decisions on payments withheld from plaintiffs and
members of the alleged class. The settlement in principle provides that, if
plaintiffs' counsel reasonably does not agree with Oxford's belief in this
regard, plaintiffs retain the right to proceed individually (but not as a
class) against Oxford by way of arbitration. Oxford has supplied financial
information to plaintiffs' counsel and has exchanged drafts ettlement papers
with plaintiffs' counsel. The parties have not yet submitted final settlement
papers to the Court.
22
<PAGE> 23
Other
In the ordinary course of its business, the Company is subject to claims
and legal actions by members in connection with benefit coverage determinations
and alleged acts by network providers and by health care providers and others.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market on the
Nasdaq National Market under the symbol "OXHP." The following table sets forth
the range of high and low sale prices for the common stock for the periods
indicated as reported on the Nasdaq National Market. Prices have been adjusted
to reflect the two-for-one stock split in 1996 effectuated by the distribution
of dividends of one share of common stock for each share of common stock
outstanding. See note 5 to consolidated financial statements.
<TABLE>
<CAPTION>
1997 1996
--------------------- --------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter........................................... $67.13 $48.88 $44.88 $31.13
Second Quarter.......................................... 75.75 55.25 55.25 37.38
Third Quarter .......................................... 89.00 71.50 50.38 27.69
Fourth Quarter.......................................... 79.00 13.75 62.25 41.00
</TABLE>
As of March 24, 1998, there were 1,879 shareholders of record of the
Company's common stock.
The Company has not paid any cash dividends on its common stock since its
formation and does not intend to pay any cash dividends in the foreseeable
future. Additionally, the Company's ability to declare and pay dividends to its
shareholders may be dependent on its ability to obtain cash distributions from
its operating subsidiaries. The ability to pay dividends is also restricted by
insurance and health regulations applicable to its subsidiaries. See
"Business-Government Regulation." Pursuant to the Bridge Agreement between the
Company and DLJ, the Company is prohibited from paying cash dividends on its
common stock so long as any Bridge Notes are outstanding. In addition, the
Investment Agreement between the Company and TPG, and the other agreements and
instruments to be entered into in connection with the Proposed Financing, will
prohibit the Company from paying cash dividends on its common stock.
23
<PAGE> 24
Item 6 SELECTED CONSOLIDATED FINANCIAL DATA
The statement of earnings data and balance sheet data set forth below for each
year in the five-year period ended December 31, 1997, have been derived from the
audited consolidated financial statements of the Company The information below
has been restated to reflect the merger in July 1995 with OakTree Health Plan,
Inc in a pooling of interests transaction (see note 8 to consolidated financial
statements) and is qualified by reference to and should be read in conjunction
with the consolidated financial statements and related notes and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues and Earnings: (In thousands, except per share amounts and operating statistics)
<S> <C> <C> <C> <C> <C>
Operating revenues ........................ $ 4,179,816 3,032,569 1,745,975 752,832 307,622
Investment and other income, net .......... 60,330 42,439 19,392 7,438 6,103
Net earnings (loss) ....................... $ (291,288) 99,623 52,398 28,231 12,347
Financial Position:
Working capital ........................... $ 80,803 451,957 103,448 71,731 63,192
Total assets .............................. 1,397,989 1,356,397 608,777 330,160 170,130
Common shareholders' equity ............... $ 349,216 598,170 220,033 132,394 94,655
Per Common Share (1):
Basic ..................................... $ (37.00) 134.00 78.00 43.00 19.00
Diluted ................................... $ (37.00) 125.00 71.00 4.00 18.00
Weighted average number of
common shares outstanding:
Basic ................................. 78,635 74,285 67,450 65,410 63,542
Diluted ............................... 78,635 79,662 73,344 70,554 67,804
Operating Statistics:
Enrollment ................................ 2,008,100 1,535,500 1,007,700 513,000 221,330
Fully insured member months ............... 21,584,700 15,604,400 9,338,610 4,101,863 1,715,761
Self-funded member months ................. 602,900 474,200 514,200 524,000 401,000
Number of contracted physicians ........... 65,000 37,700 29,900 21,000 11,500
Medical-loss ratio (2) .................... 94.0% 801.0% 775.0% 741.0% 732.0%
</TABLE>
(1) Per share amounts and weighted average number of common share amounts have
been restated to reflect the two-for-one stock splits in 1993, 1995 and
1996
(2) Defined as health care services expense as a percentage of premiums earned
- --------------------------------------------------------------------------------
24
<PAGE> 25
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company's revenues consist primarily of commercial premiums derived
from its Freedom Plan and Liberty Plan, health maintenance organization ("HMO"),
preferred provider organizations ("PPOs") and dental plan products,
reimbursements under government contracts relating to its Medicare and Medicaid
programs, third-party administration fee revenue for its self-funded plan
services (which is stated net of direct expenses such as third-party reinsurance
premiums) and investment income.
Health care services expense primarily comprises payments to physicians,
hospitals and other health care providers under fully insured health care
business and includes an estimated amount for incurred but not reported claims
("IBNR"). The Company estimates IBNR expense based on a number of factors,
including prior claims experience. The actual expense for claims attributable to
any period may be more or less than the amount of IBNR reported. The Company's
results for the year ended December 31, 1997 were adversely affected by
additions to the Company's reserves for IBNR in the third and fourth quarters.
See "Liquidity and Capital Resources."
The Company has experienced substantial growth in membership and revenues
since it began operations in 1986. The membership and revenue growth has been
accompanied by increases in the cost of providing health care in New York, New
Jersey, Pennsylvania, Connecticut, Illinois, Florida and New Hampshire. The
Company does not expect its future growth in membership or revenue, if any, to
be similar to its growth in prior years as the Company has to redirect its
strategic initiatives to attempt to establish profitability. See
"Business-Recent Developments-Turnaround Plan". Since the Company provides
services on a prepaid basis, with premium levels fixed for one-year periods,
unexpected cost increases during the annual contract period cannot be passed on
to employer groups or members.
The following table provides certain statement of operations data
expressed as a percentage of total revenues and the medical-loss ratio for the
years indicated:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
Revenues: 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Premiums earned .............................. 98.3% 98.3% 98.2%
Third-party administration, net .............. .3 .3 .7
Investment and other income, net ............. 1.4 1.4 1.1
----- ----- -----
Total revenues ............................... 100.0 100.0 100.0
----- ----- -----
Expenses:
Health care services ......................... 92.4 78.7 76.2
Marketing, general and administrative ........ 17.4 15.5 18.4
Unusual charges - write-down of assets ....... 1.0 -- --
----- ----- -----
Total expenses ............................... 110.8 94.2 94.6
----- ----- -----
Operating earnings (loss) .................... (10.8) 5.8 5.4
Income (loss) from affiliate ................. .6 (.1) (.2)
----- ----- -----
Earnings (loss) before income taxes .......... (10.2) 5.7 5.2
Provision (credit) for income taxes .......... (3.3) 2.4 2.2
----- ----- -----
Net earnings (loss) .......................... (6.9)% 3.3% 3.0%
===== ===== =====
Medical-loss ratio ............................... 94.0% 80.1% 77.5%
===== ===== =====
</TABLE>
The medical-loss ratio for 1997 reflects significant additions to the
Company's reserves recorded in 1997. A portion of the reserve additions in 1997
represent revisions to estimates for claims incurred in prior years.
Accordingly, the medical-loss ratios on an incurred basis would be different
from those shown above.
25
<PAGE> 26
Results of Operations
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
The following tables show plan revenues earned and membership by product:
<TABLE>
<CAPTION>
Years Ended
December 31
----------------------- Percent
1997 1996 Increase
---------- --------- --------
Plan Revenues: (In thousands)
<S> <C> <C> <C>
Freedom Plan ................................ $2,468,259 1,849,167 33.5%
HMOs ........................................ 463,428 322,288 43.8
Medicare .................................... 916,126 599,824 52.7
Medicaid .................................... 319,411 250,889 27.3
---------- ---------
Total premium revenues .................... 4,167,224 3,022,168 37.9
Third-party administration, net ............. 12,592 10,401 21.1
---------- ---------
Total plan revenues ....................... $4,179,816 3,032,569 37.8%
========== ========== ====
<CAPTION>
As of
December 31
-----------------------
Membership: 1997 1996
---------- ---------
<S> <C> <C> <C>
Freedom Plan ................................ 1,333,500 1,015,100 31.4%
HMOs ........................................ 270,400 192,300 40.6
Medicare .................................... 161,000 125,000 28.8
Medicaid .................................... 189,600 162,000 17.0
---------- ---------
Total fully insured ....................... 1,954,500 1,494,400 30.8
Self-funded .................................. 53,600 41,100 30.4
---------- ---------
Total membership .......................... 2,008,100 1,535,500 30.8%
========== ========== ====
</TABLE>
Total premiums earned for the year ended December 31, 1997 increased 37.9%
to $4.2 billion from $3.0 billion in 1996. This overall increase was primarily
attributable to a 38.4% increase in member months for commercial and government
programs. The substantial growth in membership reflected continued consumer
acceptance of health care plans in the Company's markets in general, and the
popularity of the products offered by the Company in particular.
Commercial premium revenues increased $760.2 million to $2.9 billion in
1997 from $2.2 billion in 1996. Membership growth accounted for substantially
all of the change as member months of the Freedom Plan increased 37.2% when
compared with 1996, and member months of Oxford's traditional HMOs increased
43.2% over the prior year. Premium rates of commercial programs were about the
same in 1997 as in 1996. Software and hardware problems experienced in the
conversion of a portion of the Company's computer system in September 1996
resulted in significant delays in the Company's billing of group and individual
customers and in 1997 adversely affected the Company's premium billing. The
Company's revenues in 1997 were adversely affected by adjustments of
approximately $174 million related to estimates for terminations of group and
individual members and for non-paying group and individual members. The Company
is taking steps to attempt to improve billing timeliness, reduce billing errors,
lags in recording enrollment and disenrollment notifications, and the Company's
collection processes and is attempting to make requisite improvements in
management information concerning the value and aging of outstanding accounts
receivable. The Company believes it has made adequate provision in its estimates
for group and individual member terminations and for non-paying group and
individual members as of December 31, 1997. Adjustments to the estimates may be
necessary, however, and any such adjustments would be included in the results of
operations for the period in which such adjustments are made.
Premium revenues of government programs increased $384.8 million to $1.2
billion in 1997 from $850.7 million in 1996. Membership growth accounted for
most of the change in Medicare as member months increased 46.4% when compared
with the prior year. The increase in Medicaid revenues was attributable to a
34.4% increase in member months compared with 1996, offset in part by a 5.2%
decrease in average
26
<PAGE> 27
premium rates during 1997. Average premium rates of Medicare programs in 1997
were 4.3% higher than in 1996.
The Company expects that premium rates for commercial business in 1998
will be higher on average than in 1997. The Company's commercial rates are
often higher than those charged by competitors, in part reflecting the size and
quality of the Company's provider network, additional services provided by the
Company and other features of the Company's products. The Company's ability to
receive requested rate increases from group customers may be adversely affected
by publicity surrounding the losses announced by the Company for the third and
fourth quarters and claims payment issues involving the Company's provider
network. The Company believes that commercial premium pricing will continue to
be highly competitive and may be more so. However, the Company does not intend
to promote revenue growth at the level of prior years because the Company's
priority in 1998 will be to attempt to strengthen its service and systems
infrastructure. Revenues may also be adversely affected as a result of the
Company's decision to reduce its future investment in developing the Florida,
Illinois and New Hampshire markets. Moreover, the Company expects that revenue
growth will be adversely affected by customers' concern regarding recently
publicized operating losses and provider dissatisfaction with timeliness of
claims payment.
In March 1998, the Company filed with the New York State Insurance
Department ("NYSID") proposed rate increases of 50% and 64%, respectively for
its New York mandated individual HMO and point of service plans (the "New York
Mandated Plans") as a result of rapidly rising medical costs in those plans. The
Company believes it experiences significant selection bias in these plans which
are chosen, on average, by individuals that require more health care services
than the average commercial population. The Company had 40,700 members in the
mandated HMO and 15,300 members in the mandated point of service plan as of
December 31, 1997. Revenues and operating results for 1998 would be adversely
affected if the NYSID does not approve the rates requested or approves lesser
increases. In addition, the Company expects that, if granted, significant rate
increases in these plans will result in membership attrition, which would reduce
revenues and could increase adverse selection bias. The Company is working
cooperatively with the NYSID with respect to the requested rate increases and
other measures to provide affordable health plans in the individual market.
However, no assurances can be given that the NYSID will approve these rate
increases.
In 1997, the Clinton Administration and Congressional leadership reached
an agreement on legislation aimed at balancing the Federal budget, which
includes provisions for $115 billion in savings from Medicare programs over the
next five years. This agreement was enacted into law as the Balanced Budget Act
of 1997 (the "1997 Act"). The legislation changes the way health plans are
compensated for Medicare members by eliminating over five years amounts paid for
graduate medical education and increasing the blend of national cost factors
applied in determining local reimbursement rates over a six-year phase-in
period. Both changes will have the effect of reducing reimbursement in high cost
metropolitan areas with a large number of teaching hospitals, such as the
Company's service areas; however, the legislation includes provision for a
minimum increase of 2% annually in health plan Medicare reimbursement for the
next five years. The legislation also provides for expedited licensure of
provider-sponsored Medicare plans and a repeal in 1999 of the rule requiring
health plans to have one commercial enrollee for each Medicare or Medicaid
enrollee. These changes could have the effect of increasing competition in the
Medicare market.
In 1998, the Company will receive a 2% increase in Medicare premiums,
minus the user fee assessment of .428% of the Company's gross monthly Medicare
premium. The user fee is applied to all Medicare risk contractors by HCFA to
cover HCFA's costs relating to beneficiary enrollment, dissemination of
information and certain counseling and assistance programs. On March 2, 1998
HCFA announced a 2% increase in premiums in 1999 for all plans in the Company's
service areas. However, the user fee for 1999 has not been determined and may
increase since the Clinton Administration is seeking legislation authorizing it
to collect additional funds. Under the authority provided by the 1997 Act, HCFA
has begun to collect hospital encounter data from Medicare risk contractors. The
data will be used to develop and implement a new risk adjustment mechanism by
January 1, 2000. Given the relatively high Medicare risk premium levels in the
Company's market areas, the Company is in significant jeopardy that the new risk
adjustment mechanism to be developed
27
<PAGE> 28
could significantly and adversely affect the Company's Medicare premium ratio
going forward. President Clinton has proposed expanding Medicare coverage to
individuals between the ages of 55 and 64. There is significant opposition to
his proposal, and the Company cannot predict the outcome of the legislative
process or the impact of the proposal on the Company's results of operations. In
addition, long-term structural changes to the Medicare program are currently
being considered by a newly appointed National Bipartisan Commission on the
Future of Medicare. This Commission is required to submit a report to the
President and Congress by March 1, 1999.
The Company does not anticipate revenue growth at the level of prior years
in its Medicare programs because the Company's priority in 1998 will be to
attempt to strengthen its service and system infrastructure and mitigate
operating losses. Medicare enrollment could also be adversely affected, perhaps
substantially so, by customer concern over recently publicized operating losses
and provider dissatisfaction, changes to the Company's Medicare provider
network in certain counties and medical management policies designed to better
control medical costs and HCFA's recent site examination of the Company, among
other factors. See "Business-Government Regulation".
Premium yields in the Company's Medicaid business in New Jersey and
Connecticut will be unchanged in 1998. The Company has notified the relevant
regulatory authorities that it will not renew its Medicaid risk contracts in
Connecticut and New Jersey due to unfavorable premium and medical expense
trends. The Company will, therefore, be withdrawing from those programs
effective April 1, 1998 for Connecticut and July 1, 1998 for New Jersey. At
December 31, 1997, the Company had approximately 33,000 Connecticut Medicaid
members and 46,100 New Jersey Medicaid members. Premium yields in the Company's
New York Medicaid program (approximately 43,500 members at December 31, 1997)
will be increased 4% effective April1, 1998. The Company expects that premium
yields in the Company's Pennsylvania Medicaid program (approximately 67,000
members at December 31, 1997) were increased 7% effective January 1, 1998. No
assurances can be given regarding prospective premium yields from these
programs.
Third-party administration revenues for the year ended December 31, 1997
increased to $12.6 million from $10.4 million in 1996, attributable to a 27.1%
increase in member months due to the acquisition of Compass PPA, Incorporated,
partially offset by a 4.7% decrease in per member per month revenue.
Net investment income for the year ended December 31, 1997 increased to
$61.2 million from $42.4 million in 1996. This was principally due to
significantly greater realized capital gains in 1997 when compared with 1996.
The Company incurred interest expense of approximately $11.1 million during 1997
(which reduces net investment and other income) for payment of interest on
delayed claims in accordance with the Company's interest payment policy and
applicable law. Final reconciliation with providers may result in higher levels
of interest expense. The Company's future results will continue to reflect
interest payments by the Company on delayed claims as well as interest expense
on outstanding indebtedness incurred in 1998. See "Business - Recent
Developments-Financings".
Health care services expense stated as a percentage of premiums earned
(the "medical-loss ratio") was 94.0% for the year ended December 31, 1997
compared with 80.1% for the year ended December 31, 1996. Overall per member per
month revenue in 1997 was substantially unchanged from 1996, however, overall
per member per month health care services expenses increased 16.9% to $181.38 in
1997 from $155.16 in 1996. Software and hardware problems experienced in the
conversion of a portion of the Company's computer system in September 1996
resulted in significant delays in the Company's payment of provider claims and
adversely affected payment accuracy. Medical costs for 1997 reflect additions
to the Company's reserves for IBNR in the third and fourth quarters aggregating
$327 million. These additions represent revisions to estimates of the Company's
incurred medical costs based on information gained in the process of reviewing
and reconciling previously delayed claims and claims paid or denied in error. A
portion of the reserve additions represent revisions to estimates for claims
incurred in prior years. The Company's paid and received claims data and
revised estimates show significant increases in medical costs in 1996 and 1997
in the Company's Medicare, Medicaid and New York Mandated Plans. The Company
estimates that its per member per month medical costs increased 13.1% in 1996
and 21.4% in 1997 in its Medicare programs. In its New York Mandated
28
<PAGE> 29
Plans and its Medicaid programs the Company's per member per month medical
costs increased, 49.1% and 17.3%, respectively, in 1997. These increases
resulted primarily from higher expenses for hospital and specialist physician
services and increases in per member per month pharmacy costs of 20.7% and
18.5% in 1996 and 1997, respectively. The Company reviews its ultimate claims
liability in light of its claims payment history and other factors, and any
resulting adjustments are included in the results of operations for the period
in which such adjustments are made. The Company believes it has made adequate
provision for medical costs as of December 31, 1997. There can be no assurance
that additional reserve additions will not be necessary as the Company
continues to review and reconcile delayed claims and claims paid or denied in
error. Additions to reserves could also result as a consequence of regulatory
examinations and such additions would also be included in the results of
operations for the period in which such adjustments are made. See "Business -
Government Regulation" and "Legal Proceedings".
The Company is taking a number of steps to address the deterioration of
operating results in Medicare, Medicaid and the New York Mandated Plans. The
Company is pursuing certain provider contracts for its Medicare programs
pursuant to which a significant portion of the medical cost risk of some of
the Company's Medicare enrollment may be transferred to network providers.
Despite these efforts, no assurances can be given that such contracts will be
consummated or, if consummated, will successfully control the Company's
ultimate costs. In its Pennsylvania Medicaid program, the Company has entered
into an agreement to transfer a substantial portion of the medical risk in that
program to a third party. The Company is also attempting to implement new
medical management policies aimed at reducing costs in various lines of
business. The Company has also withdrawn from the Medicaid programs in New
Jersey and Connecticut, effective July 1, 1998 and April 1, 1998, respectively.
Finally, the Company has filed for significant rate increases in the New York
Mandated Plans to reflect rising medical costs in those plans.
The Company's results of operations are dependent, in part, on its ability
to predict and maintain effective control over health care costs (through, among
other things, appropriate benefit design, utilization review and case management
programs and its case rate and risk-sharing agreements with providers) while
providing members with quality health care. Factors such as utilization, new
technologies and health care practices, hospital costs, major epidemics,
inability to establish acceptable compensation agreements with providers and
numerous other factors may affect Oxford's ability to control such costs. The
Company attempts to use its medical cost containment capabilities, such as claim
auditing systems, physician tracking systems and utilization review protocols,
and improved channeling to cost-effective providers with a view to reducing the
rate of growth in health care services expense. There can be no assurance that
Oxford will be successful in mitigating the effect of any or all of the
above-listed or other factors. In addition, the Company's relationships with
many of its contracted providers were adversely affected by the Company's
computer systems and related claims payment problems which could impede the
Company's efforts to obtain favorable arrangements with some of these providers
going forward. Accordingly, past financial performance is not necessarily a
reliable indicator of future performance, and investors should not use
historical performance to anticipate results or future period trends. The
Company continues to reconcile delayed claims and claims previously paid or
denied in error and pay down backlogged claims. Information gained as the
process continues may result in future changes to the Company's estimates of its
medical costs and expected cost trends.
Effective January 1, 1997, the New York Health Care Reform Act of 1996
(the "Act") requires that the Company make payments to state funding pools to
finance hospital bad debt and charity care, graduate medical education and other
state programs under the Act. Previously, hospital bad debt and charity care and
graduate medical education were financed by surcharges on payments to hospitals
for inpatient services. As contemplated by the Act, the Company has
substantially completed the negotiation of adjustments to rates paid to network
hospitals in New York to reflect elimination of these surcharges. These
adjustments are generally effective as of January 1, 1997, but they are not
expected to result in savings equal to the cost of the surcharges. Accordingly,
the Company has filed for increases of between 2% and 3.2% in certain of its
commercial premium rates in New York in addition to normal trend increases in
view of the increases in costs attributable to the Act. See "Government
Regulation;".
Marketing, general and administrative expenses increased 54.5% to $737.4
million in 1997 from $477.4 million in 1996 which, as a percentage of operating
revenues, was 17.6% in 1997 compared with 15.7% in 1996. The increase in
marketing, general and administrative expenses was attributable to the Company's
membership growth, costs associated with expansion into new markets in Florida
and Illinois and expenses attributable to strengthening the Company's
operations, including costs for independent consultants, additional staff and
information system enhancements. Principal areas of increased expense were
payroll and benefits
29
<PAGE> 30
expense, broker commissions, marketing expenses and depreciation. Payroll and
benefits expense increased $87.5 million in 1997 primarily due to an increase in
the size of the Company's work force to approximately 7,200 employees at the end
of 1997 from approximately 5,000 employees at the end of 1996. The additional
employees were hired primarily in the areas of health services, member services,
management information systems and marketing. Broker commissions increased by
$47.8 million in 1997 due to the increase in premiums. Marketing expenses
other than payroll and benefits increased by $15.7 million in 1997 as the
Company implemented programs to market its products in a highly competitive
environment in several markets. Depreciation expense was $17.1 million higher
than in 1996 as a result of $101.9 million of capital expenditures during 1997.
The Company expects that results for 1998 will continue to be adversely affected
by high administrative costs, including substantial consulting and other costs
associated with strengthening its operations. The Company also currently expects
to record a nonrecurring charge of between $20 million and $25 million in the
first quarter of 1998 to account for severance and other costs which the Company
expects to incur in connection with restructuring certain administrative and
management functions. Administrative costs in future periods will also be
affected by the costs associated with responding to regulatory inquiries and
investigations and defending pending securities class action and shareholder
derivative litigation, including fees and disbursements of counsel and other
experts, to the extent such costs are not reimbursed under existing policies of
insurance. See "Legal Proceedings".
In October 1997, the Company disposed of its 47% interest in Health
Partners, Inc. ("Health Partners"). The Company received 2,090,109 shares of
common stock of FPA Medical Management, Inc. ("FPAM") stock with a market value
as of closing of approximately $76.4 million, resulting in a pretax gain at the
time of closing of approximately $63.1 million. As of December 31, 1997, the
market value of the FPAM stock had been reduced to approximately $38.4 million.
Because management believes that the decline is other than temporary, the
Company as of December 31, 1997, wrote down its investment in FPAM by $38.0
million. As a result, the Company ultimately recognized a pretax gain of
approximately $25.2 million ($20.5 million after taxes, or $.26 per share) on
the sale of Health Partners. The Company's equity in Health Partners net loss
for 1997 prior to the sale was $1.1 million compared with a loss of $4.6 million
in 1996. The Company contracts with provider groups managed by Health Partners
in the Company's service areas. The Company cannot currently predict if the
costs of using such provider groups will increase with the change in ownership.
The Company acquired all of the outstanding stock of Compass PPA,
Incorporated, a Chicago-based HMO, as of August 1, 1997 for approximately $8.2
million in cash (resulting in goodwill of $24.1 million) and acquired all of the
outstanding stock of Riscorp Health Plans, Inc., a Florida-based HMO, as of
November 3, 1997, for approximately $5.3 million in cash (resulting in goodwill
of $3.9 million). Since the dates of acquisition, the Company made investments
in such companies pursuant to a plan to aggressively develop and market the
Company's products in the Florida and Chicago markets. As of December 31, 1997,
the Company has determined to focus available administrative resources in its
core markets in the Northeast and to reduce significantly the level of
investment planned for these expansion markets. The Company believes that such
reduction in future investments will impact the value of these companies and,
accordingly, the Company has reduced the value of its investment in these
companies by writing off $27.3 million in goodwill arising from the acquisitions
and subsequent investment. The Company also reduced by $14.3 million the
carrying value of its investment in the capital stock and subordinated surplus
notes of St. Augustine Health Care, Inc., a Florida-based HMO. The Company holds
19.9% of the outstanding voting stock of St. Augustine Health Care, Inc.
The income tax benefit for 1997 was $140.3 million, or approximately
32.5% of the Company's pretax loss in 1997. This is lower than the 42.1%
effective tax rate for 1996 since, due to the Company's significant net loss,
the Company established a valuation allowance related to state net operating
loss carryforwards. Management believes that and it is more likely than not
that future operations will generate sufficient taxable income (estimated to be
$330 million) to utilize the unreserved net deferred tax assetsthose deferred
tax assets.
The Company expects to report losses in 1998 as the result of high medical
costs and high administrative costs as described above. The Company intends to
take the steps referred to above and under "Business - Recent
Developments-Turnaround Plan" in an effort to better control medical and
administrative spending, but there can be no assurance that it will be
successful. Results of operations will be adversely affected if such steps
cannot be successfully implemented or if there are delays in such
implementation.
30
<PAGE> 31
Year Ended December 31, 1996 Compared with Year Ended December 31, 1995
The following tables show plan revenues earned and membership by
product:
<TABLE>
<CAPTION>
Years Ended
December 31
------------------------- Percent
1996 1995 Increase
---------- --------- --------
Plan Revenues: (In thousands)
<S> <C> <C> <C>
Freedom Plan ......................... $1,849,167 1,113,432 66.1%
HMOs ................................. 322,288 193,404 66.6
Medicare ............................. 599,824 247,090 142.8
Medicaid ............................. 250,889 180,172 39.2
---------- ---------
Total premium revenues ............. 3,022,168 1,734,098 74.3
Third-party administration, net ...... 10,401 11,877 (12.4)
---------- ---------
Total plan revenues ................ $3,032,569 1,745,975 73.7%
========== ========== =====
<CAPTION>
As of
December 31
-------------------------
Membership: 1996 1995
---------- ---------
<S> <C> <C> <C>
Freedom Plan ......................... 1,015,100 680,400 49.2%
HMOs ................................. 192,300 112,000 71.7
Medicare ............................. 125,000 67,100 86.3
Medicaid ............................. 162,000 105,600 53.4
---------- ---------
Total fully insured ................ 1,494,400 965,100 54.8
Self-funded .......................... 41,100 42,600 (3.5)
---------- ---------
Total membership ................... 1,535,500 1,007,700 52.4%
========== ========== =====
</TABLE>
Total premiums earned for the year ended December 31, 1996 increased 74.3%
to $3.02 billion from $1.73 billion in 1995. This overall increase was primarily
attributable to a 67.1% increase in member months for commercial and government
programs. The substantial growth in membership reflected continued consumer
acceptance of health care plans in the Company's markets in general, and the
popularity of the products offered by the Company in particular.
Commercial premium revenues increased $864.6 million to $2.17 billion in
1996 from $1.31 billion in 1995. Membership growth accounted for substantially
all of the change as member months of the Freedom Plan increased 63.5% when
compared with 1995, and member months of Oxford's traditional HMOs increased
65.9% over the prior year. Premium rates of commercial programs were slightly
higher in 1996 than in 1995.
Premium revenues of government programs increased $423.5 million to $850.7
million in 1996 from $427.3 million in 1995. Membership growth accounted for
most of the change in Medicare as member months increased 123.7% when compared
with the prior year. The increase in Medicaid revenues was attributable to a
61.6% increase in member months compared with 1995, offset in part by a 13.8%
decrease in average premium rates during 1996. Premium rates of Medicare
programs in 1996 were 8.5% higher than in 1995.
Third-party administration revenues for the year ended December 31, 1996
declined to $10.4 million from $11.9 million in 1995, attributable to a 5.1%
decrease in per member per month revenue and a 7.8% decrease in member months.
Net investment income for the year ended December 31, 1996 increased to
$42.4 million from $19.4 million in 1995. This was principally due to the
increase in invested cash resulting from increased cash flow from operations
during 1996 and approximately $220 million of net proceeds from the Company's
public offering in April 1996.
Health care services expense stated as a percentage of premiums earned
(the "medical-loss ratio") was 80.1% for the year ended December 31, 1996
compared with 77.5% for the year ended December 31, 1995. The increase in the
medical-loss ratio was attributable to a higher percent of membership in the
Company's Medicare programs, greater than expected pharmacy costs, and decreased
per member per month premium
31
<PAGE> 32
revenue in the Company's Medicaid programs. Overall per member per month revenue
increased 4.3% to $193.67 in 1996 from $185.69 in 1995 while overall per member
per month health care services expenses increased 7.8% to $155.16 in 1996 from
$143.99 in 1995. As stated above, additions to reserves for IBNR recorded in the
third and fourth quarter of 1997 represent, in part, revisions to estimated
costs for 1996. Based on the revised estimates, medical costs for 1996 would be
higher than those shown.
Marketing, general and administrative expenses increased 46.6% to $477.4
million in 1996 from $325.6 million in 1995 which, as a percentage of operating
revenues, was 15.7% in 1996 compared with 18.7% in 1995. The increase in
marketing, general and administrative expenses was attributable to the Company's
rapid membership growth and the costs associated with continuing development and
expansion into new markets and the expansion of the Medicaid Healthy Start and
Oxford Medicare Advantage programs. The other areas of increased expense were
payroll and benefits expense, broker commissions, marketing expenses and
depreciation. Payroll and benefits expense increased $74.4 million in 1996
primarily due to an increase in the size of the Company's work force to over
5,000 employees at the end of 1996 from approximately 4,000 employees at the end
of 1995. The additional employees were hired primarily in the areas of
marketing, management information systems, health services and member services.
Broker commissions increased by $23.8 million in 1996 due to the increase in
premiums earned. Marketing expenses other than payroll and benefits increased by
$5.4 million in 1996 reflecting the Company's continuing commitment to
aggressively market its products in a highly competitive environment.
Depreciation expense was $18.5 million higher than in 1995 as a result of $48.3
million of capital expenditures during 1996.
The Company's equity in the net loss of Health Partners, for 1996 was $4.6
million compared with a loss of $3.9 million in 1995. The increased losses for
Health Partners related primarily to lower per member per month premium revenue
in Health Partners' Medicaid programs.
The provision for income taxes for 1996 was $72.4 million, or
approximately 42.1% of the Company's pretax income in 1996, approximately the
same as the 1995 tax rate.
Inflation
Although the rate of inflation has remained relatively stable in recent
years, health care costs have been rising at a higher rate than the consumer
price index. In particular, the Company has experienced significant increases in
medical costs in its Medicare, Medicaid, and New York Mandated Plans. The
Company employs various means to reduce the negative effects of inflation. The
Company has in prior years increased overall commercial premium rates when
practicable in order attempt to maintain margins; nevertheless, these rate
increases have tended to be below those of traditional indemnity health plans
and comparable to competing health plans, thereby maintaining the Company's
competitive position. The Company's cost control measures and risk-sharing
arrangements with various health care providers also mitigate the effects of
inflation on its operations. There is no assurance that the Company's efforts
to reduce the impact of inflation will be successful or that the Company will
be able to increase premiums to offset cost increases associated with providing
health care.
Liquidity and Capital Resources
Cash used by operations during 1997 aggregated $152.6 million,
contributing to a reduction in cash and cash equivalents and short-term
investments to $639.9 million at December 31, 1997 from $839.5 million at
December 31, 1996. In addition, cash used for capital expenditures totaled
$101.9 million during 1997. This amount was used primarily for computer
equipment and software, reflecting the Company's ongoing need to upgrade and
maintain its information systems to support its rapid growth. In addition,
significant expenditures were incurred for leasehold improvements related to the
Company's headquarters in Norwalk, Connecticut, and existing regional offices,
and to expansion of regional offices in Hooksett, New Hampshire and Hidden
River, Florida. The Company currently anticipates that capital expenditures for
1998, a significant portion of which will be devoted to management information
systems and leasehold improvements, will be less.
Cash amounts aggregating $610,000 have been segregated as restricted
investments as required by the New York State Department of Insurance, the New
Jersey Department of Insurance and the Pennsylvania Department of Insurance. In
addition, the Company's subsidiaries are subject to certain restrictions on
their
32
<PAGE> 33
abilities to make dividend payments, loans or other transfers of cash to the
parent company, which limit the ability of the Company to use cash generated by
subsidiary operations to pay the obligations of the parent, including debt
service and other financing costs.
Premiums receivable at December 31, 1997 decreased to $275.6 million from
$315.1 million at December 31, 1996 primarily due to adjustments relating to
group and individual member terminations and non-paying group and individual
member previously discussed.
As a result of the previously discussed delays in claims payments, the
Company experienced a significant increase in medical claims payable during the
fourth quarter of 1996 and the first quarter of 1997, but the increase in
medical costs payable was mitigated by progress in paying backlogged claims and
by making advance payments to providers during the first quarter of 1997 and
thereafter. Outstanding advances aggregated approximately $203 million at
December 31, 1997 and have been netted against medical costs payable in the
Company's consolidated balance sheet. The Company has established a valuation
reserve of $10 million against the advances. The Company believes that it will
be able to recover outstanding advances payments, either through repayment by
the provider or application against future claims, but any failure to recover
funds advanced in excess of the reserve would adversely affect the results of
the Company's operations.
The Company's medical costs payable, before netting advance claim
payments of $203 million, was $965.9 million as of December 31, 1997 (including
$859.0 million for IBNR) compared with and $624.4 million as of December 31,
1996 (including $551.1 million for IBNR). The increase in medical costs payable
reflects additions to the Company's medical claim reserves during the third and
fourth quarters of 1997 totaling $327 million.
The Company estimates the amount of its IBNR reserves using standard
actuarial methodologies based upon historical data, including the average
intervals between the date services are rendered and the date claims are paid
and between the date services are rendered and the date claims are received by
the Company, expected medical cost inflation, seasonality patterns and increases
in membership. The liability is also affected by shared risk arrangements under
Private Practice Partnerships ("Partnership"). In determining the liability for
medical costs payable, the Company accounts for the financial impact of the
experience of risk-sharing Partnership providers (who may be entitled to credits
from Oxford for favorable experience or subject to deductions for accrued
deficits) and, in the case of Partnership providers subject to deficits, has
established reserves to account for delays or other impediments to recovery of
those deficits. The Company believes that its reserves for medical costs payable
are adequate in order to satisfy its ultimate claim liability. However, the
Company's rapid growth, delays in paying claims, paying or denying claims in
error and changing speed of payment may affect the Company's ability to rely on
historical information in making medical costs payable reserve estimates.
During the fourth quarter of 1997, the Company made cash contributions to
the capital of its HMO subsidiaries aggregating $65.7 million and contributed
the outstanding capital stock of OHI to Oxford NY to increase Oxford NY's
surplus. Since December 31, 1997, the Company has funded additional
contributions of cash and marketable securities (valued at market on the date of
contribution) totaling $160.4 million. The capital contributions were made to
ensure that each subsidiary had sufficient surplus as of December 31, 1997 under
applicable regulations after giving effect to operating losses and reductions to
surplus resulting from the nonadmissibility of certain assets. The contributions
in 1998 were made with the proceeds of the issuance of $200 million of senior
secured notes ("Bridge Notes") under the Bridge Securities Purchase Agreement,
dated as of February 6, 1998, between the Company and an affiliate of Donaldson
Lufkin & Jenrette Securities Corporation ("DLJ"), as amended on March 30, 1998
(the "Bridge Agreement"). The Bridge Notes mature on February 6, 1999 and bear
interest at prime plus 2.5% per annum during the first three months, and
thereafter the spread over prime will increase by 0.5% every three months;
provided, however, that the per annum interest rate will not be less than
10.5%, nor more than 17%. In connection with the issuance of the Bridge Notes,
the Company has paid and will pay commitment and other fees to DLJ and has
granted a security interest in the stock of certain subsidiaries and certain
other assets of the Company. The Bridge Agreement contains various covenants,
financial maintenance requirements and other restrictions, including, among
others, a covenant prohibiting the payment of dividends on the Company's common
stock and a
33
<PAGE> 34
covenant with respect to steps to be taken to refinance the Bridge Notes under
certain circumstances. If the Investment Agreement referred to below is
terminated or amended or the transactions thereunder are not consummated by
June 30, 1998 (subject to extension), and in certain other circumstances, DLJ
would be entitled to elect 33% of the total number of two directors and the
Company would be required to deliver a resolution of the Company's Board of
Directors adopting a plan or proposal for refinancing the borrowings under the
Bridge Notes, through the issuance of debt or equity securities or the entering
into a strategic transaction acceptable to DLJ, and retain DLJ to effect the
implementation of such plan or proposal.
The Company expects that additional capital contributions to the
subsidiaries will be required as the result of expected operating losses in
1998. Further, additional capital contributions will be required if there is an
increase in the nonadmissible assets of the Company's subsidiaries or a need for
reserve strengthening as the result of regulatory action or otherwise. See
"Business--Government Regulation". Additional capital will also be required to
fund capital expenditures and repay the Bridge Notes which mature on February
6, 1999.
Pursuant to an Investment Agreement, dated as of February 23, 1998 (the
"Investment Agreement"), between the Company and TPG Oxford LLC (together with
the investors thereunder, the "Investors"), the Investors have agreed to
purchase $350,000,000 in Preferred Stock with Warrants to acquire up to
22,530,000 shares of common stock. The Warrants have an exercise price of
$17.75, which represents a 5% premium over the average trading price of Oxford
shares for the 30 trading days ended February 20, 1998. The exercise price is
to become 115% of the average trading price of Oxford common stock for the 20
trading days following the filing of the Company's annual report on Form 10-K
for the year ending December 31, 1998, if such adjustment would reduce the
exercise price. The Preferred Stock will be issued as Series A and Series B.
The Series A Preferred Stock will carry a dividend of 8% and will be issued
with Series A Warrants to purchase 15,800,000 shares of common stock, or 19.9%
of the present outstanding voting power of Oxford's common stock. The Series A
Preferred Stock will have 16.6% of the combined voting power of Oxford's
outstanding common stock and the Series A shares. The Series B Preferred stock,
which will be issued with Series B Warrants to purchase non-voting junior
participating preferred stock, is non-voting and will carry a dividend of 9%.
The Series B Preferred Stock will become voting, the dividend rate will
decrease to 8% and the Series B warrants will be exercisable for 6,730,000
shares of common stock at such time as Oxford's shareholders approve the
increase in voting rights of TPG to 22.1%. The Preferred Stock will not be
redeemable by the Company prior to the fifth anniversary of their original
issuance. Thereafter, subject to certain conditions, the Series A and Series B
Preferred Stock will be redeemable at the option of the Company for an
aggregate redemption price of $245 million and $105 million, respectively (in
each case, plus accrued and unpaid dividends), and will be subject to mandatory
redemption at the same price on the tenth anniversary of their original
issuance. The Series A Warrants and the Series B Warrants will expire on the
earlier of the tenth anniversary of their original issuance or redemption of
the related series of Preferred Stock. The Warrants will be detachable from the
Preferred Stock. The investment is subject to various conditions, which include
receipt of regulatory approvals, absence of a Material Adverse Effect (as
defined) and completion of debt financing in the amount of $350 million.
Application for approval of TPG's investment in the Company have been filed
with the departments of insurance and/or health, as appropriate, of New York,
New Jersey, Connecticut, Pennsylvania, New Hampshire, Florida and Illinois.
These regulatory agencies have the authority to approve or disapprove, or
impose conditions on, consummation of the transaction. Closing is not subject
to shareholder approval.
In connection with the debt financing required as a condition to the
investment under the Investment Agreement, the Company has engaged DLJ to act
as arranger for a senior secured term loan and as placement agent for a senior
unsecured financing, in the aggregate amount of $350 million. These
transactions are subject to the negotiation and execution of definitive
agreements, which are expected to contain various conditions, including, among
others, receipt of regulatory approvals and absence of material adverse change,
and the senior unsecured financing is also subject to placement of the
financing with investors. The terms of these transactions will depend on market
conditions and other factors beyond the Company's control. There can be no
assurance that definitive agreements will be executed or, if such agreements
are executed, that the conditions specified therein will be satisfied.
34
<PAGE> 35
The investment under the Investment Agreement and the debt financings
described in the proceeding paragraph are herein collectively called the
"Proposed Financing".
The Company believes that the proceeds of the Proposed Financing will be
sufficient to finance the capital needs referred to above and to provide
additional capital for losses or contingencies in excess of the Company's
current expectations. Although the Company currently expects to complete the
Proposed Financing, there can be no assurance that all relevant conditions will
be satisfied. If the Proposed Financing cannot be completed, the Company
believes that other sources of equity and/or debt financing could be arranged to
finance the Company's immediate capital needs, based on discussions with its
financial advisors and expressions of interest received from qualified investors
in the course of the Company's efforts to negotiate the Investment Agreement and
related agreements. The Company currently believes that, in the event such a
financing could not be completed on a timely basis, it has the ability and
intent to reduce certain costs, including those specified in the Turnaround Plan
and others, and otherwise to generate funds to enable it to support its
operations through 1998. The Company's ability to obtain other financing, and
the timing, form and terms thereof, would depend on a number of factors beyond
the Company's control, including, among others, general economic and market
conditions and the possible need for regulatory approvals.
Year 2000 Date Conversion
The Company is currently conducting a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000" date
conversion and is developing an implementation plan to resolve the issue. The
Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
programs that have time-sensitive software may recognize the date "00" as the
year 1900 rather than the year 2000. This could result in system failure or
miscalculations. The Company is utilizing and will utilize both internal and
external resources to identify, correct or reprogram, and test the systems for
Year 2000 compliance. The Company has not completed its assessment number of
the Year 2000 date conversion. Accordingly, the Company cannot estimate
itsYear 2000 compliance expense and the related potential effect on the
Company's results of operations.
The Company is communicating with certain material vendors to determine
the extent to which the company may be vulnerable to such vendors' failure to
resolve their own "Year 2000" issues. The Company will attempt to mitigate its
risk with respect to the failure of such vendors to be "Year 2000" complaint.
The effect, if any, is not reasonable estimable at this time.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page 38.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND .....
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Items 10 through 13 is incorporated by
reference to Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, within 120
days after December 31, 1997.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statement Schedules
1. All financial statements - see index to financial statements and
schedules on page 38.
35
<PAGE> 36
2. Financial statement schedules - see index to financial statements
and schedules on page 38.
3. Exhibits - see exhibit index on page 58.
(b) Reports on Form 8-K
In a report on Form 8-K dated and filed on October 27, 1997, the Company
reported under Item 5 "Other Events" its revised estimated third quarter 1997
earnings results.
In a report on Form 8-K dated and filed on October 30, 1997, the Company
reported under Item 5 "Other Events" that purported class action lawsuits had
been filed against the Company and certain of its officers alleging violation of
federal securities laws.
In a report on Form 8-K dated November 4, 1997 and filed on November 6,
1997, the Company reported under Item 5 "Other Events" that the Company received
from the Office of the Attorney General of the State of New York a subpoena
duces tecum requiring the production of various documents, records and
materials; its third quarter earnings press release; and the resignation of it
chief financial officer.
In a report on Form 8-K dated November 6, 1997 and filed on November 10,
1997, the Company reported under Item 5 "Other Events" the examination of its
New York HMO and insurance subsidiaries by the New York State Insurance
Department and its press release announcing steps to strengthen operations.
In a report on Form 8-K dated December 9, 1997 and filed on December 29,
1997, the Company reported under Item 5 "Other Events" its press release
announcing further strengthening of medical claim reserves during the fourth
quarter of 1997.
In a report on Form 8-K dated December 9, 1997 and filed on December 10,
1997, the Company reported under Item 5 "Other Events" a Stipulation entered
into with the New York State Insurance Department.
36
<PAGE> 37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March 1998.
OXFORD HEALTH PLANS, INC.
By: /s/ WILLIAM M. SULLIVAN
----------------------------
William M. Sullivan
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and,
in the capacities indicated on March 30, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ WILLIAM M. SULLIVAN Principal Executive Officer
- -------------------------------------------
William M. Sullivan
/s/ ALBERT A. KOCH Principal Financial Officer
- -------------------------------------------
Albert A. Koch
/s/ BRENDAN R. SHANAHAN Principal Accounting Officer
- -------------------------------------------
Brendan R. Shanahan
/s/ JAMES B. ADAMSON Director
- -------------------------------------------
James B. Adamson
/s/ ROBERT B. MILLIGAN, JR Director
- -------------------------------------------
Robert B. Milligan, Jr.
/s/ FRED F. NAZEM Director
- -------------------------------------------
Fred F. Nazem
/s/ MARCIA J. RADOSEVICH Director
- -------------------------------------------
Marcia J. Radosevich, Ph.D.
/s/ BENJAMIN H. SAFIRSTEIN, M.D. Director
- -------------------------------------------
Benjamin H. Safirstein, M.D.
/s/ THOMAS A. SCULLY Director
- -------------------------------------------
Thomas A. Scully
/s/ STEPHEN F. WIGGINS Director
- -------------------------------------------
Stephen F. Wiggins
</TABLE>
37
<PAGE> 38
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.............................................................................. 39
Consolidated Balance Sheets as of December 31, 1997 and 1996.............................................. 40
Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and
1995.................................................................................................. 41
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997,
1996 and 1995......................................................................................... 42
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995.................................................................................................. 43
Notes to Consolidated Financial Statements................................................................ 44
</TABLE>
38
<PAGE> 39
Independent Auditors' Report
The Board of Directors and Shareholders
Oxford Health Plans, Inc.:
We have audited the accompanying consolidated balance sheets of Oxford
Health Plans, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Oxford
Health Plans, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Stamford, Connecticut
February 23, 1998, except
as to the last paragraph of
note 15, is as of March 30, 1998
39
<PAGE> 40
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
Assets
Current assets: 1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents .................................. $ 4,141 72,160
Short-term investments - available-for-sale, at market value 635,743 767,312
Premiums receivable, net ................................... 275,646 315,126
Other receivables .......................................... 45,418 26,343
Prepaid expenses and other current assets .................. 10,097 5,814
Refundable income taxes .................................... 120,439 --
Deferred income taxes ...................................... 38,092 23,429
----------- -----------
Total current assets ................................... 1,129,576 1,210,184
----------- -----------
Property and equipment, at cost:
Land and buildings ......................................... 2,313 226
Furniture and fixtures ..................................... 32,298 24,472
Equipment .................................................. 176,803 104,902
Leasehold improvements ..................................... 61,605 45,093
----------- -----------
273,019 174,693
Less accumulated depreciation and amortization ............. 125,926 69,739
----------- -----------
Net property and equipment ............................. 147,093 104,954
----------- -----------
Deferred income taxes ......................................... 86,406 5,700
Other noncurrent assets ....................................... 34,914 35,559
----------- -----------
Total assets ........................................... $ 1,397,989 1,356,397
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Medical costs payable ...................................... $ 762,959 624,359
Trade accounts payable and accrued expense ................. 152,152 51,256
Income taxes payable ....................................... -- 9,902
Unearned premiums .......................................... 124,603 63,052
Deferred income taxes ...................................... 9,059 9,658
----------- -----------
Total current liabilities .............................. 1,048,773 758,227
----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares -- --
Common stock, $.01 par value, authorized 400,000,000
shares; issued and outstanding 79,474,439 in 1997
and 77,376,282 in 1996 ................................... 795 774
Additional paid-in capital ................................. 437,653 391,602
Retained earnings (deficit) ................................ (95,498) 195,790
Unrealized net appreciation of investments ................. 6,266 10,004
----------- -----------
Total shareholders' equity ............................. 349,216 598,170
----------- -----------
Total liabilities and shareholders' equity ............. $ 1,397,989 1,356,397
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 41
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Revenues: 1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Premiums earned ............................ $ 4,167,224 3,022,168 1,734,098
Third-party administration, net ............ 12,592 10,401 11,877
Investment and other income, net ........... 60,330 42,620 19,711
----------- ----------- -----------
Total revenues ........................... 4,240,146 3,075,189 1,765,686
----------- ----------- -----------
Expenses:
Health care services ....................... 3,916,742 2,421,167 1,344,669
Marketing, general and administrative ...... 737,425 477,373 325,643
Unusual charges - write-down of assets ..... 41,618 -- --
----------- ----------- -----------
Total expenses ........................... 4,695,785 2,898,540 1,670,312
----------- ----------- -----------
Operating earnings (loss) ..................... (455,639) 176,649 95,374
Equity in net loss of affiliate ............... (1,140) (4,600) (3,873)
Gain on sale of affiliate ..................... 25,168 -- --
----------- ----------- -----------
Earnings (loss) before income taxes ........... (431,611) 172,049 91,501
Income tax expense (benefit) .................. (140,323) 72,426 39,103
=========== =========== ===========
Net earnings (loss) ........................... $ (291,288) 99,623 52,398
=========== =========== ===========
Earnings (loss) per common and common
equivalent share:
Basic .................................... $ (3.70) 1.34 .78
Diluted .................................. $ (3.70) 1.25 .71
Weighted average common stock and
common stock equivalents outstanding:
Basic .................................... 78,635 74,285 67,450
Effect of dilutive securities-stock opions -- 5,377 5,894
----------- ----------- -----------
Diluted .................................. 78,635 79,662 73,344
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 42
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Common Stock Equity
------------------- Additional Retained Adjustment-
Number Par Paid-In Earnings Short-term
of Shares Value Capital (Deficit) Investments
- -------------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 ............................ 16,512 $ 165 90,084 43,769 (1,624)
Exercise of stock options ............................. 1,240 12 10,529 -- --
Two-for-one stock split ............................... 16,638 166 (166) -- --
Tax benefit realized upon exercise of stock options ... -- -- 16,192 -- --
Net earnings .......................................... -- -- -- 52,398 --
Appreciation in value of available-for-sale securities,
net of deferred income taxes ....................... -- -- -- -- 8,508
-------- -------- -------- -------- --------
Balance at December 31, 1995 .......................... 34,390 343 116,639 96,167 6,884
Exercise of stock options ............................. 2,965 30 21,200 -- --
Proceeds from public offering, net .................... 5,227 53 220,487 -- --
Tax benefit realized upon exercise of stock options ... -- -- 33,624 -- --
Two-for-one stock split ............................... 34,794 348 (348) -- --
Net earnings .......................................... -- -- -- 99,623 --
Appreciation in value of available-for-sale securities,
net of deferred income taxes ....................... -- -- -- -- 3,120
-------- -------- -------- -------- --------
Balance at December 31, 1996 .......................... 77,376 774 391,602 195,790 10,004
Exercise of stock options ............................. 2,098 21 21,243 -- --
Tax benefit realized upon exercise of stock options ... -- -- 24,808 -- --
Net loss .............................................. -- -- -- (291,288) --
Depreciation in value of available-for-sale securities,
net of deferred income taxes ....................... -- -- -- -- (3,738)
-------- -------- -------- -------- --------
Balance at December 31, 1997 .......................... 79,474 $ 795 437,653 (95,498) 6,266
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 43
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Cash flows from operating activities: 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss) ................................................. $(291,288) 99,623 52,398
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization ................................... 61,045 42,886 23,014
Write-down of assets ............................................ 41,618 -- --
Deferred income taxes ........................................... (75,279) (13,196) (6,123)
Provision for doubtful accounts ................................. 25,000 4,505 2,682
Equity in net loss of affiliate ................................. 1,140 4,600 3,873
Realized gain on sale of investments ............................ (28,736) (4,734) (3,365)
Gain on sale of affiliate ....................................... (25,168) -- --
Other, net ...................................................... 245 480 274
Changes in assets and liabilities, net of effect of acquisitions:
Premiums receivable .......................................... 25,942 (223,353) (49,938)
Other receivables ............................................ (18,320) (11,083) (9,894)
Prepaid expenses and other current assets .................... (3,928) (2,251) (2,157)
Other noncurrent assets ...................................... (3,959) (3,747) (3,610)
Medical costs payable ........................................ 116,387 323,851 134,854
Trade accounts payable and accrued expenses .................. 84,967 14,764 19,325
Income taxes payable/refundable .............................. (123,624) 42,098 14,216
Unearned premiums ............................................ 61,378 12,753 38,894
--------- --------- ---------
Net cash provided (used) by operating activities ........... (152,580) 287,196 214,443
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ................................................ (101,946) (48,348) (83,946)
Purchases of available-for-sale securities .......................... (589,690) (794,099) (255,841)
Sales of available-for-sale securities .............................. 756,174 311,783 96,182
Maturities of available-for-sale securities ......................... 34,621 33,298 36,340
Maturity of long-term investment .................................... -- -- 13,505
Acquisitions, net of cash acquired .................................. (14,034) -- --
Investments in and advances to unconsolidated affiliates ............ (19,842) (18,597) (8,243)
Other, net .......................................................... (1,986) 723 175
--------- --------- ---------
Net cash provided (used) by investing activities ........... 63,297 (515,240) (201,828)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock .............................. -- 220,539 --
Proceeds from exercise of stock options ............................. 21,264 21,215 10,491
--------- --------- ---------
Net cash provided by financing activities .................. 21,264 241,754 10,491
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents ................... (68,019) 13,710 23,106
Cash and cash equivalents at beginning of period ....................... 72,160 58,450 35,344
--------- --------- ---------
Cash and cash equivalents at end of period ............................. $ 4,141 72,160 58,450
========= ========= =========
Supplemental schedule of noncash investing and financing activities:
Unrealized appreciation (depreciation) of short-term investments .... $ 6,336 5,288 16,192
Tax benefit realized on exercise of stock options ................... 24,808 33,624 14,547
Sale of affiliate in a pooling-of-interests transaction ............. 38,442 -- --
One-for-one stock dividend .......................................... $ -- 348 166
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 44
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Oxford Health Plans, Inc. ("Oxford") is a regional health care company
providing health care services in New York, New Jersey, Connecticut, New
Hampshire, Florida, Illinois, and Pennsylvania. Oxford was incorporated on
September 17, 1984 and began operations in 1986. Oxford owns and operates seven
health maintenance organizations ("HMOs"), three of which are federally
qualified as Competitive Medical Plans, and two accident and health insurance
companies, one of which is also authorized to offer HMO products, and offers a
health benefits administrative service.
Oxford's HMOs, Oxford Health Plans (NY), Inc. ("Oxford NY"), Oxford Health
Plans (NJ), Inc. ("Oxford NJ"), Oxford Health Plans (CT), Inc. ("Oxford CT"),
Oxford Health Plans (NH), Inc. ("Oxford NH"), Oxford Health Plans (PA), Inc.
("Oxford PA"), and Oxford Health Plans, (FL), Inc. ("Oxford FL"), have each been
granted a certificate of authority to operate as a health maintenance
organization by the appropriate regulatory agency of the state in which it
operates. Oxford Health Insurance, Inc. ("OHI") has been granted a license to
operate as an accident and health insurance company by the Department of
Insurance in the states of New York, New Jersey, Connecticut, Florida and New
Hampshire and in the Commonwealth of Pennsylvania. Oxford Health Plans (IL),
Inc. ("Oxford IL") is licensed by the Illinois Department of Insurance as an
accident and health insurance company with authority to offer HMO products.
Oxford maintains a health care network of physicians and ancillary health
care providers who have entered into formal contracts with Oxford. These
contracts set reimbursement at fixed levels or under certain risk-sharing
agreements and require adherence to Oxford's policies and procedures for quality
and cost-effective treatment.
(2) Summary of Significant Accounting Policies
(a) Principles of consolidation. The consolidated financial statements
include the accounts of Oxford Health Plans, Inc. and all majority-owned
subsidiaries ("the Company"). All intercompany balances have been eliminated in
consolidation. In July 1995, the Company completed a merger with OakTree Health
Plan, Inc. ("OakTree") whereby OakTree was merged into a subsidiary of the
Company. The merger was accounted for as a pooling of interests and,
accordingly, all prior period consolidated financial statements have been
restated as if the merger took place at the beginning of such periods (see note
8). The Company's investment in Health Partners, Inc. was accounted for using
the equity method until its disposal in October 1997 (see note 9).
(b) Premium revenue. Membership contracts are generally on a yearly basis
subject to cancelation by the employer group or Oxford upon 30 days written
notice. Premiums are due monthly and are recognized as revenue during the period
in which Oxford is obligated to provide services to members, and are net of
amounts estimated for termination of members and groups. Premiums receivable are
presented net of valuation allowances for estimated uncollectible amounts.
Uneraned premiums represent the portion of premiums received for which Oxford
is not obligated to provide services until a future date.
(c) Health care services cost recognition. The Company contracts with
various health care providers for the provision of certain medical care services
to its members and generally compensates those providers on a fee-for-service
basis or pursuant to certain risk-sharing agreements. As part of a cost control
incentive program, the Company, until March 1, 1996, retained up to 20 percent
of the fee-for-service reimbursement as a risk-sharing fund. Amounts retained
under this arrangement were payable to the physicians at the discretion of the
Company and were included in medical costs payable in the accompanying
consolidated balance sheets. Effective March 1, 1996, the Company shifted to a
modified fee schedule under which withholds were eliminated for most
participating physicians.
Costs of health care and medical costs payable for health care services
provided to enrollees are estimated by management based on evaluations of
providers' claims submitted and provisions for incurred but not reported claims.
The Company estimates the amount of the provision for incurred but not reported
claims
44
<PAGE> 45
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
using standard actuarial methodologies based upon historical data including the
period between the date services are rendered and the date claims are received
and paid, expected medical cost inflation, seasonality patterns and increases
in membership. The estimates for submitted claims and incurred but not reported
claims are made on an accrual basis and adjusted in future periods as required.
Medical costs payable also reflects surplus or deficit experience for
physicians participating in risk-sharing arrangements through Private Practice
Partnerships. Amounts advanced to providers for delayed claims, which are net
of a valuation reserve of $10,000,000, have been applied against medical claims
payable in the accompanying balance sheet and aggregated $203,355,000 at
December 31, 1997. Management believes that the Company's reserves for medical
costs payable are the adequate to satisfy its ultimate claim liability.
Losses, if any, are recognized when it is probable that the expected
future health care cost of a group of existing contracts (and the costs
necessary to maintain those contracts) will exceed the anticipated future
premiums, investment income and reinsurance recoveries on those contracts.
Groups of contracts are defined in a manner consistent with the method of
establishing premium rates.
(d) Reinsurance. Reinsurance premiums are reported as health care services
expense, while related reinsurance recoveries are reported as deductions from
health care services expense.
(e) Cash equivalents. The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
(f) Financial instruments. The Company has determined that the marketable
equity and fixed income securities included in short-term investments might be
sold prior to maturity to support its investment strategies. Accordingly, such
investments have been classified as available-for-sale and are carried at market
value based on quotations obtained from brokers for those or similar
instruments, and the unrealized appreciation or depreciation, net of deferred
income taxes, has been charged to a separate component of shareholders' equity.
The carrying amount of other financial instruments approximates fair value
generally due to the short-term nature of these instruments.
(g) Property and equipment. Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets,
which range from three to five years. Leasehold improvements are amortized using
the straight-line method over the shorter of the lease terms or the estimated
useful lives of the assets.
(h) Intangible assets. Intangible assets resulting from business
acquisitions are carried at cost and currently amortized over a period of five
years. At each balance sheet date, the Company evaluates the recoverability of
acquisition-related intangible assets based on expectations of nondiscounted
cash flows of the acquired entity (see note 8).
(i) Income taxes. The Company recognizes deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Accordingly, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
A valuation allowance is recorded to reduce this deferred tax assets to the
amount that is expected to more likely than not realized.
(j) Impairment of long-lived assets and assets to be disposed of. The
Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"), on January 1, 1996. SFAS 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future net nondiscount cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds
45
<PAGE> 46
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell. (See note 8).
(k) Earnings per share. The Company has adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"), which became effective in 1997. Under the provisions of SFAS 128, basic
earnings per share is calculated on the weighted average number of common shares
outstanding. Diluted earnings per share is calculated on the weighted average
number of common shares and common share equivalents resulting from options
outstanding. All prior period amounts have been restated to reflect these
calculations. Both basic and diluted earnings per share give retroactive effect
to the two-for-one stock splits in 1995 and 1996 (see note 5) and to the merger
with OakTree in July 1995 (see note 8).
(l) Stock option plans. Prior to January 1, 1996, the Company accounted
for its stock option plans in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net earnings and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS 123 had
been applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS 123 (see
note 6).
(m) Marketing costs. Marketing and other costs associated with the
acquisition of plan member contracts are expensed as incurred.
(n) Use of estimates. Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(o) Reclassifications. Certain reclassifications have been made to prior
years' financial statement amounts to conform to the 1997 presentation.
46
<PAGE> 47
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Financial Instruments
Management determines the appropriate classification of securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt and equity securities have been classified as available-for-sale and
recorded at fair value, with unrealized gains and losses, net of deferred income
taxes, reported in a separate component of shareholders' equity. The cost of
securities sold is determined on a specific identification basis. Realized gains
and losses are included in results of operations.
The methods and assumptions used to estimate the fair value of each class
of financial instruments are described in note 2. The following is a summary of
available-for-sale securities as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
December 31, 1997: (In thousands)
<S> <C> <C> <C> <C>
U.S. government obligations .. $252,817 1,863 256 254,424
Corporate obligations ........ 140,434 1,276 307 141,403
Municipal tax-exempt bonds ... 171,037 2,425 35 173,427
-------- -------- -------- --------
Total debt securities ...... 564,288 5,564 598 569,254
Equity securities ............ 60,834 6,027 372 66,489
-------- -------- -------- --------
Total short-term investments $625,122 11,591 970 635,743
======== ======== ======== ========
December 31, 1996:
U.S. government obligations .. $357,944 1,739 741 358,942
Corporate obligations ........ 150,662 782 574 150,870
Municipal tax-exempt bonds ... 188,441 1,561 115 189,887
-------- -------- -------- --------
Total debt securities ...... 697,047 4,082 1,430 699,699
Equity securities ............ 53,309 15,360 1,056 67,613
-------- -------- -------- --------
Total short-term investments $750,356 19,442 2,486 767,312
======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of available-for-sale debt
securities at December 31, 1997, by contractual maturity, are shown below.
Actual maturities may differ from contractual maturities because the issuers of
securities may have the right to prepay such obligations without prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- --------
(In thousands)
<S> <C> <C>
Due in one year or less .................... $ 64,833 64,982
Due after one year through five years ...... 491,049 495,767
Due after five years through ten years ..... 8,406 8,505
-------- --------
$564,288 569,254
======== ========
</TABLE>
Included in investment income are net recognized gains on disposals of
available-for-sale securities of $28,736,000 in 1997, $4,734,000 in 1996 and
$3,365,000 in 1995. Proceeds from the sale or maturity of available-for-sale
securities aggregated $790,795,000 in 1997, resulting in gross recognized gains
of $36,615,000 and gross recognized losses of $7,879,000. Proceeds from the sale
or maturity of available-for-sale securities aggregated $345,081,000 in 1996,
resulting in gross recognized gains of $9,036,000 and gross recognized losses of
$4,302,000. Proceeds from the sale or maturity of available-for-sale securities
aggregated $132,522,000 in 1995, resulting in gross realized gains of $5,654,000
and gross unrealized losses of $2,289,000. The change in the net unrealized
gains (losses) on available-for-sale securities included in the separate
component of shareholders' equity during 1997 totaled $(6,336,000) before
deferred income taxes of
47
<PAGE> 48
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$(2,598,000); during 1996 totaled $5,288,000 before deferred income taxes of
$2,168,000; and during 1995 totaled $14,547,000 before deferred income taxes of
$6,039,000.
(4) Income Taxes
<TABLE>
<CAPTION>
Income tax expense (benefit) consists of: Current Deferred Total
------- -------- -----
Year ended December 31, 1997: (In thousands)
<S> <C> <C> <C>
Federal ................. $(68,604) (78,577) (147,181)
State and local ......... 3,560 3,298 6,858
-------- -------- --------
Total ................. $(65,044) (75,279) (140,323)
======== ======== ========
Year ended December 31, 1996:
Federal ................. $ 64,358 (10,093) 54,265
State and local ......... 21,264 (3,103) 18,161
-------- -------- --------
Total ................. $ 85,622 (13,196) 72,426
======== ======== ========
Year ended December 31, 1995:
Federal ................. $ 34,672 (4,743) 29,929
State and local ......... 10,554 (1,380) 9,174
-------- -------- --------
Total ................. $ 45,226 (6,123) 39,103
======== ======== ========
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, cash payments for
income taxes, net of refunds received were $66,927,000, $51,931,000 and
$35,132,000, repectively.
Income tax expense differed from the amounts computed by applying the
federal income tax rate of 35% to earnings before income taxes as a result of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory tax rate $(151,064) 60,217 32,025
Write-off of goodwill ............................ 9,895 -- --
State and local income taxes, net
of federal income tax benefit ................. 4,458 11,805 5,963
Nontaxable gain on sale of affiliate ............. (4,104) -- --
Equity in net loss of affiliate .................. 399 1,610 1,356
Tax-exempt interest on municipal bonds ........... (2,484) (1,630) (726)
Other, net ....................................... 2,577 424 485
--------- --------- ---------
Actual tax provision ............................. $(140,323) 72,426 39,103
========= ========= =========
</TABLE>
48
<PAGE> 49
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
Deferred tax assets: (In thousands)
<S> <C> <C>
Net operating loss carryforwards .......... $ 99,895 --
Medical costs payable ..................... 16,440 11,467
Allowance for doubtful accounts ........... 11,799 --
Unearned premiums ......................... 10,509 5,790
Trade accounts payable and accrued expenses 8,361 5,073
Write-down of investment in affiliate ..... 5,618 --
Losses of unconsolidated affiliate ........ -- 4,837
Property and equipment .................... 3,404 3,593
Other ..................................... 5,368 3,206
--------- ---------
Total gross deferred tax assets ....... 161,394 33,966
Valuation allowance ....................... (36,896) (4,837)
--------- ---------
Total deferred tax assets ............. 124,498 29,129
--------- ---------
Deferred tax liabilities:
Unrealized appreciation of short-term
investments .......................... 4,354 6,952
Gain on sale of affiliate ................. 4,705 --
Other ..................................... -- 2,706
--------- ---------
Total deferred tax liabilities ........ 9,059 9,658
--------- ---------
Net deferred tax assets ............... $ 115,439 19,471
========= =========
</TABLE>
The company has federal net operating loss carry fowards of
approximately $205 million which will be available to offset future taxable
income and expire in the year 2012. The Company's state net operating loss
carryfowards expire in various periods from 1998 to 2012.
The valuation allowance as of December 31,1997 relates to state
operating losses and the state effect the of the Company's net deductable
temporary differences. Due to the limited net operating loss carryforward
period in some of the states in which the Company operates, management does not
believe it is more likely than not that these benefits will be realized.
At December 31, 1996, the valuation allowance related to the
Company's equity in the cumulative losses of Health Partners, Inc., which was
disposed of in the fourth quarter of 1997. At December 31, 1997 and 1996, there
were no other valuation allowances associated with the deferred tax assets as
management believes that it is more likely than not that future operations
generate sufficient taxable income to utilize the unreserved net deferred tax
assets.those deferred tax assets. The amount of future taxable income necessary
during the carryfoward period to utilize the unreserved net deferred tax assets
is approximately $330,000,000.
(5) Capital Stock
On March 17, 1997, Oxford's Board of Directors unanimously adopted a
resolution authorizing an amendment to Oxford's certificate of incorporation to
increase the number of authorized shares of common stock from 200,000,000 shares
to 400,000,000 shares, subject to shareholder approval. On April 22, 1997, the
Company's shareholders approved such amendment.
On March 15, 1996, Oxford's Board of Directors approved a two-for-one
split of the Company's common stock to be effected by distribution of a dividend
of one share of common stock for each share of common stock outstanding, payable
to shareholders of record on March 25, 1996. A total of 34,793,720 shares of
common stock were issued in connection with the split. The stated par value of
$0.01 was not changed and the amount of $347,937 was reclassified from
additional paid-in capital to common stock.
On October 28, 1994, Oxford's Board of Directors unanimously adopted a
resolution authorizing an amendment to Oxford's certificate of incorporation to
increase the number of authorized shares of common stock from 25,000,000 shares
to 200,000,000 shares, subject to shareholder approval. On March 3, 1995, the
49
<PAGE> 50
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company's shareholders approved such amendment. On the same date, the Board of
Directors approved a two-for-one split of the Company's common stock effected by
distribution of a dividend of one share of common stock for each share of common
stock outstanding on March 6, 1995. The two-for-one split was effectuated on
March 27, 1995. A total of 16,638,339 shares of common stock were issued in
connection with the split. The stated par value of $0.01 was not changed and the
amount of $166,383 was reclassified from additional paid-in capital to common
stock.
All appropriate share, weighted average share and earnings per share amounts in
the consolidated financial statements were restated to retroactively reflect the
stock splits.
(6) Stock Option Plans
The Company grants fixed stock options under its 1991 Stock Option Plan, as
amended (the "Employee Plan"), to certain key employees and consultants, under
its 1997 Independent Contractor Stock Option Plan (the "Independent Contractor
Plan") to certain independent contractors who materially contribute to the
long-term success of the Company and under its Nonemployee Directors' Stock
Option Plan, as amended (the "Nonemployee Plan"), to outside directors to
purchase common stock at a price not less than 100% of quoted market value at
date of grant.
The Employee Plan provides for granting of nonqualified stock options and
incentive stock options which vest as determined by the Company and expire over
varying terms, but not more than seven years from date of grant. The Employee
Plan is administered by a committee consisting of three members of the Board of
Directors, selected by the Board. The committee determines the individuals to
whom awards shall be granted as well as the terms and conditions of each award,
the grant date and the duration of each award. All options are granted at fair
market value on date of grant. The Company's previous nonqualified employee
stock option plan terminated in 1991, except as to options theretofore granted.
The Independent Contractor Plan provides for granting of nonqualified
stock options which vest as determined by the Company and expire over varying
times, but not more than seven years from the date of grant. The Employee Plan
is administered by a committee consisting of three members of the Board of
Directors, selected by the Board. The committee determines the individuals to
whom awards shall be granted as well as the terms and conditions of each award,
the grant date and the duration of each award. All options are granted at fair
market value on date of grant.
The Nonemployee Plan provides for granting of nonqualified stock options
to eligible nonemployee directors of the Company. The plan provides that each
year on the first Friday following the Company's annual meeting of stockholders,
each individual elected, reelected or continuing as a nonemployee director will
automatically receive a nonqualified stock option for 5,000 shares of common
stock. The plan further provides that one-fourth of the options granted under
the plan vest on each of the date of grant and the Friday prior to the second,
third and fourth annual meeting of stockholders following the date of such
grant.
50
<PAGE> 51
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity for all fixed option plans, adjusted for all stock
splits, is summarized as follows:
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Prices
------ ---------------
<S> <C> <C>
Outstanding at January 1, 1995 . 11,896,360 $ 7.25
Granted .................... 2,521,104 23.84
Exercised .................. (2,734,050) 3.84
Canceled ................... (133,978) 9.82
-----------
Outstanding at December 31, 1995 11,549,436 11.65
Granted .................... 1,518,176 42.58
Exercised .................. (3,368,208) 6.30
Canceled ................... (407,592) 20.51
-----------
Outstanding at December 31, 1996 9,291,812 18.25
Granted .................... 3,332,186 72.58
Exercised .................. (2,098,157) 10.14
Canceled ................... (319,012) 37.35
-----------
Outstanding at December 31, 1997 10,206,829 $ 37.06
=========== ===========
</TABLE>
On August 8, 1997, the Company granted a total of 3,162,436 options under
the plan to employees and certain independent contractors of the Company with an
exercise price of $74.00. As a consequence of the significant decrease in the
market price of the Company's common stock in the fourth quarter, in order to
ensure that options granted in 1997 provide a meaningful incentive to the
grantees, the Board of Directors, on December 13, 1997, approved an option
reissuance grant for employees and certain independent contractors. All of the
Directors, the Chairman, the President and Chief Executive Officer and Executive
Vice Presidents (other than one Executive Vice President, who commenced
employment in October 1997) were excluded from the reissuance grant. Under the
reissuance grant, the grantees were offered the right to cancel options granted
during 1997 and receive options to purchase the same number of shares so
canceled with a grant date of January 2, 1998 and an exercise price of $17.125.
A total of 2,754,194 options are subject to this grant.
Information about fixed stock options outstanding at December 31, 1997, is
summarized as follows:
<TABLE>
<CAPTION>
Weighted-
Weighted- Average
Range of Number Average Remaining
Exercise Prices Outstanding Exercise Price Contractual Life
--------------- ----------- -------------- ----------------
<S> <C> <C> <C>
$ 0.32 - 13.75 2,023,928 $ 6.33 1.3 Years
14.19 - 23.94 3,567,071 20.03 2.4 Years
24.13 - 44.00 941,043 38.68 3.6 Years
46.13 - 84.38 3,674,787 70.10 4.6 Years
----------
$ 0.32 - 84.38 10,206,829 $37.06 3.1 Years
========== =====
</TABLE>
Information about fixed stock options exercisable at December 31, 1997, is
summarized as follows:
<TABLE>
<CAPTION>
Weighted-
Range of Number Average
Exercise Prices Exercisable Exercise Price
--------------- ----------- --------------
<S> <C> <C>
$ 0.32 - 13.75 1,921,854 $ 6.37
14.19 - 23.94 1,952,956 19.17
24.13 - 44.00 194,722 39.55
46.13 - 84.38 160,450 47.05
---------
$ 0.32 - 84.38 4,229,982 $15.35
========= ======
</TABLE>
51
<PAGE> 52
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applies APB Opinion 25 and related interpretations in
accounting for the plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant dates for
grants under this plan consistent with the methodology of SFAS 123, the
Company's net earnings and earnings per share for the years ended December 31,
1997, 1996 and 1995, would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ -----
<S> <C> <C> <C> <C>
Net earnings (000) As reported.......................$(291,288) 99,623 52,398
Pro forma.........................$(315,188) 90,011 49,416
Basic earnings per share As reported.......................$ (3.70) 1.34 .78
Pro forma.........................$ (4.01) 1.21 .73
Diluted earnings per share As reported.......................$ (3.70) 1.25 .71
Pro forma.........................$ (4.01) 1.13 .67
</TABLE>
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $40.03, $19.58 and $10.70, respectively, estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants: no dividend yield for
any year; expected volatility of 69.56% in 1997, 48.99% in 1996 and 50.25% in
1995, risk-free interest rates of 6.15% in 1997, 6.5% in 1996 and 6.3% in 1995;
and expected lives of four years for all years.
Pro forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting period of
four years and compensation cost for options granted prior to January 1, 1995 is
not considered.
As of December 31, 1997, there were 12,661,263 shares reserved for
issuance under the plans, including 2,454,434 shares reserved for future grant.
(7) Leases
Oxford leases office space and equipment under operating leases. Rent
expense for the years ended December 31, 1997, 1996 and 1995 was $22,646,000,
$18,546,000 and $13,792,000, respectively. Future minimum lease payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1998................................................................... $ 27,264
1999................................................................... 24,406
2000................................................................... 22,778
2001................................................................... 13,486
2002................................................................... 8,139
Thereafter............................................................. 12,068
----------
Total minimum future rental payments................................... $ 108,141
==========
</TABLE>
(8) Acquisitions
As of August 1, 1997, the Company acquired all of the outstanding stock of
Compass PPA, Incorporated, the holding company for a Chicago-based HMO for
approximately $8,200,000 in cash. The acquisition was recorded as a purchase
and, goodwill of approximately $24,100,000 resulted. Subsequent to the
acquisition, the Company decided to reduce the level of its future investment in
expansion markets and, therefore,
52
<PAGE> 53
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
determined the carrying amount of its investment is not recoverable.
Accordingly, the Company, as of December 31, 1997 wrote off the remaining
unamortized goodwill of $23,427,000.
On November 3, 1997, the Company acquired all of the outstanding stock of
Riscorp Health Plans, Inc., a Florida-based HMO for approximately $5,300,000 in
cash. The acquisition was recorded as a purchase resulting in goodwill of
approximately $3,894,000. Subsequent to the acquisition, the Company decided to
reduce the level of its future investment in expansion markets and, therefore,
determined that the carrying amount of its investment is not recoverable.
Accordingly, the Company, as of December 31,1997, wrote off the goodwill of
$3,894,000.
Results of operations of the companies acquired by the purchase method
have been included from the date of acquisition. The proforma effects of the
acquisitions on the consolidated results of operations for the years ended
December 31, 1997, 1996 and 1995, assuming these acquisitions had occurred as of
January 1, 1995 are not material and have not been presented.
On July 3, 1995, the Company issued 1,177,047 shares of its common stock
in connection with the merger of a wholly-owned subsidiary of the Company with
OakTree Health Plan, Inc., the holding company for a Philadelphia- based HMO.
The merger has been accounted for as a pooling of interests and, accordingly,
the Company's consolidated financial statements have been restated to include
the accounts and operations of OakTree for all periods prior to the merger.
Separate operating revenues, net earnings and other changes in shareholders'
equity for all periods presented prior to the merger are not material and have
not been presented.
(9) Related Party Transactions
In October 1997, the Company disposed of its 47% interest, in Health
Partners, Inc. ("Health Partners") in a pooling of interests transaction. Health
Partners was established to provide management and administrative services to
physicians, medical groups and other providers of health care. The investment
had been accounted for using the equity method since April 1995. Under this
method, the Company recognized losses of $1,140,000 in 1997, $4,600,000 in 1996
and $3,873,000 in 1995. The Company received 2,090,109 shares of common stock of
FPA Medical Management, Inc. ("FPAM") with a market value as of the closing of
approximately $76,420,000, resulting in a pretax gain at the time of closing of
approximately $63,146,000. As of December 31, 1997, the market value of the FPAM
stock had been reduced to approximately $38,442,000. Because management believes
that the decline is other than temporary, the Company as of December 31, 1997
wrote down its investment in FPAM by $37,978,000, in accordance with SFAS 115.
As a result, the Company ultimately recognized a pretax gain of approximately
$25,168,000 ($20,463,000 after taxes, or $.26 per share) on the sale of Health
Partners. The Company contracts with provider groups managed by Health Partners
in the Company's service areas.
In 1995, Oxford acquired a 19.9% interest in St. Augustine Health Care,
Inc. ("St. Augustine"), a health maintenance organization offering health
benefit plans in eleven counties in the State of Florida. Under the terms of the
transaction, Oxford has provided $14,297,000 in equity and debt financing to St.
Augustine and has the right to make future equity investments. As of December
31, 1997, the Company decided to reduce the level of its future investment in
expansion markets and, therefore, wrote off the $14,297,000 carrying value of
its investment in the capital stock and subordinated surplus notes of St.
Augustine.
53
<PAGE> 54
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Unusual Charges
As previously described, the Company reduced the level of its future
investment in expansion markets and, accordingly, wrote down its investment in
two subsidiaries (see note 8) and one affiliate (see note 9). These write downs
have been shown as unusual charges in the accompanying financial statements and
are summarized as follows:
<TABLE>
<S> <C>
Compass PPA, Incorporated $23,427,000
Riscorp Health Plans, Inc. 3,894,000
St. Augustine Health Care, Inc. 14,297,000
-----------
Total $41,618,000
===========
</TABLE>
(11) Defined Contribution Plan
Effective October 1, 1990, the Company adopted a qualified defined
contribution plan ("the Savings Plan"). The Savings Plan covers all employees
with six months of service and at least a part-time employment status as
defined. The Savings Plan also provides that the Company make matching
contributions, up to certain limits, of the salary contributions made by the
participants. The Company's contributions to the Savings Plan were approximately
$3,241,000 in 1997, $1,798,000 in 1996 and $901,000 in 1995.
(12) Regulatory and Contractual Capital Requirements
Certain restricted investments at December 31, 1997 and 1996 are held on
deposit with various financial institutions to comply with federal, New York,
New Jersey and Pennsylvania regulatory requirements. As of December 31,1997, a
total of $610,000 in cash was also restricted. With respect to Oxford NY,
the amount of cash required to be available in addition to restricted
investments is based on a formula established by the State of New York. These
additional cash requirements amounted to approximately $155,612,000 and
$106,200,000 at December 31, 1997 and 1996, respectively, and are included in
short-term investments.
In addition to the foregoing requirements, Oxford NY, Oxford NJ, Oxford
CT, Oxford NH, Oxford PA, Oxford FL, Oxford IL and OHI are subject to certain
restrictions on their abilities to make dividend payments, loans or other
transfers of cash to Oxford. Such restrictions limit the use of any cash
generated by the operations of Oxford NY, Oxford NJ, Oxford CT, Oxford NH,
Oxford PA, Oxford FL, Oxford IL and OHI to pay obligations of Oxford and limit
the Company's ability to declare and pay dividends. As of Dcecmber 31, a total
of $1,998,000 was so restricted.
Since December 31, 1997, the Company has made additional contributions
of cash and marketable securities (valued at market on the date of
contribution) of approximately $243,000,000. The capital contributions were
made to ensure that each subsidiary had sufficient surplus as of December 31,
1997 under applicable regulations after giving effect to operating losses and
reductions to surplus resulting from the nonadmissibility of certain assets.
(13) Concentrations of Credit Risk
Concentrations of credit risk with respect to premiums receivable are
limited due to the large number of employer groups comprising the Company's
customer base. As of December 31, 1997 and 1996, the Company had no significant
concentrations of credit risk. Financial instruments which potentially subject
the Company to concentrations of such credit risk consist primarily of
short-term investments in equity securities, obligations of certain state
governmental entities, the United States government and high-grade corporate
bonds and notes. These short-term investments are managed by professional
investment managers within the guidelines established by the Board of Directors,
which, as a matter of policy, limit the amounts which may be invested in any one
issuer and prescribe certain minimum investee company criteria.
54
<PAGE> 55
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Contingencies
Following the October 27, 1997 decline in the price per share of the
Company's common stock, several purported securities class action lawsuits were
filed against the Company and certain of its officers in the United States
District Courts for the Eastern District of New York, the Southern District of
New York and the District of Connecticut. Since that time, plaintiffs have filed
additional securities class against Oxford and certain of its directors and
officers in the United States District Courts for the Southern District of New
York, the Eastern District of New York, the Eastern District of Arkansas, and
the District of Connecticut. The Company anticipates that additional purported
shareholder derivative actions containing similar allegations may be filed.
Although the outcome of these actions cannot be predicted at this time, the
Company believes that the defendants have substantial defenses to the claims
asserted in the complaints and intends to defend the actions vigorously. In
addition, the Company is currently being investigated and is undergoing
examinations by various state and federal agencies.
The Company is involved in other legal actions in the normal course of
business, some of which seek monetary damages, including claims for punitive
damages which are not covered by insurance. The Company believes any ultimate
liability associated with these contingencies would not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
(15) Subsequent Events
As of February 23, 1998, the Company signed a definitive agreement with
the investment firm Texas Pacific Group providing that Texas Pacific will
purchase $350 million in preferred stock issued as Series A and Series B with
dividend rates of 8% and 9% respectively. The preferred shares also come with
warrants to acquire 22.5 million shares of Oxford common stock with a strike
price of $17.75. This price represents a 5% premium over the average trading
price of Oxford shares for 30 trading days ended February 20, 1998. The strike
price is to become 115% of the average trading price of Oxford common stock for
the 20 trading days following the filing of the Company's annual report on Form
10-K for the year ending December 31, 1998, if such adjustment would reduce the
strike price. The Series A Preferred Stock will carry a dividend of 8% and will
be issued with warrants to purchase 15,800,000 shares of common stock, or 19.9%
of the present outstanding voting power of the Company's common stock. The
Series A Preferred Stock will have 16.6% of the combined voting power of the
Company's outstanding common stock and the Series A shares. The Series B
Preferred Stock, which will be issued with warrants to purchase non-voting
junior participating preferred stock, is non-voting and will carry a dividend of
9%. The Series B Preferred Stock will become voting, the dividend rate will
decrease to 8% and the related warrants will be exercisable for 6,730,000 shares
of common stock at such time as the Company's shareholders approve the increase
in voting rights of Texas Pacific to 22.1%. The terms of the investment will
prohibit the Company from paying cash dividends on its common stock . The
investment is subject to various conditions, which include regulatory
approvals, completion of the debt financing in the amount of $350 million.
On February 6, 1998, the Company issued a $100 million senior secured
increasing rate note due February 6, 1999 ("Bridge Note") and on March 30, 1998,
issued an additional $100 million Bridge Note, pursuant to a Bridge Securities
Purchase Agreement, dated as of February 6, 1998, as amended on March 30, 1998
("Bridge Agreement"). The Company used the proceeds of the Bridge Notes to
make capital contributions to certain of its HMO subsidiaries, to pay expenses
in connection with the issuance and for general corporate purposes.
Pursuant to the Bridge Agreement, the Company is prohibited from paying cash
dividends on its common stock so as long as any Bridge Notes are outstanding.
55
<PAGE> 56
(16) Quarterly Information (Unaudited)
Tabulated below are certain data for each quarter of 1997 and 1996.
<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------
Mar. 31 Jun. 30 Sep. 30 Dec. 31
---------- --------- --------- ---------
Year ended December 31, 1997: (In thousands, except membership and per share amounts)
<S> <C> <C> <C> <C>
Net operating revenues ................ $ 973,191 1,047,550 1,049,160 1,109,915
Operating expenses .................... 927,520 998,712 1,196,198 1,573,355
Net earnings (loss) ................... 34,379 37,175 (78,157) (284,685)
Per common and common equivalent share:
Basic .............................. $ .44 .48 (.99) (3.58)
Diluted ............................ $ .42 .45 (.99) (3.58)
Membership at quarter-end ............. 1,738,800 1,833,500 1,942,600 2,008,100
Year ended December 31, 1996:
Net operating revenues ................ $ 651,364 715,114 800,006 866,085
Operating expenses .................... 624,976 685,569 763,471 824,524
Net earnings .......................... $ 18,517 22,458 26,650 31,998
Per common and common equivalent share:
Basic .............................. $ .27 .30 .35 .42
Diluted ............................ $ .25 .28 .33 .39
Membership at quarter-end ............. 1,200,400 1,321,100 1,442,200 1,535,500
</TABLE>
Net operating revenues include premiums earned and third-party administration,
net. Operating expenses include health care services and marketing, general and
administrative expenses.
Unusual charges increased operating expenses by $41,618,000 in the fourth
quarter of 1997 (see note 10).
56
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ----------- -----------------------
<S> <C>
2 --Agreement of Plan and Merger, dated as of March 30, 1995, by
and among Oxford Health Plans, Inc., OHP Acquisition Corporation
and OakTree Health Plan, Inc., incorporated by reference to the
Registrant's Registration Statement on Form S-3 (File No.
33-92006)
3(i) --Second Amended and Restated Certificate of Incorporation, as
amended, of the Registrant, incorporated by reference to Exhibit
3(a) of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-19442)
3(ii)(a) --Amended and Restated By-laws of the Registrant*
4 --Form of Stock Certificate, incorporated by reference to
Exhibit 4 of the Registrant's Registration Statement of Form S-1
(File No. 33-40539).
10(a) --Employment Agreement, dated August 14, 1996, between the
Registrant and Stephen F. Wiggins, incorporated by reference to
Exhibit 10(a) of the Registrant's Form 10-Q for the quarterly
period ended September 30, 1996 (File No. 0-19442)
10(b) --Employment Agreement, dated August 14, 1996, between the
Registrant and William M. Sullivan, incorporated by reference to
Exhibit 10(b) of the Registrant's Form 10-Q for the quarterly
period ended September 30, 1996 (File No. 0-19442)
10(c) --Employment Agreement, dated August 14, 1996, between the
Registrant and Jeffery H. Boyd, incorporated by reference to
Exhibit 10(c) of the Registrant's Form10-Q for the quarterly
period ended September 30, 1996 (File No. 0-19442)
10(d) --Employment Agreement, dated August 14, 1996, between the
Registrant and Robert M. Smoler, incorporated by reference to
Exhibit 10(e) of the Registrant's Form 10-Q for the quarterly
period ended September 30, 1996 (File No. 0-19442)
10(e) --Employment Agreement, dated August 14, 1996, between the
Registrant and David B. Snow, Jr., incorporated by reference to
Exhibit 10(f) of the Registrant's Form 10-Q for the quarterly
period ended September 30, 1996 (File No. 0-19442)
10(f) --Employment Agreement, dated August 14, 1996 between the
Registrant and Andrew B. Cassidy, incorporated by reference to
Exhibit 10(d) of the Registrant's Form 10-Q for the quarterly
period ended September 30, 1996 (File No. 0-19442)
10(g) --1991 Stock Option Plan, as amended, incorporated by reference
to Exhibit 10(h) of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995 (File No. 0-19442)
10(h) --Letter Agreement, dated April 13, 1990, between the Registrant
and Lincoln National Administrative Services Corporation,
incorporated by reference to Exhibit 10(p) of the Registrant's
Registration Statement on Form S-1 (File No. 33-40539)
10(i) --Incentive Compensation Plan, adopted June 7, 1991,
incorporated by reference to Exhibit 10(n) of the Registrant's
Registration Statement on Form S-1 (File No. 33-40539)
10(j) --Oxford Health Plans, Inc. 401(k) Plan, as amended,
incorporated by reference to Exhibit 10(k) of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1995
(File No. 0-19442)
10(k) --Non-Employee Directors Stock Option Plan, as amended,
incorporated by reference to Exhibit 10(l)(ii) of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 0-19442)
10(l) --Letter Agreement, dated April 18, 1990, between the Registrant
and Phoenix Mutual Life Insurance Company, incorporated by
reference to Exhibit 10(q) of the Registrant's Registration
Statement on Form S-1 (File No. 33-40539)
10(m) --Securities Purchase Agreement among Health Partners, Inc.,
Foxfield Ventures, Inc., the Registrant and certain management
investors, dated May 18, 1994, incorporated by reference to
Exhibit 10 of the Registrant's Form 10-Q for the quarterly
period ended June 30, 1994 (File No. 0-19442)
10(n) --Agreement and Plan of Merger by and among FPA Medical
Management, Inc., FPA Acquisition Corp. and Health Partners,
Inc. dated as of July 1, 1997*
10(o) --Bridge Securities Purchase Agreement, dated as of February 6,
1998, between the Registrant and Oxford Funding, Inc.*- portions
of this exhibit have been onitted pursuant to a request for
confidential treatment.
10(p) --Security Agreement, dated as of February 6, 1998, between the
Registrant and Oxford Funding, Inc.*
10(q) --Amendment No. 1, dated as of March 30, 1998, to the Bridge
Securities Purchase Agreement, dated as of February 6, 1998,
between the Registrant and Oxford Funding, Inc.*
</TABLE>
57
<PAGE> 58
EXHIBIT INDEX (Continued)
<TABLE>
<CAPTION>
Exhibit No. Description of Document
- ----------- -----------------------
<S> <C>
10(r) --Investment Agreement, dated as of February 23, 1998, between
TPG Oxford LLC and the Registrant*
10(s) --Registration Rights Agreement, dated as of February 23, 1998,
between TPG Oxford LLC and the Registrant *
10(t) --Employment Agreement, dated as of February 23, 1998, between
the Registrant and Dr. Norman C. Payson*
10(u) --Oxford Health Plans, Inc. Stock Option Agreement, dated
February 23, 1998, by and between Dr. Norman C. Payson and the
Registrant.*
10(v) --Amendment, dated as of February 23, 1998, to Employment
Agreement between the Registrant and William M. Sullivan*
10(w) --Amendment, dated as of February 23, 1998, to Employment
Agreement between the Registrant and Jeffery H. Boyd*
10(x) --Employment Agreement, dated as of February 16, 1998, between
the Registrant and Kevin F. Hickey*
10(y) --Retirement, Consulting and Non-Competition Agreement, dated as
of February 23, 1998, between the Registrant and Stephen F.
Wiggins*
10(z) --Employment Agreement, dated as of March 30,1998, by and between
the Registrant and Marvin P. Rich*
21 --Subsidiaries of the Registrant*
23 --Consent of KPMG Peat Marwick LLP*
</TABLE>
- ----------
* Filed herewith.
58
<PAGE> 1
AMENDED AND RESTATED BY-LAWS
OF
OXFORD HEALTH PLANS, INC.
ARTICLE I
Stockholders
Section 1.1. Annual Meeting. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place either within or
without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meeting. Special meetings of stockholders may be
called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
date, time and place either within or without the State of Delaware as may be
stated in the notice of the meeting. Any action required or permitted to be
taken by the stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may be effected
by any consent in writing by such holders.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholders entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of records entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting,
<PAGE> 2
present in person or represented by proxy, shall constitute a quorum. For
purposes of the foregoing, two or more classes or series of stock shall be
considered a single class if the holders thereof are entitled to vote together
as a single class at the meeting. In the absence of a quorum the stockholders so
present may, by majority vote, adjourn the meeting from time to time in the
manner provided by Section 1.4 of these by-laws until a quorum shall attend.
Shares of its own capital stock belonging on the record date for the meeting to
the Corporation or to another corporation, if a majority of shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum; provided, however, that the foregoing shall not limit the right of
the Corporation to vote stock, including but not limited to its own stock, held
by it in a fiduciary capacity.
Section 1.6. Organization. Meeting of stockholders shall be presided over
by the Chairman of the Board, if any, or in the absence of the Chairman of the
Board by the Vice Chairman of the Board, if any, or in the absence of the Vice
Chairman of the Board by the President, or in the absence of the President by a
Vice President, or in the absence of such designation by a chairman chosen at
the meeting. The Secretary or in the absence of the Secretary an Assistant
Secretary, but in the absence of the Secretary and any Assistant Secretary the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the certificate
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by such
stockholder which has voting power upon the matter in question. Each stockholder
entitled to vote at a meeting of stockholders or to express consent or dissent
to corporate action in writing without a meeting may authorize another person or
persons to act for such stockholder by proxy, but no such proxy shall be voted
or acted upon after three years from its date, unless the proxy provides for a
longer period. A duly executed proxy shall be irrevocable if it states that it
is irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A stockholder may revoke any
proxy which is not irrevocable by attending the meeting and voting in person or
by filing an instrument in writing revoking the proxy or another duly executed
proxy bearing a later date with the secretary of the Corporation. Voting at
meetings of stockholders need not be written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of stockholders for the election of
directors a plurality of the votes cast shall be sufficient to elect. With
respect to other matters, unless otherwise provided by law or by the certificate
or incorporation or these by-laws, the affirmative vote of the holders of a
majority of the shares of all classes of stock present in person or represented
by proxy at the meeting and entitled to vote on the subject matter shall be the
act of the stockholders, provided that (except as otherwise required by law or
by the certificate or incorporation) the Board of Directors may require a larger
vote upon any such matter. Where a separate vote by class is required, the
affirmative vote of the holders of a majority of the shares or each class
present in person
2
<PAGE> 3
or represented by proxy at the meeting shall be the act of such class, except as
otherwise provided by law or by the certificate or incorporation or these
by-laws.
Section 1.8. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty days
prior to any other action. If no record date is fixed: (1) the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day of which the meeting is held; (2) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board is necessary, shall
be the day on which the first written consent is expressed; and (3) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board adopts the record entitled to notice of
or to vote at the meeting of stockholder shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
Section 1.9. List of Stockholder Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Section 1.10. Advance Notice of Stockholder-Proposed Business at any
Meeting of Stockholders. To be properly brought before any meeting of the
stockholders, business must be either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(b) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (c) otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, including
(without limitation) requirements imposed by federal securities laws pertaining
to proxies, for business to be properly brought before any meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or
3
<PAGE> 4
mailed and received at the principal executive offices of the Corporation, at
least seventy-five (75) days prior to the meeting provided, however, that in the
event that less than ninety (90) days' notice or prior public disclosure of the
date of annual meeting of stockholders is given or made to stockholders by the
Corporation, notice by the Stockholder to be timely must be so received not
later than the close of business on the 15th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made, whichever first occurs. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before any meeting
of the stockholders (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholders, and (iv) any material interest of the
stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at any meeting of the stockholders except in accordance with
the procedures set forth in this Section 1.10, provided, however, that nothing
in this Section 1.10 shall be deemed to preclude discussion by any stockholder
as to any business properly brought before any meeting.
The Chairman of the stockholders' meeting shall, if the facts warrant,
determine and declare at any meeting of the Stockholders that business was not
properly brought before the meeting in accordance with the provisions of this
Section 1.10, and if he should determine, he shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted.
ARTICLE II
Board of Directors
Section 2.1. Powers; Numbers; Qualifications. (a) The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. (b) Except as otherwise fixed by or pursuant to the provisions or
Article FOURTH of the certificate of incorporation (as it may be duly amended
from time to time) relating to the rights of the holders of any class or series
of stock having a preference over the common stock as to dividends or upon
liquidation to elect, by separate class vote, additional directors, the number
of directors of the Corporation shall be the number fixed from time to time by
the affirmative vote of a majority of the total number of directors which the
Corporation would have, prior to any increase or decrease, if there were no
vacancies. Until otherwise fixed by the directors, the number of directors
constituting the entire Board shall be 7. The persons receiving the votes of a
plurality in amount of holders of the shares of capital stock of the
Corporation, considered as a single class, entitled to vote
4
<PAGE> 5
generally in the election of directors for the term prescribed by Article
TWELFTH of the certificate of incorporation or until their successors shall be
elected and qualified.
Section 2.2. Vacancies. Unless otherwise provided in the certificate of
incorporation or in the by-laws, vacancies and newly created directorships
resulting from any increase in the authorized number of directors or from any
other cause may be filled by a majority of the directors, although less than a
quorum, then remaining in office and elected by the holders of the capital stock
of the Corporation entitled to vote generally in the election of directors or,
in the event that there is only one such director, by such sole remaining
director, and the directors so chosen shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.
Section 2.3. Regular Meetings. Regular meetings of the Board of Directors,
or any committee thereof, may be held at such places within or without the State
of Delaware and at such times as the Board or such committee may from time to
time determine, and, if so determined, notice thereof need not be given.
Section 2.4 Special Meetings. Special meetings of the Board of Directors,
or any committee thereof, may be held at such places within or without the State
of Delaware whenever called, in the case of a Board Meeting, by the Chairman of
the Board, if any, by the Vice Chairman of the Board, if any, or by any two or
more Directors or, in the case of a committee meeting, by the Chairman of such
committee, if any, or by any two or more committee members. At least 24 hours
notice of any such meeting, which may, but need not, state the purpose thereof,
shall be given by the person or persons calling the meeting or a representative
or agent thereof.
Section 2.5. Participation in Meeting by Conference Telephone Permitted.
Unless otherwise restricted by the certificate of incorporation or these
by-laws, members of the Board of Directors, or any committee designated by the
Board, may participate in a meeting of the Board or of such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
Board of Directors a majority of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting from time to time until a
quorum shall attend.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the
5
<PAGE> 6
Board by the President, or in their absence by a chairman chosen at the meeting.
The Secretary, or in the absence of the Secretary an Assistant Secretary, shall
act as secretary of the meeting, but in the absence of the Secretary and any
Assistant Secretary, the chairman of the meeting may appoint any person to act
as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereof in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.9. Compensation of Directors. The Board of Directors shall have
the authority to fix the compensation of directors.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in place
of any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board, shall have and may exercise all the
powers and authority of the Board in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it; but no such committee shall have power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders a
dissolution of the Corporation or a revocation or dissolution, removing or
identifying directors or amending these by-laws; and, unless the resolution
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of the provisions by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a
6
<PAGE> 7
quorum is then present shall be the act of such committee, and in other respects
each committee shall conduct its business in the same manner as the Board
conducts its business pursuant to Article II of these by-laws.
ARTICLE IV
Officers
Section 4.1. Officers; Elections. As soon as practicable after the annual
meeting of stockholders in each year, the Board of Directors shall elect a
President and a Secretary, and it may, if it so determines, elect from among its
members a Chairman of the Board and a Vice Chairman of the Board. The Board may
also elect one or more Vice Presidents, one or more Assistant Vice Presidents,
one or more Assistant Secretaries, a Treasurer and one or more Assistant
Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person.
Section 4.2. Term of Office; Resignation; Removal; Vacancies. Except as
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until the first meeting of the Board
after the annual meeting of stockholders next succeeding his or her election,
and until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any officer may resign at any time upon written
notice to the Board or to the President or the Secretary of the Corporation.
Such resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be necessary
to make it effective. The Board may remove any officer with or without cause at
any time. Any such removal shall be without prejudice to the contractual rights
of such officer, if any, with the Corporation, but the election of an officer
shall not of itself create contractual rights. Any vacancy occurring shall not
of itself create contractual rights. Any vacancy occurring in any office or the
Corporation by death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board at any regular or special meeting.
Section 4.3. Powers and Duties. The officers of the Corporation shall have
such powers and duties in the management of the Corporation as shall be stated
in these by-laws or in a resolution of the Board of Directors which is not
inconsistent with these by-laws and, to the extent not so stated, as generally
pertain to their respective offices, subject to the control of the Board. The
Secretary shall have the duty to record the proceedings of the meeting of the
stockholders, the Board of Directors and any committees in a book to be kept for
the purpose. The Board may require any officer, agent or employee to give
security for the faithful performance of his or her duties.
7
<PAGE> 8
ARTICLE V
Stock
Section 5.1 Certificates. Every holder of stock in the Corporation shall
be entitled to have certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary, of the Corporation, certifying the
number of shares owned by such holders in the corporation. If such certificate
is manually signed by one officer or manually countersigned by a transfer agent
or by a registrar, any other signature on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before the such certificate is issued, it
may be issued by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate therefore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction or any such
certificate or the issuance of such new certificate.
ARTICLE VI
Miscellaneous
Section 6.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2. Seal. The Corporation may have a corporate seal which shall
have the name of the Corporation inscribed thereon and shall be in such form as
may be approved from time to time by the Board of Directors. The corporate seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and
Committee. Whenever notice is required to be given by law or under any provision
of the certificate of incorporation or these by-laws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed
8
<PAGE> 9
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the certificate of incorporation or these by-laws.
Section 6.4. Indemnification of Directors, Officers and Employees. The
Corporation shall indemnify to the fullest extent permitted by law any person
made or threatened to be made a party to any action, suit or proceeding, whether
criminal, civil, administrative or investigative, including any action
instituted by or on behalf of the Corporation, by reason of the fact that such
person or such person's testator or intestate is or was a director or officer of
the Corporation, by reason of the fact that such person or such person's
testator or intestate is or was a director or officer of the Corporation any
other enterprise as a director or officer. Expenses incurred by any such person
in defending any such actions, suit or proceeding shall be paid or reimbursed by
the Corporation promptly upon receipt by it or an undertaking of such person to
repay such expense if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation. The rights provided to any person
by this by-law shall be enforceable against the Corporation by such person who
shall be presumed to have relied upon it in serving or continuing to serve as a
director or officer as provided above. No amendment of this by-law shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment. To the extent permitted by Delaware law, the Board may
cause the Corporation to indemnify and reimburse other employees of the
Corporation as it deems appropriate. For purposes of this by-laws, the term
"Corporation" shall include any predecessor of the Corporation and any
constituent corporation (including any constituent of a constituent) absorbed by
the Corporation in a consolidation or merger; the term "other enterprise" shall
include any corporation, partnership, joint venture, trust or employee benefit
plan; service "at the request of the Corporation" shall include service as a
director or officer of the Corporation, which imposes duties on, or involves
services by, such director or officer with respect to any other enterprise or
any employee benefit plan, its participants or beneficiaries; any excise taxes
assessed on a person with respect to an employee benefit plan, shall be deemed
to be indemnifiable expenses; and action by a person with respect to any
employee benefit plan which such person reasonably believes to be in the
interest of the participants and beneficiaries of such plan shall be deemed to
be action not opposed to the best interest of the Corporation.
Section 6.5. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
9
<PAGE> 10
which authorizes the contract or transaction, or solely because his or her or
their votes are counted for such purpose, if: (1) the material facts as to his
or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as the Corporation as of the time it
is authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at the meeting of the Board or of a committee which
authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of account
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time. The Corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same.
Section 6.7. Amendment of By-Laws. These by-laws may be amended or
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders, by the affirmative vote of 80% of the voting power of all the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purposes of this
Section as a single class may adopt additional by-laws and may amend or repeal
any by-law whether or not adopted by them.
As amended January 6, 1998
10
<PAGE> 1
Exhibit 10(n)
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 1, 1997
BY AND AMONG
FPA MEDICAL MANAGEMENT, INC.,
FPA ACQUISITION CORP.
AND
HEALTH PARTNERS, INC.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER................................................................... A-1
Section 1.1 The Merger............................................................. A-1
Section 1.2 Effective Time of the Merger........................................... A-1
ARTICLE II THE SURVIVING CORPORATION AND PARENT........................................ A-1
Section 2.1 Certificate of Incorporation........................................... A-1
Section 2.2 Bylaws................................................................. A-1
Section 2.3 Directors and Executive Officers of the Surviving Corporation.......... A-2
Section 2.4 Effects of Merger...................................................... A-2
ARTICLE III CONVERSION OF SHARES....................................................... A-2
Section 3.1 Conversion of Shares in the Merger..................................... A-2
Section 3.2 Equitable Adjustment................................................... A-3
Section 3.3 Exchange of Certificates............................................... A-3
Section 3.4 No Fractional Securities............................................... A-4
Section 3.5 Options to Purchase Company Stock...................................... A-5
Section 3.6 Closing................................................................ A-5
Section 3.7 Closing of the Company's Transfer Books................................ A-5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT
AND ACQUISITION......................................................................... A-6
Section 4.1 Organization and Qualification......................................... A-6
Section 4.2 Capitalization......................................................... A-6
Section 4.3 Authority; Non-Contravention; Approvals................................ A-7
Section 4.4 Reports and Financial Statements....................................... A-8
Section 4.5 Absence of Undisclosed Liabilities..................................... A-8
Section 4.6 Absence of Certain Changes or Events................................... A-8
Section 4.7 Litigation............................................................. A-9
Section 4.8 Registration Statement and Proxy Statement............................. A-9
Section 4.9 No Violation of Law.................................................... A-9
Section 4.10 Compliance............................................................. A-10
Section 4.11 Taxes.................................................................. A-10
Section 4.12 No Parent Stockholders' Approval Required.............................. A-10
Section 4.13 Pooling and Tax-Free Reorganization Matters............................ A-10
Section 4.14 Brokers................................................................ A-11
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ A-11
Section 5.1 Organization and Qualification......................................... A-11
Section 5.2 Capitalization......................................................... A-11
Section 5.3 Subsidiaries........................................................... A-12
Section 5.4 Authority; Non-Contravention; Approvals................................ A-12
Section 5.5 Financial Statements................................................... A-13
Section 5.6 Absence of Undisclosed Liabilities..................................... A-13
Section 5.7 Absence of Certain Changes or Events................................... A-14
Section 5.8 Litigation............................................................. A-14
Section 5.9 Registration Statement and Proxy Statement............................. A-14
Section 5.10 No Violation of Law.................................................... A-14
Section 5.11 Compliance............................................................. A-15
Section 5.12 Taxes.................................................................. A-15
Section 5.13 Employee Benefit Plans; ERISA.......................................... A-15
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 5.14 Labor Controversies.................................................... A-16
Section 5.15 Environmental Matters.................................................. A-16
Section 5.16 Title to Assets........................................................ A-16
Section 5.17 Company Stockholders' Approval......................................... A-17
Section 5.18 Pooling and Tax-Free Reorganization Matters............................ A-17
Section 5.19 Insurance.............................................................. A-17
Section 5.20 Opinion of Company's Financial Advisor................................. A-17
Section 5.21 Brokers................................................................ A-17
Section 5.22 Contracts and Commitments.............................................. A-17
Section 5.23 Intellectual Property.................................................. A-18
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER...................................... A-18
Section 6.1 Conduct of Business by the Company Pending the Merger.................. A-18
Section 6.2 Conduct of Business by Parent and Acquisition Pending the Merger....... A-20
Section 6.3 Control of the Company's Operations.................................... A-21
Section 6.4 Control of Parent's Operations......................................... A-21
Section 6.5 Conduct of Business of Acquisition..................................... A-21
ARTICLE VII ADDITIONAL AGREEMENTS...................................................... A-21
Section 7.1 Access to Information.................................................. A-21
Section 7.2 Registration Statement and Proxy Statement............................. A-22
Section 7.3 Company Stockholders' Approval......................................... A-22
Section 7.4 Affiliates of the Company and Parent................................... A-22
Section 7.5 Exchange Listing....................................................... A-23
Section 7.6 Expenses and Fees...................................................... A-23
Section 7.7 Agreement to Cooperate................................................. A-23
Section 7.8 Public Statements...................................................... A-23
Section 7.9 Employee Matters....................................................... A-23
Section 7.10 Notification of Certain Matters........................................ A-24
Section 7.11 Corrections to the Proxy Statement/Prospectus and Registration
Statement.............................................................. A-24
Section 7.12 Insurance; Indemnity................................................... A-24
Section 7.13 No Solicitations....................................................... A-25
Section 7.14 Roll-up Transactions................................................... A-25
Section 7.15 Bank Consent........................................................... A-26
ARTICLE VIII CONDITIONS................................................................. A-26
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger............. A-26
Section 8.2 Conditions to Obligation of the Company to Effect the Merger........... A-27
Section 8.3 Conditions to Obligations of Parent and Acquisition to Effect the
Merger................................................................. A-27
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER............................................ A-28
Section 9.1 Termination............................................................ A-28
Section 9.2 Effect of Termination.................................................. A-29
Section 9.3 Amendment.............................................................. A-29
Section 9.4 Waiver................................................................. A-30
ARTICLE X GENERAL PROVISIONS............................................................ A-30
Section 10.1 Non-Survival of Representations and Warranties......................... A-30
Section 10.2 Notices................................................................ A-30
Section 10.3 Interpretation......................................................... A-31
Section 10.4 Miscellaneous.......................................................... A-31
Section 10.5 Counterparts........................................................... A-31
</TABLE>
ii
<PAGE> 4
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made this 1st day of July, 1997
("Agreement"), by and among FPA Medical Management, Inc., a Delaware corporation
("Parent"), FPA Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Acquisition"), and Health Partners, Inc., a Delaware
corporation (the "Company").
WITNESSETH:
WHEREAS, the boards of directors of Parent, Acquisition and the Company
believe it to be advisable and in the best interests of their respective
stockholders that Acquisition merge with and into the Company on the terms set
forth in this Agreement (the "Merger");
WHEREAS, the Merger is intended for Federal income tax purposes to qualify
as a reorganization under the provisions of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code");
WHEREAS, the Merger also is intended to qualify for treatment as a pooling
of interests under Accounting Principles Board Opinion No. 16 ("APB No. 16").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.
Upon the terms and subject to the conditions of this Agreement, at the
Effective Time (as defined in Section 1.2 hereof), in accordance with the
Delaware General Corporation Law ("DGCL"), Acquisition shall be merged with and
into the Company and the separate existence of Acquisition shall thereupon
cease. The Company shall be the surviving corporation in the Merger and is
hereinafter sometimes referred to as the "Surviving Corporation."
SECTION 1.2 Effective Time of the Merger.
The Merger shall become effective at the date and time (the "Effective
Time") when a duly prepared and executed Certificate of Merger is filed with the
Secretary of State of the State of Delaware (the "Merger Filing") in accordance
with the DGCL. The Merger Filing shall be made simultaneously with or as soon as
practicable after the closing of the transactions contemplated by this Agreement
in accordance with Section 3.6 hereof.
ARTICLE II
THE SURVIVING CORPORATION AND PARENT
SECTION 2.1 Certificate of Incorporation.
The Certificate of Incorporation of Acquisition as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation after the Effective Time, and thereafter may be amended in
accordance with its terms and as provided by law and this Agreement.
SECTION 2.2 Bylaws.
The bylaws of Acquisition as in effect immediately prior to the Effective
Time shall be the bylaws of the Surviving Corporation after the Effective Time,
and thereafter may be amended in accordance with their terms and as provided by
law and the Certificate of Incorporation of the Surviving Corporation.
A-1
<PAGE> 5
SECTION 2.3 Directors and Executive Officers of the Surviving Corporation.
The directors of the Surviving Corporation shall be the directors of
Acquisition serving immediately prior to the Effective Time and the executive
officers of the Surviving Corporation shall be the executive officers of the
Company in office immediately prior to the Effective Time, and such directors
and executive officers shall serve in accordance with the bylaws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
SECTION 2.4 Effects of Merger.
The Merger shall have the effects set forth in Section 259 of the DGCL.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Shares in the Merger.
(a) Company Common Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof, each issued and
outstanding share of Company Common Stock, par value $.001 per share (the
"Company Common Stock"), other than shares to be canceled in accordance with
Section 3.1(c) hereof and other than Dissenting Shares (as defined in Section
3.1(d) hereof), shall be converted into the right to receive the number of
shares of fully paid and nonassessable common stock, par value $.002 per share,
of Parent ("Parent Common Stock") determined by dividing the "Numerator" by the
"Denominator" (the quotient herein referred to as the "Exchange Ratio"). The
Denominator shall be the maximum number of shares of Company Common Stock issued
and outstanding at the Effective Time plus shares of Company Common Stock
issuable pursuant to Section 7.14 hereof. The Numerator shall be the remainder
which results when (y) the Stock Option Shares is subtracted from (z) the
quotient which results when $115,000,000 is divided by the Effective Valuation
Amount. The Effective Valuation Amount shall be:
(i) the average of the closing prices of Parent Common Stock as
reported on the Nasdaq National Market ("NNM") for the ten (10) consecutive
trading days ending on the date that is two (2) trading days prior to the
Closing Date (as defined in Section 3.6) (the "Parent Value") if such
average is greater than or equal to $18.00 but less than or equal to
$22.00; or
(ii) $18.00, if the Parent Value is less than $18.00; or
(iii) $22.00, if the Parent Value is greater than $22.00.
The Stock Option Shares shall equal the number of shares of Parent Common Stock
issuable pursuant to Section 3.5 hereof in respect of Company Stock Options (as
defined in Section 3.5 hereof) outstanding on the Closing Date whether or not
the same are vested immediately after giving effect to the Merger.
The Company shall provide to Parent, no later than the date on which the
Parent Value is determinable pursuant to this Section 3.1, a certificate (the
"Denominator Certificate") reasonably acceptable to Parent setting forth the
Denominator and the method used in the calculation thereof. If, prior to the
Effective Time, the announcement of a transaction by the Parent requires the
amendment or re-filing of the Registration Statement (as defined in Section
4.8), and, as a result of the re-filing or amendment of the Registration
Statement, the Closing occurs more than 90 days after the date of this
Agreement, notwithstanding clause (ii) of the definition of Effective Valuation
Amount, the Effective Valuation Amount shall equal the Parent Value if the
Parent Value is less than $18.00. Except as set forth in the immediately
preceding sentence, in no event will the number of shares of Parent Common Stock
issued upon the Merger (including shares issued under Section 3.5 hereof) exceed
6,388,889 shares.
(b) Company Preferred Stock. The Company shall use its reasonable best
efforts to cause, immediately prior to the Effective Time, each issued and
outstanding share of the Company's Series A Convertible Preferred Stock, par
value $.001 per share, and Series B Convertible Preferred Stock, par value $.001
per
A-2
<PAGE> 6
share (collectively, the "Company Preferred Stock") to be converted into shares
of Company Common Stock, in accordance with the provisions of the relevant
Certificate of Designations for such Company Preferred Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of the holder
thereof, such shares of Common Stock, other than shares to be canceled in
accordance with Section 3.1(c) hereof and other than Dissenting Shares, shall be
converted into the right to receive a number of shares of fully paid and
nonassessable shares of Parent Common Stock based on the Exchange Ratio.
(c) Cancellation of Company Stock. All shares of Company Common Stock and
Company Preferred Stock (collectively, "Company Stock") which, immediately prior
to the Effective Time, are held by the Company in its treasury shall be canceled
and extinguished and shall cease to exist and no consideration shall be
delivered with respect thereto.
(d) Dissenting Shares. (i) If applicable, notwithstanding any provision of
this Agreement to the contrary, each outstanding share of Company Stock, the
holder of which (x) has not voted in favor of the Merger, (y) has perfected such
holder's right to an appraisal of such holder's shares in accordance with the
applicable provisions of the DGCL and (z) has not effectively withdrawn or lost
such right to appraisal (a "Dissenting Share"), shall not be converted into or
represent a right to receive shares of Parent Common Stock pursuant to Section
3.1(a) or 3.1(b), as applicable, but the holder thereof shall be entitled only
to such rights as are granted by the applicable provisions of the DGCL;
provided, however, that any Dissenting Share held by a person at the Effective
Time who shall, after the Effective Time, withdraw the demand for appraisal or
lose the right of appraisal, in either case pursuant to the DGCL, shall be
deemed to be converted into, as of the Effective Time, the right to receive
Parent Common Stock pursuant to Section 3.1(a) or 3.1(b), as applicable.
(ii) The Company shall give Parent prompt notice of any written demands for
appraisal, withdrawals of demands for appraisal and any other instruments served
pursuant to the applicable provisions of the DGCL relating to the appraisal
process received by the Company and shall allow Parent the right to direct any
proceedings and the resolution thereof relating to such process.
(e) Acquisition Shares. Each share of capital stock of Acquisition issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation.
SECTION 3.2 Equitable Adjustment.
The calculations set forth in Section 3.1 hereof shall be subject to
equitable adjustment in the event of, or the setting of a record date prior to
the Effective Time with respect to, any stock split, stock dividend, reverse
stock split, recapitalization, reclassification or combination of Company Stock
or Parent Common Stock or dividend or distribution with respect to Parent Common
Stock or Company Stock or other change in the number of shares of Company Stock
outstanding prior to the Closing (as defined in Section 3.6 hereof) other than
issuances of shares pursuant to the exercise of outstanding stock options and
issuance of shares pursuant to the transactions contemplated by Section 7.14
hereof.
SECTION 3.3 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented shares of
Company Stock shall be entitled to receive in exchange therefor, upon surrender
thereof to a bank or trust company designated before the Effective Time by
Parent and reasonably acceptable to the Company (the "Exchange Agent"), a
certificate or certificates representing the number of whole shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.1 hereof.
Notwithstanding any other provision of this Agreement, (i) until holders or
transferees of certificates theretofore representing shares of Company Stock
have surrendered them for exchange as provided herein, no dividends shall be
paid with respect to any shares represented by such certificates and no payment
for fractional shares shall be made and (ii) without regard to when such
certificates representing shares of Company Stock are surrendered for exchange
as provided herein, no interest shall be paid on any dividends or
A-3
<PAGE> 7
any payment for fractional shares. Upon surrender of a certificate which
immediately prior to the Effective Time represented shares of Company Stock,
there shall be paid to the holder of such certificate the amount of any
dividends which theretofore became payable, but which were not paid by reason of
the foregoing, with respect to the number of whole shares of Parent Common Stock
represented by the certificate or certificates issued upon such surrender.
(b) If any certificate for shares of Parent Common Stock is to be issued in
a name other than that in which the certificate for shares of Company Stock
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the person requesting such exchange shall pay any applicable
transfer or other taxes required by reason of such issuance.
(c) Promptly after the Effective Time, Parent shall make available to the
Exchange Agent the certificates representing shares of Parent Common Stock
required to effect the exchanges referred to in paragraph (a) above and cash for
payment of any fractional shares referred to in Section 3.4 hereof.
(d) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record of a certificate or certificates that immediately prior to
the Effective Time represented outstanding shares of Company Stock (the "Company
Certificates") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Company Certificates shall
pass, only upon actual delivery of the Company Certificates to the Exchange
Agent) and (ii) instructions for use in effecting the surrender of the Company
Certificates in exchange for certificates representing shares of Parent Common
Stock. Upon surrender of Company Certificates for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal and such other
documents as the Exchange Agent shall reasonably require, the holder of such
Company Certificates shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock into
which the shares of Company Stock theretofore represented by the Company
Certificates so surrendered shall have been converted pursuant to the provisions
of Section 3.1 hereof, and the Company Certificates so surrendered shall be
canceled.
(e) Promptly following the date which is nine (9) months after the
Effective Time, the Exchange Agent shall deliver to Parent all cash,
certificates (including any Parent Common Stock) and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of a Company
Certificate may surrender such Company Certificate to the Surviving Corporation
and (subject to applicable abandoned property, escheat and similar laws) receive
in exchange therefor the Parent Common Stock, without any interest thereon. If
any certificate or certificates that immediately prior to the Effective Time
represented outstanding shares of Company Stock entitled to payment pursuant to
Section 3.1 hereof shall not have been surrendered for such payment prior to
such date on which any payment in respect thereof would otherwise escheat to or
become property of any governmental agency or other governmental entity, such
shares of Company Stock shall, to the extent permitted by applicable law, be
deemed to be canceled and no money or other payment will be due to the holder
thereof.
(f) In the event any Company Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Company Certificate to be lost, stolen or destroyed, Parent shall issue in
exchange for such lost, stolen or destroyed Company Certificate the Parent
Common Stock deliverable in respect thereof determined in accordance with
Section 3.1 hereof. When authorizing such payment in exchange therefor, the
board of directors of Parent may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
Company Certificate to give the Surviving Corporation such indemnity as it may
reasonably direct as protection against any claim that may be made against the
Surviving Corporation with respect to the Company Certificate alleged to have
been lost, stolen or destroyed.
SECTION 3.4 No Fractional Securities.
Notwithstanding any other provision of this Agreement, no certificates or
scrip for fractional shares of Parent Common Stock shall be issued in the Merger
and no Parent Common Stock dividend, stock split or interest shall relate to any
fractional security, and such fractional interests shall not entitle the owner
thereof to vote or to any other rights of a security holder. In lieu of any such
fractional shares, each holder of Company
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Stock who would otherwise have been entitled to receive a fraction of a share of
Parent Common Stock (in the aggregate) upon surrender of Company Certificates
for exchange pursuant to Section 3.3 hereof shall be entitled to receive from
the Exchange Agent a cash payment equal to such fraction multiplied by the
Parent Value.
SECTION 3.5 Options to Purchase Company Stock.
(a) Each option to purchase shares of Company Common Stock (a "Company
Stock Option") which is outstanding immediately prior to the Effective Time
pursuant to any stock option plan of the Company in effect on the date hereof
(the "Company Stock Plans") shall be canceled at the Effective Time and the
holder of such Company Stock Option shall be entitled to receive a number of
shares of Parent Common Stock, decreased to the nearest whole share, equal to
the quotient which results when the "Fair Market Value" of such Company Stock
Option at the Effective Time is divided by the Parent Value. The Fair Market
Value of all Company Stock Options shall be the fair value thereof determined by
an investment banking firm selected by the Company that is acceptable to the
Parent based upon the Effective Valuation Amount and the Exchange Ratio and
otherwise using valuation techniques reasonably acceptable to Parent and the
Company and consistent with the requirements of APB No. 16.
(b) Parent shall not issue fractional shares or pay cash to the holders of
Company Stock Options receiving shares of Parent Common Stock in lieu of issuing
fractional shares of Parent Common Stock. Instead, all fractional shares of
Parent Common Stock issuable under this Section 3.5 shall be decreased to the
nearest whole share.
(c) The Company shall use its reasonable best efforts to cause the holders
of Company Stock Options to execute prior to the Closing Date a form of
acknowledgement reasonably acceptable to Parent regarding their acceptance of
the treatment of Company Stock Options set forth in this Section 3.5 (each a
"Stock Option Acknowledgement").
SECTION 3.6 Closing.
The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place at the offices of Pillsbury Madison & Sutro LLP, 101
West Broadway, Suite 1800, San Diego, California, or at any other location
mutually agreeable to Parent and the Company on the second business day
immediately following the date on which the last of the conditions set forth in
Article VIII is fulfilled or waived, or at such other time as Parent and the
Company shall agree (the date on which the Closing occurs is referred to in this
Agreement as the "Closing Date").
SECTION 3.7 Closing of the Company's Transfer Books.
At and after the Effective Time, holders of Company Certificates shall
cease to have any rights as stockholders of the Company, except for (a) the
right to an appraisal for Dissenting Shares pursuant to Section 3.1(d) hereof
(but solely as provided by the DGCL), (b) the right to receive shares of Parent
Common Stock pursuant to Section 3.3 hereof and (c) the right to receive cash
for payment of fractional shares pursuant to Section 3.4 hereof. At the
Effective Time, the stock transfer books of the Company shall be closed and no
transfer of shares of Company Stock which were outstanding immediately prior to
the Effective Time shall thereafter be made. If, after the Effective Time,
subject to the terms and conditions of this Agreement, Company Certificates
formerly representing Company Stock are presented to the Surviving Corporation,
they shall be canceled and exchanged for Parent Common Stock in accordance with
this Article III.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
Parent and Acquisition each represent and warrant to the Company as
follows:
SECTION 4.1 Organization and Qualification.
Each of Parent and Acquisition is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Each of
Parent and Acquisition is qualified to do business and is in good standing in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not have
a Parent Material Adverse Effect. As used in this Agreement, a "Parent Material
Adverse Effect" shall mean any event, circumstance, development or occurrence,
individually or when taken together with all other such events, circumstances,
developments or occurrences, causing, resulting in or having, or reasonably
likely to cause, result in or have, a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of Parent and its subsidiaries (as defined in Section 4.2 hereof),
taken as a whole. True, accurate and complete copies of each of Parent's and
Acquisition's Certificates of Incorporation and bylaws, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to the Company.
SECTION 4.2 Capitalization.
(a) The authorized capital stock of Parent consists of (i) 98,000,000
shares of Parent Common Stock, par value $.002, of which 33,234,157 shares were
outstanding as of the date of this Agreement, and (ii) 2,000,000 shares of
preferred stock, par value $.002 per share ("Parent Preferred Stock"), of which
no shares were outstanding as of the date of this Agreement. All of the issued
and outstanding shares of Parent Common Stock and Parent Preferred Stock are
validly issued and are fully paid, nonassessable and free of preemptive rights.
(b) The authorized capital stock of Acquisition consists of 100 shares of
Acquisition Common Stock, par value $.01, of which 10 shares are issued and
outstanding, which shares are owned beneficially and of record by Parent.
(c) Except as set forth on Schedule 4.2(c) attached hereto, as of the date
of this Agreement, there are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement and also including any rights plan or
other anti-takeover agreement, obligating Parent or any subsidiary of Parent to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of Parent or obligating Parent or any subsidiary of
Parent to grant, extend or enter into any such agreement or commitment. There
are no voting trusts, proxies or other agreements or understandings to which
Parent or any subsidiary of Parent is a party or by which Parent or any
subsidiary of Parent is bound with respect to the voting of any shares of
capital stock of Parent. The shares of Parent Common Stock issued to
stockholders of the Company in the Merger will be at the Effective Time duly
authorized, validly issued, fully paid, nonassessable, and free of preemptive
rights. As used in this Agreement, "subsidiary" means, with respect to any party
hereto (a "Subject Party"), any corporation or other organization, whether
incorporated or unincorporated, (i) of which more than fifty percent (50%) of
either the equity interests in, or the voting control of, such corporation or
other organization is, directly or indirectly through subsidiaries or otherwise,
beneficially owned by such Subject Party or (ii) which is a professional
corporation as to which such Subject Party or a subsidiary thereof has executed
a succession or similar stockholder agreement.
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SECTION 4.3 Authority; Non-Contravention; Approvals.
(a) Parent and Acquisition each have full corporate power and authority to
enter into this Agreement and, subject to the Parent Required Statutory
Approvals (as defined in Section 4.3(c) hereof), to consummate the transactions
contemplated hereby. This Agreement has been approved by the boards of directors
of Parent and Acquisition and by Parent as the sole stockholder of Acquisition,
and no other corporate proceedings on the part of Parent or Acquisition are
necessary to authorize the execution and delivery of this Agreement or the
consummation by Parent and Acquisition of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by each of Parent and
Acquisition, and, assuming the due authorization, execution and delivery hereof
by the Company, constitutes a valid and legally binding agreement of each of
Parent and Acquisition enforceable against each of them in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles, and except that the availability of equitable
remedies, including specific performance and injunctive relief, is subject to
the discretion of the court before which any proceedings may be brought.
(b) Except as set forth on Schedule 4.3(b) attached hereto, the execution
and delivery of this Agreement by each of Parent and Acquisition do not violate,
conflict with or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of Parent or any of its subsidiaries under
any of the terms, conditions or provisions of (i) the respective charters or
bylaws of Parent or any of its subsidiaries, (ii) any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or license
of any court or governmental authority applicable to Parent or any of its
subsidiaries or any of their respective properties or assets or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Parent or any of its subsidiaries is now a party or by which
Parent or any of its subsidiaries or any of their respective properties or
assets may be bound or affected. The consummation by Parent and Acquisition of
the transactions contemplated hereby will not result in any violation, conflict,
breach, termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence, subject to (x) in the case of the terms, conditions or provisions
described in clause (ii) above, obtaining (prior to the Effective Time) the
Parent Required Statutory Approvals (as defined in Section 4.3(c) hereof) and
(y) in the case of the terms, conditions or provisions described in clause (iii)
above, obtaining (prior to the Effective Time) consents required from commercial
lenders, lessors or other third parties named in Schedule 4.3(b) attached
hereto. Set forth on Schedule 4.3(b) attached hereto is a list of hospital
contracts with respect to which the consent of any party other than Parent is
required in order that consummation by Parent of the transactions contemplated
hereby will not result in a breach or termination of the respective contracts.
Excluded from the foregoing sentences of this paragraph (b), insofar as they
apply to the terms, conditions or provisions described in clauses (ii) and (iii)
of the first sentence of this paragraph (b), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not have a Parent Material Adverse
Effect.
(c) Except for (i) the filings by Parent and the Company required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Proxy Statement/Prospectus (as defined in Section
4.8 hereof) with the Securities and Exchange Commission (the "Commission")
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and
the declaration of the effectiveness thereof by the Commission and filings with
various state blue sky authorities, (iii) the making of the Merger Filing with
the Secretary of State of the State of Delaware in connection with the Merger
and (iv) any other required filings with or approvals from applicable Federal
and state governmental authorities (the filings and approvals referred to in
clauses (i) through (iv) are collectively referred to as the "Parent Required
Statutory Approvals"), no declaration, filing or registration with, or notice
to, or authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and
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delivery of this Agreement by Parent or Acquisition or the consummation by
Parent or Acquisition of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not have a
Parent Material Adverse Effect.
SECTION 4.4 Reports and Financial Statements.
Since October 20, 1994, Parent has filed with the Commission all material
forms, statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by it under each of the Securities
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the respective rules and regulations thereunder, all of which, as amended if
applicable, complied in all material respects at the time of filing with all
applicable requirements of the appropriate act and the rules and regulations
thereunder. Parent has previously delivered or made available to the Company a
copy of its (a) Annual Report on Form 10-K, as amended, for the fiscal years
ended December 31, 1994, 1995 and 1996, and its report on Form 10-Q for the
quarter ended March 31, 1997, each as filed with the Commission, (b) proxy and
information statements relating to (i) all meetings of its stockholders (whether
annual or special) and (ii) actions by written consent in lieu of a
stockholders' meeting from October 20, 1994, until the date hereof, and (c) all
other reports, including quarterly and current reports, or registration
statements filed by Parent with the Commission (the documents referred to in
clauses (a), (b) and (c) are collectively referred to as the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports complied in all
material respects with the requirements of the Exchange Act and/or the
Securities Act and the rules and regulations of the Commission thereunder
applicable to such Parent SEC Reports. As of their respective dates, the Parent
SEC Reports did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim consolidated financial statements of Parent included in such reports,
including the notes and schedules thereto (collectively, the "Parent Financial
Statements"), have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
Parent and its subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
SECTION 4.5 Absence of Undisclosed Liabilities.
Except as disclosed in the Parent SEC Reports or with respect to
acquisitions or potential transactions or commitments heretofore disclosed to
the Company in writing or as set forth on Schedule 4.5 attached hereto, neither
Parent nor any of its subsidiaries had at December 31, 1996, or has incurred
since that date, any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except: (a) liabilities, obligations or
contingencies (i) which are accrued or reserved against in the Parent Financial
Statements or reflected in the notes thereto or (ii) which were incurred after
December 31, 1996 and were incurred in the ordinary course of business and
consistent with past practices; and (b) liabilities and obligations which are of
a nature not required to be reflected in the consolidated financial statements
of Parent and its subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied and which were incurred in the normal
course of business (provided that no liabilities, obligations or contingencies
excepted by subparagraphs (a)(ii) or (b) hereof will have, individually or in
the aggregate, a Parent Material Adverse Effect).
SECTION 4.6 Absence of Certain Changes or Events.
Except as disclosed in the Parent SEC Reports or with respect to
acquisitions or potential transactions or commitments heretofore disclosed to
the Company in writing or as set forth on Schedule 4.6 attached hereto, since
December 31, 1996, there has not been any change or event (other than changes
generally affecting the
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industry in which Parent and its subsidiaries operate or arising from general
business or economic conditions or as a result of this Agreement) that would
have a Parent Material Adverse Effect.
SECTION 4.7 Litigation.
Except as disclosed in the Parent SEC Reports, there are no claims, suits,
actions or proceedings pending or, to the knowledge of Parent, threatened
against, relating to or affecting Parent or any of its subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain or enjoin the consummation of
the Merger or which would have a Parent Material Adverse Effect. Except as set
forth in the Parent SEC Reports, neither Parent nor any of its subsidiaries is
subject to any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or authority or any
arbitrator which prohibits or restricts the consummation of the transactions
contemplated hereby or would have any Parent Material Adverse Effect.
SECTION 4.8 Registration Statement and Proxy Statement.
None of the information to be supplied by Parent or its subsidiaries for
inclusion in (a) the Registration Statement on Form S-4 to be filed under the
Securities Act with the Commission by Parent in connection with the Merger for
the purpose of registering the shares of Parent Common Stock to be issued in the
Merger (the "Registration Statement") or (b) the proxy statement to be
distributed in connection with the Company's meeting of its stockholders to vote
upon this Agreement and the transactions contemplated hereby (the "Proxy
Statement" and, together with the prospectus included in the Registration
Statement, the "Proxy Statement/Prospectus") will, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of the
mailing of the Proxy Statement and any amendments or supplements thereto, and at
the time of the meeting of stockholders of the Company to be held in connection
with the transactions contemplated by this Agreement, contain any untrue
statement of a material fact or omit 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 are made, not misleading, or, in the case of
the Registration Statement, as amended or supplemented, at the time it becomes
effective and at the time of such meeting of the stockholders of the Company,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. The Proxy Statement/Prospectus, as of its Effective
Time, will comply as to form in all material respects with all applicable laws,
including the provisions of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder, except that no representation is
made by Parent or Acquisition with respect to information supplied by the
Company for inclusion therein.
SECTION 4.9 No Violation of Law.
Except as disclosed in the Parent SEC Reports, neither Parent nor any of
its subsidiaries is in violation of, or has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law) of
any governmental or regulatory body or authority, except for violations which
would not have a Parent Material Adverse Effect. Except as disclosed in the
Parent SEC Reports, as of the date of this Agreement, to the knowledge of
Parent, no investigation or review by any governmental or regulatory body or
authority is pending or threatened, nor has any governmental or regulatory body
or authority indicated an intention to conduct the same, other than, in each
case, those the outcome of which would not have a Parent Material Adverse
Effect. Parent and its subsidiaries have all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct their businesses as presently conducted
(collectively, the "Parent Permits"), except for permits, licenses, franchises,
variances, exemptions, orders, authorizations, consents and approvals the
absence of which would not have a Parent Material Adverse Effect. Parent and its
subsidiaries are not in violation of the terms of any Parent Permit, except for
delays in filing reports or violations which would not have a Parent Material
Adverse Effect.
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SECTION 4.10 Compliance.
Except as disclosed in the Parent SEC Reports or on Schedule 4.10 attached
hereto, Parent and each of its subsidiaries are not in breach or violation of or
in default in the performance or observance of any term or provision of, and no
event has occurred which, with lapse of time or action by a third party, would
result in a default under (a) the respective charters, bylaws or other similar
organizational instruments of Parent or any of its subsidiaries or (b) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which Parent or any of its
subsidiaries is a party or by which any of them is bound or to which any of
their property is subject, which breaches, violations and defaults, in the case
of clause (b) of this Section 4.10, would have a Parent Material Adverse Effect.
SECTION 4.11 Taxes.
(a) Parent and its subsidiaries have (i) duly filed (or timely requested
and received an extension to file) with the appropriate governmental authorities
all Tax Returns (as defined in Section 4.11(c) hereof) required to be filed by
them for all periods ending on or prior to the Effective Time, other than those
Tax Returns the failure of which to file would not have a Parent Material
Adverse Effect, and such Tax Returns are true, correct and complete in all
material respects and (ii) duly paid in full or made adequate provision for the
payment of all Taxes (as defined in Section 4.11(b) hereof) for all periods
ending at or prior to the Effective Time. The liabilities and reserves for Taxes
reflected in the Parent balance sheet included in the latest Parent SEC Report
are adequate to cover all Taxes for all periods ending at or prior to the date
of such balance sheet and there are no material liens for Taxes upon any
property or assets of Parent or any subsidiary thereof, except for liens for
Taxes not yet due. There are no unresolved issues of law or fact arising out of
a notice of deficiency, proposed deficiency or assessment from the Internal
Revenue Service (the "IRS") or any other governmental taxing authority with
respect to Taxes of Parent or any of its subsidiaries which, if decided
adversely would have a Parent Material Adverse Effect. Neither Parent nor any of
its subsidiaries is a party to any agreement providing for the allocation or
sharing of Taxes with any entity that is not, directly or indirectly, a
subsidiary of Parent other than agreements the consequences of which are
adequately reserved for in the Parent Financial Statements. Neither Parent nor
any of its subsidiaries has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application of
Section 341(f) of the Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean all taxes,
including, without limitation, income, gross receipts, excise, property, sales,
withholding, social security, occupation, use, service, service use, license,
payroll, franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments imposed by the United States, or any
state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis, and
such term shall include any interest, fines, penalties or additional amounts and
any interest in respect of any additions, fines or penalties attributable or
imposed or with respect to any such taxes, charges, fees, levies or other
assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
SECTION 4.12 No Parent Stockholders' Approval Required.
No vote of stockholders of Parent is required by Parent's Certificate of
Incorporation, bylaws, any applicable law or any national securities exchange or
The NNM for the approval of this Agreement or the consummation of the
transactions contemplated hereby (including the issuance, registration and
inclusion on the NNM of Parent Common Stock)
SECTION 4.13 Pooling and Tax-Free Reorganization Matters.
To the knowledge of Parent and based upon consultation with its independent
accountants, neither Parent nor Acquisition nor any of their affiliates has
taken or agreed to take any action that would interfere with the ability of
Parent to (a) account for the business combination to be effected by the Merger
as a pooling of
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interests under APB No. 16 for accounting and financial statement purposes or
(b) treat the Merger as a tax-free reorganization pursuant to Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
SECTION 4.14 Brokers.
Parent and Acquisition represent and warrant that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent or
Acquisition.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Acquisition as follows:
SECTION 5.1 Organization and Qualification.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite corporate
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. The Company is qualified to
do business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing would not have a Company Material Adverse Effect. As used
in this Agreement, a "Company Material Adverse Effect" shall mean any event,
circumstance, development or occurrence, individually or when taken together
with all other such events, circumstances, developments or occurrences, causing,
resulting in or having, or reasonably likely to cause, result in or have, a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the Company and its
subsidiaries (as defined in Section 4.2 hereof), taken as a whole. True,
accurate and complete copies of the Company's Certificate of Incorporation and
bylaws, in each case as in effect on the date hereof, including all amendments
thereto, have heretofore been delivered to Parent.
SECTION 5.2 Capitalization.
(a) The authorized capital stock of the Company consists of 15,000,000
shares of Company Common Stock, par value $.001 per share, and 50,000 shares of
Company Preferred Stock, par value $.001 per share, of which 25,000 shares have
been designated Series A Convertible Preferred Stock and 25,000 shares have been
designated Series B Convertible Preferred Stock. As of the date of this
Agreement, 1,673,500 shares of Company Common Stock and 50,000 shares of Company
Preferred Stock were issued and outstanding (25,000 and 25,000 shares of which
are designated Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock respectively). All of such issued and outstanding shares are
validly issued and are fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth on Schedule 5.2(b) attached hereto, as of the date
hereof there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other
anti-takeover agreement, obligating the Company or any subsidiary of the Company
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of the Company or obligating the Company or any
subsidiary of the Company to grant, extend or enter into any such agreement or
commitment. Except as set forth on Schedule 5.2(b) attached hereto, there are no
voting trusts, proxies or other agreements or understandings to which the
Company or any subsidiary of the Company is a party or by which the Company or
any subsidiary of the Company is bound with respect to the voting of any shares
of capital stock of the Company.
(c) Each Stock Option Acknowledgement executed and delivered by the holder
of a Company Stock Option as contemplated by Section 3.5(a) above shall, from
and after the Effective Time, be binding upon the holder of the Company Stock
Option to which such Stock Option Acknowledgement relates on the terms and
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subject to the conditions provided in Section 3.5(a) and such Stock Option
Acknowledgement. Except as set forth on Schedule 5.2(c) attached hereto, none of
the benefits available under the Company Stock Options are subject to
acceleration as a result of the Merger or otherwise, and the Company shall take
no action to permit or foster any such acceleration.
SECTION 5.3 Subsidiaries.
Schedule 5.3 sets forth the name, state of incorporation and stockholders
of each subsidiary of the Company. Each subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or formation and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each subsidiary of the Company is
qualified to do business, and is in good standing, in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not have a Company Material Adverse
Effect. All of the outstanding shares of capital stock of each corporate
subsidiary of the Company are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights and are owned directly or indirectly
by the Company, free and clear of any liens, claims, encumbrances, security
interests, equities, charges and options of any nature whatsoever except as set
forth on Schedule 5.3 attached hereto. There are no subscriptions, options,
warrants, rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any shares of
capital stock of any corporate subsidiary of the Company, including any right of
conversion or exchange under any outstanding security, instrument or agreement
except as disclosed on Schedule 5.3 attached hereto.
SECTION 5.4 Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority to enter into this
Agreement and, subject to the Company Stockholders' Approval of the Merger (as
defined in Section 7.3(a)) and the Company Required Statutory Approvals (as
defined in Section 5.4(c)), to consummate the transactions contemplated hereby.
This Agreement has been approved by the board of directors of the Company, and
no other corporate proceedings on the part of the Company are necessary to
authorize the execution and delivery of this Agreement or, except for the
Company Stockholders' Approval, the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and Acquisition, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (i) bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally and
(ii) general equitable principles, and except that the availability of equitable
remedies, including specific performance and injunctive relief, is subject to
the discretion of the court before which any proceedings may be brought.
(b) Except as set forth on Schedule 5.4(b) attached hereto, the execution
and delivery of this Agreement by the Company do not violate, conflict with or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries under any of the
terms, conditions or provisions of (i) the respective charters or bylaws of the
Company or any of its subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or any of its subsidiaries is now a party or by which
the Company or any of its subsidiaries or any of their respective properties or
assets may be bound or affected. The consummation by the Company of the
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transactions contemplated hereby will not result in any violation, conflict,
breach, termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence, subject to (x) in the case of the terms, conditions or provisions
described in clause (ii) above, obtaining (prior to the Effective Time) the
Company Required Statutory Approvals and the Company Stockholders' Approval and
(y) in the case of the terms, conditions or provisions described in clause (iii)
above, obtaining (prior to the Effective Time) consents required from commercial
lenders, lessors or other third parties. Set forth on Schedule 5.4(b) attached
hereto is a list of hospital contracts with respect to which the consent of any
party other than the Company is required in order that consummation by the
Company of the transactions contemplated hereby will not result in a breach or
termination of the respective contracts. Excluded from the foregoing sentences
of this paragraph (b), insofar as they apply to the terms, conditions or
provisions described in clauses (ii) and (iii) of the first sentence of this
paragraph (b), are such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests, charges or encumbrances
that would not have a Company Material Adverse Effect.
(c) Except for (i) the filings by Parent and the Company required by the
HSR Act, (ii) the filing of the Proxy Statement/Prospectus with the Commission
pursuant to the Securities Act and the declaration of the effectiveness thereof
by the Commission and filings with various state blue sky authorities, (iii) the
making of the Merger Filing with the Secretary of State of the State of Delaware
in connection with the Merger and (iv) any other required filings with or
approvals from applicable Federal and state governmental authorities (the
filings and approvals referred to in clauses (i) through (iv) are collectively
referred to as the "Company Required Statutory Approvals"), no declaration,
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not have a
Company Material Adverse Effect.
SECTION 5.5 Financial Statements.
The Company has previously delivered or made available to Parent a copy of
the following financial statements (the "Company Financial Statements"), all of
which have been prepared on a consolidated basis (except as otherwise indicated)
in accordance with generally accepted accounting principles consistently applied
throughout the periods indicated (except as may be indicated in the notes
thereto):
(a) Audited Consolidated Statements of Financial Position, Operations,
Cash Flows and Changes in Stockholders' Equity of the Company and its
consolidated subsidiaries at or for the twelve (12) months ended December
31, 1994, 1995, 1996 and related Notes to the Consolidated Financial
Statements as of and for the years ended December 31, 1994, 1995, 1996; and
(b) Unaudited Consolidated Statements of Financial Position and
Operations at or for the three (3) months ended March 31, 1997.
The Company Financial Statements fairly present the financial position of the
Company and its subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended,
although the unaudited Company Financial Statements do not contain the footnotes
required by generally accepted accounting principles and are subject to normal
year-end and audit adjustments and any other adjustments described therein.
SECTION 5.6 Absence of Undisclosed Liabilities.
Except with respect to acquisitions or potential transactions or
commitments disclosed on Schedule 5.6 attached hereto, neither the Company nor
any of its subsidiaries had at December 31, 1996, or has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except: (a) liabilities, obligations or contingencies
(i) which are accrued or reserved against in the Company Financial Statements or
reflected in the notes thereto or (ii) which were incurred after December 31,
1996 and were incurred in the ordinary course of business and consistent with
past practices; and (b)
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liabilities and obligations which are of a nature not required to be reflected
in the consolidated financial statements of the Company and its subsidiaries
prepared in accordance with generally accepted accounting principles
consistently applied and which were incurred in the normal course of business
(provided that no liabilities, obligations or contingencies excepted by
subparagraphs (a)(ii) or (b) hereof will have, individually or in the aggregate,
a Company Material Adverse Effect).
SECTION 5.7 Absence of Certain Changes or Events.
Except as set forth on Schedule 5.7 attached hereto, since December 31,
1996, there has not been any change or event (other than changes generally
affecting the industry in which the Company and its subsidiaries operate or
arising from general business or economic conditions or as a result of this
Agreement) that would have a Company Material Adverse Effect.
SECTION 5.8 Litigation.
Except as set forth on Schedule 5.8 attached hereto, there are no claims,
suits, actions or proceedings pending or, to the knowledge of the Company,
threatened against, relating to or affecting the Company or any of its
subsidiaries, before any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that seek to restrain the
consummation of the Merger or which would have a Company Material Adverse
Effect. Except as referred to in Schedule 5.8 attached hereto, neither the
Company nor any of its subsidiaries is subject to any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator which prohibits or
restricts the consummation of the transactions contemplated hereby or would have
any Company Material Adverse Effect.
SECTION 5.9 Registration Statement and Proxy Statement.
None of the information to be supplied by the Company or its subsidiaries
for inclusion in (a) the Registration Statement or (b) the Proxy Statement will,
in the case of the Proxy Statement or any amendments thereof or supplements
thereto, at the time of the mailing of the Proxy Statement and any amendments or
supplements thereto, and at the time of the meeting of stockholders of the
Company to be held in connection with the transactions contemplated by this
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, or, in the case of the Registration Statement, as amended or
supplemented, at the time it becomes effective and at the time of such meeting
of the stockholders of the Company, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The Proxy
Statement/Prospectus, as of its Effective Time, will comply as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by the Company with respect to
information supplied by Parent or Acquisition for inclusion therein.
SECTION 5.10 No Violation of Law.
Except as set forth on Schedule 5.10 attached hereto, neither the Company
nor any of its subsidiaries is in violation of or has been given notice or been
charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which would not have a Company Material
Adverse Effect. As of the date of this Agreement, to the knowledge of the
Company, no investigation or review by any governmental or regulatory body or
authority is pending or threatened, nor has any governmental or regulatory body
or authority indicated an intention to conduct the same, other than, in each
case, those the outcome of which would not have Company Material Adverse Effect.
The Company and its subsidiaries have all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct their businesses as presently conducted
(collectively, the "Company Permits"), except for permits, licenses, franchises,
variances, exemptions, orders,
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authorizations, consents and approvals the absence of which would not have a
Company Material Adverse Effect. The Company and its subsidiaries are not in
violation of the terms of any Company Permit, except for delays in filing
reports or violations which would not have a Company Material Adverse Effect.
SECTION 5.11 Compliance.
Except as set forth on Schedule 5.11 attached hereto, the Company and each
of its subsidiaries are not in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with lapse of time or action by a third party, would result in a default
under, (a) the respective charters, bylaws or similar organizational instruments
of the Company or any of its subsidiaries or (b) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which the Company or any of its subsidiaries is
a party or by which any of them is bound or to which any of their property is
subject, which breaches, violations and defaults, in the case of clause (b) of
this Section 5.11, would have a Company Material Adverse Effect.
SECTION 5.12 Taxes.
The Company and its subsidiaries have (i) duly filed (or timely requested
and received an extension to file) with the appropriate governmental authorities
all Tax Returns required to be filed by them for all periods ending on or prior
to the Effective Time, other than those Tax Returns the failure of which to file
would not have a Company Material Adverse Effect, and such Tax Returns are true,
correct and complete in all material respects, and (ii) duly paid in full or
made adequate provision for the payment of all Taxes for all periods ending at
or prior to the Effective Time. The liabilities and reserves for Taxes reflected
in the most recent audited Company balance sheet are adequate to cover all Taxes
for all periods ending at or prior to the Effective Time and there are no
material liens for Taxes upon any property or assets of the Company or any
subsidiary thereof, except for liens for Taxes not yet due. There are no
unresolved issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the IRS or any other governmental taxing authority
with respect to Taxes of the Company or any of its subsidiaries which, if
decided adversely would have a Company Material Adverse Effect. Neither the
Company nor any of its subsidiaries is a party to any agreement providing for
the allocation or sharing of Taxes with any entity that is not, directly or
indirectly, a wholly-owned corporate subsidiary of Company other than agreements
the consequences of which are adequately reserved for in the Company Financial
Statements. Neither the Company nor any of its corporate subsidiaries has, with
regard to any assets or property held, acquired or to be acquired by any of
them, filed a consent to the application of Section 341(f) of the Code.
SECTION 5.13 Employee Benefit Plans; ERISA.
(a) All material employee benefit plans, programs, arrangements or
practices covering current or former employees of the Company, including
employee benefit plans within the meaning set forth in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), are
listed in Schedule 5.13(a) attached hereto (such plans, programs, arrangements
or practices of Company together with those of its subsidiaries being referred
to as the "Company Plans"). True and complete copies of each Company Plan has
been made available to the Company. To the extent applicable, each Company Plan
complies in all material respects with the requirements of its terms, ERISA and
the Code. Each Company Plan intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the IRS. No Company Plan
is covered by Title IV of ERISA or Section 412 of the Code. Neither the Company
nor any of its subsidiaries has incurred any liability or penalty under Section
4975 of the Code or Section 502(i) of ERISA with respect to any Company Plan. To
the knowledge of the Company, there are no pending, threatened or anticipated
claims against or otherwise involving the Company Plans, except routine claims
for benefits. All material contributions required to be made as of the date of
this Merger Agreement to the Company Plans have been made or properly accounted
for. Neither the Company nor any entity under "common control" with the Company
within the meaning of Section 4001 of ERISA has contributed to or been required
to contribute to, any "multiemployer plan" (as defined in Section 3(37) of
ERISA). No Company Plan provides for post-retirement medical benefits, other
than as required by applicable law.
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SECTION 5.14 Labor Controversies.
Except as set forth on Schedule 5.14 attached hereto, (a) there are no
significant controversies pending or, to the knowledge of the Company,
threatened between the Company or its subsidiaries and any representatives of
any of their employees, (b) to the knowledge of the Company, there are no
material organizational efforts presently being made involving any of the
presently unorganized employees of the Company or its subsidiaries, (c) the
Company and its subsidiaries have, to the knowledge of the Company, complied in
all material respects with all laws relating to the employment of labor,
including, without limitation, any provisions thereof relating to wages, hours,
collective bargaining, and the payment of social security and similar taxes, and
(d) no person has, to the knowledge of the Company, asserted that the Company or
any of its subsidiaries is liable in any amount for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing, except for
such controversies, organizational efforts, noncompliance and liabilities which
would not have a Company Material Adverse Effect.
SECTION 5.15 Environmental Matters.
Except as set forth on Schedule 5.15 attached hereto, (i) the Company and
its subsidiaries have conducted their respective businesses in compliance with
all applicable Environmental Laws, including, without limitation, having all
permits, licenses and other approvals and authorizations necessary for the
operation of their respective businesses as presently conducted, (ii) none of
the properties owned by the Company or any of its subsidiaries contain any
Hazardous Substance as a result of any activity of the Company or any of its
subsidiaries in amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) neither the Company nor any of its subsidiaries has
received any notices, demand letters or requests for information from any
Federal, state, local or foreign governmental entity or third party indicating
that the Company or any of its subsidiaries may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
their businesses, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company and its subsidiaries, threatened against the
Company or any of its subsidiaries relating to any violation, or alleged
violation, of any Environmental Law, (v) no reports have been filed, or are
required to be filed, by the Company or any of its subsidiaries concerning the
release of any Hazardous Substance or the threatened or actual violation of any
Environmental Law, (vi) no Hazardous Substance has been disposed of, released or
transported in violation of any applicable Environmental Law from any properties
owned by the Company or any of its subsidiaries as a result of any activity of
the Company or any of its subsidiaries during the time such properties were
owned, leased or operated by the Company or any of its subsidiaries, (vii) there
have been no environmental investigations, studies, audits, tests, reviews or
other analyses regarding compliance or noncompliance with any applicable
Environmental Law conducted by or which are in the possession of the Company or
its subsidiaries relating to the activities of the Company or its subsidiaries
which have not been delivered to Parent prior to the date hereof, (viii) there
are, to the knowledge of Company and its subsidiaries, no underground storage
tanks on, in or under any properties owned by the Company or any of its
subsidiaries and no underground storage tanks have been closed or removed from
any of such properties during the time such properties were owned, leased or
operated by the Company or any of its subsidiaries, (ix) there is, to the
knowledge of Company and its subsidiaries, no asbestos or asbestos containing
material present in any of the properties owned by the Company and its
subsidiaries, and no asbestos has been removed from any of such properties
during the time such properties were owned, leased or operated by the Company or
any of its subsidiaries, and (x) neither the Company, its subsidiaries nor any
of their respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (x) that would not reasonably be expected to have a Company
Material Adverse Effect.
SECTION 5.16 Title to Assets.
Except as set forth on Schedule 5.16 attached hereto, the Company and each
of its subsidiaries has good and marketable title in fee simple to all its real
property and good title to all its leasehold interests and other
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properties, as reflected in the most recent balance sheet included in the
Company Financial Statements, except for properties and assets that have been
disposed of in the ordinary course of business since the date of such balance
sheet, free and clear of all mortgages, liens, pledges, charges or encumbrances
of any nature whatsoever, except (i) the lien for current taxes, payments of
which are not yet delinquent, (ii) such imperfections in title and easements and
encumbrances, if any, as are not substantial in character, amount or extent and
do not materially detract from the value or interfere with the present use of
the property subject thereto or affected thereby, or otherwise materially impair
the Company's business operations (in the manner presently carried on by the
Company) or (iii) as disclosed in Schedule 5.16 attached hereto, and except for
such matters which would not have a Company Material Adverse Effect. All leases
under which the Company leases any substantial amount of real or personal
property have been made available to Parent and are in good standing, valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event which with notice or lapse of time
or both would become a default other than defaults under such leases which would
not have a Company Material Adverse Effect.
SECTION 5.17 Company Stockholders' Approval.
The affirmative vote of stockholders of the Company required for approval
and adoption of this Agreement and the Merger is a majority of the outstanding
shares of Company Common Stock and sixty percent (60%) of the holders of each
class of Company Preferred Stock.
SECTION 5.18 Pooling and Tax-Free Reorganization Matters.
To the knowledge of the Company and based upon consultation with its
independent accountants, neither the Company nor any of its affiliates has taken
or agreed to take any action that would interfere with the ability of Parent to
(a) account for the business combination to be effected by the Merger as a
pooling of interests or (b) treat the Merger as a tax-free reorganization
pursuant to Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
SECTION 5.19 Insurance.
Except as set forth on Schedule 5.19 attached hereto, the Company maintains
insurance with financially responsible insurance companies in amounts customary
in its industry to insure it against risks and losses associated with the
operation of its business and its properties. Copies of such policy or policies
have been made available to Parent.
SECTION 5.20 Opinion of Company's Financial Advisor.
The Board of Directors of the Company has received the opinion of Smith
Barney Inc. ("Smith Barney"), financial advisor to the Company, to the effect
that, as of the date of this Agreement, the Exchange Ratio is fair, from a
financial point of view, to the holders of Company Common Stock (the "Smith
Barney Opinion").
SECTION 5.21 Brokers.
The Company represents and warrants that no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company (except for fees,
expenses and amounts of indemnity payable to Smith Barney).
SECTION 5.22 Contracts and Commitments.
(a) There is no default or event that with notice or lapse of time, or
both, would constitute a material default by the Company or any of its
subsidiaries under any of the material contracts (a "Material Contract") to
which it is a party. Neither the Company nor any of its subsidiaries has
received written notice of an outstanding, uncured default under any Material
Contract by any other party thereto. Except as set forth in Schedule 5.22
attached hereto, neither the Company nor any of its subsidiaries has any
knowledge (i) that any
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hospital, hospital system, independent practice association ("IPA"), physician
group, physician, pharmacy, laboratory, home health care agency, nursing
facility, mental health provider, therapist or other allied health care
professional or institution (each a "Provider" and collectively "Providers")
representing individually or in the aggregate in excess of ten percent (10%) of
the enrollees of the Company or of the total number of Providers are organized
or attempting to organize any entity (whether or not incorporated) for the
purpose of bargaining or otherwise dealing with the Company on a collective
basis (except with respect to individual Providers who have formed professional
corporations or partnerships with respect to IPAs and medical groups which
already contract with the Company or its subsidiaries); (ii) that IPAs, medical
groups or individual physicians which contract with the Company or its
subsidiaries and which serve individually or in the aggregate more than ten
percent (10%) of the enrollees of the Company or its subsidiaries have provided
written notice of an intent (whether or not legally binding) to terminate or not
to renew their respective contracts with the Company or its subsidiaries; (iii)
of any circumstances likely to result in disenrollment of enrollees, the loss of
which individually and in the aggregate would have a Company Material Adverse
Effect, other than those occurring as a result of general economic or financial
conditions or other conditions or developments that are not unique to the
Company and its subsidiaries but also affect other persons who participate or
are engaged in the lines of business in which the Company and its subsidiaries
participate or are engaged; or (iv) of any Provider providing services to the
Company and its subsidiaries that does not maintain professional liability
insurance.
(b) Each of the Material Contracts is enforceable against the Company or
any of its subsidiaries, as the case may be, in accordance with its terms,
except as such enforceability may be limited by general principles of equity or
by bankruptcy, insolvency or other similar laws relating to rights of creditors.
Neither the Company nor any of its subsidiaries has received written notice that
any party to any of the Material Contracts intends to cancel or terminate any of
the Material Contracts or to exercise or not exercise any options under any of
the Material Contracts.
SECTION 5.23 Intellectual Property.
Except as set forth on Schedule 5.23 attached hereto, the Company does not
have any patents, trademarks, service marks, trade names, corporate names
(including all registrations and applications therefor) and copyright
registrations and applications that are material to the business or condition of
the Company or any of its subsidiaries.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger.
Except as otherwise contemplated by this Agreement, after the date hereof
and prior to the Closing Date or earlier termination of this Agreement, unless
Parent shall otherwise agree in writing, the Company shall, and shall cause its
subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters or
bylaws, (ii) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the
declaration and payment of dividends by a wholly-owned subsidiary solely to
its parent corporation, (iii) split, combine, reclassify or take similar
action with respect to any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, (iv) adopt a plan of
complete or partial liquidation or resolutions providing for or authorizing
such liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (v) directly or indirectly
redeem, repurchase or otherwise acquire any shares of its capital stock or
any option with respect thereto;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any
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class or any debt or equity securities convertible into or exchangeable for
such capital stock, except that the Company (i) may grant options to the
extent required to be granted automatically under the Company's Plans or
pursuant to written employment agreements disclosed on a Schedule hereto,
(ii) may issue shares upon conversion of convertible securities and
exercise of options outstanding on the date hereof, or options granted
pursuant to subsection (c)(i) of this Section 6.1 and (iii) may issue
shares necessary to effect the transactions contemplated by Section 7.14;
(d) not (i) incur (which shall not be deemed to include entering into
credit agreements, lines of credit or similar arrangements until borrowings
are made under such arrangements) any indebtedness for borrowed money or
guarantee any such indebtedness other than in the ordinary course of its
business consistent with past practice in an aggregate principal amount
exceeding $5,000,000 (net of any amounts of any such indebtedness
discharged during such period), or (ii) voluntarily purchase, cancel,
prepay or otherwise provide for a complete or partial discharge in advance
of a scheduled repayment date with respect to, or waive any right under,
any indebtedness for borrowed money other than in the ordinary course of
its business consistent with past practice in an aggregate principal amount
exceeding $5,000,000, (iii) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible into
or exchangeable for its capital stock, (iv) knowingly take any action which
would jeopardize the treatment of the Merger as a pooling of interests
under APB No. 16, (v) knowingly take or fail to take any action which
action or failure would cause the Company or its stockholders (except to
the extent that any stockholders receive cash in lieu of fractional shares)
to recognize gain or loss for Federal income tax purposes as a result of
the consummation of the Merger, (vi) make any acquisition of any assets or
businesses in an aggregate amount in excess of $250,000, (vii) sell,
pledge, dispose of or encumber any assets or businesses other than sales in
the ordinary course of business or (viii) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(e) not, except to the extent required by applicable law, (x) permit
any material change in (A) any pricing, marketing, purchasing, investment,
accounting, financial reporting, inventory, credit, allowance or tax
practice or policy or (B) any method of calculating any bad debt,
contingency or other reserve for accounting, financial reporting or tax
purposes or (y) make any material tax election or settle or compromise any
material income tax liability with any governmental or regulatory body or
authority;
(f) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill
and business relationships with customers and others having business
relationships with them and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(g) confer on a regular and frequent basis with one or more
representatives of Parent to report operational matters of materiality and
the general status of ongoing operations;
(h) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees,
except in the ordinary course and consistent with past practice;
(i) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation,
health care, employment or other employee benefit plan, agreement, trust,
fund or arrangement for the benefit or welfare of any employee or retiree,
except as required to comply with changes in applicable law; and
(j) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts and
against such risks and losses as are consistent with past practice.
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SECTION 6.2 Conduct of Business by Parent and Acquisition Pending the Merger.
Except as otherwise contemplated by this Agreement, after the date hereof
and prior to the Closing Date or earlier termination of this Agreement, unless
the Company shall otherwise agree in writing, Parent and Acquisition shall, and
shall cause their subsidiaries, to:
(a) not (i) amend or propose to amend their respective charters or
bylaws, (ii) declare, set aside or pay any dividends on or make other
distributions in respect of any of its capital stock, except for the
declaration and payment of dividends by a wholly-owned subsidiary solely to
its parent corporation, (iii) split, combine, reclassify or take similar
action with respect to any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, (iv) adopt a plan of
complete or partial liquidation or resolutions providing for or authorizing
such liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization (except in connection with the
potential acquisitions described on Schedule 6.2 attached hereto or
subsequently disclosed to Company in writing) or (v) directly or indirectly
redeem, repurchase or otherwise acquire any shares of its capital stock or
any option with respect thereto;
(b) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any shares of Parent Common Stock, or any options,
warrants or rights of any kind to acquire any shares of their capital stock
of any class or any debt or equity securities convertible into or
exchangeable for such capital stock, except that Parent may issue shares
(i) upon conversion of convertible securities and exercise of options
outstanding on the date hereof or granted following the date hereof
consistent with Parent's prior practices and (ii) in connection with the
potential acquisitions described on Schedule 6.2 attached hereto or
subsequently disclosed to Company in writing;
(c) not (i) incur (which shall not be deemed to include entering into
credit agreements, lines of credit or similar arrangements until borrowings
are made under such arrangements) any indebtedness for borrowed money or
guarantee any such indebtedness other than in the ordinary course of its
business consistent with past practice in an aggregate principal amount
exceeding $300,000,000 (net of any amounts of any such indebtedness
discharged during such period), (ii) voluntarily purchase, cancel, prepay
or otherwise provide for a complete or partial discharge in advance of a
scheduled repayment date with respect to, or waive any right under, any
indebtedness for borrowed money other than in the ordinary course of its
business consistent with past practice in an aggregate principal amount
exceeding $300,000,000, (iii) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iv) knowingly take
any action which would jeopardize the treatment of the Merger as a pooling
of interests under APB No. 16, (v) knowingly take or fail to take any
action which action or failure to take action would cause the Company or
its stockholders (except to the extent that any stockholders receive cash
in lieu of fractional shares) to recognize gain or loss for Federal income
tax purposes as a result of the consummation of the Merger, (vi) make any
acquisition of any assets or businesses other than expenditures for fixed
or capital assets in the ordinary course of business and as described on
Schedule 6.2 attached hereto or subsequently disclosed to Company in
writing, (vii) sell, pledge, dispose of or encumber any assets or
businesses other than sales in the ordinary course of business or (viii)
enter into any contract, agreement, commitment or arrangement with respect
to any of the foregoing;
(d) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill
and business relationships with customers and others having business
relationships with them and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement; and
(e) be reasonably available to confer on a regular and frequent basis
with one or more representatives of the Company to report operational
matters of materiality and the general status of ongoing operations.
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SECTION 6.3 Control of the Company's Operations.
Nothing contained in this Agreement shall give to Parent, directly or
indirectly, rights to control or direct the Company's operations prior to the
Effective Time. Prior to the Effective Time, the Company shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision of its operations.
SECTION 6.4 Control of Parent's Operations.
Nothing contained in this Agreement shall give to the Company, directly or
indirectly, rights to control or direct Parent's or Acquisition's operations
prior to the Effective Time. Prior to the Effective Time, Parent and Acquisition
shall exercise, consistent with the terms and conditions of this Agreement,
complete control and supervision of their respective operations.
SECTION 6.5 Conduct of Business of Acquisition.
During the period from the date of this Agreement to the Effective Time,
Acquisition shall not engage in any activities of any nature except as provided
in or contemplated by this Agreement. Parent shall take all actions necessary to
cause Acquisition to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth herein.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information.
(a) The Company and its subsidiaries shall afford to Parent and Acquisition
and their respective accountants, counsel, financial advisors and other
representatives (the "Parent Representatives") and Parent and its subsidiaries
shall afford to the Company and its accountants, counsel, financial advisors and
other representatives (the "Company Representatives") reasonable access during
normal business hours throughout the period prior to the earlier of the
termination of this Agreement or the Effective Time to all of their respective
properties, books, contracts, commitments and records (including, but not
limited to, Tax Returns) and, during such period, shall furnish promptly to one
another (i) a copy of each report, schedule and other document filed or received
by any of them pursuant to the requirements of Federal or state securities laws
or filed by any of them with the Commission in connection with the transactions
contemplated by this Agreement or which may have a material effect on their
respective businesses, properties or personnel and (ii) such other information
concerning their respective businesses, properties and personnel as Parent,
Acquisition or the Company, as the case may be, shall reasonably request;
provided that no investigation pursuant to this Section 7.1 shall amend or
modify any representations or warranties made herein or the conditions to the
obligations of the respective parties to consummate the Merger. Parent and its
subsidiaries shall hold and shall use their reasonable best efforts to cause the
Parent Representatives to hold, and the Company and its subsidiaries shall hold
and shall use their reasonable best efforts to cause the Company Representatives
to hold, in strict confidence all such information in accordance with the terms
of the confidentiality agreement dated as of November 6, 1996 (the
"Confidentiality Agreement"), between Parent and the Company.
(b) In the event that this Agreement is terminated in accordance with its
terms, each party shall promptly return to the other all non-public written
material provided pursuant to this Section 7.1 or the Confidentiality Agreement
and shall not retain any copies, extracts or other reproductions in whole or in
part of such written material. In such event, all documents, memoranda, notes
and other writings prepared by Parent or the Company based on the information in
such material shall be destroyed (and Parent and the Company shall use their
respective reasonable best efforts to cause their advisors and representatives
to similarly destroy their documents, memoranda and notes), and such destruction
(and reasonable best efforts) shall be certified in writing by an authorized
officer supervising such destruction.
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(c) The Company shall promptly advise Parent and Parent shall promptly
advise the Company in writing of any change or the occurrence of any event after
the date of this Agreement having, or which could reasonably be expected to
have, any Company Material Adverse Effect or Parent Material Adverse Effect, as
the case may be.
SECTION 7.2 Registration Statement and Proxy Statement.
Parent shall file with the Commission as soon as is reasonably practicable
after the date hereof the Proxy Statement/Prospectus and shall use all
reasonable efforts to have the Registration Statement declared effective by the
Commission as promptly as practicable. Parent shall also take any action
required to be taken under applicable state blue sky, securities laws or rules
or regulations of any national securities exchange or the NNM in connection with
the issuance of Parent Common Stock pursuant hereto. Parent and the Company
shall promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with any action by any of
them in connection with the preceding two sentences.
SECTION 7.3 Company Stockholders' Approval.
The Company, Parent and Stockholders of the Company holding, in the
aggregate, a number of shares of Company Common Stock and Company Preferred
Stock sufficient to approve and adopt this Agreement are parties to a
Stockholder Agreement dated the date of this Agreement whereby such stockholders
have agreed to vote for approval and adoption of the Agreement and the
transactions contemplated hereby, among other matters (the "Stockholder
Agreement"). The Stockholder Agreement is in form attached hereto as Exhibit
7.3. The Company shall, as promptly as practicable, submit this Agreement and
the transactions contemplated hereby for the approval of its stockholders at a
meeting of stockholders and shall use its best efforts to seek to obtain
stockholder approval and adoption (the "Company Stockholders' Approval") of this
Agreement and the transactions contemplated hereby. Such meeting of stockholders
shall be held as soon as practicable following the date upon which the
Registration Statement becomes effective. Subject to the fiduciary duties of the
board of directors of the Company under applicable law, the Company shall,
through its board of directors, recommend to its stockholders approval of the
transactions contemplated by this Agreement. Subject to the foregoing, the
Company (i) acknowledges that a breach of its covenant contained in this Section
7.3(a) to convene a meeting of its stockholders and call for a vote thereat with
respect to the approval of this Agreement and the Merger will result in
irreparable harm to Parent which will not be compensable in money damages and
(ii) agrees that such covenant shall be specifically enforceable and that
specific performance and injunctive relief shall be a remedy properly available
to Parent for a breach of such covenant.
SECTION 7.4 Affiliates of the Company and Parent.
On or prior to July 15, 1997, the Company and Parent shall each deliver to
the other a letter pursuant to Staff Accounting Bulletins 65 & 76 and Accounting
Series Releases 130 & 135 (the "APB No. 16 Affiliate Letter") identifying all
persons who may be deemed affiliates of the Company or Parent, respectively, for
the purposes of the foregoing, including, without limitation, all directors and
executive officers of the Company or of the Parent as of the date of the APB No.
16 Affiliate Letter. On or prior to the date that is five (5) days prior to the
Closing Date, (i) the Company shall deliver to Parent another letter (the "Rule
145 Letter") identifying all persons who may be affiliates of the Company, as
defined under Rule 145 under the Securities Act ("Rule 145"), as of the date of
the Rule 145 Letter, and (ii) the Company shall advise the persons identified in
the Rule 145 Letter of the resale restrictions imposed by applicable securities
laws. Each of the Company and Parent shall use its reasonable best efforts to
obtain as soon as practicable from each person listed on the respective APB No.
16 Affiliate Letter and from any person who may be deemed to have become an
affiliate of the Company or Parent for the purposes of the foregoing after such
party's delivery of the APB No. 16 Affiliate Letter and in any event not later
than July 31, 1997, an agreement not to sell shares of Company Common Stock or
Parent Common Stock in excess of an amount which would, in the aggregate,
contravene the provisions of the foregoing until combined results of operations
of the Company and Parent
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covering at least thirty (30) days of combined operations are made public.
Parent will keep current its filings under the Exchange Act for purposes of
reliance by Company affiliates upon the resale provisions of Rule 145.
SECTION 7.5 Exchange Listing.
Parent shall use its reasonable best efforts to effect, at or before the
Effective Time, authorization for inclusion on the NNM, upon official notice of
issuance, of the shares of Parent Common Stock to be issued pursuant to the
Merger.
SECTION 7.6 Expenses and Fees.
All costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.
SECTION 7.7 Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use its reasonable best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including using its
reasonable best efforts to obtain all necessary or appropriate waivers, consents
and approvals and Commission "no-action" letters to effect all necessary
registrations, filings and submissions and to lift any injunction or other legal
bar to the Merger (and, in such case, to proceed with the Merger as
expeditiously as possible).
(b) Without limitation of the foregoing, each of Parent and the Company
undertakes and agrees to (i) take all actions necessary to cause the Merger to
(a) qualify as a tax-free merger under Section 368 of the Code and (b) be
treated as a pooling of interests under APB No. 16 for accounting and financial
statement purposes, and (ii) file as soon as practicable after the date hereof a
Notification and Report Form under the HSR Act with the Federal Trade Commission
(the "FTC") and the Antitrust Division of the Department of Justice (the
"Antitrust Division"). Each of Parent and the Company shall (i) use its
reasonable efforts to comply as expeditiously as possible with all lawful
requests of the FTC or the Antitrust Division for additional information and
documents and (ii) not extend any waiting period under the HSR Act or enter into
any agreement with the FTC or the Antitrust Division not to consummate the
transactions contemplated by this Agreement, except with the prior written
consent of such parties.
SECTION 7.8 Public Statements.
The parties shall consult with each other prior to issuing any press
release or any written public statement with respect to this Agreement or the
transactions contemplated hereby and shall not issue any such press release or
written public statement prior to such consultation unless required by law, by
regulation of the NNM or upon written advice of counsel.
SECTION 7.9 Employee Matters.
(a) From and after the Effective Time, Parent and the Surviving
Corporation, and their respective affiliates will honor in accordance with their
terms all existing employment, severance, consulting and salary continuation
agreements between the Company and any current or former officer, director,
employee or consultant to the Company.
(b) Parent agrees that, for one year after the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, provide employee benefit
plans and programs for the benefit of employees and former employees of the
Company ("Company Employees"), which, in the aggregate, are no less favorable
than the Company employee benefit plans and programs in effect immediately prior
to the Effective Time. Parent further agrees that, for the two year period
beginning on the date one year following the Effective Time, Parent shall
provide, or shall cause the Surviving Corporation to provide, Company Employees
with employee benefit plans and programs that are no less favorable in the
aggregate to those provided from time to time to
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employees of Parent of comparable status and seniority. Except with respect to
plans and programs set forth on Schedule 7.9 attached hereto, with respect to
such benefits, past service, compensation and expense credits of such Company
Employees shall be recognized, whenever reasonably possible consistent with the
terms of such plans and programs, for all purposes under such plans (including,
but not limited to, participation, eligibility, vesting and calculation of
benefits), and each employee or fringe benefit plan or program available to
Company Employees as contemplated hereby shall be applied to such Company
Employees.
SECTION 7.10 Notification of Certain Matters.
Each of the Company, Parent and Acquisition agrees to give prompt notice to
each other of, and to use their respective reasonable best efforts to prevent or
promptly remedy, (a) the occurrence or failure to occur or the impending or
threatened occurrence or failure to occur, of any event which occurrence or
failure to occur would be likely to cause any of its representations or
warranties in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the Effective Time and (b) any material
failure on its part to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 7.10 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 7.11 Corrections to the Proxy Statement/Prospectus and Registration
Statement.
Prior to the date of the Company Stockholders' Approval of the Merger, each
of the Company, Parent and Acquisition shall correct promptly any information
provided by it to be used in the Proxy Statement/Prospectus and Registration
Statement that shall have become false or misleading in any material respect and
shall take all reasonable steps necessary to file with the Commission and have
declared effective or cleared by the Commission any amendment or supplement to
the Proxy Statement/Prospectus or the Registration Statement so as to correct
the same and to cause the Proxy Statement/Prospectus as so corrected to be
disseminated to the stockholders of the Company and Parent, in each case to the
extent required by applicable law.
SECTION 7.12 Insurance; Indemnity.
For a period of six (6) years following the Effective Time, Parent shall
indemnify, defend and hold harmless to the fullest extent permitted under
applicable law each person who is now or has been an officer, director,
employee, trustee or agent of the Company (or any subsidiary or division
thereof), including, without limitation, each person controlling any of the
foregoing persons (individually, an "Indemnified Party" and collectively, the
"Indemnified Parties"), against all losses, claims, damages, liabilities, costs
or expenses (including reasonable attorneys' fees), judgments, fines, penalties
and amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to acts or omissions,
or alleged acts or omissions, by them in their capacities as such, whether
commenced, asserted or claimed before or after the Effective Time. In the event
of any such claim, action, suit, proceeding or investigation (an "Action"), (i)
Parent shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Party, which counsel shall be reasonably acceptable to Parent, in
advance of the final disposition of any such Action to the full extent and under
all circumstances permitted by Delaware law as in effect on the date hereof,
upon receipt of any undertaking required by applicable law, and (ii) Parent will
direct the defense of any such matter; provided, however, that Parent shall not
be obligated pursuant to this Section to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single Action, except to the
extent that, in the opinion of counsel for the Indemnified Parties, two or more
of such Indemnified Parties have conflicting interests in the outcome of such
action. Immediately following the Effective Time, Parent shall purchase and
maintain or cause the Surviving Corporation to purchase and maintain, for a
period of six (6) years following the Effective Time, policies of directors' and
officers' liability insurance covering each person who was a director or officer
of the Company at any time prior to the Effective Time with respect to claims
arising from facts or events that occurred on or prior to the Effective Time and
providing at least the same coverage and amounts and containing terms that are
no less advantageous to the insured parties as those in effect immediately prior
to the Effective Time for officers and directors of Parent. The provisions of
this
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Section 7.12 are intended to be for the benefit of, and shall be enforceable by,
each Indemnified Party and each party entitled to insurance coverage under the
previous sentence hereof, respectively, and his or her heirs and legal
representatives, and shall be in addition to any other rights an Indemnified
Party may have under the certificate or articles of incorporation or bylaws of
the Surviving Company or any of its subsidiaries, under the DGCL or otherwise.
SECTION 7.13 No Solicitations.
Prior to the Effective Time, the Company agrees (a) that neither it nor any
of its subsidiaries shall, and it shall use its best efforts to cause their
respective representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to a merger, consolidation or other business combination including
the Company or any of its subsidiaries or any acquisition or similar transaction
(including, without limitation, a tender or exchange offer) involving the
purchase of (i) all or any portion of the assets of the Company and its
subsidiaries taken as a whole, (ii) any of the outstanding shares of Company
Common Stock or (iii) any of the outstanding shares of the capital stock of any
subsidiary of the Company (any such proposal or offer being hereinafter referred
to as an "Alternative Proposal"), or engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person or group relating to an Alternative Proposal (excluding the
transactions contemplated by this Agreement), or otherwise facilitate any effort
or attempt to make or implement an Alternative Proposal; and (b) that it will
notify Parent immediately if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it or any such person
or group. There shall be excepted from this Section 7.13 the transactions
effected pursuant to Section 7.14 hereof.
SECTION 7.14 Roll-up Transactions.
(a) Roll-up Notices. Following the execution of this Agreement, the Company
shall deliver notices to each of the holders ("Minority Holders"), excluding the
Company and its affiliates, of stock ("Minority Shares") and/or stock options
("Minority Options") in any of the Company's subsidiaries (as defined in Section
4.2(c) above), which notices shall serve to inform the Minority Holders of the
Company's intention to undertake the transactions contemplated by the
shareholder agreements ("Minority Shareholder Agreements") and stock option
plans ("Minority Option Plans") relating to such subsidiaries to eliminate the
Minority Holders' interests in each such subsidiary ("Roll-up Transactions").
The Company will use its best efforts to consummate all of the Roll-up
Transactions as of the Effective Time.
(b) Minority Shares. If the Roll-up Transactions relating to the Minority
Shares of a particular subsidiary are consummated as of the Effective Time, such
Minority Shares shall be exchanged for Company Common Stock at the Effective
Time as provided in the related Minority Shareholder Agreement and shall be
treated in the Merger as other issued and outstanding Company Common Stock is
treated pursuant to Section 3.1 of this Agreement. If the Roll-up Transactions
relating to the Minority Shares of a particular subsidiary will not be
consummated as of the Effective Time, the Company shall use its best efforts to
induce each holder of Minority Shares in such subsidiary to enter into an escrow
agreement with Parent and the Company ("Escrow Agreement") providing that such
holder shall have no actions, causes of action or claims against the Company or
Parent with respect to such holder's Minority Shares other than for a number of
shares of Parent Common Stock not to exceed those held in the escrow
specifically to complete the Roll-up Transactions for such subsidiary.
(c) Minority Options. If the Roll-up Transactions relating to the Minority
Options issued by a particular subsidiary are consummated as of the Effective
Time, such Minority Options shall be exchanged for Company Stock Options at the
Effective Time as provided in the related Minority Option Plan and shall be
treated in the Merger as other issued and outstanding Company Stock Options are
treated pursuant to Section 3.5 of this Agreement. If the Roll-up Transactions
relating to the Minority Options of a particular subsidiary will not be
consummated as of the Effective Time, the Company shall use its best efforts to
induce each holder of such Minority Options to enter into an Escrow Agreement
providing that such holder shall have
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no actions, causes of action or claims against the Company or Parent with
respect to such holder's Minority Options other than for a number of shares of
Parent Common Stock and/or Parent Stock Options held in the escrow specifically
to complete the Roll-up Transactions for such subsidiary.
(d) Escrow Provisions. Any shares of Parent Common Stock or Parent Stock
Options held in any escrow pursuant to this Section 7.14 shall constitute shares
or options which would otherwise be issuable to stockholders or optionees of the
Company in the Merger. The terms of each Escrow Agreement and any related escrow
arrangements shall be reasonably agreed upon by Parent and the Company.
(e) Adjustments Following Completion of Roll-up Transactions. If, following
the completion of a Roll-up Transaction for any subsidiary after the Effective
Time, there are shares of Parent Common Stock remaining in any escrow account
established with respect to the Minority Shares of or Minority Options issued by
such subsidiary, a number of such shares remaining in all such escrow account
shall be distributed to the former Company stockholders and option holders who
received shares of Parent Common Stock pursuant to Section 3.1 and Section 3.5,
respectively.
SECTION 7.15 Bank Consent.
Parent shall use its reasonable best efforts to obtain the consent of its
senior lender with respect to the transactions contemplated by this Agreement on
or before August 15, 1997.
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the requisite
vote of the stockholders of the Company under the Company's Certificate of
Incorporation and applicable law.
(b) Inclusion of Parent Common Stock. The shares of Parent Common
Stock issuable in the Merger shall have been authorized for listing on the
NNM upon official notice of issuance.
(c) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(d) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act
and state blue sky laws, if applicable, and no stop order suspending such
effectiveness shall have been issued and remain in effect and no proceeding
for that purpose shall have been instituted by the Commission or any state
regulatory authorities.
(e) No Injunction. No preliminary or permanent injunction or other
order or decree by any Federal or state court which prevents the
consummation of the Merger shall have been issued and remain in effect
(each party agreeing to use its reasonable efforts to have any such
injunction, order or decree lifted).
(f) Pooling. Parent and the Company shall have received letters from
Deloitte & Touche LLP and KPMG Peat Marwick LLP, respectively, dated not
more than two business days prior to the Effective Time, to the effect that
the Merger qualifies for "pooling of interests" accounting treatment if
consummated in accordance with this Agreement and if the operations of
Parent and the Surviving Corporation are conducted in a manner that do not
violate "pooling of interests" accounting treatment.
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SECTION 8.2 Conditions to Obligation of the Company to Effect the Merger.
Unless waived by the Company, the obligation of the Company to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:
(a) Compliance with Covenants; Accuracy of Representations and
Warranties. Parent and Acquisition shall have performed in all material
respects their agreements, covenants and obligations contained in this
Agreement required to be performed or complied with by Parent and
Acquisition on or prior to the Closing Date and the representations and
warranties of Parent and Acquisition contained in this Agreement shall be
true and correct in all material respects (except for such representations
and warranties that are qualified by a reference to materiality, which
representations and warranties as so qualified shall be true in all
respects) on and as of the date made and on and as of the Closing Date as
if made at and as of such date, and the Company shall have received a
certificate of the Chairman of the Board and Chief Executive Officer, the
President or a Vice President of Parent and of the President and Chief
Executive Officer or a Vice President of Acquisition to that effect.
(b) Tax Opinion. The Company shall have received from Gibson, Dunn &
Crutcher LLP, counsel to the Company, on the date of the Proxy Statement
and on the Closing Date opinions, in each case dated as of such respective
dates and stating that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that Parent, Acquisition and the Company will each be a party to
that reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinions, counsel for the Company shall be entitled to rely
upon representations of officers and affiliates of Parent, Acquisition and
the Company reasonably satisfactory in form and substance to such counsel
and to Parent and Acquisition.
(c) Fairness Opinion. The Smith Barney Opinion shall not have been
withdrawn.
(d) Consents; Approvals. Parent shall have obtained all of the
consents set forth on Schedule 4.3(b) attached hereto. With respect to the
Parent Required Statutory Approvals, all approvals shall have been obtained
and all filings which are required to be made prior to the Effective Time
shall have been submitted.
(e) Employee Matters. Parent shall have entered into employment
agreements and have taken such other employee related matters as are listed
on a Memorandum of even date herewith initialed among the parties.
(f) Registration Rights Agreement. Parent shall have executed and
delivered the Registration Rights Agreement in the form attached hereto as
Exhibit 8.2(f).
(g) Opinions of Counsel. The Company shall have received the opinions
of Pillsbury Madison & Sutro LLP, and James A. Lebovitz, Esq., counsel to
Parent, dated the Closing Date, in form reasonably satisfactory to the
Company.
(h) Bank Consent. Parent shall have received the consent of its senior
lender with respect to the transactions contemplated by this Agreement not
later than the date set forth in Section 7.15.
SECTION 8.3 Conditions to Obligations of Parent and Acquisition to Effect the
Merger.
Unless waived by Parent and Acquisition, the obligations of Parent and
Acquisition to effect the Merger shall be subject to the fulfillment at or prior
to the Effective Time of the additional following conditions:
(a) Compliance with Covenants; Accuracy of Representations and
Warranties. The Company shall have performed in all material respects its
agreements, covenants and obligations contained in this Agreement required
to be performed or complied with by the Company on or prior to the Closing
Date and the representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects (except
for such representations and warranties that are qualified by their terms
by a referral to materiality, which representations and warranties as so
qualified shall be true in all respects) on and as of the date made and on
and as of the Closing Date as if made at and as of such date,
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and Parent shall have received a Certificate of the President and Chief
Executive Officer or of a Vice President of the Company to that effect.
(b) Tax Opinion. Parent shall have received from Pillsbury Madison &
Sutro LLP, counsel to Parent, on the date of the Proxy Statement and on the
Closing Date opinions, in each case dated as of such respective dates and
stating that the Merger will be treated for Federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code and that
Parent, Acquisition and the Company will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinions, counsel for Parent shall be entitled to rely upon
representations of officers and affiliates of Parent, Acquisition and the
Company reasonably satisfactory in form and substance to such counsel and
to the Company.
(c) Consents; Approvals. The Company shall have obtained all of the
consents set forth on Schedule 5.4(b) attached hereto. With respect to the
Company Required Statutory Approvals, all approvals shall have been
obtained and all filings which are required to be made prior to the
Effective Time shall have been submitted.
(d) Resignations. Parent shall have received from the Company the
resignations of all individuals serving as directors of the Company
immediately prior to the Effective Time.
(e) Master Strategic Agreement for Private Practice Partnerships. The
Company and Oxford Health Plans, Inc., a Delaware corporation ("Oxford"),
shall have executed a master strategic agreement substantially in the form
of Exhibit 8.3(e) hereof.
(f) Wellpoint Memorandum of Understanding. The Company and Wellpoint
Health Networks, Inc., a Delaware corporation ("Wellpoint"), shall have
executed a Memorandum of Understanding substantially in the form of Exhibit
8.3(f) hereof.
(g) Opinion of Counsel. Parent shall receive the opinion of Gibson,
Dunn & Crutcher LLP, counsel to the Company, dated the Closing Date, in
form reasonably satisfactory to Parent.
(h) No Preferred Stock Outstanding. The Company and the holders of
Company Preferred Stock shall have taken all necessary actions to ensure
that all of the outstanding shares of Preferred Stock will be canceled or
converted into shares of Company Common Stock no later than immediately
prior to the Effective Time.
(i) Stock Option Acknowledgements. Stock Option Acknowledgements shall
have been executed and delivered by the holders of Company Stock Options
representing no less than eighty percent (80%) of the shares of Company
Stock available under all Company Stock Options (whether such Company Stock
Options are vested or unvested) as of immediately prior to the Effective
Time.
(j) Roll Up. Each Roll-up Transaction shall either be complete as of
the Effective Time or the parties with respect thereto shall have entered
into Escrow Agreements as contemplated by Section 7.14.
(k) Denominator Certificate. Parent shall have received the
Denominator Certificate in form reasonably acceptable to Parent.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination.
This Agreement may be terminated at any time prior to the Closing Date,
whether before or after approval by the stockholders of the Company, as follows:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by the date 120 days from the
date of this Agreement otherwise than on account of delay or default on
the part of the Company, provided that Parent may
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<PAGE> 32
extend such date for an additional 30 days if all Parent Required
Statutory Approvals and all Company Required Statutory Approvals have
not then been obtained or if the transactions contemplated by Section
7.14 shall not have been concluded;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of the Company or any of
its 5% stockholders or any of their affiliates or associates;
(iii) if Parent (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such
default in all material respects within thirty (30) days after written
notice of such default is given to Parent by the Company;
(iv) if any condition set forth in Section 8.1 or Section 8.2
hereof is not satisfied, other than as a result of the conduct of the
Company;
(v) if the Parent Value is less than $15.65; or
(vi) if the Parent shall not have received the consent of its
senior lender specified in Section 8.2(h) by not later than August 15,
1997.
(b) Parent shall have the right to terminate this Agreement.
(i) if the Merger is not completed by the date 120 days from the
date of this Agreement otherwise than account of delay or default on the
part of Parent, provided that Company may extend such date for an
additional 30 days if all Parent Required Statutory Approvals and
Company Required Statutory Approvals have not then been obtained or if
the transactions contemplated by Section 7.14 shall not have been
concluded;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of Parent or any of its
5% stockholders or any of their affiliates or associates;
(iii) if the Company (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure
such default in all material respects within thirty (30) days after
written notice of such default is given to the Company by Parent; or
(iv) if any condition set forth in Section 8.1 or Section 8.3
hereof is not satisfied, other than as a result of the conduct of
Parent.
(c) As used in this Agreement, (i) "affiliate" has the meaning
assigned to it in the Federal securities laws and (ii) "group" has the
meaning set forth in Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
SECTION 9.2 Effect of Termination.
In the event of termination of this Agreement by either Parent or the
Company, as provided in Section 9.1 hereof, this Agreement shall forthwith
become void and there shall be no further obligation on the part of the Company,
Parent, Acquisition or their respective officers or directors with respect to
obligations existing thereunder prior to the termination (except as set forth in
this Section 9.2 and in Sections 7.1, 7.6 and 7.8 hereof and except for the
rights of any non-breaching party in respect of a willful breach or a knowing
violation by another party of a covenant, representation or warranty hereunder,
all of which shall survive the termination).
SECTION 9.3 Amendment.
This Agreement may not be amended except by action taken by the parties'
respective boards of directors or duly authorized committees thereof and then
only by an instrument in writing signed on behalf of each of the parties hereto
and in compliance with applicable law.
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<PAGE> 33
SECTION 9.4 Waiver.
At any time prior to the Effective Time, the parties hereto may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto and
(c) waive compliance with any provisions of this Agreement or conditions
contained herein except that, after the vote of the Company's stockholders with
respect to this Agreement, the Exchange Ratio shall not be changed from that
provided herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival of Representations and Warranties.
All representations and warranties in this Agreement shall not survive the
Merger, and after effectiveness of the Merger neither the Company, Parent, the
Surviving Corporation or their respective officers or directors shall have any
further obligation with respect thereto.
SECTION 10.2 Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, mailed by nationally recognized
overnight mail service or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Parent or Acquisition to:
FPA Medical Management, Inc.
3636 Nobel Drive, 2nd Floor
San Diego, CA 92122
Attention: Chief Financial Officer
with copies to:
James A. Lebovitz, Esq.
Senior Vice President,
General Counsel & Secretary
FPA Medical Management, Inc.
3636 Nobel Drive, 2nd Floor
San Diego, CA 92122
and
Pillsbury Madison & Sutro LLP
101 W. Broadway, Suite 1800
San Diego, CA 92101
Attention: David R. Snyder, Esq.
(b) If to the Company, to:
Health Partners, Inc.
800 Connecticut Avenue
Norwalk, CT 06854
Attention: Charles G. Berg,
Chief Executive Officer
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<PAGE> 34
with a copy to:
Bruce D. Meyer, Esq.
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071
SECTION 10.3 Interpretation.
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
In this Agreement, unless a contrary intention appears, (i) the words "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section or other
subdivision and (ii) reference to any Article or Section means such Article or
Section hereof. No provision of this Agreement shall be interpreted or construed
against any party hereto solely because such party or its legal representative
drafted such provision.
SECTION 10.4 Miscellaneous.
This Agreement (including the documents and instruments referred to herein)
(a) constitutes the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, among the parties, or any of them,
with respect to the subject matter hereof, (b) except with respect to the
provisions of Sections 3.5 and 7.12, is not intended to confer upon any other
person any rights or remedies hereunder and shall be binding upon and inure to
the benefit solely of each party hereto, and their respective successors and
assigns, and (c) shall not be assigned by operation of law or otherwise, except
that Acquisition may assign this Agreement to any other wholly-owned subsidiary
of Parent. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY,
INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO
CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 10.5 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement. Each party agrees (i) to accept the facsimile signature of the
other party's representatives hereto and (ii) to be bound by its own
representative's facsimile signature hereon.
IN WITNESS WHEREOF, Parent, Acquisition and the Company have caused this
Agreement to be signed by their respective officers as of the date first written
above.
Parent
FPA MEDICAL MANAGEMENT, INC.
By: /s/ SETH M. FLAM
------------------------------------
Print Name: Seth M. Flam
Title: President & Chief Executive
Officer
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<PAGE> 35
Acquisition
FPA ACQUISITION CORP.
By: /s/ SETH M. FLAM
------------------------------------
Print Name: Seth M. Flam
Title: President & Chief Executive
Officer
Company
HEALTH PARTNERS, INC.
By: /s/ CHARLES G. BERG
------------------------------------
Print Name: Charles G. Berg
Title: Chief Executive Officer
A-32
<PAGE> 1
Conformed Copy
BRIDGE SECURITIES PURCHASE AGREEMENT
dated as of
February 6, 1998
between
OXFORD HEALTH PLANS, INC.
and
OXFORD FUNDING, INC.
Certain information in Exhibit 10(O) has been onitted pursuant to a request for
confidential treatment, and the material so omitted has been separately filed
with the Securities and Exchange Commission. Such omitted information is
marked by an asterisk(*).
<PAGE> 2
Table of Contents
Page
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ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions....................................................1
SECTION 1.2. Accounting Terms and Determinations...........................10
SECTION 1.3. Rules of Construction.........................................10
ARTICLE II
PURCHASE AND SALE OF NOTES
SECTION 2.1. Commitment to Purchase........................................11
SECTION 2.2. Notice of Purchase............................................11
SECTION 2.3. Purchase of Notes.............................................11
SECTION 2.4. Mandatory Reduction of Commitment.............................12
SECTION 2.5. Termination of Commitment.....................................12
SECTION 2.6. Prepayment of Notes...........................................13
SECTION 2.7. Effectiveness.................................................14
SECTION 2.8. Reserve Account...............................................14
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Corporate Existence and Power.................................15
SECTION 3.2. Authorization and Execution...................................15
SECTION 3.3. Governmental Authorization....................................15
SECTION 3.4. Contravention.................................................16
SECTION 3.5. Financial Information.........................................16
SECTION 3.6. Litigation....................................................17
SECTION 3.7. Environmental Matters.........................................17
SECTION 3.8. Taxes.........................................................17
SECTION 3.9. No Subsidiaries...............................................17
SECTION 3.10. Investments...................................................17
SECTION 3.11. Not an Investment Company.....................................17
SECTION 3.12. Full Disclosure...............................................18
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<PAGE> 3
Page
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SECTION 3.13. Capitalization................................................18
SECTION 3.14. Solicitation; Access to Information...........................18
SECTION 3.15. Non-Fungibility...............................................19
SECTION 3.16. Permits.......................................................19
SECTION 3.17. Leases........................................................19
SECTION 3.18. Absence of Any Undisclosed Liabilities........................20
SECTION 3.19. Governmental Regulations......................................20
SECTION 3.20. Brokers.......................................................20
SECTION 3.21. Intellectual Property.........................................20
SECTION 3.22. ERISA.........................................................21
SECTION 3.23. Security Interests............................................21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.1. Purchaser Representations.....................................21
ARTICLE V
CONDITIONS PRECEDENT TO PURCHASE OF NOTES
SECTION 5.1. Conditions to Purchaser's Obligation at Closing Date..........22
SECTION 5.2. Conditions to Purchaser's Obligation at Each Time
of Purchase.................................................24
ARTICLE VI
COVENANTS
SECTION 6.1. Information...................................................26
SECTION 6.2. Payment of Obligations........................................27
SECTION 6.3. Maintenance of Property; Insurance............................27
SECTION 6.4. Conduct of Business and Maintenance of Existence..............28
SECTION 6.5. Compliance with Laws..........................................28
SECTION 6.6. Inspection of Property, Books and Records.....................28
SECTION 6.7. Investment Company Act........................................29
SECTION 6.8. Debt or Other Liabilities.....................................29
SECTION 6.9. Restricted Payments...........................................29
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<PAGE> 4
Page
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SECTION 6.10. Disqualified Stock; Subsidiary Stock..........................30
SECTION 6.11. Investments...................................................30
SECTION 6.12. Negative Pledge...............................................30
SECTION 6.13. Transactions and Affiliates...................................32
SECTION 6.14. Consolidations and Mergers; Sales of Assets...................32
SECTION 6.15. Appointment of Director.......................................33
SECTION 6.16. Supplemental Information......................................33
SECTION 6.17. Use of Proceeds...............................................33
SECTION 6.18. Certain Fees..................................................33
SECTION 6.19. Permanent Financing...........................................34
SECTION 6.20. Restrictions on Certain Amendments............................35
SECTION 6.21. Restriction on Business Activities............................35
SECTION 6.22. Prohibition of Prepayment of Debt.............................35
SECTION 6.23. ERISA.........................................................35
SECTION 6.24. Net Worth.....................................................35
SECTION 6.25. Limitation on Restrictions Affecting Subsidiaries.............35
SECTION 6.26. Mortgages.....................................................35
SECTION 6.27. Security Agreement Matters....................................35
ARTICLE VII
LIMITATION ON TRANSFERS
SECTION 7.1. Restrictions on Transfer......................................36
SECTION 7.2. Restrictive Legends...........................................37
SECTION 7.3. Notice of Proposed Transfers..................................37
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Events of Default.............................................38
SECTION 8.2. Powers and Remedies Cumulative................................41
ARTICLE IX
COLLATERAL AGENT
SECTION 9.1. Collateral Agent..............................................41
SECTION 9.2. Limitation of Liability.......................................42
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<PAGE> 5
Page
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SECTION 9.3. Default; Collateral...........................................42
SECTION 9.4. Pledged Collateral Matters....................................42
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Notices.......................................................43
SECTION 10.2. Waivers and Amendments........................................43
SECTION 10.3. Indemnification...............................................44
SECTION 10.4. Expenses; Documentary Taxes...................................47
SECTION 10.5. Payment.......................................................47
SECTION 10.6. Register......................................................47
SECTION 10.7. Successors and Assigns........................................48
SECTION 10.8. New York Law; Submission to Jurisdiction; Waiver of
Jury Trial..................................................48
SECTION 10.9. Independence of Representations, Warranties and Covenants.....48
SECTION 10.10. Severability..................................................48
SECTION 10.11. Entire Agreement; Benefit.....................................49
SECTION 10.12. Headings......................................................49
SECTION 10.13. Counterparts..................................................49
SECTION 10.14. Confidentiality...............................................49
Exhibit A -Form of Note
Exhibit B -Form of Engagement Letter
Exhibit C -Form of Status Certificate
Exhibit D -Interest Reserve Escrow Agreement
Schedule 3.6 -Litigation
Schedule 3.9 -Subsidiaries
Schedule 3.10 -Investments
Schedule 3.13(a) -Capitalization
Schedule 3.13(b) -Subscriptions for Subsidiary Stock
Schedule 3.17 -Leases
Schedule 3.18 -Liabilities
Schedule 3.21 -Intellectual Property
Schedule 3.23 -Filings and Recordings
-iv-
<PAGE> 6
BRIDGE SECURITIES PURCHASE AGREEMENT
BRIDGE SECURITIES PURCHASE AGREEMENT dated as of February 6, 1998
("Agreement") between Oxford Health Plans, Inc., a Delaware corporation, and
Oxford Funding, Inc., a Delaware corporation (the "Purchaser").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have
the following meanings:
"Affiliate" means, with respect to any Person (the "Subject
Person"), (i) any other Person (a "Controlling Person") that directly, or
indirectly through one or more intermediaries, Controls the Subject Person or
(ii) any other Person (other than the Subject Person) which is Controlled by or
is under common Control with a Controlling Person.
"Availability Period" means the period from and including the date
hereof to the earlier of (i) the date which is six months from the Closing Date
and (ii) the Termination Date.
"Business Day" means any day except a Saturday, Sunday or other day
on which (i) commercial banks in the City of New York are authorized or required
by law to close or (ii) the New York Stock Exchange is not open for trading.
"Capital Contribution" means the contribution by the Company to the
capital of one or more of its Subsidiaries in order to satisfy regulatory
requirements for statutory capital levels at such Subsidiaries.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), maturing within one year of
the date of acquisition, (ii) time deposits and certificates of deposit of any
domestic commercial bank (including a domestic branch of a foreign bank) whose
outstanding senior long-term debt securities are rated, or that is a
wholly-owned Subsidiary
<PAGE> 7
-2-
of a bank holding company whose outstanding senior long-term debt securities are
rated, either A- or higher by Standard & Poor's Ratings Group or A3 or higher by
Moody's Investors Service, Inc., maturing within one year of the date of
acquisition, (iii) repurchase obligations with a term of not more than 7 days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (ii) above,
(iv) commercial paper rated at least A-1 or the equivalent thereof by Standard &
Poor's Ratings Group or at least P-1 or the equivalent thereof by Moody's
Investors Service, Inc., maturing within one year after the date of acquisition,
and (v) investments in money market funds substantially all of whose assets are
comprised of securities of the types described in clauses (i) through (iv)
above.
"Change of Control" means any Person acquiring (whether through
legal or beneficial ownership, by contract or otherwise), directly or
indirectly, the power to vote or direct the voting of securities having more
than 20% of the ordinary voting power for the election of directors of the
Company or having elected, or caused to be elected, a sufficient number of its
nominees to the Board of Directors of the Company such that the nominees so
elected (regardless of when elected) shall collectively constitute a majority of
the Board of Directors of the Company. For purposes of this definition, (x) the
term "Person" includes any "group" as that term is used in Section 13(d)(3) or
14(d)(2) of the Exchange Act and (y) the term "beneficial ownership" has the
meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all securities that
such Person has the right to acquire whether such right is exercisable
immediately or after the passage of time.
"Closing Date" means the initial Time of Purchase.
"Collateral Agent" means the Person appointed Collateral Agent
pursuant to Section 9.1.
"Collateral Documents" means, collectively, the Security Agreement
and any other document or instrument executed in connection therewith, including
UCC financing statements.
"Commission" means the Securities and Exchange Commission.
"Commitment" means the Purchaser's obligation under Section 2.1.
<PAGE> 8
-3-
"Commitment Amount" means $100,000,000 (such amount, the "Initial
Commitment Amount"), as such amount may be reduced from time to time pursuant to
Section 2.4; provided, however, that the Commitment Amount shall be increased by
$100,000,000 (such amount, the "Additional Commitment Amount") upon the
consummation of a Qualifying Equity Issuance or upon the execution of a
definitive agreement with respect thereto, subject only to the receipt of any
required regulatory approval and such other customary closing conditions as
shall be reasonably acceptable to the Purchaser.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, that is or was under common control with the Company or any of its
Subsidiaries within the meaning of Section 4001 of ERISA or is part of a group
that includes the Company or any of its Subsidiaries and that is treated as a
single employer under Section 414 of the Internal Revenue Code.
"Company" means Oxford Health Plans, Inc., a Delaware corporation.
"Company Corporate Documents" means the certificates of
incorporation (including any certificates of designations for preferred stock)
and by-laws of the Company and its Subsidiaries.
"Company Counsel" means Sullivan & Cromwell or other counsel for the
Company satisfactory to the Purchaser.
"Consolidated Net Worth" shall mean, as of the date of
determination, all items which in conformity with GAAP would be included under
shareholders' equity on a consolidated balance sheet of the Company and its
subsidiaries at such date; provided, however, there shall be excluded therefrom
the effect of (i) any reserve adjustments after the Closing Date for the year
ended December 31, 1997 or any future period resulting from changes in the
Company's estimates of its medical costs and expected cost trends, (ii) any
extraordinary non-cash charges (except for charges announced prior to the date
hereof) arising outside the ordinary course of business, (iii) transaction
expenses paid pursuant to the terms of any agreement relating to the proposed
issuance of securities entered into on or prior to the Closing Date (other than
the issuance of the Notes or any refinancing thereof), in an aggregate amount
not to exceed $5 million, and (iv) any operating losses incurred during the
first two quarters of 1998 in an aggregate amount not to exceed (A) for the
period from the Closing Date through June 30, 1998, $72.5 million, (B) for the
period from July 1,
<PAGE> 9
-4-
1998 through September 30, 1998, $36.25 million, and (C) for any period
thereafter, $0. As used in the preceding clause (iv) "operating losses" shall
mean any negative amounts determined by subtracting from total revenue, as
determined in accordance with GAAP, medical expenses and administrative
expenses.
"Control" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and "under common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments issued
by such Person, (iii) all obligations of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising in
the ordinary course of business, (iv) all obligations of such Person under any
Financing Lease, (v) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (vi) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vii) all Debt of others Guaranteed by such
Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Designated Transaction" means (i) any issuance of any Debt (other
than the Notes) or equity securities, or any other incurrence of Debt (other
than Debt permitted by Section 6.8(a)(ii)), by the Company or any of its
Subsidiaries, or (ii) the disposition by the Company or any of its Subsidiaries
of any assets , provided, that a Designated Transaction shall not include a
Qualifying Equity Issuance.
"Disclosure Documents" has the meaning set forth in Section 10.3.
"DLJ" means Donaldson, Lufkin & Jenrette, Inc., a Delaware
corporation.
<PAGE> 10
-5-
"DLJSC" means Donaldson, Lufkin & Jenrette Securities Corporation, a
Delaware corporation.
"Engagement Letter" means the letter substantially in the form
attached as Exhibit B.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, petroleum
or petroleum products, chemicals or industrial, toxic or hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, together with all rules and regulations
promulgated pursuant thereto, as amended from time to time.
"Event of Default" has the meaning set forth in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934.
"Expiration Date" means the earlier of (i) 5:00 p.m. on June 30,
1998 and (ii) the Termination Date.
"Financing Documents" means this Agreement, the Notes, the
Collateral Documents and the Interest Reserve Escrow Agreement referred to in
Section 2.8.
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"GAAP" has the meaning assigned to it in Section 1.2.
"Governmental Authority" shall mean any government or political
subdivision of the United States or any other country
<PAGE> 11
-6-
or any agency, authority, board, bureau, central bank, commission, department or
instrumentality thereof or therein, including any court, tribunal, grand jury or
arbitrator, in each case whether foreign or domestic, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to such government or political subdivision.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keepwell, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous
wastes, hazardous constituents, hazardous or toxic substances or petroleum
products (including crude oil or any fraction thereof), defined or regulated as
such in or under any Environmental Laws.
"Holder" has the meaning set forth in Section 10.6.
"Indemnified Parties" has the meaning set forth in Section 10.3.
"Internal Revenue Code" means the Internal Revenue Code of 1986.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"Lien" means any lien, mechanic's lien, materialmen's lien,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other
<PAGE> 12
-7-
survey defect, pledge, restriction, security interest or other adverse claim,
whether arising by contract or under law or otherwise (including any Financing
Lease having substantially the same economic effect as any of the foregoing, and
the filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing).
"Majority Holders" means (i) at any time prior to the Closing Date,
the Purchaser and (ii) at any time thereafter, the Holders of more than 50% in
aggregate principal amount of the Notes outstanding at such time.
"Material Adverse Effect" means (i) a material adverse effect on the
business, condition (financial or otherwise), operations, properties or
prospects of the Company and its Subsidiaries taken as a whole (it being
understood that any material adverse effect on the ability of any Significant
Subsidiary to continue to conduct its business on a basis consistent with past
practices shall be deemed to be a Material Adverse Effect), (ii) a material
adverse effect on the ability of the Company to perform its obligations under
any Financing Document or (iii) an adverse effect on the legality, validity,
binding effect or enforceability of any Financing Document or the rights of
Holders or the Purchaser thereunder.
"Net Cash Proceeds" means the total amount of cash proceeds received
by the Company or any of its Subsidiaries as a result of any Designated
Transaction, including any cash proceeds derived from any non-cash proceeds from
or in respect of any Designated Transaction, less
(i) underwriters' fees, brokerage commissions, related professional
fees and other customary out-of-pocket expenses payable by the Company or
such Subsidiary in connection with such Designated Transaction;
(ii) in the case of a disposition of assets, the amount of all
income and other taxes reasonably estimated to be payable by the Company
or such Subsidiary as a result of such disposition of assets; and
(iii) in the case of a disposition of assets, the amount of Debt
secured by a Lien on the asset or assets disposed of and required to be,
and actually, repaid by the Company in connection therewith, and any trade
payables specifically relating to such asset or assets sold
<PAGE> 13
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by the Company or such Subsidiary that are not assumed by the purchaser of
such asset or assets.
"Notes" means the Company's promissory notes substantially in the
form set forth as Exhibit A in a maximum aggregate principal amount equal to(x)
$200,000,000 plus (y) the amount of interest paid on the Notes in the form of
Notes pursuant to the terms of the Notes.
"Permanent Financing" means any debt or equity securities to be
issued by the Company and any other Debt to be incurred by the Company, but
shall not include any Qualifying Equity Issuance.
"Permits" means all domestic and foreign licenses, permits and
approvals required for the full operation of the Company and its Subsidiaries,
including provincial, state, federal, city and county permits and approvals.
"Permitted Holder" has the meaning set forth in Section 7.3(a).
"Permitted Transferee" means any Person that acquires Notes in
compliance with Article VII other than any Person who acquires such Notes (i) in
a public offering or (ii) in the open market, pursuant to sales under Rule 144.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means, at any time, any employee benefit plan (as defined in
Section 3(3) of ERISA) which is a defined benefit plan.
"Pledged Collateral" shall have the meaning assigned to such term in
the Security Agreement.
"Prior Liens" has the meaning set forth in the Security Agreement.
"Purchaser" means Oxford Funding, Inc., a Delaware corporation.
"Qualifying Equity Issuance" shall mean the issuance by the Company
of equity securities resulting in gross cash
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proceeds of not less than $200,000,000, on terms and conditions reasonably
satisfactory to the Purchaser.
"Reserve Account" has the meaning set forth in Section 2.8.
"Rule 144A" means Rule 144A under the Securities Act.
"Secured Obligations" has the meaning set forth in the Security
Agreement.
"Securities Act" means the Securities Act of 1933.
"Security Agreement" means that certain security agreement, dated as
of the date hereof, between the Company, as debtor, and the Purchaser, as
collateral agent and secured party.
"Significant Subsidiary" means each of Oxford Health Plans (NY),
Inc., Oxford Health Plans (NJ), Inc., Oxford Health Plans (CT), Inc. and Oxford
Health Insurance, Inc.
"Status Certificate" means a certificate of the Chief Executive
Officer or the Chief Financial Officer of the Company, in the form of Exhibit C.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
"Termination Date" means the earliest of (i) the date upon which a
Change of Control shall have occurred, (ii) the date upon which any Note shall
have been declared to be, or shall become, due and payable pursuant to Section
8.1, (iii) the date of commencement of the marketing of any Debt or equity
securities for which DLJSC is not sole agent or underwriter by the Company or
any of its Subsidiaries (other than a fully underwritten bank financing pursuant
to a signed commitment letter containing only such conditions as are usual and
customary in such financings and which does not contain any condition relating
to the successful syndication of such transaction) or the date of issuance of
any Debt or equity security by the Company or any of its Subsidiaries (other
than the Notes or any securities issuable upon the exercise of any option or
warrant or the conversion of any convertible securities, in
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each case, outstanding on the date hereof and listed on Schedule 3.13, and
options granted to employees and others pursuant to a benefit or compensation
plan existing on the date hereof or approved by stockholders of the Company
after the date hereof and any securities issuable upon the exercise thereof) and
(iv) the date upon which any Note shall otherwise have become due and payable
pursuant to the terms thereof and shall not have been repaid.
"Time of Purchase" has the meaning set forth in Section 2.2(a).
"Transaction" means (i) a Capital Contribution and (ii) the payment
of fees and expenses in connection therewith.
"Transfer" means any disposition of Notes that would constitute a
sale thereof under the Securities Act.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time
("GAAP"), applied on a consistent basis.
SECTION 1.3. Rules of Construction. (a) The definitions in Section
1.1 shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation."
(b) Unless the context shall otherwise require, all references
herein to (i) Articles, Sections, Exhibits and Schedules shall be deemed
references to Articles and Sections of, and Exhibits and Schedules to, this
Agreement, (ii) Persons include their respective permitted successors and
assigns or, in the case of governmental Persons, Persons succeeding to the
relevant functions of such Persons, (iii) agreements and other contractual
instruments include subsequent amendments, assignments, and other modifications
thereto to the date hereof and thereafter, but in the case of any amendment,
assignment or modification after the date hereof, only to the extent such
amendments, assignments or other modifications thereto are not prohibited by
their terms or the terms of any Financing Document, (iv) statutes and related
regulations include any amend-
<PAGE> 16
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ments of same and any successor statutes and regulations, and (v) time shall be
deemed to be to New York City time.
ARTICLE II
PURCHASE AND SALE OF NOTES
SECTION 2.1. Commitment to Purchase. Subject to the terms and
conditions set forth herein and in reliance on the representations and
warranties of the Company contained herein, the Purchaser agrees to purchase
from the Company at a purchase price of 100% of the principal amount thereof,
Notes in an aggregate principal amount not to exceed the Commitment Amount. If
any Notes are purchased, the Purchaser shall purchase on the Closing Date the
entire Initial Commitment Amount. Any subsequent purchases may be made at any
time during the Availability Period, but on no more than three separate
occasions.
SECTION 2.2. Notice of Purchase. Except for purchases on the Closing
Date, the Company shall give the Purchaser notice not later than 10:00 a.m. on
the fifth Business Day before each issuance and sale of Notes, specifying:
(a) the date and time of the purchase and sale of the Notes (such
date and time, if at all, the "Time of Purchase");
(b) the aggregate principal amount of Notes to be issued and sold to
the Purchaser at such Time of Purchase (which amount shall be, in the case
of purchases after the Closing Date, an integral multiple of $5,000,000
not less than $5,000,000); and
(c) wire instructions for the account of the Company (the "Company
Account") where the purchase price for the Notes is to be delivered at
such Time of Purchase.
SECTION 2.3. Purchase of Notes. (a) At each Time of Purchase,
subject to the satisfaction of all terms and conditions set forth herein, the
Purchaser shall deliver, by wire transfer to the Company Account, immediately
available funds in an amount equal to the aggregate purchase price of the Notes
to be issued and sold to the Purchaser at such Time of Purchase, less the
following amounts, which, in the case of clauses (i) and (ii) below, shall be
non-refundable and retained by Purchaser:
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(i) a takedown fee in respect of the Notes to be issued on such date
in an amount equal to 1.00% of the aggregate principal amount thereof;
(ii) reimbursement for all previously unreimbursed reasonable
out-of-pocket costs and expenses, including reasonable legal fees and
disbursements incurred or made in connection with this Agreement and the
preparation, execution and delivery of the Financing Documents; and
(iii) the amount required to be deposited in the Reserve Account
pursuant to Section 2.8.
At each Time of Purchase, against payment as set forth in the
preceding sentence, the Company shall deliver to the Purchaser a single Note
representing the aggregate principal amount of Notes issued at such Time of
Purchase, registered in the name of the Purchaser, or, if requested by the
Purchaser, separate Notes in such other denominations and registered in such
name or names as shall be designated by the Purchaser by notice to the Company
at least two Business Days prior to such Time of Purchase.
SECTION 2.4. Mandatory Reduction of Commitment. Upon the receipt by
the Company of Net Cash Proceeds from or in anticipation of a Designated
Transaction (other than a lease or sale and leaseback of computer equipment) at
a time at which no Notes are outstanding, the Commitment Amount shall be reduced
by the amount of such Net Cash Proceeds. Upon the receipt by the Company of any
such Net Cash Proceeds at a time at which Notes are outstanding, the Commitment
Amount shall be reduced by the excess, if any, of the amount of such Net Cash
Proceeds over the aggregate principal amount of all Notes then outstanding.
Notwithstanding the foregoing, the Commitment Amount shall be so reduced only to
the extent that Net Cash Proceeds from all Designated Transactions on and after
the date hereof exceed $1,000,000.
SECTION 2.5. Termination of Commitment. The Commitment shall
terminate on the Termination Date.
SECTION 2.6. Prepayment of Notes. (a) The Company at its option may,
upon ten days' written notice to the Holders, at any time, prepay all or any
part of the principal amount of Notes at a redemption price equal to 101% (or,
if the Company shall have paid the fee required by Section 6.18(b), 100%) of
the principal amount of Notes so prepaid, together with accrued interest
through the date of prepayment; provided,
<PAGE> 18
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that the redemption price shall be 103% of par plus accrued interest if the
Notes are refunded (whether at the time of redemption or maturity) with or in
anticipation of funds raised by any financing transaction in which DLJSC has
not acted as sole agent or underwriter to the Company (unless DLJSC, in its
sole discretion, shall have consented thereto).
(b) The Company shall, promptly upon the receipt by the Company of
the Net Cash Proceeds of any Designated Transaction, prepay an aggregate
principal amount of Notes equal to the amount of such Net Cash Proceeds, at a
redemption price equal to 101% of the principal amount of the Notes so prepaid,
together with accrued interest through the date of prepayment; provided, that
the redemption price shall be 103% of par plus accrued interest if the Notes are
refunded (whether at the time of redemption or maturity) with or in anticipation
of funds raised by any financing transaction in which DLJSC has not acted as
sole agent or underwriter to the Company (other than a fully underwritten bank
financing pursuant to a signed commitment letter containing only such conditions
as are usual and customary in such financings and which does not contain any
condition relating to the successful syndication of such transaction); and
provided, further, that Notes shall be required to be so prepaid only to the
extent that Net Cash Proceeds from all Designated Transactions on and after the
date hereof exceed $1,000,000.
(c) The Company shall, immediately upon the occurrence of a Change
in Control, prepay all Notes then outstanding at a redemption price equal to
103% of the principal amount thereof, together with accrued interest through
the date of prepayment.
(d) Any prepayment of the Notes pursuant to Section 2.6(a) shall be
in a minimum amount of at least $1,000,000 and multiples of $1,000,000, unless
less than $1,000,000 of the Notes remains outstanding, in which case all of the
Notes must be prepaid. Any prepayment of the Notes pursuant to Section 2.6(b)
shall be in a minimum amount which is a multiple of $1,000 times the number of
Holders at the time of such prepayment.
(e) Any partial prepayment shall be made so that the Notes then held
by each Holder shall be prepaid in a principal amount which shall bear the same
ratio, as nearly as may be, to the total principal amount being prepaid as the
principal amount of such Notes held by such Holder shall bear to the aggregate
principal amount of all Notes then outstanding. In the
<PAGE> 19
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event of a partial prepayment, upon presentation of any Note the Company shall
execute and deliver to or on the order of the Holder, at the expense of the
Company, a new Note in principal amount equal to the remaining outstanding
portion of such Note.
SECTION 2.7. Effectiveness. This Agreement shall not be effective
unless, at Closing Date, the Company delivers to the Purchaser a commitment fee
in the amount of $3,000,000 in immediately available funds to the account
specified on the signature page hereof.
SECTION 2.8. Reserve Account. Prior to the Closing Date, the Company
shall establish an account with DLJSC in Snoga Inc.'s name as escrow agent for
the Company, the Purchaser and the Holders of the Notes (the "Reserve Account").
The Company, the Purchaser and Snoga Inc., as escrow agent, shall enter into an
Interest Reserve Escrow Agreement in substantially the form of Exhibit D hereto.
The Company hereby irrevocably directs the Purchaser to deposit into the Reserve
Account from the proceeds of the issuances of Notes retained by the Purchaser in
accordance with clause (iii) of Section 2.3, on the Closing Date and on each
subsequent Time of Purchase, an interest reserve of 11.0% of the aggregate
principal amount of Notes to be issued at such Time of Purchase, not to exceed
$22,000,000 in the aggregate. The Purchaser is hereby authorized and directed
(i) to cause the Escrow Agent to invest the balances from time to time in the
Reserve Account as provided in the Interest Reserve Escrow Agreement and to
credit all interest and other income from such investment to the Reserve
Account, and (ii) to debit the balances from time to time in the Reserve Account
first, for the accrued and unpaid interest in respect of the Notes when and as
due, second, for any unpaid fees and expenses due to the Purchaser hereunder,
and thereafter, when all of the Notes have been repaid in full, to the Company.
So long as no Default or Event of Default shall have occurred and is continuing,
the balance in the Reserve Account in excess of 11.0% of the aggregate principal
amount of Notes then outstanding shall be remitted to the Company to the extent
such balance is not then required to satisfy any prepayment obligations of the
Company under Section 2.6.
<PAGE> 20
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants, at the date hereof and at each
Time of Purchase, to the Purchaser and to each Holder as set forth below:
SECTION 3.1. Corporate Existence and Power. The Company and each of
its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation,
and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and as proposed to be conducted.
SECTION 3.2. Authorization and Execution. The execution, delivery
and performance by the Company of each Financing Document and the issuance by
the Company of the Notes have been duly and validly authorized and are within
its corporate powers. Each of the Financing Documents has been duly executed and
delivered by the Company and constitutes the valid and binding agreement of the
Company , and each of the Notes, upon issuance as contemplated hereby, will
constitute the valid and binding obligation of the Company, in each case
enforceable against the Company in accordance with its respective terms, subject
to (i) bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) equitable principles of general applicability.
SECTION 3.3. Governmental Authorization. The execution and delivery
by the Company of the Financing Documents did not and will not, and the issuance
and sale by the Company of the Notes and the consummation of the transactions
contemplated hereby and thereby will not, require any action by or in respect
of, or filing with, any governmental body, agency or governmental official
except such actions or filings that have been undertaken or made prior to the
date hereof and that will be in full force and effect on and as of the date
hereof or which are not required to be filed on or prior to any applicable Time
of Purchase.
SECTION 3.4. Contravention. The execution and delivery by the
Company of the Financing Documents did not and will not, the issuance and sale
by the Company of the Notes will not, and the consummation of the transactions
contemplated hereby and thereby will not, contravene or constitute a default
under or violation of (i) any provision of applicable law or
<PAGE> 21
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regulation, (ii) any Company Corporate Document or (iii) any judgment,
injunction, order or decree or any material agreement or other instrument
binding upon the Company or any of its Subsidiaries or any of their respective
assets, or, except as contemplated by the Collateral Documents, result in the
creation or imposition of any Lien on any asset of the Company or any of its
Subsidiaries.
SECTION 3.5. Financial Information. (a) The consolidated balance
sheets of the Company as of December 31, 1996, 1995 and 1994 and the related
consolidated statements of income and cash flows and stockholders' equity
(deficit) for the fiscal years then ended, reported on by KPMG Peat Marwick
L.L.P., fairly present in all material respects, in conformity with GAAP, the
consolidated financial position of the Company as of such date and its
consolidated results of operations and cash flows for such fiscal year.
(b) The consolidated balance sheets of the Company as of September
30, 1997 and the related consolidated statements of income and cash flows and
stockholders' equity (deficit) for the nine months then ended fairly present in
all material respects, in conformity with GAAP, the consolidated financial
position of the Company as of such date and its consolidated results of
operations and cash flows for such periods (subject to normal year-end
adjustments).
(c) There has occurred no material adverse change in the facts and
information supplied to the Purchaser through the date hereof with respect to
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company and its Subsidiaries, taken as a whole,
or with respect to the ability of any Significant Subsidiary to continue to
conduct its business on a basis consistent with past practices.
SECTION 3.6. Litigation. Except as set forth on Schedule 3.6, there
is no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries before any
Governmental Authority in which there is a reasonable possibility of an adverse
decision which could have a Material Adverse Effect or which challenges the
validity of any Financing Document.
SECTION 3.7. Environmental Matters. The costs and liabilities
associated with Environmental Laws (including the cost of compliance therewith)
are unlikely to have a Material Adverse Effect. The Company and its Subsidiaries
conduct their
<PAGE> 22
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businesses in compliance in all material respects with all applicable
Environmental Laws.
SECTION 3.8. Taxes. All United States Federal income tax returns and
all other material tax returns (including foreign tax returns) which are
required to be filed by or on behalf of the Company or any of its Subsidiaries
have been filed or will be filed by the required time and all material taxes due
pursuant to such returns or pursuant to any assessment received by the Company
or any of its Subsidiaries have been paid or will be paid by the required time.
The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of taxes or other governmental charges have been
established in accordance with GAAP.
SECTION 3.9. No Subsidiaries. The Company has no Subsidiaries except
as set forth in Schedule 3.9.
SECTION 3.10. Investments. Except as set forth on Schedule 3.10, the
Company has no direct or indirect Investment in any Person (other than its
Subsidiaries listed on Schedule 3.9); except as set forth on Schedule 3.10, the
Company is not a party to any partnership agreement under which the Company is a
general partner or any material partnership, management, stockholders' or joint
venture or similar agreement.
SECTION 3.11. Not an Investment Company. Neither the Company nor any
of its Subsidiaries is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 3.12. Full Disclosure. The information heretofore furnished
by or on behalf of the Company to the Purchaser for purposes of or in connection
with this Agreement or any transaction contemplated hereby does not, and all
such information hereafter furnished by or on behalf of the Company to the
Purchaser will not (in each case taken together and on the date as of which such
information is furnished), contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading. The Company has disclosed to the Purchaser any and all facts
which materially and adversely affect or may affect (to the extent the Company
can now reasonably foresee) the business, operations or financial condition of
the Company and its respective Subsidiaries or the ability of the Company to
perform its obligations under the Financing Documents.
<PAGE> 23
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SECTION 3.13. Capitalization. (a) As of the date hereof, the
authorized capital stock of the Company is as set forth on Schedule 3.13(a).
Other than as set forth on Schedule 3.13(a), as of the date hereof, there are no
subscriptions, options, warrants, rights, convertible securities, exchangeable
securities or other agreements or commitments of any character pursuant to which
the Company is required to issue any shares of its capital stock.
(b) All of the outstanding capital stock of the Company's
Subsidiaries has been duly authorized and validly issued and is fully paid and
non-assessable and owned by the Company free and clear of all Liens. Except as
set forth on Schedule 3.13(b), there are no subscriptions, options, warrants,
rights, convertible securities, exchangeable securities or other agreements or
commitments of any character pursuant to which any of the Company's Subsidiaries
is required to issue any shares of its capital stock (other than to the
Company).
SECTION 3.14. Solicitation; Access to Information. No form of
general solicitation or general advertising was used by the Company or, to the
best of its knowledge, any other Person acting on behalf of the Company, in
respect of the Notes. Neither the Company nor, to its knowledge, any Person
acting on its behalf has, either directly or indirectly, sold or offered for
sale to any Person any of the Notes or, within the six months prior to the date
hereof, any other similar security of the Company except as contemplated by this
Agreement, and neither the Company nor any Person authorized to act on its
behalf (except that the Company makes no representation as to the Purchaser and
its Affiliates) will sell or offer for sale any such security to, or solicit any
offers to buy any such security from, or otherwise approach or negotiate in
respect thereof with, any Person or Persons so as thereby, in any case, to cause
the issuance or sale of any of the Notes to be in violation of any of the
provisions of Section 5 of the Securities Act.
SECTION 3.15. Non-Fungibility. When issued and delivered pursuant to
this Agreement, none of the Notes will be of the same class (within the meaning
of Rule 144A) as securities which are (i) listed on a national securities
exchange registered under Section 6 of the Exchange Act or (ii) quoted in a U.S.
automated inter-dealer quotation system.
SECTION 3.16. Permits. (a) The Company and its Subsidiaries have
all Permits as are necessary for the conduct of their business as it has been
carried on; (b) all such Permits
<PAGE> 24
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are in full force and effect, and the Company and its Subsidiaries have
fulfilled and performed all obligations with respect to such Permits; (c) no
event has occurred which allows, or after notice or lapse of time would allow,
revocation or termination by the issuer thereof or which results in any other
impairment of the rights of the holder of any such Permit; and (d) the Company
has no reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Permit, except, in each case, to the
extent it would not, singly or in the aggregate, have a Material Adverse Effect.
SECTION 3.17. Leases. Except as set forth on Schedule 3.17, the
Company and each of its Subsidiaries enjoys peaceful and undisturbed possession
under all of their leases (the "Leases") necessary for the operation of its
properties and assets, none of which contains any unusual or burdensome
provisions which might materially adversely affect or impair the operation of
such properties and assets, and all such Leases are valid and subsisting and in
full force and effect, except where failure to be in full force and effect would
not have a Material Adverse Effect. None of the Company or its Subsidiaries is
in default under any of such Leases, except where any such default could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.18. Absence of Any Undisclosed Liabilities or Capital
Calls. Except as set forth on Schedule 3.18, neither the Company nor any of its
Subsidiaries has any liability of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability, other than (i) those liabilities
provided for in the financial statements delivered pursuant to Section 3.5 (b)
and (ii) liabilities incurred since September 30, 1997 in the ordinary course of
the Company's business consistent with past practice.
SECTION 3.19. Governmental Regulations. The Company is not, and will
not be upon the issuance and sale of the Notes and the use of the proceeds
described herein, subject to regulation under the Public Utility Holding Company
Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act or
to any federal or state statute or regulation limiting its ability to issue and
perform its obligations under any Financing Document.
<PAGE> 25
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SECTION 3.20. Brokers. Except for DLJSC, the Company has not
employed any broker, finder, financial advisor or investment banker who might be
entitled to any brokerage, finder's or other fee or commission in connection
with the sale of the Notes.
SECTION 3.21. Intellectual Property. Except as set forth on Schedule
3.21, the Company and its Subsidiaries own, or possess adequate licenses or
otherwise have the right to use, all material patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names, copyrights, trade secrets and know-how (collectively, "Intellectual
Property") that are necessary for the operation of the business of the Company
and its Subsidiaries as presently conducted. No claim is pending or, to the
knowledge of the Company, threatened that the Company or any of its Subsidiaries
has infringed or is infringing upon the asserted rights of any other Person with
respect to any Intellectual Property. No claim is pending or, to the knowledge
of the Company, threatened that any such Intellectual Property owned or licensed
by the Company or any of its Subsidiaries, or which the Company or any of its
Subsidiaries otherwise has the right to use, is invalid or unenforceable.
SECTION 3.22. ERISA. Neither the Company nor any Commonly Controlled
Entity maintains, administers, contributes to, is required to contribute to or
may incur any liability with respect to any Plan and neither the Company nor any
Commonly Controlled Entity has at any time maintained, administered, contributed
to or was required to contribute to any Plan.
SECTION 3.23. Security Interests. (a) Upon execution and delivery of
the Security Agreement by the Company on the Closing Date, the Security
Agreement will create and constitute valid, enforceable and, subject to all
required filings contemplated by clause (b) below, perfected security interests
in, liens on or pledges of all of the Pledged Collateral.
(b) Upon (A) execution and delivery of the Security Agreement by the
Company on the Closing Date, and (B) with respect to the Pledged Collateral, the
filing of Uniform Commercial Code financing statements specified in Schedule
3.23, the security interest, lien or pledge created by the Security Agreement in
the Pledged Collateral encumbered thereby will be a perfected security interest
prior to all other claims or security interests therein, except for Prior Liens.
<PAGE> 26
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 4.1. Purchaser Representations. The Purchaser represents and
warrants to the Company, at the date hereof and at each Time of Purchase, that:
(a) the Purchaser is an accredited investor within the meaning of
Rule 501(a) under the Securities Act and the Notes to be acquired by it
pursuant to this Agreement are being acquired for its own account and not
with a view toward, or for sale in connection with, any distribution
thereof except in compliance with applicable United States federal and
state securities laws;
(b) the execution, delivery and performance of this Agreement,
including the purchase of the Notes pursuant hereto, are within the
Purchaser's corporate powers and have been duly and validly authorized by
all requisite corporate action;
(c) this Agreement has been duly executed and delivered by the
Purchaser;
(d) this Agreement constitutes a valid and binding agreement of the
Purchaser, enforceable in accordance with its terms; and
(e) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Notes and the Purchaser is capable of bearing the
economic risks of such investment.
ARTICLE V
CONDITIONS PRECEDENT TO PURCHASE OF NOTES
SECTION 5.1. Conditions to Purchaser's Obligation at Closing Date.
The Purchaser's obligation to purchase Notes at the Closing Date shall be
subject to the satisfaction of each of the following conditions:
(a) No change shall have occurred, and no additional information
shall have been disclosed to or discovered by the Purchaser, which the
Purchaser reasonably determines
<PAGE> 27
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to be materially adverse in respect of the condition (financial or
otherwise), business, assets, liabilities, properties, results of
operations, projections or prospects of the Company and its Subsidiaries,
taken as a whole, or the ability of any Significant Subsidiary to continue
to conduct its business on a basis consistent with past practice.
(b) The Purchaser shall have received all of the financial
statements referred to in Section 3.5 and such statements shall not differ
materially from the information previously supplied to the Purchaser.
(c) Neither the Company nor any of its Subsidiaries shall have any
Debt for borrowed money, other than Debt owed to the Company or any of its
wholly-owned Subsidiaries.
(d) The Purchaser shall have received evidence satisfactory to it as
to (i) the receipt by the Company of all governmental, board of directors,
stockholders and third party consents and approvals necessary or desirable
in connection with the transactions contemplated hereby and (ii) the
absence of any law or regulation that, in the judgment of the Purchaser,
restrains, prevents or imposes any materially adverse conditions thereon.
(e) The Engagement Letter shall have been duly executed and
delivered by the parties thereto.
(f) The corporate, tax, capital and ownership structure of the
Company and its Subsidiaries shall, except as contemplated hereby, be
consistent in all material respects with those previously disclosed to the
Purchaser, and shall not have been modified in any material respect other
than with the prior written consent of the Purchaser.
(g) The Financing Documents and all other documentation relating to
the Notes shall have been duly executed by each of the parties thereto and
delivered to the Purchaser in form and substance satisfactory to the
Purchaser and in compliance with all applicable laws and regulations.
(h) All conditions precedent to the Financing Documents shall have
been satisfied in compliance with all applicable laws and regulations.
<PAGE> 28
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(i) This Agreement shall have become effective pursuant to Section
2.7.
(j) The Purchaser shall have received an opinion, dated the Closing
Date, of Cahill Gordon & Reindel, special counsel to the Purchaser.
(k) The Purchaser shall have received an opinion, dated the Closing
Date, of Company Counsel, such corporate resolutions, certificates and
other documents as the Purchaser shall reasonably request.
(l) The Company, the Purchaser and Snoga, Inc. shall each have
executed and delivered the Interest Reserve Escrow Agreement substantially
in the form of Exhibit D hereto.
(m) The Company shall have executed and delivered to the Purchaser
and the Collateral Agent the Security Agreement.
Each of the documents, certificates and opinions to be delivered under this
Section 5.1 shall be in form and substance satisfactory to the Purchaser.
SECTION 5.2. Conditions to Purchaser's Obligation at Each Time of
Purchase. The obligation of the Purchaser to purchase any Notes at any Time of
Purchase (including the initial Time of Purchase) is subject to the satisfaction
of the following conditions contemporaneously with such Time of Purchase:
(a) The Company Corporate Documents shall be in full force and
effect and no term or condition thereof shall have been amended, waived or
otherwise modified without the prior written consent of the Purchaser.
(b) There shall have occurred no material adverse change (x) in the
business, condition (financial or otherwise), operations, performance,
properties, projections or prospects of the Company and its Subsidiaries,
taken as whole, or in the ability of any Significant Subsidiary to
continue to conduct its business on a basis consistent with past practice,
since the date hereof or (y) in the facts and information supplied to the
Purchaser through the date hereof with respect thereto.
<PAGE> 29
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(c) Except as set forth on Schedule 3.6, there shall exist no
action, suit, investigation, litigation or proceeding pending or
threatened before any Governmental Authority that challenges the validity
of or purports to affect any Financing Document or any of the transactions
contemplated hereby or that could reasonably be expected to have a
Material Adverse Effect.
(d) The representations and warranties of the Company contained in
each Financing Document (other than any representation or warranty which
expressly relates only to a specified other date) shall be true and
correct on and as of such Time of Purchase as if made on and as of such
time. The Company shall have performed and complied with all covenants and
agreements required by such Financing Documents to be performed or
complied with by it at or prior to such Time of Purchase. Immediately
before and after such Time of Purchase no Default or Event of Default
shall have occurred and be continuing.
(e) If the purchase of Notes is after the Closing Date, the
Collateral Agent shall have a valid, enforceable and perfected first
priority Lien on all material Pledged Collateral.
(f) The Purchaser shall have received the Notes to be issued at such
Time of Purchase, duly executed by the Company and in the denominations
and registered in the names specified in or pursuant to Section 2.3.
(g) There shall not have occurred any disruption or change in the
financial or capital markets which the Purchaser reasonably deems
materially adverse in connection with the purchase of the Notes or the
refinancing thereof.
(h) All fees and expenses due and payable to the Purchaser hereunder
or to DLJSC under the Engagement Letter on or prior to such Time of
Purchase shall have been paid or issued, as the case may be, in full.
(i) The Purchaser shall have received a certificate from the Chief
Executive Officer or the Chief Financial Officer of the Company to the
effect set forth in Section 5.2(a) through (e).
(j) The Purchaser shall have received all other opinions,
certificates, instruments, agreements or other documents as it shall
reasonably request.
<PAGE> 30
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(k) If the Purchaser is purchasing Notes after the Closing Date, the
Commitment Amount shall have been increased to $200,000,000 in accordance
with the terms of this Agreement.
ARTICLE VI
COVENANTS
The Company hereby agrees that, from and after the date hereof and
so long as the Commitment Amount shall be greater than zero or any Notes remain
outstanding and unpaid or any other amount is owing to the Purchaser, the
Collateral Agent or the Holders from time to time, and for the benefit of the
Purchaser and such Holders:
SECTION 6.1. Information. The Company will deliver, or cause to be
delivered, to each Holder:
(a) as soon as available and in any event within 90 days after the
end of each fiscal year of the Company, a consolidated balance sheet of
the Company as of the end of such fiscal year and the related consolidated
statements of income (loss) and cash flows and stockholders' equity
(deficit) for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on in a manner
acceptable to the Commission by KPMG Peat Marwick L.L.P. or other
independent public accountants of nationally recognized standing;
(b) as soon as available and in any event within 45 days after the
end of each of the first three fiscal quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company as of the end of such
quarter and the related consolidated statements of income (loss) and cash
flows and stockholders' equity (deficit) for such quarter and for the
portion of the Company's fiscal year ended at the end of such quarter,
setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the Company's
previous fiscal year, all certified (subject to footnote presentation and
normal year-end adjustments) as to fairness of presentation, generally
accepted accounting principles and consistency by the chief financial
officer or the chief accounting officer of the Company;
<PAGE> 31
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(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a Status Certificate
or, if as of the date of such delivery a Default shall have occurred and
be continuing, a certificate setting forth the details of such Default and
the action which the Company is taking or proposes to take with respect
thereto;
(d) within five days after any responsible officer of the Company
obtains knowledge of a Default, a certificate of the chief financial
officer or the chief accounting officer of the Company setting forth the
details thereof and the action which the Company is taking or proposes to
take with respect thereto;
(e) promptly upon the mailing thereof to the stockholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed;
(f) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which
the Company or any of its Subsidiaries is a party in which the amount
involved is $5,000,000 or more or in which injunctive or similar relief is
sought;
(g) promptly following the occurrence thereof, notice and a
description in reasonable detail of any material adverse change, or
development involving a prospective material adverse change, in the
business, operations, property, condition (financial or otherwise) or
prospects of the Company or any of its Subsidiaries; and
(h) from time to time such additional information regarding the
financial position or business of the Company or any of its Subsidiaries
as the Purchaser may reasonably request.
SECTION 6.2. Payment of Obligations. The Company will, and will
cause its Subsidiaries to, pay and discharge at or before maturity all material
obligations (including lease obligations, tax liabilities and trade payables),
except where the same may be contested in good faith by appropriate proceedings,
and will, and will cause its Subsidiaries to, maintain, in accordance with GAAP,
appropriate reserves for the accrual of any of the same.
<PAGE> 32
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SECTION 6.3. Maintenance of Property; Insurance. (a) The Company
will, and will cause its Subsidiaries to, keep all property useful and necessary
in their business in good working order and condition, ordinary wear and tear
excepted.
(b) The Company will, and will cause its Subsidiaries to, maintain
with financially sound and responsible insurance companies, insurance in at
least such amounts and against such risks as are usually insured against in the
same general areas by companies of established repute of similar size that are
engaged in the same or a similar business. The Company will deliver to the
Purchaser (i) on or prior to the initial Time of Purchase, a certificate dated
such date showing the amount of coverage as of such date, (ii) upon request of
the Purchaser from time to time full information as to the insurance carried,
(iii) within five days of receipt of notice from any insurer a copy of any
notice of cancellation or material change in coverage from that existing on the
date of this Agreement and (iv) forthwith, notice of any cancellation or
nonrenewal of coverage by the Company.
SECTION 6.4. Conduct of Business and Maintenance of Existence. The
Company will, and will cause its Subsidiaries to, continue to engage in business
of the same general type as now conducted by the Company and its Subsidiaries,
and will, and will cause its Subsidiaries to, preserve, renew and keep in full
force and effect its corporate existence and rights, privileges and franchises
necessary or desirable in the normal conduct of business, except that the
Company or any of its Subsidiaries may discontinue any line of business if the
Company determines that such discontinuation is in the best interests of the
Company and its Subsidiaries and does not materially adversely affect the
Company's ability to perform its obligations under the Financing Documents.
SECTION 6.5. Compliance with Laws. The Company will, and will cause
its Subsidiaries to, comply in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of Governmental Authorities
(including Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in good faith by
appropriate proceedings, (ii) where, in the case of any non-compliance known to
an officer of the Company, corrective actions reasonably acceptable to the
Purchaser are being taken with respect thereto, or (iii) where non-compliance
therewith, singly or in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
<PAGE> 33
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SECTION 6.6. Inspection of Property, Books and Records. The Company
will, and will cause its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries shall be made of all dealings
and transactions in relation to their respective businesses and activities; and
will, and will cause its Subsidiaries to, permit during normal business hours
and upon written notice, representatives of the Purchaser to visit and inspect
any of their respective properties and, subject to compliance with applicable
law and any confidentiality obligations, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants, all at such reasonable times and as often as may reasonably
be desired. The Company will reimburse the Purchaser for all reasonable
out-of-pocket expenses, including fees and disbursements of its special counsel,
incurred in performing any of the activities described in the foregoing sentence
at and after the occurrence of a Default.
SECTION 6.7. Investment Company Act. The Company will not, and will
not cause or permit any of its Subsidiaries to, be or become an investment
company within the meaning of the Investment Company Act of 1940, as amended.
SECTION 6.8. Debt or Other Liabilities. (a) The Company will not,
and will not cause or permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume or suffer to exist any Debt; provided, however, that the
foregoing shall not prohibit (i) the Notes and other obligations of the Company
under the Financing Documents, (ii) up to $10,000,000 of Debt of the Company or
a Subsidiary thereof outstanding at any one time pursuant to bank overdrafts as
part of its cash management in the ordinary course of business or (iii) Liens
securing Financing Leases so long as such Liens do not cover any assets or
property of the Company other than the asset or property so financed.
(b) The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any trade liability or other accounts payable other than trade liabilities
and other accounts payable arising in the ordinary course of business.
SECTION 6.9. Restricted Payments. The Company will not, and will not
cause or permit any of its Subsidiaries to, directly or indirectly, declare or
make (i) any dividend or other distribution on any shares of capital stock of
the Com-
<PAGE> 34
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pany (except (A) dividends payable solely in shares of capital stock of the same
class of the Company, (B) so long as no Default or Event of Default has occurred
and is continuing, dividends on securities issued in a Qualifying Equity
Issuance and (C) the distribution of rights to purchase capital stock pursuant
to a customary shareholders' rights plan), (ii) any payment (other than to the
Company or any of its wholly-owned Subsidiaries) on account of the purchase,
redemption, retirement or acquisition of (x) any shares of capital stock of the
Company or any of its Subsidiaries or (y) any option, warrant or other right to
acquire shares of capital stock of the Company or any of its Subsidiaries or
(iii) any loan or advance to any Person (other than the Company or any of its
wholly-owned Subsidiaries) owning any capital stock of the Company or any of its
Subsidiaries (except loans and advances to any Person who was an employee of the
Company or any of its Subsidiaries at the time the loan or advance was made, not
to exceed $7,500,000 in the aggregate outstanding at any one time).
SECTION 6.10. Disqualified Stock; Subsidiary Stock. (a) The Company
will not issue any capital stock that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date which is one year after the Closing Date.
(b) The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, issue, sell, assign or otherwise
dispose of any shares of capital stock (or any securities convertible or
exchangeable into, or exercisable for, such shares) of any Subsidiary of the
Company, or enter into any agreement, understanding or restriction as to any of
the foregoing, provided, however, that the foregoing shall not prohibit the
issuance of any capital stock by a wholly owned Subsidiary of the Company to its
parent or to employees or consultants pursuant to a benefit or compensation plan
existing on the date hereof.
SECTION 6.11. Investments. The Company will not, and will not cause
or permit any of its Subsidiaries to, directly or indirectly, make or acquire
any Investment in any Person (other than by the creation of any Subsidiary, any
Investment in a wholly owned Subsidiary and Investments in Oxford Specialty
Holdings in an aggregate amount not to exceed
<PAGE> 35
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$15,000,000) other than Investments in Cash Equivalents and Investments in
professionally managed securities portfolios.
SECTION 6.12. Negative Pledge. The Company will not, and will not
cause or permit any of its Subsidiaries to, directly or indirectly, create,
assume or suffer to exist any Lien on any Pledged Collateral other than Prior
Liens or any other Lien permitted by the Security Agreement. The Company will
not, and will not cause or permit any of its Subsidiaries to, directly or
indirectly, create, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired by it which does not constitute Pledged Collateral, except
(collectively, the "Permitted Liens"):
(a) Liens securing Financing Leases permitted under Section
6.8(a)(iii), so long as such Liens do not cover any assets or property of
the Company or any of its Subsidiaries other than the asset or property so
financed;
(b) Liens securing obligations permitted by Section 6.8 which
obligations represent all or part of the purchase price of equipment
purchased by the Company or any of its Subsidiaries for use in its
business; provided, however, that such Liens shall not encumber any asset
or property of the Company or any of its Subsidiaries other than such
equipment;
(c) (i) statutory and common law Liens of landlords under leases to
which the Company or any of its Subsidiaries is a party and (ii) Liens of
carriers, warehousemen, mechanics and materialmen or other similar
statutory Liens, in each case incurred in the ordinary course of business
for sums the payment of which is not delinquent or which are the subject
of good faith proceedings by the Company or any of its Subsidiaries ;
(d) Liens incurred on deposits made in the ordinary course of
business in connection with workers' compensation, performance bonds,
unemployment insurance and other types of social security, other than any
Lien imposed by or under ERISA;
(e) Liens in respect of judgments or orders for the payment of money
which in the aggregate at any one time do not exceed $15,000,000;
(f) Liens imposed by a Governmental Authority for taxes, assessments
or charges not yet due or which are be-
<PAGE> 36
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ing contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Company
or the affected Subsidiary, as the case may be, in accordance with GAAP;
(g) easements, rights of way, permits, licenses, zoning ordinances,
covenants, restrictions, defects, minor irregularities of title and other
similar Liens on property which in the case of any particular parcel of
real property do not materially detract from the value or utilization of
such real property;
(h) Liens created pursuant to the Collateral Documents; and
(i) any Liens on shares of FPA Medical Management, Inc. encumbered
pursuant to arrangements with regulatory authorities relating to capital
adequacy requirements of Subsidiaries.
SECTION 6.13. Transactions with Affiliates. The Company will not,
and will not cause or permit any of its Subsidiaries to, directly or indirectly,
pay any funds to or for the account of, make any investment (whether by
acquisition of stock or indebtedness, by loan, advance, transfer of property,
Guarantee or other agreement to pay, purchase or service, directly or
indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise
dispose of any assets, tangible or intangible, to, or participate in, or effect
any transaction in connection with any joint enterprise or other joint
arrangement with, any Affiliate of the Company or any of its Subsidiaries,
except, on terms to the Company or such Subsidiary no less favorable than terms
that could be obtained by the Company or such Subsidiary from a Person that is
not an Affiliate of the Company or such Subsidiary, as determined in good faith
by a majority of the disinterested members of the Board of Directors of the
Company or such Subsidiary as evidenced by a Board resolution; provided,
however, that no such determination of the Board of Directors shall be required
with respect to (i) any such transaction entered into in the ordinary course of
business consistent with past practice, (ii) any such transaction if such
transaction, together with all related transactions, does not involve property,
funds, investments or services with a fair market value in excess of $5,000,000,
(iii)transactions pursuant to arrangements existing on the date hereof with St.
Augustine Health Care, Inc., On-Call Medical Services, P.C., HumanCare Medical
Services (NY), P.C., Oxford Specialty Hold-
<PAGE> 37
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ings, Inc. and Oxford Specialty Management, Inc. or (iv) transactions with any
wholly owned Subsidiary of the Company.
SECTION 6.14. Consolidations and Mergers; Sales of Assets. (a) The
Company will not, and will not cause or permit any of its Subsidiaries to,
directly or indirectly, consolidate or merge with or into any other Person,
except that a wholly-owned Subsidiary of the Company may consolidate or merge
with or into another wholly-owned Subsidiary of the Company.
(b) The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, sell, lease or otherwise transfer any
assets other than (i) in the ordinary course of business consistent with past
practice, or (ii) to the Company or a wholly-owned Subsidiary of the Company.
SECTION 6.15. Appointment of Director. If an Event of Default shall
have occurred and be continuing, the Company shall provide the Purchaser with
the right to appoint in its sole discretion one additional Director to its Board
of Directors; provided, however, that such right shall terminate at such time as
the Purchaser is no longer the Majority Holder.
SECTION 6.16. Supplemental Information. If at any time the Company
is not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish at its expense, upon request, for the benefit
of the holders from time to time of Notes, to holders of Notes and prospective
purchasers of Notes information satisfying the requirements of subsection
(d)(4)(i) of Rule 144A.
SECTION 6.17. Use of Proceeds. The Company will use the proceeds
from the issuance and sale of Notes for the purposes of the Transactions;
provided, however that the Company may use up to $15,000,000 of the proceeds
from the issuance and sale of Notes on the Closing Date and up to $20 million of
the proceeds from the issuance and sale of Notes after the Closing Date for
general corporate purposes. None of the proceeds from the issuance and sale of
Notes by the Company pursuant to this Agreement will be used directly or
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System.
SECTION 6.18. Certain Fees. (a) The Company will pay to the
Purchaser a fee (the "Ticking Fee") (i) at the rate of one - half of onepercent
(0.50%) per annum on the undrawn Commitment
<PAGE> 38
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Amount and (ii) prior to such time as the Commitment Amount shall have
increased to $200,000,000, at the rate of one quarter of one percent (*.025 %)
per annum on the Additional Commitment Amount. The Ticking Fee will begin to
accrue commencing on the Closing Date and will be payable in cash, quarterly in
arrears.
(b) The Company will pay to the Purchaser a fee (the "Duration Fee")
at the rate of * one percent ( 1.00 * %) of the principal amount of the Notes
outstanding on the six month anniversary of the Closing Date. The Duration Fee
will be payable on the six month anniversary of the Closing Date.
SECTION 6.19. Permanent Financing. (a) The Company will take all
actions which, in the reasonable judgment of the Company and the Purchaser, are
necessary or desirable to obtain Permanent Financing as soon as practicable
through issuance of securities at such interest or dividend rates and terms as
are then prevailing for new issues of securities of comparable size and credit
rating in the United States capital markets. The amounts to be financed by the
Permanent Financing shall be as determined by the Company, but shall be in an
amount at least sufficient to repay or redeem the Notes in full in accordance
with their terms. The Company hereby covenants and agrees that the Net Cash
Proceeds from the Permanent Financing shall be used, to the extent required, to
redeem in full the Notes in accordance with their terms.
(b) The Company will enter into such agreements as in the reasonable
judgment of the Company and the Purchaser or an Affiliate of the Purchaser are
customary in connection with any such Permanent Financing, make such filings, if
any, under the Securities Act, the Exchange Act, the Trust Indenture Act of 1939
(if applicable) and state securities laws as in the reasonable judgment of the
Company and the Purchaser or such Affiliate of the Purchaser shall be required
to permit consummation of such Permanent Financing and take such steps as in the
reasonable judgment of the Company and the Purchaser or such Affiliate are
necessary to cause such filings to become effective or in the reasonable
judgment of the Company and the Purchaser or such Affiliate are otherwise
required to consummate such Permanent Financing; provided, however, that the
Company will not be obligated to qualify to do business as a foreign corporation
in any jurisdiction in which it is not then so qualified to facilitate the
Permanent Financing.
(c) In the event that all or any portion of the securities issued in
the Permanent Financing are issued under circumstances in which a registration
statement relating to
<PAGE> 39
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such securities has not been declared effective by the Commission under the
Securities Act, the Company agrees to grant to the purchasers of securities
issued in such Permanent Financing registration rights on terms reasonably
required by the Purchaser or any Affiliate of the Purchaser.
SECTION 6.20. Restrictions on Certain Amendments. The Company will
not, and will not cause or permit any of its Subsidiaries to, amend, or suffer
to be amended, any Company Corporate Document or any partnership or stockholder
agreement to which the Company or any of its Subsidiaries is a party if such
amendment would adversely affect the Purchaser or the holder of any Notes.
SECTION 6.21. Restriction on Business Activities. The Company will
not, and will not cause or permit any of its Subsidiaries to, directly or
indirectly, engage in any business activities other than the business activities
engaged in by the Company and its Subsidiaries on the date hereof and activities
reasonably related thereto.
SECTION 6.22. Prohibition of Prepayment of Debt. The Company will
not repay any Debt (other than the Notes) prior to its scheduled maturity.
SECTION 6.23. ERISA. The Company will not, and will not suffer any
Commonly Controlled Entity to, adopt, maintain, administer, contribute to, or
become required to contribute to a Plan.
SECTION 6.24. Minimum Consolidated Net Worth. The Company shall not
permit the Consolidated Net Worth at the end of any fiscal quarter to be less
than the greater of (x) $380 million and (y) the Company's shareholders' equity
as shown on its audited financial statements for the year ended December 31,
1997.
SECTION 6.25. Limitation on Restrictions Affecting Subsidiaries. The
Company will not, and will not cause or permit any of its Subsidiaries to,
directly or indirectly, enter into, or suffer to exist, any agreement (other
than the Financing Documents and agreements or restrictions entered into with
regulatory authorities) with any Person which prohibits or limits the ability of
any Subsidiary to (a) pay dividends or make other distributions or pay any Debt
owed to the Company or any of its Subsidiaries, (b) make loans or advances to
the Company or any of its Subsidiaries, (c) transfer any of its properties or
assets to the Company or any of its Subsidiaries or (d) cre-
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ate, incur, assume or suffer to exist any Lien upon any of its property, assets
or revenues, whether now owned or hereafter acquired.
6.26. Mortgages. As collateral security for the payment of all
obligations hereunder, on or after the date which is the six month anniversary
of the Closing Date, upon the request of the Purchaser, the Company shall take
all steps necessary to grant to the Purchaser a duly perfected first priority
mortgage and security interest in all real property owned by the Company.
6.27. Security Agreement Matters.
(a) Within five Business Days after the Closing Date, the Company
shall cause to be delivered to the Collateral Agent (i) the certificates
identified on Annex 1 to the Security Agreement, accompanied by undated stock
powers executed in blank and (ii) Uniform Commercial Code financing statements
in appropriate form for filing in the locations listed on Schedule 3.23.
(b) The Company shall obtain all consents and approvals of
Governmental Authorities necessary to grant a duly perfected first priority Lien
and security interest in the capital stock of each of Oxford Health Plans (NY),
Inc., Oxford Health Plans (NJ), Inc. and Oxford Health (CT), Inc. as soon as
practicable, but in any event no later than 10 Business Days after the Closing
Date.
ARTICLE VII
LIMITATION ON TRANSFERS
SECTION 7.1. Restrictions on Transfer. From and after their
respective dates of issuance, none of the Notes shall be transferable except
upon the conditions specified in this Section 7.1 and in Sections 7.2 and 7.3,
which conditions are intended to ensure compliance with the provisions of the
Securities Act in respect of the Transfer of any of such Notes or any interest
therein. The Purchaser will use its best efforts to cause any proposed
transferee of any Notes (or any interest therein) held by it to agree to take
and hold such Notes (or any interest therein) subject to the provisions and upon
the conditions specified in this Section 7.1 and in Sections 7.2 and 7.3.
<PAGE> 41
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SECTION 7.2. Restrictive Legends. Each Note shall (unless otherwise
permitted by the provisions of Section 7.3) include a legend in substantially
the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD,
UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND
THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE
BRIDGE SECURITIES PURCHASE AGREEMENT DATED AS OF FEBRUARY 6, 1998, A COPY
OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE
OFFICE.
SECTION 7.3. Notice of Proposed Transfers. (a) Two Business Days
prior to any proposed Transfer (other than Transfers of Notes (i) registered
under the Securities Act, (ii) to an Affiliate of DLJ or a general partnership
in which DLJ or an Affiliate of DLJ is one of the general partners (each, a
"Permitted Holder"), provided that any such transferee shall agree to be bound
by the terms of this Agreement or (iii) to be made in reliance on Rule 144A) of
any Notes, the Holder thereof shall give written notice to the Company of such
Holder's intention to effect such Transfer, setting forth the manner and
circumstances of the proposed Transfer, and shall be accompanied by (i) an
opinion of counsel reasonably satisfactory to the Company addressed to the
Company to the effect that the proposed Transfer of such Notes may be effected
without registration under the Securities Act, (ii) such representation letters
in form and substance reasonably satisfactory to the Company to ensure
compliance with the provisions of the Securities Act and (iii) such letters in
form and substance reasonably satisfactory to the Company from each such
transferee stating such transferee's agreement to be bound by the terms of this
Agreement. Such proposed Transfer may be effected only if the Company shall have
received such notice of transfer, opinion of counsel, representation letters and
other letters referred to in the immediately preceding sentence, whereupon the
Holder of such Notes shall be entitled to Transfer such Notes in accordance with
the terms of the notice delivered by the Holder to the Company. Each certificate
evidencing the Notes transferred as above provided shall bear the legend set
forth in Section 7.2 except that such certificate shall not bear such legend if
the opinion of counsel referred to above is to the further effect that neither
such legend nor the restrictions on
<PAGE> 42
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Transfer in Sections 7.1 through 7.3 are required in order to ensure compliance
with the provisions of the Securities Act.
(b) Two Business Days prior to any proposed Transfer of any Notes to
be made in reliance on Rule 144A, the Holder thereof shall give written notice
to the Company of such Holder's intention to effect such Transfer, setting forth
the manner and circumstances of the proposed Transfer and certifying that such
Transfer will be made (i) in full compliance with Rule 144A and (ii) to a
transferee that (A) such Holder reasonably believes to be a "qualified
institutional buyer" within the meaning of Rule 144A and (B) is aware that such
Transfer will be made in reliance on Rule 144A. Such proposed Transfer may be
effected only if the Company shall have received such notice of transfer and an
agreement from such transferee agreeing to be bound by the terms of this
Agreement, whereupon the Holder of such Notes may transfer them in accordance
with the terms of the notice delivered by the Holder to the Company. Each
certificate evidencing the Notes transferred as above provided shall bear the
legend set forth in Section 7.2.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Events of Default. If one or more of the following
events (each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay when due all or any part of the
principal of any of the Notes or any fee due under Section 6.18;
(b) failure by the Company to pay within 5 days of the due date
thereof any interest on any Note, any other fees or any other amount
payable by the Company under any Financing Document;
(c) failure on the part of the Company to observe or perform any
covenant contained in Sections 6.7 through 6.11, inclusive, Section 6.12
(other than with respect to Liens which are inadvertently created or
suffered to exist and which would not have a Material Adverse Effect) and
Sections 6.13 through 6.27, inclusive;
(d) failure on the part of the Company to observe or perform any
covenant contained in any Financing Document
<PAGE> 43
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(other than those covered by clauses (a), (b) or (c) above) for 30 days
after the Majority Holders deliver a notice thereof to the Company;
(e) the Company or any of its Subsidiaries has commenced a voluntary
case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or has consented
to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against
it, or has made a general assignment for the benefit of creditors, or has
failed generally to pay its debts as they become due, or has taken any
corporate action to authorize any of the foregoing;
(f) an involuntary case or other proceeding has been commenced
against the Company or any of its Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days, or an order for relief has been entered
against it under the federal bankruptcy laws as now or hereafter in
effect;
(g) default in respect of one or more Debts of the Company or any of
its Subsidiaries in excess of an aggregate of $5,000,000 if such default
results in acceleration of the maturity of such Debt or Debts or enables
(or with the giving of notice or lapse of time or both, would enable) the
holders of such Debt or Debts or any Person acting on such holders' behalf
to accelerate the maturity thereof, or the Company or any of its
Subsidiaries has failed to pay at maturity or within any applicable period
of grace any such Debt or Debts;
(h) judgments or orders for the payment of money which are not
covered by insurance and which in the aggregate at any one time exceed
$15,000,000 have been rendered against the Company or any of its
Subsidiaries by a court of competent jurisdiction and such judgments or
orders
<PAGE> 44
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shall continue unsatisfied and unstayed for a period of 60 days;
(i) any representation, warranty, certification or statement made by
the Company in any Financing Document or which is contained in any
certificate, document or financial or other statement furnished at any
time under or in connection with any Financing Document shall prove to
have been untrue in any material respect when made or deemed made;
(j) a breach under the Engagement Letter has occurred;
(k) a Change of Control has occurred;
(l) a breach of any of the provisions of the Collateral Documents or
the Lien purported to be created by any of the Collateral Documents shall
be invalid or shall be challenged or questioned by the Company or any of
its Subsidiaries or shall cease to be a first priority Lien;
then, and in every such occurrence, the holders of not less than 33-1/3% of the
aggregate principal amount of Notes outstanding (which percentage shall be 50.01
at any time when the Purchaser and its Affiliates own, in the aggregate, not
less than 50.01% of the aggregate principal amount of Notes outstanding) may, by
notice to the Company, declare the Notes (together with accrued interest
thereon) to be, and the Notes shall thereon become immediately due and payable;
provided, however, that in the case of any of the Events of Default specified in
paragraph (e) or (f) above, then, without any notice to the Company or any other
act by the Holder, the entire principal amount of the Notes together with
accrued interest thereon shall become immediately due and payable. The Majority
Holders may, on behalf of all of the Holders, by written notice to the Company,
rescind an acceleration and its consequences if all existing Events of Default
have been cured or waived, except nonpayment of principal or interest that has
become due solely because of the acceleration, and if the rescission would not
conflict with any judgment or decree then in effect; provided that any uncured
monetary defaults existing other than solely because of the acceleration may be
waived only by Holders of all the Notes.
SECTION 8.2. Powers and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Holders is intended to be exclusive of
any other right or remedy,
<PAGE> 45
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and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
or subsequent assertion or employment of any other appropriate right or remedy.
Every power and remedy given hereunder or by law may be exercised from time to
time, and as often as shall be deemed expedient, by the Holders.
ARTICLE IX
COLLATERAL AGENT
SECTION 9.1. Collateral Agent. (a) Each Holder by acceptance of a
Note appoints the Purchaser (and the Purchaser accepts appointment) as its
nominee and agent, in its name and on its behalf pursuant to the terms and
conditions of the Financing Documents to be the secured party, mortgagee,
beneficiary, recipient and similar party in respect of any collateral for the
benefit of the Holders (in such capacity, the "Collateral Agent"). If the
initial or any successor Collateral Agent ever ceases to be a party to this
Agreement or if the initial or any successor Collateral Agent ever resigns
(whether voluntarily or at the request of Majority Holders) then Majority
Holders shall appoint the successor Collateral Agent from among the Holders
(other than the resigning Collateral Agent).
(b) The Collateral Agent, in its capacity as a Holder, has the same
rights under the Financing Documents as any other Holder and may exercise those
rights as if it were not acting as Collateral Agent; the term "Holder" shall,
unless the context otherwise indicates, include the Collateral Agent; and the
Collateral Agent's resignation or removal shall not impair or otherwise affect
any rights that it has or may have in its capacity as an individual Holder. Each
Holder and the Company agree that the Collateral Agent is not a fiduciary for
the Holders or for the Company but simply is acting in the capacity described in
this Agreement to alleviate administrative burdens for the Company and the
Holders, and that the Collateral Agent has no duties or responsibilities to the
Holders or the Company, except those expressly set forth in the Financing
Documents.
SECTION 9.2. Limitation of Liability. Neither the Collateral Agent
nor any of its Affiliates, successors or assigns will be liable for any action
taken or omitted to be
<PAGE> 46
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taken by it or them under the Financing Documents in good faith and believed by
it or them to be within the discretion or power conferred upon it or them by the
Financing Documents or be responsible for the consequences of any error in
judgment (except for fraud, gross negligence or willful misconduct), and none of
them has a fiduciary relationship with any Holder by virtue of the Financing
Documents.
SECTION 9.3. Default; Collateral. While a Default exists, the
Holders agree to promptly confer in order that Majority Holders may agree upon a
course of action for the enforcement of the right of Holders and the Collateral
Agent is entitled to refrain from taking any action(without incurring any
liability to any Person for so refraining) unless and until it has received
instructions from Majority Holders. In actions with respect to any property of
the Company, the Collateral Agent is acting for the ratable benefit of each
Holder. The Collateral Agent shall hold, for the ratable benefit of all Holders,
any security it receives for the Secured Obligation or any guaranty of the
Secured Obligation it receives upon or in lieu of foreclosure.
SECTION 9.4. Pledged Collateral Matters. (a) Each Holder authorizes
and directs the Collateral Agent to enter into the Collateral Documents for the
ratable benefit of the Holders and to take any action concerning any Pledged
Collateral with the consent of, or at the request of, the Majority Holders in
accordance with the provisions of the Financing Documents, and the exercise by
the Collateral Agent (with the consent of, or at the request of, the Majority
Holders) of powers concerning the Pledged Collateral set forth in any Financing
Documents, together with other reasonably incidental powers, shall be authorized
by and binding upon all Holders.
(b) The Collateral Agent is authorized on behalf of all Holders,
without the necessity of any notice to or further consent from any Holders, from
time to time before a Default or an Event of Default, to take any action with
respect to any Pledged Collateral or Collateral Documents that may be necessary
to perfect and maintain perfected the Liens upon the Pledged Collateral granted
by the Collateral Documents.
<PAGE> 47
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ARTICLE X
MISCELLANEOUS
SECTION 10.1. Notices. All notices, demands and other communications
to any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature pages hereof and
receipt thereof is confirmed by telephone or in writing, (ii) if given by mail,
four days after such communication is deposited in the mail with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when delivered at the address specified in or pursuant to this Section.
SECTION 10.2. Waivers and Amendments. (a) No failure or delay on the
part of any party in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing and
is signed by the Company and the Majority Holders; provided, however, that
without the consent of each Holder of any Note affected thereby an amendment or
waiver may not (i) reduce the aggregate principal amount of Notes whose Holders
must consent to an amendment or waiver, (ii) reduce the rate or extend the time
for payment of interest on any Note, (iii) reduce the principal amount of or
extend the stated maturity of any Note or (iv) make any Note payable in money or
property other than as stated in such Note. In determining whether the Holders
of the requisite principal amount of Notes have concurred in any direction,
consent, or waiver as provided in any Financing Document, Notes which are owned
by the Company or any other obligor on or guarantor of the Notes, or by any
Person Controlling, Controlled by, or under common Control with any of the
foregoing, shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided, further, however, that no such amendment,
supplement or waiver which affects the rights of the Purchaser and its
Affiliates otherwise than solely in their capacities as
<PAGE> 48
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Holders of Notes shall be effective with respect to them without their prior
written consent.
SECTION 10.3. Indemnification. The Company agrees to indemnify and
hold harmless the Purchaser, its affiliates, and each Person, if any, who
controls the Purchaser, or any of its affiliates, within the meaning of the
Securities Act or the Exchange Act (a "Controlling Person"), and their
respective partners, agents, employees, officers and directors of the Purchaser,
its affiliates and any such Controlling Person (each an "Indemnified Party" and
collectively, the "Indemnified Parties"), from and against any and all losses,
claims, damages, liabilities and expenses (including, as incurred, reasonable
costs of investigating, preparing or defending any such claim or action, whether
or not such Indemnified Party is a party thereto) relating to or arising out of,
or in connection with, any activities contemplated by any Financing Document or
any other services rendered in connection therewith, including, but not limited
to, losses, claims, damages, liabilities or expenses arising out of or based
upon any untrue statement or any alleged untrue statement of a material fact or
any omission or any alleged omission to state a material fact in any of the
disclosure or offering or confidential information documents (the "Disclosure
Documents") pertaining to any of the transactions or proposed transactions
contemplated therein, including any eventual refinancing or resale of the Notes;
provided, however, that the Company will not be responsible for any claims,
liabilities, losses, damages or expenses that are determined by final judgment
of a court of competent jurisdiction to result solely from such Indemnified
Party's gross negligence, willful misconduct or bad faith. The Company also
agrees that no Indemnified Party shall have any liability for claims,
liabilities, damages, losses or expenses, including legal fees, incurred by the
Company in connection with this Agreement unless they are determined by final
judgment of a court of competent jurisdiction to result solely from such
Indemnified Party's gross negligence, willful misconduct or bad faith.
If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in writing
and the Company shall, if requested by such Indemnified Party or if the Company
desires to do so, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party under this
<PAGE> 49
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Agreement or otherwise unless the Company is materially adversely affected by
such failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party,
unless: (i) the Company has failed to assume the defense and employ counsel
reasonably satisfactory to such Indemnified Party or (ii) the named parties to
any such action (including any impleaded parties) include such Indemnified Party
and the Company, and such Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party, provided, however, that the Company shall not, in connection
with any one such action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be responsible hereunder for the
reasonable fees and expenses of more than one such firm of separate counsel, in
addition to any local counsel, which counsel shall be designated by the
Purchaser. The Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold harmless
each Indemnified Party from and against any loss or liability by reason of
settlement of any action effected with the consent of the Company. In addition,
the Company will not, without the prior written consent of the Purchaser, settle
or compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, suit or proceeding in respect
to which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an express, unconditional release of the
Purchaser and the other Indemnified Parties, satisfactory in form and substance
to the Purchaser, from all liability arising out of such action, claim, suit or
proceeding.
If for any reason the foregoing indemnity is unavailable to an
Indemnified Party or insufficient to hold an Indemnified Party harmless, then in
lieu of indemnifying such Indemnified Party, the Company shall contribute to the
amount paid or payable by such Indemnified Party as a result of such claims,
liabilities, losses, damages, or expenses (i) in such
<PAGE> 50
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proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and by the Purchaser on the other from the transactions
contemplated by this Agreement or (ii) if the allocation provided by clause (i)
is not permitted under applicable law, in such proportion as is appropriate to
reflect not only the relative benefits received by the Company on the one hand
and the Purchaser on the other, but also the relative fault of the Company and
the Purchaser as well as any other relevant equitable considerations.
Notwithstanding the provisions of this Section 9.3, the aggregate contribution
of all Indemnified Parties shall not exceed the amount of fees actually received
by the Purchaser pursuant to this Agreement. It is hereby further agreed that
the relative benefits to the Company on the one hand and the Purchaser on the
other with respect to the transactions contemplated hereby shall be deemed to be
in the same proportion as (i) the total value of the transactions contemplated
hereby bears to (ii) the fees paid to the Purchaser with respect to the
transactions contemplated hereby. It is hereby further agreed that the relative
fault of the Company on the one hand and the Purchaser on the other with respect
to the transactions contemplated hereby shall be determined by reference to,
among other things, whether any untrue or alleged untrue statement of material
fact or the omission or alleged omission to state a material fact related to
information supplied by the Company or by the Purchaser and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnification, contribution and expense reimbursement
obligations set forth in this Section 9.3(i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the other
Financing Documents and the payment in full of the Notes and (iii) shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Purchaser or any other Indemnified Party.
SECTION 10.4. Expenses; Documentary Taxes. The Company agrees to pay
all reasonable out-of-pocket costs, expenses and other payments in connection
with the purchase and sale of the Notes as contemplated by this Agreement,
including (i) all reasonable fees and disbursements of special counsel for the
Purchaser incurred in connection with the preparation of the
<PAGE> 51
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Financing Documents, (ii) all reasonable out-of-pocket expenses of the
Purchaser, including fees and disbursements of counsel, in connection with any
waiver or consent hereunder or under any other Financing Document or any
amendment hereof or thereof and (iii) all out-of-pocket expenses of the
Purchaser and each Holder, including fees and disbursements of counsel, in
connection with any collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom. In addition, the Company agrees to pay any and
all stamp, transfer and other similar taxes, assessments or charges payable in
connection with the execution and delivery of any Financing Document or the
issuance of Notes (other than any Note issued in a Transfer).
SECTION 10.5. Payment. The Company agrees that, so long as the
Purchaser shall own any Notes purchased by it from the Company hereunder, the
Company will make payments to the Purchaser of all amounts due thereon by wire
transfer by 1:00 p.m. on the date of payment to such account as is specified
beneath the Purchaser's name on the signature page hereof or to such other
account or in such other similar manner as the Purchaser may designate to the
Company in writing.
SECTION 10.6. Register. The Company shall keep at its principal
office a register (the "Register") in which shall be entered the names and
addresses of the registered holders of the Notes and particulars of the
respective Notes held by them and of all transfers of such Notes. References to
the "Holder" or "Holders" shall mean the Person or Persons listed in the
Register as the payee of any Note. The ownership of the Notes shall be proven by
the Register.
SECTION 10.7. Successors and Assigns. This Agreement shall be
binding upon the Company and upon the Purchaser and their respective successors
and assigns; provided, however, that the Company shall not assign or otherwise
transfer its rights or obligations under this Agreement to any other Person
without the prior written consent of the Majority Holders. All provisions
hereunder purporting to give rights to DLJ and its Affiliates or to Holders are
for the express benefit of such Persons.
SECTION 10.8. New York Law; Submission to Jurisdiction; Waiver of
Jury Trial. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED IN THAT STATE. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
<PAGE> 52
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SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 10.9. Independence of Representations, Warranties and
Covenants. The representations, warranties and covenants contained herein shall
be independent of each other, and no exception to any representation, warranty
or covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exception be deemed to permit any action or omission that would be in
contravention of applicable law.
SECTION 10.10. Severability. If any provision of this Agreement, or
the application of such provision to any Person or circumstance, is held by a
court of competent jurisdiction to be invalid, the remainder of this Agreement
or the application of such provision to other Persons or circumstances shall in
no way be affected thereby; provided, however, that the parties shall negotiate
in good faith to replace the offending provision or application with a
substitute provision or application that will have substantially the same
economic effect. To the extent that it may effectively do so under applicable
law, each party hereby waives any provision of law which renders any provision
of this Agreement invalid, illegal or unenforceable in any respect.
SECTION 10.11. Entire Agreement; Benefit. This Agreement and the
other Financing Documents constitute the entire contract among the parties
relating to the subject matter hereof. Any previous agreement among the parties
with respect to the subject matter hereof is superseded by this Agreement and
the other Financing Documents. Nothing in any Financing Document is intended to
confer upon any Person (other than the parties thereto and any Indemnified
Party) any rights, remedies, obligations or liabilities under or by reason of
the Financing Documents.
<PAGE> 53
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SECTION 10.12. Headings. Article and Section headings and the Tables
of Contents and Exhibits and Schedules are for convenience of reference only,
are not part of this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting, this Agreement.
SECTION 10.13. Counterparts. This Agreement may be executed in any
number of counterparts each of which shall be an original with the same effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 10.14 Confidentiality. The Purchaser agrees to take normal
and reasonable precautions to maintain the confidentiality of information
provided to it by the Company in connection with this Agreement to the extent it
is not a matter of general public knowledge or it was not previously known to
the Purchaser at the time such information was provided to it; provided,
however, that the Purchaser may disclose such information (a) at the request of
any bank regulatory or securities authority or the National Association of
Insurance Commissioner (the "NAIC") or in connection with an examination of the
Purchaser by any such authority or the NAIC, (b) pursuant to subpoena or other
court process, (c) when required to do so in accordance with the provisions of
any applicable law, (d) at the direction of any governmental authority, (e) to
the Purchaser's Affiliates, independent auditors and other professional advisors
or (f) to any transferee or potential transferee or to any direct or indirect
contractual counterparties in swap agreements or to the professional advisors of
such swap counterparties; provided, however, that in the case of (e) or (f) they
agree with the Company to comply with the provisions of this Section 10.14.
<PAGE> 54
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers, as of the date first
above written.
COMPANY:
OXFORD HEALTH PLANS, INC.
By: /s/ William M. Sullivan
--------------------------------
Name: William M. Sullivan
Title: President and Chief
Executive Officer
800 Connecticut Avenue
Norwalk, CT 06854
Attention: Jeffrey H. Boyd
Telecopy: (203) 851-2465
OXFORD FUNDING, INC.:
By: /s/ Paul Thompson III
--------------------------------
Name: Paul Thompson III
Title: Managing Director
277 Park Avenue
c/o DLJ Bridge Finance, Inc.
New York, New York 10172
Attention: Paul Thompson III
Telecopy: (212) 892-7272
Account Number and Bank for
Payment:
<PAGE> 55
A-1
EXHIBIT A
FORM OF NOTE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD, UNLESS IT
HAS BEEN REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE
WITH THE RESTRICTIONS ON TRANSFER SET FORTH IN THE BRIDGE SECURITIES PURCHASE
AGREEMENT DATED AS OF FEBRUARY 6, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE
COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE.
No. $
OXFORD HEALTH PLANS, INC.
Senior Secured Increasing Rate Note
OXFORD HEALTH PLANS, INC., a Delaware corporation (together with its successors,
the "Company"), for value received hereby promises to pay to
[NAME OF HOLDER]
(the "Holder") and registered assigns the principal sum of
[Amount in words] Dollars ($[Amount in numbers])
by wire transfer of immediately available funds to the Holder's account (the
"Bank Account") at such bank in the United States as may be specified in writing
by the Holder to the Company, on the earlier of (i) the date which is one year
after the Closing Date (as defined in the Bridge Securities Purchase Agreement
referred to below) and (ii) the date the principal amount of the Notes shall be
declared to be or shall automatically become (as provided in Article 8 of the
Bridge Securities Purchase Agreement) due and payable (in any such case, the
"Maturity Date") in such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts, and to pay interest, quarterly in arrears, on the [date corresponding to
Closing Date] day of each third month after the Closing Date (unless such day is
not a Business Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date") and on the Maturity
<PAGE> 56
A-2
Date, on the principal sum hereof outstanding in like coin or currency, at the
rates per annum set forth below, by wire transfer of immediately available funds
to the Bank Account from the most recent Interest Payment Date to which interest
has been paid on this Note, or if no interest has been paid on this Note, from
the date of this Note until payment in full of the principal sum hereof has been
made.
This Note is one of a duly authorized issue of Notes of the Company
(the "Notes") referred to in the Bridge Securities Purchase Agreement dated as
of February 6, 1998 between the Company and Oxford Funding, Inc. (the
"Purchaser") (as the same may be amended from time to time in accordance with
its terms, the "Agreement"). All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for therein.
This Note shall bear interest at a rate per annum (the "Interest Rate")
equal to the sum of (i) the Prime Rate in effect from time to time plus (ii)
250 basis points plus (iii) an additional spread equal to 0 basis points prior
to the date which is three months after the Closing Date and 50 basis points
from and including the date which is three months after the Closing Date,
increasing by 50 basis points at the end of each subsequent three-month period,
until the principal amount hereof is paid in full or, in any case, if less, the
maximum rate permitted by applicable law. "Prime Rate" means, for any day, a
rate per annum equal to the rate of interest publicly announced by The Bank of
New York (or its successor) from time to time in The City of New York as its
prime, reference or base rate. The Interest Rate shall be reduced by 50 basis
points on the date on which the Purchaser purchases Notes in excess of the
Initial Commitment Amount.
Notwithstanding anything to the contrary set forth herein, at no time
shall the per annum interest rate on this Note exceed seventeen * percent (17
%), nor shall the per annum interest rate on this Note be lower than * ten and
one-half percent (10.50 * %). In addition, that portion, if any, of any
interest payment representing a per annum interest rate in excess of fifteen *
percent (15.0 * %) may be paid, at the option of the Company, by issuing and
delivering Notes with a principal amount equal to such excess portion of
interest.
Interest on this Note will be calculated on the basis of a 365-day
year and paid for the actual number of days elapsed.
<PAGE> 57
A-3
This Note is transferable and assignable to one or more purchasers
in accordance with the provisions set forth in the Agreement. The Company agrees
to issue from time to time replacement Notes in the form hereof to facilitate
such transfers and assignments.
Unless the Majority Holders otherwise consent in writing, the
Company covenants and agrees to observe and perform each of its obligations and
undertakings contained in Article VI of the Agreement, which obligations and
undertakings are expressly assumed herein by the Company and made for the
benefit of the Holders.
This Note may be required to be prepaid upon the occurrence of
certain events specified in, and in accordance with, the Agreement.
This Note may be prepaid, in whole or in part, at any time or from
time to time in accordance with the provisions of the Agreement.
In the event of an Event of Default, the principal of and interest
on this Note may be declared to be or become automatically due and payable in
the manner and with the effect provided in the Agreement.
This Note shall be deemed to be a contract made under the laws of
the State of New York, and for all purposes shall be governed by and construed
in accordance with the laws of said State applicable to contracts made and to be
performed in that State. The parties hereto, including all guarantors or
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Note, except as specifically provided herein, and assent to
extensions of the time of payment, or forbearance or other indulgence without
notice. The Company hereby submits to the exclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
state court sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Note. The Company irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. The Company hereby irrevocably waives any and all
right to trial by jury in any legal proceeding arising out of or relating to
this Note.
<PAGE> 58
A-4
The Holder of this Note by acceptance of this Note agrees to be
bound by the provisions of this Note and the Agreement which are expressly
binding on such Holder.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
Dated: ______________, 199
OXFORD HEALTH PLANS, INC.
By:
--------------------------------
Name:
Title
<PAGE> 59
EXHIBIT C
FORM OF STATUS CERTIFICATE
I, [Name], [Executive Officer] of Oxford Health Plans, Inc. (the
"Company") DO HEREBY CERTIFY, to the best of my knowledge and belief, as
follows:
(a) As of the date hereof, no Default has occurred and is
continuing.
(b) The representations and warranties of the Company contained in
each Financing Document (other than any representation or warranty that
expressly relates only to a specified other date) are true and correct on and as
of the date hereof as if made on and as of such date and the Company has
performed and complied with all covenants and agreements required by the
Financing Documents to be performed or complied with at or prior to the date
hereof.
I have made or caused to be made such examination or investigation
(including reading the relevant provisions (including related definitions) of
the Bridge Securities Purchase Agreement referred to below) as is necessary to
enable me to make the foregoing certifications.
All terms not otherwise defined herein shall have the respective
meanings set forth in the Bridge Securities Purchase Agreement dated as of
February 6, 1998 between the Company and .
IN WITNESS WHEREOF, I have hereunto set my hand.
____________, 199_
---------------------------------
[Name]
[Title]
<PAGE> 1
Exhibit 10(p)
SECURITY AGREEMENT
SECURITY AGREEMENT ("Agreement") dated as of February 6, 1998
between OXFORD HEALTH PLANS, INC., a Delaware corporation, as debtor ("Debtor")
and OXFORD FUNDING, INC., a Delaware, as collateral agent and secured party (in
such capacity, "Secured Party").
Debtor and Secured Party have entered into a certain bridge
securities purchase agreement (as amended, amended and restated, supplemented or
otherwise modified from time to time, the "Purchase Agreement"), dated as of the
date hereof, pursuant to which (i) Secured Party has agreed to purchase the
senior secured increasing rate notes (the "Notes") of Debtor in an amount not to
exceed the Commitment Amount and (ii) Debtor has agreed to pay to Secured Party
certain fees and expenses in connection therewith.
To induce Secured Party to enter into the Purchase Agreement
and to extend credit thereunder, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Debtor has agreed
to pledge, mortgage and grant a security interest in the Pledged Collateral (as
hereinafter defined) as security for the Secured Obligations (as hereinafter
defined). Accordingly, the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Purchase
Agreement are used herein as defined therein. In addition, as used herein:
"Contracts" shall mean all contracts, undertakings, or other
agreements, as the same may be amended from time to time, and (a) all rights of
the Debtor to receive moneys due and to become due thereunder or in connection
therewith, (b) all rights of the Debtor to damages arising out of or for breach
or default in respect thereof, and (c) all rights of the Debtor to exercise
remedies thereunder.
"Documents" shall have the meaning assigned to such term in
Section 3(d) hereof.
"Equipment" shall have the meaning assigned to such term in
Section 3(c) hereof.
"Issuers" shall mean, collectively, the respective
corporations identified beneath the names of Debtor on Annex 1 hereto under the
caption "Issuer,", the capital stock of which is required to be pledged
hereunder pursuant to this Agreement or the Purchase Agreement.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers
and other like property, whether or not the title thereto is governed by a
certificate of title or ownership.
<PAGE> 2
-2-
"Permitted Encumbrances" shall mean (a) with respect to the
Securities Collateral and the proceeds thereof, Liens of the type described in
clause (f) of the definition of Permitted Liens and (b) with respect to all
other Pledged Collateral, Liens of the type described in clauses (a), (b), (c)
and (f) of the definition of Permitted Liens.
"Pledged Collateral" shall have the meaning assigned to such
term in Section 3 hereof.
"Pledged Securities" have the meaning assigned to such term in
Section 3(a) hereof.
"Prior Liens" shall mean (a) the Liens set forth on Schedule 3
hereto and (b) with respect to each applicable type of Pledged Collateral,
Permitted Encumbrances, but only to the extent that the law or regulation
creating or authorizing such Lien provides that such Lien must be superior to
the Lien and security interest created and evidenced by this Agreement.
"Secured Obligations" shall mean, collectively, the principal
of and interest (including, without limitation, any interest that would accrue
but for the provisions of the Bankruptcy Code) on the Notes and all other
amounts from time to time owing to Secured Party or the Holders by Debtor under
the Financing Documents, including, without limitation, all fees and expenses
payable thereunder.
"Securities Act" shall mean the United States Securities Act
of 1933, as amended.
"Securities Collateral" shall mean, collectively, the Pledged
Collateral described in clauses (a) and (b) of Section 3 hereof and the proceeds
of and to any such property and, to the extent related to any such property or
such proceeds, all books, correspondence, credit files, records, invoices and
other papers.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in each applicable jurisdiction.
"Voting Powers" shall have the meaning assigned to such term
in Section 5.04(a)(2) hereof.
Section 2. Representations, Warranties and Covenants. Debtor
represents and warrants to and covenants and agrees with Secured Party that:
(a) Debtor is the sole beneficial (and, with respect to the
Pledged Securities, record) owner of the Pledged Collateral in which it
purports to grant a security interest pursuant to Section 3 hereof and
no Lien exists or will exist upon such Pledged Collateral at any
<PAGE> 3
-3-
time (and no right or option to acquire the same exists in favor of any other
Person), except for Prior Liens and the pledge and security interest in favor of
Secured Party created or provided for herein, which pledge and security interest
shall constitute a first priority perfected pledge and security interest in and
to all of such Pledged Collateral subject only to Prior Liens and Debtor will
make no assignment, pledge, hypothecation or transfer of, or create or permit to
exist any security interest in or other Lien on, the Pledged Collateral, other
than Prior Liens and the Lien pursuant hereto; and, subject to Section 5.04
hereof, will cause any and all Pledged Securities, to the extent certificated,
whether for value paid by Debtor or otherwise, to be forthwith deposited with
Secured Party and pledged or assigned hereunder.
(b) The Pledged Securities represented by the certificates identified
under the name of Debtor in Annex 1 hereto are, and all other Pledged Securities
in which Debtor shall hereafter grant a security interest pursuant to Section 3
hereof will be, duly authorized, validly existing, fully paid and non-assessable
and none of such Pledged Securities are or will be subject to any contractual
restriction, or any restriction under the charter or by-laws of the respective
Issuer of such Pledged Securities, upon the transfer of such Pledged Securities
(except for any such restriction contained herein or in the Purchase Agreement
or as permitted by the Purchase Agreement or any such restriction imposed by any
Governmental Authority).
(c) The Pledged Securities represented by the certificates identified
under the name of Debtor in Annex 1 hereto constitute all of the issued and
outstanding shares of capital stock of any class of such Issuers beneficially
owned by Debtor (whether or not registered in the name of Debtor) and said Annex
1 correctly identifies, as at the date hereof, the respective Issuers of such
Pledged Securities, the respective class and par value of the shares comprising
such Pledged Securities and the respective number of shares (and registered
owners thereof) represented by each such certificate.
(d) Any goods now or hereafter produced by Debtor or any of its
Subsidiaries included in the Pledged Collateral have been and will be produced
by Debtor in compliance with the applicable requirements of the Fair Labor
Standards Act of 1938, as amended, except where the failure to comply could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
(e) Debtor has the corporate power and authority to grant the security
interest in the Pledged Collateral pursuant to this Agreement and has taken all
necessary corporate action to grant the security interest in the Pledged
Collateral pursuant to this Agreement.
<PAGE> 4
-4-
(f) None of the Pledged Securities constitutes margin stock, as defined
in Regulation G or Regulation U of the Board of Governors of the Federal Reserve
System.
(g) Other than Prior Liens, no security agreement, financing statement,
equivalent security or lien instrument or continuation statement covering all or
part of the Pledged Collateral is on file or of record in any public office,
except such as may have been or will be filed in favor of Secured Party pursuant
to this Agreement.
(h) Upon filing of the financing statements in the offices referred to
on Schedule 1 hereto, the security interest created by this Agreement in all
Pledged Collateral (other than the Pledged Securities) will constitute a valid,
perfected first priority security interest in such Pledged Collateral to the
extent provided in the Uniform Commercial Code, enforceable in accordance with
its terms against all creditors of Debtor and any Persons purporting to purchase
any such Pledged Collateral from Debtor, except as enforcement of such security
interest may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally or general equitable principles (whether considered
in a proceeding in equity or at law).
(i) Debtor's principal place of business, chief executive office and
the place where its records concerning the Pledged Collateral are kept is at the
address listed on Schedule 2(i) hereto, and Debtor will not change such
principal place of business or chief executive office or remove such records
without giving Secured Party at least thirty (30) days prior written notice
thereof and taking such action to maintain the perfection or priority of Secured
Party's security interest in the Pledged Collateral as is necessary or
reasonably requested by Secured Party; and Debtor will not change its name,
identity or structure in any manner, or take any other action, which might make
any financing statement filed in respect of the Pledged Collateral seriously
misleading unless it shall have given Secured Party at least thirty (30) days
prior written notice thereof.
(j) No consent or approval of any Governmental Authority or any
securities exchange or any other Person was or is necessary for the validity of
the security interest granted herein and the pledge effected hereby, other than
the consents and approvals of insurance departments of the states listed on
Schedule 2(j) required in connection with the pledge of the Pledged Securities.
(k) By virtue of the execution and delivery by Debtor of this
Agreement, when the Pledged Securities, certificates, instruments or other
documents representing or evidencing such Pledged Securities
<PAGE> 5
-5-
are delivered to Secured Party in accordance with this Agreement, or, in the
case of Pledged Securities constituting uncertificated securities, when the
steps required by Articles 8 and 9 of the Uniform Commercial Code have been
taken to perfect Secured Party's security interest therein, the security
interest created by this Agreement in the Pledged Securities to the extent
provided in the Uniform Commercial Code is enforceable in accordance with its
terms against all creditors of Debtor and any Person purporting to purchase any
such Pledged Collateral from Debtor, except as enforcement of such security
interest may be affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally or general equitable principles (whether considered
in a proceeding in equity or at law).
(l) There are no restrictions upon the voting rights associated with,
or upon the transfer of, any of the Pledged Securities (other than any such
restrictions imposed by the domiciliary states of those Issuers or any
subsidiary of any Issuer subject to state insurance laws and regulations. The
Pledged Securities are not subject to any put, call, option or other right in
favor of any other Person whatsoever.
(m) Neither the execution and delivery of this Agreement by Debtor nor
the consummation of the transactions herein contemplated nor the fulfillment of
the terms hereof (i) violates Debtor's, or any of its Subsidiaries', charter or
by-laws or any organizational or other organic document of any Issuer, (ii)
violates the terms of any agreement, indenture, mortgage, deed of trust,
equipment lease, instrument or other document to which Debtor, or any of its
Subsidiaries, is a party, or by which any of them may be bound or to which any
of their Property may be subject, which violation or conflict, individually or
in the aggregate, would have a Material Adverse Effect, or a material adverse
effect on the value of the Pledged Collateral or a material adverse effect on
the security interests hereunder, or (iii) conflicts with any law, order, rule
or regulation applicable to Debtor, or any of its Subsidiaries, of any
Governmental Authority having jurisdiction over Debtor, or any of its
Subsidiaries, or their Property, or (iv) results in or requires the creation or
imposition of any Lien (other than the Lien contemplated hereby) upon or with
respect to any of the Property now owned or hereafter acquired by Debtor, or any
of its Subsidiaries.
(n) Upon reasonable request to Debtor, to the extent permitted by
applicable law, Secured Party shall have full and free access during normal
business hours to all of the books, correspondence and records of Debtor
relating to the Pledged Collateral, and Secured Party and its representatives
may examine the same, take extracts therefrom and make photocopies thereof, and
Debtor agrees to render to Secured
<PAGE> 6
-6-
Party, at Debtor's cost and expense, such clerical and other assistance
as may be reasonably requested by Secured Party with regard thereto.
(o) In the event that Secured Party desires to exercise any
remedies, voting or consensual rights or attorney-in-fact powers set
forth in this Agreement and determines it necessary to obtain any
approvals or consents of any Governmental Authority or any other Person
therefor, then, upon the reasonable request of Secured Party, Debtor
agrees to use its diligent best efforts to assist and aid Secured Party
to obtain as soon as practicable any such approvals or consents
necessary for the exercise of any such remedies, rights and powers.
(p) There are no voting trusts or other agreements or
understandings to which Debtor is a party or by which it may be bound
with respect to voting, managerial consent, election or other rights of
Debtor relating to the Pledged Securities.
Section 3. Pledged Collateral; Registration of Pledge of
Pledged Interests; Acknowledgments; Delivery of Pledged Securities and Pledged
Obligations. As collateral security for the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the Secured
Obligations owing by Debtor, Debtor hereby pledges and mortgages to Secured
Party, for the benefit of the Holders and grants to Secured Party for the
benefit of the Holders, a security interest in all of Debtor's right, title and
interest in the following property, whether now owned by Debtor or hereafter
acquired and whether now existing or hereafter coming into existence
(collectively, the "Pledged Collateral"):
(a) the shares of common and/or preferred stock of the Issuers
represented by the certificates identified in Annex 1 hereto under the
name of Debtor (collectively, the "Pledged Securities");
(b) all shares, securities, moneys or Property representing a
dividend on any of the Pledged Securities, or representing a
distribution or return of capital upon or in respect of the Pledged
Securities, or resulting from a split-up, revision, reclassification or
other like change of the Pledged Securities or otherwise received in
exchange therefor, and any subscription warrants, rights or options
issued to the holders of, or otherwise in respect of, the Pledged
Securities;
(c) all equipment (as defined in the Uniform Commercial Code)
of Debtor, including all of Debtor's equipment, machinery, furniture,
furnishings, fixtures, tools, supplies, and Motor Vehicles, of every
kind and description, now or at any time hereafter owned by and in the
custody or possession, actual or constructive, of Debtor, wherever
located, together with any and all parts, improvements, addi-
<PAGE> 7
-7-
tions, replacements, accessions, and substitutions thereto or therefor,
and all licenses and other rights of Debtor or relating thereto,
whether in the possession and control of Debtor, or in the possession
and control of a third party for the account of Debtor and all claims
under and proceeds of insurance thereon, and all maintenance and
warranty records relating thereto (collectively, the "Equipment");
(d) all documents of title (as defined in the Uniform
Commercial Code) or other receipts of such Debtor covering, evidencing
or representing Equipment (collectively, the "Documents");
(e) all rights, claims and benefits of such Debtor against any
Person arising out of, relating to or in connection with Equipment
purchased by Debtor, including, without limitation, any such rights,
claims or benefits against any Person storing or transporting such
Equipment;
(f) all Contracts; and
(g) all other tangible and intangible personal property and
fixtures of Debtor, including, without limitation, all proceeds,
products, accessions, rents, profits, income, benefits, substitutions
and replacements of and to any of the property of Debtor described in
the preceding clauses of this Section 3 (including, without limitation,
any proceeds of insurance thereon and all causes of action, claims and
warranties now or hereafter held by Debtor in respect of any of the
items listed above) and, to the extent related to any property
described in such clauses or such proceeds, products and accessions,
all books, correspondence, credit files, records, invoices and other
papers, including, without limitation, all tapes, cards, computer runs
and other papers and documents in the possession or under the control
of Debtor or any computer bureau or service company from time to time
acting for Debtor.
Notwithstanding the foregoing, the Pledged Collateral does not
and shall not include any Contract to which Debtor is a party which would be
rendered void or unenforceable by reason of its being included as part of the
Pledged Collateral or which is not assignable by its terms or any applicable
law, unless a consent to the assignment has been received by the Debtor and/or
the Secured Party.
Section 4. Covenants; Further Assurances; Remedies. In
furtherance of the grant of the pledge and security interest pursuant to Section
3 hereof, Debtor agrees with Secured Party as follows:
4.01. Delivery and Other Perfection. Debtor shall:
<PAGE> 8
-8-
(a) deliver to Secured Party within five Business Days after the date
hereof all of the certificates evidencing the Pledged Securities owned by
Debtor, endorsed in blank or accompanied with appropriate undated stock powers
executed in blank.
(b) execute and deliver within five business days after the date hereof
to Secured Party such financing statements as Secured Party has requested with
respect to that portion of the Pledged Collateral in which a Lien may be
perfected by the filing of a financing statement against Debtor.
(c) if there shall be received by Debtor any of the above-described
shares, securities or property required to be pledged by Debtor under Section 3
hereof or any distribution of capital shall be made on or in respect of the
Pledged Interests or any Property shall be distributed upon or with respect to
the Pledged Interests pursuant to the recapitalization or reclassification of
the capital of any LLC or Partnership, or pursuant to the reorganization
thereof, forthwith either (x) transfer and deliver to Secured Party such shares,
capital, Property or securities so received by Debtor (together with the
certificates for any such shares and securities duly endorsed in blank or
accompanied by undated stock powers duly executed in blank), all of which
thereafter shall be held by Secured Party, pursuant to the terms of this
Agreement, as part of the Pledged Collateral, or (y) take such other action as
Secured Party shall reasonably deem necessary or appropriate to duly record the
Lien created hereunder in such shares, securities, capital or Property in such
Section 3 and until such time of transfer hold such shares, securities, money,
property or capital in trust for the sole benefit of Secured Party, segregated
from the other property of Debtor;
(d) maintain the security interest created by this Agreement as a first
priority perfected security interest subject only to Prior Liens and defend such
security interest against claims and demands of all Persons whomsoever and give,
execute, deliver, file and/or record any financing statement, continuation
statement, notice, instrument, document, agreement or other papers that may be
necessary or desirable (in the reasonable judgment of Secured Party) to create,
preserve, perfect or validate the security interest granted pursuant hereto or
to enable Secured Party to exercise and enforce its rights hereunder with
respect to such pledge and security interest (and Debtor authorizes Secured
Party to file any such financing or continuation statement without the signature
of Debtor to the extent permitted by applicable law), including, without
limitation, after the occurrence and during the continuance of an Event of
Default, causing any or all of the Securities Collateral to be transferred of
record into the name of Secured Party or its nominee (and Secured Party agrees
that if any Securities Collateral is transferred into
<PAGE> 9
-9-
its name or the name of its nominee, Secured Party will thereafter
promptly give to Debtor copies of any notices and communications
received by it with respect to the Securities Collateral) and if any
amount payable under or in connection with any of the Interests or
Partnership Interests shall be or become evidenced by any instrument
(including, without limitation, any promissory note) or chattel paper
(in each case as defined in the Uniform Commercial Code), such
instrument or chattel paper shall be immediately delivered to Secured
Party, duly endorsed in a manner satisfactory to Secured Party, to be
held as Pledged Collateral pursuant to this Agreement;
(e) keep full and accurate books and records relating to the
Pledged Collateral, and stamp or otherwise mark all such material books
and records in such manner as Secured Party may reasonably require in
order to reflect the security interests granted by this Agreement;
(f) to the extent permitted by applicable law, permit
representatives of Secured Party, upon reasonable notice, at any time
during normal business hours to inspect and make abstracts from its
books and records pertaining to the Pledged Collateral;
(g) to the extent permitted by applicable law, upon the
occurrence and during the continuance of any Event of Default, permit
representatives of Secured Party to be present at Debtor's place of
business to receive copies of all communications and remittances
relating to the Pledged Collateral, and forward copies of any notices
or communications received by such Debtor with respect to the Pledged
Collateral, all in such manner as Secured Party may require; and
(h) to the extent permitted by law, pay, and save Secured
Party and the Lenders harmless from, any and all liabilities with
respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other similar taxes which may be payable or determined
to be payable with respect to any of the Pledged Collateral or in
connection with any of the transactions contemplated by this Agreement.
4.02. Other Financing Statements and Liens. Without the prior
written consent of Secured Party, Debtor shall not file or suffer to be on file,
or authorize or permit to be filed or to be on file, in any jurisdiction, any
financing statement or like instrument with respect to the Pledged Collateral in
which Secured Party is not named as the sole secured party other than with
respect to Prior Liens.
4.03. Preservation of Rights. Regardless of whether or not
there shall have occurred any Event of Default, Secured Party may institute and
maintain, or cause in its name or in the name of Debtor to be insti-
<PAGE> 10
-10-
tuted and maintained, such suits and proceedings as Secured Party may reasonably
deem to be necessary or expedient to prevent any impairment of the security
interest in or perfection of the Pledged Collateral in contravention of the
terms of the Financing Document. Debtor agrees not to knowingly take or permit
to be taken any action which would impair the Pledged Collateral or Secured
Party's rights in the Pledged Collateral. Secured Party shall not be required to
take steps necessary to preserve any rights against prior parties to any of the
Pledged Collateral.
4.04. Special Provisions Relating to Certain Collateral.
(a) Pledged Securities.
(1) Debtor shall cause the Pledged Securities to constitute at
all times, with respect to each Issuer, all of the shares of each class of
capital stock of each such Issuer then owned by Debtor.
(2) So long as no Event of Default shall have occurred and be
continuing, Debtor shall have the right to exercise all voting, consensual,
partnership, managerial and membership rights and powers and other powers of
ownership pertaining to the Pledged Securities (collectively, the "Voting
Powers") for all purposes not inconsistent with the terms of this Agreement, the
other Financing Documents or any other instrument or agreement referred to
herein or therein; provided, however, that Debtor agrees that no vote shall be
cast or other action taken which materially impair the Pledged Securities (other
than pursuant to a transaction expressly permitted under the Purchase Agreement)
or which would be inconsistent with or result in any violation of any provision
of any of this Agreement or any other Financing Document. Secured Party shall
execute and deliver to Debtor or cause to be executed and delivered to Debtor
all such proxies, powers of attorney, dividend and other orders, and all such
instruments, in each case without recourse or warranty, as Debtor may reasonably
request for the purpose of enabling the Debtor to exercise the Voting Powers
that they are entitled to exercise pursuant to this Section 4.04(a)(2). Upon the
occurrence and during the continuance of an Event of Default, at Secured Party's
sole and absolute option and following written notice from Secured Party to the
Debtor (such written notice to be effective immediately upon the giving thereof
as provided below) all rights of Debtor to exercise the Voting Powers they are
entitled to exercise pursuant to this Section 4.04(a)(2), and the obligations of
Secured Party under this Section 4.04(a)(2), shall cease, and all such Voting
Powers shall thereupon become transferred to and vested in Secured Party, which
shall have the sole and exclusive right and authority to exercise such Voting
Powers, including, without limitation, the right to act by shareholder, partner,
member or other interestholder consent. Such authorization shall constitute an
irrevocable voting proxy from each Debtor to Secured Party or, at Secured
Party's option, to Secured Party's nominee. Notwithstanding any other term or
condition contained herein, Secured Party may not exercise
<PAGE> 11
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any of the rights or powers described herein with respect to the ownership, sale
or voting of the Pledged Securities, including the foreclosure upon or sale of
the Pledged Securities, unless and until the Secured Party (and, in the case of
a sale of the Pledged Securities, the purchaser thereof) has complied with the
filing requirements of all applicable laws regulating the acquisition of voting
securities or control of an insurance company or health maintenance
organization, and the acquisition of the Pledged Securities or control of the
Issuer thereof by the Secured Party hereunder (or by the purchaser in any such
sale) has been duly approved in accordance with all such laws.
(3) Subject to Section 4.04(a)(4) below, Debtor shall be
entitled to receive and retain any dividends or distributions on the Pledged
Securities to the extent that the payment of such dividends is permitted by the
Purchase Agreement.
(4) If any Event of Default shall have occurred, then so long
as such Event of Default shall continue, and whether or not Secured Party
exercises any available right to declare any Secured Obligation due and payable
or seeks or pursues any other relief or remedy available to it under applicable
law or under this Agreement, the Purchase Agreement, the Notes or any other
agreement relating to such Secured Obligation, all dividends and other
distributions on the Pledged Securities shall be paid directly to Secured Party
and retained by it as part of the Pledged Collateral, subject to the terms of
this Agreement, and, if Secured Party shall so request in writing, Debtor agrees
to execute and deliver to Secured Party appropriate additional dividend,
distribution and other orders and documents to that end; provided, however, that
if such Event of Default is cured, any such dividend or distribution theretofore
paid to Secured Party shall (except to the extent theretofore applied to the
Secured Obligations) promptly be returned by Secured Party to Debtor, without
interest and without recourse or warranty. (5) Secured Party shall have the
right (in its sole and absolute discretion) to hold the Pledged Securities in
its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or
the name of Debtor, endorsed or assigned in blank or in favor of Secured Party.
The Debtor shall promptly give to Secured Party copies of any notices or other
communications received by it with respect to Pledged Securities registered in
the name of Debtor. Secured Party shall at all times have the right to exchange
the certificates representing Pledged Securities for certificates of smaller or
larger denominations for any reasonable purpose consistent with this Agreement.
(6) Upon the occurrence and during the continuance of an Event
of Default, in order to fully effectuate Secured Party's Voting Powers
pertaining to the Pledged Securities, subject to Section 4.04(a)(2), Debtor,
upon the request of Secured Party, shall secure (if not already se-
<PAGE> 12
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cured by Secured Party) executed resignations of the officers, directors or
representatives of any members committee of each issuer whose securities
constitute Pledged Securities in order that Secured Party may elect or appoint
the officers, directors or representatives of such members committee of such
Issuer. After the occurrence and during the continuance of any such Event of
Default, subject to Section 4.04(a)(2), this Section 4.04(a)(6) shall constitute
and grant an irrevocable proxy which shall become effective and shall entitle
Secured Party, at its election, to vote the Pledged Securities upon any and all
corporate matters.
(7) Debtor hereby represents and warrants that it has made its
own arrangements for keeping informed of changes or potential changes affecting
the Pledged Securities (including, without limitation, rights to convert, rights
to subscribe, payment of dividends, reorganization or other exchanges, tender
offers and voting rights of the Pledged Securities), and Debtor agrees that
Secured Party shall have no responsibility or liability for informing Debtor of
any such changes or potential changes or for taking any action or omitting to
take any action with respect thereto.
(8) Subject to Section 4.04(a)(2), Secured Party may, upon the
occurrence and during the continuation of an Event of Default, without notice
and at its option, transfer or register the Pledged Securities or any part
thereof, into its or its nominee's name, without any indication that such
Pledged Securities are subject to the security interest hereunder.
(b) Motor Vehicles. At any time after the occurrence and
during the continuance of an Event of Default, Debtor shall, upon the
request of Secured Party, deliver to Secured Party originals of the
certificates of title or ownership for the Motor Vehicles, and any
other Equipment covered by certificates of title or ownership, owned by
it with Secured Party listed as lienholder.
4.05. Events of Default; Remedies; Etc. During the period
during which an Event of Default shall have occurred and be continuing:
(a) Debtor shall, at the request of Secured Party assemble the
Pledged Collateral owned by it at such place or places, reasonably
convenient to both Secured Party and Debtor, designated in its request;
(b) Secured Party may make any reasonable compromise or
settlement deemed desirable with respect to any of the Pledged
Collateral and may extend the time of payment, arrange for payment in
installments, or otherwise modify the terms, of any of the Pledged
Collateral;
<PAGE> 13
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(c) Secured Party shall have all of the rights and remedies with
respect to the Pledged Collateral of a secured party under the Uniform
Commercial Code (whether or not the Uniform Commercial Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such additional
rights and remedies to which a secured party is entitled under the laws in
effect in any jurisdiction where any rights and remedies hereunder may be
asserted, including, without limitation, the right, to the maximum extent
permitted by law, and subject to the provisions of Section 4.04(a)(2) to
exercise all voting, consensual and other powers of ownership pertaining to the
Pledged Collateral as if Secured Party were the sole and absolute owner thereof
(and Debtor agrees to take all such action as may be appropriate to give effect
to such right);
(d) Secured Party in its sole and absolute discretion may, in its name
or in the name of Debtor or otherwise, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of or in exchange
for any of the Pledged Collateral, but shall be under no obligation to do so;
and
(e) Secured Party may, upon ten (10) business days' prior written
notice to Debtor of the time and place, with respect to the Pledged Collateral
or any part thereof that shall then be or shall thereafter come into the
possession, custody or control of Secured Party or any of its agents, sell,
lease, assign or otherwise dispose of all or any part of such Pledged
Collateral, at such place or places as Secured Party deems best, and for cash or
for credit or for future delivery (without thereby assuming any credit risk), at
public or private sale, without demand of performance or notice of intention to
effect any such disposition or of the time or place thereof (except such notice
as is required above or by applicable statute and cannot be waived), and Secured
Party or anyone else may be the purchaser, lessee, assignee or recipient of any
or all of the Pledged Collateral so disposed of at any public sale (or, to the
extent permitted by law, at any private sale) and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including any right
or equity of redemption (statutory or otherwise), of Debtor, any such demand,
notice and right or equity being hereby expressly waived and released. Secured
Party may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the sale may be so adjourned, subject to notice as may be required by law.
In case any sale of all or any part of the Pledged Collateral is made on credit
or for future delivery, the Pledged Collateral so sold may be retained by
Secured Party until the sale price is paid in full by the purchaser or
purchasers thereof, but Secured Party shall not incur any liability in case any
such purchaser or
<PAGE> 14
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purchasers shall fail to take up and pay for the Pledged Collateral so
sold and, in case of any such failure, such Pledged Collateral may be
sold again upon like notice. For purposes hereof, (i) a written
agreement to purchase the Pledged Collateral or any portion thereof
shall be treated as a sale thereof, (ii) Secured Party shall be free to
carry out such sale pursuant to such agreement, and (iii) Debtor shall
not be entitled to the return of the Pledged Collateral or any portion
thereof subject thereto, notwithstanding the fact that after Secured
Party shall have entered into such an agreement all Events of Default
shall have been remedied and the Secured Obligations paid in full. As
an alternative to exercising the power of sale herein conferred upon
it, to the extent permitted by law, Secured Party may proceed by a suit
or suits at law or in equity to foreclose upon the Pledged Collateral
and to sell the Pledged Collateral or any portion thereof pursuant to a
judgment or decree of a court or courts having competent jurisdiction
or pursuant to a proceeding by a court appointed receiver. Any sale
pursuant to the provisions of this Section 5.05 shall be deemed to
conform to the commercially reasonable standards as provided in Section
9-504(3) of the Uniform Commercial Code or its equivalent in other
jurisdictions. If under mandatory requirements of applicable law,
Secured Party shall be required to make disposition of the Pledged
Collateral within a period of time that does not permit the giving of
notice to Debtor as herein before provided, Secured Party need give
Debtor only such notice of disposition as shall be reasonably
practicable in view of such mandatory requirements of law.
The proceeds of each collection, sale or other disposition under this Section
4.05, including by virtue of the exercise of the license granted to Secured
Party in Section 4.04(b) hereof, shall be applied in accordance with Section
4.09 hereof.
Debtor recognizes that, by reason of certain prohibitions
contained in the Securities Act, and applicable state securities laws, Secured
Party may be compelled, with respect to any sale of all or any part of the
Pledged Securities, to limit purchasers to those who will agree, among other
things, to acquire such Pledged Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. Debtor acknowledges
that any such private sales may be at prices and on terms less favorable to
Secured Party and Debtor than those obtainable through a public sale without
such restrictions, and, notwithstanding such circumstances, agree that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that Secured Party shall have no obligation to engage in public sales
and no obligation to delay the sale of any Pledged Securities for the period of
time necessary to permit the respective Issuer or issuer thereof to register it
for public sale.
<PAGE> 15
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If Secured Party shall determine to exercise its right to sell
any or all of the Pledged Securities pursuant to this Section 4.05, and if in
the opinion Secured Party it is necessary or reasonably advisable to have the
Pledged Securities or that portion thereof to be sold, registered under the
provisions of the Securities Act, Debtor shall cause each issuer of such
securities to (i) execute and deliver, and cause the committee of directors and
officers of such issuer of such securities to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts as may
be, in the opinion of Secured Party, necessary or advisable to register the
Pledged Securities or that portion thereof to be sold, under the provisions of
the Securities Act, (ii) use its diligent best efforts to cause the registration
statement relating thereto to become effective and to remain effective for a
period of not more than one year from the date of the first public offering of
the Pledged Securities or that portion thereof to be sold, ending when all the
Pledged Securities or that portion thereof to be sold, are sold, and (iii) make
all amendments thereto and/or to the related prospectus which, in the opinion of
Secured Party, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Debtor agrees to cause
each issuer of such securities to comply with the applicable provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which Secured Party
shall designate and to make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act. Debtor further
agrees to indemnify, defend and hold harmless Secured Party and any underwriter
and their respective officers, directors, affiliates and controlling persons
from and against all loss, liability, expenses, costs of counsel (including,
without limitation, reasonable fees and expenses to Secured Party of legal
counsel), and claims (including, without limitations, the costs of
investigation) that they may incur insofar as such loss, liability, expense or
claim arises out of or is based upon any alleged untrue statement of a material
fact contained in any prospectus (or any amendment or supplement thereto) or in
any notification or offering circular, or arises out of or is based upon any
alleged omission to state a material fact required to be stated therein or
necessary to make the statements in any thereof not misleading, except insofar
as the same may have been caused by any untrue statement or omission based upon
information relating to Secured Party furnished in writing to Debtor or the
issuer of such Pledged Collateral by Secured Party expressly for use therein.
Anything herein to the contrary notwithstanding, in any such
event Secured Party, in its sole and absolute discretion, subject to applicable
law, (i) may proceed to make a private sale of the Pledged Securities
notwithstanding that a registration statement for the purpose of registering
such Pledged Securities or part thereof shall have been filed under such
Securities Act, (ii) may approach and negotiate with a single possible purchaser
to effect such sale, and (iii) may restrict such sale to a pur-
<PAGE> 16
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chaser who will represent and agree that such purchaser is purchasing for its
own account, for investment, and not with a view to the distribution or sale of
such Pledged Securities or part thereof. In the event of any such sale, Secured
Party shall incur no responsibility or liability to Debtor for selling all or
any part of the Pledged Securities at a price which Secured Party may in good
faith deem reasonable under the circumstances, notwithstanding the possibility
that a substantially higher price might be realized if the sale were deferred
until the registration as aforesaid.
Debtor further agrees to use its diligent best efforts to do
or cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Securities pursuant to this Section
4.05 valid and binding and in compliance with any and all other applicable legal
requirements. Debtor further agrees that a breach of any of the covenants
contained in this Section 4.05 will cause irreparable injury to Secured Party,
that Secured Party has no adequate remedy at law in respect of such breach and,
as a consequence, that each and every covenant contained in this Section 4.05
shall be specifically enforceable against Debtor, and, to the extent permitted
by law, Debtor hereby waives and agrees not to assert any defenses against an
action for specific performance of such covenants except for a defense that no
Event of Default has occurred and is continuing.
4.06. Deficiency. If the proceeds of sale, collection or other
realization of or upon the Pledged Collateral pursuant to Section 4.05 hereof
are insufficient to cover the costs and expenses of such realization and the
payment in full of the Secured Obligations, Debtor shall remain liable for any
deficiency.
4.07. Removals, Name Change, Etc. Without at least thirty (30)
days' prior written notice to Secured Party, Debtor shall not (i) maintain any
of its books and records with respect to the Pledged Collateral at any office or
maintain its principal place of business at any place other than at the address
set forth in Schedule 2 hereto, or permit any Equipment to be located anywhere,
other than in one of the jurisdictions indicated on Schedule 1 hereto, or (ii)
change its corporate name, or the name under which it does business, from the
name shown on the signature pages hereto.
4.08. Private Sale. Secured Party shall not incur liability as
a result of the sale of the Pledged Collateral, or any part thereof, at any
private sale pursuant to Section 4.05 hereof conducted in a commercially
reasonable manner. Debtor hereby waives any claims against Secured Party arising
by reason of the fact that the price at which the Pledged Collateral may have
been sold at any such private sale held in a commercially reasonable manner was
less than the price that might have been obtained at a public sale or was less
than the aggregate amount of the Se-
<PAGE> 17
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cured Obligations, even if Secured Party accepts the first offer received and
does not offer the Pledged Collateral to more than one offeree.
4.09. Application of Proceeds. Except as otherwise herein
expressly provided and except as provided below in this Section 4.09, the
proceeds of any collection, sale or other realization of all or any part of the
Pledged Collateral pursuant hereto, and any other cash at the time held by
Secured Party under this Section 4, shall be applied by Secured Party:
First, to the payment of the costs and expenses of such
collection, sale or other realization, including out-of-pocket costs
and expenses of Secured Party and the fees and expenses of its agents
and counsel, and all expenses incurred and advances made by Secured
Party in connection therewith;
Next, to the payment in full of the Secured Obligations; and
Finally, to the payment to Debtor, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining.
As used in this Section 4 "proceeds" of Pledged Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Pledged Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of Debtor or any issuer of or obligor on any
of the Pledged Collateral.
4.10. Attorney-in-Fact. Without limiting any rights or powers
granted by this Agreement to Secured Party while no Event of Default has
occurred and is continuing, upon the occurrence and during the continuance of
any Event of Default, subject to applicable law, Secured Party is hereby
appointed the attorney-in-fact of Debtor for the purpose of carrying out the
provisions of this Section 4 and taking any action and executing any instruments
that Secured Party may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, upon and during the
continuance of any Event of Default, so long as Secured Party shall be entitled
under this Section 4 to make collections in respect of the Pledged Collateral,
Secured Party shall have the right and power to receive, endorse and collect all
checks made payable to the order of Debtor representing any dividend, payment or
other distribution in respect of the Pledged Collateral or any part thereof and
to give full discharge for the same. Debtor agrees, in the absence of willful
wrongdoing or gross negligence, that neither Secured Party nor any of its
agents, designees or attorneys-in-fact will be liable for any acts of commission
or omission, or for any error of judgment or mistake of fact or law with respect
to the exercise of the power of attorney granted under this Section 4.10.
4.11. Perfection. Within five Business Days after the date
hereof, Debtor shall (i) file such financing statements and other documents in
such offices as Secured Party may request to perfect the security interests
granted by Section 3 of this Agreement and (ii) deliver to Secured Party all
certificates identified in Annex 1 hereto, accompanied by undated stock powers
duly executed in blank.
<PAGE> 18
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4.12. Termination. When all Secured Obligations shall have
been paid in full and the commitments of Secured Party under the Purchase
Agreement shall have expired or been terminated, this Agreement shall terminate,
and Secured Party shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Pledged Collateral and money received in respect
thereof, to or on the order of the respective Debtor and to be released and
canceled all licenses and rights referred to in Section 4.04(b) hereof. Secured
Party shall also execute and deliver to Debtor upon such termination or upon the
sale or other disposition of Property permitted by the Purchase Agreement such
Uniform Commercial Code termination statements, certificates for terminating the
Liens on the Motor Vehicles and such other documentation as shall be reasonably
requested by Debtor to effect the termination and release of the Liens on the
Pledged Collateral.
4.13. Expenses. Debtor agrees to pay to Secured Party all
out-of-pocket expenses (including reasonable expenses for legal services of
every kind) of, or incident to, the enforcement of any of the provisions of this
Section 4, or performance by Secured Party of any obligations of Debtor in
respect of the Pledged Collateral which Debtor have failed or refused to
perform, or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement in respect of any of the Pledged
Collateral, and for the care of the Pledged Collateral and defending or
asserting rights and claims of Secured Party in respect thereof, by litigation
or otherwise, including expenses of insurance, and all such expenses shall be
Secured Obligations to Secured Party secured under Section 3 hereof.
4.14. Further Assurances. Debtor agrees that, from time to
time upon the written request of Secured Party, Debtor shall execute and deliver
such further documents and do such other acts and things as Secured Party may
reasonably request in order fully to effect the purposes of this Agreement.
4.15. Irrevocable Authorization and Instruction to Issuers,
LLCs and Partnerships. Debtor hereby authorizes and instructs each Issuer to
comply with any instruction received by it from Secured Party in writing that
(a) states that an Event of Default has occurred and is continuing, and (b) is
otherwise in accordance with the terms of this Agreement and any other Financing
Document to which it is a party, without any other or further instructions from
Debtor, and Debtor agrees that each Issuer shall be fully protected in so
complying.
4.16. Effect of Sale, etc. (a) Any sale or resales pursuant to
the provisions of this Agreement, whether under any right or power granted
hereby or thereby or pursuant to any legal proceedings, shall operate to divest
Debtor of all right, title, interest, claim and demand whatsoever either at law
or in equity, of, in and to the Pledged Collateral, or any part thereof, so
sold, and any Property so sold shall be free and clear of any and all rights of
redemption by, through or under Debtor. At any such sale Secured Party may bid
for and purchase the Pledged Collateral sold and may make payment therefor as
set forth in clause (b) of this Section 5.16, and Secured Party so purchasing
any such Pledged Collateral, upon compliance with the terms of sale, may hold,
retain and dispose of such Pledged Collateral without further accountability.
<PAGE> 19
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(b) The receipt by Secured Party, or by any Person authorized
under any judicial proceedings to make such sale, of the proceeds of any such
sale shall be a sufficient discharge to any purchaser of the Pledged Collateral,
or of any part thereof, sold as aforesaid; and no such purchaser shall be bound
to see to the application of such proceeds, or be bound to inquire as to the
authorization, necessity or propriety of any such sale. In the event that, at
any such sale, any Lender is the successful purchaser, it shall be entitled, for
the purpose of making settlement or payment, to use and apply such Pledged
Collateral to the Secured Obligations by crediting thereon the amount
apportionable and applicable thereto out of the net proceeds of such sale.
Section 5. Miscellaneous.
5.01. No Waiver. No failure on the part of Secured Party or
any of its agents to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by Secured Party or any
of its agents of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
5.02. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York without regard to
principles of conflicts of law thereof.
5.03. Notices. All notices, requests, consents and demands
hereunder shall be in writing and telecopied or delivered to the intended
recipient in the manner and at the addresses specified in the Purchase
Agreement.
5.04. Waivers, Etc. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by Debtor and
Secured Party.
5.05. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of
Debtor, Secured Party and each holder of any of the Secured Obligations
(provided, however, that Debtor shall not assign or transfer its rights or
obligations hereunder without the prior written consent of Secured Party).
5.06. Captions. The captions and section headings appearing
herein are included solely for convenience of reference and are not intended to
affect the interpretation of any provision of this Agreement.
5.07. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
5.08. Agents. Secured Party may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
<PAGE> 20
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5.09. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of Secured Party in order
to carry out the intentions of the parties hereto as nearly as may be possible,
and (ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
5.10. Restoration of Rights and Remedies. If Secured Party
shall have instituted any proceeding to enforce any right or remedy under this
Agreement and such proceeding shall have been discontinued or abandoned for any
reason, or shall have been determined adversely to Secured Party, then and in
every such case Secured Party and Debtor shall, subject to any determination in
such proceeding, be restored severally and respectively to their former
positions under this Agreement and under the other Financing Documents, and
thereafter all rights and remedies of Secured Party shall continue as though no
such proceeding had been instituted.
5.11. Cumulative Remedies. No remedy under this Agreement is
intended to be exclusive of any other remedy, but each and every remedy shall be
cumulative and in addition to any and every other remedy given under this
Agreement or otherwise existing; nor shall the giving, taking or enforcement of
any other or additional security, collateral or guaranty for the payment or
performance of the Secured Obligations operate to prejudice, waive or affect the
security of this Agreement or any rights, powers or remedies under this
Agreement, nor shall Secured Party or any Lender be required to look first to,
enforce or exhaust any such other or additional security, collateral or
guaranties.
5.12. Consent. Debtor hereby consents that from time to time,
before or after the occurrence or existence of any Event of Default, with or
without notice to or assent from Debtor, any security at any time held by or
available to Secured Party for any of the Secured Obligations, or any other
security at any time held by or available to Secured Party for any obligation of
any other Person secondarily or otherwise liable for any of the Secured
Obligations, may be exchanged, surrendered, or released and any of the Secured
Obligations may be changed, altered, renewed, extended, continued, surrendered,
compromised, waived or released, in whole or in part, as Secured Party or any
holder thereof may reasonably see fit, and each Debtor shall remain bound under
this Agreement notwithstanding any such exchange, surrender, release, change,
alteration, renewal, extension, continuance, compromise, waiver or release.
5.13. Waivers by Debtor. (a) Except as otherwise provided in
this Agreement, DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE ADMINISTRATIVE AGENT'S TAKING
POSSESSION OR SECURED PARTY'S DISPOSITION OF ANY OF THE PLEDGED COLLATERAL,
INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND HEARINGS FOR ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE DEBTORS WOULD
OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF
ANY STATE THEREOF, and, to the full extent permitted by applicable law, Debtor
hereby further waives:
(i) all damages occasioned by such taking of possession except
any damages which are the direct result of Secured Party's gross
negligence, bad faith or willful misconduct;
<PAGE> 21
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(ii) all other requirements as to the time, place and terms of
sale or other requirements, with respect to the enforcement of Secured
Party's rights and powers hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
marshaling of assets, extension or moratorium, existing at law or in
equity, by statute or otherwise, now or hereafter in force, in order to
prevent or delay the enforcement of this Agreement or the sale or other
disposition of the Pledged Collateral or any portion thereof, and
Debtor, for itself and all who may claim under it, insofar as it now or
hereafter lawfully may, hereby waives all such rights.
(b) Debtor hereby waives notice of acceptance of this
Agreement and of extensions of credit under the Financing Documents or
under any other agreement, note, document or instrument now or at any
time or times hereafter executed by Debtor and delivered to Secured
Party. Debtor further waives presentment and demand for payment of any
of the Secured Obligations, protest and notice of dishonor or default
with respect to any of the Secured Obligations, and all other notices
to which such Debtor might otherwise be entitled, except as otherwise
expressly provided in this Agreement or in the other Financing
Documents.
(c) Debtor (to the extent that it may lawfully do so)
covenants that it will not at any time insist upon or plead, or in any
manner claim or take the benefit or advance of, any stay (except in
connection with a pending appeal), valuation, appraisal, redemption or
extension law now or at any time hereafter in force that, but for this
waiver, might be applicable to any sale made under any judgment, order
or decree based on this Agreement or any other Financing Document; and
Debtor (to the extent that it may lawfully do so) hereby expressly
waives and relinquishes all benefit and advance of any and all such
laws and hereby covenants that it will not hinder, delay or impede the
execution of any power in this Agreement or therein granted and
delegated to Secured Party, but that it will suffer and permit the
execution of every such power as though no such law or laws had been
made or enacted.
5.14. Additional Collateral. Without notice or consent of
Debtor and without impairment of the security interests and rights created by
this Agreement, Secured Party may accept from any person or persons additional
collateral or other security for the Secured Obligations. Neither the creation
of the security interests created hereunder nor the acceptance of any such
additional collateral or security shall prevent Secured Party from resorting to
such additional collateral or security or to the Pledged Collateral, in any
order without affecting Secured Party's rights hereunder.
5.15. Obligations Absolute. The liability of Debtor under this
Agreement shall remain in full force and effect without regard to, and shall not
be released, suspended, discharged, terminated or otherwise affected by (a) any
change in the time, place or manner of payment of all or any of the Secured
Obligations, or in any other term of the Financing Documents, the Notes, any
waiver, indulgence, renewal, extension, amendment or modification of or
addition, consent or supplement to or deletion from or any other action or
inaction under or in respect of the Notes or any other Financing Document or any
assignment or transfer thereof; (b) any lack of
<PAGE> 22
-22-
validity or enforceability, in whole or in part, of the Notes or any other
Financing Document; (c) any furnishing of any additional security for the
Secured Obligations or any acceptance thereof or any release or non-perfection
of any security interest in the Pledged Collateral; (d) any limitation on any
party's liability or obligations under the Notes or any other Financing
Document; (e) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
Debtor, or any action taken with respect to this Agreement by any trustee or
receiver, or by any court, in any such proceeding, whether or not any Debtor
shall have notice or knowledge of any of the foregoing; (f) any exchange,
release or amendment or waiver of or consent to departure from any agreement
pursuant to which a Lien is created in favor of Secured Party, pursuant to which
a person other than Debtor has granted a security interest; or (g) to the extent
permitted by law, any other circumstance that might otherwise constitute a
defense available to, or a discharge of, Debtor.
5.16. Waiver of Jury Trial. Debtor and Secured Party each
hereby irrevocably waives all right to a trial by jury in any action, proceeding
or counterclaim arising out of or relating to this Agreement or the transactions
contemplated hereby.
5.17. Department of Insurance Approvals. Debtor and Secured
Party agree to execute such amendments to this agreement as may be reasonably
required by the department of insurance of the respective states of
incorporation of the Issuers.
<PAGE> 23
-23-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
OXFORD HEALTH PLANS, INC.,
as Debtor
By: /s/ William Sullivan
-----------------------------------
Name: William Sullivan
Title: President and Chief
Executive Officer
OXFORD FUNDING, INC.,
as Collateral Agent and Secured Party
By: /s/ Paul Thompson III
-----------------------------------
Name: Paul Thompson III
Title: Managing Director
<PAGE> 24
-24-
ANNEX 1 TO
SECURITY AGREEMENT
PLEDGED SECURITIES
OXFORD HEALTH PLANS, INC.
<TABLE>
<CAPTION>
Certificate Registered
Issuer Nos. Owner Number of Shares
<S> <C> <C> <C>
Oxford Health Plans (NY),
Inc.
Oxford Health Plans (NJ),
Inc.
Oxford Health Plans (CT),
Inc.
Oxford Health Insurance,
Inc.
</TABLE>
<PAGE> 25
SCHEDULE 1 TO
SECURITY AGREEMENT
Uniform Commercial Code Filings
State Filing Office Document Filed
<PAGE> 26
SCHEDULE 2 TO
SECURITY AGREEMENT
Principal Place of Business, Chief Executive Office
and Location of Records
<PAGE> 27
SCHEDULE 3 TO
SECURITY AGREEMENT
Prior Liens
<PAGE> 1
AMENDMENT NO. 1
AMENDMENT NO. 1 (the "Amendment"), dated as of March 30, 1998,
to that certain Bridge Securities Purchase Agreement, dated as of February 6,
1998 (the "Purchase Agreement"; capitalized terms used herein and not defined
shall have the meaning set forth in the Purchase Agreement), between Oxford
Health Plans, Inc. (the "Company") and Oxford Funding, Inc. (the "Purchaser").
W I T N E S S E T H :
WHEREAS, pursuant to Section 10.2 of the Purchase Agreement,
the Company, the Purchaser and each of the undersigned Holders hereby agree to
amend or waive certain provisions of the Purchase Agreement as set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION ONE - Amendments. (a) There is hereby added the
following Sections 6.28 through 6.32:
SECTION 6.28. Trigger Events. If one or more of the following
events (each a "Trigger Event") shall have occurred:
(i) The TPG Investment Agreement has been terminated, has
expired without the consummation of the transactions contemplated thereby, or
has been modified in a manner adverse to the Purchaser in any material respect
(as determined in the Purchaser's reasonable discretion);
(ii) TPG notifies the Company that, in its belief, an event
which has had, or is reasonably likely to have, a Material Adverse Effect (as
defined in the TPG Investment Agreement, a "TPG Material Adverse Effect") has
occurred;
(iii) the Company has not received $350 million in gross
proceeds from the issuance of equity securities on or prior to June 30, 1998 on
terms and conditions satisfactory to the Purchaser in its reasonable discretion
(it being understood that the consummation of the transactions contemplated by
the TPG Investment Agreement shall be deemed to be satisfactory); provided,
however, that such date shall be extended to August 31, 1998 if on June 30, 1998
(I) TPG advises the Purchaser in
<PAGE> 2
-2-
writing that (A) to the best knowledge of TPG, as of such date, no event has
occurred which has had a TPG Material Adverse Effect, (B) as of such date, TPG
has not delivered to the Company, and has not received from the Company, any
notification required pursuant to Section 7.03 of the TPG Investment Agreement,
and, to its best knowledge, TPG is not and has not been required to deliver a
notice pursuant to such Section 7.03 (or if a notice has been delivered or
received, TPG has waived any conditions relating to the matters referenced in
such notice (but solely to the extent of such referenced matters)) and (C) the
condition set forth in Section 9.01(c) of the TPG Investment Agreement has been
satisfied or waived and (II) the Company advises the Purchaser in writing that
as of such date, the Company has not delivered to TPG, and has not received from
TPG, any notification required pursuant to Section 7.03 of the TPG Investment
Agreement, and, to its best knowledge, the Company is not and has not been
required to deliver a notice pursuant to such Section 7.03 (or if a notice has
been delivered or received, the Company has waived any conditions relating to
the matters referenced in such notice (but solely to the extent of such
referenced matters));
(iv) (A) the New York State Department of Insurance (the
"Department") provides formal notification that (x) the aggregate contribution
required by the Department in its response to the December 31, 1997 financial
statements and related schedules and other information of Oxford Health Plans
(NY), Inc. and Oxford Health Insurance, Inc. (the "NY Subsidiaries") to be filed
with the Department by the Company or the NY Subsidiaries no later than April 1,
1998 is more than $235 million to assure compliance as of December 31, 1997 with
regulatory standards (after giving effect to contributions of $48 million and
shares of common stock of FPA Medical Management, Inc. made after December 31,
1997) or (y) the aggregate contribution required by the Department for any
period subsequent to December 31, 1997, when added to the contribution amount
described in clause (x) above, is more than $400 million or (B) the
Superintendent, Deputy Superintendent, Deputy Chief Examiner, General Counsel or
other senior officer of the Department otherwise advises the Company, TPG or the
Purchaser in writing that (w) the aggregate contribution required by the
Department in its response to the filings referred to in clause (A) above is
reasonably likely to be more than $235 million to assure compliance as of
December 31, 1997 with regulatory standards (after giving effect to
contributions of $48 million and shares of common stock of FPA Medical
Management, Inc. made after December 31, 1997) or (z) the aggregate contribution
required by the Department for any period subsequent to December 31, 1997,
<PAGE> 3
-3-
when added to the contribution amount described in clause (x) or (w) above, is
reasonably likely to be more than $400 million and, in each case (w) and (z),
such written advice is not withdrawn or modified to reflect a required
contribution of less than $235 million or $400 million, as the case may be,
within ten days after delivery thereof; provided, however, that the events
described in (A) and (B) shall not constitute a Trigger Event if (I) TPG advises
the Purchaser in writing that (x) such required contribution is not an event
which constitutes a TPG Material Adverse Effect and (y) as of the date such
advice is delivered to the Purchaser, TPG has not delivered to the Company, and
has not received from the Company, any notification required pursuant to Section
7.03 of the TPG Investment Agreement, and, to its best knowledge, TPG is not and
has not been required to deliver a notice pursuant to such Section 7.03 (or if a
notice has been delivered or received, TPG has waived any conditions relating to
the matters referenced in such notice (but solely to the extent of such
referenced matters)) and (II) the Company advises the Purchaser in writing that
as of the date such advice is delivered to the Purchaser, the Company has not
delivered to TPG, and has not received from TPG, any notification required
pursuant to Section 7.03 of the TPG Investment Agreement, and, to its best
knowledge, the Company is not and has not been required to deliver a notice
pursuant to such Section 7.03 (or if a notice has been delivered or received,
the Company has waived any conditions relating to the matters referenced in such
notice (but solely to the extent of such referenced matters)); provided,
further, however, that upon the occurrence of any of the events described in (A)
and (B) above, the Company shall comply with (vii)(A) below; or
(v) the failure by the Company to provide the Purchaser notice
at least 10 business days prior to the occurrence of any of the events described
in Section 8.1(e) of the Purchase Agreement.
THEN, in each case, the Company shall, within 10 days of the
occurrence thereof, either:
(vi) (A) execute and deliver to the Purchaser a definitive
agreement with respect to the issuance of equity securities resulting in gross
proceeds to the Company of $350 million, on terms and with a party satisfactory
to the Purchaser in its sole discretion, which agreement shall (x) contain no
conditions other than the expiration of any waiting period (if applicable) under
the Hart-Scott-Rodino Antitrust Improvement Act of 1976 ("HSR"), as amended, and
(y) provide that the purchaser of such equity securities is obligated to fund
within 5
<PAGE> 4
-4-
days of the earlier of the receipt of HSR approval or the termination of any
applicable waiting period under the HSR, (B) file, and cause the purchaser of
such equity securities to file an application under HSR (if applicable), and (C)
consummate such transaction by no later than August 31, 1998 (which date shall
be extended to September 30, 1998 if the date specified in clause (iii) of the
first paragraph of this Section 6.28 has been extended to August 31, 1998 and
the Trigger Event occurs after August 1, 1998); or
(vii) (A) provide the Purchaser with the option to designate
in its sole discretion (subject to Section 6.31) up to such number of Directors,
rounded up to the nearest whole number, which when added to the Purchaser
Director, shall equal at least 33% of the total number of Directors on the
Company's Board of Directors; (B) deliver a resolution of the Company's Board of
Directors adopting a plan or proposal for refinancing the borrowings under the
Notes, through the issuance of debt or equity securities or the entering into a
strategic transaction (each an "Alternative Plan") acceptable to the Purchaser
in its reasonable discretion (and in each case DLJ shall act in pursuing the
Alternative Plan in the capacities for which it was retained in the Engagement
Letter); and (C) retain DLJ to effect the implementation of the Alternative Plan
in accordance with the terms set forth in Exhibit 1 hereto. The Company will
cooperate with DLJ and use its best efforts to facilitate such process.
If the Company has not consummated the transaction described
in paragraph (vi) above by August 31, 1998 (or September 30, 1998 if extended),
the Company shall immediately take the actions described in paragraph (vii)
above.
SECTION 6.29. Filings. The Company shall file, or caused to be
filed, with the Department on or before April 1, 1998 all financial information
required by the Department to be filed on or before such date.
SECTION 6.30. Observation Rights. The Company hereby grants to
the Purchaser the right to observe all meetings and discussions of the Board of
Directors of the Company or any committee or subcommittee thereof, whether
formal or informal. The Company hereby grants to the Purchaser the right to
designate the observer (the "Purchaser Observer"). The Company hereby grants to
the Purchaser Observer the right to designate in its reasonable discretion at
any time a Director to the Company's Board of Directors (the "Purchaser
Director"). All observation rights under this Section 6.30 shall terminate
<PAGE> 5
-5-
upon the appointment of the Purchaser Director. The Purchaser Observer may be
excluded from meetings and discussions if the Company determines that such
exclusion is necessary for the Company, based on the advice of outside counsel,
to preserve the attorney-client privilege between the Company and its counsel or
between a Director and his or her counsel.
SECTION 6.31 Director Matters. Each Director designated by the
Purchaser pursuant to the terms of this Agreement shall resign immediately upon
the payment in full of all obligations owing under the Notes and this Agreement.
If the Board of Directors shall determine in good faith in the exercise of its
fiduciary duties, based on the advice of outside counsel, that nomination of any
person designated by the Purchaser for election to the Board of Directors would
not be in the best interests of the Company, then the Company shall promptly
notify the Purchaser of such determination and thereafter the Purchaser may
designate a new person for nomination for election to the Board of Directors.
Without limiting the ability of the Purchaser to designate other persons, the
Purchaser hereby submits to the Company the individuals listed on Schedule 6.31
for consideration by the Board of Directors. The Company shall cause the Board
to approve, subject to the exercise of its fiduciary duties as described above,
such individuals as suitable for election to the Board of Directors no later
than May 1, 1998.
SECTION 6.32 Certain Notices. The Company hereby agrees to
deliver promptly to the Purchaser a copy of all notices it delivers to or
receives from TPG pursuant to Section 7.03 of the TPG Investment Agreement.
(b) The definition of "Consolidated Net Worth" is amended by
substituting the following for clause (iv) thereof:
"(A) any operating losses incurred during the first two
quarters of 1998 in an aggregate amount not to exceed $156.0 million,
(B) any operating losses incurred during the first three quarters of
1998 in an aggregate amount not to exceed $167.5 million, and (C) any
operating losses incurred during the full year of 1998 in an aggregate
amount not to exceed $181.1 million."
(c) Section 6.18 (b) is amended by substituting therefor the
following:
"(b) The Company will pay to the Purchaser a fee (the
"Duration Fee") at the rate of one percent (1.00%) of the
<PAGE> 6
-6-
principal amount of the Notes outstanding on August 6, 1998, November
6, 1998 and February 6, 1999. The Duration Fee will be immediately due
and payable on each such date."
(d) Section 1.1 is amended by adding the following
definitions:
"TPG" means TPG Oxford LLC, a Delaware limited liability
Company.
"TPG Investment Agreement" means the Investment Agreement
dated as of February 23, 1998, by and between TPG and the Company, as
in effect on February 23, 1998.
(e) The form of Note attached as Exhibit A to the Purchase
Agreement is amended by deleting the last sentence of the third
paragraph thereof. Such amendment shall be effective as to all Notes,
whether currently outstanding or hereafter issued.
SECTION TWO - Conditions to Effectiveness. This Amendment
shall become effective as of the date first above written when, and only when,
the Purchaser shall have received counterparts of this Amendment executed by the
Company and the Majority Holders or, as to any of the Holders, advice
satisfactory to the Purchaser that such Holder has executed this Amendment and
the satisfaction of the following additional conditions precedent:
(a) The Purchaser shall have received an opinion of Company
Counsel, in form and substance satisfactory to the Purchaser, and such other
certificates and documents as the Purchaser may reasonably request;
(b) The Company shall have paid to the Purchaser, for the
account of the Holders, a fee in the amount of $2.0 million and all fees and
expenses payable under Section 10.4 of the Purchase Agreement; and
(c) The Purchaser shall have received from TPG an agreement to
deliver to the Purchaser a copy of all notices TPG delivers to or receives from
the Company pursuant to Section 7.03 of the TPG Investment Agreement.
SECTION THREE - Representations, Warranties and Covenants. In
order to induce the Holders to enter into this Amendment, the Company represents
and warrants to each of the
<PAGE> 7
-7-
Holders that after giving effect to this Amendment, (i) no Default or Event of
Default has occurred and is continuing; and (ii) all of the representations and
warranties in the Purchase Agreement, after giving effect to this Amendment, are
true and complete in all material respects on and as of the date hereof as if
made on the date hereof (or, if any such representation or warranty is expressly
stated to have been made as of a specific date, as of such specific date),
subject to the Disclosure Schedule attached hereto.
SECTION FOUR - Reference to and Effect on the Purchase
Agreement and the Notes. On and after the effectiveness of this Amendment, each
reference in the Purchase Agreement to "this Agreement", "hereunder", "hereof"
or words of like import referring to the Purchase Agreement, and each reference
in the Notes and each of the Financing Documents to "the Purchase Agreement",
"thereunder", "thereof" or words of like import referring to the Purchase
Agreement, shall mean and be a reference to the Purchase Agreement, as amended
by this Amendment. The Purchase Agreement, the Notes and each of the Financing
Documents, as specifically amended by this Amendment, are and shall continue to
be in full force and effect and are hereby in all respects ratified and
confirmed. Without limiting the generality of the foregoing, the Collateral
Documents and all of the Pledged Collateral described therein do and shall
continue to secure the payment of all obligations of the Company under the
Financing Documents, in each case as amended by this Amendment. The execution,
delivery and effectiveness of this Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or remedy of any Holder
or the Purchaser under the Financing Documents, nor constitute a waiver of any
provision thereof.
SECTION FIVE - Costs, Expenses and Taxes. The Company agrees
to pay all reasonable costs and expenses of the Purchaser in connection with the
preparation, execution and delivery of this Amendment and the other instruments
and documents to be delivered hereunder, if any (including, without limitation,
the reasonable fees and expenses of Cahill Gordon & Reindel) in accordance with
the terms of Section 10.4 of the Purchase Agreement. In addition, the Company
shall pay or reimburse any and all stamp and other taxes payable or determined
to be payable in connection with the execution and delivery of this Amendment
and the other instruments and documents to be delivered hereunder, if any, and
agrees to save the Purchaser and each Holder harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes.
<PAGE> 8
-8-
SECTION SIX - Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment by telecopier shall be effective as delivery of a manually executed
counterpart of this Amendment.
SECTION SEVEN - Governing Law. This Amendment shall be
governed by, and construed in accordance with, the laws of the State of New York
(without giving effect to any provisions thereof relating to conflicts of law).
[Remainder of Page Intentionally Left Blank]
<PAGE> 9
S-1
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
OXFORD HEALTH PLANS, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 10
S-2
HOLDERS
OXFORD FUNDING, INC.
By:
-------------------------------
Name:
Title:
MADELEINE LLC
By:
-------------------------------
Name:
Title:
<PAGE> 11
6.31
SCHEDULE 6.31
DESIGNEES OF THE PURCHASER
1. Craig R. Callen
2. Paul Thompson III
3. Robert C. Grien
4. Mark W. Lanigan
5. John W Patterson
6. Ramsey A. Frank
<PAGE> 1
Exhibit 10(r)
INVESTMENT AGREEMENT
dated as of February 23, 1998
between
TPG OXFORD LLC
and
OXFORD HEALTH PLANS, INC.
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
Section 1.01. Definitions......................................2
Section 1.02. General Interpretive Principles............... 11
ARTICLE II
ISSUANCE AND SALE OF SENIOR PREFERRED STOCK AND WARRANTS
Section 2.01. Issuance and Sale of Senior Preferred
Stock and Warrants..............................12
Section 2.02. Closing.........................................12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Corporate Organization and Qualification........13
Section 3.02. Authorization of Agreements.....................13
Section 3.03. Consents; No Conflicts..........................13
Section 3.04. Capitalization; Securities......................14
Section 3.05. Subsidiaries....................................15
Section 3.06. Dividends, Stock Repurchases, Etc...............16
Section 3.07. Company Reports; Financial Statements...........16
Section 3.08. Undisclosed Liabilities.........................17
Section 3.09. Absence of Certain Changes......................18
Section 3.10. Property........................................19
Section 3.11. Litigation......................................20
Section 3.12. Compliance with Laws; Regulatory Approvals......20
Section 3.13. Taxes...........................................21
Section 3.14. ERISA and Other Employment Matters..............21
Section 3.15. Contracts.......................................24
Section 3.16. Client and Provider Relations...................24
Section 3.17. Financial Advisors and Brokers..................25
Section 3.18. Exemption from Registration.....................25
Section 3.19. Insurance.......................................25
Section 3.20. Insurance Contracts and Rates; Payment
of Claims.......................................25
Section 3.21. Reinsurance.....................................26
Section 3.22. Disclosure......................................26
i
<PAGE> 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Section 4.01. Organization....................................26
Section 4.02. Authorization of Agreements.....................26
Section 4.03. Consents; No Conflicts..........................27
Section 4.04. Financial Advisors and Brokers..................27
Section 4.05. Purchase for Purpose of Investment..............27
ARTICLE V
GOVERNANCE
Section 5.01. Board Size......................................27
Section 5.02. Board Representation............................28
Section 5.03. Committees......................................29
Section 5.04. CEO.............................................30
ARTICLE VI
STANDSTILL
Section 6.01. Standstill Agreement............................30
ARTICLE VII
PRE-CLOSING COVENANTS
Section 7.01. Taking of Necessary Action......................32
Section 7.02. Conduct of Business.............................32
Section 7.03. Notifications...................................33
Section 7.04. Alternative Transactions........................33
Section 7.05. Financing.......................................34
Section 7.06. Delivery of 1997 Statements.....................35
Section 7.07. Debenture Indentures............................35
ARTICLE VIII
ADDITIONAL COVENANTS
Section 8.01. Financial and Other Information.................35
Section 8.02. Limitation on Dividend Payments and
Stock Repurchases...............................35
Section 8.03. Organizational Documents........................36
Section 8.04. Limitation on Issuances of Equity Securities....36
Section 8.05. Mergers, Consolidation, etc.....................36
Section 8.06. Publicity.......................................36
ii
<PAGE> 4
Section 8.07. Status of Dividends.............................37
Section 8.08. Director and Officer Indemnification............37
Section 8.09. Listing; Reservation............................37
Section 8.10. Legend..........................................38
Section 8.11. Limitation on Restrictions on Payment
of Dividends....................................38
Section 8.12. Management Arrangements.........................38
Section 8.13. Stockholders' Meeting...........................39
Section 8.14. Calculations....................................40
ARTICLE IX
CONDITIONS
Section 9.01. Conditions of Investor's Obligations............40
Section 9.02. Conditions of the Company's Obligations.........43
ARTICLE X
TERMINATION
Section 10.01. Termination....................................44
Section 10.02. Effect of Termination..........................44
ARTICLE XI
MISCELLANEOUS
Section 11.01. Fees and Expenses..............................45
Section 11.02. Reserved.......................................46
Section 11.03. Survival of Representations and Warranties.....46
Section 11.04. Specific Performance...........................46
Section 11.05. Indemnification................................46
Section 11.06. Notices........................................47
Section 11.07. Entire Agreement; Amendment....................48
Section 11.08. Counterparts...................................49
Section 11.09. Governing Law..................................49
Section 11.10. Successors and Assigns.........................49
Section 11.11. No Third-Party Beneficiaries...................50
Section 11.12. Termination of Certain Provisions..............50
Section 11.13. Allocation.....................................51
EXHIBIT A Form of Series A Certificate of Designations
EXHIBIT B Form of Series A Warrant
EXHIBIT C Form of Series B Certificate of Designations
EXHIBIT D Form of Series B Warrant
EXHIBIT E Form of Junior Certificate of Designations
iii
<PAGE> 5
EXHIBIT F Form of Sullivan & Cromwell Opinion
EXHIBIT G Form of Jeffery H. Boyd, Esq. Opinion
EXHIBIT H Form of CEO Employment Agreement
EXHIBIT I Press Release
EXHIBIT J Terms of Management Compensation and Incentive
Arrangements
EXHIBIT K Form of Cleary, Gottlieb, Steen & Hamilton Opinion
EXHIBIT L Draft 1997 Financial Statements
iv
<PAGE> 6
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (the "Agreement"), dated as of
February 23, 1998, by and between TPG Oxford LLC, a Delaware
limited liability company ("TPG" or the "Investor") and Oxford
Health Plans, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, each of the Company and the Investor has
determined to enter into this Agreement pursuant to which the
Investor has agreed to purchase from the Company, and the Company
has agreed to issue and sell to the Investor, (i) 245,000 shares
of the Company's Series A Cumulative Preferred Stock, par value
$0.01 per share (the "Series A Preferred Stock"), having the
rights, preferences, privileges and restrictions set forth in the
form of Certificate of Designations attached hereto as Exhibit A
(the "Series A Certificate of Designations"), together with
detachable Series A Warrants, having the terms set forth in the
form of Warrant attached hereto as Exhibit B (the "Series A
Warrants"), to purchase, subject to adjustment as set forth in
the form of Warrant, 15,800,000 shares of common stock, par value
$0.01 per share (the "Common Stock"), of the Company, and (ii)
105,000 shares of the Company's Series B Cumulative Preferred
Stock, par value $0.01 per share (the "Series B Preferred Stock,"
and together with the Series A Preferred Stock, the "Senior
Preferred Stock"), having the rights, preferences, privileges and
restrictions set forth in the form of Certificate of Designations
attached hereto as Exhibit C (the "Series B Certificate of
Designations," and together with the Series A Certificate of
Designations, the "Senior Certificates of Designations"),
together with detachable Series B Warrants, having the terms set
forth in the form of Warrant attached hereto as Exhibit D (the
"Series B Warrants," and together with the Series A Warrants, the
"Warrants"), to purchase, subject to adjustment as set forth in
the form of Warrant, (A) prior to the Shareholder Approval (as
defined herein), 6,730 shares of the Company's Series C Junior
Participating Preferred Stock, par value $0.01 per share (the
"Junior Preferred Stock"), having the rights, preferences,
privileges and restrictions set forth in the form of Certificate
of Designations attached hereto as Exhibit E (the "Junior
Certificate of Designations," and together with the Senior
Certificates of Designations, the "Certificates of
Designations"), or (B) following the Shareholder Approval,
6,730,000 shares of Common Stock;
WHEREAS, the Series A Preferred Stock is exchangeable
under certain circumstances at the option of the Company into
Series A Junior Subordinated Debentures Due 2008 of the Company
(the "Series A Debentures"), having the terms and conditions
provided for in Section 7.07 hereof, and the Series B Preferred
Stock is exchangeable under certain circumstances at the option
of the Company into Series B Junior Subordinated Debentures Due
2008 of the Company (the "Series B Debentures," and together with
the Series A Debentures, the "Debentures"), having the terms and
conditions provided for in Section 7.07 hereof; and
WHEREAS, the Company and the Investor desire to make
certain representations, warranties, covenants and agreements in
connection with the transactions contemplated herein;
<PAGE> 7
NOW, THEREFORE, in consideration of the premises and
the mutual representations, warranties, covenants and agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. As used in this Agreement,
the following terms shall have the meanings set forth below:
"Affiliate" has the meaning set forth in Rule 12b-2
under the Exchange Act. The term "Affiliated" has a correlative
meaning. Notwithstanding the foregoing, for all purposes hereof,
TPG, and each Person controlled by, controlling or under common
control with TPG (each, a "TPG Person"), shall not be deemed an
"Affiliate" of any Designated Purchaser Person (as defined
below), and no Designated Purchaser, and no Person controlled by,
controlling or under common control with such Designated
Purchaser (each, a "Designated Purchaser Person"), shall be
deemed an "Affiliate" of any TPG Person or any other Designated
Purchaser Person, in any such case solely as a consequence of
this Agreement or the transactions contemplated hereby.
"Agreement" has the meaning set forth in the preamble
hereto.
"Alternative Transaction Fee" means $30,000,000.
"Alternative Transaction" means any (A) direct or
indirect acquisition or purchase of any Equity Securities of the
Company or any of its Subsidiaries or any tender offer or
exchange offer, that if consummated would result in any Person
(other than the Investor or any of its Affiliates or, solely as a
result of an assignment by the Investor pursuant to Section
11.10(b) hereof, a Designated Purchaser or any of its Affiliates)
Beneficially Owning 10% or more of any class of Equity Securities
of the Company or Equity Securities of any of its Subsidiaries,
(B) Business Combination, liquidation, dissolution or similar
transaction involving the Company or any of its Subsidiaries, or
(C) other transaction the consummation of which would prevent or
materially delay the transaction contemplated hereby.
"Beneficially Own" with respect to any securities
means having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act as in
effect on the date hereof, except that a Person shall be deemed
to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or
after the passage of time). The terms "Beneficial Ownership" and
"Beneficial Owner" have correlative meanings. Notwithstanding the
foregoing, for all purposes hereof, no TPG Person shall be deemed
to Beneficially Own any securities that are held by any
Designated Purchaser Person, and no Designated Purchaser Person
shall be deemed to Beneficially Own any securities that are held
by any TPG Person, in any such case solely as a consequence of
this Agreement or the transactions contemplated hereby.
"Board of Directors" means the board of directors of
the Company.
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<PAGE> 8
"Bridge Agreement" means the Bridge Securities
Purchase Agreement, dated as of February 6, 1998, between the
Company and Oxford Funding, Inc., as in effect on the date
hereof.
"Business Combination" means a merger or consolidation
in which the Company is a constituent corporation and pursuant to
which Voting Securities of the Company are exchanged for cash,
securities or other property, a recapitalization of the Company
or a sale of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole; provided that a
transaction or series of transactions as a result of which the
Beneficial Ownership of the Equity Securities of the Company or
of the surviving entity of the transaction (or of the ultimate
parent of the Company or of such surviving entity) immediately
after the consummation of such transaction is the same (other
than in respect of fractional shares or odd lots) as the
Beneficial Ownership of the Company's Equity Securities
immediately prior to the consummation thereof shall not be deemed
a "Business Combination."
"Business Day" means any day, other than a Saturday,
Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to
close.
"Bylaws" means the Bylaws of the Company, as amended
from time to time.
"Capital Funding Requirements Disclosure" has the
meaning set forth in Section 3.07(d) hereof.
"CEO" means Norman C. Payson, M.D. or, if he is not
the chief executive officer of the Company, any other person who
is appointed chief executive officer of the Company; provided,
that a person shall not be the CEO for purposes of this Agreement
if any predecessor CEO shall have been terminated by the Board of
Directors otherwise than in compliance with Section 5.04 hereof.
"CEO Agreement" has the meaning set forth in Section
9.01(c) hereof.
"Certificates of Designations" has the meaning set
forth in the recitals hereto.
"Certificate of Incorporation" means the Second
Amended and Restated Certificate of Incorporation of the Company,
as such may be amended from time to time.
"Class I" means the class of directors of the Board of
Directors with a term expiring at the annual meeting of
stockholders of the Company in 1998 and every third annual
meeting thereafter.
"Class II" means the class of directors of the Board
of Directors with a term expiring at the annual meeting of
stockholders of the Company in 1999 and every third annual
meeting thereafter.
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<PAGE> 9
"Class III" means the class of directors of the Board
of Directors with a term expiring at the annual meeting of
stockholders of the Company in 2000 and every third annual
meeting thereafter.
"Closing" means the closing of the sale and purchase
of the Securities pursuant to Section 2.01 hereof.
"Closing Date" has the meaning set forth in Section
2.02(a) hereof.
"Code" means the Internal Revenue Code of 1986, as
amended, and all regulations promulgated thereunder, as in effect
from time to time.
"Commission" means the U.S. Securities and Exchange
Commission.
"Commitment Letter" has the meaning set forth in
Section 10.01(b) hereof.
"Common Stock" has the meaning set forth in the
recitals hereto.
"Company" has the meaning set forth in the preamble
hereto.
"Company Disclosure Documents" has the meaning set
forth in the definition of "Material Adverse Effect."
"Control Transaction" means any transaction that
involves a (i) merger, consolidation or similar Business
Combination involving the Company or a Significant Subsidiary of
the Company (other than a transaction following which (A) the
shareholders of the Company immediately prior to such transaction
will continue to hold Voting Securities of the Company or the
surviving entity representing a majority of the Voting Power of
the Voting Securities of the Company or the surviving entity and
(B) no Person or Group that did not Beneficially Own Voting
Securities representing a majority of the Voting Power of the
Voting Securities of the Company prior to such transaction will
Beneficially Own Voting Securities of the Company or the
surviving entity representing a majority of the Voting Power of
the Voting Securities of the Company or the surviving entity), or
(ii) sale or issuance of Voting Securities of the Company to a
Person or Group or an acquisition of Equity Securities of the
Company in a transaction approved by the Board of Directors by a
Person or Group which, following the completion of such sale or
issuance, will Beneficially Own Voting Securities of the Company
representing a majority of the Voting Power of the Voting
Securities of the Company.
"Debentures" has the meaning set forth in the recitals
hereto.
"Derivative Securities" means any subscriptions,
options, conversion rights, warrants, or other agreements,
securities or commitments of any kind obligating the Company or
any of its Subsidiaries to issue, grant, deliver or sell, or
cause to be issued, granted, delivered or sold, any Equity
Securities of the Company or any of its Subsidiaries.
"Designated Purchaser" has the meaning set forth in
Section 11.10(b) hereof.
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<PAGE> 10
"Designated Purchaser Person" has the meaning set
forth in the definition of "Affiliate."
"DGCL" means the Delaware General Corporation Law.
"DGCL Section 203" has the meaning set forth in
Section 3.02(a) hereof.
"DLJ" means Donaldson, Lufkin & Jenrette Securities
Corporation.
"Draft 1997 Statements" means the February 20, 1998
draft of the Company's consolidated balance sheet and income
statement as of, and for, the year ended December 31, 1997,
attached as Exhibit L hereto.
"Draft Reserve Report" means the draft reserve report
provided to the Investor by the Company on or about February 20,
1998.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and all regulations promulgated
thereunder, as in effect from time to time.
"Employment Agreement" means any employment or
consulting agreement or other similar arrangement between the
Company or any of its Subsidiaries, on the one hand, and any
Representative of the Company or any of its Subsidiaries, on the
other.
"Equity Securities" of any Person means any and all
common stock, preferred stock and any other class of capital
stock of, and any partnership or limited liability company
interests of such Person or any other similar interests of any
Person that is not a corporation, partnership or limited
liability company.
"Exchange Act" means the U.S. Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated
thereunder.
"GAAP" means U.S. generally accepted accounting
principles as in effect at the relevant time or for the relevant
period.
"Governmental Entity" means any government or
political subdivision or department thereof, any governmental or
regulatory body, commission, board, bureau, agency or
instrumentality, or any court or arbitrator or alternative
dispute resolution body, in each case whether federal, state,
local or foreign.
"Grantor Trust" means any trust established to set
aside assets to provide for the payment of obligations to current
or former employees.
"Group" has the meaning set forth in Rule 13d-5 under
the Exchange Act.
"Guarantee" means any direct or indirect obligation,
contingent or otherwise, to guarantee (or having the economic
effect of guaranteeing) Indebtedness in any manner, including,
without limitation, any monetary obligation to purchase or pay
(or advance or supply
5
<PAGE> 11
funds for the purchase or payment of) such Indebtedness or other
obligation of another Person (whether arising by agreement to
purchase assets, goods, securities or services, to take-or-pay,
or to maintain financial statement conditions or otherwise).
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the regulations
promulgated thereunder.
"Indebtedness" means, with respect to any Person,
whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such
Person for money borrowed, (ii) any obligation of such Person
evidenced by bonds, debentures, notes, Guarantees or other
similar instruments, (iii) any reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or
similar facilities issued for the account of such Person, (iv)
any obligation of such Person issued or assumed as the deferred
purchase price of property, assets or services (but excluding
trade accounts payable and other accrued liabilities arising in
the ordinary course of business), (v) any interest rate or
currency swap or similar hedging agreement, and (vi) any capital
lease obligation of such Person.
"Insolvency Event" means (i) the Company or any of its
Significant Subsidiaries commences a voluntary case concerning
itself under Title 11 of the United States Code as now or
hereafter in effect, or under any state insolvency, liquidation,
rehabilitation or similar statute or any successor statutes
thereto ("Insolvency Statutes"); (ii) an involuntary case is
commenced against the Company or any of its Significant
Subsidiaries under an Insolvency Statute; (iii) a custodian is
appointed under any applicable Insolvency Statute for, or takes
charge of, all or any substantial part of the property of the
Company or any of its Subsidiaries; (iv) any other proceeding
under any reorganization, arrangement, adjustment of debt, relief
of debtors, dissolution or similar law of any jurisdiction,
whether now or hereafter in effect, relating to the Company or
any of its Significant Subsidiaries is commenced (a) by the
Company or any of its Significant Subsidiaries or (b) by any
other Person; (v) the Company or any of its Significant
Subsidiaries is adjudicated insolvent or bankrupt; (vi) any order
of relief or other order approving any such case or proceeding is
entered; (vii) the Company or any of its Significant Subsidiaries
makes a general assignment for the benefit of creditors; or
(viii) the Company or any of its Significant Subsidiaries shall
state in writing that it is unable to pay, or shall be unable to
pay, its debts, generally as they become due; provided, however,
in the case of clauses (ii), (iii), (iv)(b) and (vi), an
"Insolvency Event" shall occur only in the event the Company or
any of its Significant Subsidiaries is unable to cause such
involuntary case, appointment, proceeding or action to be
dismissed or withdrawn by the ninetieth day after the
commencement thereof.
"Intellectual Property" means all intellectual
property rights including, but not limited to, patents, patent
rights, trade secrets, know-how, trademarks, service marks, trade
names, copyrights, licenses and proprietary processes and
formulae.
"Investor" has the meaning set forth in the preamble
hereto.
"Investor Group" means, collectively, the Investor,
the Designated Purchasers, if any, and the respective Affiliates
of such Persons.
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<PAGE> 12
"Investor Nominee" has the meaning set forth in
Section 5.02(c) hereof.
"Investor Original Warrant Shares" has the meaning set
forth in Section 5.02(e) hereof. For the purposes of determining
the percentage of Investor Original Warrant Shares that is
Beneficially Owned by the Investor or any of its Affiliates, such
calculation shall be made assuming all conditions precedent to
receipt of Warrant Shares have occurred including, without
limitation, exercise of the Warrants and, in the case of the
Series B Warrants, receipt by the Company of the Shareholder
Approval.
"Investor Placement Fee" means $9,500,000.
"Investor Purchase Price" has the meaning set forth in
Section 2.01 hereof.
"Junior Certificate of Designations" has the meaning
set forth in the recitals hereto.
"Junior Preferred Stock" has the meaning set forth in
the recitals hereto.
"Junior Shares" means the shares of Junior Preferred
Stock issued or issuable upon exercise of the Series B Warrants.
"Law" means any law, treaty, statute, ordinance, code,
rule or regulation of a Governmental Entity or judgment, decree,
order, writ, award, injunction or determination of an arbitrator
or court or other Governmental Entity.
"Lien" means any mortgage, pledge, lien, security
interest, claim, voting agreement, conditional sale agreement,
title retention agreement, restriction, option or encumbrance of
any kind, character or description whatsoever.
"Limited Stock" means any class or series of Equity
Securities of the Company that ranks, with respect to preference
on payment of dividends or payment upon liquidation, dissolution
or winding-up of the Company, junior to the Senior Preferred
Stock.
"Losses" has the meaning set forth in Section 11.05(a)
hereof.
"Material Adverse Effect" means a material adverse
effect on the financial condition, results of operations,
business or regulatory condition of the Company and its
Subsidiaries taken as a whole; provided, however, that any
adverse effect on the financial condition, results of operations,
business or regulatory condition of the Company and its
Subsidiaries taken as a whole that is described in the SEC
Reports, the Draft 1997 Statements, the Draft Reserve Report, the
Capital Funding Requirements Disclosure, the Schedules hereto or
the February 24, 1998 press release of the Company (a definitive
copy which is attached as Exhibit I hereto), other than the
general statements therein that begin with the fourth complete
paragraph on page 3 of such press release and end immediately
following point 9 on page 4 of such press release regarding
forward-looking statements (collectively, the "Company Disclosure
Documents"), or that can be reasonably foreseen to arise out of
any of the matters described in
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<PAGE> 13
the Company Disclosure Documents shall not be considered to be a
Material Adverse Effect; and provided, further, that
notwithstanding the preceding proviso: (i) any material
exacerbation of the matters described in such press release, (ii)
any material deterioration in the relationship of the Company and
its Subsidiaries with their brokers or providers, (iii) other
than with respect to the Medicaid business of the Company and its
Subsidiaries, any material increase in the rate of disenrollment
from the Company's historic disenrollment experience, or (iv) any
material adverse effect on the ability of any Significant
Subsidiary to conduct its business on a basis consistent with
past practices shall be deemed not to be reasonably foreseen to
arise out of any of the matters described in the Company
Disclosure Documents.
"NASD" has the meaning set forth in Section 3.03(c)
hereof.
"NASD Rules" has the meaning set forth in Section
3.03(c) hereof.
"1997 Statements" means the Company's consolidated
financial statements (including the footnotes thereto) as of, and
for, the year ended, December 31, 1997, as audited by KPMG Peat
Marwick LLP.
"Nasdaq" means The Nasdaq Stock Market's National
Market.
"Option Plans" means the Company's 1991 Stock Option
Plan and Nonemployee Directors Stock Option Plan, 1997
Independent Contractor Stock Option Plan, Oaktree Health Plans,
1992 Incentive and Non-Qualified Stock Option Plan, Oxford
Specialty Holdings, Inc. 1996 Equity Incentive Compensation Plan,
and Oxford Specialty Management, Inc. 1997 Equity Incentive
Compensation Plan.
"Original Number" means the number of Warrant Shares
as of the Closing (assuming that all conditions precedent to
receipt of Warrant Shares has occurred, including, without
limitation, exercise of the Warrants and, in the case of the
Series B Warrants, receipt by the Company of the Shareholder
Approval), which number shall be adjusted in accordance with any
adjustment made to the number of Warrant Shares issuable upon
exercise of the Warrants pursuant to the provisions set forth in
Section 9 of each Warrant. For the purposes of determining the
percentage of the Original Number of Warrant Shares that is
Beneficially Owned by the Investor, any Designated Purchaser or
any of their respective Affiliates, such calculation shall be
made assuming all conditions precedent to receipt of Warrant
Shares have occurred including, without limitation, exercise of
the Warrants and, in the case of the Series B Warrants, receipt
by the Company of the Shareholder Approval.
"Person" means any individual, corporation, company,
association, partnership, joint venture, trust or unincorporated
organization, or Governmental Entity.
"Preferred Stock" means the Junior Preferred Stock and
the Senior Preferred Stock.
"Proceeding" has the meaning set forth in Section
3.11.
8
<PAGE> 14
"Proposal" means any inquiry, proposal or offer from
any person relating to an Alternative Transaction.
"Qualified Offering" means a bona fide, underwritten
offering of securities for cash pursuant to an effective
registration statement or Rule 144A under the Securities Act;
provided, that no offering shall constitute a Qualified Offering
unless the Company uses its reasonable best efforts to ensure
that immediately following the completion of such offering, no
purchaser in such offering Beneficially Owns (on an individual
basis or, to the knowledge of the Company, as a member of a
Group) in excess of 5% of the Voting Power of the outstanding
Voting Securities of the Company (other than (i) any underwriter
of such offering or (ii) any Person described in Rule
13d-1(b)(1)(ii) under the Exchange Act which is eligible to
report its Beneficial Ownership of Common Stock on Schedule 13G
under the Exchange Act). For purposes of this definition,
Beneficially Own shall mean having "beneficial ownership" as
determined pursuant to Rule 13d-3 under Exchange Act as in effect
on the date hereof.
"Registration Rights Agreement" means the Registration
Rights Agreement of even date herewith between the Company and
the Investor.
"Regulated Subsidiary" means each of the following
Subsidiaries of the Company: Oxford Health Plans (PA), Inc.,
Oxford Health Plans (NH), Inc., Oxford Health Plans (NJ), Inc.,
Oxford Health Plans (NY), Inc., Oxford Health Plans (FL), Inc.,
Oxford Health Insurance, Inc., Oxford Health Plans (CT), Inc.,
Oxford Health Plans (IL), Inc. and Compass PPA, Inc.
"Regulatory Approvals" means (i) any and all
certificates, permits, licenses, franchises, concessions, grants,
consents, approvals, orders, registrations, authorizations,
waivers, variances or clearances from, or filings or
registrations with, Governmental Entities, and (ii) any and all
waiting periods imposed by applicable laws.
"Representatives" means, with respect to any Person,
any of such Person's officers, directors, employees, agents,
attorneys, accountants, actuaries, consultants, equity financing
partners or financial advisors or other Person associated with,
or acting on behalf of, such Person.
"Required Regulatory Approvals" means Regulatory
Approvals (i) necessary under the HSR Act; (ii) required for or
in connection with the consummation by the parties thereto of the
transactions contemplated by the Registration Rights Agreement
(including the effectiveness of a registration statement and
applicable "Blue Sky" clearance); (iii) consisting of the filing
by the Company of the Certificates of Designations with the
Secretary of State of the State of Delaware; and (iv) set forth
on Schedule 1.01 hereto.
"SEC Reports" has the meaning set forth in Section
3.07(a) hereof.
"Securities" means the Senior Preferred Stock and the
Warrants issued pursuant to this Agreement.
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<PAGE> 15
"Securities Act" means the U.S. Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder.
"Senior Financing Arrangements" means at least
$350,000,000 in senior debt financing to be obtained by the
Company as contemplated by Section 9.01(e) hereof.
"Senior Preferred Stock" has the meaning set forth in
the recitals hereto.
"Series A Certificate of Designations" has the meaning
set forth in the recitals hereto.
"Series A Debentures" has the meaning set forth in the
recitals hereto.
"Series A Preferred Stock" has the meaning set forth
in the recitals hereto.
"Series A Warrants" has the meaning set forth in the
recitals hereto.
"Series B Certificate of Designations" has the meaning
set forth in the recitals hereto.
"Series B Debentures" has the meaning set forth in the
recitals hereto.
"Series B Preferred Stock" has the meaning set forth
in the recitals hereto.
"Series B Warrants" has the meaning set forth in the
recitals hereto.
"Shareholder Approval" means the approval by the
shareholders of the Company, in accordance with and in
satisfaction of Rule 4460(i)(D) of the NASD Rules and
interpretations thereunder, of the vesting of voting rights in
respect of the Series B Preferred Stock and the issuance of
Warrant Shares upon exercise of the Series B Warrants, each in
accordance with the terms thereof.
"Shareholder Approval Proposal" has the meaning set
forth in Section 8.13(b) hereof.
"Significant Designated Purchaser" has the meaning set
forth in Section 11.10(b) hereof.
"Significant Regulated Subsidiary" means each of the
following Subsidiaries of the Company: Oxford Health Plans (PA),
Inc., Oxford Health Plans (NJ), Inc., Oxford Health Plans (NY),
Inc., Oxford Health Insurance, Inc. and Oxford Health Plans (CT),
Inc.
"Significant Subsidiary" means any Subsidiary of the
Company that (i) had $100,000,000 in total assets as of December
31, 1997, (ii) had $10,000,000 in revenues for the year ended
December 31, 1997, or (iii) is subject to regulation by an
insurance or health regulatory body of any Governmental Entity.
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<PAGE> 16
"Standstill Period" has the meaning set forth in
Section 6.01(a) hereof.
"Subsequent Reports" has the meaning set forth in
Section 3.07(a) hereof.
"Subsidiary" means, as to any Person, any other Person
of which more than 50% of the shares of the voting stock or other
voting interests are owned or controlled, or the ability to
select or elect 50% or more of the directors or similar managers
is held, directly or indirectly, by such first Person or one or
more of its Subsidiaries or by such first Person and one or more
of its Subsidiaries.
"Tax" or "Taxes" means all taxes, including any
interest, liabilities, fines, penalties or additions to tax that
may become payable in respect thereof, imposed by any
Governmental Entity, which taxes shall include, without limiting
the generality of the foregoing, income taxes (including, but not
limited to, United States federal income taxes and state income
taxes), payroll and employee withholding taxes, unemployment
insurance, social security, sales and use taxes, excise taxes,
franchise taxes, gross or net receipts taxes, occupation taxes,
real and personal property taxes, ad valorem taxes, stamp taxes,
transfer taxes, capital taxes, import duties, withholding taxes,
workers' compensation taxes, and other obligations of the same or
of a similar nature whether arising before, on or after the
Closing Date.
"TPG Person" has the meaning set forth in the
definition of "Affiliate."
"Transaction Agreements" means this Agreement and the
Registration Rights Agreement.
"Voting Power" means, with respect to any Voting
Securities, the aggregate number of votes attributable to such
Voting Securities that could generally be cast by the holders
thereof for the election of directors at the time of
determination (assuming such election were then being held).
"Voting Securities" means, (i) with respect to the
Company, the Equity Securities of the Company entitled to vote
generally for the election of directors of the Company, and (ii)
with respect to any other Person, any securities of or interests
in such Person entitled to vote generally for the election of
directors or any similar managing person of such Person.
"Warrant Shares" means the shares of Common Stock
issued, or issuable upon, exercise of the Warrants.
"Warrants" has the meaning set forth in the recitals
hereto.
"Wholly-Owned Subsidiary" means, as to any Person, a
Subsidiary of such Person of which 100% of the Equity Securities
(other than directors' qualifying shares or similar shares) is
owned, directly or indirectly, by such Person.
Section 1.02. General Interpretive Principles.
Whenever used in this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, any noun or
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<PAGE> 17
pronoun shall be deemed to include the plural as well as the
singular and to cover all genders. The name assigned this
Agreement and the section captions used herein are for
convenience of reference only and shall not be construed to
affect the meaning, construction or effect hereof. Unless
otherwise specified, the terms "hereof," "herein" and similar
terms refer to this Agreement as a whole (including the exhibits
and schedules hereto), and references herein to Articles or
Sections refer to Articles or Sections of this Agreement.
ARTICLE II
ISSUANCE AND SALE OF SENIOR PREFERRED STOCK AND WARRANTS
Section 2.01. Issuance and Sale of Senior Preferred
Stock and Warrants. Upon the terms and subject to the conditions
set forth in this Agreement, and in reliance upon the
representations and warranties hereinafter set forth, at the
Closing, the Company will issue, sell and deliver to the
Investor, and the Investor will purchase from the Company, (i)
245,000 shares of Series A Preferred Stock, together with Series
A Warrants to purchase, subject to adjustment as set forth in the
forms of Warrants, 15,800,000 shares of Common Stock, and (ii)
105,000 shares of Series B Preferred Stock, together with Series
B Warrants to purchase, subject to adjustment as set forth in the
forms of Warrants, (A) prior to the occurrence of Shareholder
Approval, 6,730 shares of Junior Preferred Stock, and (B)
following the occurrence of Shareholder Approval, 6,730,000
shares of Common Stock, in each case, free and clear of all
Liens, for an aggregate purchase price of $350,000,000 (the
"Investor Purchase Price").
Section 2.02. Closing. (a) Subject to the satisfaction
or, if permissible, waiver of the conditions set forth in
Sections 9.01 and 9.02 hereof, the Closing shall take place at
the offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty
Plaza, New York, New York at 10:00 a.m., New York City time, on
the fifth Business Day following satisfaction or, if permissible,
waiver of the conditions set forth in Sections 9.01(e), 9.01(i)
and 9.02(d) hereof, or at such other time and place as the
parties may agree (the date on which the Closing occurs, the
"Closing Date").
(b) At the Closing, (i) the Company will deliver to
the Investor certificates representing the Securities to be
purchased by, and sold to, the Investor pursuant to Section 2.01
hereof (registered in the names and in the denominations
designated by the Investor at least two Business Days prior to
the Closing Date), together with the other documents,
certificates and opinions to be delivered pursuant to Section
9.01 hereof, and (ii) the Investor, in full payment for the
Securities to be purchased by, and sold to, the Investor pursuant
to Section 2.01 hereof, will deliver to the Company an amount
equal to the Investor Purchase Price, against which the Investor
Placement Fee payable to the Investor or its Affiliates and any
amounts due to the Investor for expenses pursuant to Section
11.01(a) hereof shall be netted (provided, that the Investor
shall continue to be entitled to seek reimbursement after the
Closing for other expenses that are properly reimbursable
pursuant to Section 11.01(a) hereof), in immediately available
funds by wire transfer to the account designated by the Company
at least two Business Days prior to the Closing Date, or by such
other means as may be agreed upon by the parties hereto, together
with the other documents, certificates and opinions to be
delivered pursuant to Section 9.02 hereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to, and
agrees with, the Investor as follows:
Section 3.01. Corporate Organization and
Qualification. Each of the Company and its Subsidiaries is a
corporation or partnership duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
organization and has all requisite power and authority to own or
lease and operate its properties and to conduct its business in
all material respects as it is currently being conducted and is
proposed to be conducted. Each of the Company and its
Subsidiaries is duly licensed, authorized or qualified as a
foreign corporation or partnership for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which its ownership, lease or operation of
property or conduct of business requires such qualification,
except where the failure to be so licensed, authorized or
qualified and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect. The Company has made
available to the Investor a complete and correct copy of the
Certificate of Incorporation and the Bylaws of the Company and
each of its Subsidiaries, each as amended to date and each of
which as so made available is in full force and effect. The
Company has made available to the Investor a complete and correct
copy of the minute books of the Company and each of its
Subsidiaries, and each such minute book includes minutes of the
meetings of, and resolutions adopted by, the board of directors
of such entity and the committees thereof to date.
Section 3.02. Authorization of Agreements. (a) The
Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the
Transaction Agreements, the Certificates of Designations and the
Warrants. The execution, delivery and performance of the
Transaction Agreements, the Certificates of Designations and the
Warrants, and the consummation by the Company at the Closing of
the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of the
Company. The Board of Directors has approved the entry by the
Company and the Investors into this Agreement and the
consummation of the transactions contemplated hereby (including
the issuance to the Investor of the Preferred Stock and Warrants
and the issuance of Common Stock upon exercise of the Warrants)
for purposes of paragraph (a)(1) of Section 203 of the DGCL
("DGCL Section 203") and Article Eleventh of the Certificate of
Incorporation.
(b) This Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company,
and each such agreement constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally
and to general principles of equity.
Section 3.03. Consents; No Conflicts. (a) Except for
the Required Regulatory Approvals and Regulatory Approvals the
failure of which to be made or obtained would not prevent or
materially delay the consummation of the transactions
contemplated by the Transaction Agreements, the Certificates of
Designations and the Warrants or have a Material
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<PAGE> 19
Adverse Effect, no Regulatory Approval from, or registration,
declaration or filing with, any Governmental Entity is required
to be made or obtained by the Company or any of its Subsidiaries
in connection with the execution, delivery and performance of the
Transaction Agreements, the Certificates of Designations and the
Warrants and the consummation of the transactions contemplated
hereby and thereby.
(b) The execution and delivery of each of this
Agreement and the Registration Rights Agreement does not, and of
the Warrants will not, and, subject to the receipt of the
Required Regulatory Approvals, the performance of the obligations
set forth herein, therein and in the Certificates of Designations
and the consummation of the transactions contemplated hereby and
thereby will not, (i) violate any provision of the Certificate of
Incorporation or the Bylaws of the Company or the comparable
governing instruments of any of its Subsidiaries; (ii) give rise
to any preemptive rights, rights of first refusal or other
similar rights on behalf of any Person under any applicable Law
or any provision of the Certificate of Incorporation or Bylaws of
the Company or any agreement or instrument applicable to the
Company; (iii) conflict with, contravene or result in a breach or
violation of any of the terms or provisions of, or
constitute a default (with or without notice or the passage of
time) under, or result in or give rise to a right of termination,
cancellation, acceleration or modification of any right or
obligation under, or give rise to a right to put or to compel a
tender offer for outstanding securities of the Company or any of
its Subsidiaries under, or require any consent, waiver or
approval under, any note, bond, debt instrument, indenture,
mortgage, deed of trust, lease, loan agreement, joint venture
agreement, Regulatory Approval, contract or any other agreement,
instrument or obligation to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any property of the Company or any of its
Subsidiaries is bound; (iv) result in the creation or imposition
of any Lien upon any assets or properties of the Company or any
of its Subsidiaries; or (v) violate any Law applicable to the
Company or any of its Subsidiaries, other than in the case of
clauses (iii) through (v) above, such exceptions as would not
have, individually or in the aggregate, a Material Adverse
Effect.
(c) Other than the Shareholder Approval, no consent or
approval of the Company's stockholders is required by Law, the
Company's Certificate of Incorporation or Bylaws, the rules (the
"NASD Rules") of the National Association of Securities Dealers,
Inc. (the "NASD") relating to the quotation of the Common Stock
on Nasdaq, or otherwise, for the execution, delivery and
performance by the Company of the Transaction Agreements and the
consummation of the transactions contemplated hereby and thereby.
Section 3.04. Capitalization; Securities. (a) As of
the date hereof, the authorized capital stock of the Company
consists of (i) 400,000,000 shares of Common Stock, of which
79,490,249 shares are outstanding, 3,614,621 are reserved for
issuance under the Option Plans, and 22,530,000 are reserved for
issuance pursuant to the Warrants, and (ii) 2,000,000 shares of
preferred stock, par value $0.01 per share, of which no shares
are outstanding, no shares have been designated and no shares are
reserved for issuance. All of such outstanding shares of Common
Stock were duly authorized and validly issued and are fully paid
and non-assessable.
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(b) Except for the Warrants and options to purchase in
the aggregate 10,257,314 shares of Common Stock with an average
exercise price of $22.25 per share pursuant to the Option Plans
and the options to purchase Common Stock granted to Dr. Norman C.
Payson pursuant to the CEO Agreement, there are no authorized or
outstanding (or any obligations to authorize or issue) Derivative
Securities.
(c) The Company and its Subsidiaries have no
outstanding Indebtedness other than $100,000,000 of Indebtedness
outstanding pursuant to the Bridge Agreement. A true, complete
and correct copy of the Bridge Agreement, including the exhibits
and schedules thereto and any other documents executed in
connection therewith, has been made available to the Investor.
(d) Subject to the filing of the Certificates of
Designations with the Secretary of State of the State of
Delaware, the shares of Preferred Stock to be issued pursuant to
this Agreement and issuable pursuant to the Series B Warrants
have been duly and validly authorized and, when issued as
contemplated by this Agreement or upon exercise of the Series B
Warrants, as the case may be, will have been validly issued and
will be fully paid and non-assessable. The Warrant Shares have
been duly and validly authorized and validly reserved for
issuance and, when issued upon exercise of the Warrants, will
have been validly issued and will be fully paid and
non-assessable. The registration of Securities, Junior Shares,
Warrant Shares or Debentures pursuant to the Registration Rights
Agreement will not give rise to any registration rights on behalf
of any Person (other than the CEO as described in Exhibit H
hereto) under any agreement or instrument applicable to the
Company (other than the Registration Rights Agreement). Other
than pursuant to the Registration Rights Agreement, no Person has
any right to require the Company to register securities of the
Company under the Securities Act, and there are no shareholder or
similar agreements to which the Company is a party, except as
disclosed on Schedule 3.04(d) hereto. To the Company's knowledge,
there are no securities that the Company is required to register
pursuant to any agreement listed on Schedule 3.04(d) hereto. The
Warrants have been duly and validly authorized by the Company
and, when issued as contemplated by this Agreement, will
constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms,
subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general principles
of equity.
Section 3.05. Subsidiaries. (a) Schedule 3.05(a)
lists, for each Significant Subsidiary of the Company, the name
of such Significant Subsidiary, together with (i) the
jurisdiction and nature (e.g., corporation, partnership, limited
liability company) of its organization, (ii) the number and
percentage of shares of each class of Equity Securities owned by
the Company or any of its Wholly-Owned Subsidiaries, (iii) the
identity of the record holder(s) and the name and number of
shares of each class of Equity Securities owned by any Person
other than the Company or its Wholly-Owned Subsidiaries, and (iv)
the identity of any Person other than the Company or its
Wholly-Owned Subsidiaries that has the right (including upon the
passage of time or upon the occurrence of specified events) to
acquire any of its Equity Securities. Such list is true, correct
and complete in all material respects as of the date hereof. The
Equity Securities of each such Significant Subsidiary owned,
directly or indirectly, by the
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<PAGE> 21
Company are held free and clear of all Liens (other than those
arising pursuant to the Bridge Agreement), and all such Equity
Securities have been duly authorized and validly issued and are
fully paid and non-assessable.
(b) Except for Equity Securities of the Subsidiaries
of the Company, as set forth on Schedule 3.05(b) hereto or
investment securities of any Person held by Subsidiaries of the
Company in the ordinary course of business (provided the Company
and its Significant Subsidiaries Beneficially Own (and, after
giving effect to such transactions, would Beneficially Own), in
the aggregate, less than 5% of the Voting Power of the Voting
Securities of such Person), the Company does not, directly or
indirectly, (i) Beneficially Own or own of record any Equity
Securities of, or any other equity interest in, any other Person
or (ii) have any other equity investment or other ownership
interest in any other Person other than, in each case, such
investments or other ownership interests valued at less than
$1,000,000 individually and $10,000,000 in the aggregate.
(c) Other than investments made in Significant
Subsidiaries pursuant to undertakings given by the Company or its
Subsidiaries prior to the date hereof to Governmental Entities as
set forth on Schedule 3.05(c) hereof, and similar undertakings
given by the Company or its Subsidiaries to Governmental Entities
after the date hereof, or as otherwise set forth on Schedule
3.05(c) hereof, neither the Company nor any of its Subsidiaries
is obligated, pursuant to any agreement or instrument applicable
to the Company or such Subsidiary, to purchase any Equity
Securities of, or make any other equity investment in, any
Person.
Section 3.06. Dividends, Stock Repurchases, Etc. Other
than pursuant to this Agreement, the Senior Financing
Arrangements or the Bridge Agreement, or as restricted or limited
by applicable Law, there are no contractual or other restrictions
or limitations on the ability of the Company or any of its
Subsidiaries to pay any dividends or make any other distributions
on, or to purchase, redeem or otherwise acquire, any of its
Equity Securities.
Section 3.07. Company Reports; Financial Statements.
(a) The Company has made available to the Investor a true and
complete copy of (i) the Company's Annual Report on Form 10-K for
the years ended December 31, 1996 and 1995; (ii) the Company's
Quarterly Report on Form 10-Q for the periods ended March 31,
June 30 and September 30, 1997 and (iii) each registration
statement, report on Form 8-K, proxy statement, information
statement or other report or statement filed by the Company with
the Commission since December 31, 1995 and prior to the date
hereof, in each case in the form (including exhibits and any
amendments thereto) filed with the Commission (collectively, the
"SEC Reports"). As of their respective dates, the SEC Reports and
any registration statement, report, proxy statement, information
statement or other statement filed by the Company with the
Commission before the Closing Date ("Subsequent Reports") (i)
was, or will be, as the case may be, timely filed with the
Commission; (ii) complied, or will comply, as the case may be, in
all material respects, with the applicable requirements of the
Exchange Act and the Securities Act, and (iii) did not, or will
not, as the case may be, contain any untrue statement of a
material fact or omit 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. The Company has filed all reports
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<PAGE> 22
and statements with the Commission required to have been filed as
of the date hereof for the Company to register securities for
sale on Form S-3 under the Securities Act or any successor form
thereto.
(b) Each of the consolidated balance sheets
(including, where applicable, the related notes and schedules)
included in or incorporated by reference into the SEC Reports,
any Subsequent Reports, the Draft 1997 Statements and the 1997
Statements fairly presents, or will fairly present, as the case
may be, in all material respects, the consolidated financial
position of the Company and its Subsidiaries as of the date
thereof, and each of the consolidated statements of income (or
statements of results of operations), stockholders' equity and
cash flows (including the related notes and schedules) included
in or incorporated by reference into the SEC Reports, any
Subsequent Reports, the Draft 1997 Statements or the 1997
Statements, fairly presents or will fairly present as the case
may be, in all material respects, the results of operations,
retained earnings and cash flows, as the case may be, of the
Company and its Subsidiaries (on a consolidated basis) for the
periods or as of the dates, as the case may be, set forth
therein, in each case in accordance with GAAP applied on a
consistent basis throughout the periods covered (except as stated
therein or, where applicable, in the notes thereto, except in
each of the foregoing instances in the case of interim statements
and the Draft 1997 Statements for the lack of footnote
disclosure, and except with respect to the footnote disclosure
contained in the 1997 Statements but not contained in the Draft
1997 Statements to the extent that the information contained
therein is consistent with the information contained in the
Company Disclosure Documents) and in compliance with the rules
and regulations of the Commission.
(c) The Annual Statements and Quarterly Statements of
each Significant Regulated Subsidiary, as filed with the
Department of Insurance, Superintendent of Insurance or similar
insurance regulatory authority of the state of domicile of such
Significant Regulated Subsidiary (with respect to each
Significant Regulated Subsidiary, its "Applicable Insurance
Department") for the year ended December 31, 1996 and the
quarters ended March 31, 1997, June 30, 1997 and September 30,
1997, respectively, together with any notes, exhibits and
schedules thereto, have been prepared in accordance with the
accounting practices prescribed or permitted by the Applicable
Insurance Department for purposes of financial reporting to the
applicable state's insurance regulators ("State Statutory
Accounting Practices"), and such accounting practices have been
applied on a basis consistent with State Statutory Accounting
Practices throughout the periods involved, except as expressly
set forth in any notes, exhibits and schedules thereto.
(d) The regulatory capital funding requirements of the
Regulated Subsidiaries as of December 31, 1997 are, in all
material respects, as previously disclosed by the Company to the
Investor (the "Capital Funding Requirements Disclosure").
Section 3.08. Undisclosed Liabilities. Except as
disclosed in the Company Disclosure Documents, at December 31,
1997, there were no liabilities or obligations of any nature
(whether accrued, absolute, fixed, contingent, liquidated,
unliquidated or otherwise and whether due or to become due)
required by GAAP to be set forth on the Balance Sheet (as defined
below) of the Company and its Subsidiaries taken as a whole
except as reflected or
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reserved against on the balance sheet at December 31, 1997
included in the Draft 1997 Statements (the "Balance Sheet").
Since December 31, 1997, the Company has not incurred any such
liabilities or obligations except such as would not, individually
or in the aggregate, have a Material Adverse Effect.
Section 3.09. Absence of Certain Changes. Except for
transactions contemplated by the Transaction Agreements
(including, for the period from the date hereof to the Closing,
transactions expressly permitted pursuant to Section 7.02 hereof
or with respect to which the Investor shall have given its
written consent), or as disclosed in the SEC Reports, the Draft
1997 Statements or on Schedules 3.09 and 3.11 hereto, since
December 31, 1997 the Company and its Subsidiaries have conducted
their consolidated business in the ordinary and usual course, and
there has not been any of the following:
(i) any change or amendment to the certificate or
articles of incorporation, bylaws or other organizational
documents of the Company or any of its Subsidiaries;
(ii) any issuance or sale or purchase or redemption of
any shares of their respective Equity Securities or of any
Derivative Securities, other than pursuant to this
Agreement, the Option Plans and the CEO Agreement;
(iii) any dividend or other distribution declared, set
aside, paid or made with respect to their respective Equity
Securities or any direct or indirect redemption, purchase
or other acquisition of such Equity Securities by the
Company or any of its Subsidiaries, except dividends or
other distributions made to the Company or to any
Wholly-Owned Subsidiary of the Company;
(iv) any acquisition or disposition of assets by the
Company and its Subsidiaries having a fair value or for a
purchase price in excess of $5,000,000, in the aggregate,
other than acquisitions or dispositions made in the
ordinary course of business (including acquisitions and
dispositions by Subsidiaries of the Company of investment
securities of any Person, provided the Company and its
Subsidiaries Beneficially Own (and, after giving effect to
such transactions would Beneficially Own), in the
aggregate, less than 5% of the Voting Power of the Voting
Securities of such Person) and acquisitions or dispositions
among the Company and its Wholly-Owned Subsidiaries or
among such Wholly-Owned Subsidiaries;
(v) except for borrowings under the Bridge Agreement
up to $200,000,000, any increase in excess of $10,000,000
in the Indebtedness of the Company and its Subsidiaries,
taken as a whole, other than repayments at stated maturity
and any change in intra-Company Indebtedness among the
Company and its Wholly-Owned Subsidiaries or among such
Wholly-Owned Subsidiaries;
(vi) except pursuant to the Bridge Agreement and
related instruments, any material amendment of any
mortgage, Lien, lease, agreement, Regulatory Approval, loan
agreement, indenture or other instrument or document;
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<PAGE> 24
(vii) any default, event of default or breach (or any
event which, with notice or the passage of time or both,
would constitute a default, event of default or breach) by
the Company or any of its Subsidiaries of any credit,
financing or other agreement or instrument relating to any
material Indebtedness;
(viii) any material damage, destruction, theft or
other casualty loss (whether or not covered by insurance);
(ix) except pursuant to the Bridge Agreement, any
material commitment, agreement or transaction entered into,
amended, or terminated (or any waiver of any rights or
remedies under any of the foregoing) by the Company or any
of its Subsidiaries (including any agreement with respect
to any ongoing or threatened litigation), other than in the
ordinary course of business;
(x) any entry into or amendment of any material
employment or severance compensation agreement or
consulting or similar agreement with, or any material
increase in the compensation or benefits payable or to
become payable by the Company or any of its Subsidiaries to
any employee of the Company or any of its Subsidiaries
(other than agreements terminable without penalty or
similar payment by the Company or such Subsidiary, as the
case may be, on not more than 30 days' notice and any other
increases in compensation payable or to become payable to
employees (other than directors or officers) in the
ordinary course of business);
(xi) any change in the financial accounting methods,
principles or practices of the Company and its Subsidiaries
for financial accounting purposes, taken as a whole, except
as required by GAAP or applicable law;
(xii) any adoption of a plan of or any agreement or
arrangement with respect to or resolutions providing for
the liquidation, dissolution, merger, consolidation or
other reorganization of the Company or any of its
Significant Subsidiaries;
(xiii) any settlement or compromise of any Proceeding
other than those in which the amount paid does not exceed
$5,000,000 individually or in the aggregate;
(xiv) any change, condition, occurrence, circumstance
or other event that, individually or in the aggregate, has
had or is reasonably likely to have a Material Adverse
Effect; or
(xv) any commitment or agreement to do any of the
foregoing, except as otherwise required or expressly
permitted by this Agreement.
Section 3.10. Property. (a) Except in each case as is
not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect, each of the Company and its
Subsidiaries has good and marketable title to all property owned
by each of them, in each case free and clear of any Liens, except
such as do not materially and adversely affect the value of such
property and do not interfere with the use made or proposed to be
made of such property by
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the Company or such Subsidiary, and any real property and
buildings held under lease by the Company or any such Subsidiary
is held under a valid, subsisting and enforceable lease, with
such exceptions as are not material and do not interfere with the
use made or proposed to be made of such property and buildings by
the Company or such Subsidiary.
(b) Except as disclosed on Schedule 3.10(b) hereto and
except in each case as is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect, each
of the Company and its Subsidiaries owns or possesses the rights
to use, and is in compliance with, all Intellectual Property that
is used or required by it in the conduct of its business and all
such Intellectual Property is in full force and effect and will
not cease to be in full force and effect in accordance with its
terms by virtue of the consummation of the transactions
contemplated by the Transaction Agreements. Except as disclosed
on Schedule 3.10(b) hereto and except in each case as is not
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect, neither the Company nor any of its
Subsidiaries has received any notice of, and they have no
knowledge of, (i) any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property owned
or used by the Company or any of its Subsidiaries, (ii) any
challenge to the ownership of or validity or effectiveness of any
license for the use of any Intellectual Property owned or used by
the Company or any of its Subsidiaries, or (iii) any claim
against the use by the Company or any of its Subsidiaries of any
Intellectual Property owned or used by it.
Section 3.11. Litigation. Except as expressly
disclosed in the SEC Reports or on Schedule 3.11 hereto, there
are no claims, suits, actions, proceedings, arbitrations or
investigations (each, a "Proceeding") pending or, to the
knowledge of the Company, threatened, against or affecting the
Company or any of its Subsidiaries, that involve a claim against
the Company or any of its Subsidiaries in an amount in excess of
$1,000,000, or that, individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect; and except
as so disclosed, there are no judgments, decrees, injunctions,
rules, stipulations or orders outstanding against or applicable
to the Company or any of its Subsidiaries or against or
applicable to any of their respective properties or businesses
that, individually or in the aggregate, are reasonably likely to
have a Material Adverse Effect.
Section 3.12. Compliance with Laws; Regulatory
Approvals. Except in each case as is not reasonably likely to
have, individually or in the aggregate, a Material Adverse
Effect, and except as disclosed in the SEC Reports or as alleged
to the date hereof in connection with or relating to the
Proceedings referred to in Schedule 3.11 hereto, the businesses
of the Company and its Subsidiaries currently are being conducted
in compliance with all applicable Laws. Except in each case as is
not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect, all Regulatory Approvals required by
the Company and its Subsidiaries to conduct their respective
business as now conducted by them have been obtained and are in
full force and effect. Except in each case as is not reasonably
likely to have, individually or in the aggregate, a Material
Adverse Effect, and except as alleged to the date hereof in
connection with or relating to the Proceedings referred to in
Schedule 3.11 hereto, the Company and its Subsidiaries are in
compliance with the terms and requirements of such Regulatory
Approvals. Except in each case as is not reasonably likely to
have, individually or in the aggregate, a
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Material Adverse Effect, and except in connection with the
matters disclosed on Schedules 3.11 and 3.12 hereto, since
December 31, 1996, none of the Company or any of its Subsidiaries
has received any written notice or other written communication
from any Governmental Entity regarding (i) any revocation,
withdrawal, suspension, termination or modification of, or the
imposition of any material conditions with respect to, any
Regulatory Approval, (ii) any violation of any Law by the Company
or any of its Subsidiaries or (iii) any other limitations on the
conduct of business by the Company or any of its Subsidiaries.
Section 3.13. Taxes. Except as disclosed on Schedule
3.13 hereto: (a) The Company and its Subsidiaries have duly filed
all U.S. federal, state, local, foreign and other tax returns
(including any information returns), reports and statements that
are required to have been filed with the appropriate taxing
authority and have paid all Taxes shown to be due on such
returns, reports or statements. All information provided in such
returns, reports and statements is complete and accurate in all
material respects.
(b) No audits or investigations relating to any Taxes
for which the Company or its Subsidiaries may be liable are
pending or threatened in writing by any taxing authority. There
are no agreements or applications by the Company or any of its
Subsidiaries for the extension of the time for filing any tax
return or paying any Tax nor have there been any waivers of any
statutes of limitation for the assessment of any Taxes. Schedule
3.13 hereto lists the audit status of each of the Company's tax
returns.
(c) Neither the Company nor any of its Subsidiaries
are parties to any agreements relating to the sharing or
allocation of Taxes.
(d) As of January 1, 1997 for U.S. federal income tax
purposes, the Company had no net operating loss carryforwards.
There has not been an ownership change of the Company within the
meaning of Section 382 of the Code during the five years
preceding the date of this Agreement.
(e) The Company or its Subsidiaries have withheld from
its employees and timely paid to the appropriate taxing authority
proper and accurate amounts in all material respects through all
periods in compliance in all material respects with all employee
Tax withholding provisions of all applicable Laws.
Section 3.14. ERISA and Other Employment Matters. (a)
Except for the Option Plans or as set forth on Schedule 3.14(a)
hereto, neither the Company nor any of its Subsidiaries maintains
or contributes to or has any obligation to contribute to, or has
any liability with respect to, any plan, program, arrangement,
agreement or commitment which is an employment, consulting or
deferred compensation agreement, or an executive compensation,
incentive bonus or other bonus, employee pension, profit-sharing,
savings, retirement, stock option, stock purchase, severance pay,
life, health, disability or accident insurance plan, or vacation,
or other employee benefit plan, program, arrangement, agreement
or commitment, including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA (individually,
a "Plan", and collectively, the "Plans").
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(b) With respect to each employee benefit plan
(including, without limitation, the Plans) that is subject to the
provisions of Title IV of ERISA and with respect to which the
Company or any of its Subsidiaries, or any Person that would be
treated as a single employer with the Company or any of its
Subsidiaries pursuant to Section 414(b), (c), (m) or (o) of the
Code (collectively, the "Principal Corporations") may, directly
or indirectly, incur any liability (whether by reason of the
complete or partial termination of any such plan, any "complete
withdrawal" (as defined in Section 4203 of ERISA) or "partial
withdrawal" (as defined in Section 4205 of ERISA) by any Person,
whether or not such Person is one of the Principal Corporations,
from any such plan, or otherwise):
(i) no such plan has been terminated so as to result,
directly or indirectly, in any liability, contingent or
otherwise, of any of the Principal Corporations under Title
IV of ERISA;
(ii) no complete or partial withdrawal from such plan
has been made by a Principal Corporation, or by any other
Person, so as to result in a liability to a Principal
Corporation, whether such liability is contingent or
otherwise;
(iii) no proceeding has been initiated by any Person
(including the Pension Benefit Guaranty Corporation
("PBGC")) to terminate any such plan;
(iv) no condition or event currently exists or
currently is expected to occur that is likely to result,
directly or indirectly, in any liability of any of the
Principal Corporations under Title IV of ERISA (except for
required premium payments under Title IV of ERISA, which
payments have been or will be made when due) on account of
the termination of any such plan;
(v) no "reportable event" (as defined in Section 4043
of ERISA) has occurred with respect to any such plan within
the preceding three years, other than a reportable event
for which the applicable notice requirement has been waived
by the PBGC; and
(vi) no such plan which is subject to Section 302 of
ERISA or Section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in Section 302
of ERISA and Section 412 of the Code, respectively),
whether or not waived.
(c) Except as described in Schedule in 3.14(c), no
event has occurred with respect to any Plan in connection with
which the Company or any of its Subsidiaries or any Plan,
directly or indirectly, could be subject to any material
liability under ERISA, the Code or any other Law, applicable to
any Plan, including, without limitation, Section 406, 409,
502(i), 502(l) or 4069 of ERISA, or Section 4971, 4975 (assuming
for the purpose of such Section that the "taxable period" of any
"prohibited transaction" (as such terms are defined in such
Section) had expired three years from the date hereof) or 4976 of
the Code, or under any agreement or instrument pursuant to or
under which the Company or any of its Subsidiaries has agreed to
indemnify any Person against liability incurred under, or for a
violation or failure to satisfy the requirement of, any such Law.
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(d) Other than as set forth in Schedule 3.14(d)
hereto, with respect to each Plan (i) all payments due from each
of the Company or any of its Subsidiaries to date have been made
when due and all amounts properly accrued to date or as of the
Closing Date as liabilities of the Company or any of its
Subsidiaries which have not been paid have been properly recorded
on the books of the Company or any of its Subsidiaries; (ii) the
Company and each of its Subsidiaries have complied with, and each
such Plan conforms in form and operation to, all applicable laws
and regulations, including, but not limited to, ERISA and the
Code, in all material respects; (iii) except as described in
Schedule 3.14(d) hereto, each such Plan which is an "employee
pension benefit plan" (as defined in Section 3(2) of ERISA) and
intended to qualify under Section 401 of the Code has received a
favorable determination letter from the Internal Revenue Service
with respect to such qualification, its related trust has been
determined to be exempt from taxation under Section 501(a) of the
Code, and nothing has occurred since the date of such letter that
has or is likely to adversely affect such qualification or
exemption; and (iv) there are no actions, suits or claims pending
(other than routine claims for benefits) or threatened with
respect to such Plan or against the assets of such Plan.
(e) Except as described on Schedule 3.14(e) hereto,
neither the execution and delivery of the Transaction Agreements
nor the consummation of the transactions contemplated by this
Agreement will (i) accelerate the time of the payment, vesting or
funding of, or increase the amount of, compensation due to any
employee or former employee or (ii) constitute a "Change of
Control" within the meaning of the Employment Agreements. Except
as described on Schedule 3.14(e) hereto, during the one year
preceding the date hereof, neither the Board of Directors nor any
committee thereof has taken any action that would, in connection
with the execution and delivery of the Transaction Agreements or
the consummation of the transactions contemplated by this
Agreement, result in an acceleration of the time of the payment,
vesting or funding of, or increase the amount of, compensation
due to any employee or former employee, including any
determination to contribute assets to any Grantor Trust.
(f) There has been made available to the Investor,
with respect to each Plan, a copy of all material employee
communications relating to such Plan since January 1, 1995 and a
copy of (or description of) any communication (other than routine
forms required to be filed by the Company) between the Company
and the IRS, the U.S. Department of Labor or the PBGC since
January 1, 1995 concerning the Plan.
(g) None of the Company or any of its Subsidiaries has
any announced plan or commitment (whether or not legally binding)
to create any additional Plans or to amend or modify any existing
Plan, or to increase benefits payable pursuant to any Plan.
(h) Except for the agreements set forth on Schedule
3.14(h), none of the Company or any of its Subsidiaries are
parties to any collective bargaining agreements and there are no
labor unions or other organizations representing, purporting to
represent, or attempting to represent, any employee of the
Company or any of its Subsidiaries.
(i) Neither the Company nor any of its Subsidiaries
has violated any provision of Law regarding the terms and
conditions of employment of employees, former employees or
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prospective employees or other labor related matters, including,
without limitation, Laws relating to discrimination, fair labor
standards and occupational health and safety, wrongful discharge
or violation of the personal rights of employees, former
employees or prospective employees which is reasonably likely to
have, individually or in the aggregate, a Material Adverse
Effect.
(j) Except as set forth on Schedule 3.14(j), to the
best knowledge of the Company, there exists no limitation on the
ability of the Company or any of its Subsidiaries to modify or
terminate any Plan providing medical or life insurance benefits
to current or former employees of the Company.
Section 3.15. Contracts. (a) Except as set forth on
Schedule 3.15(a) hereto, neither the Company nor any of its
Subsidiaries is a party or subject to any of the following
(whether written or oral, express or implied): (i) any Employment
Agreement or understanding or obligation, with respect to
severance or termination, to pay liabilities or fringe benefits
with any present or former officer or director of the Company or
with any consultant of the Company or any of its Subsidiaries,
who is or may be entitled to receive pursuant to the terms
thereof, compensation in excess of $250,000 upon termination of
such Person's employment or engagement; or (ii) any plan,
contract or understanding providing for bonuses, pensions,
options, deferred compensation, retirement payments, royalty
payments, profit sharing or similar understanding with respect to
any present or former officer or director of the Company or with
any consultant of the Company or any of its Subsidiaries, who is
or may be entitled to receive pursuant to the terms thereof,
compensation in excess of $250,000 in any single year.
(b) Except as set forth on Schedule 3.15(b) hereto,
none of the Company, any of its Subsidiaries, or to the knowledge
of the Company, any other party is in breach or violation or in
default in the performance or observance of any term or provision
of any contract, agreement, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company or any such
Subsidiary is a party or by which the Company or any such
Subsidiary is bound or to which any of the properties of the
Company or any such Subsidiary is subject, which breach,
violation or default is reasonably likely to, individually or in
the aggregate, involve a claim against the Company or any of its
Subsidiaries in an amount in excess of $25,000,000 or have a
Material Adverse Effect.
Section 3.16. Client and Provider Relations. Schedule
3.16 hereto contains for the Company and its Subsidiaries, taken
as a whole, a listing that is accurate and complete in all
material respects of (i) the twenty-five largest clients
(excluding brokers) (measured by revenues) and the revenues for
each such client and (ii) the twenty-five largest physician
providers (measured by amounts reimbursed or paid to such
providers) and the amounts reimbursed or paid to such providers,
in each case for the year ended December 31, 1997. Except as set
forth on Schedule 3.16 hereto, as of the date of this Agreement,
to the Company's knowledge none of the Company's twenty-five
largest clients (excluding brokers), twenty-five largest
physician providers or twenty-five largest non-physician
providers has advised the Company or any of its Subsidiaries that
it is not continuing, or is terminating, or is making a material
adverse change with respect to, its business with the Company or
any of its Subsidiaries. As of the date of this Agreement, to the
Company's knowledge and except as would not, individually or in
the
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<PAGE> 30
aggregate, have a Material Adverse Effect, none of the Company's
twenty-five largest clients (including brokers) has advised the
Company or any of its Subsidiaries that it is not continuing, or
is terminating, or is making an adverse change with respect to,
its business with the Company or any of its Subsidiaries.
Section 3.17. Financial Advisors and Brokers. (a)
Except for DLJ and Salomon Smith Barney, no Person has acted,
directly or indirectly, as a broker, finder or financial advisor
of the Company in connection with the Transaction Agreements or
the transactions contemplated thereby, and no Person is entitled
to receive any broker's, finder's or similar fee or commission in
respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of the Company, any of its
Subsidiaries or any of their respective directors, officers or
employees. True and correct copies of all agreements between the
Company, on the one hand, and DLJ (or any of its Affiliates) or
Salomon Smith Barney (or any of its Affiliates), on the other,
have been made available to the Investor.
(b) The Board of Directors has received an opinion of
Salomon Smith Barney to the effect that the consideration to be
received by the Company for the Securities pursuant to the terms
hereof is fair, from a financial point of view, to the Company.
Section 3.18. Exemption from Registration. Assuming
the representations and warranties of the Investor set forth in
Article IV hereof are true and correct in all material respects,
the offer and sale of the Securities made pursuant to this
Agreement and the acquisition of the Warrant Shares upon exercise
of the Warrants will be in compliance with the Securities Act and
any applicable state securities laws and will be exempt from the
registration requirements of the Securities Act and such state
securities laws.
Section 3.19. Insurance. Set forth on Schedule 3.19
hereto is a description that is correct and complete in all
material respects (specifying the insurer, the policy number or
covering note number with respect to binders and amount of
coverage) of insurance policies, binders, contracts or
instruments (collectively, the "Policies") to which the Company
or any of its Subsidiaries is a party or by which any of their
assets or any of their employees, officers or directors (in such
capacity) are covered by property, fire, professional liability,
fiduciary and other insurance. True and complete copies of all
such Policies have been made available to the Investor. Except as
set forth on Schedule 3.19 hereto, all such Policies are in full
force and effect in accordance with their respective terms and
will remain in full force and effect after the Closing. Except as
set forth on Schedule 3.19 hereto, neither the Company nor any of
its Subsidiaries has received any notice of default with respect
to any provision of any such Policies. With respect to its
directors' and officers' liability insurance policies, neither
the Company nor any of its Subsidiaries has failed to give any
notice or present any claim thereunder in due and timely fashion
or as required by any such policies so as to jeopardize full
recovery under such Policies.
Section 3.20. Insurance Contracts and Rates; Payment
of Claims. Except in each case as is not reasonably likely to
have, individually or in the aggregate, a Material Adverse
Effect, all insurance contracts written or issued by the Company
or any of its Subsidiaries, as
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now in force, are in all material respects, to the extent
required by Law, on forms approved by applicable Governmental
Entities or have been filed with, and not objected to by, such
Governmental Entities within the period provided for objection,
and such forms comply in all material respects with the insurance
statutes, regulations and rules applicable thereto. Complete and
correct copies of such forms have been made available to the
Investor. Except in each case as is not reasonably likely to
have, individually or in the aggregate, a Material Adverse
Effect, premium rates established by the Company or its
Subsidiaries which are required to be filed with or approved by
Governmental Entities have been so filed or approved; the
premiums charged by the Company and its Subsidiaries conform
thereto in all material respects; and such premiums comply in all
material respects with the insurance statutes, regulations and
rules applicable thereto.
Section 3.21. Reinsurance. There are no defaults,
lapses or impairments under any reinsurance or coinsurance
treaties or agreements, including retrocessional agreements,
pursuant to which the Company or any Regulated Subsidiary has any
existing rights, obligations or liabilities, which would,
individually or in the aggregate, have a Material Adverse Effect.
Section 3.22. Disclosure. The representations and
warranties made by the Company in this Agreement, and the
exhibits, documents, statements, certificates or schedules
furnished or to be furnished to the Investor pursuant to the
terms hereof or expressly referenced herein or therein, taken as
a whole, do not and will not contain any untrue statement of a
material fact, or omit to state a material fact necessary to make
the statements or facts contained herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to, and agrees
with, the Company as follows:
Section 4.01. Organization. The Investor is a limited
liability company duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all
requisite power and authority to own or lease and operate its
properties and to conduct its business as it is now being
conducted and is proposed to be conducted.
Section 4.02. Authorization of Agreements. (a) The
Investor has all requisite power as a limited liability company
and authority to execute, deliver and perform its obligations
under the Transaction Agreements. The execution, delivery and
performance of this Agreement and the Registration Rights
Agreement, and the consummation by the Investor at the Closing of
the transactions contemplated hereby and thereby, have been duly
authorized by all other necessary action on the part of the
Investor.
(b) This Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Investor,
and each such agreement constitutes a legal, valid and binding
obligation of the Investor, enforceable against the Investor in
accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally
and to general principles of equity.
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Section 4.03. Consents; No Conflicts. (a) Except for
the Required Regulatory Approvals, no Regulatory Approval from,
or registration, declaration or filing with, any Governmental
Entity is required to be made or obtained by the Investor in
connection with the execution, delivery and performance of this
Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated hereby and thereby.
(b) The execution and delivery of this Agreement does
not, and the execution and delivery of the Registration Rights
Agreement will not, and the performance of the obligations set
forth herein and therein and the consummation of the transactions
contemplated hereby and thereby will not, (i) violate any
provision of the organizational documents of the Investor; (ii)
conflict with, contravene or result in a breach or violation of
any of the terms or provisions of, or constitute a default (with
or without notice or the passage of time) under, or result in or
give rise to a right of termination, cancellation, acceleration
or modification of any right or obligation under, or require any
consent, waiver or approval under, any note, bond, debt
instrument, indenture, mortgage, deed of trust, lease, loan
agreement, joint venture agreement, Regulatory Approval, contract
or any other agreement, instrument or obligation to which such
Investor is a party or by which the Investor or any of its
property is bound, or (iii) violate any Law applicable to the
Investor.
Section 4.04. Financial Advisors and Brokers. Except
for Bear, Stearns & Co. Inc., no Person has acted directly or
indirectly as a broker, finder or financial advisor of the
Investor in connection with the Transaction Agreements or the
transactions contemplated hereby or thereby, and no Person is
entitled to receive any broker's, finder's or similar fee or
commission in respect thereof based in any way on any agreement,
arrangement or understanding made by or on behalf of the Investor
or any of its directors, officers or employees.
Section 4.05. Ownership of Company Equity Securities;
Purpose of Investment. (a) The Investor does not own more than 1%
of the outstanding voting stock of the Company (each of "own" and
"voting stock" as defined for purposes of DGCL Section 203).
(b) Except as permitted pursuant to Section 11.10
hereof, the Investor is acquiring the Securities under this
Agreement for its own account solely for the purpose of
investment and not with a view to, or for sale in connection
with, any distribution thereof in violation of the Securities
Act. The Investor acknowledges that the Securities and the
Warrant Shares have not been registered under the Securities Act
and may be sold or disposed of in the absence of such
registration only pursuant to an exemption from the registration
requirements of the Securities Act.
ARTICLE V
GOVERNANCE
Section 5.01. Board Size. The Board of Directors shall
consist of a minimum of 11 directors and a maximum of 13
directors (before giving effect to the right, if any, of holders
of the Senior Preferred Stock to elect additional directors to
the Board of Directors as provided in the Certificate of
Designations).
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Section 5.02. Board Representation. (a) The Board of
Directors shall elect the CEO to the Board of Directors effective
not later than the Closing Date. The CEO shall be included as a
director in Class III. So long as the CEO serves as chief
executive officer of the Company, at each annual meeting of the
stockholders of the Company at which Class III directors are up
for election, the Board of Directors or the Nominating Committee
thereof shall include the CEO for election to such class of
directors at such annual meeting. If the Board of Directors shall
cease to be a classified board, the Board of Directors or the
Nominating Committee thereof shall include the CEO for election
to the Board of Directors at each annual meeting of stockholders
of the Company for so long as the CEO serves as chief executive
officer of the Company.
(b) The Company shall cause the CEO to be included in
the slate of nominees recommended by the Board of Directors to
the Company's stockholders for election as directors at each
annual meeting of the stockholders of the Company as is required
by Section 5.02(a) hereof, and shall use its best efforts to
cause the election of the CEO, including soliciting proxies in
favor of the election of the CEO.
(c) The Board of Directors shall, subject to Section
5.02(g) hereof, elect four nominees designated in writing by the
Investor prior to the Closing (such persons, or replacements
designated by the Investor, the "Investor Nominees"), to the
Board of Directors effective as of the Closing Date in Class I
and Class II as specified by the Investor. Commencing with the
annual meeting of stockholders of the Company the record date for
which next follows the Closing Date, and at each annual meeting
of stockholders of the Company thereafter, the Investor shall be
entitled to present to the Board of Directors or the Nominating
Committee thereof a number of nominees for election to the class
of directors up for election to the Board of Directors at such
annual meeting equal to the number of Investor Nominees in such
class immediately prior to such election. If the Board of
Directors shall cease to be a classified board, the Investor
shall be entitled to present to the Board of Directors or the
Nominating Committee thereof four nominees for election to the
Board of Directors at each annual meeting of stockholders of the
Company. In the event of the death, disability, resignation or
removal of an Investor Nominee (other than pursuant to Section
5.02(e) hereof), the Investor shall designate a replacement for
such director, which replacement the Company shall cause to be
elected to the Board of Directors, subject to Section 5.02(g)
hereof.
(d) Subject to Section 5.02(g) hereof, the Company
shall cause each Investor Nominee designated for election to the
Board of Directors pursuant to the second sentence of Section
5.02(c) hereof to be included in the slate of nominees
recommended by the Board of Directors to the stockholders of the
Company for election as directors at the relevant annual meeting
of the stockholders, and shall use its reasonable best efforts to
cause the election of each such nominee, including soliciting
proxies in favor of the election of such person.
(e) Notwithstanding the foregoing provisions of this
Section 5.02, the total number of Investor Nominees the Investor
is entitled to designate for election to the Board of Directors
shall be reduced to (i) three, in the event that the Investor and
its Affiliates Beneficially Own, in the aggregate, at least 60%,
but less than 80%, of the Original Number of Warrant
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Shares Beneficially Owned by the Investor and its Affiliates, in
the aggregate, as of the Closing (the "Investor Original Warrant
Shares"), (ii) two, in the event that the Investor and its
Affiliates Beneficially Own, in the aggregate, at least 40%, but
less than 60%, of the Investor Original Warrant Shares, (iii)
one, in the event the Investor and its Affiliates Beneficially
Own, in the aggregate, at least 20%, but less than 40%, of the
Investor Original Warrant Shares, or (iv) zero, in the event the
Investor and its Affiliates Beneficially Own, in the aggregate,
less than 20% of the Investor Original Warrant Shares. In the
event that the number of Investor Nominees the Investor is
entitled to designate for election to the Board of Directors is
reduced pursuant to the preceding sentence, the Investor shall be
entitled to designate which of the Investor Nominees the Investor
shall no longer be entitled to designate for election to the
Board of Directors. In the event that the number of Investor
Nominees the Investor is entitled to designate for election to
the Board of Directors is reduced pursuant to this Section
5.02(e), the relevant Investor Nominees shall resign from the
Board of Directors no later than the thirtieth day after the day
on which the Investor's Beneficial Ownership is reduced below the
applicable threshold ownership level of Investor Original Warrant
Shares specified in this Section 5.02(e). For purposes of any
calculation made pursuant to this Section 5.02(e) regarding the
Beneficial Ownership of Investor Original Warrant Shares by the
Investor or any of its Affiliates as of any time after the
Closing, any Warrant Share transferred to any Person other than
the Investor or its Affiliates shall be deemed not to be
Beneficially Owned by the Investor or any of its Affiliates,
regardless of whether such Warrant Share is subsequently acquired
by the Investor or any of its Affiliates.
(f) Reserved.
(g) If the Board of Directors shall determine in good
faith in the exercise of its fiduciary duties, based on the
advice of outside counsel, that nomination of any person
designated by the Investor for election to the Board of Directors
would not be in the best interests of the Company, then the
Company shall promptly notify the Investor of such determination
(either in person, if such determination shall be made at a Board
of Directors meeting at which an Investor Nominee is present or
by telephone (promptly confirmed in writing), if such
determination shall be made at a Board of Directors meeting at
which an Investor Nominee is not present) and thereafter the
Investor shall have a period of no less than five Business Days
to designate a new person for nomination for election to the
Board of Directors as an Investor Nominee. The Board of Directors
has approved the executives of the Investor set forth on Schedule
5.02(g) hereto as Investor Nominees for all purposes hereof as of
the date hereof.
Section 5.03. Committees. (a) Effective as of the
Closing Date, and for so long as an Investor Nominee serves as a
member of the Board of Directors, each committee of the Board of
Directors shall include at least one Investor Nominee; provided,
however, that in the event the rules of the primary national
securities exchange or national quotation system on which the
Common Stock is then listed or quoted prohibits the appointment
of any particular Investor Nominee to the Company's Audit
Committee such Investor Nominee shall not be appointed to such
committee; and provided, further, that if at any time the Board
of Directors shall have an executive or other committee that
performs functions similar to those customarily performed by an
executive committee of a board of directors, such committee shall
include at least two Investor Nominees so long as (i) the
Investor is entitled to designate four Investor Nominees for
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election to the Board of Directors pursuant to Section 5.02
hereof, and (ii) such committee includes five or more directors.
(b) From and after the Closing Date, all directors of
the Company (including, without limitation, the Investor
Nominees) shall be afforded 10 days' advance notice of the time
and place of, and will be invited to attend, the regular and
special meetings of any committee of the Board of Directors. From
and after the Closing Date and so long as Investor Nominees serve
as members of the Board of Directors, the frequency of meetings,
make-up and subject matter of each committee of the Board of
Directors shall continue substantially as they are currently. So
long as the Investor has the right to have Investor Nominees
elected to committees of the Board of Directors, the Board of
Directors shall have at least the following committees: an Audit
Committee, a Compensation Committee and a Nominating Committee.
Section 5.04. CEO. The Bylaws of the Company shall
provide that the termination of the CEO shall require the
affirmative vote of at least 75% of the directors of the Company.
ARTICLE VI
STANDSTILL
Section 6.01. Standstill Agreement. (a) The Investor
covenants and agrees with the Company that, from the date hereof
through the Closing Date and thereafter (subject to paragraph (d)
below) for a period of three years following the Closing Date
(the "Standstill Period"), the Investor and its Affiliates shall
not, without the prior approval of the Board of Directors:
(i) acquire, seek, propose or offer to acquire or
agree to acquire (other than (w) in accordance with the
terms of this Agreement, the Warrants and the Certificates
of Designations; (x) as a result of a stock split, stock
dividend or other recapitalization by the Company or the
exercise of rights or warrants distributed to stockholders;
(y) as a result of transfers between the Investor and its
Affiliates, provided that the transferor did not itself
acquire the transferred Voting Securities in violation of
clauses (a) or (b) of this Section 6.01; or (z) in a
transaction in which the Investor or one of its Affiliates
acquires Beneficial Ownership of more than 50% of the
Voting Power of the Voting Securities of a previously
non-Affiliated business entity that owns less than 1% of
the Voting Power of the outstanding Voting Securities of
the Company if such acquisition is not made in
contemplation of any acquisition prohibited under this
subparagraph (a)), or commence or propose to commence any
tender offer or exchange offer seeking to acquire,
Beneficial Ownership of any additional Voting Securities of
the Company, or all or any substantial portion of the
assets of the Company and its Subsidiaries;
(ii) become a member of a Group with respect to the
Voting Securities of the Company, other than a Group
composed solely of itself and its Affiliates and, to the
extent of any Securities and Warrant Shares purchased
hereunder as of the Closing, any Designated Purchaser and
Affiliates of any Designated Purchaser, or any combination
thereof;
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(iii) solicit any proxies or stockholder consents, or
become a participant (other than by voting), or encourage
any Person to become a participant, in a proxy or consent
solicitation with respect to any of the Company's Voting
Securities, in each case other than solicitations to
holders of shares of Preferred Stock with respect to
matters as to which the Preferred Stock is entitled to
vote;
(iv) call any special meeting of stockholders; or
(v) make any public disclosure, or take any action
which could require the Company to make any public
disclosure, with respect to an offer, proposal or
transaction that if made or consummated without the prior
approval of the Board of Directors, would not be permitted
under this Section 6.01.
(b) After the expiration of the Standstill Period,
neither the Investor nor any of its Affiliates shall acquire,
offer to acquire or agree to acquire (other than (w) in
accordance with the terms of this Agreement, the Warrants and the
Certificates of Designations; (x) as a result of a stock split,
stock dividend or other recapitalization by the Company or the
exercise of rights or warrants distributed to stockholders; (y)
as a result of transfers between the Investor and its Affiliates,
provided that the transferor did not itself acquire the
transferred Voting Securities in violation of clauses (a) or (b)
of this Section 6.01; or (z) in a transaction in which the
Investor or one of its Affiliates acquires Beneficial Ownership
of more than 50% of the Voting Power of the Voting Securities of
a previously non-Affiliated business entity that owns less than
1% of the Voting Power of the outstanding Voting Securities of
the Company), or commence any tender offer or exchange offer
seeking to acquire, Beneficial Ownership of any additional Voting
Securities of the Company, or acquire, offer to acquire or agree
to acquire all or any substantial portion of the assets of the
Company and its Subsidiaries, unless the Investor or an Affiliate
of the Investor (individually or as a member of a Group) so
acquires or offers to acquire such Voting Securities by means of
a tender offer approved by the Board of Directors for all of the
outstanding shares of Common Stock made on the same terms to each
holder of Common Stock or has theretofore made and consummated
such a tender offer and therein acquired more than 50% of the
Company's outstanding Common Stock.
(c) Notwithstanding the foregoing, the provisions of
clauses (a) and (b) of this Section 6.01 shall cease to be
applicable in the event that (i) the Company enters into a
definitive agreement with respect to a Control Transaction; (ii)
a bona fide offer is made by any Person (other than the Investor,
a Significant Designated Purchaser or an Affiliate of the
Investor or a Significant Designated Purchaser) to acquire more
than 50% of any class of the Company's Voting Securities and such
offer is approved by the Board of Directors; (iii) an Insolvency
Event occurs; or (iv) the Board of Directors (including a
majority of the outside directors other than the Investor
Nominees and any other directors that are employed by or serve as
a director of the Investor, a Significant Designated Purchaser or
any Affiliate of the Investor or a Significant Designated
Purchaser (other than the Company and its Subsidiaries)) so
determines. In the event the Company is soliciting proposals or
offers to acquire with respect to a Control Transaction from any
Person (a "bidding process") (other than the Investor, a
Significant Designated Purchaser or an Affiliate of the Investor
or a Significant Designated Purchaser), the Company
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shall release the Investor from the restrictions contained in
clauses (a) and (b) of this Section 6.01 to the extent necessary
for the Investor to be permitted, on the same terms as bidders
approved by the Company, to make such a proposal or offer;
provided, however, that if the Investor withdraws from the
bidding process or the Company terminates the bidding process,
the Investor shall thereafter continue to be subject to the
restrictions contained in subparagraphs (a) and (b) of this
Section 6.01.
(d) The Company shall not adopt any stockholder rights
plan or similar device which would have an adverse effect on the
Investor and its Affiliates based solely upon the Investor and
its Affiliates holding Securities or Warrant Shares acquired in
the transactions contemplated by this Agreement or additional
Voting Securities acquired in transactions permitted by Section
6.01(a)(i) or Section 6.01(b) hereof other than, in each case,
subclause (z) thereof. The Company may adopt a stockholder rights
plan (with a 15% or greater "flip-in" and "flip-over" trigger) or
similar device (with similar thresholds) consistent with the
conditions set forth in the preceding sentence of this paragraph
(d), notwithstanding any other provision of this Agreement
(including, without limitation, Sections 3.09, 7.02, 8.02, 8.03
and 8.04 hereof). The Investor agrees that it shall not sell, or
permit any of its Affiliates to sell, any Securities or Voting
Securities of the Company in any transaction that to the
Investor's knowledge would result in the trigger of any such
"flip-in" or "flip-over" provision in any such rights plan or
similar device.
ARTICLE VII
PRE-CLOSING COVENANTS
Section 7.01. Taking of Necessary Action. Each of the
parties hereto agrees to use its reasonable best efforts promptly
to take or cause to be taken all actions and promptly to do or
cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. Without limiting
the foregoing, the Investor and the Company will use their
reasonable best efforts to make all filings, including filings
under the HSR Act, and obtain all Required Regulatory Approvals
and other Regulatory Approvals necessary or, in the opinion of
the Investors or the Company, advisable in order to permit the
consummation of the transactions contemplated hereby.
Section 7.02. Conduct of Business. From the date
hereof until the Closing, the Company shall conduct its business
and shall cause its Subsidiaries to conduct their respective
businesses in, and only in, the ordinary course and shall use,
and shall cause its Subsidiaries to use, their best efforts to
preserve intact their respective present business organizations,
operations, goodwill and relationships with third parties
(including, without limitation, clients and healthcare providers)
and to keep available the services of the present directors,
officers and key employees. Without limiting the generality of
the foregoing, except as required pursuant to outstanding
agreements or obligations of the Company or any of its
Subsidiaries that have been disclosed to the Investor and set
forth in the Schedules hereto or the SEC Reports, from the date
hereof until the Closing, without the prior written consent of
the Investor (except as expressly permitted or required by this
Agreement):
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(i) the Company shall not, and shall cause each of its
Subsidiaries not to, sell any of the assets (other than
investment securities or any equity, partnership or other
interests in any Person sold by a Subsidiary of the Company
in the ordinary course of business, provided that the
Company and its Subsidiaries Beneficially Own, in the
aggregate, less than 5% of the Voting Power of the Voting
Securities of such Person) of the Company or its
Subsidiaries (or the securities of entities holding the
same) to any Person, other than the Company or a
Wholly-Owned Subsidiary of the Company, in one transaction
or a series of related transactions, in which the fair
value of the assets being sold, or the total consideration
(in the form of cash or property) to be received by the
Company and its Subsidiaries, exceeds $5,000,000;
(ii) the Company shall not, and shall cause each of
its Subsidiaries not to, acquire any assets (other than
investment securities acquired by a Subsidiary of the
Company in the ordinary course of business, provided that
the Company and its Subsidiaries Beneficially Own (and,
after giving effect to such transaction, would Beneficially
Own), in the aggregate, less than 5% of the Voting Power of
the Voting Securities of such Person) of any other Person
or acquire any equity, partnership or other interests in
any other Person (other than the Company or a Wholly-Owned
Subsidiary of the Company), in one transaction or series of
related transactions, in which the total consideration (in
the form of cash or property) to be paid by the Company and
its Subsidiaries exceeds $5,000,000;
(iii) the Company shall not, and shall cause each of
its Subsidiaries not to, take any of the actions or enter
into any of the agreements, commitments or transactions
described in clauses (i), (ii), (iii), (xi), (xii) or
(xiii) of Section 3.09 hereof;
(iv) the Company shall not, and shall cause each of
its Subsidiaries not to, take any action that it knows or
has reason to believe would cause a representation or
warranty of the Company set forth herein to be untrue if
made at such time, or a covenant of the Company set forth
in Article VIII to fail to be satisfied (as if such
covenant applied at such time); and
(v) the Company shall not, and shall cause each of its
Subsidiaries not to, commit or agree to do any of the
foregoing.
Section 7.03. Notifications. At all times prior to the
Closing Date, the Investor shall promptly notify the Company and
the Company shall promptly notify the Investor in writing of any
fact, change, condition, circumstance or occurrence or
nonoccurrence of any event which will or is reasonably likely to
result in the failure to satisfy the conditions to be complied
with or satisfied by it hereunder, provided, however, that the
delivery of any notice pursuant to this Section 7.03 shall not
limit or otherwise affect the remedies available hereunder to any
party receiving such notice.
Section 7.04. Alternative Transactions. (a) From the
date hereof until the earlier of the Closing and the termination
of this Agreement (the "Exclusivity Period"), the Company shall
not, shall not permit any of its Subsidiaries or Affiliates to,
and shall not authorize or permit
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any of their Representatives to, directly or indirectly, (i)
solicit or initiate, or encourage the submission of, any
Proposal, (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be
expected to lead to, any Proposal or Alternative Transaction,
other than a transaction with the Investor, or (iii) authorize,
engage in, or enter into any agreement or understanding with
respect to, any Alternative Transaction; provided, however, to
the extent required by the fiduciary obligations of the Board of
Directors, as determined in good faith by the Board of Directors
based on the advice of outside counsel, the Company may
participate in such discussions or negotiations or furnish such
information in response to an unsolicited Proposal with respect
to, or authorize, engage in or enter into any agreement or
understanding with respect to, a Control Transaction; and
provided, further, that the Company, its Subsidiaries and
Affiliates and their Representatives may respond to any party
that initiates discussions regarding a potential Alternative
Transaction, to notify such party that it is engaged in the
transactions contemplated by this Agreement and will not engage
in any further communications while pursuing such transactions.
(b) The Company will promptly advise the Investor of,
and inform the Investor of the terms of, any Proposal that the
Company, any of its Subsidiaries or Affiliates or any of their
Representatives may receive during the Exclusivity Period.
Section 7.05. Financing. The Company agrees to
provide, will cause its Subsidiaries to provide, and will use its
reasonable best efforts to cause its and their respective
Representatives to provide, all reasonable cooperation in
connection with any financing to be consummated contemporaneously
with or at or after the Closing in respect of the transactions
contemplated by this Agreement, including without limitation, (x)
participation in meetings, due diligence sessions and road shows,
(y) the preparation of offering memoranda, private placement
memoranda, prospectuses and similar documents, and (z) the
execution and delivery of any commitment letters, underwriting or
placement agreements, pledge and security documents, other
definitive financing documents, or other requested certificates
or documents, including a certificate of the chief financial
officer of the Company with respect to solvency matters, comfort
letters of accountants and legal opinions as may be requested by
the Investor; provided, that the form and substance of any of the
material documents referred to in clause (y), and the terms and
conditions of any of the material agreements and other documents
referred to in clause (z), shall be substantially consistent with
the terms and conditions of the financing required to satisfy the
condition precedent set forth in 9.01(e) and, provided, further,
that the terms and conditions of such financing may not require
the payment of any commitment or other similar fee by the
Company, or the incurrence of any liabilities by the Company,
prior to the Closing without the Company's prior consent (which
consent will not be unreasonably withheld). The parties
acknowledge that the payment of any fees by the Company in
connection with any commitment letters, including the commitment
letter relating to the Senior Financing Arrangements, shall be
subject to the occurrence of the Closing. In addition, in
conjunction with the obtaining of any such financing, the Company
agrees, at the request of the Investor, to call for prepayment or
redemption, or to prepay, redeem and/or renegotiate, as the case
may be, any then existing Indebtedness of the Company; provided
that no such prepayment or redemption or call for
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prepayment or redemption, shall themselves actually be made until
contemporaneously with or after the Closing.
Section 7.06. Delivery of 1997 Statements. The Company
shall deliver the 1997 Statements to the Investor as promptly as
practicable and in any event before the day which is five
Business Days prior to the Closing Date.
Section 7.07. Debenture Indentures. Prior to the
Closing, the Company and the Investor shall jointly prepare an
indenture or indentures, having terms comparable to the terms of
the Series A Preferred Stock and the Series B Preferred Stock
(including, without limitation, interest rates that are the same
as the respective dividend rates on the Series A Preferred Stock
and Series B Preferred Stock) and otherwise mutually acceptable
in form and substance, with respect to each of the Series A
Debentures and Series B Debentures.
ARTICLE VIII
ADDITIONAL COVENANTS
Section 8.01. Financial and Other Information. (a)
From and after the date hereof until the earlier of the Closing
and the termination of this Agreement, and thereafter for so long
as the Investor and its Affiliates Beneficially Own, in the
aggregate, at least 25% of the Original Number of Warrant Shares,
the Company shall (and shall cause each of its Subsidiaries to)
afford to and permit the Investor and its Representatives, upon
reasonable notice and in such manner as will not unreasonably
interfere with the conduct of the Company's (or such
Subsidiary's) business or jeopardize the ability of the Company
to assert successfully attorney-client privilege, reasonable
access to their respective properties, books, contracts,
commitments and records (including information regarding any
pending or threatened Proceeding to which the Company or any of
its Subsidiaries is, or reasonably expects to be, a party) and to
discuss the business, affairs, finances, regulatory status and
other matters related to the purchase and Beneficial Ownership of
the Securities and Warrant Shares with Representatives of the
Company.
(b) The Investor shall not use information provided
pursuant to Section 8.01(a) hereof except in connection with its
continuing evaluation of its investment in the Company and,
subject to applicable Law, will hold such information in
confidence until such time as such information otherwise becomes
publicly available; provided, however, that the Investor may
share any such information with a Designated Purchaser or
prospective Designated Purchaser prior to the Closing (but not
thereafter), if such Designated Purchaser or prospective
Designated Purchaser, as the case may be, executes and delivers
to the Company, in form and substance reasonably satisfactory to
the Company, a written confidentiality agreement including
customary standstill provisions.
Section 8.02. Limitation on Dividend Payments and
Stock Repurchases. From and after the Closing, so long as the
Investor Group Beneficially Owns, in the aggregate, at least 35%
of the Original Number of Warrant Shares and the Investor and its
Affiliates Beneficially Own, in the aggregate, at least 20% of
the Original Number of Warrant Shares, the Company shall not (i)
declare or pay any dividend on, or make any other distribution
with respect to, any
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shares of Limited Stock (other than the Junior Preferred Stock),
or (ii) purchase, redeem or otherwise acquire, and shall cause
its Subsidiaries not to purchase, redeem or otherwise acquire,
any shares of Limited Stock (other than such purchases,
redemptions or acquisitions of Limited Stock from officers and
employees of the Company and its Subsidiaries; provided (i) that
such purchases, redemptions or acquisitions do not have purchase
prices which exceed $10,000,000 in the aggregate and (ii) such
purchases, redemptions or acquisitions are required by Law, the
provisions of the Option Plans or the provisions of Employment
Agreements in effect on the date hereof or entered into in
accordance with this Agreement or are in connection with the
repayment of promissory notes issued by employees in connection
with the purchase of Limited Stock from the Company, in
accordance with the past practice of the Company).
Section 8.03. Organizational Documents. From and after
the Closing, so long as the Investor Group Beneficially Owns, in
the aggregate, at least 35% of the Original Number of Warrant
Shares and the Investor and its Affiliates Beneficially Own, in
the aggregate, at least 20% of the Original Number of Warrant
Shares, the Company shall not effect any change or amendment to
the Certificate of Incorporation or Bylaws that is in any manner
adverse to the rights of the Investor Group (other than in
connection with a stockholders rights plan or similar device
permitted by Section 6.01(d) hereof).
Section 8.04. Limitation on Issuances of Equity
Securities. From and after the Closing, so long as the Investor
Group Beneficially Owns, in the aggregate, at least 35% of the
Original Number of Warrant Shares and the Investor and its
Affiliates Beneficially Own, in the aggregate, at least 20% of
the Original Number of Warrant Shares, the Company shall not, and
shall cause its Subsidiaries not to, issue any Equity Securities
or any Derivative Securities other than to the Company or a
Wholly-Owned Subsidiary of the Company; provided, however, that
the Company may issue capital stock (i) pursuant to options
outstanding under the Option Plans, (ii) pursuant to the
agreements and instruments listed on Schedule 8.04 hereto, and
(iii) in Qualified Offerings.
Section 8.05. Mergers, Consolidation, etc. From and
after the Closing, so long as the Investor Group Beneficially
Owns, in the aggregate, at least 35% of the Original Number of
Warrant Shares and the Investor and its Affiliates Beneficially
Own, in the aggregate, at least 20% of the Original Number of
Warrant Shares, the Company shall not authorize, engage in or
enter into any agreement or understanding with respect to, a
Control Transaction (other than the authorization, engaging in or
entering into of an agreement or understanding with respect to a
Control Transaction which agreement or understanding the Board of
Directors determines in good faith based on the written advice of
outside counsel is required to be authorized, engaged in or
entered into in order to comply with its fiduciary duties).
Section 8.06. Publicity. Except as required by Law or
by obligations pursuant to any listing agreement with or
requirement of any national securities exchange or national
quotation system on which the Common Stock is listed, admitted to
trading or quoted, neither the Company (or any of its Affiliates)
nor the Investor (nor any of its Affiliates) shall, without the
prior written consent of each other party hereto, which consent
shall not be unreasonably withheld or delayed, make any public
announcement or issue any press release with respect to
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the transactions contemplated by this Agreement. Prior to making
any public disclosure required by applicable Law or pursuant to
any listing agreement with or requirement of any relevant
national exchange or national quotation system, the disclosing
party shall consult with the other parties hereto, to the extent
feasible, as to the content and timing of such public
announcement or press release.
Section 8.07. Status of Dividends. The Company agrees
to treat the Series A Preferred Stock and Series B Preferred
Stock as equity for all Tax purposes unless the Company
determines that there is no reasonable basis for such position.
The Company shall take no action that would jeopardize the
availability of the dividends received deduction under Section
243(a)(1) of the Code for the distributions on the Series A
Preferred Stock and Series B Preferred Stock that are paid out of
current or accumulated earnings and profits, if any.
Section 8.08. Director and Officer Indemnification.
(a) So long as the CEO or any Investor Nominee serves as a member
of the Board of Directors or as an officer of the Company, the
Company shall provide to each such individual indemnification and
directors' and officers' insurance having terms and provisions no
less favorable to such individuals than the indemnification and
directors' and officers' insurance provided to other directors
and officers of the Company (including, without limitation,
coverage for matters based in whole or in part on, or arising in
whole or in part out of, any matter existing or occurring while
such Investor Nominee was a director, even though such Investor
Nominee may no longer be a director at the time any claim for
indemnification or coverage under insurance is made).
(b) So long as the CEO or any Investor Nominee serves
as a member of the Board of Directors or as an officer of the
Company, the Company shall not amend the Certificate of
Incorporation or Bylaws so as to adversely affect the rights of
any such person with respect to indemnification by the Company
for any Losses incurred by such person in such person's capacity
as an officer or director of the Company.
(c) So long as the CEO or any Investor Nominee serves
as a member of the Board of Directors or as an officer of the
Company, the Company shall maintain in full force and effect, to
the extent available, directors' and officers' liability
insurance with respect to such person, which insurance shall be
in an amount, and shall cover such risks, as is customary for a
corporation in the same business as, or in a similar business to,
that engaged in by the Company.
Section 8.09. Listing; Reservation. (a) So long as
there are Warrants or Warrant Shares outstanding, the Company
shall use its reasonable best efforts to ensure that the Common
Stock continues to be quoted on Nasdaq.
(b) From and after the Closing, the Company shall at
all times reserve and keep available, out of its authorized and
unissued Common Stock, solely for the purpose of issuing Common
Stock upon the exercise of Warrants, such number of shares of
Common Stock free of preemptive rights as shall be sufficient to
issue Common Stock upon the exercise of all outstanding Warrants.
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Section 8.10. Legend. The Investor agrees to the
placement on (i) certificates representing Securities purchased
by the Investor pursuant to the terms hereof, (ii) Certificates
representing Warrant Shares upon issuance pursuant to exercise of
the Warrants, and (iii) any certificate issued at any time in
exchange or substitution for any certificate bearing such legend,
of a legend (the "Private Placement Legend") substantially as set
forth below:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS."
(b) The Private Placement Legend shall be removed from
a certificate representing Securities or Warrant Shares if such
securities represented thereby are sold pursuant to an effective
registration statement under the Securities Act or there is
delivered to the Company such satisfactory evidence, which may
include an opinion of independent counsel, as reasonably may be
requested by the Company, to confirm that neither such legend nor
the restrictions on transfer set forth therein are required to
ensure that transfers of such shares will not violate the
registration and prospectus delivery requirements of the
Securities Act.
Section 8.11. Limitation on Restrictions on Payment of
Dividends. Other than pursuant to this Agreement, the Bridge
Agreement, the Senior Financing Agreements, agreements with
Governmental Entities existing on the date hereof and set forth
on Schedule 8.11 hereto or applicable Law, the Company shall not,
and shall not permit any of its Subsidiaries to, directly or
indirectly, create, cause or suffer to exist or become effective
any contractual or other restrictions or limitations on the
ability of the Company or any of its Subsidiaries to pay any
dividends or make any other distributions on, or to purchase,
redeem or otherwise acquire, any of its Equity Securities.
Section 8.12. Management Arrangements. (a) The Company
will use its reasonable best efforts to maintain Plans and other
benefit and incentive arrangements for its senior management with
terms at least as favorable to senior management as those set
forth on Exhibit J hereto.
(b) From and after the Closing and for so long as the
Investor and its Affiliates Beneficially Own, in the aggregate,
at least 25% of the Investor Original Warrant Shares, the Company
will not permit the CEO to sell or otherwise transfer or reduce
his risk with respect to shares of Common Stock or options to
purchase Common Stock, except as expressly permitted by the
provisions of the CEO Agreement, and the Company will take all
required action to enforce such provisions and will not waive,
amend or otherwise modify any such provisions.
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Section 8.13. Stockholders' Meeting. (a) The Company
will take, in accordance with applicable law, the Certificate of
Incorporation and Bylaws, all action necessary to present the
Shareholder Approval Proposal (as defined below) for a vote at
the Company's 1998 annual meeting of stockholders, which meeting
shall be no later than May 31, 1998 (the "Stockholders'
Meeting").
(b) The Company's proxy statement for the 1998 annual
meeting (as amended or supplemented, the "Proxy Statement") shall
include a proposal to consider and vote on the Shareholder
Approval (the "Shareholder Approval Proposal"). The Proxy
Statement shall contain the recommendation of the Board of
Directors of the Company that the stockholders approve the
Shareholder Approval Proposal. The Company shall notify the
Investor promptly of the receipt by it of any comments from the
Commission or its staff and of any request by the Commission for
amendments or supplements to the Proxy Statement or for
additional information and will supply the Investor with copies
of all correspondence between the Company and its
representatives, on the one hand, and the Commission or the
members of its staff or of any other governmental officials, on
the other hand, with respect to the Proxy Statement. Insofar as
it relates to the Shareholder Approval Proposal, the Company
shall give the Investor and its counsel the reasonable
opportunity to review and comment on the Proxy Statement prior to
its being filed with the Commission and shall give the Investor
and its counsel the reasonable opportunity to review and comment
on all amendments and supplements to the Proxy Statement and all
responses to requests for additional information and replies to
comments prior to their being filed with, or sent to, the
Commission. The Company shall give reasonable consideration to
any comments the Investor or its counsel may provide with respect
to the Proxy Statement or any amendment or supplement thereto
insofar as it relates to the Shareholder Approval Proposal.
(c) In the event the Shareholder Approval Proposal is
not duly approved by the stockholders at the Stockholders'
Meeting, the Company shall take all reasonable action necessary,
in accordance with applicable law, the Certificate of
Incorporation and Bylaws to present and the Board of Directors
shall recommend the adoption of the Shareholder Approval Proposal
at each meeting of its stockholders held thereafter until the
Shareholder Approval Proposal is duly adopted by the stockholders
for so long as the Shareholder Approval is required under the
NASD Rules for the exercise of any Series B Warrant for Common
Stock.
(d) Other than with respect to any information with
respect to any member of the Investor Group supplied to the
Company by such member of the Investor Group in writing
specifically for inclusion in the Proxy Statement as to which
information the Company makes no representation or warranty, the
Company hereby represents and warrants that the Proxy Statement,
as of the date thereof and as of the date of the Stockholders'
Meeting, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they will be made, not misleading.
(e) The Investor hereby represents and warrants that
the Proxy Statement, as of the date thereof and as of the date of
the Stockholders' Meeting, will not include an untrue statement
of a material fact or omit to state a material fact required to
be stated therein or
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necessary to make the statements therein, in light of the
circumstances under which they will be made, not misleading, to
the extent, and only to the extent that such statement or
omission was made in reliance upon and in conformity with written
information with respect to the Investor and its Affiliates
supplied to the Company by the Investor specifically for
inclusion in the Proxy Statement.
Section 8.14. Calculations. For the purposes of any
calculation made pursuant to Section 8.01, 8.02, 8.03, 8.04, 8.05
or 11.12 hereof regarding the Beneficial Ownership of the
Original Number of Warrant Shares by a member of the Investor
Group as of any time after the Closing, any Warrant Share
transferred to any Person other than a member of the Investor
Group shall be deemed not to be Beneficially Owned by the
Investor Group or any member thereof, regardless of whether such
Warrant Share is subsequently acquired by a member of the
Investor Group.
ARTICLE IX
CONDITIONS
Section 9.01. Conditions to Investor's Obligations.
The obligation of the Investor to purchase and pay for the
Securities to be sold to the Investor pursuant to Section 2.01
hereof at the Closing is subject to satisfaction or waiver of
each of the following conditions precedent:
(a) Representations and Warranties; Covenants. The
representations and warranties of the Company set forth in
Article III hereof shall have been true and correct on and
as of the date hereof and shall be true and correct as of
the Closing as if made on the Closing Date (except where
such representation and warranty speaks by its terms as of
a different date, in which case it shall be true and
correct as of such date), except for such failures to be
true and correct (without giving effect to any limitation
as to materiality or Material Adverse Effect set forth
therein) which, individually and in the aggregate, would
not have a Material Adverse Effect and except for such
failures to be true and correct that result from actions
expressly permitted under or pursuant to this Agreement.
The Company shall have performed in all material respects
all obligations and complied with all agreements,
undertakings and covenants required hereunder to be
performed by it at or prior to the Closing. The Company
shall have delivered to the Investor at the Closing a
certificate in form and substance satisfactory to the
Investor dated the Closing Date and signed by the chief
executive officer and the chief financial officer of the
Company to the effect that the conditions set forth in this
Section 9.01(a) have been satisfied.
(b) Opinions of Counsel. The Investor shall have
received at the Closing from Sullivan & Cromwell, special
counsel to the Company, and Jeffery H. Boyd, the General
Counsel of the Company, written opinions dated the Closing
Date, substantially as set forth in Exhibits F and G
hereto, respectively.
(c) CEO and Related Matters. (i) The CEO shall have
been duly and validly appointed Chief Executive Officer of
the Company by all necessary action of the Board
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of Directors, and the Company and CEO shall have entered
into an employment agreement (the "CEO Agreement")
substantially in the form of Exhibit H hereto or otherwise
on terms reasonably acceptable to the Investor and the
Company. (ii) The Company shall have adopted Plans and
other benefit and incentive arrangements for senior
management, subject, in the case of Plans for the issuance
of options to purchase Common Stock, to any required
approval of the stockholders of the Company, on
substantially the terms set forth in Exhibit J hereto or
otherwise on terms reasonably acceptable to the Investor.
(iii) The CEO shall have purchased Common Stock for a
subscription price of $10 million as contemplated by the
CEO Agreement.
(d) Reserve Reports. The Investor shall have received
true, correct and complete copies of the Company's final
1997 reserve reports (including any revisions) prepared and
certified by TPF&C, which reports shall not differ in any
material respect from the Draft Reserve Report provided to
the Investor on or about February 20, 1998. The data on
which such reserve reports were based shall have been
accurate and complete with such exceptions as would not,
individually or in the aggregate, have a Material Adverse
Effect.
(e) Senior Financing. The Company shall have received
senior debt financing, or shall have the right to borrow
under a senior credit facility or similar financing
arrangement ("Senior Financing Arrangements") then in full
force in effect, in each case on terms and conditions
reasonably acceptable to the Investor and in an aggregate
amount of not less than $350,000,000; provided that
following the delivery of the Commitment Letter the terms
and conditions of the Senior Financing Arrangements shall
be deemed reasonably acceptable to the Investor if such
terms are no less favorable to the Company than the terms
set forth in the Commitment Letter.
(f) Amendment of Bylaws. The Bylaws shall have been
duly and validly amended by all necessary action of the
Board of Directors in order to permit the Company to comply
with its obligations under the Transaction Documents.
(g) Establishment of Preferred Shares and of Warrants.
The Company shall have amended the Certificate of
Incorporation by filing with the Secretary of State of the
State of Delaware the Certificates of Designations in the
form of Exhibits A, C and E hereto containing the
resolutions of the Board of Directors of the Company
creating the Preferred Stock and setting forth the terms
and conditions of the Preferred Stock and the Debentures. A
copy of the Certificate of Incorporation (including the
Certificates of Designations), certified by the State of
Delaware, shall have been delivered to the Investor.
(h) Compliance with Laws; No Adverse Action or
Decision. Since the date hereof, (i) no Law shall have been
promulgated, enacted or entered that restrains, enjoins,
prevents, materially delays, prohibits or otherwise makes
illegal the performance of any of the Transaction
Agreements or the consummation of the transactions
contemplated hereby or thereby; (ii) no preliminary or
permanent injunction or other order by any
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<PAGE> 47
Governmental Entity that restrains, enjoins, prevents,
delays, prohibits or otherwise makes illegal the
performance of any of the Transaction Agreements or the
consummation of the transactions contemplated hereby or
thereby shall have been issued and remain in effect, and
(iii) no Governmental Entity shall have instituted any
Proceeding that seeks to restrain, enjoin, prevent, delay,
prohibit or otherwise make illegal the performance of any
of the Transaction Agreements or the consummation of the
transactions contemplated hereby or thereby.
(i) Consents. All Required Regulatory Approvals set
forth on Schedule 1.01 hereto shall have been obtained or
made on terms reasonably satisfactory to the Investor, and
all waiting periods specified under applicable Law
(including, without limitation, the waiting period under
the HSR Act), the expiration of which is necessary for such
consummation, shall have expired or been terminated.
(j) Documents. The Investor shall have received all
such counterpart originals or certified or other copies of
the Transaction Agreements and such other documents as it
may reasonably request.
(k) Board Representation. (i) As contemplated by
Section 5.02 hereof, four Investor Nominees designated by
the Investor shall have been elected to the Board of
Directors effective as of the Closing; provided that the
condition set forth in this clause (i) shall be deemed
satisfied if less than four Investor Nominees designated by
the Investor are elected to the Board of Directors, if any
person so designated by the Investor is not elected to the
Board of Directors by reason of Section 5.02(g) hereof and
an acceptable replacement Investor Nominee is not
designated by the Investor within the time period specified
in Section 5.02(g) hereof. (ii) Directors' and officers'
liability insurance shall be available on customary terms
to the Investor Nominees in an amount of coverage at least
equal to $50 million.
(l) No Material Adverse Effect; No Control
Transaction. Since the date of this Agreement, no event
shall have occurred which has had, or is reasonably likely
to have, a Material Adverse Effect, and no Control
Transaction shall have been consummated or agreement,
understanding, or arrangement with respect thereto entered
into.
(m) Financial Statements. The 1997 Statements
(including the notes thereto) shall not reflect an adverse
difference from the Draft 1997 Statements in any material
respect with respect to the consolidated financial position
of the Company and its Subsidiaries as of the date thereof
or the consolidated results of operations or consolidated
retained earnings of the Company and its Subsidiaries for
the periods or as of the dates, as the case may be, set
forth therein (other than with respect to the lack of
footnote disclosure in the Draft 1997 Statements to the
extent the disclosure contained in the footnotes to the
1997 Statements is consistent with the information
contained in the Company Disclosure Documents).
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<PAGE> 48
Section 9.02. Conditions of the Company's Obligations.
The obligation of the Company to issue and sell the Securities to
the Investor at the Closing is subject to satisfaction or waiver
of each of the following conditions precedent:
(a) Representations and Warranties; Covenants. The
representations and warranties of the Investor set forth in
Article IV hereof shall have been true and correct in all
material respects on and as of the date hereof and shall be
true and correct as of the Closing as if made on the
Closing Date (except where such representation and warranty
speaks by its terms as of a different date, in which case
it shall be true and correct as of such date), except for
such failures to be true and correct (without giving effect
to any limitations as to materiality or material adverse
effect set forth therein) which, individually and in the
aggregate, would not have a material adverse effect on the
ability of the Investor to consummate the transactions
contemplated hereby and except for such failures to be true
and correct that result from actions expressly permitted
under or pursuant to this Agreement. The Investor shall
have performed in all material respects all obligations and
complied with all agreements, undertakings and covenants
required by it to be performed at or prior to the Closing,
and the Investor shall have delivered to the Company at the
Closing a certificate in form and substance satisfactory to
the Company dated the Closing Date and signed on behalf of
a member of the Investor to the effect that the conditions
set forth in this Section 9.02(a) have been satisfied.
(b) Opinion of Counsel. The Company shall have
received at the Closing from Cleary, Gottlieb, Steen &
Hamilton, counsel to TPG, a written opinion dated the
Closing Date to the effect set forth in Exhibit K hereto.
(c) Compliance with Laws; No Adverse Action or
Decision. Since the date hereof, (i) no Law shall have been
promulgated, enacted or entered that restrains, enjoins,
prevents, materially delays, prohibits or otherwise makes
illegal the performance of any of the Transaction
Agreements or the consummation of the transactions
contemplated hereby or thereby; (ii) no preliminary or
permanent injunction or other order by any Governmental
Entity that restrains, enjoins, prevents, delays, prohibits
or otherwise makes illegal the performance of any of the
Transaction Agreements or the consummation of the
transactions contemplated hereby or thereby shall have been
issued and remain in effect; and (iii) no Governmental
Entity shall have instituted any action, claim, suit,
investigation or other proceeding that seeks to restrain,
enjoin, prevent, delay, prohibit or otherwise make illegal
the performance of any of the Transaction Agreements or the
consummation of the transactions contemplated hereby or
thereby.
(d) Consents. All Regulatory Approvals (including,
without limitation, the Required Regulatory Approvals) from
any Governmental Entity and all consents, waivers or
approvals from any other Person required for or in
connection with the execution and delivery of the
Transaction Agreements and the consummation at the Closing
by the parties hereto and thereto of the transactions
contemplated hereby and thereby shall have been obtained or
made on terms reasonably satisfactory to the Company, and
all waiting periods specified under applicable Law
(including, without limitation, the waiting period
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<PAGE> 49
under the HSR Act), the expiration of which is necessary
for such consummation, shall have expired or been
terminated.
(e) Documents. The Company shall have received all
such counterpart originals or certified or other copies of
the Transaction Agreements and such other documents as it
may reasonably request.
(f) Registration Rights Agreement. The Company shall
have received a fully executed counterpart of the
Registration Rights Agreement from the Investor and the
Registration Rights Agreement shall be in full force and
effect.
ARTICLE X
TERMINATION
Section 10.01. Termination of Agreement. (a) Subject
to Section 10.02 hereof, this Agreement may be terminated by
notice in writing at any time prior to the Closing by the
Investor or the Company if:
(i) the Closing shall not have occurred on or before
August 31, 1998; provided, however, that the right to
terminate this Agreement under this Section 10.01(a)(i)
shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to
occur on or before such date;
(ii) any Governmental Entity of competent jurisdiction
shall have issued any judgment, injunction, order, ruling
or decree or taken any other action restraining, enjoining
or otherwise prohibiting the consummation of the
transactions contemplated by the Transaction Agreements and
such judgment, injunction, order, ruling, decree or other
action becomes final and nonappealable; provided, that the
party seeking to terminate this Agreement pursuant to this
clause (ii) shall have used its best efforts to have such
judgment, injunction, order, ruling or decree lifted,
vacated or denied; or
(iii) the Company and the Investor so mutually agree
in writing.
(b) Subject to Section 10.02 hereof, this Agreement
may be terminated by the Company after March 5, 1998 if prior to
such termination the Investor shall not have delivered to the
Company a commitment letter with respect to the Senior Financing
Arrangements satisfactory to the Investor (a "Commitment
Letter"); provided that the right to terminate under this Section
10.01(b) shall not be available to the Company if the failure to
deliver a Commitment Letter has been due in any material respect
to the failure by the Company to cooperate in connection
therewith; and provided, further, that the Company shall be under
no obligation to consummate the financing contemplated by the
Commitment Letter.
Section 10.02. Effect of Termination. (a) If this
Agreement is terminated in accordance with Section 10.01 hereof
and the transactions contemplated hereby are not consummated,
this Agreement shall become null and void and of no further force
and effect
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<PAGE> 50
except that (i) the terms and provisions of this Section 10.02
and Sections 8.01(b) and 8.06 and Article XI hereof shall remain
in full force and effect and (ii) any termination of this
Agreement shall not relieve any party hereto from any liability
for any breach of its obligations hereunder.
(b) Within one business day of the later to occur of
(i) termination of the Investment Agreement and (ii) the earlier
of (A) the entering into of a written agreement, letter of
intent, agreement in principle, memorandum of understanding or
similar writing with respect to a Control Transaction and (B) the
consummation of a Control Transaction, the Company shall pay the
Investor (or its assignees) the Alternative Transaction Fee;
provided, that an Alternative Transaction Fee shall be payable
only in the event (i) a bona fide Control Transaction (whether or
not the same Control Transaction as is ultimately consummated or
as to which a written agreement, letter of intent, agreement in
principle, memorandum of understanding or similar writing is
ultimately entered into) is proposed to, or an inquiry or contact
with respect thereto is made to, the Company or its Designated
Representatives prior to the Cut-Off Date (as defined below) or a
Proposal with respect to a bona fide Control Transaction is
publicly announced by the Person contemplating such transaction
or an agent of such Person prior to the Cut-Off Date, and (ii) an
agreement with respect to a Control Transaction is entered into
or a Control Transaction is consummated within one year after the
Cut-Off Date. The term "Cut-Off Date" shall mean the earlier of
(i) August 31, 1998 and (y) the termination of this Agreement.
The term "Designated Representatives" means (i) any officers,
directors or employees of the Company or its Subsidiaries (the
"Affiliated Representatives") or (ii) any other Representative of
the Company to the extent that such Representative conveys the
relevant information to the Company or an Affiliated
Representative.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Fees and Expenses. (a) The Company
shall be responsible for the payment of all expenses incurred by
the Company in connection with the Transaction Agreements and the
transactions contemplated thereby, regardless of whether such
transactions are consummated, including, without limitation, all
fees and expenses of the Company's legal counsel and all
third-party consultants engaged by the Company to assist in such
transactions. The Company also agrees to reimburse the Investor
for all out-of-pocket expenses reasonably incurred by the
Investor in connection with the Transaction Agreements and the
transactions contemplated thereby, including, without limitation,
all fees and expenses of the Investor's legal counsel, financial
advisors, accountants, actuaries, and all third-party consultants
engaged by the Investor to assist in such transactions and all
fees and expenses, including fees and expenses of legal counsel,
incurred in connection with enforcing the provisions of, and
collecting amounts payable pursuant to, Section 10.02(b) hereof.
Such reimbursements shall be due to the Investor at the Closing,
or promptly following any earlier termination of this Agreement
for any reason or, in the case of fees and expenses incurred
thereafter, promptly upon demand therefor. Notwithstanding the
foregoing or any other provision of this Agreement, the Company
shall have no obligation under any circumstances whatsoever to
reimburse the Investor for any fees or expenses paid or payable
to Bear, Stearns & Co., Inc. for its services in connection with
the
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<PAGE> 51
Transaction Agreements and the transactions contemplated thereby
or for any expenses of the Designated Purchasers.
(b) All amounts payable under this Agreement shall be
paid in immediately available funds to an account or accounts
designated by the recipient of such amounts.
Section 11.02. Reserved.
Section 11.03. Survival of Representations and
Warranties. Notwithstanding any investigation conducted or notice
or knowledge obtained by or on behalf of any party hereto, each
representation or warranty in this Agreement or in the Schedules
hereto or certificates delivered pursuant to this Agreement shall
survive the Closing for a period of two years. Any claim for
indemnification under this Article XI arising out of the
inaccuracy or breach of any representation or warranty must be
made prior to the termination of such period.
Section 11.04. Specific Performance. The parties
hereto specifically acknowledge that monetary damages are not an
adequate remedy for violations of this Agreement, and that any
party hereto may, in its sole discretion, apply to a court of
competent jurisdiction for specific performance or injunctive or
such other relief as such court may deem just and proper in order
to enforce this Agreement or prevent any violation hereof and, to
the extent permitted by applicable law and to the extent the
party seeking such relief would be entitled on the merits to
obtain such relief, each party waives any objection to the
imposition of such relief.
Section 11.05. Indemnification. (a) Subject to the
last sentence of Section 11.01(a) hereof, the Company agrees to
indemnify and hold harmless (i) the Investor, each Designated
Purchaser, each member thereof, each limited or general partner
of each such member, each limited or general partner of each such
limited or general partner, each of their Affiliates and each of
their Representatives (collectively, the "Indemnified Parties")
from and against any and all losses, penalties, judgments, suits,
costs, claims, liabilities, damages and expenses (including,
without limitation, reasonable attorneys' fees and disbursements
but excluding Taxes imposed as a result of being a direct or
indirect owner of the Securities or realizing income or gain with
respect thereto) (collectively, "Losses"), incurred by, imposed
upon or asserted against any of the Indemnified Parties as a
result of, relating to or arising out of, the breach of any
representation, warranty, agreement or covenant made by the
Company in any Transaction Agreement or in any certificate
delivered by the Company pursuant to any Transaction Agreement
(each of which shall be deemed to have been made for the benefit
of all members of the Investor Group) and (ii) the Investor, each
member thereof, each limited or general partner of each such
member, each limited or general partner of each such limited or
general partner, each of their Affiliates and each of their
Representatives, to the fullest extent permitted by law, against
any and all Losses incurred by, imposed upon or asserted against
any such Indemnified Party as a result of, relating to or arising
out of any litigation, claims, suits or proceedings to which such
Indemnified Party is made a party (other than as a plaintiff) or
any penalties, costs, claims, liabilities, damages or expenses
suffered by such Indemnified Party, in each case in its capacity
as a direct or indirect holder or owner of Securities or Warrant
Shares; provided that unless and until a final and non-appealable
judicial determination shall be made
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<PAGE> 52
that such Indemnified Party is not entitled to indemnification
under clause (ii) above, each such Indemnified Party shall be
reimbursed for all indemnified Losses under clause (ii) above as
they are incurred; provided, further, that if a final and
non-appealable judicial determination shall be made that such
Indemnified Party is not entitled to be indemnified for Losses
under clause (ii) above, such Indemnified Party shall repay to
the Company the amount of such Losses for which the Company shall
have reimbursed such Indemnified Party. In determining the amount
of any Losses, the mitigating effect, if any, of the exercise
price reset provisions of the Warrants shall be taken into
account, it being understood that the fact that the exercise
price is reset shall not, by itself, be conclusive evidence that
there has been such a mitigating effect.
(b) The Investor agrees to indemnify and hold harmless
the Company and each of its Representatives (collectively, the
"Indemnified Company Parties") from and against any and all
Losses incurred by any of the Indemnified Company Parties as a
result of, or arising out of, the breach of any representation,
warranty, agreement or covenant made by the Investor in the
Transaction Agreements or in any certificate delivered by the
Investor pursuant to the Transaction Agreements.
(c) The following provisions shall apply to claims for
Losses from claims by a third party ("Claim"). The indemnifying
party shall have the absolute right, in its sole discretion and
expense, to elect to defend, contest or otherwise protect against
any such Claim with legal counsel of its own selection. The
Indemnified Parties or the Indemnified Company Parties, as the
case may be, shall have the right, but not the obligation, to
participate, at their own expense, in the defense thereof through
counsel of their own choice and shall have the right, but not the
obligation, to assert any and all crossclaims or counterclaims
they may have. The Indemnified Parties or the Indemnified Company
Parties, as the case may be, shall, and shall cause their
Affiliates to, at all times cooperate in all reasonable ways
with, make their relevant files and records available for
inspection and copying by, and make their employees available or
otherwise render reasonable assistance to, the indemnifying party
(i) in its defense of any action for which indemnity is sought
hereunder and (ii) its prosecution under the last sentence of
this Section 11.05(c) of any related claim, cross-complaint,
counterclaim or right of subrogation. In the event the
indemnifying party fails timely to defend, contest or otherwise
protect against any such suit, action, investigation, claim or
proceeding, the Indemnified Parties or the Indemnified Company
Parties, as the case may be, shall have the right, but not the
obligation, to defend, contest, assert cross-claims or
counterclaims or otherwise protect against the same. No claim or
action subject hereto may be settled unless the Indemnified
Parties or the Indemnified Company Parties, as the case may be,
and the indemnifying party consent thereto, such consent not to
be unreasonably withheld. The indemnifying party shall be
subrogated to the claims or rights of the Indemnified Parties or
the Indemnified Company Parties, as the case may be, as against
any other persons with respect to any Loss paid by the
indemnifying party under this Section 11.05(c).
Section 11.06. Notices. All notices and other
communications hereunder shall be in writing and shall be deemed
to have been duly given, if delivered personally, by telecopier
or sent by first class mail, postage prepaid, as follows:
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<PAGE> 53
(a) If to the Company, to:
Oxford Health Plans, Inc.
800 Connecticut Avenue
Norwalk, Connecticut 06854
Attention: General Counsel
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Daniel Dunson, Esq.
(b) If to the Investor, to:
TPG OXFORD LLC
201 Main Street
Suite 2420
Fort Worth, Texas 76102
Attention: Jonathan J. Coslet
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Paul J. Shim, Esq.
(c) If to any other holder of shares of Series A
Preferred Stock, Debentures, Warrants or Warrant Shares,
addressed to such holder at the address of such holder in the
record books of the Company; or to such other address or
addresses as shall be designated in writing.
All notices shall be effective when received.
Section 11.07. Entire Agreement; Amendment. This
Agreement and the documents described herein or attached or
delivered pursuant hereto (including, without limitation, the
Registration Rights Agreement the Certificate of Designations and
the Warrants) set forth the entire agreement between the parties
hereto with respect to the transactions contemplated by this
Agreement and supersedes the letter agreement dated February 23,
1998 between the Company and the Investor which is terminated in
its entirety hereby. Any provision of this Agreement may be
amended, modified or supplemented in whole or in part at any time
by an agreement in writing among the parties hereto executed in
the same manner as this Agreement; provided, however, that in the
case of the Company, any such amendment, modification or
supplement must be approved by a majority of the outside
directors other than
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<PAGE> 54
the Investor Nominees and any other directors that are employed
by or serve as a director of the Investor or any Affiliate of the
Investor (other than the Company and its Subsidiaries). No
failure on the part of any party to exercise, and no delay in
exercising, any right shall operate as waiver thereof, nor shall
any single or partial exercise by either party of any right
preclude any other or future exercise thereof or the exercise of
any other right. No investigation by the Investor of the Company
prior to or after the date hereof shall stop or prevent the
Investor from exercising any right hereunder or be deemed to be a
waiver of any such right.
Section 11.08. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be
deemed to constitute an original, but all of which together shall
constitute one and the same document.
Section 11.09. Governing Law. This Agreement shall be
governed by, and interpreted in accordance with, the laws of the
State of New York applicable to contracts made and to be
performed in that State without reference to its conflict of laws
rules. The parties hereto agree that the appropriate and
exclusive forum for any disputes arising out of this Agreement
solely between the Company and the Investor shall be the United
States District Court for the Southern District of New York, and,
if such court will not hear any such suit, the courts of the
state of the Company's incorporation, and the parties hereto
irrevocably consent to the exclusive jurisdiction of such courts,
and agree to comply with all requirements necessary to give such
courts jurisdiction. The parties hereto further agree that the
parties will not bring suit with respect to any disputes arising
out of this Agreement except as expressly set forth below for the
execution or enforcement of judgment, in any jurisdiction other
than the above specified courts. Each of the parties hereto
irrevocably consents to the service of process in any action or
proceeding hereunder by the mailing of copies thereof by
registered or certified airmail, postage prepaid, to the address
specified in Section 11.06 hereof. The foregoing shall not limit
the rights of any party hereto to serve process in any other
manner permitted by the law or to obtain execution of judgment in
any other jurisdiction. The parties further agree, to the extent
permitted by law, that final and unappealable judgment against
any of them in any action or proceeding contemplated above shall
be conclusive and may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a
certified or exemplified copy of which shall be conclusive
evidence of the fact and the amount of indebtedness. The parties
agree to waive any and all rights that they may have to a jury
trial with respect to disputes arising out of this Agreement.
Section 11.10. Successors and Assigns. (a) Except as
otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the Company's
successors and assigns. Except as provided in Section 11.10(b)
hereof, neither this Agreement nor any rights hereunder shall be
assignable by any party hereto without the prior written consent
of the other party hereto; provided, however, that the Investor
may assign all or part of its interest in this Agreement and its
rights hereunder to any of its Affiliates and, thereafter, the
term "Investor," as applied to the assigning Investor, shall
include any such Affiliate to the extent of such assignment and
shall mean the assigning Investor and such Affiliates taken
collectively; and, provided, further, that no such assignment
shall relieve the Investor of its obligations hereunder.
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<PAGE> 55
(b) Notwithstanding the foregoing, prior to the
Closing the Investor may assign its rights with respect to the
purchase of up to 49% of the Securities to be purchased by the
Investor hereunder to any Person or Persons not Affiliated with
the Investor (each such Person, a "Designated Purchaser");
provided, however, that no assignment made pursuant to this
Section 11.10(b) shall relieve the Investor of any of its
obligations under this Agreement, including, without limitation,
its obligation to purchase all of such Securities pursuant to the
terms hereof; and, provided, further, that no assignment shall be
made pursuant to this Section 11.10(b) that would result in a
delay of the Closing beyond the date that otherwise would have
been fixed for the Closing if the Investor were purchasing all of
the Securities. The Investor shall not assign pursuant to this
Section 11.10(b) any of its rights under this Agreement other
than the right to purchase the Securities. Except as expressly
provided in this Agreement, no Designated Purchaser shall have
any rights under this Agreement or any rights of the Investor
(other than rights that by their terms are available to all
holders of Securities generally) under the Certificates of
Designations or the Warrants. As a condition to any assignment
pursuant to this Section 11.10(b), each Designated Purchaser
shall deliver to the Company a letter, dated as of the Closing
Date, in form and substance reasonably satisfactory to the
Company, pursuant to which such Designated Purchaser shall (i)
make the representation set forth in Section 4.05(b) hereof, (ii)
agree to comply with the provisions set forth in Section 8.06
hereof as if it were the Investor thereunder, (iii) appoint the
Investor as its exclusive agent for the purposes of administering
the indemnification provisions set forth in Section 11.05 hereof,
and (iv) if as a result of an assignment contemplated by this
Section 11.10(b) such Designated Purchaser would as of the
Closing Beneficially Own Voting Securities of the Company
representing more than 5% of the Voting Power of the Voting
Securities of the Company (such Designated Purchaser, a
"Significant Designated Purchaser"), agree to comply with the
provisions of Article VI hereof as if it were the Investor
thereunder. Any assignment under this Section 11.10(b) shall be
made by the Investor pursuant to a transaction that is exempt
from the registration requirements of the Securities Act. Any
assignment to such Designated Purchaser that does not comply with
the preceding provisions of this Section 11.10(b) shall be null
and void, and at the Closing the Investor shall purchase all
Securities that would have been purchased by such Designated
Purchaser. The Investor shall inform the Company of the identity
of each Designated Purchaser at least two Business Days prior to
the Closing Date.
Section 11.11. No Third-Party Beneficiaries. This
Agreement is for the sole benefit of the parties hereto and their
respective successors and permitted assigns and nothing herein,
express or implied, is intended or shall confer upon any other
Person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement, except
that the provisions of Section 8.08 shall inure to the benefit of
and be enforceable by the Investor Nominees and the provisions of
Section 11.05 shall inure to the benefit of and be enforceable by
each Indemnified Party.
Section 11.12. Termination of Certain Provisions. In
the event the Investor and its Affiliates Beneficially Own, in
the aggregate, less than 10% of the Original Number of Warrant
Shares, the provisions set forth in Articles V, VI and VIII
hereof shall terminate and be of no further force or effect.
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Section 11.13. Allocation. The Investor shall
reasonably determine, and the Company shall accept if reasonable,
the allocation of the Investment Purchase Price among the
Preferred Stock and the Warrants issued to the Investor at
Closing.
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IN WITNESS WHEREOF, this Agreement has been executed
on behalf of the parties hereto by their respective duly
authorized officers, all as of the date first above written.
TPG OXFORD LLC
By /s/ Jonathan J. Coslet
---------------------------
Name: Jonathan J. Coslet
Title: President
OXFORD HEALTH PLANS, INC.
By /s/ William M. Sullivan
---------------------------
Name: William M. Sullivan
Title: President and
Chief Executive Officer
<PAGE> 58
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
of
SERIES A CUMULATIVE PREFERRED STOCK
of
OXFORD HEALTH PLANS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
--------------
Oxford Health Plans, Inc., a corporation organized and
existing under the General Corporation Law of the State of
Delaware (the "Corporation"), hereby certifies that the following
resolutions were adopted by the Board of Directors of the
Corporation (the "Board of Directors") pursuant to authority of
the Board of Directors as required by Section 151 of the Delaware
General Corporation Law:
RESOLVED, that pursuant to the authority granted to
and vested in the Board of Directors in accordance with the
provisions of the Second Amended and Restated Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series
of the Corporation's previously authorized preferred stock, par
value $0.01 per share (the "Preferred Stock"), and hereby states
the designation and number thereof, and fixes the voting powers,
preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and
restrictions thereof, as follows:
Series A Cumulative Preferred Stock:
I. Designation and Amount
The designation of this series of shares shall be
"Series A Cumulative Preferred Stock" (the "Series A Preferred
Stock"); the stated value per share shall be $1,000 (the "Stated
Value"); and the number of shares constituting such series shall
be 300,000. The number of shares of the Series A Preferred Stock
may be decreased from time to time by a resolution or resolutions
of the Board of Directors; provided, however, that such number
shall not be decreased below the aggregate number of shares of
the Series A Preferred Stock then outstanding.
<PAGE> 59
II. Rank
A. With respect to dividend rights, the Series A
Preferred Stock shall rank (i) junior to each other class or
series of Preferred Stock which by its terms ranks senior to the
Series A Preferred Stock as to payment of dividends, (ii) on a
parity with each other class or series of Preferred Stock which
by its terms ranks on a parity with the Series A Preferred Stock
as to payment of dividends, including the Series B Preferred
Stock, par value $0.01 per share, of the Corporation (the "Series
B Preferred Stock") and (iii) prior to the Corporation's Common
Stock, par value $.01 per share (the "Common Stock"), and, except
as specified above, all other classes and series of capital stock
of the Corporation hereafter issued by the Corporation. With
respect to dividends, all equity securities of the Corporation to
which the Series A Preferred Stock ranks senior, including the
Common Stock, are collectively referred to herein as the "Junior
Dividend Securities"; all equity securities of the Corporation
with which the Series A Preferred Stock ranks on a parity,
including the Series B Preferred Stock, are collectively referred
to herein as the "Parity Dividend Securities"; and all equity
securities of the Corporation (other than convertible debt
securities) to which the Series A Preferred Stock ranks junior,
with respect to dividends, are collectively referred to herein as
the "Senior Dividend Securities."
B. With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the Series A Preferred Stock
shall rank (i) junior to each other class or series of Preferred
Stock which by its terms ranks senior to the Series A Preferred
Stock as to distribution of assets upon liquidation, dissolution
or winding up, (ii) on a parity with each other class or series
of Preferred Stock which by its terms ranks on a parity with the
Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation,
including the Series B Preferred Stock, and (iii) prior to the
Common Stock, and, except as specified above, all other classes
and series of capital stock of the Corporation hereinafter issued
by the Corporation. With respect to the distribution of assets
upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, all equity securities of the
Corporation to which the Series A Preferred Stock ranks senior,
including the Common Stock, are collectively referred to herein
as "Junior Liquidation Securities"; all equity securities of the
Corporation (other than convertible debt securities) to which the
Series A Preferred Stock ranks on parity, including the Series B
Preferred Stock, are collectively referred to herein as "Parity
Liquidation Securities"; and all equity securities of the
Corporation to which the Series A Preferred Stock ranks junior
are collectively referred to herein as "Senior Liquidation
Securities."
C. The Series A Preferred Stock shall be subject to
the creation of Junior Dividend Securities and Junior Liquidation
Securities (collectively, "Junior Securities") but no Parity
Dividend Securities or Parity Liquidation Securities
(collectively, "Parity Securities") (other than the Series B
Preferred Stock), or Senior Dividend Securities or Senior
Liquidation Securities (collectively, "Senior Securities") shall
be created except in accordance with the terms hereof and the
Investment Agreement, including, without limitation, Article
VIII, Section F hereof.
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III. Dividends
A. Dividends. Prior to the Second Anniversary Date,
shares of Series A Preferred Stock shall accumulate dividends at
a rate of 8.243216% per annum, payment of which may be made in
cash or by the issuance of additional shares of Series A
Preferred Stock (which, upon issuance, shall be fully paid and
nonassessable), at the option of the Company; provided that if
any such dividend is paid after the Second Anniversary Date, such
dividend shall be paid in cash. On and after the Second
Anniversary Date, shares of Series A Preferred Stock shall
accumulate dividends at a rate of 8% per annum, which dividends
shall be paid in cash. On and prior to the Second Anniversary
Date, dividends shall be paid annually on the anniversary of the
original issuance of Series A Preferred Stock, and thereafter
dividends shall be paid in four equal quarterly installments on
the last day of March, June, September and December of each year,
or if any such date is not a Business Day, the Business Day next
preceding such day (each such date, regardless of whether any
dividends have been paid or declared and set aside for payment on
such date, a "Dividend Payment Date"), to holders of record (the
"Registered Holders") as they appear on the stock record books of
the Corporation on the fifteenth day prior to the relevant
Dividend Payment Date. Dividends shall be paid only when, as and
if declared by the Board of Directors out of funds at the time
legally available for the payment of dividends. Dividends shall
begin to accumulate on outstanding shares of Series A Preferred
Stock from the date of issuance and shall be deemed to accumulate
from day to day whether or not earned or declared until paid.
Dividends shall accumulate on the basis of a 360-day year
consisting of twelve 30-day months (four 90-day quarters) and the
actual number of days elapsed in the period for which payable.
B. Accumulation. Dividends on the Series A Preferred
Stock shall be cumulative, and from and after any Dividend
Payment Date on which any dividend that has accumulated or been
deemed to have accumulated through such date has not been paid in
full or any payment date set for a redemption on which such
redemption payment has not been paid in full, additional
dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage")
at the annual rate then in effect as provided in Section A of
this Article III (or such lesser rate as may be the maximum rate
that is then permitted by applicable law). Such additional
dividends in respect of any Arrearage shall be deemed to
accumulate from day to day whether or not earned or declared
until the Arrearage is paid, shall be calculated as of such
successive Dividend Payment Date and shall constitute an
additional Arrearage from and after any Dividend Payment Date to
the extent not paid on such Dividend Payment Date. References in
any Article herein to dividends that have accumulated or that
have been deemed to have accumulated with respect to the Series A
Preferred Stock shall include the amount, if any, of any
Arrearage together with any dividends accumulated or deemed to
have accumulated on such Arrearage pursuant to the immediately
preceding two sentences. Additional dividends in respect of any
Arrearage may be declared and paid at any time, in whole or in
part, without reference to any regular Dividend Payment Date, to
Registered Holders as they appear on the stock record books of
the Corporation on such record date as may be fixed by the Board
of Directors (which record date shall be no less than 10 days
prior to the corresponding payment date). Dividends in respect of
any Arrearage shall be paid in cash.
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C. Method of Payment. Dividends paid on the shares of
Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accumulated and payable on all
outstanding shares of Series A Preferred Stock shall be allocated
pro rata on a share-by-share basis among all such shares then
outstanding. After the Second Anniversary Date, dividends that
are declared and paid in an amount less than the full amount of
dividends accumulated on the Series A Preferred Stock (and on any
Arrearage) shall be applied first to the earliest dividend which
has not theretofore been paid. All cash payments of dividends on
the shares of Series A Preferred Stock shall be made in such coin
or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
IV. Liquidation Preference
In the event of a liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the
holders of then-outstanding shares of Series A Preferred Stock
shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any
nature, an amount per share equal to the sum of (i) the
dividends, if any, accumulated or deemed to have accumulated
thereon to the date of final distribution to such holders,
whether or not such dividends are declared, and (ii) the Stated
Value thereof, and no more, before any payment shall be made or
any assets distributed to the holders of any Junior Liquidation
Securities. After any such payment in full, the holders of Series
A Preferred Stock shall not, as such, be entitled to any further
participation in any distribution of assets of the Corporation.
All the assets of the Corporation available for distribution to
stockholders after the liquidation preferences of any Senior
Liquidation Securities shall be distributed ratably (in
proportion to the full distributable amounts to which holders of
Series A Preferred Stock and Parity Liquidation Securities, if
any, are respectively entitled upon such dissolution, liquidation
or winding up) among the holders of the then-outstanding shares
of Series A Preferred Stock and Parity Liquidation Securities, if
any, when such assets are not sufficient to pay in full the
aggregate amounts payable thereon.
Neither a consolidation or merger of the Corporation
with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's
assets for cash, securities or other property to a Person or
Persons shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Article IV,
but the holders of shares of Series A Preferred Stock shall
nevertheless be entitled from and after any such consolidation,
merger or sale, conveyance, lease, exchange or transfer of all or
part of the Corporation's assets to the rights provided by this
Article IV following any such transaction. Notice of any
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and
the place or places where, the amounts distributable to each
holder of shares of Series A Preferred Stock in such
circumstances shall be payable, shall be given by first-class
mail, postage prepaid, mailed not less than 30 days prior to any
payment date stated therein, to holders of record as they appear
on the stock record books of the Corporation as of the date such
notices are first mailed.
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V. Redemption
A. Optional Redemption. The Corporation shall not have
any right to redeem any shares of Series A Preferred Stock prior
to the fifth anniversary of the original issuance of the Series A
Preferred Stock. On and after such date, the Corporation shall
have the right, at its option and election, to redeem all the
outstanding shares of Series A Preferred Stock, in whole but not
in part, at any time, in accordance with the provisions of this
Article V. The redemption price for such shares of Series A
Preferred Stock shall be paid in cash out of funds legally
available therefor and shall be in an amount per share equal to
the sum of (i) the amount, if any, of all unpaid dividends
accumulated thereon to the date of actual payment of the
Redemption Price, whether or not such dividends have been
declared, and (ii) the Stated Value thereof (the "Redemption
Price").
B. Mandatory Redemption. On the tenth anniversary of
the original issuance of the Series A Preferred Stock (the
"Mandatory Redemption Date"), the Corporation shall redeem (the
"Mandatory Redemption") all outstanding shares of Series A
Preferred Stock by paying the Redemption Price therefor in cash
out of funds legally available for such purpose.
C. Notice and Redemption Procedures. Notice of the
redemption of shares of Series A Preferred Stock pursuant to
Section A or B hereof (a "Notice of Redemption") shall be sent to
the holders of record of the shares of Series A Preferred Stock
to be redeemed by first class mail, postage prepaid, at each such
holder's address as it appears on the stock record books of the
Corporation not more than 120 nor fewer than 90 days prior to the
date fixed for redemption, which date shall be set forth in such
notice (the "Redemption Date"); provided that failure to give
such Notice of Redemption to any holder, or any defect in such
Notice of Redemption to any holder shall not affect the validity
of the proceedings for the redemption of any shares of Series A
Preferred Stock held by any other holder. Notwithstanding the
foregoing, in the event that contemporaneously with or prior to
the delivery of a Notice of Redemption, the Corporation
irrevocably deposits, in accordance with Section F of this
Article V, funds sufficient to pay the aggregate Redemption Price
for the Series A Preferred Stock, such Notice of Redemption shall
be delivered not more than 120 days nor fewer than 30 days prior
to the Redemption Date; provided, however, that, if such Notice
of Redemption is delivered fewer than 60 days prior to the
Redemption Date and the Investor or any of its Affiliates
Beneficially Owns shares of Series A Preferred Stock as of the
date of the Notice of Redemption and uses its reasonable best
efforts to consummate the sale of its shares of Series A
Preferred Stock prior to the stated Redemption Date but has not
completed the sale of all the Series A Preferred Stock
Beneficially Owned by the Investor and its Affiliates (or such
other amount desired to be sold by the Investor and its
Affiliates), the Corporation shall, at the option of the Investor
(or any such Affiliate), delay such Redemption Date for a period
not to exceed 30 days as requested by the Investor (or any such
Affiliate) in order to complete such sale or sales, and shall
notify the holders of Series A Preferred Stock of such delay
within five days of receiving the request therefor. Any delay of
the Redemption Date pursuant to the proviso to the preceding
sentence shall be requested by the Investor (or its Affiliate) in
writing no later than the tenth day preceding the then-scheduled
Redemption Date stated in the Notice of Redemption. The
Redemption Date stated in a Notice of Redemption shall not be
delayed more than once in connection with the
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redemption of shares of Series A Preferred Stock pursuant to such
Notice of Redemption. In order to facilitate the redemption of
shares of Series A Preferred Stock, the Board of Directors may
fix a record date for the determination of the holders of shares
of Series A Preferred Stock to be redeemed, in each case, not
more than 30 days prior to the date the Notice of Redemption is
mailed. On or after the Redemption Date, each holder of the
shares called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the place designated
in such notice and shall thereupon be entitled to receive payment
of the Redemption Price. From and after the Redemption Date, all
dividends on shares of Series A Preferred Stock shall cease to
accumulate and all rights of the holders thereof as holders of
Series A Preferred Stock shall cease and terminate, except to the
extent the Corporation shall default in payment thereof on the
Redemption Date. Prior to any Redemption Date that has been fixed
by the Company, other than in connection with the Mandatory
Redemption, the Corporation shall take all measures reasonably
requested by the Investor to facilitate a sale or other
disposition of Series A Preferred Stock by the Investor or its
Affiliates prior to such Redemption Date, including, without
limitation, participation in due diligence sessions and provision
of information about the management, business and financial
condition of the Corporation, preparation of offering memoranda,
private placement memoranda and other similar documents and
preparation and delivery of such other certificates or documents
reasonably requested by the Investor. For so long as the Investor
or an Affiliate of the Investor holds any shares of Series A
Preferred Stock, no Notice of Redemption in connection with a
redemption pursuant to Section A or B of this Article V shall be
delivered unless (i) the Corporation's preferred stock is rated
Baa or better by Moody's or BBB or better by S&P, or in the event
the Corporation's preferred stock is not rated by Moody's and
S&P, the Corporation's unsecured debt is rated Baa or better by
Moody's or BBB or better by S&P or (ii) the Corporation has
sufficient funds reasonably available under committed lines of
credit or other similar sources of financing established with
financially sound financing providers to pay, on the Redemption
Date, the aggregate Redemption Price in connection with such
redemption (and shall reserve such funds or availability for the
payment of the aggregate Redemption Price); provided, that the
Corporation may deliver a Notice of Redemption without complying
with the foregoing conditions if prior to, or contemporaneously
with, the delivery of such notice the Corporation irrevocably
deposits in accordance with Section F of this Article V funds
sufficient to pay the aggregate Redemption Price for the Series A
Preferred Stock.
D. Change of Control. In the event there occurs a
Change of Control, any holder of record of shares of Series A
Preferred Stock, in accordance with the procedures set forth in
Section E hereof, may require the Corporation to redeem any or
all of the shares of Series A Preferred Stock held by such holder
at the Redemption Price therefor.
E. Change of Control Notice and Redemption Procedures.
Notice of any Change of Control shall be sent to the holders of
record of the outstanding shares of Series A Preferred Stock not
more than five days following a Change of Control, which notice
(a "Change of Control Notice") shall describe the transaction or
transactions constituting such Change of Control and set forth
each holder's right to require the Corporation to redeem any or
all shares of Series A Preferred Stock held by him or her out of
funds legally available therefor, the Redemption Date (which date
shall be not more than 30 days from the date of
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such Change of Control Notice) and the procedures to be followed
by such holders in exercising his or her right to cause such
redemption; provided, however, that if shares of Series A
Preferred Stock are owned by more than 50 holders or groups of
Affiliated holders and if the Series A Preferred Stock is listed
on any national securities exchange or quoted on any national
quotation system, the Corporation shall give such Change of
Control Notice by publication in a newspaper of general
circulation in the Borough of Manhattan, The City of New York,
within 30 days following such Change of Control and, in any case,
a similar notice shall be mailed concurrently to each holder of
shares of Series A Preferred Stock. Failure by the Corporation to
give the Change of Control Notice as prescribed by the preceding
sentence, or the formal insufficiency of any such Change of
Control Notice, shall not prejudice the rights of any holder of
shares of Series A Preferred Stock to cause the Corporation to
redeem any such shares held by him or her. In the event a holder
of shares of Series A Preferred Stock shall elect to require the
Corporation to redeem any or all such shares of Series A
Preferred Stock pursuant to Section D hereof, such holder shall
deliver, prior to the Redemption Date as set forth in the Change
of Control Notice, or, if the Change of Control Notice is not
given as required by this Section E, at any time following the
last day the Corporation was required to give the Change of
Control Notice in accordance with this Section E (in which case
the Redemption Date shall be the date which is the later of (x)
30 days following the last day the Corporation was required to
give the Change of Control Notice in accordance with this Section
E and (y) 15 days following the delivery of such election by such
holder), a written notice, in the form specified by the
Corporation (if the Corporation did in fact give the notice
required by this Section E), to the Corporation so stating, and
specifying the number of shares to be redeemed pursuant to
Section D hereof; provided, however, that if all of the shares of
the Series A Preferred Stock are owned by 50 or fewer holders or
groups of affiliated holders, such holders or groups may deliver
a notice or an election to redeem at any time within 90 days
following the occurrence of a Change of Control without awaiting
receipt of a Change of Control Notice or the expiration of the
time allowed for the delivery of a Change of Control Notice
hereunder. The Corporation shall redeem the number of shares so
specified on the Redemption Date fixed by the Corporation or as
provided in the preceding sentence. The Corporation shall comply
with the requirements of Rules 13e-4 and 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection
with the repurchase of the shares of Series A Preferred Stock as
a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with
the provisions of this paragraph, the Corporation shall comply
with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations hereunder by virtue
thereof.
F. Deposit of Funds. The Corporation shall, on or
prior to any Redemption Date pursuant to this Article V, deposit
with its transfer agent or other redemption agent in the Borough
of Manhattan, The City of New York having a capital and surplus
of at least $500,000,000 selected by the Board of Directors, as a
trust fund for the benefit of the holders of the shares of Series
A Preferred Stock to be redeemed, cash that is sufficient in
amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption or Change of Control Notice, with
irrevocable instructions and authority to such transfer agent or
other redemption
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agent to pay to the respective holders of such shares, as
evidenced by a list of such holders certified by an officer of
the Corporation, the Redemption Price upon surrender of their
respective share certificates. Such deposit shall be deemed to
constitute full payment of such shares to the holders, and from
and after the date of such deposit, all rights of the holders of
the shares of Series A Preferred Stock that are to be redeemed as
stockholders of the Corporation with respect to such shares,
except the right to receive the Redemption Price upon the
surrender of their respective certificates, shall cease and
terminate. No dividends shall accumulate on any shares of Series
A Preferred Stock after the Redemption Date for such shares
(unless the Corporation shall fail to deposit cash sufficient to
redeem all such shares). In case holders of any shares of Series
A Preferred Stock called for redemption shall not, within two
years after such deposit, claim the cash deposited for redemption
thereof, such transfer agent or other redemption agent shall,
upon demand, pay over to the Corporation the balance so
deposited. Thereupon, such transfer agent or other redemption
agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to
shares to be redeemed, shall be to receive the Redemption Price
as general creditors of the Corporation. Any interest accrued on
any funds so deposited shall belong to the Corporation, and shall
be paid to it from time to time on demand.
VI. Exchange of Series A Preferred Stock
A. The Series A Preferred Stock shall be exchangeable,
at any time, at the option of the Corporation and to the extent
permitted by applicable law, in whole but not in part, on any
Dividend Payment Date for Junior Subordinated Debentures (issued
pursuant to an indenture (the "Indenture") prepared in accordance
with the Investment Agreement), in principal amount of $1,000 per
share of Series A Preferred Stock (a "Debenture" and,
collectively, the "Debentures"), in accordance with this Article
VI:
(i) Each share of Series A Preferred Stock shall be
exchangeable at the offices of the Corporation and at such
other place or places, if any, as the Board of Directors
may designate. Except with the prior written consent of the
holders of all outstanding shares of Series A Preferred
Stock, the Corporation may not exchange any shares of
Series A Preferred Stock if (a) full cumulative dividends,
to the extent payable or deemed payable through the date of
exchange, have not been paid or set aside for payment on
all outstanding shares of the Series A Preferred Stock, (b)
the Corporation has failed to amend its Certificate of
Incorporation pursuant to Delaware law to confer the power
to vote upon holders of the Debentures as shall be
contemplated by the Indenture or (c) such exchange could
result in any tax consequence to the Investor or any of its
Affiliates which is materially adverse.
(ii) Prior to giving notice of its intention to
exchange, the Corporation shall execute and deliver to a
bank or trust company selected by the Board of Directors
and, if required by applicable law, qualify under the Trust
Indenture Act of 1939, as amended, the Indenture.
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(iii) The Corporation shall mail written notice of its
intention to exchange Series A Preferred Stock for
Debentures (the "Exchange Notice") to each holder of record
of shares of Series A Preferred Stock not less than 90 nor
more than 120 days prior to the date fixed for exchange.
(iv) Prior to effecting any exchange provided above,
the Corporation shall deliver to each holder of shares of
Series A Preferred Stock an opinion of nationally
recognized legal counsel to the effect that: (i) each of
the Indenture and the Debentures have been duly authorized
and executed by the Corporation and, when delivered by the
Corporation in exchange for shares of Series A Preferred
Stock, will constitute valid and legally binding
obligations of the Corporation enforceable against the
Corporation in accordance with their terms, subject to
applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general
principles of equity; (ii) the exchange of the Debentures
for the shares of Series A Preferred Stock shall not
violate the provisions of this Article VI or of the
Delaware General Corporation Law, including Section 221
thereof; and (iii) the exchange of the Debentures for the
shares of Series A Preferred Stock is exempt from the
registration requirements of the Securities Act or, if no
such exemption is available, that the Debentures have been
duly registered for such exchange under such Act.
(v) Upon the exchange of shares of Series A Preferred
Stock for Debentures, the rights of the holders of shares
of Series A Preferred Stock as stockholders of the
Corporation shall terminate and such shares shall no longer
be deemed outstanding.
(vi) Before any holder of shares of Series A Preferred
Stock shall be entitled to receive Debentures, such holder
shall surrender the certificate or certificates therefor,
at the office of the Corporation or at such other place or
places, if any, as the Board of Directors shall have
designated, and shall state in writing the name or names
(with addresses) in which he or she wishes the certificate
or certificates for the Debentures to be issued. The
Corporation will, as soon as practicable thereafter, issue
and deliver at said office or place to such holder of
shares of Series A Preferred Stock, or to his or her
nominee or nominees, certificates for the Debentures to
which he or she shall be entitled as aforesaid. Shares of
Series A Preferred Stock shall be deemed to have been
exchanged as of the close of business on the date fixed for
exchange as provided above, and the Person or Persons
entitled to receive the Debentures issuable upon such
exchange shall be treated for all purposes (including the
accrual and payment of interest) as the record holder or
holders of such Debentures as of the close of business on
such date.
B. For purposes of clause (c) of paragraph (i) of
Section A, an exchange of shares of Series A Preferred Stock
shall be deemed to be an exchange that could result in a tax
consequence to the Investor or any of its Affiliates which is
materially adverse only if the Investor or its Affiliate shall
have delivered to the Corporation a written notice to such effect
on or before the fifteenth day after its receipt of the Exchange
Notice (an "Objection Notice"), which Objection Notice shall be
prepared in good faith and shall specify in reasonable detail the
nature of such tax consequences which could result from the
exchange (other than the difference
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between the tax treatment of distributions on the Series A
Preferred Stock and interest payments on the Debentures);
provided, that the Investor or its Affiliates shall not deliver
an Objection Notice unless the Investor and its Affiliates
Beneficially Own, in the aggregate, at least 1,000 shares of
Series A Preferred Stock at the time of delivery of such
Objection Notice to the Corporation. If the Corporation receives
an Objection Notice, then the Corporation shall not exchange the
shares of Series A Preferred Stock of the Investor and its
Affiliates and the Corporation shall, within 15 days after its
receipt of the Objection Notice mail written notice to the effect
that it is canceling the proposed exchange of shares of Series A
Preferred Stock to each holder of record of shares of Series A
Preferred Stock to which it mailed the Exchange Notice.
C. Shares of the Series A Preferred Stock may be
exchanged for Warrant Shares pursuant to Section 4 of the
Warrants.
VII. Restrictions on Dividends
So long as any shares of the Series A Preferred Stock
are outstanding, the Board of Directors shall not declare, and
the Corporation shall not pay or set apart for payment any
dividend on any Junior Securities or make any payment on account
of, or set apart for payment money for a sinking or other similar
fund for, the repurchase, redemption or other retirement of, any
Junior Securities or Parity Securities or any warrants, rights or
options exercisable for or convertible into any Junior Securities
or Parity Securities (other than the repurchase, redemption or
other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity
Securities), or make any distribution in respect of the Junior
Securities, either directly or indirectly, and whether in cash,
obligations or shares of the Corporation or other property (other
than distributions or dividends in Junior Securities to the
holders of Junior Securities), and shall not permit any
corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any Junior Securities or
Parity Securities or any warrants, rights, calls or options
exercisable for or convertible into any Junior Securities or
Parity Securities (other than the repurchase, redemption or other
retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity
Securities) unless prior to or concurrently with such
declaration, payment, setting apart for payment, repurchase,
redemption or other retirement or distribution, as the case may
be, all accumulated and unpaid dividends on shares of the Series
A Preferred Stock not paid on the dates provided for in paragraph
A of Article III hereof (including Arrearages and accumulated
dividends thereon) shall have been paid, except that when
dividends are not paid in full as aforesaid upon the shares of
Series A Preferred Stock, all dividends declared on the Series A
Preferred Stock and any series of Parity Dividend Securities
shall be declared and paid pro rata so that the amount of
dividends so declared and paid on Series A Preferred Stock and
such series of Parity Dividend Securities shall in all cases bear
to each other the same ratio that accumulated dividends
(including interest accrued on or additional dividends
accumulated in respect of such accumulated dividends) on the
shares of Series A Preferred Stock and such Parity Dividend
Securities bear to each other. Notwithstanding the foregoing,
this paragraph shall not prohibit (i) the acquisition,
repurchase, exchange, conversion, redemption or other retirement
for value of shares of Series A Preferred Stock or any Parity
Dividend Security by the Corporation in accordance with the terms
of such securities or of any shares of Trust Preferred Stock (as
defined
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in Section F of Article VIII) or (ii) the acquisition,
repurchase, exchange, conversion, redemption or other retirement
for value by the Corporation of any Junior Dividend Securities by
the Corporation in accordance with obligations in existence at
the time of original issuance of the Series A Preferred Stock.
VIII. Voting Rights
A. The holders of shares of Series A Preferred Stock
shall have no voting rights except as set forth below or as
otherwise from time to time required by law.
B. So long as any shares of the Series A Preferred
Stock are outstanding, each share of Series A Preferred Stock
shall entitle the holder thereof to vote on all matters voted on
by holders of Common Stock, and the shares of Series A Preferred
Stock shall vote together with shares of Common Stock (and any
shares of Series B Preferred Stock entitled to vote) as a single
class; provided, however, that upon register or transfer on the
stock records of the Corporation of a share of Series A Preferred
Stock to any Person other than the Investor or an Affiliate of
the Investor, the transferee, and any subsequent transferee,
shall not be entitled to such voting rights. With respect to any
such vote, the Investor (together with its Affiliates) shall be
entitled to a number of votes per share of Series A Preferred
Stock equal to the quotient of the Investor Aggregate Vote
Number, divided by the number of shares of Series A Preferred
Stock held by such Investor and its Affiliates as of the record
date for such vote. The "Investor Aggregate Vote Number" shall
equal the number of Warrant Shares that would be issuable upon
the exercise of the Original Warrants (as defined below) by the
holders thereof (assuming all conditions precedent to such
exercise have been satisfied and that such exercise occurs as of
the record date for such vote), multiplied by the lesser of (x)
the quotient of the number of Original Warrants that are
Beneficially Owned by members of the Investor Group, in the
aggregate, as of the record date for such vote (excluding for
purposes of this calculation, however, any Original Warrants that
have been transferred on the books of the Corporation by any
member of the Investor Group to any Person other than a member of
the Investor Group, regardless of whether any such Original
Warrants are subsequently acquired by any member of the Investor
Group), divided by the number of Original Warrants, and (y) the
quotient of the number of Original Series A Preferred Shares (as
defined below) that are Beneficially Owned by members of the
Investor Group, in the aggregate, as of the record date for such
vote (excluding for purposes of this calculation, however, any
Original Series A Preferred Shares transferred on the stock
records of the Corporation by any member of the Investor Group to
any Person other than a member of the Investor Group, regardless
of whether any such Original Series A Preferred Shares are
subsequently acquired by any member of the Investor Group),
divided by the number of Original Series A Preferred Shares. The
term "Original Warrants" means those Warrants Beneficially Owned
by members of the Investor Group, in the aggregate, as of the
Closing. The term "Original Series A Preferred Shares" means
those shares of Series A Preferred Stock Beneficially Owned by
members of the Investor Group, in the aggregate, as of the
Closing.
C. If on any date (i) dividends payable on either the
Series A Preferred Stock or the Series B Preferred Stock shall
have been in arrears and not paid in full for four consecutive
quarterly periods or if dividends shall have been in arrears and
not paid in full on the first or
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second annual anniversary of the original issuance of the Series
A Preferred Stock or Series B Preferred Stock, as the case may
be, or (ii) the Corporation shall have failed to satisfy its
obligation to redeem either shares of Series A Preferred Stock or
shares of Series B Preferred Stock pursuant to the relevant
Certificate of Designations, then the number of directors
constituting the Board of Directors shall, without further
action, be increased by two, and the holders of a majority of the
outstanding shares of Series A Preferred Stock and Series B
Preferred Stock shall have, in addition to the other voting
rights set forth herein, the exclusive right, voting together as
a single class without regard to series, to elect the two
directors (the "Additional Directors") of the Corporation to fill
such newly-created directorships. Notwithstanding the foregoing,
the Investor and its Affiliates shall not be permitted to elect,
pursuant to the preceding sentence, more than the number of
directors that would result in four directors designated for
nomination or elected by the Investor and its Affiliates then
being on the Board of Directors (including directors that the
Investor has a right to designate for nomination to the Board of
Directors pursuant to the Investment Agreement); provided, that
if at the time holders of Series A Preferred Stock and Series B
Preferred Stock have the right to elect Additional Directors and
(i) the Investor and its Affiliates Beneficially Own, in the
aggregate, a majority of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, taken together as a
single class, and (ii) the Investor and its Affiliates are not
permitted to elect one or both of the Additional Directors as
aforesaid, then the holders of Series A Preferred Stock and
Series B Preferred Stock (other than the Investor and its
Affiliates) shall have the right to elect, voting together as a
single class, one Additional Director pursuant to this Section C.
Additional Directors shall continue as directors and such
additional voting right shall continue until such time as (a) all
dividends accumulated on the Series A Preferred Stock and/or
Series B Preferred Stock, as the case may be, shall have been
paid in full or (b) any redemption obligation with respect to the
Series A Preferred Stock and/or the Series B Preferred Stock, as
the case may be, that has become due shall have been satisfied or
all necessary funds shall have been set aside for payment, as the
case may be, at which time such Additional Directors shall cease
to be directors and such additional voting right of the holders
of shares of Series A Preferred Stock shall terminate subject to
revesting in the event of each and every subsequent event of the
character indicated above and subject to any rights as to the
election of directors provided for the holders of any other
series of Preferred Stock of the Corporation.
D. In the event that one or more of the Investor
Nominees required to be designated for election to the Board of
Directors pursuant to the Investment Agreement are not so
designated or are not elected to the Board of Directors and the
Investor or any of its Affiliates Beneficially Owns shares of
Series A Preferred Stock, then the number of directors
constituting the Board of Directors shall, without further
action, be increased by the number of such Investor Nominees not
elected to the Board of Directors pursuant to the Investment
Agreement, and such holder or holders shall have, in addition to
the other voting rights set forth herein, the exclusive right,
voting separately as a single class, to elect a number of
directors to the Board of Directors equal to the number of such
Investor Nominees not elected to the Board of Directors.
Directors elected pursuant to this Section D shall continue as
directors and such additional voting right shall continue until
such time as the requisite number of Investor Nominees are
elected to the Board of Directors pursuant to the Investment
Agreement, at which time the directors elected by the Investor
and its Affiliates pursuant to this Section D shall cease to be
directors (unless elected
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as Investor Nominees), and such additional voting rights shall
terminate subject to revesting in the event of each and every
subsequent event of the character indicated above.
E. (a) The foregoing rights of holders of shares of
Series A Preferred Stock to take any action as provided in this
Article VIII may be exercised at any annual meeting of
stockholders or at a special meeting of stockholders held for
such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of
the Corporation, of the holders of the minimum number of shares
required to take such action. So long as such right to vote
continues (and unless such right has been exercised by written
consent of the minimum number of shares required to take such
action), the Chairman of the Board of Directors may call, and
upon the written request of holders of record of 20% of the
outstanding shares of Series A Preferred Stock, addressed to the
Secretary of the Corporation at the principal office of the
Corporation, shall call, a special meeting of the holders of
shares entitled to vote as provided herein. Such meeting shall be
held within 60 days after delivery of such request to the
Secretary, at the place and upon the notice provided by law and
in the Bylaws for the holding of meetings of stockholders.
(b) Each director elected pursuant to Section C or D
hereof shall serve until the next annual meeting or until his or
her successor shall be elected and shall qualify, unless the
director's term of office shall have terminated pursuant to the
provisions of Section C or D hereof, as the case may be. In case
any vacancy shall occur among the directors elected pursuant to
Section C or D hereof, such vacancy may be filled for the
unexpired portion of the term by vote of the remaining director
or directors theretofore elected by such holders (or such
director's or directors' successor in office), if any. If any
such vacancy is not so filled within 20 days after the creation
thereof or if all of the directors so elected shall cease to
serve as directors before their term shall expire, the holders of
the shares then outstanding and entitled to vote for such
director pursuant to the provisions of Section C or D hereof, as
the case may be, may elect successors to hold office for the
unexpired terms of any vacant directorships, by written consent
as herein provided, or at a special meeting of such holders
called as provided herein. The holders of a majority of the
shares entitled to vote for directors pursuant to Section C or D
hereof, as the case may be, shall have the right to remove with
or without cause at any time and replace any directors such
holders have elected pursuant to such section, by written consent
as herein provided, or at a special meeting of such holders
called as provided herein.
F. Without the consent or affirmative vote of the
holders of at least a majority of the outstanding shares of
Series A Preferred Stock, voting separately as a class, the
Corporation shall not authorize, create or issue, or increase the
authorized amount of, (i) any Senior Securities or Parity
Securities or (ii) any class or series of capital stock or any
security convertible into or exercisable for any class or series
of capital stock, redeemable mandatorily or redeemable at the
option of the holder thereof at any time on or prior to the
Mandatory Redemption Date (whether or not only upon the
occurrence of a specified event); provided, however, that no
consent or vote of the holders of the outstanding shares of the
Series A Preferred Stock shall be required for the creation or
issuance by a trust formed at the direction of the Corporation of
any series of preferred securities of such trust for financing
purposes in an aggregate amount not to exceed $250,000,000
("Trust Preferred Stock"). No consent or vote of the holders of
the outstanding
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<PAGE> 71
shares of Series A Preferred Stock shall be required to
authorize, create or issue, or increase the authorized amount of,
any class or series of Junior Securities, or any security
convertible into a stock of any class or series of Junior
Securities, except to the extent such action would violate
Section H of this Article VIII.
G. Without the consent or affirmative vote of the
holders of at least a majority of the outstanding shares of
Series A Preferred Stock, voting separately as a class, the
Corporation shall not (i) amend, alter or repeal any provision of
the Certificate of Incorporation or the Bylaws, if the amendment,
alteration or repeal alters or changes the powers, preferences or
special rights of the Series A Preferred Stock so as to affect
them materially and adversely, or (ii) authorize or take any
other action if such action alters or changes any of the rights
of the Series A Preferred Stock in any respect or otherwise would
be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the
capital stock of the Corporation is entitled to vote thereon.
H. Other Securities. The Corporation shall not enter
into any agreement or issue any security that prohibits,
conflicts or is inconsistent with, or would be breached by, the
Corporation's performance of its obligations hereunder.
IX. Additional Definitions
For the purposes of this Certificate of Designations
of Series A Preferred Stock, the following terms shall have the
meanings indicated:
"Affiliate" has the meaning set forth in Rule 12b-2
under the Exchange Act. The term "Affiliated" has a correlative
meaning. Notwithstanding the foregoing, for all purposes hereof,
TPG, and each Person controlled by, controlling or under common
control with TPG (each, a "TPG Person"), shall not be deemed an
"Affiliate" of any Designated Purchaser Person (as defined
below), and no Designated Purchaser, and no Person controlled by,
controlling or under common control with such Designated
Purchaser (each, a "Designated Purchaser Person"), shall be
deemed an "Affiliate" of any TPG Person or any other Designated
Purchaser Person, in any such case solely as a consequence of the
Investment Agreement and the transactions contemplated thereby.
"Beneficially Own" with respect to any securities
means having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act as in
effect on the date hereof, except that a Person shall be deemed
to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or
after the passage of time). The terms "Beneficial Ownership" and
"Beneficial Owner" have correlative meanings. Notwithstanding the
foregoing, for all purposes hereof, no TPG Person shall be deemed
to Beneficially Own any securities that are held by any
Designated Purchaser Person, and no Designated Purchaser Person
shall be deemed to Beneficially Own any securities that are held
by any TPG Person or other Designated Purchaser Person, in any
such case solely as a consequence of the Investment Agreement or
the transactions contemplated thereby.
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"Business Day" means any day, other than a Saturday,
Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to
close.
"Bylaws" means the Bylaws of the Corporation, as
amended.
"Change of Control" means such time as:
(i) any Person or Group (other than the Investor, its
Affiliates, the Corporation or any Subsidiaries of the
Corporation, or any Group composed of such Persons) has
become, directly or indirectly, the Beneficial Owner, by
way of merger, consolidation or otherwise, of a majority of
the voting power of the then-outstanding Voting Securities
of the Corporation on a fully-diluted basis, after giving
effect to the conversion and exercise of all outstanding
warrants, options and other securities of the Corporation
convertible into or exercisable for Voting Securities of
the Corporation (whether or not such securities are then
currently convertible or exercisable); or
(ii) the sale, lease, transfer or other disposition of
all or substantially all of the consolidated assets of the
Corporation and its Subsidiaries to any Person or Group; or
(iii) during any period of two consecutive calendar
years, individuals who at the beginning of such period
constituted the Board of Directors, together with any new
members of such Board of Directors whose election by such
Board of Directors or whose nomination for election by the
stockholders of the Corporation was approved by a vote of
at least a majority of the members of such Board of
Directors then still in office who either were directors at
the beginning of such period or whose election or
nomination for election was previously so approved or who
were approved pursuant to Section 5.02 of the Investment
Agreement or Article VIII, Section C, D or E of this
Certificate of Designations, cease for any reason to
constitute a majority of the directors of the Corporation
then in office; or
(iv) the Corporation consolidates with or merges with
or into another Person or any Person consolidates with, or
merges with or into, the Corporation, in any such event
pursuant to a transaction in which immediately after the
consummation thereof the Persons owning the
then-outstanding Voting Securities of the Corporation
immediately prior to such consummation shall not own a
majority in the aggregate (by reason of such prior
ownership) of the then-outstanding Voting Securities of the
Corporation or the surviving entity if other than the
Corporation; or
(v) the adoption of a plan relating to the liquidation
or dissolution of the Corporation, whether or not otherwise
in compliance with the provisions of this Series A
Preferred Stock.
"Closing" shall have the meaning assigned to such term
in the Investment Agreement.
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"Designated Purchaser" has the meaning assigned to
such term in the Investment Agreement.
"Designated Purchaser Person" has the meaning set
forth in the definition of "Affiliate."
"Exchange Act" means the U.S. Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated
thereunder, from time to time.
"Group" has the meaning set forth in Rule 13d-5 under
the Exchange Act.
"Investment Agreement" means the Investment Agreement,
dated as of February 23, 1998, by and between the Investor and
the Corporation, as amended, supplemented or otherwise modified
from time to time.
"Investor Group" means, collectively, the Investor,
the Designated Purchasers, if any, and the respective Affiliates
of such Persons.
"Investor Nominee" means a person designated for
election to the Board of Directors by the Investor pursuant to
the Investment Agreement.
"Investor" means TPG.
"Moody's" means Moody's Investors Service and its
successors.
"Person" means any individual, corporation, company,
association, partnership, joint venture, trust or unincorporated
organization, or a government or any agency or political
subdivision thereof.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of February 23, 1998, by and between
the Investor and the Corporation, as amended, supplemented or
otherwise modified from time to time.
"Second Anniversary Date" means the second anniversary
of the original issuance of the Series A Preferred Stock.
"Securities Act" means the U.S. Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder, from time to time.
"Series B Preferred Stock" has the meaning assigned to
such term in the Investment Agreement.
"S&P" means Standard and Poor's Ratings Group, a
division of the McGraw-Hill Companies, and its successors.
"Subsidiary" means, with respect to any Person, (i)
any corporation, association or other business entity of which
more than 50% of the total voting power of shares of voting stock
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<PAGE> 74
is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that
Person (or combination thereof) and (ii) any partnership (A) the
sole general partner of the managing general partner of which is
such Person or a Subsidiary of such Person or (B) the only
general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"TPG" means TPG Oxford LLC, a Delaware limited
liability company.
"TPG Person" has the meaning set forth in the
definition of "Affiliate."
"Voting Securities" means the shares of Common Stock
and any other securities of the Corporation entitled to vote
generally for the election of directors.
"Warrants" means the Series A Warrants issued by the
Corporation on pursuant to the Investment Agreement.
"Warrant Shares" has the meaning assigned to such term
in the Warrants.
X. Miscellaneous
A. Notices. Any notice referred to herein shall be in
writing and, unless first-class mail shall be specifically
permitted for such notices under the terms hereof, shall be
deemed to have been given upon personal delivery thereof, upon
transmittal of such notice by telecopy (with confirmation of
receipt by telecopy or telex) or five days after transmittal by
registered or certified mail, postage prepaid, addressed as
follows:
(i) if to the Corporation, to its office at 800
Connecticut Avenue Norwalk, Connecticut 06854 (Attention:
General Counsel) or to the transfer agent for the Series A
Preferred Stock;
(ii) if to a holder of the Series A Preferred Stock,
to such holder at the address of such holder as listed in
the stock record books of the Corporation (which may
include the records of any transfer agent for the Series A
Preferred Stock); or
(iii) to such other address as the Corporation or such
holder, as the case may be, shall have designated by notice
similarly given.
B. Reacquired Shares. Any shares of Series A Preferred
Stock redeemed, purchased or otherwise acquired by the
Corporation, directly or indirectly, in any manner whatsoever
shall be retired and canceled promptly after the acquisition
thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption
or purchase of such shares, the capital represented by such
shares shall be reduced in accordance with the Delaware General
Corporation Law. All such shares of Series A Preferred Stock
shall upon their cancellation and upon the filing of an
appropriate certificate with the Secretary of State of the State
of Delaware, become authorized but unissued shares of Preferred
Stock, par value $0.01 per share, of the Corporation and may be
reissued as part of another series of
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<PAGE> 75
Preferred Stock, par value $0.01 per share, of the Corporation
subject to the conditions or restrictions on issuance set forth
herein.
C. Enforcement. Any registered holder of shares of
Series A Preferred Stock may proceed to protect and enforce its
rights and the rights of such holders by any available remedy by
proceeding at law or in equity to protect and enforce any such
rights, whether for the specific enforcement of any provision in
this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
D. Transfer Taxes. Except as otherwise agreed upon
pursuant to the terms of this Certificate of Designations, the
Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes and other governmental charges that may
be imposed under the laws of the United States of America or any
political subdivision or taxing authority thereof or therein in
respect of any issue or delivery of Debentures on exchange of, or
other securities or property issued on account of, shares of
Series A Preferred Stock pursuant hereto or certificates
representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax or other charge
that may be imposed in connection with any transfer involved in
the issue or transfer and delivery of any certificate for
Debentures or other securities or property in a name other than
that in which the shares of Series A Preferred Stock so
exchanged, or on account of which such securities were issued,
were registered and no such issue or delivery shall be made
unless and until the Person requesting such issue has paid to the
Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid or is
not payable.
E. Transfer Agent. The Corporation may appoint, and
from time to time discharge and change, a transfer agent for the
Series A Preferred Stock. Upon any such appointment or discharge
of a transfer agent, the Corporation shall send notice thereof by
first-class mail, postage prepaid, to each holder of record of
shares of Series A Preferred Stock.
F. Record Dates. In the event that the Series A
Preferred Stock shall be registered under either the Securities
Act or the Exchange Act, the Corporation shall establish
appropriate record dates with respect to payments and other
actions to be made with respect to the Series A Preferred Stock.
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<PAGE> 76
IN WITNESS WHEREOF, this Certificate of Designations
is executed on behalf of the Corporation by its [ ] and
attested by its Assistant Secretary, this ___ day of [ ],
1998.
OXFORD HEALTH PLANS, INC.
By:__________________________
Name:
Title:
[Corporate Seal]
ATTEST:
_________________________
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<PAGE> 77
EXHIBIT B
Form of Series A Warrant Certificate
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED
HEREBY HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAW, AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF FEBRUARY 23, 1998, BY AND BETWEEN TPG OXFORD LLC AND
OXFORD HEALTH PLANS, INC. (THE "COMPANY"), THE TERMS OF WHICH ARE
INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY AND AT THE
PRINCIPAL OFFICE OF THE WARRANT AGENT.
<PAGE> 78
No. W-_______ _______ Warrants
SERIES A WARRANTS
Exercisable commencing _______ __, 1998;
Void after Expiration Time (as defined herein)
OXFORD HEALTH PLANS, INC., a Delaware corporation (the
"Company"), hereby certifies that, for value received, ________,
or registered assigns (the "Warrantholder"), is the owner of
________ Warrants (as defined below), each of which entitles the
Warrantholder to purchase from the Company one fully paid, duly
authorized and nonassessable share of Common Stock, par value
$0.01 per share, of the Company (the "Common Stock"), at any time
from and after _______ __, 1998 (the "Issue Date") and continuing
up to the Expiration Time (as defined herein) at a per share
exercise price determined according to the terms and subject to
the conditions set forth in this certificate (the "Warrant
Certificate"). The number of shares of Common Stock issuable upon
exercise of each such Warrant and the exercise price per share of
Common Stock are subject to adjustment from time to time pursuant
to the provisions of Sections 8 and 9 of this Warrant
Certificate. The Warrants evidenced by this Warrant Certificate
are part of a series of warrants to purchase up to ____ shares of
Common Stock (collectively, the "Warrants"), issued pursuant to
an Investment Agreement, dated as of February 23, 1998 (as it may
be amended, supplemented or otherwise modified from time to time,
the "Investment Agreement"), by and between TPG Oxford LLC, a
Delaware limited liability company (the "Investor"), and the
Company, and are entitled to certain rights and privileges set
forth therein.
Section 1. Definitions. As used in this Warrant
Certificate, the following terms shall have the meanings set
forth below:
"Adjusted Price" has the meaning set forth in Section 8 hereof.
"Adjustment Date" means the twentieth Trading Day
after the day on which the Company's Annual Report on Form
10-K for the year ended December 31, 1998 is filed with the
U.S. Securities and Exchange Commission.
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day, other than a Saturday,
Sunday or a day on which banking institutions in the State
of New York are authorized or obligated by law or executive
order to close.
"Certificate of Designations" means the Certificate of
Designations for the Series A Preferred Stock filed by the
Company with the Secretary of State of the State of
Delaware.
<PAGE> 79
"Certificate of Incorporation" means the Second Amended
and Restated Certificate of Incorporation of the Company,
as amended from time to time.
"Closing Price" with respect to a share of Common
Stock on any day means, subject to Section 9.1(f), the last
reported sale price on that day or, in case no such
reported sale takes place on such day, the average of the
last reported bid and asked prices, regular way, on that
day, in either case, as reported in the consolidated
transaction reporting system with respect to securities
quoted on Nasdaq or, if the shares of Common Stock are not
quoted on Nasdaq, as reported in the principal consolidated
transaction reporting system with respect to securities
listed on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to
trading or, if the shares of Common Stock are not quoted on
Nasdaq and not listed or admitted to trading on any
national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked
prices on such other nationally recognized quotation system
then in use, or, if on any such day the shares of Common
Stock are not quoted on any such quotation system, the
average of the closing bid and asked prices as furnished by
a professional market maker selected by the Board of
Directors making a market in the shares of Common Stock. If
the shares of Common Stock are not publicly held or so
listed, quoted or publicly traded, the "Closing Price"
means the fair market value of a share of Common Stock, as
determined in good faith by the Board of Directors.
"Common Stock" has the meaning set forth in the preamble hereto.
"Company" has the meaning set forth in the preamble hereto.
"Equity Securities" of any Person means any and all
common stock, preferred stock, any other class of capital
stock and partnership or limited liability company
interests of such Person or any other similar interests of
any Person that is not a corporation, partnership or
limited liability company.
"Exercise Price" has the meaning set forth in Section 8 hereof.
"Expiration Date" means the earlier of (i) _____, 2008
[ten years after the Issue Date], and (ii) the date of an
Optional Redemption.
"Expiration Time" means 5:00 P.M., New York City time,
on the Expiration Date.
"Fractional Warrant Share" means any fraction of a
whole share of Common Stock issued, or issuable upon,
exercise of the Warrants.
"Investment Agreement" has the meaning set forth in the
preamble hereto.
"Investor" has the meaning set forth in the preamble hereto.
"Issue Date" has the meaning set forth in the preamble hereto.
"Nasdaq" means The Nasdaq Stock Market's National Market.
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"Offer Time" has the meaning set forth in Section
9.1(e) hereof.
"Optional Redemption" means a redemption of the Series
A Preferred Stock pursuant to Article V, Section A of the
Certificate of Designations.
"Organic Change" means, with respect to any Person,
any transaction (including without limitation any
recapitalization, capital reorganization or
reclassification of any class or series of Equity
Securities, any consolidation of such Person with, or
merger of such Person into, any other Person, any merger of
another Person into such Person (other than a merger which
does not result in a reclassification, conversion, exchange
or cancellation of outstanding shares of capital stock of
such Person), and any sale or transfer or lease of all or
substantially all of the assets of such Person, but not
including any stock split, combination or subdivision which
is the subject of Section 9.1(b)) pursuant to which any
class or series of Equity Securities of such Person is
converted into the right to receive other securities, cash
or other property.
"Person" means any individual, firm, corporation,
company, limited liability company, association,
partnership, joint venture, trust or unincorporated
organization, or a government or any agency or political
subdivision thereof.
"Securities Act" means the U.S. Securities Act of 1933,
as amended, and the rules and regulations promulgated
thereunder.
"Senior Preferred Stock" has the meaning assigned to
such term in the Investment Agreement.
"Series A Preferred Stock" means the Series A
Cumulative Preferred Stock, par value $0.01 per share, of
the Company.
"Stated Value" means the stated value of the Series A
Preferred Stock as set forth in the Certificate of
Designations.
"Trading Day" means any day on which Nasdaq is open
for trading, or if the shares of Common Stock are not
quoted on Nasdaq, any day on which the principal national
securities exchange or national quotation system on which
the shares of Common Stock are listed, admitted to trading
or quoted is open for trading, or if the shares of Common
Stock are not so listed, admitted to trading or quoted, any
Business Day.
"Warrant" has the meaning set forth in the preamble hereto.
"Warrant Agent" means the Person named or otherwise
appointed as such as set forth in Section 10 hereof.
"Warrant Certificate" has the meaning in the preamble hereto.
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"Warrant Market Price" means the average of the Closing
Prices of a share of Common Stock for the ten consecutive
Trading Days ending on the Trading Day immediately prior to
the day on which the Election to Exercise is delivered.
"Warrant Register" has the meaning set forth in Section 2.2
hereof.
"Warrant Shares" means the shares of Common Stock
issued, or issuable upon, exercise of the Warrants.
"Warrantholder" has the meaning set forth in the
preamble hereto.
Section 2. Transferability.
2.1. Registration. The Warrants shall be issued only in
registered form.
2.2. Transfer. The Warrants evidenced by this Warrant
Certificate may be sold or otherwise transferred at any time
(except as such sale or transfer may be restricted pursuant to
the Securities Act or any applicable state securities laws) and
any such sale or transfer shall be effected on the books of the
Company (the "Warrant Register") maintained at its principal
executive offices upon surrender of this Warrant Certificate for
registration of transfer duly endorsed by the Warrantholder or by
its duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Warrant Certificate or Certificates in
appropriate denominations to the Person or Persons entitled
thereto.
2.3. Legend on Warrant Shares. If and for so long as
required by the Investment Agreement, this Warrant Certificate
shall contain a legend as set forth in Section 8.10 of the
Investment Agreement.
Section 3. Exchange of Warrant Certificate. Any
Warrant certificate may be exchanged for another certificate or
certificates of like tenor entitling the Warrantholder to
purchase a like aggregate number of Warrant Shares as the
certificate or certificates surrendered then entitles such
Warrantholder to purchase. Any Warrantholder desiring to exchange
a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed,
the certificate evidencing the Warrant to be so exchanged.
Thereupon, the Company shall execute and deliver to the Person
entitled thereto a new Warrant certificate or certificates as so
requested.
Section 4. Term of Warrants; Exercise of Warrants.
4.1. Duration of Warrant. On the terms and subject to
the conditions set forth in this Warrant Certificate, the
Warrantholder may exercise the Warrants evidenced hereby, in
whole or in part, at any time and from time to time after the
Issue Date and before the Expiration Time. If the Warrants
evidenced hereby are not exercised by the Expiration Time, they
shall become void, and all rights hereunder shall thereupon
cease.
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4.2. Exercise of Warrant.
(a) On the terms and subject to the conditions
set forth in this Warrant Certificate, the Warrantholder
may exercise the Warrants evidenced hereby, in whole or in
part, by presentation and surrender to the Warrant Agent of
this Warrant Certificate together with the attached
Election to Exercise duly filled in and signed, and
accompanied by payment to the Company of the Exercise Price
for the number of Warrant Shares specified in such Election
to Exercise. Payment of the aggregate Exercise Price shall
be made (i) in cash in an amount equal to the aggregate
Exercise Price; (ii) by certified or official bank check in
an amount equal to the aggregate Exercise Price; (iii) by
an exchange (which shall be treated as a recapitalization)
with the Company of a number of shares of Senior Preferred
Stock having an aggregate Stated Value plus accumulated and
unpaid dividends thereon equal to the aggregate Exercise
Price; (iv) by an exchange (which shall be treated as a
recapitalization) with the Company of outstanding Warrants
(other than the Warrants being exercised) having an
aggregate Warrant Market Price which, after subtracting the
aggregate Exercise Prices thereof, equals the aggregate
Exercise Price of the Warrants being exercised; or (v) by
any combination of the foregoing.
(b) On the terms and subject to the conditions
set forth in this Warrant Certificate, upon such
presentation and surrender of this Warrant Certificate and
payment of such aggregate Exercise Price as set forth in
paragraph (a) hereof, the Company shall promptly issue and
cause to be delivered to the Warrantholder, or to such
Persons as the Warrantholder may designate in writing a
certificate or certificates (in such name or
names as the Warrantholder may designate in writing) for
the specified number of duly authorized, fully paid and
non-assessable Warrant Shares issuable upon exercise, and
shall deliver to the Warrantholder cash, as provided in
Section 11 hereof, with respect to any Fractional Warrant
Shares otherwise issuable upon such surrender. In the event
that the Warrants evidenced by this Warrant Certificate are
exercised in part prior to the Expiration Time, the Company
shall issue and cause to be delivered to the Warrantholder,
or to such Persons as the Warrantholder may designate in
writing, a certificate or certificates (in such name or
names as the Warrantholder may designate in writing)
evidencing any remaining unexercised Warrants.
(c) Each Person in whose name any certificate for
Warrant Shares is issued shall for all purposes be deemed
to have become the holder of record of the Warrant Shares
represented thereby on the first date on which both the
Warrant certificate evidencing the respective Warrants was
surrendered and payment of the Exercise Price and any
applicable taxes was made, irrespective of date of issue or
delivery of such certificate.
Section 5. Payment of Taxes. The Company shall pay any
and all documentary, stamp or similar issue or transfer taxes and
other governmental charges that may be imposed under the laws of
the United States of America or any political subdivision or
taxing authority thereof or therein in respect of any issue or
delivery of Warrant Shares or of other
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securities or property deliverable upon exercise of the Warrants
evidenced by this Warrant Certificate or certificates
representing such shares or securities (other than income taxes
imposed on the Warrantholder); provided that the Company shall
not be required to pay any such tax or other charge that may be
imposed in connection with any transfer involved in the issue of
any certificate for Warrant Shares or other securities or
property, or payment of cash, to any Person other than the holder
of the Warrant certificate surrendered upon exercise, and in case
of any such tax or charge, the Warrant Agent and the Company
shall not be required to issue any security or property or pay
any cash until such tax or charge has been paid or it has been
established to the Warrant Agent's and the Company's satisfaction
that no such tax or charge is payable.
Section 6. Mutilated or Missing Warrant. If any
Warrant certificate is lost, stolen, mutilated or destroyed, the
Company shall issue and the Warrant Agent shall countersign, in
exchange and substitution for and upon cancellation of the
mutilated Warrant certificate, or in lieu of and substitution for
the Warrant certificate lost, stolen or destroyed, upon receipt
of a proper affidavit or other evidence reasonably satisfactory
to the Company and the Warrant Agent (and surrender of any
mutilated Warrant certificate) and bond of indemnity in form and
amount and with corporate surety reasonably satisfactory to the
Company and the Warrant Agent in each instance protecting the
Company and the Warrant Agent, a new Warrant certificate of like
tenor and representing an equivalent number of Warrants as the
Warrant certificate so lost, stolen, mutilated or destroyed. Any
such new Warrant certificate shall constitute an original
contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant
certificate shall be at any time enforceable by anyone. An
applicant for such substitute Warrant certificate shall also
comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may
prescribe. All Warrant certificates shall be held and owned upon
the express condition that the foregoing provisions are exclusive
with respect to the replacement of lost, stolen, mutilated or
destroyed Warrant certificates, and shall preclude any and all
other rights or remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without
their surrender.
Section 7. Reservation of Shares. The Company hereby
agrees that there shall be reserved for issuance and delivery
upon exercise of this Warrant, free from preemptive rights, the
number of shares of authorized but unissued shares of Common
Stock as shall be required for issuance or delivery upon exercise
of the Warrants evidenced by this Warrant Certificate. The
Company further agrees that it will not, by amendment of its
Certificate of Incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions
to be observed or performed hereunder by the Company. Without
limiting the generality of the foregoing, the Company agrees that
before taking any action which would cause an adjustment reducing
the Exercise Price below the then-par value of Warrant Shares
issuable upon exercise hereof, the Company shall from time to
time take all such action that may be necessary in order that the
Company may validly and legally issue fully paid and
nonassessable shares of Common Stock at the Exercise Price as so
adjusted.
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Section 8. Exercise Price. The price per share (the
"Exercise Price") at which Warrant Shares shall be purchasable
upon the exercise of the Warrants evidenced by this Warrant
Certificate shall be $17.75, subject to adjustment pursuant to
Section 9 hereof; provided, that, unless the Warrantholder
otherwise elects by delivering a written notice to that effect to
the Company or the Warrant Agent on the Adjustment Date, in the
event the Exercise Price for the Warrants evidenced by this
Warrant Certificate immediately prior to the Adjustment Date
shall be greater than the amount (the "Adjusted Price") equal to
the product of 1.15 multiplied by the average of the Closing
Prices of a share of Common Stock for the twenty consecutive
Trading Days ending on the last Trading Day prior to the
Adjustment Date (the "Adjusted Price Determination Period"), the
Exercise Price shall be deemed to equal the Adjusted Price as of
the Adjustment Date, and any adjustments to the Exercise Price
made pursuant to Section 9.1 hereof on and after the Adjustment
Date shall be made with respect to such Adjusted Price. In case
any event that would require an adjustment to the Exercise Price
pursuant to Section 9 hereof occurs with an "ex" date or an
effective date occurrring during the Adjusted Price Determination
Period, the Closing Prices used in determining the Adjusted Price
shall be appropriately adjusted to take such event into account.
No adjustment to the Exercise Price shall be made pursuant to
this Section 8 with respect to any Warrants that have been
surrendered for exercise prior to the Adjustment Date or
exchanged in connection with the exercise of Warrants prior to
the Adjustment Date in accordance with clause (iv) of Section
4.2(a) hereof.
Section 9. Adjustment of Exercise Price and Number of
Shares. The number and kind of securities purchasable upon the
exercise of the Warrants evidenced by this Warrant Certificate
and the Exercise Price thereof shall be subject to adjustment
from time to time after the date hereof upon the happening of
certain events, as follows:
9.1. Adjustments to Exercise Price. The Exercise Price
shall be subject to adjustment as follows:
(a) Stock Dividends. In case the Company after the
date hereof shall pay a dividend or make a distribution to
all holders of shares of Common Stock in shares of Common
Stock, then in any such case the Exercise Price in effect
at the opening of business on the day following the record
date for the determination of stockholders entitled to
receive such dividend or distribution shall be reduced to a
price obtained by multiplying such Exercise Price by a
fraction of which (x) the numerator shall be the number of
shares of Common Stock outstanding at the close of business
on such record date and (y) the denominator shall be the
sum of such number of shares of Common Stock outstanding
and the total number of shares of Common Stock constituting
such dividend or distribution, such reduction to become
effective immediately after the opening of business on the
day following such record date. For purposes of this
subsection (a), the number of shares of Common Stock at any
time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable
in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not
pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Company.
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(b) Stock Splits and Reverse Splits. In case after the
date hereof outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock,
the Exercise Price in effect at the opening of business on
the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and,
conversely, in case after the date hereof outstanding
shares of Common Stock shall be combined into a smaller
number of shares of Common Stock, the Exercise Price in
effect at the opening of business on the day following the
day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as
the case may be, to become effective immediately after the
opening of business on the day following the day upon which
such subdivision or combination becomes effective.
(c) Issuances Below Market. In case the Company after
the date hereof shall issue rights or warrants to holders
of shares of Common Stock entitling them to subscribe for
or purchase shares of Common Stock at a price per share
less than the Closing Price per share on the record date
for the determination of stockholders entitled to receive
such rights or warrants, the Exercise Price in effect at
the opening of business on the day following such record
date shall be adjusted to a price obtained by multiplying
such Exercise Price by a fraction of which (x) the
numerator shall be the number of shares of Common Stock
outstanding at the close of business on such record date
plus the number of shares of Common Stock that the
aggregate offering price of the total number of shares so
to be offered would purchase at such Closing Price and (y)
the denominator shall be the number of shares of Common
Stock outstanding at the close of business on such record
date plus the number of additional shares of Common Stock
so to be offered for subscription or purchase, such
adjustment to become effective immediately after the
opening of business on the day following such record date;
provided, however, that no adjustment shall be made if the
Company issues or distributes to each Warrantholder the
rights or warrants that each Warrantholder would have been
entitled to receive had the Warrants held by such
Warrantholder been exercised prior to such record date; and
provided, further, that in no event shall the fact that the
Series B Warrants of the Company become exercisable for
shares of Common Stock upon occurrence of the Shareholder
Approval (as defined in the Investment Agreement)
constitute an issuance of rights or warrants pursuant to
this Section 9.1(c). For purposes of this subsection (c),
the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury
of the Company but shall include shares issuable in respect
of scrip certificates issued in lieu of fractions of shares
of Common Stock. The Company shall not issue any rights or
warrants in respect of shares of Common Stock held in the
treasury of the Company. Rights or warrants issued by the
Company to all holders of Common Stock entitling the
holders thereof to subscribe for or purchase Equity
Securities, which rights or warrants (i) are deemed to be
transferred with such shares of Common Stock, (ii) are not
exercisable and (iii) are also issued in respect of future
issuances of Common Stock, including shares of Common Stock
issued upon exercise of the Warrants evidenced by this
Warrant Certificate, in each case in clauses (i) through
(iii) until the occurrence of a specified event or events
(a "Trigger Event"), shall for purposes of this subsection
(c) not be deemed issued until the occurrence of the
earliest Trigger Event.
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(d) Special Dividends. In case the Company after the
date hereof shall distribute to all holders of shares of
Common Stock evidences of its indebtedness or assets
(excluding any regular periodic cash dividend), Equity
Securities (other than Common Stock) or rights to subscribe
(excluding those referred to in subsection (c) above) for
Equity Securities other than Common Stock, in each such
case the Exercise Price in effect immediately prior to the
close of business on the record date for the determination
of stockholders entitled to receive such distribution shall
be adjusted to a price obtained by multiplying such
Exercise Price by a fraction of which (x) the numerator
shall be the Closing Price per share of Common Stock on
such record date, less the then-current fair market value
as of such record date (as determined by the Board of
Directors in its good faith judgment) of the portion of
assets or evidences of indebtedness or Equity Securities or
subscription rights so distributed applicable to one share
of Common Stock, and (y) the denominator shall be such
Closing Price, such adjustment to become effective
immediately prior to the opening of business on the day
following such record date; provided, however, that no
adjustment shall be made (1) if the Company issues or
distributes to each Warrantholder the subscription rights
referred to above that each Warrantholder would have been
entitled to receive had the Warrants held by such
Warrantholder been exercised prior to such record date or
(2) if the Company grants to each Warrantholder the right
to receive, upon the exercise of the Warrants held by such
Warrantholder at any time after the distribution of the
evidences of indebtedness or assets or Equity Securities
referred to above, the evidences of indebtedness or assets
or Equity Securities that such Warrantholder would have
been entitled to receive had such Warrants been exercised
prior to such record date. The Company shall provide any
Warrantholder, upon receipt of a written request therefor,
with any indenture or other instrument defining the rights
of the holders of any indebtedness, assets, subscription
rights or Equity Securities referred to in this subsection
(d). Rights or warrants issued by the Company to all
holders of Common Stock entitling the holders thereof to
subscribe for or purchase Equity Securities, which rights
or warrants (i) are deemed to be transferred with such
shares of Common Stock, (ii) are not exercisable and (iii)
are also issued in respect of future issuances of Common
Stock, including shares of Common Stock issued upon
exercise of the Warrants evidenced by this Warrant
Certificate, in each case in clauses (i) through (iii)
until the occurrence of a Trigger Event, shall for purposes
of this subsection (d) not be deemed issued until the
occurrence of the earliest Trigger Event.
(e) Tender or Exchange Offer. In case a tender or
exchange offer made by the Company or any subsidiary of the
Company for all or any portion of the Common Stock shall be
consummated and such tender offer shall involve an
aggregate consideration having a fair market value (as
determined by the Board of Directors in its good faith
judgment) at the last time (the "Offer Time") tenders may
be made pursuant to such tender or exchange offer (as it
may be amended) that, together with the aggregate of the
cash plus the fair market value (as determined by the Board
of Directors in its good faith judgment), as of the Offer
Time, of consideration payable in respect of any tender or
exchange offer by the Company or any such subsidiary for
all or any portion of the Common Stock consummated
preceding the Offer Time and in respect of which no
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Exercise Price adjustment pursuant to this subsection (e)
has been made, exceeds 5% of the product of the Closing
Price of the Common Stock at the Offer Time multiplied by
the number of shares of Common Stock outstanding (including
any tendered shares) at the Offer Time, the Exercise Price
shall be reduced so that the same shall equal the price
determined by multiplying the Exercise Price in effect
immediately prior to the Offer Time by a fraction of which
(x) the numerator shall be (i) the product of the Closing
Price of the Common Stock at the Offer Time multiplied by
the number of shares of Common Stock outstanding (including
any tendered shares) at the Offer Time minus (ii) the fair
market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the
tender or exchange offer) of all shares validly tendered
and not withdrawn as of the Offer Time (the shares deemed
so accepted, up to any such maximum, being referred to as
the "Purchased Shares") and (y) the denominator shall be
the product of (i) such Closing Price at the Offer Time
multiplied by (ii) such number of outstanding shares at the
Offer Time minus the number of Purchased Shares, such
reduction to become effective immediately prior to the
opening of business on the day following the Offer Time.
For purposes of this subsection (e), the number of shares
of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall
include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock.
(f) Closing Price Determination. For the purpose of
any computation under subsections (c) and (d) of this
Section 9.1, the Closing Price of Common Stock on any date
shall be deemed to be the average of the Closing Prices for
the five consecutive Trading Days ending not later than the
day in question and commencing on a day selected at random
in good faith by the Company which is not more than 20
Trading Days before the day in question, provided, however,
that (i) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that
requires an adjustment to the Exercise Price pursuant to
this Section 9 occurs on or after the 20th Trading Day
prior to the day in question and prior to the "ex" date for
the issuance or distribution requiring such computation,
the Closing Price for each Trading Day prior to the "ex"
date for such other event shall be adjusted by multiplying
such Closing Price by the same fraction which the Exercise
Price is so required to be adjusted as a result of such
other event, (ii) if the "ex" date for any event (other
than the issuance or distribution requiring such
computation) that requires an adjustment to the Exercise
Price pursuant to this Section 9 occurs on or after the
"ex" date for the issuance or distribution requiring such
computation and on or prior to the day in question, the
Closing Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying
such Closing Price by the reciprocal of the fraction by
which the Exercise Price is so required to be adjusted as a
result of such other event, and (iii) if the "ex" date for
the issuance or distribution requiring such computation is
on or prior to the day in question, after taking into
account any adjustment required pursuant to clause (ii) of
this proviso, the Closing Price for each Trading Day on or
after such "ex" date shall be adjusted by adding thereto
the fair market value on the day in question (as determined
by the Board of Directors in a manner consistent with any
determination of such value for the purposes of
subsection (d)
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of this Section 9.1) of the assets, evidences of
indebtedness, Equity Securities or subscription rights
being distributed applicable to one share of Common Stock
as of the close of business on the day before such "ex"
date. For the purposes of any computation under subsection
(e) of this Section 9.1, the Closing Price on any date
shall be deemed to be the average of the daily Closing
Prices for the five consecutive Trading Days ending not
later than the Offer Time of such tender or exchange offer
and commencing on a day selected at random in good faith by
the Company which date shall be on or after the latest (the
"Commencement Date") of (i) the date 20 Trading Days before
the date in question, (ii) the date of commencement of the
tender or exchange offer requiring such computation and
(iii) the date of the last amendment, if any, of such
tender or exchange offer involving a change in the maximum
number of shares for which tenders are sought or a change
in the consideration offered; provided, however, that if
the "ex" date for any event (other than the tender or
exchange offer requiring such computation) that requires
an adjustment to the Exercise Price pursuant to this
Section 9 occurs on or after the Commencement Date and
prior to the Offer Time for the tender or exchange offer
requiring such computation, the Closing Price for each
Trading Day prior to the "ex" date for such other event
shall be adjusted by multiplying such Closing Price by the
same fraction by which the Exercise Price is so required to
be adjusted as a result of such other event. For purposes
of this subsection (f), the term "ex" date, (i) when used
with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way on
Nasdaq or on the relevant exchange or in the relevant
market from which the Closing Price was obtained without
the right to receive such issuance or distribution, (ii)
when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the
Common Stock trades regular way on Nasdaq or such exchange
or in such market after the time at which such subdivision
or combination becomes effective, and (iii) when used with
respect to any tender or exchange offer means the first
date on which the Common Stock trades regular way on Nasdaq
or such exchange or in such market after the Offer Time of
such tender or exchange offer.
(g) Minimum Adjustment Requirement. No adjustment
shall be required unless such adjustment would result in an
increase or decrease of at least $0.01 in the Exercise
Price then subject to adjustment; provided, however, that
any adjustments that are not made by reason of this
subsection (g) shall be carried forward and taken into
account in any subsequent adjustment. In case the Company
shall at any time issue shares of Common Stock by way of
dividend on any stock of the Company or subdivide or
combine the outstanding shares of Common Stock, said amount
of $0.01 specified in the preceding sentence (as
theretofore increased or decreased, if said amount shall
have been adjusted in accordance with the provisions of
this subsection (g)) shall forthwith be proportionately
increased in the case of such a combination or decreased in
the case of such a subdivision or stock dividend so as
appropriately to reflect the same.
(h) Calculations. All calculations under this Section
9.1 shall be made to the nearest $0.01.
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(i) Certificate. Whenever an adjustment in the
Exercise Price is made as required or permitted by the
provisions of this Section 9.1, the Company shall promptly
file with the Warrant Agent a certificate of its chief
financial officer setting forth (A) the adjusted Exercise
Price as provided in this Section 9.1 and a brief statement
of the facts requiring such adjustment and the computation
thereof and (B) the number of shares of Common Stock (or
portions thereof) purchasable upon exercise of a Warrant
after such adjustment in the Exercise Price in accordance
with Section 9.2 hereof and the record date therefor, and
promptly after such filing shall mail or cause to be mailed
a notice of such adjustment to each Warrantholder at his or
her last address as the same appears on the Warrant
Register. Such certificate, in the absence of manifest
error, shall be conclusive and final evidence of the
correctness of such adjustment. The Warrant Agent shall be
entitled to rely upon such certificate, and shall be under
no duty or responsibility with respect to any such
certificate except to exhibit the same to any Warrantholder
desiring inspection thereof.
(j) Notice. In case:
(i) the Company shall declare any dividend or any
distribution of any kind or character (whether in cash,
securities or other property) on or in respect of shares of
Common Stock or to the stockholders of the Company (in
their capacity as such), excluding any regular periodic
cash dividend paid out of current or retained earnings (as
such terms are used in generally accepted accounting
principles); or
(ii) the Company shall authorize the granting to the
holders of shares of Common Stock of rights to subscribe
for or purchase any shares of capital stock or of any other
right; or
(iii) of any reclassification of shares of Common
Stock (other than a subdivision or combination of
outstanding shares of Common Stock), or of any
consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or
substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed with the Warrant
Agent and shall cause to be mailed to the Warrantholders,
at their last addresses as they shall appear upon the
Warrant Register, at least 30 days prior to the applicable
record date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of
such dividend, distribution or rights or, if a record is
not to be taken, the date as of which the holders of shares
of Common Stock of record to be entitled to such dividend,
distribution or rights are to be determined or (y) the date
on which such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and, if applicable, the date
as of which it is expected that holders of shares of Common
Stock of record shall be entitled to exchange their shares
of Common Stock for securities or
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other property (including cash) deliverable upon such
reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up. Failure to give any
such notice, or any defect therein, shall not affect the
validity of the proceedings referred to in clauses (i),
(ii), (iii) and (iv) above.
(k) Section 305. Anything in this Section 9.1 to the
contrary notwithstanding, the Company shall be entitled,
but not required, to make such reductions in the Exercise
Price, in addition to those required by this Section 9.1,
as it in its discretion shall determine to be advisable,
including, without limitation, in order that any dividend
in or distribution of shares of Common Stock or shares of
capital stock of any class other than Common Stock,
subdivision, reclassification or combination of shares of
Common Stock, issuance of rights or warrants, or any other
transaction having a similar effect, shall not be treated
as a distribution of property by the Company to its
stockholders under Section 305 of the Internal Revenue Code
of 1986, as amended, or any successor provision and shall
not be taxable to them.
(l) No Adjustment. Anything to the contrary herein
notwithstanding, no adjustment to the Exercise Price or the
number of shares of Common Stock purchasable upon exercise
of a Warrant shall be made pursuant to this Section 9.1 or
Section 9.2 as a result of, or in connection with, the
issuance of options or rights to purchase Common Stock
issued to employees of the Company or its Subsidiaries
pursuant to a stock option or other similar plan adopted by
the Board of Directors or an employment agreement approved
by the Board of Directors, or the modification, renewal or
extension of any such plan or agreement if approved by the
Board of Directors.
(m) When Adjustment Not Required. If the Company shall
take a record of the holders of its Common Stock for
purposes of taking any action that requires an adjustment
of the Exercise Price under this Section 9, and shall,
thereafter and before the effective date of such action,
legally abandon its plan to take such action, then
thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously
made in respect thereof shall be rescinded and annulled.
9.2. Adjustment to Number of Warrant Shares. Upon each
adjustment of the Exercise Price pursuant to Section 9.1 hereof
the number of Warrant Shares purchasable upon exercise of a
Warrant outstanding prior to the effectiveness of such adjustment
shall be adjusted to the number, calculated to the nearest
one-hundredth of a share, obtained by (x) multiplying the number
of Warrant Shares purchasable immediately prior to such
adjustment upon the exercise of a Warrant by the Exercise Price
in effect prior to such adjustment and (y) dividing the product
so obtained by the Exercise Price in effect after such adjustment
of the Exercise Price.
9.3. Organic Change.
(a) Company Survives. Upon the consummation of an
Organic Change (other than a transaction in which the
Company is not the surviving entity), lawful provision
shall be made as part of the terms of such transaction
whereby the terms of the Warrant Certificates shall be
modified, without payment of any additional consideration
therefor,
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<PAGE> 91
so as to provide that upon exercise of Warrants following
the consummation of such Organic Change, the Warrantholders
of such Warrants shall have the right to purchase only the
kind and amount of securities, cash and other property
receivable upon such Organic Change by a holder of the
number of Warrant Shares into which such Warrants might
have been exercised immediately prior to such Organic
Change, assuming such holder of Warrant Shares (i) is not a
Person with which the Company consolidated or into which
the Company merged or which merged into the Company or to
which a sale, transfer or lease of all or substantially all
of the assets of the Company was made, as the case may be
(a "constituent Person"), or an Affiliate of a constituent
Person, and (ii) failed to exercise his rights of election,
if any, as to the kind and amount of securities, cash
and other property receivable upon such Organic Change
(provided that if the kind and amount of securities, cash
and other property receivable upon such Organic Change is
not the same for each share of Common Stock held
immediately prior to such Organic Change by others than a
constituent Person or an Affiliate thereof and in respect
of which such rights of election shall not have been
exercised ("non-electing shares"), then for the purpose of
this subsection (a) the kind and amount of securities, cash
and other property receivable upon such Organic Change by
each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the
non-electing shares); provided, however, that no adjustment
shall be made as a result of such Organic Change to the
Exercise Price or the number of Warrant Shares
notwithstanding any provision of Section 9 hereof unless
any event requiring any such adjustment shall have occurred
or shall occur prior to, upon or after such Organic Change.
Lawful provision also shall be made as part of the terms of
the Organic Change so that all other terms of the Warrant
Certificates shall remain in full force and effect
following such an Organic Change. The provisions of this
Section 9.3(a) shall similarly apply to successive Organic
Changes.
(b) Company Does Not Survive. The Company shall not
enter into an Organic Change that is a transaction in which
the Company is not the surviving entity unless lawful
provision shall be made as part of the terms of such
transaction whereby the surviving entity shall issue new
securities to each Warrantholder, without payment of any
additional consideration therefor, with terms that provide
that upon the exercise of the Warrants, the Warrantholders
of such Warrants shall have the right to purchase only the
kind and amount of securities, cash and other property
receivable upon such Organic Change by a holder of the
number of Warrant Shares into which such Warrants might
have been exercised immediately prior to such Organic
Change, assuming such holder of Warrant Shares (i) is not a
constituent Person or an Affiliate of a constituent Person
and (ii) failed to exercise his rights of election, if any,
as to the kind and amount of securities, cash and other
property receivable upon such Organic Change (provided that
if the kind and amount of securities, cash and other
property receivable upon such Organic Change is not the
same for each non-electing share, then for the purpose of
this subsection (b) the kind and amount of securities, cash
and other property receivable upon such Organic Change by
each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the
non-electing shares); provided, however, that no adjustment
shall be made as a result of such Organic Change to the
Exercise Price or the number of Warrant Shares
notwithstanding any provision of Section 9 hereof unless
any
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<PAGE> 92
event requiring any such adjustment shall have occurred or
shall occur prior to, upon or after such Organic Change.
The certificate or articles of incorporation or other
constituent document of the surviving entity shall provide
for such adjustments which, for events subsequent to the
effective date of such certificate or articles of
incorporation or other constituent document, shall be
equivalent to the adjustments provided for in Section 9.1
hereof.
9.4. Statement on Warrants. The form of Warrant
Certificate need not be changed because of any adjustment made
pursuant to Section 8, Section 9.1 or Section 9.2 hereof, and
Warrants issued after such adjustment may state the same Exercise
Price and the same number of Warrant Shares as are stated in this
Warrant Certificate.
Section 10. Warrant Agent. On the date of issuance of
the Warrants, the Company shall cause to be appointed in the
Borough of Manhattan, The City of New York, a Warrant Agent,
having a capital and surplus of at least $100,000,000.
Section 11. Fractional Interests. The Company shall
not be required to issue Fractional Warrant Shares on the
exercise of the Warrants evidenced by this Warrant Certificate.
If any Fractional Warrant Share would, but for the provisions of
this Section 11, be issuable on the exercise of the Warrants
evidenced by this Warrant Certificate (or specified portions
thereof), the Company shall pay an amount in cash equal to the
fraction of a Warrant Share represented by such Fractional
Warrant Share multiplied by the Closing Price on the day of such
exercise.
Section 12. No Rights as Shareholder. Nothing in this
Warrant Certificate shall be construed as conferring upon the
Warrantholder or its transferees any rights as a shareholder of
the Company, including the right to vote, receive dividends,
consent or receive notices as a shareholder with respect to any
meeting of shareholders for the election of directors of the
Company or any other matter.
Section 13. Successors. All the covenants and
provisions of this Warrant Certificate by or for the benefit of
the Company or the Warrantholder shall bind and inure to the
benefit of their respective successors and permitted assigns
hereunder.
Section 14. Governing Law; Choice of Forum, Etc.
The validity, construction and performance of this Warrant
Certificate shall be governed by, and interpreted in accordance
with, the laws of New York without reference to its conflict of
laws rules. The parties hereto agree that the appropriate and
exclusive forum for any disputes arising out of this Warrant
Certificate solely between or among any or all of the Company, on
the one hand, and the Investor and/or any Person who has become a
Warrantholder, on the other, shall be the United States District
Court for the Southern District of New York, and, if such court
will not hear any such suit, the courts of the state of the
Company's incorporation, and the parties hereto irrevocably
consent to the exclusive jurisdiction of such courts, and agree
to comply with all requirements necessary to give such courts
jurisdiction. The parties hereto further agree that the parties
will not bring suit with respect to any disputes, except as
expressly set forth below, arising out of this Warrant
Certificate for the execution or enforcement of judgment, in any
jurisdiction other than the above specified courts. Each of the
parties hereto irrevocably consents to the service of
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<PAGE> 93
process in any action or proceeding hereunder by the mailing of
copies thereof by registered or certified airmail, postage
prepaid, if to (i) the Company, at 800 Connecticut Avenue,
Norwalk, Connecticut, 06854, Attention: General Counsel, or at
such other address specified by the Company in writing to the
Warrant Agent, and (ii) any Warrantholder, at the address of such
Warrantholder specified in the Warrant Register. The foregoing
shall not limit the rights of any party hereto to serve process
in any other manner permitted by the law or to obtain execution
of judgment in any other jurisdiction. The parties further agree,
to the extent permitted by law, that final and unappealable
judgment against any of them in any action or proceeding
contemplated above shall be conclusive and may be enforced in any
other jurisdiction within or outside the United States by suit on
the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the fact and the amount of indebtedness.
The parties agree to waive any and all rights that they may have
to a jury trial with respect to disputes arising out of this
Agreement.
Section 15. Benefits of this Agreement. Nothing in
this Warrant Certificate shall be construed to give to any Person
other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Warrant Certificate,
and this Warrant Certificate shall be for the sole and exclusive
benefit of the Company and the Warrantholder.
IN WITNESS WHEREOF, the Company has caused this
Warrant to be duly executed, as of this _____th day of _________,
1998.
OXFORD HEALTH PLANS, INC.
By:_________________________
Name:
Title:
[Corporate Seal]
Attest:
_________________________
Countersigned:
______________________, as Warrant Agent
By:_________________________
Name:
Title:
16
<PAGE> 94
ELECTION TO EXERCISE
(To be executed upon exercise of Warrants)
To OXFORD HEALTH PLANS, INC.:
The undersigned hereby irrevocably elects to exercise
the right of purchase represented by the within Warrant
Certificate for, and to purchase thereunder, _____ Warrant
Shares, as provided for therein, and tenders herewith payment of
the purchase price in full in the form of [COMPLETE WHERE
APPLICABLE]:
|_| cash or a certified or official bank check in the
amount of $_____; and/or
|_| $_____ Stated Value of Senior Preferred Stock
(as to which $____ of accumulated dividends
are unpaid), of which $____ Stated Value and the
corresponding accumulated dividends should be
applied toward the payment of such Warrant Shares;
and/or
|_| ____ number of Warrants, valued at $_____ each
(such value arrived at by subtracting the Exercise
Price of $_____ from the Warrant Market Price of
$______, both the Exercise Price and Warrant Market
Price determined in accordance with the provision
of the Warrant Certificate);
For a total purchase price of $_____.
If the Stated Value and accumulated and unpaid
dividends of the shares of Senior Preferred Stock or the value of
the Warrants evidenced by the Warrant Certificate delivered
herewith exceeds that portion of the payment which is to be paid
by the surrender of such shares or Warrants, you are authorized,
as agent of the undersigned, to deliver to the Company such
shares or Warrant Certificate delivered herewith for exchange
into smaller denominations in order that you may deliver to the
undersigned new shares of Senior Preferred Stock or Warrant
Certificates, in Stated Value or number as the case may be, equal
to the difference between the Stated Value or number as the case
may be, of the Senior Preferred Stock or Warrants surrendered,
less the Stated Value or number as the case may be, thereof, used
to purchase Warrant Shares.
<PAGE> 95
Please issue a certificate or certificates for such Warrant
Shares in the name of, and pay any cash for any Fractional
Warrant Shares to (please print name address and social security
or other identifying number)* :
Name: ______________________________________________________
Address: ______________________________________________________
______________________________________________________
Soc. Sec. #:________________
AND, if said number of Warrant Shares shall not be all the shares
purchasable under the within Warrant Certificate, a new Warrant
Certificate is to be issued in the name of the undersigned for
the balance remaining of the Warrant Shares purchasable
thereunder rounded up to the next higher whole number of Warrant
Shares.
Signature:**______________________________
- --------
* The Warrant Certificate and the Investment Agreement
contain restrictions on the sale and other transfer of the
Warrants evidenced by such Warrant Certificate.
** The above signature should correspond exactly with
the name on the face of this Warrant Certificate or with
the name of the assignee appearing in the assignment form
below.
2
<PAGE> 96
ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto
___________________________________________________________________
___________________________________________________________________
(Name and Address of Assignee must be Printed or Typewritten)
Warrants to purchase _____ Warrant Shares of the Company,
evidenced by the within Warrant Certificate hereby irrevocably
constituting and appointing ________________ Attorney to
transfer said Warrants on the books of the Company, with full
power of substitution in the premises.
Dated:____________, __
________________________________
Signature of Registered Holder*
________________________________
Signature Guaranteed: Signature of Guarantor
_____________
* The above signature should correspond exactly with
the name on the face of this Warrant Certificate.
<PAGE> 97
EXHIBIT C
CERTIFICATE OF DESIGNATIONS
of
SERIES B CUMULATIVE PREFERRED STOCK
of
OXFORD HEALTH PLANS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
--------------
Oxford Health Plans, Inc., a corporation organized and
existing under the General Corporation Law of the State of
Delaware (the "Corporation"), hereby certifies that the following
resolutions were adopted by the Board of Directors of the
Corporation (the "Board of Directors") pursuant to authority of
the Board of Directors as required by Section 151 of the Delaware
General Corporation Law:
RESOLVED, that pursuant to the authority granted to
and vested in the Board of Directors in accordance with the
provisions of the Second Amended and Restated Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), the Board of Directors hereby creates a series
of the Corporation's previously authorized preferred stock, par
value $0.01 per share (the "Preferred Stock"), and hereby states
the designation and number thereof, and fixes the voting powers,
preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and
restrictions thereof, as follows:
Series B Cumulative Preferred Stock:
I. Designation and Amount
The designation of this series of shares shall be
"Series B Cumulative Preferred Stock" (the "Series B Preferred
Stock"); the stated value per share shall be $1,000 (the "Stated
Value"); and the number of shares constituting such series shall
be 300,000. The number of shares of the Series B Preferred Stock
may be decreased from time to time by a resolution or resolutions
of the Board of Directors; provided, however, that such number
shall not be decreased below the aggregate number of shares of
the Series B Preferred Stock then outstanding.
<PAGE> 98
II. Rank
A. With respect to dividend rights, the Series B
Preferred Stock shall rank (i) junior to each other class or
series of Preferred Stock which by its terms ranks senior to the
Series B Preferred Stock as to payment of dividends, (ii) on a
parity with each other class or series of Preferred Stock which
by its terms ranks on a parity with the Series B Preferred Stock
as to payment of dividends, including the Series A Preferred
Stock, par value $0.01 per share, of the Corporation (the "Series
A Preferred Stock") and (iii) prior to the Corporation's Common
Stock, par value $.01 per share (the "Common Stock"), and, except
as specified above, all other classes and series of capital stock
of the Corporation hereafter issued by the Corporation. With
respect to dividends, all equity securities of the Corporation to
which the Series B Preferred Stock ranks senior, including the
Common Stock, are collectively referred to herein as the "Junior
Dividend Securities"; all equity securities of the Corporation
with which the Series B Preferred Stock ranks on a parity,
including the Series A Preferred Stock, are collectively referred
to herein as the "Parity Dividend Securities"; and all equity
securities of the Corporation (other than convertible debt
securities) to which the Series B Preferred Stock ranks junior,
with respect to dividends, are collectively referred to herein as
the "Senior Dividend Securities."
B. With respect to the distribution of assets upon
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the Series B Preferred Stock
shall rank (i) junior to each other class or series of Preferred
Stock which by its terms ranks senior to the Series B Preferred
Stock as to distribution of assets upon liquidation, dissolution
or winding up, (ii) on a parity with each other class or series
of Preferred Stock which by its terms ranks on a parity with the
Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation,
including the Series A Preferred Stock, and (iii) prior to the
Common Stock, and, except as specified above, all other classes
and series of capital stock of the Corporation hereinafter issued
by the Corporation. With respect to the distribution of assets
upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, all equity securities of the
Corporation to which the Series B Preferred Stock ranks senior,
including the Common Stock, are collectively referred to herein
as "Junior Liquidation Securities"; all equity securities of the
Corporation (other than convertible debt securities) to which the
Series B Preferred Stock ranks on parity, including the Series A
Preferred Stock, are collectively referred to herein as "Parity
Liquidation Securities"; and all equity securities of the
Corporation to which the Series B Preferred Stock ranks junior
are collectively referred to herein as "Senior Liquidation
Securities."
C. The Series B Preferred Stock shall be subject to
the creation of Junior Dividend Securities and Junior Liquidation
Securities (collectively, "Junior Securities") but no Parity
Dividend Securities or Parity Liquidation Securities
(collectively, "Parity Securities") (other than the Series A
Preferred Stock), or Senior Dividend Securities or Senior
Liquidation Securities (collectively, "Senior Securities") shall
be created except in accordance with the terms hereof and the
Investment Agreement, including, without limitation, Article
VIII, Section F hereof.
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<PAGE> 99
III. Dividends
A. Dividends. Prior to the Second Anniversary Date,
shares of Series B Preferred Stock shall accumulate dividends at
a rate of 9.308332% per annum, payment of which may be made in
cash or by the issuance of additional shares of Series B
Preferred Stock (which, upon issuance, shall be fully paid and
nonassessable), at the option of the Company; provided that if
any such dividend is paid after the Second Anniversary Date, such
dividend shall be paid in cash. On and after the Second
Anniversary Date, shares of Series B Preferred Stock shall
accumulate dividends at a rate of 9% per annum, which dividends
shall be paid in cash. On and prior to the Second Anniversary
Date, dividends shall be paid annually on the anniversary of the
original issuance of Series B Preferred Stock, and thereafter
dividends shall be paid in four equal quarterly installments on
the last day of March, June, September and December of each year,
or if any such date is not a Business Day, the Business Day next
preceding such day (each such date, regardless of whether any
dividends have been paid or declared and set aside for payment on
such date, a "Dividend Payment Date"), to holders of record (the
"Registered Holders") as they appear on the stock record books of
the Corporation on the fifteenth day prior to the relevant
Dividend Payment Date. Notwithstanding the foregoing, from and
after the day on which the Shareholder Approval occurs, dividends
shall accumulate on the Series B Preferred Stock (i) prior to the
Second Anniversary Date, at a rate of 8.243216% per annum,
payment of which may be made in cash or by the issuance of
additional shares of Series B Preferred Stock (which upon
issuance shall be fully paid and nonassessable), at the option of
the Company, provided that if any such dividend is paid after the
Second Anniversary Date, such dividend shall be paid in cash, and
(ii) on and after the Second Anniversary Date, at a rate of 8%
per annum, which dividends shall be paid in cash. Dividends shall
be paid only when, as and if declared by the Board of Directors
out of funds at the time legally available for the payment of
dividends. Dividends shall begin to accumulate on outstanding
shares of Series B Preferred Stock from the date of issuance and
shall be deemed to accumulate from day to day whether or not
earned or declared until paid. Dividends shall accumulate on the
basis of a 360-day year consisting of twelve 30-day months (four
90-day quarters) and the actual number of days elapsed in the
period for which payable. Dividends payable at more than one
annual rate for any dividend period or partial dividend period
shall be pro rated on the basis of the number of days in such
dividend period or partial dividend period, calculated as
aforesaid, and the actual number of days elapsed for which
dividends are payable at each such annual rate.
B. Accumulation. Dividends on the Series B Preferred
Stock shall be cumulative, and from and after any Dividend
Payment Date on which any dividend that has accumulated or been
deemed to have accumulated through such date has not been paid in
full or any payment date set for a redemption on which such
redemption payment has not been paid in full, additional
dividends shall accumulate in respect of the amount of such
unpaid dividends or unpaid redemption payment (the "Arrearage")
at the annual rate then in effect as provided in Section A of
this Article III (or such lesser rate as may be the maximum rate
that is then permitted by applicable law). Such additional
dividends in respect of any Arrearage shall be deemed to
accumulate from day to day whether or not earned or declared
until the Arrearage is paid, shall be calculated as of such
successive Dividend Payment Date and shall constitute an
additional Arrearage from and after any Dividend Payment Date to
the extent not paid on such
3
<PAGE> 100
Dividend Payment Date. References in any Article herein to
dividends that have accumulated or that have been deemed to have
accumulated with respect to the Series B Preferred Stock shall
include the amount, if any, of any Arrearage together with any
dividends accumulated or deemed to have accumulated on such
Arrearage pursuant to the immediately preceding two sentences.
Additional dividends in respect of any Arrearage may be declared
and paid at any time, in whole or in part, without reference to
any regular Dividend Payment Date, to Registered Holders as they
appear on the stock record books of the Corporation on such
record date as may be fixed by the Board of Directors (which
record date shall be no less than 10 days prior to the
corresponding payment date). Dividends in respect of any
Arrearage shall be paid in cash.
C. Method of Payment. Dividends paid on the shares of
Series B Preferred Stock in an amount less than the total amount
of such dividends at the time accumulated and payable on all
outstanding shares of Series B Preferred Stock shall be allocated
pro rata on a share-by-share basis among all such shares then
outstanding. After the Second Anniversary Date, dividends that
are declared and paid in an amount less than the full amount of
dividends accumulated on the Series B Preferred Stock (and on any
Arrearage) shall be applied first to the earliest dividend which
has not theretofore been paid. All cash payments of dividends on
the shares of Series B Preferred Stock shall be made in such coin
or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
IV. Liquidation Preference
In the event of a liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the
holders of then-outstanding shares of Series B Preferred Stock
shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any
nature, an amount per share equal to the sum of (i) the
dividends, if any, accumulated or deemed to have accumulated
thereon to the date of final distribution to such holders,
whether or not such dividends are declared, and (ii) the Stated
Value thereof, and no more, before any payment shall be made or
any assets distributed to the holders of any Junior Liquidation
Securities. After any such payment in full, the holders of Series
B Preferred Stock shall not, as such, be entitled to any further
participation in any distribution of assets of the Corporation.
All the assets of the Corporation available for distribution to
stockholders after the liquidation preferences of any Senior
Liquidation Securities shall be distributed ratably (in
proportion to the full distributable amounts to which holders of
Series B Preferred Stock and Parity Liquidation Securities, if
any, are respectively entitled upon such dissolution, liquidation
or winding up) among the holders of the then-outstanding shares
of Series B Preferred Stock and Parity Liquidation Securities, if
any, when such assets are not sufficient to pay in full the
aggregate amounts payable thereon.
Neither a consolidation or merger of the Corporation
with or into any other Person or Persons, nor a sale, conveyance,
lease, exchange or transfer of all or part of the Corporation's
assets for cash, securities or other property to a Person or
Persons shall be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Article IV,
but the holders of shares of Series B Preferred Stock shall
nevertheless be entitled from and after any such consolidation,
merger or sale, conveyance, lease, exchange or transfer of all or
part of the
4
<PAGE> 101
Corporation's assets to the rights provided by this Article IV
following any such transaction. Notice of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, stating the payment date or dates when, and the
place or places where, the amounts distributable to each holder
of shares of Series B Preferred Stock in such circumstances shall
be payable, shall be given by first-class mail, postage prepaid,
mailed not less than 30 days prior to any payment date stated
therein, to holders of record as they appear on the stock record
books of the Corporation as of the date such notices are first
mailed.
V. Redemption
A. Optional Redemption. The Corporation shall not have
any right to redeem any shares of Series B Preferred Stock prior
to the fifth anniversary of the original issuance of the Series B
Preferred Stock. On and after such date, the Corporation shall
have the right, at its option and election, to redeem all the
outstanding shares of Series B Preferred Stock, in whole but not
in part, at any time, in accordance with the provisions of this
Article V. The redemption price for such shares of Series B
Preferred Stock shall be paid in cash out of funds legally
available therefor and shall be in an amount per share equal to
the sum of (i) the amount, if any, of all unpaid dividends
accumulated thereon to the date of actual payment of the
Redemption Price, whether or not such dividends have been
declared, and (ii) the Stated Value thereof (the "Redemption
Price").
B. Mandatory Redemption. On the tenth anniversary of
the original issuance of the Series B Preferred Stock (the
"Mandatory Redemption Date"), the Corporation shall redeem (the
"Mandatory Redemption") all outstanding shares of Series B
Preferred Stock by paying the Redemption Price therefor in cash
out of funds legally available for such purpose.
C. Notice and Redemption Procedures. Notice of the
redemption of shares of Series B Preferred Stock pursuant to
Section A or B hereof (a "Notice of Redemption") shall be sent to
the holders of record of the shares of Series B Preferred Stock
to be redeemed by first class mail, postage prepaid, at each such
holder's address as it appears on the stock record books of the
Corporation not more than 120 nor fewer than 90 days prior to the
date fixed for redemption, which date shall be set forth in such
notice (the "Redemption Date"); provided that failure to give
such Notice of Redemption to any holder, or any defect in such
Notice of Redemption to any holder shall not affect the validity
of the proceedings for the redemption of any shares of Series B
Preferred Stock held by any other holder. Notwithstanding the
foregoing, in the event that contemporaneously with or prior to
the delivery of a Notice of Redemption, the Corporation
irrevocably deposits, in accordance with Section F of this
Article V, funds sufficient to pay the aggregate Redemption Price
for the Series B Preferred Stock, such Notice of Redemption shall
be delivered not more than 120 days nor fewer than 30 days prior
to the Redemption Date; provided, however, that, if such Notice
of Redemption is delivered fewer than 60 days prior to the
Redemption Date and the Investor or any of its Affiliates
Beneficially Owns shares of Series B Preferred Stock as of the
date of the Notice of Redemption and uses its reasonable best
efforts to consummate the sale of its shares of Series B
Preferred Stock prior to the stated Redemption Date but has not
completed the sale of all the Series B Preferred Stock
Beneficially Owned by the Investor and its Affiliates (or such
other amount desired to be sold by
5
<PAGE> 102
the Investor and its Affiliates), the Corporation shall, at the
option of the Investor (or any such Affiliate), delay such
Redemption Date for a period not to exceed 30 days as requested
by such Investor (or any such Affiliate) in order to complete
such sale or sales, and shall notify the holders of Series B
Preferred Stock of such delay within five days of receiving the
request therefor. Any delay of the Redemption Date pursuant to
the proviso to the preceding sentence shall be requested by the
Investor (or any such Affiliate) in writing no later than the
tenth day preceding the then-scheduled Redemption Date stated in
the Notice of Redemption. The Redemption Date stated in a Notice
of Redemption shall not be delayed more than once in connection
with the redemption of shares of Series B Preferred Stock
pursuant to such Notice of Redemption. In order to facilitate the
redemption of shares of Series B Preferred Stock, the Board of
Directors may fix a record date for the determination of the
holders of shares of Series B Preferred Stock to be redeemed, in
each case, not more than 30 days prior to the date the Notice of
Redemption is mailed. On or after the Redemption Date, each
holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be entitled
to receive payment of the Redemption Price. From and after the
Redemption Date, all dividends on shares of Series B Preferred
Stock shall cease to accumulate and all rights of the holders
thereof as holders of Series B Preferred Stock shall cease and
terminate, except to the extent the Corporation shall default in
payment thereof on the Redemption Date. Prior to any Redemption
Date that has been fixed by the Company, other than in connection
with the Mandatory Redemption, the Corporation shall take all
measures reasonably requested by the Investor to facilitate a
sale or other disposition of Series B Preferred Stock by the
Investor or its Affiliates prior to such Redemption Date,
including, without limitation, participation in due diligence
sessions and provision of information about the management,
business and financial condition of the Corporation, preparation
of offering memoranda, private placement memoranda and other
similar documents and preparation and delivery of such other
certificates or documents reasonably requested by the Investor.
For so long as the Investor or an Affiliate of the Investor holds
any shares of Series B Preferred Stock, no Notice of Redemption
in connection with a redemption pursuant to Section A or B of
this Article V shall be delivered unless (i) the Corporation's
preferred stock is rated Baa or better by Moody's or BBB or
better by S&P, or in the event the Corporation's preferred stock
is not rated by Moody's and S&P, the Corporation's unsecured debt
is rated Baa or better by Moody's or BBB or better by S&P or (ii)
the Corporation has sufficient funds reasonably available under
committed lines of credit or other similar sources of financing
established with financially sound financing providers to pay, on
the Redemption Date, the aggregate Redemption Price in connection
with such redemption (and shall reserve such funds or
availability for the payment of the aggregate Redemption Price);
provided, that the Corporation may deliver a Notice of Redemption
without complying with the foregoing conditions if prior to, or
contemporaneously with, the delivery of such notice the
Corporation irrevocably deposits in accordance with Section F of
this Article V funds sufficient to pay the aggregate Redemption
Price for the Series B Preferred Stock.
D. Change of Control. In the event there occurs a
Change of Control, any holder of record of shares of Series B
Preferred Stock, in accordance with the procedures set forth in
Section E hereof, may require the Corporation to redeem any or
all of the shares of Series B Preferred Stock held by such holder
at the Redemption Price therefor.
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E. Change of Control Notice and Redemption Procedures.
Notice of any Change of Control shall be sent to the holders of
record of the outstanding shares of Series B Preferred Stock not
more than five days following a Change of Control, which notice
(a "Change of Control Notice") shall describe the transaction or
transactions constituting such Change of Control and set forth
each holder's right to require the Corporation to redeem any or
all shares of Series B Preferred Stock held by him or her out of
funds legally available therefor, the Redemption Date (which date
shall be not more than 30 days from the date of such Change of
Control Notice) and the procedures to be followed by such holders
in exercising his or her right to cause such redemption;
provided, however, that if shares of Series B Preferred Stock are
owned by more than 50 holders or groups of Affiliated holders and
if the Series B Preferred Stock is listed on any national
securities exchange or quoted on any national quotation system,
the Corporation shall give such Change of Control Notice by
publication in a newspaper of general circulation in the Borough
of Manhattan, The City of New York, within 30 days following such
Change of Control and, in any case, a similar notice shall be
mailed concurrently to each holder of shares of Series B
Preferred Stock. Failure by the Corporation to give the Change of
Control Notice as prescribed by the preceding sentence, or the
formal insufficiency of any such Change of Control Notice, shall
not prejudice the rights of any holder of shares of Series B
Preferred Stock to cause the Corporation to redeem any such
shares held by him or her. In the event a holder of shares of
Series B Preferred Stock shall elect to require the Corporation
to redeem any or all such shares of Series B Preferred Stock
pursuant to Section D hereof, such holder shall deliver, prior to
the Redemption Date as set forth in the Change of Control Notice,
or, if the Change of Control Notice is not given as required by
this Section E, at any time following the last day the
Corporation was required to give the Change of Control Notice in
accordance with this Section E (in which case the Redemption Date
shall be the date which is the later of (x) 30 days following the
last day the Corporation was required to give the Change of
Control Notice in accordance with this Section E and (y) 15 days
following the delivery of such election by such holder), a
written notice, in the form specified by the Corporation (if the
Corporation did in fact give the notice required by this Section
E), to the Corporation so stating, and specifying the number of
shares to be redeemed pursuant to Section D hereof; provided,
however, that if all of the shares of the Series B Preferred
Stock are owned by 50 or fewer holders or groups of affiliated
holders, such holders or groups may deliver a notice or an
election to redeem at any time within 90 days following the
occurrence of a Change of Control without awaiting receipt of a
Change of Control Notice or the expiration of the time allowed
for the delivery of a Change of Control Notice hereunder. The
Corporation shall redeem the number of shares so specified on the
Redemption Date fixed by the Corporation or as provided in the
preceding sentence. The Corporation shall comply with the
requirements of Rules 13e-4 and 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection
with the repurchase of the shares of Series B Preferred Stock as
a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with
the provisions of this paragraph, the Corporation shall comply
with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations hereunder by virtue
thereof.
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F. Deposit of Funds. The Corporation shall, on or
prior to any Redemption Date pursuant to this Article V, deposit
with its transfer agent or other redemption agent in the Borough
of Manhattan, The City of New York having a capital and surplus
of at least $500,000,000 selected by the Board of Directors, as a
trust fund for the benefit of the holders of the shares of Series
B Preferred Stock to be redeemed, cash that is sufficient in
amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption or Change of Control Notice, with
irrevocable instructions and authority to such transfer agent or
other redemption agent to pay to the respective holders of such
shares, as evidenced by a list of such holders certified by an
officer of the Corporation, the Redemption Price upon surrender
of their respective share certificates. Such deposit shall be
deemed to constitute full payment of such shares to the holders,
and from and after the date of such deposit, all rights of the
holders of the shares of Series B Preferred Stock that are to be
redeemed as stockholders of the Corporation with respect to such
shares, except the right to receive the Redemption Price upon the
surrender of their respective certificates, shall cease and
terminate. No dividends shall accumulate on any shares of Series
B Preferred Stock after the Redemption Date for such shares
(unless the Corporation shall fail to deposit cash sufficient to
redeem all such shares). In case holders of any shares of Series
B Preferred Stock called for redemption shall not, within two
years after such deposit, claim the cash deposited for redemption
thereof, such transfer agent or other redemption agent shall,
upon demand, pay over to the Corporation the balance so
deposited. Thereupon, such transfer agent or other redemption
agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to
shares to be redeemed, shall be to receive the Redemption Price
as general creditors of the Corporation. Any interest accrued on
any funds so deposited shall belong to the Corporation, and shall
be paid to it from time to time on demand.
VI. Exchange of Series B Preferred Stock
A. The Series B Preferred Stock shall be exchangeable,
at any time, at the option of the Corporation and to the extent
permitted by applicable law, in whole but not in part, on any
Dividend Payment Date for Junior Subordinated Debentures (issued
pursuant to an indenture (the "Indenture") prepared in accordance
with the Investment Agreement) in principal amount of $1,000 per
share of Series B Preferred Stock (a "Debenture" and,
collectively, the "Debentures"), in accordance with this Article
VI:
(i) Each share of Series B Preferred Stock shall be
exchangeable at the offices of the Corporation and at such
other place or places, if any, as the Board of Directors
may designate. Except with the prior written consent of the
holders of all outstanding shares of Series B Preferred
Stock, the Corporation may not exchange any shares of
Series B Preferred Stock if (a) full cumulative dividends,
to the extent payable or deemed payable through the date of
exchange, have not been paid or set aside for payment on
all outstanding shares of the Series B Preferred Stock, (b)
the Corporation has failed to amend its Certificate of
Incorporation pursuant to Delaware law to confer the power
to vote upon holders of the Debentures as shall be
contemplated by the Indenture or (c) such exchange could
result in any tax consequence to the Investor or any of its
Affiliates which is materially adverse.
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(ii) Prior to giving notice of its intention to
exchange, the Corporation shall execute and deliver to a
bank or trust company selected by the Board of Directors
and, if required by applicable law, qualify under the Trust
Indenture Act of 1939, as amended, the Indenture.
(iii) The Corporation shall mail written notice of its
intention to exchange Series B Preferred Stock for
Debentures (the "Exchange Notice") to each holder of record
of shares of Series B Preferred Stock not less than 90 nor
more than 120 days prior to the date fixed for exchange.
(iv) Prior to effecting any exchange provided above,
the Corporation shall deliver to each holder of shares of
Series B Preferred Stock an opinion of nationally
recognized legal counsel to the effect that: (i) each of
the Indenture and the Debentures have been duly authorized
and executed by the Corporation and, when delivered by the
Corporation in exchange for shares of Series B Preferred
Stock, will constitute valid and legally binding
obligations of the Corporation enforceable against the
Corporation in accordance with their terms, subject to
applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and to general
principles of equity; (ii) the exchange of the Debentures
for the shares of Series B Preferred Stock shall not
violate the provisions of this Article VI or of the
Delaware General Corporation Law, including Section 221
thereof; and (iii) the exchange of the Debentures for the
shares of Series B Preferred Stock is exempt from the
registration requirements of the Securities Act or, if no
such exemption is available, that the Debentures have been
duly registered for such exchange under such Act.
(v) Upon the exchange of shares of Series B Preferred
Stock for Debentures, the rights of the holders of shares
of Series B Preferred Stock as stockholders of the
Corporation shall terminate and such shares shall no longer
be deemed outstanding.
(vi) Before any holder of shares of Series B Preferred
Stock shall be entitled to receive Debentures, such holder
shall surrender the certificate or certificates therefor,
at the office of the Corporation or at such other place or
places, if any, as the Board of Directors shall have
designated, and shall state in writing the name or names
(with addresses) in which he or she wishes the certificate
or certificates for the Debentures to be issued. The
Corporation will, as soon as practicable thereafter, issue
and deliver at said office or place to such holder of
shares of Series B Preferred Stock, or to his or her
nominee or nominees, certificates for the Debentures to
which he or she shall be entitled as aforesaid. Shares of
Series B Preferred Stock shall be deemed to have been
exchanged as of the close of business on the date fixed for
exchange as provided above, and the Person or Persons
entitled to receive the Debentures issuable upon such
exchange shall be treated for all purposes (including the
accrual and payment of interest) as the record holder or
holders of such Debentures as of the close of business on
such date.
B. For purposes of clause (c) of paragraph (i) of
Section A, an exchange of shares of Series B Preferred Stock
shall be deemed to be an exchange that could result in a tax
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consequence to the Investor or any of its Affiliates which is
materially adverse only if the Investor or its Affiliate shall
have delivered to the Corporation a written notice to such effect
on or before the fifteenth day after its receipt of the Exchange
Notice (an "Objection Notice"), which Objection Notice shall be
prepared in good faith and shall specify in reasonable detail the
nature of such tax consequences which could result from the
exchange (other than the difference between the tax treatment of
distributions on the Series B Preferred Stock and interest
payments on the Debentures); provided, that the Investor or its
Affiliates shall not deliver an Objection Notice unless the
Investor and its Affiliates Beneficially Own, in the aggregate,
at least 1,000 shares of Series B Preferred Stock at the time of
delivery of such Objection Notice to the Corporation. If the
Corporation receives an Objection Notice, then the Corporation
shall not exchange the shares of Series B Preferred Stock of the
Investor and its Affiliates and the Corporation shall, within 15
days after its receipt of the Objection Notice mail written
notice to the effect that it is canceling the proposed exchange
of shares of Series B Preferred Stock to each holder of record of
shares of Series B Preferred Stock to which it mailed the
Exchange Notice.
C. Shares of the Series B Preferred Stock may be
exchanged for Warrant Shares pursuant to Section 4 of the
Warrants.
VII. Restrictions on Dividends
So long as any shares of the Series B Preferred Stock
are outstanding, the Board of Directors shall not declare, and
the Corporation shall not pay or set apart for payment any
dividend on any Junior Securities or make any payment on account
of, or set apart for payment money for a sinking or other similar
fund for, the repurchase, redemption or other retirement of, any
Junior Securities or Parity Securities or any warrants, rights or
options exercisable for or convertible into any Junior Securities
or Parity Securities (other than the repurchase, redemption or
other retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity
Securities), or make any distribution in respect of the Junior
Securities, either directly or indirectly, and whether in cash,
obligations or shares of the Corporation or other property (other
than distributions or dividends in Junior Securities to the
holders of Junior Securities), and shall not permit any
corporation or other entity directly or indirectly controlled by
the Corporation to purchase or redeem any Junior Securities or
Parity Securities or any warrants, rights, calls or options
exercisable for or convertible into any Junior Securities or
Parity Securities (other than the repurchase, redemption or other
retirement of debentures or other debt securities that are
convertible or exchangeable into any Junior Securities or Parity
Securities) unless prior to or concurrently with such
declaration, payment, setting apart for payment, repurchase,
redemption or other retirement or distribution, as the case may
be, all accumulated and unpaid dividends on shares of the Series
B Preferred Stock not paid on the dates provided for in paragraph
A of Article III hereof (including Arrearages and accumulated
dividends thereon) shall have been paid, except that when
dividends are not paid in full as aforesaid upon the shares of
Series B Preferred Stock, all dividends declared on the Series B
Preferred Stock and any series of Parity Dividend Securities
shall be declared and paid pro rata so that the amount of
dividends so declared and paid on Series B Preferred Stock and
such series of Parity Dividend Securities shall in all cases bear
to each other the same ratio that accumulated dividends
(including interest accrued on or additional dividends
accumulated in respect of such
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<PAGE> 107
accumulated dividends) on the shares of Series B Preferred Stock
and such Parity Dividend Securities bear to each other.
Notwithstanding the foregoing, this paragraph shall not prohibit
(i) the acquisition, repurchase, exchange, conversion, redemption
or other retirement for value of shares of Series B Preferred
Stock or any Parity Dividend Security by the Corporation in
accordance with the terms of such securities or of any shares of
Trust Preferred Stock (as defined in Section F of Article VIII)
or (ii) the acquisition, repurchase, exchange, conversion,
redemption or other retirement for value by the Corporation of
any Junior Dividend Securities by the Corporation in accordance
with obligations in existence at the time of original issuance of
the Series B Preferred Stock.
VIII. Voting Rights
A. The holders of shares of Series B Preferred Stock
shall have no voting rights except as set forth below or as
otherwise from time to time required by law.
B. Through the Approval Date, shares of Series B
Preferred Stock shall have no voting rights except as set forth
in Section C of this Article VIII. After the Approval Date, so
long as any shares of the Series B Preferred Stock are
outstanding, each share of Series B Preferred Stock shall entitle
the holder thereof to vote on all matters voted on by holders of
Common Stock, and the shares of Series B Preferred Stock shall
vote together with shares of Common Stock (and any shares of
Series A Preferred Stock entitled to vote) as a single class;
provided, however, that upon register or transfer on the stock
records of the Corporation of a share of Series B Preferred Stock
to any Person other than the Investor or an Affiliate of the
Investor, the transferee, and any subsequent transferee, shall
not be entitled to such voting rights. With respect to any such
vote, the Investor (together with its Affiliates) shall be
entitled to a number of votes per share of Series B Preferred
Stock equal to the quotient of the Investor Aggregate Vote
Number, divided by the number of shares of Series B Preferred
Stock held by such Investor and its Affiliates as of the record
date for such vote. The "Investor Aggregate Vote Number" shall
equal the number of Warrant Shares that would be issuable upon
the exercise of Original Warrants (as defined below) by the
holders thereof (assuming all conditions precedent to such
exercise have been satisfied and that such exercise occurs as of
the record date for such vote), multiplied by the lesser of (x)
the quotient of the number of Original Warrants that are
Beneficially Owned by members of the Investor Group, in the
aggregate, as of the record date for such vote (excluding for
purposes of this calculation, however, any Original Warrants that
have been transferred on the books of the Corporation by any
member of the Investor Group to any Person other than a member of
the Investor Group, regardless of whether any such Original
Warrants are subsequently acquired by any member of the Investor
Group), divided by the number of Original Warrants, and (y) the
quotient of the number of Original Series B Preferred Shares (as
defined below) that are Beneficially Owned by members of the
Investor Group, in the aggregate, as of the record date for such
vote (excluding for purposes of this calculation, however, any
Original Series A Preferred Shares transferred on the stock
records of the Corporation by any member of the Investor Group to
any Person other than a member of the Investor Group, regardless
of whether any such Original Series B Preferred Shares are
subsequently acquired by any member of the Investor Group),
divided by the number of Original Series B Preferred Shares. The
term "Original Warrants" means those Warrants Beneficially
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Owned by members of the Investor Group, in the aggregate, as of
the Closing. The term "Original Series B Preferred Shares" means
those shares of Series B Preferred Stock Beneficially Owned by
members of the Investor Group, in the aggregate, as of the
Closing.
C. If on any date (i) dividends payable on either the
Series B Preferred Stock or the Series A Preferred Stock shall
have been in arrears and not paid in full for four consecutive
quarterly periods or if dividends shall have been in arrears and
not paid in full on the first or second annual anniversary of the
original issuance of the Series B Preferred Stock or Series A
Preferred Stock, as the case may be, or (ii) the Corporation
shall have failed to satisfy its obligation to redeem either
shares of Series B Preferred Stock or shares of Series A
Preferred Stock pursuant to the relevant Certificate of
Designations, then the number of directors constituting the Board
of Directors shall, without further action, be increased by two,
and the holders of a majority of the outstanding shares of Series
B Preferred Stock and Series A Preferred Stock shall have, in
addition to the other voting rights set forth herein, the
exclusive right, voting together as a single class without regard
to series, to elect the two directors (the "Additional
Directors") of the Corporation to fill such newly-created
directorships. Notwithstanding the foregoing, the Investor and
its Affiliates shall not be permitted to elect, pursuant to the
preceding sentence, more than the number of directors that would
result in four directors designated for nomination or elected by
the Investor and its Affiliates then being on the Board of
Directors (including directors that the Investor has a right to
designate for nomination to the Board of Directors pursuant to
the Investment Agreement); provided, that if at the time holders
of Series A Preferred Stock and Series B Preferred Stock have the
right to elect Additional Directors and (i) the Investor and its
Affiliates Beneficially Own, in the aggregate, a majority of the
outstanding shares of Series B Preferred Stock and Series A
Preferred Stock, taken together as a single class, and (ii) the
Investor and its Affiliates are not permitted to elect one or
both of the Additional Directors as aforesaid, then the holders
of Series B Preferred Stock and Series A Preferred Stock (other
than the Investor and its Affiliates) shall have the right to
elect, voting together as a single class, one Additional Director
pursuant to this Section C. Additional Directors shall continue
as directors and such additional voting right shall continue
until such time as (a) all dividends accumulated on the Series B
Preferred Stock and/or Series A Preferred Stock, as the case may
be, shall have been paid in full or (b) any redemption obligation
with respect to the Series B Preferred Stock and/or Series A
Preferred Stock, as the case may be, that has become due shall
have been satisfied or all necessary funds shall have been set
aside for payment, as the case may be, at which time such
Additional Directors shall cease to be directors and such
additional voting right of the holders of shares of Series B
Preferred Stock shall terminate subject to revesting in the event
of each and every subsequent event of the character indicated
above and subject to any rights as to the election of directors
provided for the holders of any other series of Preferred Stock
of the Corporation.
D. [Reserved]
E. (a) The foregoing rights of holders of shares of
Series B Preferred Stock to take any action as provided in this
Article VIII may be exercised at any annual meeting of
stockholders or at a special meeting of stockholders held for
such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of
the
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Corporation, of the holders of the minimum number of shares
required to take such action. So long as such right to vote
continues (and unless such right has been exercised by written
consent of the minimum number of shares required to take such
action), the Chairman of the Board of Directors may call, and
upon the written request of holders of record of 20% of the
outstanding shares of Series B Preferred Stock, addressed to the
Secretary of the Corporation at the principal office of the
Corporation, shall call, a special meeting of the holders of
shares entitled to vote as provided herein. Such meeting shall be
held within 60 days after delivery of such request to the
Secretary, at the place and upon the notice provided by law and
in the Bylaws for the holding of meetings of stockholders.
(b) Each director elected pursuant to Section C hereof
shall serve until the next annual meeting or until his or her
successor shall be elected and shall qualify, unless the
director's term of office shall have terminated pursuant to the
provisions of Section C hereof, as the case may be. In case any
vacancy shall occur among the directors elected pursuant to
Section C hereof, such vacancy may be filled for the unexpired
portion of the term by vote of the remaining director or
directors theretofore elected by such holders (or such director's
or directors' successor in office), if any. If any such vacancy
is not so filled within 20 days after the creation thereof or if
all of the directors so elected shall cease to serve as directors
before their term shall expire, the holders of the shares then
outstanding and entitled to vote for such director pursuant to
the provisions of Section C hereof, as the case may be, may elect
successors to hold office for the unexpired terms of any vacant
directorships, by written consent as herein provided, or at a
special meeting of such holders called as provided herein. The
holders of a majority of the shares entitled to vote for
directors pursuant to Section C hereof, as the case may be, shall
have the right to remove with or without cause at any time and
replace any directors such holders have elected pursuant to such
section, by written consent as herein provided, or at a special
meeting of such holders called as provided herein.
F. Without the consent or affirmative vote of the
holders of at least a majority of the outstanding shares of
Series B Preferred Stock, voting separately as a class, the
Corporation shall not authorize, create or issue, or increase the
authorized amount of, (i) any Senior Securities or Parity
Securities or (ii) any class or series of capital stock or any
security convertible into or exercisable for any class or series
of capital stock, redeemable mandatorily or redeemable at the
option of the holder thereof at any time on or prior to the
Mandatory Redemption Date (whether or not only upon the
occurrence of a specified event); provided, however, that no
consent or vote of the holders of the outstanding shares of the
Series B Preferred Stock shall be required for the creation or
issuance by a trust formed at the direction of the Corporation of
any series of preferred securities of such trust for financing
purposes in an aggregate amount not to exceed $250,000,000
("Trust Preferred Stock"). No consent or vote of the holders of
the outstanding shares of Series B Preferred Stock shall be
required to authorize, create or issue, or increase the
authorized amount of, any class or series of Junior Securities,
or any security convertible into a stock of any class or series
of Junior Securities, except to the extent such action would
violate Section H of this Article VIII.
G. Without the consent or affirmative vote of the
holders of at least a majority of the outstanding shares of
Series B Preferred Stock, voting separately as a class, the
Corporation
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shall not (i) amend, alter or repeal any provision of the
Certificate of Incorporation or the Bylaws, if the amendment,
alteration or repeal alters or changes the powers, preferences or
special rights of the Series B Preferred Stock so as to affect
them materially and adversely, or (ii) authorize or take any
other action if such action alters or changes any of the rights
of the Series B Preferred Stock in any respect or otherwise would
be inconsistent with the provisions of this Certificate of
Designations and the holders of any class or series of the
capital stock of the Corporation is entitled to vote thereon.
H. Other Securities. The Corporation shall not enter
into any agreement or issue any security that prohibits,
conflicts or is inconsistent with, or would be breached by, the
Corporation's performance of its obligations hereunder.
IX. Additional Definitions
For the purposes of this Certificate of Designations
of Series B Preferred Stock, the following terms shall have the
meanings indicated:
"Affiliate" has the meaning set forth in Rule 12b-2
under the Exchange Act. The term "Affiliated" has a correlative
meaning. Notwithstanding the foregoing, for all purposes hereof,
TPG, and each Person controlled by, controlling or under common
control with TPG (each, a "TPG Person"), shall not be deemed an
"Affiliate" of any Designated Purchaser Person (as defined
below), and no Designated Purchaser, and no Person controlled by,
controlling or under common control with such Designated
Purchaser (each, a "Designated Purchaser Person"), shall be
deemed an "Affiliate" of any TPG Person or any other Designated
Purchaser Person, in any such case solely as a consequence of the
Investment Agreement and the transactions contemplated thereby.
"Approval Date" shall have the meaning assigned to
such term in the Series B Warrant.
"Beneficially Own" with respect to any securities
means having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act as in
effect on the date hereof, except that a Person shall be deemed
to Beneficially Own all such securities that such Person has the
right to acquire whether such right is exercisable immediately or
after the passage of time). The terms "Beneficial Ownership" and
"Beneficial Owner" have correlative meanings. Notwithstanding the
foregoing, for all purposes hereof, no TPG Person shall be deemed
to Beneficially Own any securities that are held by any
Designated Purchaser Person, and no Designated Purchaser Person
shall be deemed to Beneficially Own any securities that are held
by any TPG Person or other Designated Purchaser Person, in any
such case solely as a consequence of the Investment Agreement or
the transactions contemplated thereby.
"Business Day" means any day, other than a Saturday,
Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to
close.
"Bylaws" means the Bylaws of the Corporation, as
amended.
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"Change of Control" means such time as:
(i) any Person or Group (other than the Investor, its
Affiliates, the Corporation or any Subsidiaries of the
Corporation, or any Group composed of such Persons) has
become, directly or indirectly, the Beneficial Owner, by
way of merger, consolidation or otherwise, of a majority of
the voting power of the then-outstanding Voting Securities
of the Corporation on a fully-diluted basis, after giving
effect to the conversion and exercise of all outstanding
warrants, options and other securities of the Corporation
convertible into or exercisable for Voting Securities of
the Corporation (whether or not such securities are then
currently convertible or exercisable); or
(ii) the sale, lease, transfer or other disposition of
all or substantially all of the consolidated assets of the
Corporation and its Subsidiaries to any Person or Group; or
(iii) during any period of two consecutive calendar
years, individuals who at the beginning of such period
constituted the Board of Directors, together with any new
members of such Board of Directors whose election by such
Board of Directors or whose nomination for election by the
stockholders of the Corporation was approved by a vote of
at least a majority of the members of such Board of
Directors then still in office who either were directors at
the beginning of such period or whose election or
nomination for election was previously so approved or who
were approved pursuant to Section 5.02 of the Investment
Agreement or Article VIII, Section C, D or E of this
Certificate of Designations, cease for any reason to
constitute a majority of the directors of the Corporation
then in office; or
(iv) the Corporation consolidates with or merges with
or into another Person or any Person consolidates with, or
merges with or into, the Corporation, in any such event
pursuant to a transaction in which immediately after the
consummation thereof the Persons owning the
then-outstanding Voting Securities of the Corporation
immediately prior to such consummation shall not own a
majority in the aggregate (by reason of such prior
ownership) of the then-outstanding Voting Securities of the
Corporation or the surviving entity if other than the
Corporation; or
(v) the adoption of a plan relating to the liquidation
or dissolution of the Corporation, whether or not otherwise
in compliance with the provisions of this Series B
Preferred Stock.
"Closing" shall have the meaning assigned to such term
in the Investment Agreement.
"Designated Purchaser" has the meaning assigned to
such term in the Investment Agreement.
"Designated Purchaser Person" has the meaning set
forth in the definition of "Affiliate."
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"Exchange Act" means the U.S. Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated
thereunder, from time to time.
"Group" has the meaning set forth in Rule 13d-5 under
the Exchange Act.
"Investment Agreement" means the Investment Agreement,
dated as of February 23, 1998, by and between the Investor and
the Corporation, as amended, supplemented or otherwise modified
from time to time.
"Investor" means TPG.
"Investor Group" means, collectively, the Investor,
the Designated Purchasers, if any, and the respective Affiliates
of such Persons.
"Investor Nominee" means a person designated for
election to the Board of Directors by an Investor pursuant to the
Investment Agreement.
"Moody's" means Moody's Investors Service and its
successors.
"Person" means any individual, corporation, company,
association, partnership, joint venture, trust or unincorporated
organization, or a government or any agency or political
subdivision thereof.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of February 23, 1998, by and between
the Investor and the Corporation, as amended, supplemented or
otherwise modified from time to time.
"Second Anniversary Date" means the second anniversary
of the original issuance of the Series B Preferred Stock.
"Securities Act" means the U.S. Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder, from time to time.
"Series A Preferred Stock" has the meaning assigned to
such term in the Investment Agreement.
"Shareholder Approval" shall have the meaning assigned
to such term in the Investment Agreement.
"S&P" means Standard and Poor's Ratings Group, a
division of the McGraw-Hill Companies, and its successors.
"Subsidiary" means, with respect to any Person, (i)
any corporation, association or other business entity of which
more than 50% of the total voting power of shares of voting stock
is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that
Person (or combination thereof) and (ii) any partnership (A) the
sole general partner of the managing general partner of which is
such Person or a Subsidiary of such
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<PAGE> 113
Person or (B) the only general partners of which are such Person
or of one or more Subsidiaries of such Person (or any combination
thereof).
"TPG" means TPG Oxford LLC, a Delaware limited
liability company.
"TPG Person" has the meaning set forth in the
definition of "Affiliate."
"Voting Securities" means the shares of Common Stock
and any other securities of the Corporation entitled to vote
generally for the election of directors.
"Warrants" means the Series B Warrants issued by the
Corporation on pursuant to the Investment Agreement.
"Warrant Shares" has the meaning assigned to such term
in the Warrants.
X. Miscellaneous
A. Notices. Any notice referred to herein shall be in
writing and, unless first-class mail shall be specifically
permitted for such notices under the terms hereof, shall be
deemed to have been given upon personal delivery thereof, upon
transmittal of such notice by telecopy (with confirmation of
receipt by telecopy or telex) or five days after transmittal by
registered or certified mail, postage prepaid, addressed as
follows:
(i) if to the Corporation, to its office at 800
Connecticut Avenue Norwalk, Connecticut 06854 (Attention:
General Counsel) or to the transfer agent for the Series B
Preferred Stock;
(ii) if to a holder of the Series B Preferred Stock,
to such holder at the address of such holder as listed in
the stock record books of the Corporation (which may
include the records of any transfer agent for the Series B
Preferred Stock); or
(iii) to such other address as the Corporation or such
holder, as the case may be, shall have designated by notice
similarly given.
B. Reacquired Shares. Any shares of Series B Preferred
Stock redeemed, purchased or otherwise acquired by the
Corporation, directly or indirectly, in any manner whatsoever
shall be retired and canceled promptly after the acquisition
thereof (and shall not be deemed to be outstanding for any
purpose) and, if necessary to provide for the lawful redemption
or purchase of such shares, the capital represented by such
shares shall be reduced in accordance with the Delaware General
Corporation Law. All such shares of Series B Preferred Stock
shall upon their cancellation and upon the filing of an
appropriate certificate with the Secretary of State of the State
of Delaware, become authorized but unissued shares of Preferred
Stock, par value $0.01 per share, of the Corporation and may be
reissued as part of another series of Preferred Stock, par value
$0.01 per share, of the Corporation subject to the conditions or
restrictions on issuance set forth herein.
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<PAGE> 114
C. Enforcement. Any registered holder of shares of
Series B Preferred Stock may proceed to protect and enforce its
rights and the rights of such holders by any available remedy by
proceeding at law or in equity to protect and enforce any such
rights, whether for the specific enforcement of any provision in
this Certificate of Designations or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
D. Transfer Taxes. Except as otherwise agreed upon
pursuant to the terms of this Certificate of Designations, the
Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes and other governmental charges that may
be imposed under the laws of the United States of America or any
political subdivision or taxing authority thereof or therein in
respect of any issue or delivery of Debentures on exchange of, or
other securities or property issued on account of, shares of
Series B Preferred Stock pursuant hereto or certificates
representing such shares or securities. The Corporation shall
not, however, be required to pay any such tax or other charge
that may be imposed in connection with any transfer involved in
the issue or transfer and delivery of any certificate for
Debentures or other securities or property in a name other than
that in which the shares of Series B Preferred Stock so
exchanged, or on account of which such securities were issued,
were registered and no such issue or delivery shall be made
unless and until the Person requesting such issue has paid to the
Corporation the amount of any such tax or has established to the
satisfaction of the Corporation that such tax has been paid or is
not payable.
E. Transfer Agent. The Corporation may appoint, and
from time to time discharge and change, a transfer agent for the
Series B Preferred Stock. Upon any such appointment or discharge
of a transfer agent, the Corporation shall send notice thereof by
first-class mail, postage prepaid, to each holder of record of
shares of Series B Preferred Stock.
F. Record Dates. In the event that the Series B
Preferred Stock shall be registered under either the Securities
Act or the Exchange Act, the Corporation shall establish
appropriate record dates with respect to payments and other
actions to be made with respect to the Series B Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designations
is executed on behalf of the Corporation by its [ ] and
attested by its Assistant Secretary, this ___ day of [ ],
1998.
OXFORD HEALTH PLANS, INC.
By:_____________________________
Name:
Title:
[Corporate Seal]
ATTEST:
________________________
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<PAGE> 115
EXHIBIT D
Form of Series B Warrant Certificate
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES ISSUABLE UPON EXERCISE OF THE SECURITIES REPRESENTED
HEREBY HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAW, AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN THE REGISTRATION RIGHTS AGREEMENT
DATED AS OF FEBRUARY 23, 1998, BY AND BETWEEN TPG OXFORD LLC AND
OXFORD HEALTH PLANS, INC. (THE "COMPANY"), THE TERMS OF WHICH ARE
INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE
AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY AND AT THE
PRINCIPAL OFFICE OF THE WARRANT AGENT.
<PAGE> 116
No. W-__________ __________ Warrants
SERIES B WARRANTS
Exercisable commencing _______ __, 1998;
Void after Expiration Time (as defined herein)
OXFORD HEALTH PLANS, INC., a Delaware corporation (the
"Company"), hereby certifies that, for value received, ________,
or registered assigns (the "Warrantholder"), is the owner of ________
Warrants (as defined below), each of which entitles the
Warrantholder to purchase from the Company, prior to the Approval
Date (as defined below), one one-thousandth of a fully paid, duly
authorized and nonassessable share of Series C Junior
Participating Preferred Stock, par value $0.01 per share, of the
Company (the "Junior Preferred Stock"), and, from and after the
Approval Date, one share of common stock, par value $0.01 per
share, of the Company (the "Common Stock"), at any time from and
after _______ __, 1998 (the "Issue Date") and continuing up to
the Expiration Time (as defined herein) at a per share exercise
price determined according to the terms and subject to the
conditions set forth in this certificate (the "Warrant
Certificate"). The number of shares of Junior Preferred Stock and
Common Stock issuable upon exercise of each such Warrant and the
exercise price per share of Junior Preferred Stock and Common
Stock are subject to adjustment from time to time pursuant to the
provisions of Sections 8 and 9 of this Warrant Certificate. The
Warrants evidenced by this Warrant Certificate are part of a
series of warrants to purchase, prior to the Approval Date, up to
_____ one-thousandths of a share of Junior Preferred Stock and, from
and after the Approval Date, up to ____ shares of Common Stock
(collectively, the "Warrants"), issued pursuant to an Investment
Agreement, dated as of February 23, 1998 (as it may be amended,
supplemented or otherwise modified from time to time, the
"Investment Agreement"), by and between TPG Oxford LLC, a
Delaware limited liability company (the "Investor"), and the
Company and are entitled to certain rights and privileges set
forth therein.
Section 1. Definitions. As used in this Warrant
Certificate, the following terms shall have the meanings set
forth below:
"Adjusted Price" has the meaning set forth in Section
8 hereof.
"Adjustment Date" means the twentieth Trading Day
after the day on which the Company's Annual Report on Form
10-K for the year ended December 31, 1998 is filed with the
U.S. Securities and Exchange Commission.
"Approval Date" means the date, if any, on which the
Company obtains the Shareholder Approval.
"Board of Directors" means the board of directors of
the Company.
"Business Day" means any day, other than a Saturday,
Sunday or a day on which banking institutions in the State
of New York are authorized or obligated by law or executive
order to close.
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"Certificate of Designations" means the Certificate of
Designations for the Series B Preferred Stock filed by the
Company with the Secretary of State of the State of
Delaware.
"Certificate of Incorporation" means the Second
Amended and Restated Certificate of Incorporation of the
Company, as amended from time to time.
"Closing Price" with respect to a share of Common
Stock on any day means, subject to Section 9.1(f), the last
reported sale price on that day or, in case no such
reported sale takes place on such day, the average of the
last reported bid and asked prices, regular way, on that
day, in either case, as reported in the consolidated
transaction reporting system with respect to securities
quoted on Nasdaq or, if the shares of Common Stock are not
quoted on Nasdaq, as reported in the principal consolidated
transaction reporting system with respect to securities
listed on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to
trading or, if the shares of Common Stock are not quoted on
Nasdaq and not listed or admitted to trading on any
national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked
prices on such other nationally recognized quotation system
then in use, or, if on any such day the shares of Common
Stock are not quoted on any such quotation system, the
average of the closing bid and asked prices as furnished by
a professional market maker selected by the Board of
Directors making a market in the shares of Common Stock. If
the shares of Common Stock are not publicly held or so
listed, quoted or publicly traded, the "Closing Price"
means the fair market value of a share of Common Stock, as
determined in good faith by the Board of Directors.
"Common Stock" has the meaning set forth in the
preamble hereto.
"Company" has the meaning set forth in the preamble
hereto.
"Equity Securities" of any Person means any and all
common stock, preferred stock, any other class of capital
stock and partnership or limited liability company
interests of such Person or any other similar interests of
any Person that is not a corporation, partnership or
limited liability company.
"Exercise Price" has the meaning set forth in Section
8 hereof.
"Expiration Date" means the earlier of (i) ________,
2008 [ten years after the Issue Date], and (ii) the date of an
Optional Redemption.
"Expiration Time" means 5:00 P.M., New York City time,
on the Expiration Date.
"Fractional Warrant Share" means (i) prior to the
Approval Date, any fraction of a share of Junior Preferred
Stock less than one one-thousandth of a share of Junior
Preferred Stock, and (ii) from and after the Approval Date,
any fraction of a whole share of Common Stock issued, or
issuable upon, exercise of the Warrants.
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"Investment Agreement" has the meaning set forth in
the preamble hereto.
"Investor" has the meaning set forth in the preamble
hereto.
"Issue Date" has the meaning set forth in the preamble
hereto.
"Junior Preferred Stock" has the meaning set forth in
the preamble hereto.
"Nasdaq" means The Nasdaq Stock Market's National
Market.
"Offer Time" has the meaning set forth in Section
9.1(e) hereof.
"Optional Redemption" means a redemption of the Series
B Preferred Stock pursuant to Article V, Section A of the
Certificate of Designations.
"Organic Change" means, with respect to any Person,
any transaction (including without limitation any
recapitalization, capital reorganization or
reclassification of any class or series of Equity
Securities, any consolidation of such Person with, or
merger of such Person into, any other Person, any merger of
another Person into such Person (other than a merger which
does not result in a reclassification, conversion, exchange
or cancellation of outstanding shares of capital stock of
such Person), and any sale or transfer or lease of all or
substantially all of the assets of such Person, but not
including any stock split, combination or subdivision which
is the subject of Section 9.1(b)) pursuant to which any
class or series of Equity Securities of such Person is
converted into the right to receive other securities, cash
or other property.
"Person" means any individual, firm, corporation,
company, limited liability company, association,
partnership, joint venture, trust or unincorporated
organization, or a government or any agency or political
subdivision thereof.
"Securities Act" means the U.S. Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder.
"Senior Preferred Stock" has the meaning assigned to
such term in the Investment Agreement.
"Series B Preferred Stock" means the Series B
Cumulative Preferred Stock, par value $0.01 per share, of
the Company.
"Shareholder Approval" has the meaning assigned to
such term in the Investment Agreement.
"Stated Value" means the stated value of the Series B
Preferred Stock as set forth in the Certificate of
Designations.
"Trading Day" means any day on which Nasdaq is open
for trading, or if the shares of Common Stock are not
quoted on Nasdaq, any day on which the principal
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<PAGE> 119
national securities exchange or national quotation system
on which the shares of Common Stock are listed, admitted to
trading or quoted is open for trading, or if the shares of
Common Stock are not so listed, admitted to trading or
quoted, any Business Day.
"Warrant" has the meaning set forth in the preamble
hereto.
"Warrant Agent" means the Person named or otherwise
appointed as such as set forth in Section 10 hereof.
"Warrant Certificate" has the meaning in the preamble
hereto.
"Warrant Market Price" means the average of the
Closing Prices of a share of Common Stock for the ten
consecutive Trading Days ending on the Trading Day
immediately prior to the day on which the Election to
Exercise is delivered.
"Warrant Register" has the meaning set forth in
Section 2.2 hereof.
"Warrant Shares" means (i) prior to the Approval Date,
each one one-thousandth of a share of Junior Preferred
Stock and (ii) from and after the Approval Date, the shares
of Common Stock, in each case, issued, or issuable upon,
exercise of the Warrants.
"Warrantholder" has the meaning set forth in the
preamble hereto.
Section 2. Transferability.
2.1. Registration. The Warrants shall be issued only
in registered form.
2.2. Transfer. The Warrants evidenced by this Warrant
Certificate may be sold or otherwise transferred at any time
(except as such sale or transfer may be restricted pursuant to
the Securities Act or any applicable state securities laws) and
any such sale or transfer shall be effected on the books of the
Company (the "Warrant Register") maintained at its principal
executive offices upon surrender of this Warrant Certificate for
registration of transfer duly endorsed by the Warrantholder or by
its duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall
execute and deliver a new Warrant Certificate or Certificates in
appropriate denominations to the Person or Persons entitled
thereto.
2.3. Legend on Warrant Shares. If and for so long as
required by the Investment Agreement, this Warrant Certificate
shall contain a legend as set forth in Section 8.10 of the
Investment Agreement.
Section 3. Exchange of Warrant Certificate. Any
Warrant certificate may be exchanged for another certificate or
certificates of like tenor entitling the Warrantholder to
purchase a like aggregate number of Warrant Shares as the
certificate or certificates surrendered then entitles such
Warrantholder to purchase. Any Warrantholder desiring to exchange
a Warrant certificate shall make such request in writing
delivered to the Company, and shall
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<PAGE> 120
surrender, properly endorsed, the certificate evidencing the
Warrant to be so exchanged. Thereupon, the Company shall execute
and deliver to the Person entitled thereto a new Warrant
certificate or certificates as so requested.
Section 4. Term of Warrants; Exercise of Warrants.
4.1. Duration of Warrant. On the terms and subject to
the conditions set forth in this Warrant Certificate, the
Warrantholder may exercise the Warrants evidenced hereby, in
whole or in part, at any time and from time to time after the
Issue Date and before the Expiration Time. If the Warrants
evidenced hereby are not exercised by the Expiration Time, they
shall become void, and all rights hereunder shall thereupon
cease.
4.2. Exercise of Warrant.
(a) On the terms and subject to the conditions
set forth in this Warrant Certificate, the Warrantholder
may exercise the Warrants evidenced hereby, in whole or in
part, by presentation and surrender to the Warrant Agent of
this Warrant Certificate together with the attached
Election to Exercise duly filled in and signed, and
accompanied by payment to the Company of the Exercise Price
for the number of Warrant Shares specified in such Election
to Exercise. Payment of the aggregate Exercise Price shall
be made (i) in cash in an amount equal to the aggregate
Exercise Price; (ii) by certified or official bank check in
an amount equal to the aggregate Exercise Price; (iii) by
an exchange (which shall be treated as a recapitalization)
with the Company of a number of shares of Senior Preferred
Stock having an aggregate Stated Value plus accumulated and
unpaid dividends thereon equal to the aggregate Exercise
Price; (iv) by an exchange (which shall be treated as a
recapitalization) with the Company of outstanding Warrants
(other than the Warrants being exercised) having an
aggregate Warrant Market Price which, after subtracting the
aggregate Exercise Prices thereof, equals the aggregate
Exercise Price of the Warrants being exercised; or (v) by
any combination of the foregoing.
(b) On the terms and subject to the conditions
set forth in this Warrant Certificate, upon such
presentation and surrender of this Warrant Certificate and
payment of such aggregate Exercise Price as set forth in
paragraph (a) hereof, the Company shall promptly issue and
cause to be delivered to the Warrantholder, or to such
Persons as the Warrantholder may designate in writing a
certificate or certificates (in such name or
names as the Warrantholder may designate in writing) for
the specified number of duly authorized, fully paid and
non-assessable Warrant Shares issuable upon exercise, and
shall deliver to the Warrantholder cash, as provided in
Section 11 hereof, with respect to any Fractional Warrant
Shares otherwise issuable upon such surrender. In the event
that the Warrants evidenced by this Warrant Certificate are
exercised in part prior to the Expiration Time, the Company
shall issue and cause to be delivered to the Warrantholder,
or to such Persons as the Warrantholder may designate in
writing, a certificate or certificates (in such name or
names as the Warrantholder may designate in writing)
evidencing any remaining unexercised Warrants.
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(c) Each Person in whose name any certificate for
Warrant Shares is issued shall for all purposes be deemed
to have become the holder of record of the Warrant Shares
represented thereby on the first date on which both the
Warrant certificate evidencing the respective Warrants was
surrendered and payment of the Exercise Price and any
applicable taxes was made, irrespective of date of issue or
delivery of such certificate.
Section 5. Payment of Taxes. The Company shall pay any
and all documentary, stamp or similar issue or transfer taxes and
other governmental charges that may be imposed under the laws of
the United States of America or any political subdivision or
taxing authority thereof or therein in respect of any issue or
delivery of Warrant Shares or of other securities or property
deliverable upon exercise of the Warrants evidenced by this
Warrant Certificate or certificates representing such shares or
securities (other than income taxes imposed on the
Warrantholder); provided that the Company shall not be required
to pay any such tax or other charge that may be imposed in
connection with any transfer involved in the issue of any
certificate for Warrant Shares or other securities or property,
or payment of cash, to any Person other than the holder of the
Warrant certificate surrendered upon exercise, and in case of any
such tax or charge, the Warrant Agent and the Company shall not
be required to issue any security or property or pay any cash
until such tax or charge has been paid or it has been established
to the Warrant Agent's and the Company's satisfaction that no
such tax or charge is payable.
Section 6. Mutilated or Missing Warrant. If any
Warrant certificate is lost, stolen, mutilated or destroyed, the
Company shall issue and the Warrant Agent shall countersign, in
exchange and substitution for and upon cancellation of the
mutilated Warrant certificate, or in lieu of and substitution for
the Warrant certificate lost, stolen or destroyed, upon receipt
of a proper affidavit or other evidence reasonably satisfactory
to the Company and the Warrant Agent (and surrender of any
mutilated Warrant certificate) and bond of indemnity in form and
amount and with corporate surety reasonably satisfactory to the
Company and the Warrant Agent in each instance protecting the
Company and the Warrant Agent, a new Warrant certificate of like
tenor and representing an equivalent number of Warrants as the
Warrant certificate so lost, stolen, mutilated or destroyed. Any
such new Warrant certificate shall constitute an original
contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant
certificate shall be at any time enforceable by anyone. An
applicant for such substitute Warrant certificate shall also
comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may
prescribe. All Warrant certificates shall be held and owned upon
the express condition that the foregoing provisions are exclusive
with respect to the replacement of lost, stolen, mutilated or
destroyed Warrant certificates, and shall preclude any and all
other rights or remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without
their surrender.
Section 7. Reservation of Shares. The Company hereby
agrees that there shall be reserved for issuance and delivery
upon exercise of this Warrant, free from preemptive rights, (i)
all of the authorized but unissued shares of Junior Preferred
Stock and (ii) the number
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<PAGE> 122
of shares of authorized but unissued shares of Common Stock as
may in the future or shall at any time be required for issuance
or delivery upon exercise of the Warrants evidenced by this
Warrant Certificate, except that from and after the Approval Date
no such shares of Junior Preferred Stock shall be required to be
so reserved. The Company further agrees that it will not, by
amendment of its Certificate of Incorporation or through
reorganization, consolidation, merger, dissolution or sale of
assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations
or conditions to be observed or performed hereunder by the
Company. Without limiting the generality of the foregoing, the
Company agrees that before taking any action which would cause an
adjustment reducing the Exercise Price below the then-par value
of Warrant Shares issuable upon exercise hereof, the Company
shall from time to time take all such action that may be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price
as so adjusted.
Section 8. Exercise Price. The price per share (the
"Exercise Price") at which Warrant Shares shall be purchasable
upon the exercise of the Warrants evidenced by this Warrant
Certificate shall be $17.75, subject to adjustment pursuant to
Section 9 hereof; provided, that, unless the Warrantholder
otherwise elects by delivering a written notice to that effect to
the Company or the Warrant Agent on the Adjustment Date, in the
event the Exercise Price for the Warrants evidenced by this
Warrant Certificate immediately prior to the Adjustment Date
shall be greater than the amount (the "Adjusted Price") equal to
the product of 1.15 multiplied by the average of the Closing
Prices of a share of Common Stock for the twenty consecutive
Trading Days ending on the last Trading Day prior to the
Adjustment Date (the "Adjusted Price Determination Period"), the
Exercise Price shall be deemed to equal the Adjusted Price as of
the Adjustment Date, and any adjustments to the Exercise Price
made pursuant to Section 9.1 hereof on and after the Adjustment
Date shall be made with respect to such Adjusted Price. In case
any event that would require an adjustment to the Exercise Price
pursuant to Section 9 hereof occurs with an "ex" date or an
effective date occurrring during the Adjusted Price Determination
Period, the Closing Prices used in determining the Adjusted Price
shall be appropriately adjusted to take such event into account.
No adjustment to the Exercise Price shall be made pursuant to
this Section 8 with respect to any Warrants that have been
surrendered for exercise prior to the Adjustment Date or
exchanged in connection with the exercise of Warrants prior to
the Adjustment Date in accordance with clause (iv) of Section
4.2(a) hereof.
Section 9. Adjustment of Exercise Price and Number of
Shares. The number and kind of securities purchasable upon the
exercise of the Warrants evidenced by this Warrant Certificate
and the Exercise Price thereof shall be subject to adjustment
from time to time after the date hereof upon the happening of
certain events, as follows:
9.1. Adjustments to Exercise Price. The Exercise Price
shall be subject to adjustment as follows:
(a) Stock Dividends. In case the Company after
the date hereof shall pay a dividend or make a distribution
to all holders of shares of Common Stock in shares of
Common Stock, then in any such case the Exercise Price in
effect at the opening of
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<PAGE> 123
business on the day following the record date for the
determination of stockholders entitled to receive such
dividend or distribution shall be reduced to a price
obtained by multiplying such Exercise Price by a fraction
of which (x) the numerator shall be the number of shares of
Common Stock outstanding at the close of business on such
record date and (y) the denominator shall be the sum of
such number of shares of Common Stock outstanding and the
total number of shares of Common Stock constituting such
dividend or distribution, such reduction to become
effective immediately after the opening of business on the
day following such record date. For purposes of this
subsection (a), the number of shares of Common Stock at any
time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable
in respect of scrip certificates issued in lieu of
fractions of shares of Common Stock. The Company will not
pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Company.
(b) Stock Splits and Reverse Splits. In case
after the date hereof outstanding shares of Common Stock
shall be subdivided into a greater number of shares of
Common Stock, the Exercise Price in effect at the opening
of business on the day following the day upon which such
subdivision becomes effective shall be proportionately
reduced, and, conversely, in case after the date hereof
outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Exercise
Price in effect at the opening of business on the day
following the day upon which such combination becomes
effective shall be proportionately increased, such
reduction or increase, as the case may be, to become
effective immediately after the opening of business on the
day following the day upon which such subdivision or
combination becomes effective.
(c) Issuances Below Market. In case the Company
after the date hereof shall issue rights or warrants to
holders of shares of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price
per share less than the Closing Price per share on the
record date for the determination of stockholders entitled
to receive such rights or warrants, the Exercise Price in
effect at the opening of business on the day following such
record date shall be adjusted to a price obtained by
multiplying such Exercise Price by a fraction of which (x)
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on such record date
plus the number of shares of Common Stock that the
aggregate offering price of the total number of shares so
to be offered would purchase at such Closing Price and (y)
the denominator shall be the number of shares of Common
Stock outstanding at the close of business on such record
date plus the number of additional shares of Common Stock
so to be offered for subscription or purchase, such
adjustment to become effective immediately after the
opening of business on the day following such record date;
provided, however, that no adjustment shall be made if the
Company issues or distributes to each Warrantholder the
rights or warrants that each Warrantholder would have been
entitled to receive had the Warrants held by such
Warrantholder been exercised prior to such record date; and
provided, further, that in no event shall the fact that the
Warrants become exercisable for shares of Common Stock upon
occurrence of the Shareholder Approval constitute an
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<PAGE> 124
issuance of rights or warrants pursuant to this Section
9.1(c). For purposes of this subsection (c), the number of
shares of Common Stock at any time outstanding shall not
include shares held in the treasury of the Company but
shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of
Common Stock. The Company shall not issue any rights or
warrants in respect of shares of Common Stock held in the
treasury of the Company. Rights or warrants issued by the
Company to all holders of Common Stock entitling the
holders thereof to subscribe for or purchase Equity
Securities, which rights or warrants (i) are deemed to be
transferred with such shares of Common Stock, (ii) are not
exercisable and (iii) are also issued in respect of future
issuances of Common Stock, including shares of Common Stock
issued upon exercise of the Warrants evidenced by this
Warrant Certificate, in each case in clauses (i) through
(iii) until the occurrence of a specified event or events
(a "Trigger Event"), shall for purposes of this subsection
(c) not be deemed issued until the occurrence of the
earliest Trigger Event.
(d) Special Dividends. In case the Company after
the date hereof shall distribute to all holders of shares
of Common Stock evidences of its indebtedness or assets
(excluding any regular periodic cash dividend), Equity
Securities (other than Common Stock) or rights to subscribe
(excluding those referred to in subsection (c) above) for
Equity Securities other than Common Stock, in each such
case the Exercise Price in effect immediately prior to the
close of business on the record date for the determination
of stockholders entitled to receive such distribution shall
be adjusted to a price obtained by multiplying such
Exercise Price by a fraction of which (x) the numerator shall be
the Closing Price per share of Common Stock on
such record date, less the then-current fair market value
as of such record date (as determined by the Board of
Directors in its good faith judgment) of the portion of
assets or evidences of indebtedness or Equity Securities or
subscription rights so distributed applicable to one share
of Common Stock, and (y) the denominator shall be such
Closing Price, such adjustment to become effective
immediately prior to the opening of business on the day
following such record date; provided, however, that no
adjustment shall be made (1) if the Company issues or
distributes to each Warrantholder the subscription rights
referred to above that each Warrantholder would have been
entitled to receive had the Warrants held by such
Warrantholder been exercised prior to such record date or
(2) if the Company grants to each Warrantholder the right
to receive, upon the exercise of the Warrants held by such
Warrantholder at any time after the distribution of the
evidences of indebtedness or assets or Equity Securities
referred to above, the evidences of indebtedness or assets
or Equity Securities that such Warrantholder would have
been entitled to receive had such Warrants been exercised
prior to such record date. The Company shall provide any
Warrantholder, upon receipt of a written request therefor,
with any indenture or other instrument defining the rights
of the holders of any indebtedness, assets, subscription
rights or Equity Securities referred to in this subsection
(d). Rights or warrants issued by the Company to all
holders of Common Stock entitling the holders thereof to
subscribe for or purchase Equity Securities, which rights
or warrants (i) are deemed to be transferred with such
shares of Common Stock, (ii) are not exercisable and (iii)
are also issued in respect of future issuances of Common
Stock,
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including shares of Common Stock issued upon exercise of
the Warrants evidenced by this Warrant Certificate, in each
case in clauses (i) through (iii) until the occurrence of a
Trigger Event, shall for purposes of this subsection (d)
not be deemed issued until the occurrence of the earliest
Trigger Event.
(e) Tender or Exchange Offer. In case a tender or
exchange offer made by the Company or any subsidiary of the
Company for all or any portion of the Common Stock shall be
consummated and such tender offer shall involve an
aggregate consideration having a fair market value (as
determined by the Board of Directors in its good faith
judgment) at the last time (the "Offer Time") tenders may
be made pursuant to such tender or exchange offer (as it
may be amended) that, together with the aggregate of the
cash plus the fair market value (as determined by the Board
of Directors in its good faith judgment), as of the Offer
Time, of consideration payable in respect of any tender or
exchange offer by the Company or any such subsidiary for
all or any portion of the Common Stock consummated
preceding the Offer Time and in respect of which no
Exercise Price adjustment pursuant to this subsection (e)
has been made, exceeds 5% of the product of the Closing
Price of the Common Stock at the Offer Time multiplied by
the number of shares of Common Stock outstanding (including
any tendered shares) at the Offer Time, the Exercise Price
shall be reduced so that the same shall equal the price
determined by multiplying the Exercise Price in effect
immediately prior to the Offer Time by a fraction of which
(x) the numerator shall be (i) the product of the Closing
Price of the Common Stock at the Offer Time multiplied by
the number of shares of Common Stock outstanding (including
any tendered shares) at the Offer Time minus (ii) the fair
market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the
tender or exchange offer) of all shares validly tendered
and not withdrawn as of the Offer Time (the shares deemed
so accepted, up to any such maximum, being referred to as
the "Purchased Shares") and (y) the denominator shall be
the product of (i) such Closing Price at the Offer Time
multiplied by (ii) such number of outstanding shares at the
Offer Time minus the number of Purchased Shares, such
reduction to become effective immediately prior to the
opening of business on the day following the Offer Time.
For purposes of this subsection (e), the number of shares
of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall
include shares issuable in respect of scrip certificates
issued in lieu of fractions of shares of Common Stock.
(f) Closing Price Determination. For the purpose
of any computation under subsections (c) and (d) of this
Section 9.1, the Closing Price of Common Stock on any date
shall be deemed to be the average of the Closing Prices for
the five consecutive Trading Days ending not later than the
day in question and commencing on a day selected at random
in good faith by the Company which is not more than 20
Trading Days before the day in question, provided, however,
that (i) if the "ex" date for any event (other than the
issuance or distribution requiring such computation) that
requires an adjustment to the Exercise Price pursuant to
this Section 9 occurs on or after the 20th Trading Day
prior to the day in question and prior to the "ex" date for
the issuance or distribution requiring
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<PAGE> 126
such computation, the Closing Price for each Trading Day
prior to the "ex" date for such other event shall be
adjusted by multiplying such Closing Price by the same
fraction which the Exercise Price is so required to be
adjusted as a result of such other event, (ii) if the "ex"
date for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to
the Exercise Price pursuant to this Section 9 occurs on or
after the "ex" date for the issuance or distribution
requiring such computation and on or prior to the day in
question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted
by multiplying such Closing Price by the reciprocal of the
fraction by which the Exercise Price is so required to be
adjusted as a result of such other event, and (iii) if the
"ex" date for the issuance or distribution requiring such
computation is on or prior to the day in question, after
taking into account any adjustment required pursuant to
clause (ii) of this proviso, the Closing Price for each
Trading Day on or after such "ex" date shall be adjusted by
adding thereto the fair market value on the day in question
(as determined by the Board of Directors in a manner
consistent with any determination of such value for the
purposes of subsection (d) of this Section 9.1) of the
assets, evidences of indebtedness, Equity Securities or
subscription rights being distributed applicable to one
share of Common Stock as of the close of business on the
day before such "ex" date. For the purposes of any
computation under subsection (e) of this Section 9.1, the
Closing Price on any date shall be deemed to be the average
of the daily Closing Prices for the five consecutive
Trading Days ending not later than the Offer Time of such
tender or exchange offer and commencing on a day selected
at random in good faith by the Company which date shall be
on or after the latest (the "Commencement Date") of (i) the
date 20 Trading Days before the date in question, (ii) the
date of commencement of the tender or exchange offer
requiring such computation and (iii) the date of the last
amendment, if any, of such tender or exchange offer
involving a change in the maximum number of shares for
which tenders are sought or a change in the consideration
offered; provided, however, that if the "ex" date for any
event (other than the tender or exchange offer requiring
such computation) that requires an adjustment to the
Exercise Price pursuant to this Section 9 occurs on or
after the Commencement Date and prior to the Offer Time for
the tender or exchange offer requiring such computation,
the Closing Price for each Trading Day prior to the "ex"
date for such other event shall be adjusted by multiplying
such Closing Price by the same fraction by which the
Exercise Price is so required to be adjusted as a result of
such other event. For purposes of this subsection (f), the
term "ex" date, (i) when used with respect to any issuance
or distribution, means the first date on which the Common
Stock trades regular way on Nasdaq or on the relevant
exchange or in the relevant market from which the Closing
Price was obtained without the right to receive such
issuance or distribution, (ii) when used with respect to
any subdivision or combination of shares of Common Stock,
means the first date on which the Common Stock trades
regular way on Nasdaq or such exchange or in such market
after the time at which such subdivision or combination
becomes effective, and (iii) when used with respect to any
tender or exchange offer means the first date on which the
Common Stock trades regular way on Nasdaq or such exchange
or in such market after the Offer Time of such tender or
exchange offer.
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<PAGE> 127
(g) Minimum Adjustment Requirement. No adjustment
shall be required unless such adjustment would result in an
increase or decrease of at least $0.01 in the Exercise
Price then subject to adjustment; provided, however, that
any adjustments that are not made by reason of this
subsection (g) shall be carried forward and taken into
account in any subsequent adjustment. In case the Company
shall at any time issue shares of Common Stock by way of
dividend on any stock of the Company or subdivide or
combine the outstanding shares of Common Stock, said amount
of $0.01 specified in the preceding sentence (as
theretofore increased or decreased, if said amount shall
have been adjusted in accordance with the provisions of
this subsection (g)) shall forthwith be proportionately
increased in the case of such a combination or decreased in
the case of such a subdivision or stock dividend so as
appropriately to reflect the same.
(h) Calculations. All calculations under this
Section 9.1 shall be made to the nearest $0.01.
(i) Certificate. Whenever an adjustment in the
Exercise Price is made as required or permitted by the
provisions of this Section 9.1, the Company shall promptly
file with the Warrant Agent a certificate of its chief
financial officer setting forth (A) the adjusted Exercise
Price as provided in this Section 9.1 and a brief statement
of the facts requiring such adjustment and the computation
thereof and (B) the number of shares of Common Stock (or
portions thereof) purchasable upon exercise of a Warrant
after such adjustment in the Exercise Price in accordance
with Section 9.2 hereof and the record date therefor, and
promptly after such filing shall mail or cause to be mailed
a notice of such adjustment to each Warrantholder at his or
her last address as the same appears on the Warrant
Register. Such certificate, in the absence of manifest
error, shall be conclusive and final evidence of the
correctness of such adjustment. The Warrant Agent shall be
entitled to rely upon such certificate, and shall be under
no duty or responsibility with respect to any such
certificate except to exhibit the same to any Warrantholder
desiring inspection thereof.
(j) Notice. In case:
(i) the Company shall declare any dividend
or any distribution of any kind or character (whether
in cash, securities or other property) on or in
respect of shares of Common Stock or to the
stockholders of the Company (in their capacity as
such), excluding any regular periodic cash dividend
paid out of current or retained earnings (as such
terms are used in generally accepted accounting
principles); or
(ii) the Company shall authorize the
granting to the holders of shares of Common Stock of
rights to subscribe for or purchase any shares of
capital stock or of any other right; or
(iii) of any reclassification of shares of
Common Stock (other than a subdivision or combination
of outstanding shares of Common Stock), or of any
consolidation or merger to which the Company is a
party and for which
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<PAGE> 128
approval of any stockholders of the Company is
required, or of the sale or transfer of all or
substantially all of the assets of the Company; or
(iv) of the voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then the Company shall cause to be filed with the Warrant
Agent and shall cause to be mailed to the Warrantholders,
at their last addresses as they shall appear upon the
Warrant Register, at least 30 days prior to the applicable
record date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of
such dividend, distribution or rights or, if a record is
not to be taken, the date as of which the holders of shares
of Common Stock of record to be entitled to such dividend,
distribution or rights are to be determined or (y) the date
on which such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and, if applicable, the date
as of which it is expected that holders of shares of Common
Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property (including
cash) deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Failure to give any such notice,
or any defect therein, shall not affect the validity of the
proceedings referred to in clauses (i), (ii), (iii) and
(iv) above.
(k) Section 305. Anything in this Section 9.1 to
the contrary notwithstanding, the Company shall be
entitled, but not required, to make such reductions in the
Exercise Price, in addition to those required by this
Section 9.1, as it in its discretion shall determine to be
advisable, including, without limitation, in order that any
dividend in or distribution of shares of Common Stock or
shares of capital stock of any class other than Common
Stock, subdivision, reclassification or combination of
shares of Common Stock, issuance of rights or warrants, or
any other transaction having a similar effect, shall not be
treated as a distribution of property by the Company to its
stockholders under Section 305 of the Internal Revenue Code
of 1986, as amended, or any successor provision and shall
not be taxable to them.
(l) No Adjustment. Anything to the contrary
herein notwithstanding, no adjustment to the Exercise Price
or the number of shares of Common Stock purchasable upon
exercise of a Warrant shall be made pursuant to this
Section 9.1 or Section 9.2 as a result of, or in connection
with, the issuance of options or rights to purchase Common
Stock issued to employees of the Company or its
Subsidiaries pursuant to a stock option or other similar
plan adopted by the Board of Directors or an employment
agreement approved by the Board of Directors, or the
modification, renewal or extension of any such plan or
agreement if approved by the Board of Directors.
(m) When Adjustment Not Required. If the Company
shall take a record of the holders of its Common Stock for
purposes of taking any action that requires an adjustment
of the Exercise Price under this Section 9 and shall,
thereafter and before the effective date of such action,
legally abandon its plan to take such action, then
thereafter
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<PAGE> 129
no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
9.2. Adjustment to Number of Warrant Shares. Upon each
adjustment of the Exercise Price pursuant to Section 9.1 hereof
the number of Warrant Shares purchasable upon exercise of a
Warrant outstanding prior to the effectiveness of such adjustment
shall be adjusted to the number, calculated to the nearest
one-hundredth of a Warrant Share, obtained by (x) multiplying the
number of Warrant Shares purchasable immediately prior to such
adjustment upon the exercise of a Warrant by the Exercise Price
in effect prior to such adjustment and (y) dividing the product
so obtained by the Exercise Price in effect after such adjustment
of the Exercise Price.
9.3. Organic Change.
(a) Company Survives. Upon the consummation of an
Organic Change (other than a transaction in which the
Company is not the surviving entity), lawful provision
shall be made as part of the terms of such transaction
whereby the terms of the Warrant Certificates shall be
modified, without payment of any additional consideration
therefor, so as to provide that upon exercise of Warrants
following the consummation of such Organic Change, the
Warrantholders of such Warrants shall have the right to
purchase only the kind and amount of securities, cash and
other property receivable upon such Organic Change by a
holder of the number of Warrant Shares into which such
Warrants might have been exercised immediately prior to
such Organic Change, assuming such holder of Warrant Shares
(i) is not a Person with which the Company consolidated or
into which the Company merged or which merged into the
Company or to which a sale, transfer or lease of all or
substantially all of the assets of the Company was made, as
the case may be (a "constituent Person"), or an Affiliate
of a constituent Person, and (ii) failed to exercise his
rights of election, if any, as to the kind and amount of
securities, cash and other property receivable upon such
Organic Change (provided that if the kind and amount of
securities, cash and other property receivable upon such
Organic Change is not the same for each share of Common
Stock held immediately prior to such Organic Change by
others than a constituent Person or an Affiliate thereof
and in respect of which such rights of election shall not
have been exercised ("non-electing shares"), then for the
purpose of this subsection (a) the kind and amount of
securities, cash and other property receivable upon such
Organic Change by each non-electing share shall be deemed
to be the kind and amount so receivable per share by a
plurality of the non-electing shares); provided, however,
that no adjustment shall be made as a result of such
Organic Change to the Exercise Price or the number of
Warrant Shares notwithstanding any provision of Section 9
hereof unless any event requiring any such adjustment shall
have occurred or shall occur prior to, upon or after such
Organic Change. Lawful provision also shall be made as part
of the terms of the Organic Change so that all other terms
of the Warrant Certificates shall remain in full force and
effect following such an Organic Change. The provisions of
this Section 9.3(a) shall similarly apply to successive
Organic Changes.
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<PAGE> 130
(b) Company Does Not Survive. The Company shall
not enter into an Organic Change that is a transaction in
which the Company is not the surviving entity unless lawful
provision shall be made as part of the terms of such
transaction whereby the surviving entity shall issue new
securities to each Warrantholder, without payment of any
additional consideration therefor, with terms that provide
that upon the exercise of the Warrants, the Warrantholders
of such Warrants shall have the right to purchase only the
kind and amount of securities, cash and other property
receivable upon such Organic Change by a holder of the
number of Warrant Shares into which such Warrants might
have been exercised immediately prior to such Organic
Change, assuming such holder of Warrant Shares (i) is not a
constituent Person or an Affiliate of a constituent Person
and (ii) failed to exercise his rights of election, if any,
as to the kind and amount of securities, cash and other
property receivable upon such Organic Change (provided that
if the kind and amount of securities, cash and other
property receivable upon such Organic Change is not the
same for each non-electing share, then for the purpose of
this subsection (b) the kind and amount of securities, cash
and other property receivable upon such Organic Change by
each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the
non-electing shares); provided, however, that no adjustment
shall be made as a result of such Organic Change to the
Exercise Price or the number of Warrant Shares
notwithstanding any provision of Section 9 hereof unless
any event requiring any such adjustment shall have occurred
or shall occur prior to, upon or after such Organic Change.
The certificate or articles of incorporation or other
constituent document of the surviving entity shall provide
for such adjustments which, for events subsequent to the
effective date of such certificate or articles of
incorporation or other constituent document, shall be
equivalent to the adjustments provided for in Section 9.1
hereof.
9.4. Statement on Warrants. The form of Warrant
Certificate need not be changed because of any adjustment made
pursuant to Section 8, Section 9.1 or Section 9.2 hereof, and
Warrants issued after such adjustment may state the same Exercise
Price and the same number of Warrant Shares as are stated in this
Warrant Certificate.
9.5. Restriction on Actions Relating to Junior
Preferred Stock. No action shall be take by the Company with
respect to the Junior Preferred Stock, including without
limitation stock splits, stock dividends, stock combinations,
issuances below market and special dividends, which would require
an adjustment of the Exercise Price if such action were taken
with respect to the Common Stock, except pursuant to, and in
accordance with, Section 9.2.
Section 10. Warrant Agent. On the date of issuance of
the Warrants, the Company shall cause to be appointed in the
Borough of Manhattan, The City of New York, a Warrant Agent,
having a capital and surplus of at least $100,000,000.
Section 11. Fractional Interests. The Company shall
not be required to issue Fractional Warrant Shares on the
exercise of the Warrants evidenced by this Warrant Certificate.
If any Fractional Warrant Share would, but for the provisions of
this Section 11, be issuable on the exercise of the Warrants
evidenced by this Warrant Certificate (or specified portions
thereof),
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<PAGE> 131
the Company shall pay an amount in cash equal to the fraction of
a Warrant Share represented by such Fractional Warrant Share
multiplied by the Closing Price on the day of such exercise.
Section 12. Notice of Approval Date. When and if the
Approval Date shall occur, the Company shall promptly file with
the Warrant Agent a certificate to such effect, and promptly
after such filing shall mail or cause to be mailed a notice of
such occurrence to each Warrantholder at his or her last address
as the same appears on the Warrant Register.
Section 13. No Rights as Shareholder. Nothing in this
Warrant Certificate shall be construed as conferring upon the
Warrantholder or its transferees any rights as a shareholder of
the Company, including the right to vote, receive dividends,
consent or receive notices as a shareholder with respect to any
meeting of shareholders for the election of directors of the
Company or any other matter.
Section 14. Successors. All the covenants and
provisions of this Warrant Certificate by or for the benefit of
the Company or the Warrantholder shall bind and inure to the
benefit of their respective successors and permitted assigns
hereunder.
Section 15. Governing Law; Choice of Forum, Etc. The
validity, construction and performance of this Warrant
Certificate shall be governed by, and interpreted in accordance
with, the laws of New York without reference to its conflict of
laws rules. The parties hereto agree that the appropriate and
exclusive forum for any disputes arising out of this Warrant
Certificate solely between or among any or all of the Company, on
the one hand, and the Investor and/or any Person who has become a
Warrantholder, on the other, shall be the United States District
Court for the Southern District of New York, and, if such court
will not hear any such suit, the courts of the state of the
Company's incorporation, and the parties hereto irrevocably
consent to the exclusive jurisdiction of such courts, and agree
to comply with all requirements necessary to give such courts
jurisdiction. The parties hereto further agree that the parties
will not bring suit with respect to any disputes, except as
expressly set forth below, arising out of this Warrant
Certificate for the execution or enforcement of judgment, in any
jurisdiction other than the above specified courts. Each of the
parties hereto irrevocably consents to the service of process in
any action or proceeding hereunder by the mailing of copies
thereof by registered or certified airmail, postage prepaid, if
to (i) the Company, at 800 Connecticut Avenue, Norwalk,
Connecticut, 06854, Attention: General Counsel, or at such other
address specified by the Company in writing to the Warrant Agent,
and (ii) any Warrantholder, at the address of such Warrantholder
specified in the Warrant Register. The foregoing shall not limit
the rights of any party hereto to serve process in any other
manner permitted by the law or to obtain execution of judgment in
any other jurisdiction. The parties further agree, to the extent
permitted by law, that final and unappealable judgment against
any of them in any action or proceeding contemplated above shall
be conclusive and may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a
certified or exemplified copy of which shall be conclusive
evidence of the fact and the amount of indebtedness. The parties
agree to waive any and all rights that they may have to a jury
trial with respect to disputes arising out of this Agreement.
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Section 16. Benefits of this Agreement. Nothing in
this Warrant Certificate shall be construed to give to any Person
other than the Company and the Warrantholder any legal or
equitable right, remedy or claim under this Warrant Certificate,
and this Warrant Certificate shall be for the sole and exclusive
benefit of the Company and the Warrantholder.
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<PAGE> 133
IN WITNESS WHEREOF, the Company has caused this
Warrant to be duly executed, as of this _____th day of _________,
1998.
OXFORD HEALTH PLANS, INC.
By:_______________________
Name:
Title:
[Corporate Seal]
Attest:
________________________
Countersigned:
________________________, as Warrant Agent
By:_____________________
Name:
Title:
<PAGE> 134
ELECTION TO EXERCISE
(To be executed upon exercise of Warrants)
To OXFORD HEALTH PLANS, INC.:
The undersigned hereby irrevocably elects to exercise
the right of purchase represented by the within Warrant
Certificate for, and to purchase thereunder, Warrant Shares, as
provided for therein, and tenders herewith payment of the
purchase price in full in the form of [COMPLETE WHERE
APPLICABLE]:
[ ] cash or a certified or official bank check in the
amount of $ ; and/or C
[ ] $__________ Stated Value of Senior Preferred Stock (as
to which $__________ of accumulated dividends are
unpaid), of which $__________ Stated Value and the
corresponding accumulated dividends should be applied
toward the payment of such Warrant Shares; and/or
[ ] number of Warrants, valued at $ each (such value
arrived at by subtracting the Exercise Price of $ from
the Warrant Market Price of $ , both the Exercise Price
and Warrant Market Price determined in accordance with
the provisions of the Warrant Certificate);
For a total purchase price of $__________
If the Stated Value and accumulated and unpaid
dividends of the shares of Senior Preferred Stock or the value of
the Warrants evidenced by the Warrant Certificate delivered
herewith exceeds that portion of the payment which is to be paid
by the surrender of such shares or Warrants, you are authorized,
as agent of the undersigned, to deliver to the Company such
shares or Warrant Certificate delivered herewith for exchange
into smaller denominations in order that you may deliver to the
undersigned new shares of Senior Preferred Stock or Warrant
Certificates, in Stated Value or number as the case may be, equal
to the difference between the Stated Value or number as the case
may be, of the Senior Preferred Stock or Warrants surrendered,
less the Stated Value or number as the case may be, thereof, used
to purchase Warrant Shares.
<PAGE> 135
Please issue a certificate or certificates for such Warrant
Shares in the name of, and pay any cash for any Fractional
Warrant Shares to (please print name address and social security
or other identifying number)* :
Name: _______________________________________________________
Address: _______________________________________________________
_______________________________________________________
Soc. Sec. #: _________________
AND, if said number of Warrant Shares shall not be all the shares
purchasable under the within Warrant Certificate, a new Warrant
Certificate is to be issued in the name of the undersigned for
the balance remaining of the Warrant Shares purchasable
thereunder rounded up to the next higher whole number of Warrant
Shares.
Signature:**_________________________
- --------
* The Warrant Certificate and the Investment Agreement contain
restrictions on the sale and other transfer of the Warrants
evidenced by such Warrant Certificate.
** The above signature should correspond exactly with the name
on the face of this Warrant Certificate or with the name of
the assignee appearing in the assignment form below.*
2
<PAGE> 136
ASSIGNMENT FORM
(To be signed only upon assignment of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto
_________________________________________________________________
_________________________________________________________________
(Name and Address of Assignee must be Printed or Typewritten)
Warrants to purchase ______ Warrant Shares of the Company,
evidenced by the within Warrant Certificate hereby irrevocably
constituting and appointing _________________ Attorney to
transfer said Warrants on the books of the Company, with full
power of substitution in the premises.
Dated: _____________, 19__
_________________________________
Signature of Registered Holder*
_________________________________
Signature Guaranteed: Signature of Guarantor
- --------
* The above signature should correspond exactly with the name
on the face of this Warrant Certificate.
<PAGE> 137
EXHIBIT E
CERTIFICATE OF DESIGNATIONS
OF
SERIES C JUNIOR PARTICIPATING PREFERRED STOCK
OF
OXFORD HEALTH PLANS, INC.
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
-----------------------------
OXFORD HEALTH PLANS, INC., a corporation organized and
existing under the General Corporation Law of the State of
Delaware (hereinafter called the "Company"), hereby certifies
that the following resolution was duly adopted by the Board of
Directors of the Company as required by Section 151 of the
General Corporation Law of the State of Delaware at a meeting
duly called and held on *, 1998:
RESOLVED, that pursuant to the authority granted to
and vested in the Board of Directors of the Company (hereinafter
called the "Board of Directors" or the "Board") in accordance
with the provisions of the Company's Certificate of
Incorporation, as amended to date (hereinafter called the
"Certificate of Incorporation"), the Board of Directors hereby
creates a series of Preferred Stock, par value $.01 per share, of
the Company and hereby states the designation and number of
shares, and fixes the relative rights, powers and preferences
thereof, and the limitations thereof, as follows:
Section 1. Designation and Amount. The shares of such
series shall be designated as "Series C Junior Participating
Preferred Stock" (the "Series C Preferred Stock") and the number
of shares constituting the Series C Preferred Stock shall be
6,730. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series C Preferred Stock to
a number less than the number of shares then outstanding.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares
of any series of Preferred Stock of the Company (the "Preferred
Stock") (or any similar stock) ranking prior and superior to the
Series C Preferred Stock with respect to dividends, the holders
of shares of Series C Preferred Stock, in preference to the
holders of Common Stock, par value $.0l per share (the "Common
Stock"), of the Company and of any other stock of the Company
ranking junior to the Series C Preferred Stock, shall be entitled
to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, dividends and
other distributions, in an amount per share (rounded to the
nearest cent) equal to, subject to the provision for adjustment
<PAGE> 138
hereinafter set forth, 1000 times the aggregate per share amount
of all cash dividends, and 1000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common
Stock, declared on the Common Stock since the immediately
preceding dividend or distribution declared on the Series C
Preferred Stock. In the event the Company shall at any time after
*, 1998 declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount per share to
which holders of shares of Series C Preferred Stock were entitled
immediately prior to such event under the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Company shall declare a dividend or
distribution on the Series C Preferred Stock as provided in
paragraph (A) of this Section immediately after it declares a
dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock).
(C) The Board of Directors may fix a record date for
the determination of holders of shares of Series C Preferred
Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60
days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. Except as set forth in
Section 10, or as otherwise from time to time required by law,
holders of Series C Preferred Stock shall have no voting rights
and their consent shall not be required for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever dividends or distributions payable on the
Series C Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all unpaid dividends and
distributions, whether or not declared, on shares of Series
C Preferred Stock outstanding shall have been paid in full,
the Company shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(as to dividends) to the Series C Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a
parity (as to dividends) with the Series C Preferred
Stock, except dividends paid ratably on the Series C
Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such
shares are then entitled;
2
<PAGE> 139
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Series C Preferred
Stock, provided that the Company may at any time
redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock
of the Company ranking junior (as to dividends and
upon dissolution, liquidation or winding up) to the
Series C Preferred Stock or rights, warrants or
options to acquire such junior stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series C Preferred Stock,
or any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or
winding up) with the Series C Preferred Stock, except
in accordance with a purchase offer made in writing or
by publication (as determined by the Board of
Directors) to all holders of such shares of Series C
Preferred Stock, or shares of Series C Preferred Stock
and parity stock, as the case may be, upon such terms
as the Board of Directors, after consideration of the
respective dividend rates and other relative rights
and preferences of the respective series and classes,
shall determine in good faith will result in fair and
equitable treatment among the respective series or
classes.
(B) The Company shall not redeem or purchase or
otherwise acquire shares of Common Stock (other than
pursuant to any written agreement of the Company in
existence on *, 1998 and other than redemptions or
purchases or other acquisitions for aggregate consideration
not in excess of $10,000,000 since *, 1998), unless, in
each case, the Company promptly (within five business days)
makes a purchase offer in writing or by publication (as
determined by the Board of Directors) to all holders of
shares of Series C Preferred Stock offering to purchase a
number of shares of Series C Preferred Stock equal to one
one-thousandth of the number of shares of Common Stock
redeemed or purchased or otherwise acquired in such
transaction at a price per share equal to 1000 times the
amount of consideration paid for one share of Common Stock
in such transaction and otherwise on terms and conditions
no less favorable to the holders than those applicable in
such transaction (as determined by the Board of Directors
in good faith). In the event the Company shall at any time
after *, 1998 declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case (i) the number of shares of
Series C Preferred Stock which holders thereof were
entitled to have the Company offer to purchase immediately
prior to such event under the preceding sentence shall be
adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the
denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such
event, and (ii) the amount per share to which holders of
shares of Series C Preferred Stock were entitled
immediately prior to such event under the preceding
sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of
Common Stock outstanding
3
<PAGE> 140
immediately prior to such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately after such event.
(C) The Company shall not, and shall not permit any
subsidiary of the Company to, enter into any agreement with
any person providing for the purchase or other acquisition
by such person (or any other person), whether pursuant to
tender offer, exchange offer or otherwise, unless in each
case such person promptly (within five business days) makes
a purchase offer in writing or by publication (as
determined by the Board of Directors) to all holders of
shares of Series C Preferred Stock offering to purchase a
number of shares of Series C Preferred Stock equal to
one-one thousandth of the number of shares of Common Stock
purchased or otherwise acquired in such transaction at a
price per share equal to 1000 times the amount of
consideration paid for one share of Common Stock in such
transaction and otherwise on terms and conditions no less
favorable to the holders than those applicable in such
transaction (as determined by the Board of Directors in
good faith). In the event the Company shall at any time
after *, 1998 declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case (i) the number of shares of
Series C Preferred Stock which holders thereof were
entitled to have redeemed or purchased or otherwise
acquired immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately
prior to such event, and (ii) the amount per share to which
holders of shares of Series C Preferred Stock were entitled
immediately prior to such event under the preceding
sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of
Common Stock outstanding immediately prior to such event
and the denominator of which is the number of shares of
Common Stock that were outstanding immediately after such
event.
(D) The Company shall not permit any subsidiary of the
Company to purchase or otherwise acquire for consideration
any shares of stock of the Company unless the Company
could, under paragraph (A) or (B) of this Section 4,
purchase or otherwise acquire such shares at such time and
in such manner.
Section 5. Reacquired Shares. Any shares of Series C
Preferred Stock purchased or otherwise acquired by the Company in
any manner whatsoever shall be retired and cancelled promptly
after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred
Stock, subject to the conditions and restrictions on issuance set
forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon
any liquidation, dissolution or winding up of the Company, no
distribution shall be made (A) to the holders of the
4
<PAGE> 141
Common Stock or of shares of any other stock of the Company
ranking junior, upon liquidation, dissolution or winding up, to
the Series C Preferred Stock unless, prior thereto, the holders
of shares of Series C Preferred Stock shall have received (i)
$1.00 per share, plus (ii) an amount equal to declared and unpaid
dividends and distributions thereon, to the date of such payment,
plus (iii) an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 1000
times the aggregate amount to be distributed per share to holders
of shares of Common Stock, or (B) to the holders of shares of
stock ranking on a parity upon liquidation, dissolution or
winding up with the Series C Preferred Stock, except
distributions made ratably on the Series C Preferred Stock and
all such parity stock in proportion to the total amounts to which
the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Company
shall at any time after *, 1998 declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such
case the aggregate amount per share to which holders of shares of
Series C Preferred Stock were entitled immediately prior to such
event under clause (A)(iii) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the
Company shall enter into any consolidation, merger, combination
or other transaction in which the shares of Common Stock are
converted into, exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
each share of Series C Preferred Stock shall at the same time be
similarly converted into, exchanged for or changed into an amount
per share (subject to the provision for adjustment hereinafter
set forth) equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common
Stock is converted, exchanged or changed. In the event the
Company shall at any time after *, 1998 declare or pay any
dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount set forth in the preceding
sentence with respect to the conversion, exchange or change of
shares of Series C Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. No Redemption. The shares of Series C
Preferred Stock shall not be redeemable from any holder.
Section 9. Rank. The Series C Preferred Stock shall
rank, with respect to the payment of dividends and the
distribution of assets upon liquidation, dissolution or winding
up
5
<PAGE> 142
of the Company, junior to all other series of Preferred Stock
(unless the terms of any such series shall provide otherwise) and
senior to the Common Stock.
Section 10. Amendment. Without the consent or
affirmative vote of the holders of at least a majority of the
outstanding shares of Series C Preferred Stock, voting separately
as a class, the Company shall not (i) amend, alter or repeal any
provision of the Certificate of Incorporation or the Bylaws, if
the amendment, alteration or repeal alters or changes the powers,
preferences or special rights of the Series C Preferred Stock so
as to affect them materially and adversely, or (ii) authorize or
take any other action if such action alters or changes any of the
rights of the Series C Preferred Stock in any respect or
otherwise would be inconsistent with the provisions of this
Certificate of Designations and the holders of any class or
series of the capital stock of the Company is entitled to vote
thereon.
Section 11. Fractional Shares. Series C Preferred
Stock may be issued in fractions of a share which shall entitle
the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of
holders of Series C Preferred Stock.
IN WITNESS WHEREOF, this Certificate of Designations
is executed on behalf of the Company by its Chairman of the Board
of Directors and attested by its Secretary this * day of *, 1998.
----------------------------------
Chairman of the Board of Directors
Attest:
- ------------------------
Secretary
6
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
dated as of February 23, 1998
between
OXFORD HEALTH PLANS, INC.
and
TPG OXFORD LLC
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT ("Agreement"), dated as
of February 23, 1998, by and between Oxford Health Plans, Inc., a
Delaware corporation (the "Company"), and TPG Oxford LLC, a
Delaware limited liability company (together with its permitted
assigns, "TPG" or the "Investor").
Recitals
A. The Company and the Investor have entered into an
Investment Agreement, dated as of February 23, 1998 (the
"Investment Agreement"), pursuant to which the Investor has
agreed to purchase, in the aggregate, from the Company, and the
Company has agreed to issue and sell to the Investor, (i) 245,000
shares of the Company's Series A Cumulative Preferred Stock, par
value $0.01 per share (the "Series A Preferred Stock"), together
with detachable Series A Warrants (the "Series A Warrants"), to
purchase 15,800,000 shares of common stock, par value $0.01 per
share (the "Common Stock"), of the Company, and (ii) 105,000
shares of the Company's Series B Cumulative Preferred Stock, par
value $0.01 per share (the "Series B Preferred Stock," and
together with the Series A Preferred Stock, the "Senior Preferred
Stock"), together with detachable Series B Warrants (the "Series
B Warrants," and together with the Series A Warrants, the
"Warrants"), to purchase (A) prior to the Shareholder Approval,
6,730 shares of the Company's Series C Junior Participating
Preferred Stock, par value $0.01 per share (the "Junior Preferred
Stock") or (B) following the Shareholder Approval, 6,730,000
shares of Common Stock; and
B. As an inducement to the Investor entering into the
Investment Agreement, the Investor has required that the Company
agree, and the Company has agreed, to provide the registration
rights set forth in this Agreement; and
C. The consummation of the Closing is conditioned
upon, among other things, the execution and delivery of this
Agreement;
Agreement
NOW, THEREFORE, in consideration of the foregoing and
the mutual premises, covenants and agreements of the parties
hereto, and for other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS.
-----------
1.1. Capitalized Terms. Capitalized terms used but not
defined herein shall have the respective meanings given to them
in the Investment Agreement.
1.2. Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
<PAGE> 3
"Adverse Disclosure" means public disclosure of
material non-public information, which disclosure in the Board's
good faith judgment after consultation with counsel to the
Company (i) would be required to be made in any registration
statement filed with the Commission by the Company so that such
registration statement would not be materially misleading; (ii)
would not be required to be made at such time but for the filing
of such registration statement; and (iii) the Company has a bona
fide business purpose for not disclosing publicly.
"Agreement" has the meaning set forth in the preamble
hereto.
"Board" means the board of directors of the Company.
"Common Stock" means the Company's common stock, par
value $0.01 per share.
"Company" has the meaning set forth in the preamble
and shall include the Company's successors by merger,
acquisition, reorganization or otherwise.
"Company Public Sale" has the meaning set forth in
Section 2.3(a).
"Demand Notice" has the meaning set forth in Section
2.2(e).
"Demand Period" has the meaning set forth in Section
2.2(d).
"Demand Registration" has the meaning set forth in
Section 2.2(a).
"Demand Registration Statement" has the meaning set
forth in Section 2.2(a).
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and any successor thereto, and any rules and
regulations promulgated thereunder, all as the same shall be in
effect from time to time.
"Filing Date" means the 270th day following the
Closing Date, provided, however, that, in the event the Board
determines in good faith that an extension of the relevant filing
beyond such 270th day is in the best interest of the Company, the
Filing Date may be extended to the earliest date thereafter to
which the Board determines it may be extended consistent with the
best interest of the Company, but no later than the 360th day
following the Closing Date.
A "holder" or "holders" means any holder or holders of
Registrable Securities (whether or not acquired pursuant to the
Investment Agreement) who is a party hereto or who otherwise
agrees in writing to be bound by the provisions of this
Agreement.
"Indemnified Parties" has the meaning set forth in
Section 2.9.
"Investment Agreement" has the meaning set forth in
the recitals hereto.
2
<PAGE> 4
"Investor" has the meaning set forth in the preamble
hereto.
"Junior Preferred Stock" has the meaning set forth in
the Investment Agreement.
"Material Adverse Event" means (i) any general
suspension of trading in, or limitation on prices for, securities
on any national securities exchange or in the over-the-counter
market in the United States of America, (ii) the declaration of a
banking moratorium or any suspension of payments in respect of
banks in the United States of America, (iii) the commencement of
a war, armed hostilities or other international or national
calamity involving the United States of America, (iv) any
limitation (whether or not mandatory) by any governmental
authority on, or any other event which materially affects the
extension of credit by banks or other financial institutions, (v)
any material adverse effect on in the Company's business,
condition (financial or otherwise) or prospects or (vi) a 10% or
more decline in the Dow Jones Industrial average or the Standard
and Poor's Index of 400 Industrial Companies, in each case from
the date a Demand Registration is requested.
"NASD" means the National Association of Securities
Dealers, Inc.
"Person" means any individual, firm, limited liability
company or partnership, joint venture, corporation, joint stock
company, trust or unincorporated organization, incorporated or
unincorporated association, government (or any department, agency
or political subdivision thereof) or other entity of any kind,
and shall include any successor (by merger or otherwise) of such
entity.
"Piggyback Registration" has the meaning set forth in
Section 2.3(a).
"Preferred Stock" has the meaning set forth in the
Investment Agreement.
"Prospectus" means the prospectus included in any
Registration Statement as amended or supplemented by any
prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities covered by the
Registration Statement and all other amendments and supplements
to the prospectus, including post-effective amendments and all
other material incorporated by reference in such prospectus.
"Registrable Securities" means any Preferred Stock,
Warrant, Warrant Stock or Unit, and any securities that may be
issued or distributed or be issuable in respect of any
Registrable Securities by way of stock dividend, stock split or
other distribution, merger, consolidation, exchange offer,
recapitalization or reclassification or similar transaction;
provided, however, that any such Registrable Securities shall
cease to be Registrable Securities to the extent (i) a
Registration Statement with respect to the sale of such
Registrable Securities has been declared effective under the
Securities Act and such Registrable Securities have been disposed
of in accordance with the plan of distribution set forth in such
Registration Statement, (ii) such Registrable Securities have
been distributed pursuant to Rule 144 (or any similar provision
then in force) under the Securities Act, or (iii) such
Registrable Securities shall have been otherwise
transferred and new certificates for them not bearing a legend
restricting transfer under the Securities Act shall have been
delivered by the Company and they may be publicly resold
3
<PAGE> 5
without registration or qualification of them under the
Securities Act or any state securities or "Blue Sky" law then in
force. For purposes of this Agreement, a "class" of Registrable
Securities means either (a) the Preferred Stock, (b) the Warrants
and the Warrant Stock or (c) the Units; and, in the case of the
class consisting of Warrants and Warrant Stock, any reference to
a percentage (or a majority) of such class of Registrable
Securities shall mean that percentage of such class of
Registrable Securities, collectively, computed on the assumption
that all such Warrants were exercised. A percentage (or a
majority) of the Registrable Securities shall be determined based
on the number of securities.
"Registration" means a registration of the Company's
securities for sale to the public under a Registration Statement.
"Registration Expenses" has the meaning set forth in
Section 2.8(a).
"Registration Statement" means any registration
statement of the Company filed with, or to be filed with, the SEC
under the rules and regulations promulgated under the
Securities Act, including the Prospectus, amendments and
supplements to such registration statement, including
post-effective amendments, and all exhibits and all material
incorporated by reference in such registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended, and any successor thereto, and any rules and regulations
promulgated thereunder, all as the same shall be in effect from
time to time.
"Shelf Period" has the meaning set forth in Section
2.1(b).
"Shelf Registration" means a Registration effected
pursuant to Section 2.1.
"Shelf Registration Statement" means a Registration
Statement of the Company filed with the SEC on Form S-3 (or any
successor form or other appropriate form under the Securities
Act) for an offering to be made on a continuous basis pursuant to
Rule 415 under the Act (or any similar rule that may be adopted
by the SEC) covering some or all of the Registrable Securities,
as applicable.
"Underwritten Offering" means a Registration in which
securities of the Company are sold to an underwriter on a firm
commitment basis for reoffering to the public.
"Unit" means any combination of Preferred Stock,
Warrants or Warrant Stock proposed to be sold or sold as a unit.
"Warrants" means the Warrants issued or issuable
pursuant to the Investment Agreement or in substitution or in
exchange therefor.
"Warrant Stock" means any Common Stock, Preferred
Stock or other security issued or issuable upon exercise of any
Warrant, including any Common Stock, Preferred Stock
4
<PAGE> 6
or other security issued or issuable in respect of outstanding
Warrant Stock upon any stock dividend, stock split or other
distribution, merger, consolidation, exchange offer,
recapitalization or reclassification or similar transaction.
1.3. General Interpretive Principles. Whenever used in
this Agreement, except as otherwise expressly provided or unless
the context otherwise requires, any noun or pronoun shall be
deemed to include the plural as well as the singular and to cover
all genders. The name assigned this Agreement and the section
captions used herein are for convenience of reference only and
shall not be construed to affect the meaning, construction or
effect hereof. Unless otherwise specified, the terms "hereof,"
"herein" and similar terms refer to this Agreement as a whole
(including the exhibits, schedules and disclosure statements
hereto), and references herein to Sections refer to Sections of
this Agreement.
SECTION 2. REGISTRATION RIGHTS.
-------------------
2.1. Shelf Registration.
------------------
(a) Filing. On or before the Filing Date, the Company
shall file with the SEC a Shelf Registration Statement relating
to the offer and sale of the Registrable Securities by the
holders thereof from time to time in accordance with the methods
of distribution elected by such holders and set forth in such
Shelf Registration Statement and, thereafter, shall use its
reasonable best efforts to cause such Shelf Registration
Statement to be declared effective under the Securities Act. If,
on the Filing Date, the Company does not qualify to file a Shelf
Registration Statement, then the provisions of Section 2.2,
below, shall apply, but at any time thereafter that the Company
does so qualify, it shall, as promptly as practicable, file a
Shelf Registration Statement and use its reasonable best efforts
to cause the Shelf Registration Statement to be declared
effective.
(b) Continued Effectiveness. The Company shall use its
reasonable best efforts to keep the Shelf Registration Statement
continuously effective in order to permit the Prospectus forming
a part thereof to be usable by holders until the earlier of (i)
the tenth (10th) anniversary of the effectiveness of such Shelf
Registration Statement or (ii) the date as of which (A) all the
Registrable Securities covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration
Statement (but in no event prior to the applicable period
referred to in Section 4(3) of the Securities Act and Rule 174
thereunder) or (B) the Investor is no longer entitled to Board
representation under the Investment Agreement and is permitted to
sell their Registrable Securities under Rule 144(k) under the
Securities Act (such period of effectiveness being the "Shelf
Period"). Subject to Section 2.1(c), below, the Company shall not
be deemed to have used its reasonable best efforts to keep the
Shelf Registration Statement effective during the Shelf Period if
the Company voluntarily takes any action or omits to take any
action that would result in holders of the Registrable Securities
covered thereby not being able to offer and sell any such
Registrable Securities during the Shelf Period, unless such
action or omission is required by applicable law.
(c) Delay in Filing; Suspension of Registration. If
the continued effectiveness of the Shelf Registration Statement
at any time would require the Company to make an Adverse
5
<PAGE> 7
Disclosure, the Company may, upon giving prompt written notice of
such action to the holders, suspend use of the Shelf Registration
Statement (a "Shelf Suspension"); provided, however, that the
Company shall not be permitted to exercise a Shelf Suspension (i)
more than three times during any twenty-four (24) month period,
(ii) for a period exceeding forty (40) days on any one occasion,
or (iii) for an aggregate period exceeding one hundred twenty
(120) days in any twelve (12) month period with respect to more
than one Shelf Suspension. In the case of a Shelf Suspension, the
holders agree to suspend use of the Prospectus related to the
Shelf Registration in connection with any such sale or purchase
of or offer to sell or purchase Registrable Securities upon
receipt of the notice referred to above. The Company shall
immediately notify the holders upon the termination of any Shelf
Suspension, amend or supplement the Prospectus, if necessary, so
it does not contain any untrue statement or omission therein and
furnish to the holders such numbers of copies of the Prospectus
as so amended or supplemented as the holders may reasonably
request. The Company agrees, if necessary, to supplement or make
amendments to the Shelf Registration Statement, if required by
the registration form used by the Company for the Shelf
Registration or by the instructions applicable to such
registration form or by the Securities Act or the rules or
regulations promulgated thereunder or as may reasonably be
requested by the Holders of a majority of the Registrable
Securities then outstanding.
(d) Underwritten Offering. If not less than a majority
of the holders of any class of Registrable Securities included in
any offering pursuant to the Shelf Registration Statement so
elect, such offering of Registrable Securities pursuant to such
Shelf Registration Statement shall be in the form of an
Underwritten Offering and the Company shall amend or supplement
the Shelf Registration Statement, if appropriate. If any offering
pursuant to a Shelf Registration Statement involves an
Underwritten Offering, the holders of a majority of the
Registrable Securities included in such Shelf Registration shall,
after consulting with the Company, have the right to select the
managing underwriter or underwriters to administer the offering
subject to the right of the Company to select one co-managing
underwriter reasonably acceptable to such holders for any such
Underwritten Offering.
2.2. Demand Registrations.
--------------------
(a) Demand by Holders. If, on or at any time after the
Filing Date there is no currently effective Shelf Registration
Statement on file, then at any time thereafter the holders of not
less than 10% of any class of Registrable Securities may make a
written request to the Company for Registration of all of the
Registrable Securities held by such holders, provided that the
estimated market value of the Registrable Securities to be so
Registered is at least $10 million in the aggregate, or any part
of the Registrable Securities held by them, provided that the
estimated market value of the Registrable Securities to be so
Registered is at least $20 million in the aggregate. Any such
requested registration shall hereinafter be referred to as a
"Demand Registration." Each request for a Demand Registration
shall specify the kind and aggregate amount of Registrable
Securities to be registered and the intended methods of
disposition thereof. Upon such request for a Demand Registration,
the Company shall file a Registration Statement relating to such
Demand Registration (the "Demand Registration Statement"), and
shall use its reasonable best efforts promptly to cause to become
effective the Registration of such Registrable Securities (and
all other Registrable Securities which the Company has been
6
<PAGE> 8
requested to register by any other holder pursuant to
Section 2.2(e) hereof) under (i) the Securities Act, and (ii) the
"Blue Sky" laws of such jurisdictions as any holder of
Registrable Securities being registered under such Registration
or any underwriter, if any, reasonably requests.
(b) Limitation on Demand Registrations. Subject to
clause (h) below, in no event shall the Company be required to
effect more than five (5) Demand Registrations.
(c) Demand Withdrawal. In the event that a Demand
Registration is requested under this Section and holders of
Registrable Securities later determine not to sell their
Registrable Securities in connection with the registration
requested, then prompt notice shall be given by such holders to
the Company that the registration requested is no longer required
and that the request is thereby withdrawn. Upon receipt of such
notice, the Company shall cease all efforts to secure
registration and shall take all action necessary and reasonably
practicable to prevent the commencement of effectiveness for any
registration statement that it is preparing or has prepared in
connection with the withdrawn request. Such registration shall be
deemed a Demand Registration for purposes of Section 2.2(b),
above, unless the withdrawing holders shall have paid or
reimbursed the Company for all of the reasonable out-of-pocket
fees and expenses incurred by the Company in connection with the
registration of such withdrawn Registrable Securities.
(d) Effective Registration. The Company shall be
deemed to have effected a Demand Registration if the Demand
Registration Statement is declared effective by the SEC and
remains effective for not less than 180 days (or such shorter
period as will terminate when all Registrable Securities covered
by such Demand Registration Statement have been sold or
withdrawn), or, if such Registration Statement relates to an
Underwritten Offering, such longer period as in the opinion of
counsel for the underwriter or underwriters a Prospectus is
required by law to be delivered in connection with sales of
Registrable Securities by an underwriter or dealer (in either
case, such period being the "Demand Period"). No Demand
Registration shall be deemed to have been effected if (i) during
the Demand Period such registration is interfered with by any
stop order, injunction or other order or requirement of the SEC
or other governmental agency or court or (ii) the conditions to
closing specified in the underwriting agreement, if any, entered
into in connection with such Registration are not satisfied by
reason of a wrongful act, misrepresentation or breach of an
applicable underwriting agreement by the Company.
(e) Demand Notice. Promptly upon receipt of any
request for a Demand Registration pursuant to paragraph (a) (but
in no event more than five (5) business days thereafter), the
Company shall serve written notice (a "Demand Notice") of any
such Registration request to all other holders of Registrable
Securities, and the Company shall include in such Registration
all such Registrable Securities of any holder with respect to
which the Company has received written requests for inclusion
therein within 30 days after the Demand Notice has been given to
it. Thereafter, the Company may elect to include in such
registration additional shares of Common Stock to be issued by
the Company. All requests made pursuant to this Section 2.2(e)
shall specify the kind and aggregate amount of Registrable
Securities to be registered and the intended method of
distribution of such securities.
7
<PAGE> 9
(f) Delay in Filing; Suspension of Registration. If
the continued effectiveness of the Demand Registration Statement
at any time would require the Company to make an Adverse
Disclosure, the Company may, upon giving prompt written notice of
such action to the holders, suspend use of the Demand
Registration Statement (a "Demand Suspension"); provided,
however, that the Company shall not be permitted to exercise a
Demand Suspension (i) more than three times during any
twenty-four (24) month period, (ii) for a period exceeding forty
(40) days on any one occasion, or (iii) for an aggregate period
exceeding one hundred twenty (120) days in any twelve (12) month
period with respect to more than one Demand Suspension. In the
case of a Demand Suspension, the holders agree to suspend use of
the Prospectus related to the Demand Registration in connection
with any such sale or purchase or offer to sell or purchase of
Registrable Securities upon receipt of the notice referred to
above. The Company shall immediately notify the holders upon the
termination of any Demand Suspension, amend or supplement the
Prospectus, if necessary, so it does not contain any untrue
statement or omission therein and furnish to the holders such
numbers of copies of the Prospectus as so amended or supplemented
as the holders may reasonably request. The Company agrees, if
necessary, to supplement or make amendments to the Demand
Registration Statement, if required by the registration form used
by the Company for the Demand Registration or by the instructions
applicable to such registration form or by the Securities Act or
the rules or regulations promulgated thereunder or as may
reasonably be requested by the Holders of a majority of the
Registrable Securities then outstanding.
(g) Underwritten Offering. If not less than a majority
of the holders of any class of Registrable Securities requesting
a Demand Registration so elect, the offering of Registrable
Securities pursuant to such Demand Registration shall be in the
form of an Underwritten Offering. If any offering pursuant to a
Demand Registration involves an Underwritten Offering, the
holders of a majority of the Registrable Securities included in
such Demand Registration shall, after consulting with the
Company, have the right to select the managing underwriter or
underwriters to administer the offering subject to (i) the right
of the Company to select one co-managing underwriter reasonably
acceptable to such holders for any such Underwritten Offering and
(ii) with respect to any such Underwritten Offering in which the
Company includes securities with an estimated market value of at
least $20 million, any contractual obligation of the Company,
disclosed to the Investor prior to the date hereof, to select a
particular underwriter to manage such Underwritten Offering.
(h) Priority of Securities Registered Pursuant to
Demand Registrations. If the managing underwriter or underwriters
of a Demand Registration (or, in the case of a Demand
Registration not being underwritten, a majority of the holders of
any class of Registrable Securities sought to be registered
therein), advise the Company in writing (with a copy to each
selling holder of Registrable Securities) that, in its or their
opinion, the number of securities requested to be included in
such Demand Registration (including securities of the Company for
its own account or for the account of other Persons which are not
holders of Registrable Securities) exceeds the number which can
be sold in such offering without being likely to have a
significant adverse effect on the price, timing or distribution
of the securities offered or the market for the Company's Common
Stock, the Company will include in such Registration the
Registrable Securities sought to be registered therein and only
such lesser number of other
8
<PAGE> 10
securities as shall, in the opinion of the managing underwriter
or underwriters (or, in the case of a Demand Registration not
being underwritten, holders of a majority of the Registrable
Securities sought to be registered therein) not be likely to have
such an effect. In the event that, despite the reduction of the
number of shares of Common Stock to be offered for the account of
the Company in such registration pursuant to the immediately
preceding sentence, the number of Registrable Securities to be
included in such Registration exceeds the number which, in the
opinion of the managing underwriter or underwriters (or, in the
case of a Demand Registration not being underwritten, holders of
a majority of the Registrable Securities sought to be registered
therein) can be sold without having the adverse effect referred
to above, the number of Registrable Securities of each class to
be included in such Demand Registration shall be allocated pro
rata among all requesting holders on the basis of the relative
number of shares of Registrable Securities of such class then
held by each such holder to the extent necessary to reduce the
total number of Registrable Securities to be included in such
offering to the number recommended by the managing underwriter,
underwriters or such holders, provided that any shares thereby
allocated to a holder that exceed such holder's request shall be
reallocated among the remaining requesting holders in like
manner. To the extent that Registrable Securities so requested to
be registered are excluded from the offering, then the holders of
such Registrable Securities shall have the right to one
additional Demand Registration under this Section 2.2.
(i) Registration Statement Form. Registrations under
this Section 2.2 shall be on such appropriate registration form
of the SEC (i) as shall be selected by the Company and as shall
be reasonably acceptable to the holders of a majority of the
Registrable Securities requesting a Demand Registration and (ii)
as shall permit the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition
specified in such holders' requests for such Registration.
2.3. Piggyback Registrations.
-----------------------
(a) Participation. If the Company at any time proposes
to file a Registration Statement under the Securities Act with
respect to any offering of its securities for its own account or
for the account of any holders (other than (i) a Registration
under Section 2.1 or 2.2 hereof, (ii) a Registration on Form S-4
or S-8 or any successor form to such Forms, (iii) a Registration
of securities solely relating to an offering and sale to
employees or directors of the Company pursuant to any employee
stock plan or other employee benefit plan arrangement, or (iv) a
Registration of securities issued solely in an acquisition or
business combination) (a "Company Public Sale"), then, as soon as
practicable (but in no event less than thirty (30) Business Days
prior to the proposed date of filing such Registration
Statement), the Company shall give written notice of such
proposed filing to all holders of Registrable Securities that are
equity securities in the case of a Company Public Sale of equity
securities or Registrable Securities that are debt securities in
the case of a Company Public Sale of debt securities, and (unless
all such Registrable Securities are then registered pursuant to
Section 2.1 or a Shelf Registration Statement under Section 2.1
is in effect) such notice shall offer the holders of such
Registrable Securities the opportunity to register such number of
Registrable Securities as each such holder may request in writing
(a "Piggyback Registration"). Subject to Section 2.3(b), the
Company shall include in such Registration Statement all
Registrable Securities requested within
9
<PAGE> 11
fifteen (15) Business Days after the receipt by the holder of any
such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder) to be
included in the Registration for such offering pursuant to a
Piggyback Registration; provided, however, that if at any time
after giving written notice of its intention to register any
securities and prior to the effective date of the Registration
Statement filed in connection with such Registration, the Company
shall determine for any reason not to register or to delay
registration of such securities, the Company may, at its
election, give written notice of such determination to each
holder of Registrable Securities and, thereupon, (i) in the case
of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection
with such Registration (but not from its obligation to pay the
Registration Expenses in connection therewith), without
prejudice, however, to the rights of any holders of Registrable
Securities entitled to request that such Registration be effected
as a Demand Registration under Section 2.2, and (ii) in the case
of a determination to delay registering and in the absence of a
request for a Demand Registration, shall be permitted to delay
registering any Registrable Securities, for the same period as
the delay in registering such other securities. If the offering
pursuant to such Registration Statement is to be underwritten,
then each holder making a request for a Piggyback Registration
pursuant to this Section 2.3(a) must participate in such
Underwritten Offering. If the offering pursuant to such
Registration Statement is to be on any other basis, then each
holder making a request for a Piggyback Registration pursuant to
this Section 2.3(a) must participate in such offering on such
basis. Each holder of Registrable Securities shall be permitted
to withdraw all or part of such holder's Registrable Securities
from a Piggyback Registration at any time prior to the effective
date thereof; provided, that the Company shall be entitled to
reimbursement from the holder of such withdrawn Registrable
Securities for any registration fees incurred by the Company in
connection with the registration of such Registrable Securities.
(b) Priority of Piggyback Registration. If the
managing underwriter or underwriters of any proposed Underwritten
Offering in a Piggyback Registration informs the Company and the
holders of such Registrable Securities in writing that the total
amount or kind of securities which such holders and any other
persons or entities intend to include in such offering exceeds
the number which can be sold in such offering so as to have a
significant adverse effect on the price, timing or distribution
of the securities offered in such offering or the market for the
Company's Common Stock, then the securities to be included in
such Registration shall be (i) first, 100% of the securities that
the Company or (subject to Section 2.7) any person exercising a
contractual right to demand Registration, as the case may be,
proposes to sell, and (ii) second, and only if all the securities
referenced in clause (i) have been included, the number of
Registrable Securities that, in the opinion of such underwriter
or underwriters, can be sold without having such adverse effect,
allocated pro rata among the holders which have requested
pursuant to Section 2.3(a) to be included in such Registration,
based on the fully diluted ownership of such holders (provided
that any Registrable Securities thereby allocated to any such
holder that exceed such holder's request will be reallocated
among the remaining requesting holders of Registrable Securities
in like manner) and (iii) third, and only if all of the
Registrable Securities referenced in clauses (i) and (ii) have
been included, any other securities eligible for inclusion in
such Registration.
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<PAGE> 12
(c) No Effect on Demand Registrations. No Registration
of Registrable Securities effected pursuant to a request under
this Section 2.3 shall be deemed to have been effected pursuant
to Sections 2.1 or 2.2 hereof or shall relieve the Company of its
obligations under Sections 2.1 or 2.2 hereof.
2.4. Black-out Periods for Holders. In the event of a
Company Public Sale or the offering and sale by the Company of
securities convertible into or exchangeable for any of its equity
securities, the holders of Registrable Securities agree, if
requested by the Company, and, in the case of an Underwritten
Offering, by the managing underwriter or underwriters in such
Underwritten Offering, not to effect any public sale or
distribution of any securities the same as or similar to those
being registered in connection with such Company Public Sale, or
any securities convertible into or exchangeable or exercisable
for such securities, during the period beginning 7 days before,
and ending 90 days (or such lesser period as may be permitted by
the Company or such managing underwriters) after, the effective
date of the Registration Statement filed in connection with such
registration, to the extent timely notified in writing by the
Company or the managing underwriter or underwriters (except, in
each case, as part of such registration, if permitted).
2.4.A Black-out Period for the Company and Others. In
the case of an Underwritten Offering, the Company agrees, if
requested by the holders of a majority of Registrable Securities
or the managing underwriters in such Underwritten Offering, not
to effect any public sale or distribution of any securities the
same as or similar to those being registered, or any securities
convertible into or exchangeable or exercisable for such
securities, during the period beginning 7 days before, and ending
90 days (or such lesser period as may be permitted by such
holders or such underwriter) after, the effective date of the
Registration Statement filed in connection with such registration
(or, in the case of an underwriting under the Shelf Registration,
the date of the closing under the underwriting agreement), to the
extent timely notified in writing by a holder of Registrable
Securities covered by such Registration Statement or the managing
underwriters (except, in each case, as part of such Underwritten
Offering, if permitted, or pursuant to registrations on Forms S-4
or S-8 or any successor form to such Forms or as part of any
registration of securities for offering and sale to management of
the Company pursuant to any employee stock plan or other employee
benefit plan arrangement or Registration of securities issued
solely in an acquisition or business combination). The Company
agrees to use all reasonable efforts to obtain from each holder
of restricted securities of the Company the same as or similar to
those being registered by the Company, or any restricted
securities convertible into or exchangeable or exercisable for
any of its securities, an agreement not to effect any public sale
or distribution of such securities (other than securities
purchased in a public offering) during any such period referred
to in this paragraph, except as part of any such Registration if
permitted. Without limiting the foregoing (but subject to Section
2.7), if after the date hereof the Company grants any Person
(other than a holder of Registrable Securities) any rights to
demand or participate in, a Registration, the Company agrees that
the agreement with respect thereto shall include such Person's
agreement as contemplated by the previous sentence.
11
<PAGE> 13
2.5. Registration Procedures.
-----------------------
(a) In connection with the Company's registration
obligations under Sections 2.1, 2.2 and 2.3 hereof, the Company
will use its reasonable best efforts to effect such registration
to permit the sale of such Registrable Securities in accordance
with the intended method or methods of distribution thereof as
expeditiously as reasonably practicable, and pursuant thereto the
Company will as expeditiously as reasonably practicable:
(i) before filing a Registration Statement or
Prospectus, or any amendments or supplements thereto and in
connection therewith, (x) furnish to the underwriters, if any,
and to the holders of the Registrable Securities covered by such
Registration Statement, copies of all documents prepared to be
filed, which documents will be subject to the review of such
underwriters and such holders and their respective counsel and
(y) except in the case of a registration under Section 2.3, not
file any Registration Statement or Prospectus or amendments or
supplements thereto to which the holders of a majority of
Registrable Securities covered by such Registration Statement or
the underwriters, if any, shall reasonably object;
(ii) prepare and, in the case of a Demand
Registration, no later than 60 days after a request for a Demand
Registration, file with the SEC a Registration Statement relating
to the Registrable Securities including all exhibits and
financial statements required by the SEC to be filed therewith,
and use its reasonable best efforts to cause such Registration
Statement to become effective under the Securities Act; provided,
however, that the Company may discontinue any Registration of its
securities that are not Registrable Securities (and, under the
circumstances specified in 2.1(c) may delay or suspend, and,
under the circumstances specified in Section 2.3(a), may delay or
discontinue, Registration of Registrable Securities) at any time
prior to the effective date of the Registration Statement
relating thereto;
(iii) prepare and file with the SEC such amendments
and post-effective amendments to such Registration Statement and
supplements to the Prospectus as may be (x) reasonably requested
by the holders of a majority of the participating Registrable
Securities, (y) reasonably requested by any participating holder
(to the extent such request relates to information relating to
such holder), or (z) necessary to keep such Registration
effective for the Shelf Period (in the case of a Shelf
Registration) or the Demand Period (in the case of a Demand
Registration);
(iv) notify the selling holders of Registrable
Securities and the managing underwriter or underwriters, if any,
and (if requested) confirm such advice in writing, as soon as
reasonably practicable after notice thereof is received by the
Company (i) when the Registration Statement or any amendment
thereto has been filed or becomes effective, when the Prospectus
or any amendment or supplement to the Prospectus has been filed,
and, to furnish such selling holders and managing underwriter or
underwriters, if any, with copies thereof, (ii) of any written
comments by the SEC or any request by the SEC or any other
federal or state governmental authority for amendments or
supplements to the Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any
12
<PAGE> 14
preliminary or final Prospectus or the initiation or threatening
of any proceedings for such purposes, (iv) if, at any time, the
representations and warranties of the Company contemplated by
paragraph (xiv) below cease to be true and correct and in all
material respects (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification
of the Registrable Securities for offering or sale in any
jurisdiction or the initiation or threatening of any proceeding
for such purpose;
(v) promptly notify each selling holder of Registrable
Securities and the managing underwriter or underwriters, if any,
when the Company becomes aware of the happening of any event as a
result of which the Registration Statement or the Prospectus
included in such Registration Statement (as then in effect)
contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein
(in the case of the Prospectus and any preliminary Prospectus, in
light of the circumstances under which they were made) not
misleading or, if for any other reason it shall be necessary
during such time period to amend or supplement the Registration
Statement or the Prospectus in order to comply with the
Securities Act and, in either case as promptly as reasonably
practicable thereafter, prepare and file with the SEC, and
furnish without charge to the selling holders and the managing
underwriter or underwriters, if any, an amendment or supplement
to such Registration Statement or Prospectus which will correct
such statement or omission or effect such compliance;
(vi) make every reasonable effort to prevent or obtain
the withdrawal of any stop order or other order suspending the
use of any preliminary or final Prospectus or suspending any
qualification of the Registrable Securities at the earliest
possible moment;
(vii) if reasonably requested by the managing
underwriter or underwriters or a holder of Registrable Securities
being sold in connection with an Underwritten Offering, promptly
incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriter or
underwriters and the holders of a majority of the Registrable
Securities being sold agree should be included therein relating
to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to,
and the purchase price being paid therefor by, such underwriter
or underwriters and with respect to any other terms of the
underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all
required filings of such Prospectus supplement or post-effective
amendment as soon as reasonably practicable after being notified
of the matters to be incorporated in such Prospectus supplement
or post-effective amendment;
(viii) furnish to each selling holder of Registrable
Securities and each managing underwriter, if any, without charge,
as many conformed copies as such holder or managing underwriter
may reasonably request of the Registration Statement and any
amendment or post-effective amendment thereto, including
financial statements and schedules, all documents incorporated
therein by reference and all exhibits (including those
incorporated by reference);
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<PAGE> 15
(ix) deliver to each selling holder of Registrable
Securities and each managing underwriter, if any, without charge,
as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such
holder or managing underwriter may reasonably request (it being
understood that the Company consents to the use of the Prospectus
or any amendment or supplement thereto by each of the selling
holders of Registrable Securities and the underwriters, if any,
in connection with the offering and sale of the Registrable
Securities covered by the Prospectus or any amendment or
supplement thereto) and such other documents as such selling
holder or managing underwriter may reasonably request in order to
facilitate the disposition of the Registrable Securities by such
holder or underwriter;
(x) on or prior to the date on which the Registration
Statement is declared effective, use its reasonable best efforts
to register or qualify, and cooperate with the selling holders of
Registrable Securities, the managing underwriter, underwriters or
agent, if any, and their respective counsel in connection with
the registration or qualification of such Registrable Securities
for offer and sale under the securities or "Blue Sky" laws of
each state and other jurisdiction of the United States as any
such selling holder, underwriter or agent, if any, or their
respective counsel reasonably request in writing and do any and
all other acts or things reasonably necessary or advisable to
keep such registration or qualification in effect for so long as
such Registration Statement remains in effect and so as to permit
the continuance of sales and dealings in such jurisdictions for
as long as may be necessary to complete the distribution of the
Registrable Securities covered by the Registration Statement;
provided that the Company will not be required to qualify
generally to do business in any jurisdiction where it is not then
so qualified or to take any action which would subject it to
taxation or general service of process in any such jurisdiction
where it is not then so subject;
(xi) cooperate with the selling holders of Registrable
Securities and the managing underwriter, underwriters or agent,
if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and
not bearing any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such
names as the managing underwriters may request at least two
business days prior to any sale of Registrable Securities to the
underwriters;
(xii) use its reasonable best efforts to cause the
Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof or the underwriter or
underwriters, if any, to consummate the disposition of such
Registrable Securities;
(xiii) not later than the effective date of the
applicable Registration Statement, provide a CUSIP number for all
Registrable Securities and provide the applicable transfer agent
with printed certificates for the Registrable Securities which
are in a form eligible for deposit with The Depository Trust
Company;
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<PAGE> 16
(xiv) make such representations and warranties to the
holders of Registrable Securities being registered, and the
underwriters or agents, if any, in form, substance and scope as
are customarily made by issuers in secondary underwritten public
offerings;
(xv) enter into such customary agreements (including
underwriting and indemnification agreements) and take all such
other actions as the holders of at least a majority of any
Registrable Securities being sold or the managing underwriter or
agent, if any, reasonably request in order to expedite or
facilitate the registration and disposition of such Registrable
Securities;
(xvi) obtain for delivery to the holders of
Registrable Securities being registered and to the underwriter,
underwriters or agent, if any, an opinion or opinions from
counsel for the Company dated the effective date of the
Registration Statement and, in the event of an Underwritten
Offering, brought down to the date of execution of the
underwriting agreement (if different from such effective date)
and to the closing under the underwriting agreement, in customary
form, scope and substance, which counsel and opinions shall be
reasonably satisfactory to such holders, underwriters or agents
and their respective counsel;
(xvii) obtain for delivery to the Company and the
underwriter, underwriters or agent, if any, with copies to the
holders of Registrable Securities (unless precluded by applicable
accounting rules), a cold comfort letter from the Company's
independent certified public accountants in customary form and
covering such matters of the type customarily covered by cold
comfort letters as the managing underwriter or underwriters
reasonably request, dated the date of execution of the
underwriting agreement and brought down to the closing under the
underwriting agreement;
(xviii) cooperate with each seller of Registrable
Securities and each underwriter or agent, if any, participating
in the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to be
made with the NASD;
(xix) use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC and make
generally available to its security holders, as soon as
reasonably practicable (but not more than fifteen months) after
the effective date of the Registration Statement, an earnings
statement satisfying the provisions of Section 11(a) of the
Securities Act and the rules and regulations promulgated
thereunder;
(xx) provide and cause to be maintained a transfer
agent and registrar for all Registrable Securities covered by
such Registration Statement from and after a date not later than
the effective date of such Registration Statement;
(xxi) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange
on which any of the Company's securities are then listed or
quoted and on each inter-dealer quotation system on which any of
the Company's securities are then quoted;
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<PAGE> 17
(xxii) make available upon reasonable notice at
reasonable times and for reasonable periods for inspection by a
representative appointed by a majority of the sellers of such
Registrable Securities covered by such Registration Statement, by
any underwriter participating in any disposition to be effected
pursuant to such Registration Statement and by any attorney,
accountant or other agent retained by such sellers or any such
underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of the Company, and cause all
of the Company's officers, directors and employees and the
independent public accountants who have certified its financial
statements to make themselves available to discuss the business
of the Company and to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent in
connection with such Registration Statement as shall be necessary
to enable them to exercise their due diligence responsibility
(subject to each party referred to in this clause (v) entering
into customary confidentiality agreements in a form reasonably
acceptable to the Company);
(xxiii) cause the senior executive officers of the
Company to participate in the customary "road show" presentations
that may be reasonably requested by the holders or the managing
underwriter in any Underwritten Offering and otherwise to
facilitate, cooperate with, and participate in each proposed
offering contemplated herein and customary selling efforts
related thereto; and
(xxiv) promptly, after the issuance of an earnings
release or upon the request of a holder, prepare a current report
on Form 8-K with respect to such earnings release or a matter of
disclosure as requested by such holder and file such Form 8-K
with the SEC.
(b) The Company may require each seller of Registrable
Securities as to which any registration is being effected to
furnish to the Company such information regarding the
distribution of such securities and such other information
relating to such holder and its ownership of Registrable
Securities as the Company may from time to time reasonably
request in writing. Each holder of Registrable Securities agrees
to furnish such information to the Company and to cooperate with
the Company as necessary to enable the Company to comply with the
provisions of this Agreement.
(c) Each holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of
any notice from the Company of the happening of any event of the
kind described in Section 2.5(a)(v) hereof, such holder will
forthwith discontinue disposition of Registrable Securities
pursuant to such Registration Statement until such holder's
receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 2.5(a)(v) hereof, or until it is advised
in writing by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the
Prospectus, and, if so directed by the Company, such holder will
deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such holder's
possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the
event the Company shall give any such notice, the Demand Period
during which such Registration Statement is required to be
maintained effective shall be extended by the number of days
during the period from and including the date of the
16
<PAGE> 18
giving of such notice to and including the date when each seller
of Registrable Securities covered by such Registration Statement
either receives the copies of the supplemented or amended
Prospectus contemplated by Section 2.5(a)(v) hereof or is advised
in writing by the Company that the use of the Prospectus may be
resumed.
(d) Holders may seek to register different types of
Registrable Securities and different classes of the same type of
Registrable Securities simultaneously and the Company shall use
its reasonable best efforts, to effect such registration and sale
in accordance with the intended method or methods of disposition
specified by such holders.
2.6. Underwritten Offerings.
----------------------
(a) Shelf and Demand Registrations. If requested by
the underwriters for any Underwritten Offering requested by
holders of Registrable Securities pursuant to a Registration
under Section 2.1 or under Section 2.2, the Company shall enter
into an underwriting agreement with such underwriters for such
offering, such agreement to be reasonably satisfactory in
substance and form to the Company, holders of a majority of the
Registrable Securities to be included in such underwriting, and
the underwriters, and to contain such representations and
warranties by the Company and such other terms as are generally
prevailing in agreements of that type, including, without
limitation, indemnities no less favorable to the recipient
thereof than those provided in Section 2.9. The holders of the
Registrable Securities proposed to be distributed by such
underwriters will cooperate with the Company in the negotiation
of the underwriting agreement and will give consideration to the
reasonable suggestions of the Company regarding the form thereof.
Such holders of Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement and
may, at their option, require that any or all of the
representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such
holders of Registrable Securities and that any or all of the
conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be required to make
any representations or warranties to or agreements with the
Company or the underwriters other than representations,
warranties or agreements regarding such holder, such holder's
Registrable Securities, such holder's intended method of
distribution and any other representations required by law.
(b) Piggyback Registrations. If the Company proposes
to register any of its securities under the Securities Act as
contemplated by Section 2.3 and such securities are to be
distributed in an Underwritten Offering through one or more
underwriters, the Company will, if requested by any holder of
Registrable Securities pursuant to Section 2.3 and subject to the
provisions of Section 2.3(b), use its reasonable best efforts to
arrange for such underwriters to include on the same terms and
conditions that apply to the other sellers in such Registration
all the Registrable Securities to be offered and sold by such
holder among the securities of the Company to be distributed by
such underwriters in such Registration. The holders of
Registrable Securities to be distributed by such underwriters
shall be parties to the underwriting agreement between the
Company and such underwriters and any or all of the
representations and warranties
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<PAGE> 19
by, and the other agreements on the part of, the Company to and
for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and any
or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement shall be
conditions precedent to the obligations of such holders of
Registrable Securities. Any such holder of Registrable Securities
shall not be required to make any representations or warranties
to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder,
such holder's Registrable Securities and such holder's intended
method of distribution or any other representations required by
law.
(c) Participation in Underwritten Registrations. No
Person may participate in any Underwritten Offering hereunder
unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by
the Persons entitled to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
2.7. No Inconsistent Agreements; Additional Rights.
The Company will not hereafter enter into, and except as
disclosed on Schedule 3.04(d) to the Investment Agreement, is not
currently a party to, any agreement with respect to its
securities which is inconsistent with the rights granted to the
holders of Registrable Securities by this Agreement or otherwise
conflicts with the provisions hereof.
2.8. Registration Expenses.
---------------------
(a) Expenses Paid by Company. All expenses incident to
the Company's performance of or compliance with this Agreement
will be paid by the Company (and, in the case of the filing of a
Registration Statement, regardless of whether such Registration
Statement becomes effective), including without limitation (i)
all registration and filing fees, and any other fees and expenses
associated with filings required to be made with the SEC or the
NASD (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel as may be
required by the rules and regulations of the NASD), (ii) all fees
and expenses of compliance with state securities or "Blue Sky"
laws (including fees and disbursements of counsel in connection
with "Blue Sky" qualifications of the Registrable Securities and
determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters or holders of
a majority of the Registrable Securities being sold may
designate), (iii) all printing, duplicating, word processing,
messenger, telephone, facsimile and delivery expenses (including
expenses of printing certificates for the Registrable Securities
in a form eligible for deposit with The Depository Trust Company
and of printing prospectuses), (iv) all fees and disbursements of
counsel for the Company and of all independent certified public
accountants of the Company (including the expenses of any special
audit and cold comfort letters required by or incident to such
performance), (v) Securities Act liability insurance or similar
insurance if the Company so desires or the underwriters so
require in accordance with then-customary underwriting practice,
(vi) all fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange
or quotation
18
<PAGE> 20
of the Registrable Securities on any inter-dealer quotation
system, (vii) all applicable rating agency fees with respect to
the Preferred Stock, (viii) all reasonable fees and disbursements
of one law firm or other counsel selected by the holders of a
majority of the Registrable Securities being registered, (ix) all
fees and expenses of accountants to the holders of Registrable
Securities being sold, (x) any reasonable fees and disbursements
of underwriters customarily paid by issuers or sellers of
securities (except as set forth in Section 2.8(b) below), (xi)
all fees and expenses of any special experts retained by the
Company in connection with any Demand Registration or Piggyback
Registration and (xii) fees and expenses of other Persons
retained by the Company without limitation (all such expenses
being herein called "Registration Expenses"). The Company will,
in any event, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of
any audit and the fees and expenses of any Person, including
special experts, retained by the Company.
(b) Expenses Not Paid by Company. The Company shall
not be required to pay any fees and disbursements of underwriters
not customarily paid by the issuers or sellers of securities,
including underwriting discounts and commissions and transfer
taxes, if any, attributable to the sale of Registrable Securities
and the fees and expenses of counsel to the underwriters other
than as provided in paragraph (a) above.
2.9. Indemnification.
---------------
(a) Indemnification by Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law,
each holder of Registrable Securities, its Affiliates and their
respective officers, directors, shareholders, employees,
advisors, and agents and each Person who controls (within the
meaning of the Securities Act or the Exchange Act) such Persons
(collectively, the "Indemnified Parties") from and against any
and all losses, claims, damages, liabilities (or actions or
proceedings in respect thereof, whether or not such Indemnified
Party is a party thereto) and expenses, joint or several
(including reasonable costs of investigation and legal expenses)
(each, a "Loss" and collectively "Losses") arising out of or
based upon (i) any untrue or alleged untrue statement of a
material fact contained in any Registration Statement under which
such Registrable Securities were registered under the Securities
Act (including any final, preliminary or summary Prospectus
contained therein or any amendment thereof or supplement thereto
or any documents incorporated by reference therein), or (ii) any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein (in the case of a Prospectus or preliminary Prospectus,
in light of the circumstances under which they were made) not
misleading; provided, however, that the Company shall not be
liable to any particular Indemnified Party in any such case to
the extent that any such Loss arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
19
<PAGE> 21
omission made in any such Registration Statement in
reliance upon and in conformity with written information
furnished to the Company by any holder of Registrable Securities
or any underwriter (other than any underwriter selected by the
Company) expressly for use in the preparation thereof; and
provided, further, that the Company will not be liable to any
Indemnified Party in any case to the extent that any such Loss
arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in any
final, preliminary or summary Prospectus if such untrue statement
or alleged untrue statement or omission or alleged omission is
completely corrected in an amendment or supplement to such
Prospectus and the relevant holder of Registrable Securities
(having previously been furnished by or on behalf of the Company
with a sufficient number of copies of the same), fails to deliver
such Prospectus as so amended or supplement prior to or
concurrently with the sales of the Registrable Securities to the
Person asserting such loss, claim, damage, liability or expense.
This indemnity shall be in addition to any liability the Company
may otherwise have. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of
such holder or any Indemnified Party and shall survive the
transfer of such securities by such holder. The Company will also
indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the
distribution, their officers and directors and each Person who
controls such Persons (within the meaning of the Securities Act
and the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Indemnified Persons, if
requested.
(b) Indemnification by the Selling Holder of
Registrable Securities. In the event of Registration of any
securities of the Company under the Securities Act pursuant to
Sections 2.1, 2.2 or 2.3 hereof, each selling holder of
Registrable Securities agrees (severally and not jointly) to
indemnify and hold harmless, to the full extent permitted by law,
the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act
and the Exchange Act) from and against any Losses resulting from
any untrue statement of a material fact or any omission of a
material fact required to be stated in the Registration Statement
under which such Registrable Securities were registered under the
Securities Act (including any final, preliminary or summary
Prospectus contained therein or any amendment thereof or
supplement thereto or any documents incorporated by reference
therein), or necessary to make the statements therein (in the
case of a Prospectus or preliminary Prospectus, in light of the
circumstances under which they were made) not misleading, to the
extent, but only to the extent, that such untrue statement or
omission is contained in any information furnished in writing by
such selling holder to the Company specifically for inclusion in
such Registration Statement and has not been corrected in a
subsequent writing prior to or concurrently with the sale of the
Registrable Securities to the Person asserting such loss, claim,
damage, liability or expense. In no event shall the liability of
any selling holder of Registrable Securities hereunder be greater
in amount than the dollar amount of the proceeds received by such
holder under the sale of the Registrable Securities giving rise
to such indemnification obligation. The Company shall be entitled
to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals
participating in the distribution, to the same extent as provided
above (with appropriate modification) with respect to information
so furnished in writing by such Persons specifically for
inclusion in any Prospectus or Registration Statement. Each
Holder also shall indemnify any underwriters of the Registrable
Securities, their officers and directors and each person who
controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the
indemnification of the Company.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any
20
<PAGE> 22
claim with respect to which it seeks indemnification (provided,
that any delay or failure to so notify the indemnifying party
shall relieve the indemnifying party of its obligations hereunder
only to the extent, if at all, that it is actually and materially
prejudiced by reason of such delay or failure) and (ii) permit
such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party;
provided, however, that any Person entitled to indemnification
hereunder shall have the right to select and employ separate
counsel and to participate in the defense of such claim, but the
fees and expenses of such counsel shall be at the expense of such
Person unless (i) the indemnifying party has agreed in writing to
pay such fees or expenses, (ii) the indemnifying party shall have
failed to assume the defense of such claim within a reasonable
time after receipt of notice of such claim from the Person
entitled to indemnification hereunder and employ counsel
reasonably satisfactory to such Person, (iii) the indemnified
party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified
parties that are different from or in addition to those available
to the indemnifying party, or (iv) in the reasonable judgment of
any such Person, based upon advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party
with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person
elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such
Person). If such defense is not assumed by the indemnifying
party, the indemnifying party will not be subject to any
liability for any settlement made without its consent, but such
consent may not be unreasonably withheld; provided, that an
indemnifying party shall not be required to consent to any
settlement involving the imposition of equitable remedies or
involving the imposition of any material obligations on such
indemnifying party other than financial obligations for which
such indemnified party will be indemnified hereunder. If the
indemnifying party assumes the defense, the indemnifying party
shall have the right to settle such action without the consent of
the indemnified party; provided, however, that the indemnifying
party shall be required to obtain such consent (which consent
shall not be unreasonably withheld) if the settlement includes
any admission of wrongdoing on the part of the indemnified party
or any decree or restriction on the indemnified party or its
officers or directors. No indemnifying party shall consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of an
unconditional release from all liability in respect to such claim
or litigation or which would impose any material obligations on
such indemnified party. It is understood that the indemnifying
party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the
reasonable fees, disbursements and other charges of more than one
separate firm admitted to practice in such jurisdiction at any
one time from all such indemnified party or parties unless (x)
the employment of more than one counsel has been authorized in
writing by the indemnified party or parties, (y) an indemnified
party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it that are different
from or in addition to those available to the other indemnified
parties or (z) a conflict or potential conflict exists or may
exist (based on advice of counsel to an indemnified party)
between such indemnified party and the other indemnified parties,
in each of which cases the indemnifying party shall be obligated
to pay the reasonable fees and expenses of such additional
counsel or counsels.
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<PAGE> 23
(d) Contribution. If for any reason the
indemnification provided for in the paragraphs (a) and (b) of
this Section 2.9 is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by paragraphs
(a) and (b) of this Section 2.9, then the indemnifying party
shall contribute to the amount paid or payable by the indemnified
party as a result of such Loss in such proportion as is
appropriate to reflect the relative fault of the indemnifying
party on the one hand and the indemnified party on the other. The
relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying
party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. Notwithstanding
anything in this Section 2.9(d) to the contrary, no indemnifying
party (other than the Company) shall be required pursuant to this
Section 2.9(d) to contribute any amount in excess of the amount
by which the net proceeds received by such indemnifying party
from the sale of Registrable Securities in the offering to which
the Losses of the indemnified parties relate exceeds the amount
of any damages which such indemnifying party has otherwise been
required to pay by reason of such untrue statement or omission.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 2.9(d) were determined
by pro rata allocation or by any other method of allocation that
does not take account of the equitable considerations referred to
in the immediately preceding paragraph. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 2.9, the
indemnifying parties shall indemnify each indemnified party to
the full extent provided in Sections 2.9(a) and 2.9(b) hereof
without regard to the relative fault of said indemnifying parties
or indemnified party.
(e) Indemnification Payments. The indemnification
required by this Section 2.9 shall be made by periodic payments
of the amount thereof during the course of the investigation or
defense, promptly as and when bills are received or Losses are
incurred.
2.10. Rules 144 and 144A. The Company covenants that
it will file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder (or, if the Company is not required
to file such reports, it will, upon the request of any holder of
Registrable Securities after the Transfer Date, make publicly
available other information so long as necessary to permit sales
pursuant to Rules 144, 144A or Regulation S under the Securities
Act), and it will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell
Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rules
144, 144A or Regulation S under the Securities Act, as such Rules
may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any
holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied
with such requirements and, if not, the specifics thereof.
22
<PAGE> 24
SECTION 3. MISCELLANEOUS.
-------------
3.1. Term. This Agreement shall terminate upon the
expiration of the Shelf Period, except for the provisions of
Section 2.9, which shall survive any such termination.
3.2. Injunctive Relief. It is hereby agreed and
acknowledged that it will be impossible to measure in money the
damages that would be suffered if the parties fail to comply with
any of the obligations herein imposed on them and that in the
event of any such failure, an aggrieved Person will be
irreparably damaged and will not have an adequate remedy at law.
Any such Person shall, therefore, be entitled (in addition to any
other remedy to which it may be entitled in law or in equity) to
injunctive relief, including, without limitation, specific
performance, to enforce such obligations, and if any action
should be brought in equity to enforce any of the provisions of
this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at law.
3.3. Attorneys' Fees. In any action or proceeding
brought to enforce any provision of this Agreement or where any
provision hereof is validly asserted as a defense, the successful
party shall, to the extent permitted by applicable law, be
entitled to recover reasonable attorneys' fees in addition to any
other available remedy.
3.4. Notices. All notices, other communications or
documents provided for or permitted to be given hereunder, shall
be made in writing and shall be given either personally by
hand-delivery, by facsimile transmission, by mailing the same in
a sealed envelope, registered first-class mail, postage prepaid,
return receipt requested, or by air courier guaranteeing
overnight delivery:
(a) if to the Company:
Oxford Health Plans, Inc.
800 Connecticut Avenue
Norwalk, CT 06854
Attention:
with copies to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attention: Daniel Dunson, Esq.
(b) if to the Investor:
TPG Oxford LLC
201 Main Street
Suite 2420
Fort Worth, Texas 76102
Attention: Jonathan J. Coslet
with copies to:
23
<PAGE> 25
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Facsimile: (212) 225-3999
Attention: Paul J. Shim, Esq.
Each holder, by written notice given to the Company in
accordance with this Section 3.4 may change the address to which
notices, other communications or documents are to be sent to such
holder. All notices, other communications or documents shall be
deemed to have been duly given: (i) at the time delivered by
hand, if personally delivered; (ii) when receipt is acknowledged
in writing by addressee, if by facsimile transmission; (iii) five
business days after being deposited in the mail, postage prepaid,
if mailed by first class mail; and (iv) on the first business day
with respect to which a reputable air courier guarantees
delivery; provided, however, that notices of a change of address
shall be effective only upon receipt.
3.5. Successors, Assigns and Transferees. (a) The
registration rights of any holder under this Agreement with
respect to any Registrable Securities may be transferred and
assigned, provided that, other than an assignment to the
Investor, an Affiliate of the Investor, a Designated Purchaser or
an Affiliate of a Designated Purchaser, no such assignment shall
be binding upon or obligate the Company to any such assignee
unless and until (i) the Company shall have received notice of
such assignment as herein provided, which notice shall (A)
reference this Agreement and (B) set forth the name and address
of any assignee for the purpose of any notices hereunder or (ii)
such assignee can establish its beneficial or record ownership of
any Registrable Securities and shall have provided the Company
with the information called for by clause (i)(B) of this Section
3.5(a) and (iii) such assignee acquires Registrable Securities
with an estimated market value of $10 million or more. Any
transfer or assignment made other than as provided in the first
sentence of this Section 3.5 shall be null and void.
(b) This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, and their respective
successors and permitted assigns. Whether or not any express
assignment shall have been made, the provisions of this Agreement
which are for the benefit of the parties hereto other than the
Company shall also be for the benefit of and enforceable by any
subsequent holder of Registrable Securities, subject to the
provisions contained herein.
3.6. Governing Law; Service of Process; Consent to
Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN THE
STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
(b) To the fullest extent permitted by applicable law,
each party hereto (i) agrees that any claim, action or proceeding
by such party seeking any relief whatsoever arising out of, or in
connection with, this Agreement or the transactions contemplated
hereby shall be brought only in the United States District Court
for the Southern District of New York and in any New York State
court located in the Borough of Manhattan and not in any other
State or Federal
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<PAGE> 26
court in the United States of America or any court in any other
country, (ii) agrees to submit to the exclusive jurisdiction of
such courts located in the State of New York for purposes of all
legal proceedings arising out of, or in connection with, this
Agreement or the transactions contemplated hereby, and (iii)
irrevocably waives any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in
such a court has been brought in an inconvenient forum.
3.7. Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and
shall not in any way affect the meaning or interpretation of this
Agreement.
3.8. Severability. Whenever possible, each provision
or portion of any provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law
but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any
respect under any applicable law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any
other provision or portion of any provision in such jurisdiction,
and this agreement will be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained
therein.
3.9. Amendment; Waiver.
-----------------
(a) This Agreement may not be amended or modified and
waivers and consents to departures from the provisions hereof may
not be given, except by an instrument or instruments in writing
making specific reference to this Agreement and signed by the
Company, the holders of a majority of Registrable Securities of
each class then outstanding and, so long as it is a holder, the
Investor. Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any amendment,
modification, waiver or consent authorized by this Section
3.9(a), whether or not such Registrable Securities shall have
been marked accordingly.
(b) The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as
a further or continuing waiver of such breach or as a waiver of
any other or subsequent breach. Except as otherwise expressly
provided herein, no failure on the part of any party to exercise,
and no delay in exercising, any right, power or remedy hereunder,
or otherwise available in respect hereof at law or in equity,
shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power or remedy by such party
preclude any other or further exercise thereof or the exercise of
any other right, power or remedy.
3.10. Counterparts. This Agreement may be executed in
any number of separate counterparts and by the parties hereto in
separate counterparts each of which when so executed shall be
deemed to be an original and all of which together shall
constitute one and the same agreement.
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<PAGE> 27
3.11. Effectiveness. The provisions of this Agreement
shall take effect upon the occurrence of the Closing (as such
term is defined in the Investment Agreement) without further
action by or on behalf of any party hereto, and other than this
Section 3.11 shall have no force or effect prior to the Closing.
This Agreement shall terminate and be of no further force and
effect upon the termination of the Investment Agreement.
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<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused
this instrument to be duly executed as of the date first written
above.
OXFORD HEALTH PLANS, INC.
By: /s/ William M. Sullivan
--------------------------
Title: President and Chief
Executive Officer
TPG OXFORD LLC
By: /s/ Jonathan J. Coslet
--------------------------
Title: President
<PAGE> 1
Exhibit 10(t)
EMPLOYMENT AGREEMENT
by and between
OXFORD HEALTH PLANS, INC.
and
NORMAN C. PAYSON, M.D.
Effective as of February 23, 1998
<PAGE> 2
EMPLOYMENT AGREEMENT
AGREEMENT, effective as of February 23, 1998 (the "Effective Date"),
by and between Norman C. Payson, M.D. (the "Executive"), and Oxford Health
Plans, Inc. (the "Company").
WHEREAS, the Board of Directors of the Company (the "Board") desires
that the Executive furnish services to the Company and the Executive desires to
furnish services to the Company on the terms and conditions hereinafter set
forth; and
WHEREAS, the parties desire to enter into this agreement setting
forth the terms and conditions of the relationship of the Executive with the
Company; and
WHEREAS, in connection with the execution of this Agreement, the
Company is also entering into an investment agreement, dated as of the Effective
Date, between TPG Oxford LLC and the Company, a copy of which has been
heretofore furnished to the Executive (the investment agreement in effect on the
Effective Date being referred to as the "Investment Agreement") and an option
agreement, dated as of the Effective Date, between the Company and the Executive
(the "Option Agreement"), substantially in the form attached hereto as Exhibit
A; and
WHEREAS, as an inducement to the Company to enter into this
Agreement, the Executive has agreed to purchase $10,000,000 of the Company's
common stock, subject to the terms and conditions specified herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth below, the parties hereby agree as follows:
1. Retention and Employment. The Company hereby agrees to retain and
employ the Executive, and the Executive hereby accepts such retention and
employment, on the terms and conditions hereinafter set forth.
<PAGE> 3
2. Employment Period. The period during which the Executive shall
furnish services to the Company hereunder (the "Employment Period") shall
commence on the Effective Date and shall end on the fourth anniversary thereof
(the "Anniversary Date"), or the Date of Termination (as defined in Section 5
below), if earlier. Commencing on the Anniversary Date, the Employment Period
shall be extended for successive one year periods (individually, a "Renewal
Period"), unless a notice not to extend this Agreement shall have been given by
either party hereto to the other not later than 1 year preceding the
commencement of a Renewal Period or unless the Date of Termination shall have
previously occurred. Unless the context suggests otherwise, the Employment
Period hereunder shall for all purposes of this Agreement be deemed to include
any Renewal Period.
3. Position and Duties. (a) From the Effective Date until the
closing (the "Financing Effective Date") of the transactions contemplated by the
Investment Agreement and the ancillary documents relating thereto, copies of
which have been heretofore furnished to the Executive (the "Financing
Documents"), the Executive shall serve as consultant to the Company and shall
perform such services as are requested by the Board of Directors of the Company
(the "Board") and as are mutually agreed upon by the Executive and the Board.
From and after the Financing Effective Date, the Executive shall serve as Chief
Executive Officer of the Company. The Executive shall report directly to the
Board. During the portion of the Employment Period from and after the Financing
Effective Date, the Executive shall have those powers and duties consistent with
his position as Chief Executive Officer, which powers shall in all cases
include, without limitation, the power of supervision and control over and
responsibility for the general management and operation of the Company. The
Executive agrees to devote substantially all his working time to the performance
of his duties for the Company. It shall not be a violation of this Agreement for
the Executive to (i) serve on corporate, civic or charitable boards or
committees, (ii) give speeches and make media appearances to discuss matters of
public interest and (iii) manage his personal investments, so long as such
activities do not
2
<PAGE> 4
unreasonably interfere with the performance of the Executive's responsibilities
in accordance with this Agreement.
(b) At the Financing Effective Date, the Executive shall be
appointed as a director of the Company. The Executive shall be included as a
director in Class III (as defined in the Investment Agreement). So long as the
Executive serves as Chief Executive Officer of the Company, at each annual
meeting of the stockholders of the Company at which Class III directors are up
for election, the Board or the Nominating Committee thereof shall include the
Executive for election to such class of directors at such annual meeting. If the
Board shall cease to be a classified board, the Board or the Nominating
Committee thereof shall include the Executive for election to the Board at each
annual meeting of stockholders of the Company for so long as the Executive
serves as Chief Executive Officer of the Company. The Company shall cause the
Executive to be included in the slate of nominees recommended by the Board to
the Company's stockholders for election as directors at each annual meeting of
the stockholders of the Company as is required by the foregoing provisions of
this paragraph (b), and shall use its best efforts to cause the election of the
Executive, including soliciting proxies in favor of the election of the
Executive. If at any time the Board shall have an executive or other committee
that performs functions similar to those customarily performed by an executive
committee of a board of directors, such committee shall include the Executive.
4. Compensation and Related Matters.
(a) Base Salary; Annual Bonus. The Executive shall be entitled
to the following base salary and annual incentive bonus:
(i) Base Salary. As compensation for the performance by
the Executive of his duties hereunder, during the portion of the
Employment Period from and after the Financing Effective Date, the Company
shall pay the Executive a base salary at an annual rate of $350,000 (the
base salary, at the
3
<PAGE> 5
rate in effect from time to time, is hereinafter referred to as the "Base
Salary"). Except as set forth in Section 4(a)(iii) below, the Base Salary
shall be payable in equal semi-monthly installments and may be increased
from time to time at the discretion of the Company's Compensation
Committee (or any successor thereof) of the Board. Base Salary shall not
be reduced after any increase thereof.
(ii) Annual Bonus. So long as the Executive is employed
by the Company, he shall be eligible to receive annual incentive awards or
bonuses (the "Annual Bonus") pursuant to any incentive compensation plan
of the Company, the amount thereunder to be determined based upon
satisfaction of certain criteria prescribed by the Compensation Committee
of the Board in consultation with the Executive; provided, however, that,
the Executive's Annual Bonus in respect of the period ending on December
31, 1998 shall in no event be less than $350,000. Except as set forth in
Section 4(a)(iii) below, each Annual Bonus shall be paid no later than the
end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded.
(iii) Advance. On the date of execution of this
Agreement, the Company shall make a nonrefundable payment to the Executive
in the sum of $700,000, which amount shall offset any amounts otherwise
due to the Executive under paragraph (i) above with respect to the period
ending on the first anniversary of the Effective Date and paragraph (ii)
above with respect to the period ending on December 31, 1998.
(b) Equity Grants.
(i) Stock Options. Effective as of the Effective Date,
the Executive is hereby granted a nonqualified stock option (the "Option")
to purchase 2,000,000 shares of the Company's common stock, par value $.01
per share ("Common Stock") pursuant to the terms of the Option Agreement.
As
4
<PAGE> 6
promptly as practicable, and in any event within six (6) months after the
Effective Date, the Company shall, at its expense, cause all shares
subject to the Option to be registered under the Securities Act of 1933,
as amended (the "Securities Act"), and registered or qualified under
applicable state laws, to be freely resold. The Company shall maintain the
effectiveness of such registration and qualification for so long as the
Executive or any member of the Executive's Immediate Family (as defined
below) holds such Option or owns the underlying shares of Common Stock or
until such earlier date as all such shares without such registration or
qualification may be freely sold without any restrictions under the
Securities Act. In connection with such registration and qualification,
the Company will provide customary indemnification to the Executive and
take such other actions as are customary in connection with such
registration and qualification.
(ii) Additional Stock Options. Effective as of the
Effective Date, and subject to approval by the Company's stockholders of
the Option Plan Amendment (as defined below), the Executive is hereby
granted, under the Company's 1991 Stock Option Plan (the "Option Plan"), a
seven-year nonqualified stock option (the "Additional Option" and together
with the Option, the "Option Awards") to purchase 1,000,000 shares of
Common Stock. Except as set forth in Section 6 below and in the last
sentence of this Section 4(b)(ii), the Additional Option shall (A) have a
per share exercise price equal to the closing price of the Common Stock on
NASDAQ on the day of the Company's 1998 annual meeting of stockholders
(the "Annual Meeting"), (B) vest and become exercisable with respect to
25% of the shares of Common Stock subject thereto (i.e., 250,000 shares of
Common Stock) on the first anniversary of the Effective Date and with
respect to an additional 25% of the shares of Common Stock subject thereto
(i.e., 250,000 shares of Common Stock) on each of the next three (3)
anniversaries of the Effective Date, (C) otherwise be subject to the terms
of the Option Plan, as amended as contemplated
5
<PAGE> 7
hereby, and (D) be evidenced by an option agreement which provides for a
legend evidencing the restrictions contained in Section 4(b)(iv) hereof.
As promptly as practicable, and in any event within six (6) months
after the Effective Date, the Company shall, at its expense, cause all
shares subject to the Additional Option to be registered under the
Securities Act on Form S-8 and registered or qualified under applicable
state laws to be freely resold. The Company shall maintain the
effectiveness of such registration and qualification for so long as the
Executive or any member of the Executive's Immediate Family holds such
Additional Option or owns the underlying shares of Common Stock or until
such earlier date as all such shares without such registration or
qualification may be freely sold without any restrictions under the
Securities Act. In connection with such registration and qualification,
the Company will provide customary indemnification to the Executive and
take such other actions as are customary in connection with such
registration and qualification. The Company shall (A) amend the Option
Plan (1) to permit the grant thereunder of options to acquire not less
than 4,000,000 additional shares of Common Stock and (2) to ensure that
the provisions of the Option Plan are otherwise consistent with the terms
of the Additional Option as set forth herein (the amendments described in
this clause (A) are collectively referred to herein as the "Option Plan
Amendment"), (B) take, in accordance with applicable law and its
Certificate of Incorporation and Bylaws, all action necessary to present
the Option Plan Amendment for a vote at the Annual Meeting, which Annual
Meeting shall be no later than May 31, 1998, and (C) recommend to the
stockholders of the Company at the Annual Meeting that the Option Plan
Amendment be approved. The Company agrees that, other than with respect to
any information with respect to the Investor and its Affiliates (as such
terms are defined in the Investment Agreement) supplied to the Company by
the Investor in writing specifically for inclusion in the proxy statement
disseminated in
6
<PAGE> 8
connection with the Annual Meeting, as of the date thereof and as of the
date of the Annual Meeting (the "Proxy Statement"), the Proxy Statement,
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they will be
made, not misleading. In the event that Company's stockholders fail to
approve the Option Plan Amendment at the Annual Meeting, the Company and
the Executive shall negotiate in good faith a mutually acceptable
alternative compensation arrangement, providing comparable economic value
to the Executive (if feasible, in the form of an equity-based award);
provided, however, that if the Executive and the Company are unable to
negotiate such an arrangement within ninety (90) days after the Annual
Meeting, the Company shall hire, at its own expense, an independent
compensation consultant reasonably acceptable to the Executive, which
shall determine such alternative compensation arrangement. Anything herein
to the contrary notwithstanding, if (i) the Option Plan Amendment is
approved by the Company's stockholders and (ii) a Change in Control, as
defined in the Option Plan ("Change in Control"), occurs during the
Employment Period, the Additional Option, to the extent not theretofore
vested and exercisable, shall become fully vested and exercisable upon the
occurrence of such Change in Control.
(iii) Purchased Shares. Effective as of the Financing
Effective Date, the Executive shall purchase from the Company, and the
Company shall sell to the Executive, for the sum of $10,000,000 in cash,
an aggregate of 644,330 shares of Common Stock at a purchase price of
$15.52 per share (the "Purchased Shares"). The Company will use its best
efforts to obtain all required approvals in connection with the ownership,
transferability or quotation of such Purchased Shares. If the Company is
unable to obtain all such required approvals prior to the Financing
Effective Date, the Executive shall be entitled, in his sole discretion,
to determine not to purchase such Purchased Shares.
7
<PAGE> 9
Further, the Executive shall be under no obligation to purchase the
Purchased Shares, and the Executive shall be entitled to terminate his
services hereunder, upon the earliest to occur of (1) the termination or
abandonment, prior to the Financing Effective Date, of the transactions
contemplated by the Financing Documents, (2) the Financing Effective Date
shall not have occurred by August 31, 1998 and (3) any modification to the
Financing Documents material to the Company or the Executive. The
Executive specifically acknowledges that monetary damages are not an
adequate remedy for violations of this Section 4(b)(iii), and that, if the
Executive is then obligated to purchase the Purchased Shares, the Company
may, in its sole discretion, apply to a court of competent jurisdiction
for specific performance or injunctive or such other relief as such court
may deem just and proper in order to enforce this Section 4(b)(iii) or
prevent any violations thereof. As promptly as practicable, and in any
event within six (6) months after the Effective Date, the Company shall,
at its expense, cause all Purchased Shares to be registered under the
Securities Act and registered or qualified under applicable state laws, to
be freely resold. The Company shall maintain the effectiveness of such
registration and qualification for so long as the Executive or any member
of his Immediate Family owns such Purchased Shares or such earlier date as
all such shares without such registration or qualification may be freely
sold without any restrictions under the Securities Act. In connection with
such registration and qualification, the Company will provide customary
indemnification to the Executive and take such other actions as are
customary in connection with such registration and qualification. The
Executive hereby represents and warrants that the Purchased Shares are
being acquired for his own account for the purpose of investment and not
with a view to, or for sale in connection with, any distribution thereof
in violation of the Securities Act. The Executive agrees to the placement
on certificates representing the Purchased Shares of the following legend
(the
8
<PAGE> 10
"Legend"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT (1) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND (2) IN ACCORDANCE WITH THE EMPLOYMENT AGREEMENT
DATED AS OF FEBRUARY 23, 1998 BETWEEN OXFORD HEALTH PLANS, INC. AND
NORMAN C. PAYSON, M.D."
Upon the registration of the Purchased Shares under the
Securities Act, or the delivery by Executive to the Company of an opinion
of counsel reasonably satisfactory to the Company that the Legend is no
longer required under the Securities Act, the Company shall immediately
issue, in exchange for the certificates containing the Legend, new
certificates representing the Purchased Shares containing only that
portion of the legend referred to in clause (2) thereof (the "Remaining
Legend").
The Company hereby represents and warrants that the Purchased
Shares, when issued pursuant hereto, will be duly and validly issued,
fully paid and non-assessable, and the Executive will have good, valid and
marketable title to such shares, free and clear of all liens, security
interests, pledges, charges, claims or other encumbrances, whether
consensual, statutory or otherwise.
(iv) Restrictions on Purchased Shares and Option Shares
(A) If the Executive purchases the Purchased Shares, then until the
second anniversary of the Effective Date (unless the Executive's services with
the Company have previously terminated by reason of death or
9
<PAGE> 11
Disability, by the Company without Cause or by the Executive for Good Reason, as
such terms are hereinafter defined), he shall not sell, transfer or dispose of
the Purchased Shares, other than (i) a transfer to a member of the Executive's
Immediate Family who shall not subsequently transfer such Purchased Shares until
the second anniversary of the Effective Date or (ii) a transfer for the purpose
of exercising all or any portion of the Option Awards, in which event a number
of shares of Common Stock issued upon exercise equal to the number of Purchased
Shares so transferred shall be treated as Purchased Shares hereunder. For
purposes of this Agreement, a transfer by the Executive to his "Immediate
Family" shall mean a transfer, without the receipt of consideration in exchange
therefor, to the Executive's children, grandchildren, spouse, a charity or to a
trust exclusively for the benefit of such family members and/or charity or to
corporations, partnerships or other entities in which such family members are
the only shareholders, partners, equity holders or beneficiaries.
(B) Following the second anniversary of the Effective Date, and so
long as the Executive remains the Chief Executive Officer of the Company, the
Executive hereby agrees not to sell, transfer or otherwise dispose of Purchased
Shares and shares acquired pursuant to the exercise of the Option Awards (all
such Purchased Shares and acquired shares, the "Shares") if immediately
thereafter, the quotient of (a) divided by (b) would be less than fifty (50%)
percent, where (a) equals the sum, determined immediately after such sale,
transfer or other disposition, of (I) the number of Shares held by the Executive
or any member of the Executive's Immediate Family, plus (II) the number of
shares of Common Stock which is subject to the unexercised portion of Option
Awards that have become vested and exercisable, and (b) equals the sum of (x)
the number of Purchased Shares and (y) the number of shares of Common Stock
underlying the Option Awards that have become vested and exercisable (whether or
not exercised).
(C) Nothing in clauses (A) or (B) above shall be construed to
prohibit the Executive or any member of the Executive's Immediate Family from
selling, transfer-
10
<PAGE> 12
ring or otherwise disposing of any shares of Common Stock in any transaction
giving rise to a Change in Control, and all restrictions in clauses (A) and (B)
above shall cease to apply after a Change in Control.
(D) The Executive (or a member of his Immediate Family) shall inform
the Company of any intended sale, transfer or other disposition of Shares and to
the extent that the requirements of this Section 4(b)(iv) are satisfied, the
Company shall immediately issue, in exchange for the certificates containing the
Remaining Legend, new certificates for such Shares without the Remaining Legend.
(c) Expenses.
(i) During the Employment Period, the Company shall
reimburse the Executive for all reasonable business expenses in accordance
with applicable policies and procedures then in force, including, without
limitation, lodging and first class or other travel arrangements
consistent with the Company's policy with respect to the individual
serving as chief executive officer immediately prior to the execution of
this Agreement.
(ii) The Company shall promptly pay, or reimburse the
Executive for, all reasonable costs and expenses incurred by the Executive
during the Employment Period for himself and his immediate family for
travel and suitable housing and maintenance in connection with his
rendering services hereunder, and the Company shall reimburse the
Executive on a grossed up basis in the event that any tax is assessed upon
him in relation to the payment or reimbursement of any such costs and
expenses. The Company shall pay or reimburse the Executive for all
reasonable costs and expenses incurred by him in connection with the
relocation of the Executive and his family in connection with his
rendering services hereunder, and the Company shall reimburse the
Executive on a grossed up basis in the event that any tax is assessed upon
him in relation to the payment or reimbursement of any such costs or
11
<PAGE> 13
expenses.
(d) Vacation and Other Absences. The Executive shall be
entitled to paid vacation and other paid absences, whether for holidays,
illness, personal time or any similar purposes, during the portion of the
Employment Period from and after the Financing Effective Date, in accordance
with policies applicable generally to senior executives of the Company.
(e) Automobile. The Company shall provide to the Executive for
his exclusive use, as of the Effective Date, a new automobile of his choice. The
Company shall reimburse the Executive for all reasonable expenses incurred in
the use and maintenance of such automobile. The Company shall reimburse the
Executive on a grossed up basis in the event that any tax is assessed upon him
in respect of the reimbursement of such expenses.
(f) Financial Planning, Etc. During the Employment Period, the
Company shall provide the Executive with financial consulting services and
tax-related advice in an amount not to exceed $50,000 per year and shall
reimburse the Executive on a grossed up basis in the event that any tax is
assessed upon him in respect of such services.
(g) Legal Fees. The Company shall pay the reasonable fees and
disbursements of legal, accounting, tax and public relations advisors and any
other reasonable business expenses incurred by the Executive in connection with
the negotiation and preparation of this Agreement and any additional instruments
and agreements related hereto, and any transactions contemplated hereby, and the
Company shall reimburse the Executive on a grossed up basis in the event that
any tax is assessed upon him in respect of the payment of any such fees and
disbursements. The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive (i) in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, (ii) in
seeking in good faith to obtain or enforce any benefit or right provided by this
Agreement or (iii)
12
<PAGE> 14
in connection with any tax audit or proceeding to the extent attributable to the
application of section 4999 of the Code in respect of any payment or benefit
provided hereunder. Such payments shall be made within five (5) business days
after delivery of the Executive's written requests for payment accompanied with
such evidence of fees and expenses incurred as the Company reasonably may
require.
(h) Other Benefits. During the portion of the Employment
Period prior to the Financing Effective Date, the Company shall provide the
Executive with life insurance, medical, dental, accident, disability and other
welfare benefits that are substantially similar to such benefits provided to
employees and/or senior executives of the Company. During the portion of the
Employment Period from and after the Financing Effective Date, the Executive
shall be eligible to participate in all employee benefit plans and programs
(including any tax-deferred savings plan, retirement plan, group life insurance
plan, medical and dental insurance plan, and accident and disability insurance
plan) ("Benefit Plans") applicable generally to employees and/or senior
executives of the Company. The Company shall waive, or obtain the waiver of, any
waiting periods for eligibility under those Benefit Plans which are welfare
benefit plans or shall provide comparable benefits to the Executive without cost
to him during any such waiting period.
5. Termination. The Executive's services hereunder may be terminated
as follows:
(a) Death. The Executive's services shall terminate upon his
death, in which event the date of his death shall be the Date of Termination.
(b) Disability. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent from his
duties hereunder on a full-time basis for one hundred and twenty (120)
consecutive days and, within thirty (30) days after written Notice of
Termination (as defined in Section 5(f) hereof) is given, shall not have
returned to the performance of his duties hereunder on a full-time basis
("Dis-
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<PAGE> 15
ability"), the Company may terminate the Executive's services hereunder, in
which event the Date of Termination shall be thirty (30) days after Notice of
Termination is given.
(c) Cause. The Company may terminate the Executive's services
hereunder for Cause. For purposes of this Agreement, the Company shall have
"Cause" to terminate the Executive's services hereunder upon the Executive's
conviction for the commission of a felony (or a plea of nolo contendere
thereto). In the event of a termination hereunder, the Date of Termination shall
be the date set forth in the Notice of Termination.
(d) Good Reason. The Executive may terminate his services
hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean the occurrence of one or more of the following events or circumstances,
without the Executive's express written consent, which is not remedied by the
Company within twenty (20) business days of receipt of the Executive's Notice of
Termination:
(i) the Company's requiring the Executive to be based at
any office or location other than an office or location within
Connecticut, New York or New Hampshire;
(ii) the failure of the Company to continue in effect
any Benefit Plan that was in effect as of the Financing Effective Date,
unless substantially equivalent benefits are provided to the Executive in
substitution therefor;
(iii) the failure of the Company to pay any material
portion of the Executive's Base Salary or Annual Bonus when due;
(iv) the assignment to the Executive of any duties or
responsibilities materially inconsistent with the Executive's duties,
responsibilities, authority and status with the Company contemplated by
Section 3 hereof (including a change in the Executive's title or a failure
to elect or
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<PAGE> 16
appoint the Executive as a member of the Board effective as of the
Financing Effective Date or to maintain the Executive in such position so
long as he continues as Chief Executive Officer of the Company);
(v) the taking of any action by the Company which
adversely affects any of the Executive's contractual rights with respect
to the Purchased Shares or the Option Awards; or
(vi) any other material breach by the Company of this
Agreement.
In the event of a termination for Good Reason, the Date of
Termination shall be the date specified in the Notice of Termination, which
shall be not less than twenty (20) business days after the Notice of Termination
is delivered.
(e) Other Terminations. The Company may terminate the
Executive's services hereunder (other than for Cause or Disability). No
termination pursuant to the preceding sentence shall be effective unless (W) the
Executive shall have received a notice informing the Executive of the reasons
for the Board's decision,(X) following the receipt of such notice, for a period
of not less than 30 days, the Executive is given an opportunity to cure the
events and circumstances giving rise to the Board's decision, (Y) following the
expiration of the 30-day period described in clause (X) above, if the Board
determines that the Executive has not cured such events and circumstances, the
Executive is provided with an opportunity, together with counsel, to be heard
before a meeting of the Board called and held for that purpose upon no less than
10 days notice to the Executive and (Z) as a result of such meeting, the Board,
by a vote of at least three-quarters (3/4) of the entire membership of the Board
(excluding the Executive for such purpose), reaffirms its previous decision. If
the Executive's services are terminated hereunder, the Date of Termination shall
be the date on which a Notice of Termination is given or any later date set
forth in such Notice of Termination, but in no event later than 30 days after
the Notice of
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<PAGE> 17
Termination is delivered.
(f) Notice of Termination. Any termination of the Executive's
employment hereunder by the Company or by the Executive (other than termination
pursuant to Section 5(a) hereof) shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 12 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. If any dispute concerning a Notice of Termination of the
Executive's employment under Section 5(b), 5(c) or 5(d) hereof results in a
determination that a proper basis for such termination did not exist under such
section, the Executive's employment under this Agreement shall be treated, with
respect to a Notice of Termination pursuant to Section 5(b) or 5(c) hereof, as
having been terminated by the Company pursuant to Section 5(e) hereof or, with
respect to a Notice of Termination pursuant to Section 5(d) hereof, as having
been terminated by the Executive (other than for Good Reason).
6. Compensation Upon Termination or During
Disability.
(a) Disability Period. During any period during the Employment
Period that the Executive fails to perform his duties hereunder as a result of
incapacity due to physical or mental illness ("Disability Period"), the
Executive shall continue to (i) receive his full Base Salary and (ii)
participate in the Benefit Plans. Such payments made to the Executive during the
Disability Period shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, to the extent such amounts were not previously applied to reduce any
such payment.
(b) Death. If the Executive's services
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<PAGE> 18
hereunder are terminated as a result of death, then:
(i) the Company shall pay the Executive's estate or
designated beneficiary, (A) as soon as practicable after the Date of
Termination, any Base Salary installments due in the month of death and
any reimbursable expenses, accrued or owing the Executive hereunder as of
the Date of Termination and (B) all benefits due and owing to or in
respect of the Executive under all Benefit Plans, in accordance with the
terms of such Benefit Plans (the benefits described in this clause (B)
being hereinafter referred to collectively as the "Plan Benefits");
(ii) the Company shall pay to the Executive's estate or
designated beneficiary, as soon as practicable after the Date of
Termination, a lump sum payment equal to the aggregate Base Salary and
Annual Bonus (such Annual Bonus to be equal to the most recently earned or
paid Annual Bonus prior to the Date of Termination or, if the Date of
Termination is on or before December 31, 1998, to equal $350,000) that
would have been paid to the Executive had he remained employed by the
Company until the last day of the Employment Period; and
(iii) the Option Awards shall become fully vested and
exercisable, as of the Date of Termination, and shall remain exercisable
for their remaining term.
(c) Disability. If the Executive's services hereunder are
terminated as a result of Disability, then:
(i) the Company shall pay the Executive, (A) as soon as
practicable after the Date of Termination, any Base Salary and any
reimbursable expenses, accrued or owing the Executive hereunder for
services as of the Date of Termination and (B) pay or provide all Plan
Benefits in accordance with the terms of the Benefits Plans;
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<PAGE> 19
(ii) the Company shall pay to the Executive, as soon as
practicable after the Date of Termination, a lump sum payment equal to the
aggregate Base Salary and Annual Bonus (such Annual Bonus to be equal to
the most recently earned or paid Annual Bonus prior to the Date of
Termination or, if the Date of Termination is on or before December 31,
1998, to equal $350,000) that would have been paid to the Executive had he
remained employed by the Company until the last day of the Employment
Period; and
(iii) the Option Awards shall become fully vested and
exercisable, as of the Date of Termination, and shall remain exercisable
for their remaining term.
(d) Cause or By Executive (other than for Good Reason). If the
Executive's services hereunder are terminated by the Company for Cause or by the
Executive (other than for Good Reason), then:
(i) the Company shall pay the Executive, (A) as soon as
practicable after the Date of Termination, any Base Salary and any
reimbursable expenses accrued or owing the Executive hereunder for
services as of the Date of Termination, and (B) pay or provide all Plan
Benefits in accordance with the terms of the Benefits Plans; and
(ii) the Executive shall immediately forfeit any
unvested portion of the Option Awards. In the event of termination by the
Company for Cause, the vested unexercised portion of the Option Awards
shall be immediately forfeited. In the event of termination by the
Executive (other than for Good Reason), (A) the vested unexercised portion
of the Primary Tranche shall remain exercisable until the Termination Date
(as defined in the Option Agreement), (B) the vested unexercised portion
of the Secondary Tranche (as defined in the Option Agreement) shall remain
exercisable until the earlier of (1) the expiration of the one-year period
following the Date of Termination and (2) the Termination Date
18
<PAGE> 20
(as defined in the Option Agreement) and the vested unexercised portion of
the Additional Option shall remain exercisable until the earlier of (3)
the expiration of the three-month period following the Date of Termination
and (4) the Termination Date (as defined in the Option Agreement);
provided, however, in each case, that if the Executive's services are
terminated by the Executive (other than for Good Reason) following a
Change in Control, the vested portion of the Secondary Tranche and of the
Additional Option shall remain outstanding until the Termination Date and
(C) the unexercised portion of the Secondary Tranche and the Additional
Option shall be forfeited upon expiration of the applicable period
described in clause (B) above.
(e) Termination by the Company (other than for Cause or
Disability) or by the Executive for Good Reason. If the Executive's services
hereunder are terminated by the Company (other than for Cause or Disability) or
by the Executive for Good Reason, then:
(i) the Company shall pay the Executive, (A) as soon as
practicable after the Date of Termination, any Base Salary and bonus, and
any reimbursable expenses, accrued or owing the Executive hereunder for
services as of the Date of Termination and (B) pay or provide all Plan
Benefits in accordance with the terms of the Benefits Plans;
(ii) the Company shall pay to the Executive, as
liquidated damages and not as a penalty, within three business days
following the Date of Termination, a lump sum amount equal to the product
of (A) and (B), where (A) is equal to either (1) the sum of the
Executive's Base Salary and the highest Annual Bonus paid to or earned by
the Executive in respect of the two fiscal years of the Company
immediately preceding the year in which occurs the Date of Termination, if
the Date of Termination is after December 31, 1998, or (2) $700,000, if
the Date of Termination is on or before December 31, 1998, and where (B)
is equal to (I) the number three (3), if the Executive's employment is
19
<PAGE> 21
terminated following the occurrence of a Change in Control or (II) the
number two (2), otherwise. For purposes of this clause (ii), if within
twelve (12) months following the Date of Termination, either (X) a Change
in Control occurs or (Y) the Company enters into a definitive agreement,
the consummation of which would constitute a Change in Control, the
Executive's services shall be deemed to have been terminated following a
Change in Control;
(iii) the Primary Tranche, to the extent not then vested
and exercisable, shall become fully vested and exercisable on the Date of
Termination and shall remain exercisable until the Termination Date (as
defined in the Option Agreement);
(iv) (A) the Executive shall immediately forfeit any
unvested portion of the Secondary Tranche and the Additional Option, (B)
the vested unexercised portion of the Secondary Tranche shall remain
exercisable until the earlier of (1) the expiration of the one-year period
following the Date of Termination and (2) the Termination Date (as defined
in the Option Agreement) and the vested unexercised portion of the
Additional Option shall remain exercisable until the earlier of (3) the
expiration of the three-month period following the Date of Termination and
(4) the Termination Date (as defined in the Option Agreement), provided,
however, in each case, that if the Executive's services are terminated
following a Change in Control, the vested portion of the Secondary Tranche
and the Additional Option shall remain outstanding until the Termination
Date, and (C) the unexercised portion of the Secondary Tranche and of the
Additional Option shall be forfeited upon expiration of the applicable
period described in clause (B) above; and
(v) for a period of years equal to the number determined
under Section 6(e)(ii)(B) above and commencing immediately following the
Date of Termination, the Executive shall continue to participate in all
employee benefit plans and programs in which the Executive was entitled to
partic-
20
<PAGE> 22
ipate immediately prior to the Date of Termination in accordance with the
terms of such plans and programs as in effect from time to time (provided
that the Executive's continued participation is permitted under the
general terms and provisions of such plans and programs) and the Company
shall continue to provide to Executive the services described in Sections
4(f) hereof. In the event that the Executive's participation in any plan
or program described in the preceding sentence is barred, the Company
shall arrange to provide the Executive and his dependents with benefits
substantially the same as those which the Executive and his dependents
would otherwise have been entitled to receive under such plans and
programs from which their continued participation is barred or provide
their economic equivalent.
7. Gross-Up for Excise Tax. In the event that the Executive receives
any payment or benefit (including but not limited to the payments or benefits
pursuant to Section 6 of this Agreement) (a "Payment") that is subject to the
excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), the Company shall pay to the Executive, as soon
thereafter as practicable, an additional amount (a "Gross-Up Payment") such that
the net amount retained by the Executive, after deduction of any Excise Tax
imposed upon the Payment and any federal, state and local income and employment
tax and Excise Tax imposed upon the Gross-Up Payment shall be equal to the
Payment. The determination of whether an Excise Tax is due in respect of any
payment or benefit, the amount of the Excise Tax and the amount of the Gross-Up
Payment shall be made by an independent auditor (the "Auditor") jointly selected
by the Company and the Executive and paid by the Company. If the Executive and
the Company cannot agree on the firm to serve as the Auditor, then the Executive
and the Company shall each select one nationally recognized accounting firm and
those two firms shall jointly select the nationally recognized accounting firm
to serve as the Auditor. Notwithstanding the foregoing, for purposes of
determining the Gross-Up Payment in respect of any Payment, (i) any payments or
benefits
21
<PAGE> 23
received or to be received by the Executive in connection with a Change
in Control or the Executive's termination of employment (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a Change in Control or any person
affiliated with the Company or such person) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G of the Code shall be
treated as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Auditor, such payments or benefits (in whole or in part) do not
constitute parachute payments, or are otherwise not subject to the Excise Tax,
and (ii) the Executive shall be deemed to pay federal income tax at the highest
marginal rate applicable in the calendar year in which the Gross-Up Payment is
made, and state and local income taxes at the highest marginal rate of taxation
in the state and locality of the Executive's residence on the Date of
Termination, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes. In the event the actual
Excise Tax or such income tax is more or less than the amount used to calculate
the Gross-Up Payment, the Executive or the Company, as the case may be, shall
pay to the other an amount reflecting the actual Excise Tax or such income tax,
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code.
8. Mitigation. The Executive shall not be required to mitigate
amounts payable pursuant to Section 6 hereof by seeking other employment or
otherwise, nor shall such payments be reduced on account of any remuneration
earned by the Executive attributable to employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by the
Executive to the Company, or otherwise.
9. Confidential Information, Removal of Documents.
(a) Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit
22
<PAGE> 24
of the Company all trade secrets, confidential information, and knowledge or
data relating to the Company and the businesses and investments of the Company,
which shall have been obtained by the Executive during the Executive's
employment by the Company, including such information with respect to any
products, improvements, formulas, designs or styles, processes, services,
customers, suppliers, marketing techniques, methods, future plans or operating
practices ("Confidential Information"); provided, however, that Confidential
Information shall not include any information known generally to the public
(other than as a result of unauthorized disclosure by the Executive) or any
specific information or type of information generally not considered
confidential by persons engaged in the same business as the Company, or
information disclosed by the Company or any officer thereof to a third party
without restrictions on the disclosure of such information. Except as may be
required or appropriate in connection with his carrying out his duties under
this Agreement, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process, communicate
or divulge any such Confidential Information to anyone other than the Company
and those designated by the Company.
(b) Removal of Documents. All records, files, drawings,
documents, models, and the like relating to the business of the Company, which
the Executive prepares, uses or comes into contact with and which contain
Confidential Information shall not be removed by the Executive from the premises
of the Company (without the written consent of the Company) during or after the
Employment Period unless such removal shall be required or appropriate in
connection with his carrying out his duties under this Agreement, and, if so
removed by the Executive, shall be returned to the Company immediately upon
termination of the Executive's employment hereunder.
(c) Noncompetition; Nonsolicitation. The Executive covenants
that upon termination of his services hereunder by the Company for Cause or by
the Executive (other than for Good Reason) prior to the end of the Employment
Period, he shall not, for a period of six
23
<PAGE> 25
months following such termination (if such termination is on or prior to the
first anniversary of the Effective Date) or a period of one year (if such
termination is subsequent to the first anniversary of the Effective Date):
(i) engage or be interested, whether alone or together
with or on behalf or through any other person, firm, association, trust,
venture or corporation, whether as sole proprietor, partner, shareholder,
agent, officer, director, employee, adviser, consultant, trustee,
beneficiary or otherwise, in any business principally and directly engaged
in the operation of health maintenance organizations or the health
insurance business or in the management of specialty medical care through
case rate contracting; which business operates in a geographic area in
which, at the time of such termination of employment, the Company is
conducting more than an immaterial level of business or plans to conduct
any business or any additional level of business (a "competing business");
(ii) assist others in conducting any competing business;
or
(iii) own any capital stock or any other securities of,
or have any other direct or indirect interest in, any entity which owns or
operates a competing business, other than the ownership of (x) less than
five percent (5%) of any such entity whose stock is listed on a national
securities exchange or traded in the over-the-counter market and which is
not controlled by the Executive or any affiliate of the Executive or (y)
any limited partnership interest in such an entity.
The Executive further covenants that for a period of six months following a
termination of Executive's services during the Employment Period by the Company
for Cause or by the Executive (other than for Good Reason), he shall not
directly or indirectly recruit or induce or hire any person who is an employee
of the Company or any of its subsidiaries, or solicit any of the Company's
customers,
24
<PAGE> 26
clients or providers. Notwithstanding the above, the provisions of this
paragraph (c) shall cease to apply following a Change in Control.
(d) Remedies. Without prejudice to any other remedies that the
Company may have for breach of this Agreement by the Executive, in the event of
a breach or threatened breach of this Section 9, the Executive agrees that the
Company shall be entitled to apply for injunctive relief in a court of
appropriate jurisdiction to remedy any such breach or threatened breach, the
Executive acknowledging that damages would be inadequate and insufficient.
(e) Continuing Operation. Any termination of the Executive's
employment or of this Agreement shall have no effect on the continuing operation
of this Section 9.
10. Indemnification; Insurance. (a) If the Executive is made a
party, or is threatened to be made a party, to any action, suit or proceedings,
whether criminal, civil, administrative, investigative or otherwise, and whether
or not in the right of the Company (a "Proceeding") (1) by reason or arising out
of the fact that he is or was a director, officer, employee, consultant, agent
or fiduciary of the Company or is or was serving at the request of the Company
as a director, officer, member, employee, consultant, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, or (2) arising out of
or relating to or resulting from this Agreement or the transactions contemplated
hereby or the Financing Documents and the transactions contemplated thereby, the
Company shall indemnify and hold harmless the Executive to the fullest extent
legally permitted or authorized by the Company's certificate of incorporation or
by-laws or resolutions of the Company's Board or, if greater, by the laws of the
State of Delaware, from and against all costs, expenses, liability, losses
(including, without limitation, attorney's fees and expenses, judgements, fines,
ERISA excise taxes or penalties and amounts paid in settlement) incurred or
suffered by Executive in connection therewith (including,
25
<PAGE> 27
without limitation, investigating, preparing for and defending any such
Proceeding), and such indemnification shall continue as to the Executive even if
he has ceased to be a director, officer, member, employee, consultant or agent
of the Company or other enterprise, and shall inure to the benefit of the
Executive's heirs, executors, administrators and successors. The Company shall,
to the fullest extent permitted by law, advance to the Executive all costs and
expenses incurred by him in connection with a Proceeding within 10 days after
receipt by the Company of a written request for such advance.
(b) During the portion of the Employment Period on and after
the Financing Effective Date, the Company shall continue and maintain director's
and officers' liability insurance, in an amount and on terms reasonably
acceptable to the Executive, covering the Executive. The Company shall promptly
pay or reimburse the Executive for all premiums and other reasonable costs and
expenses incurred in connection with the Executive obtaining consultancy
liability insurance in respect of the Executive's services during the portion of
the Employment Period prior to the Financing Effective Date.
(c) Notwithstanding any other provision of this Agreement to
the contrary, any termination of the Executive's services or of this Agreement
shall have no effect on the continuing operation of this Section 10.
11. Successors; Binding Agreement.
(a) Company's Successors. No rights or obligations of the
Company under this Agreement may be assigned or transferred by the Company
except that such rights or obligations may be assigned or transferred pursuant
to a merger or consolidation in which the Company is not the continuing entity,
or the sale or liquidation of all or substantially all of the business and/or
assets of the Company, provided that the assignee or transferee is the successor
to all or substantially all of the business and/or assets of the Company and
such assignee or transferee assumes the liabilities, obligations and duties of
the Company, as contained in this Agreement, either contractually or as a matter
of law.
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<PAGE> 28
The Company will require any such successor to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and, except in determining whether a Change in Control has occurred,
shall include any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 11 or which
otherwise becomes bound by all the terms and provisions of this Agreement.
(b) Executive's Successors. This Agreement shall not be
assignable by the Executive. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. Upon the Executive's death, all amounts to
which he is entitled hereunder, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
12. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Norman C. Payson, M.D.
453 Beech Hill Road
Hopkinton, NH 03229
If to the Company:
Oxford Health Plans, Inc.
800 Connecticut Avenue
27
<PAGE> 29
Norwalk, CT 06854
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
13. Miscellaneous. No provisions of this Agreement may be modified
unless such modification is agreed to in writing signed by the Executive and an
authorized officer of the Company. Any waiver or discharge must be in writing
and signed by the Executive or such an authorized officer of the Company, as the
case may be. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Delaware without
regard to its conflicts of law principles.
14. Withholding. Any payments provided for in this Agreement shall
be paid net of any applicable withholding of taxes required under federal, state
or local law.
15. Arbitration. Except as otherwise provided herein, all
controversies, claims or disputes arising out of or related to this Agreement
shall be settled in New York City under the rules of the American Arbitration
Association then in effect, and judgment upon such award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction. The costs
of the arbitration shall be borne by the Company.
16. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
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<PAGE> 30
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. Entire Agreement. This Agreement (together with any option
agreements evidencing the awards hereunder and the Financing Documents) set
forth the entire agreement of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by the parties hereto in respect of the subject matter
contained herein; and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and cancelled. The
Option Agreement shall be incorporated herein by reference and made a part
hereof. Among other things, any breach by either party to the Option Agreement
shall be deemed to be a breach of this Agreement.
19. No Conflict. The Executive hereby represents and warrants that
the execution and delivery of this Agreement does not, and the performance of
his obligations set forth herein will not, violate, conflict with, contravene or
result in a breach or violation of any contract or any other agreement to which
he is a party or by which he is bound.
29
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on February [ ], 1998 to be effective as of the Effective Date.
OXFORD HEALTH PLANS, INC
By: /s/ FRED F. NAZEM
-------------------------------
Name:
Title:
/s/ NORMAN C. PAYSON
-------------------------------
Norman C. Payson, M.D.
<PAGE> 1
EXHIBIT A
OXFORD HEALTH PLANS, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT, made this 23rd day of February, 1998 (the "Effective
Date"), by and between Oxford Health Plans, Inc., a Delaware corporation (the
"Corporation"), and Norman C. Payson, M.D. (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Corporation and the Executive have entered into an
employment agreement dated as of the date hereof (the "Employment Agreement")
pursuant to which the Executive will serve, from and after the Financing
Effective Date (as defined in the Employment Agreement), as the Chief Executive
Officer of the Corporation; and
WHEREAS, in connection with the execution of the Employment Agreement,
the Corporation is also entering into an investment agreement, dated as of the
date hereof, between TPG Oxford LLC and the Corporation; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that it is in the best interests of the Corporation to enter into
this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto hereby agree as follows:
1. Grant of Option. The Corporation hereby grants to the Executive the
right and option (an "Option") to purchase, subject to the vesting provisions of
Section 3, all or any part of an aggregate of 2,000,000 shares (the "Option
Shares") of the Corporation's common stock, par value $.01 per share ("Common
Stock"), subject to adjustment as provided in Section 10, at a purchase price
per share of $15.52 (the "Option Price").
2. Term of Option. Subject to earlier termination as provided in
Section 4, the Option shall expire and cease to be exercisable on February 23,
2008 (the "Termination Date").
3. Vesting and Exercisability.
---------------------------
<PAGE> 2
(a) Regular Vesting Schedule. Except as otherwise provided herein,
800,000 Option Shares (the "Primary Tranche") shall vest and become exercisable
on February 23, 1999, provided that the Executive is employed by the Company on
such date. Except as otherwise provided herein, the remaining 1,200,000 Option
Shares (the "Secondary Tranche") shall vest ratably on a monthly basis over the
36-month period ending on February 23, 2002, provided that the Executive is
employed by the Company on each applicable vesting date, as follows:
Additional Number
of Shares Vesting Date
--------- ------------
33,333 March 23, 1999
33,334 April 23, 1999
33,333 May 23, 1999
33,333 June 23, 1999
33,334 July 23, 1999
33,333 August 23, 1999
. .
. .
. .
33,333 December 23, 2001
33,334 January 23, 2002
33,333 February 23, 2002.
Any partial exercise of the Option is limited to the purchase of whole shares of
Common Stock.
(b) Acceleration of Vesting of Primary Tranche.
-------------------------------------------
Upon (i) a Change in Control, (ii) termination of the Executive's services with
the Company by reason of the death or Disability of the Executive, (iii)
termination of the Executive's services by the Corporation without Cause or
(iv) termination of the Executive's services by the Executive for Good
Reason, the Primary Tranche shall become immediately vested and fully
exercisable.
(c) Acceleration of Vesting of Secondary Tranche.
---------------------------------------------
Upon (i) a Change in Control or (ii) the death or Disability of the Executive,
the Secondary Tranche shall become immediately vested and fully exercisable.
-2-
<PAGE> 3
(d) Certain Definitions. For purposes of this Agreement, "Cause",
"Change in Control", "Disability" and "Good Reason" shall have the respective
meanings ascribed to such terms under the Employment Agreement.
4. Termination of Employment.
--------------------------
(a) Cause. Upon termination of the Executive's services by the
Corporation for Cause, the Option (whether vested or unvested) shall terminate
immediately and no longer be exercisable.
(b) Death; Disability; Change in Control. Except as provided in Section
4(a), upon the termination of the Executive's services (i) by reason of the
death or Disability of the Executive or (ii) for any reason following a Change
of Control, the Option shall remain exercisable until the Termination Date.
(c) Without Cause; Good Reason. Upon termination of the Executive's
services (i) by the Corporation without Cause or (ii) by the Executive for Good
Reason, then:
(1) the Primary Tranche shall remain exercisable until the Termination
Date; and
(2) the unvested portion of the Secondary Tranche shall terminate upon
such termination of services, and, except as otherwise provided in Section
4(b)(ii), the vested portion of the Secondary Tranche shall remain
exercisable until the earlier of (x) the expiration of the one-year period
following such termination of services, and (y) the Termination Date.
(d) Other than for Good Reason. Upon termination of the Executive's
services by the Executive (other than for Good Reason), then:
(1) the unvested portion of the Option shall terminate upon such
termination of services;
(2) the vested portion of the Primary Tranche shall remain exercisable
until the Termination Date; and
(3) except as otherwise provided in Section 4(b)(ii), the vested
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<PAGE> 4
portion of the Secondary Tranche shall remain exercisable until the
earlier of (x) the expiration of the one-year period following such
termination of services, and (y) the Termination Date.
5. Method of Exercising Option.
----------------------------
(a) Full payment for the Option Shares purchased shall be made at the
time of any exercise under this Agreement. The Option Price shall be payable to
the Corporation either (i) in United States dollars in cash or by check, bank
draft, or postal or express money order, or (ii) through the delivery of shares
of Common Stock owned by the Executive for at least six months prior to the date
of exercise having a Fair Market Value on the date of exercise equal to the full
Option Price, or (iii) by a combination of (i) and (ii) above. For purposes of
this Agreement, "Fair Market Value" shall have the meaning ascribed to such term
under the Corporation's 1991 Stock Option Plan. Subject to the terms and
conditions hereof, the Option shall be exercisable by notice to the Corporation
on the form provided by the Corporation upon request of the Executive. In the
event the Options are being exercised by any person or persons other than the
Executive, the notice shall be accompanied by proof, satisfactory to the
Corporation, of the right of such person or persons to exercise any right under
this Agreement.
(b) At the time of exercise, the Executive shall pay to the Corporation
such amount as the Corporation deems necessary to satisfy its obligation to
withhold Federal, state or local income or other taxes incurred by reason of
such exercise or the transfer of Option Shares thereupon by tendering to the
Corporation a check in the amount of such withholding or, if permitted by the
Corporation, by electing to have withheld upon exercise, shares of Common Stock
having a Fair Market Value equal to the amount of such tax withholding.
6. Issuance of Shares. As promptly as practical after receipt of such
written notification of exercise and full payment of the Option Price and any
required income tax withholding, the Corporation shall issue or transfer to the
Executive the number of Option Shares with respect to which such Option has been
exercised (less shares withheld in satisfaction of tax withholding obligations,
if any), and shall deliver to the Executive a certificate or certificates
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<PAGE> 5
therefor, registered in the Executive's name. The Corporation may postpone such
delivery until it receives satisfactory proof that the issuance or transfer of
such Option Shares will not violate any of the provisions of the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, any
rules or regulations of the Securities and Exchange Commission promulgated
thereunder, or the requirements of applicable state law relating to
authorization, issuance or sale of securities, or until there has been
compliance with the provisions of such acts or rules.
7. Corporation; Executive. (a) The term "Corporation" as used in this
Agreement with reference to employment shall include the Corporation and its
subsidiaries, as appropriate.
(b) Whenever the word "Executive" is used in any provision of this
Agreement under circumstances where the provision should logically be construed
to apply to the beneficiaries, the executors, the administrators, or the person
or persons to whom the Option may be transferred by will or by the laws of
descent and distribution, the word "Executive" shall be deemed to include such
person or persons.
8. Non-Transferability. The Option is not transferable by the
Executive otherwise than to a designated beneficiary upon death or by will or
the laws of descent and distribution, and is exercisable during the Executive's
lifetime only by the Executive. No assignment or transfer of all or any part
of the Option, or of the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise (except to a designated
beneficiary, upon death, by will or the laws of descent and distribution),
shall vest in the assignee or transferee any interest or right herein
whatsoever, but immediately upon such assignment or transfer the Option shall
terminate and become of no further effect.
9. Rights as Shareholder. Neither the Executive nor any transferee of
the Option shall have any of the rights of a shareholder with respect to any
Option Shares except to the extent that certificate(s) for such Option Shares
shall have been issued upon the exercise of the Option as provided herein, and
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<PAGE> 6
no adjustment shall be made for cash distributions in respect of such Option
Shares for which the record date is prior to the date upon which such Executive
or transferee shall become the holder of record thereof.
10. Adjustments. In the event of any change in the outstanding shares
of Common Stock by reason of any stock dividend or split, recapitalization,
merger, consolidation, spinoff, combination or exchange of shares or other
corporate change, or any distributions to common shareholders other than regular
cash dividends, the Corporation shall make such substitution or adjustment, if
any, as it deems to be equitable, as to the number or kind of shares of Common
Stock subject to the Option under this Agreement.
11. Compliance with Law. The Corporation will use its best efforts to
obtain all required approvals in connection with the ownership, transferability
or quotation of the Option Shares acquired upon exercise of the Option.
Notwithstanding any of the provisions hereof, the Executive hereby agrees that
such Executive shall not exercise the Options, and that the Corporation shall
not be obligated to issue or transfer any shares to the Executive hereunder, if
the exercise hereof or the issuance or transfer of such shares shall constitute
a violation by the Executive or the Corporation of any provisions of any law or
regulation of any governmental authority. Any determination in this connection
by the Corporation shall be final, binding and conclusive.
12. Purchase for Purpose of Investment. The Executive hereby represents
and warrants that any Option Shares acquired pursuant to the exercise of the
Option are acquired for his own account solely for the purpose of investment and
not with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"). The
Executive hereby acknowledges that the Option Shares have not been registered
under the Securities Act and may be sold or disposed of in the absence of such
registration only pursuant to an exemption from the registration requirements of
the Securities Act. The Corporation agrees to cause the Option Shares to be
registered under the Securities Act as specified in the Employment Agreement. To
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<PAGE> 7
the extent the Executive is entitled to exercise all or any portion of the
Option prior to the date on which the Corporation has agreed to register the
securities pursuant to the Employment Agreement, the Executive agrees to the
placement on certificates representing any Option Shares acquired pursuant to
the exercise of all or any portion of such Option of the following legend (the
"Legend"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT."
The Executive also agrees to the placement on certificates representing any
Option Shares acquired pursuant to the exercise of all or any portion of the
Option of an additional legend (the "Additional Legend") evidencing the
restrictions contained in Section 4(b)(iv) of the Employment Agreement. Upon the
registration under the Securities Act of the Option Shares acquired pursuant to
the exercise of all or any portion of the Option which has become exercisable as
described above, or the delivery by the Executive to the Corporation of an
opinion of counsel reasonably satisfactory to the Corporation that the Legend is
no longer required under the Securities Act, the Corporation shall immediately
issue, in exchange for the certificates containing the Legend, new certificates
representing the Option Shares containing only the Additional Legend. The
Corporation shall immediately issue new certificates representing the Option
Shares without the Additional Legend when required to do so pursuant to the
Employment Agreement. The Corporation hereby represents and warrants that the
Option Shares, when issued pursuant to the exercise of the Option, will be duly
and validly issued, fully paid and non-assessable, and the Executive will have
good, valid and marketable title to such Option Shares, free and clear of all
liens, security interests, pledges, charges, claims or other encumbrances,
whether consensual, statutory or otherwise.
14. Notices. For purposes of this Agreement, all communications
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<PAGE> 8
provided for in this Agreement shall be in writing and shall be deemed to be
duly given when delivered or (unless otherwise specified) mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If, to the Executive:
---------------------
Norman C. Payson
453 Beech Hill Road
Hopkinton, NH 03229
If, to the Corporation:
-----------------------
Oxford Health Plans, Inc.
800 Connecticut Avenue,
Norwalk, Connecticut 06854
or to such other address as any party may have furnished to the other in writing
in accordance herewith.
15. Binding Effect. Subject to Section 8 hereof, this Agreement shall
be binding upon the heirs, executors, administrators and successors of the
parties hereto.
16. No Right to Perform Services. Neither the granting of this Option,
nor the exercise thereof, shall be construed as granting Executive any right to
perform services for the Corporation or its subsidiaries. Subject to the terms
of the Employment Agreement, the right of the Corporation and its subsidiaries
to terminate Executive's services at any time and for any reason, is
specifically reserved.
17. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware.
18. Entire Agreement. This Agreement, and the relevant provisions of
the Employment Agreement, comprise the whole agreement between the parties
hereto with respect to the subject matter hereof, and may not be modified or
terminated orally.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
OXFORD HEALTH PLANS, INC.
By:_______________________
Name:
Title:
__________________________
Norman C. Payson, M.D.
<PAGE> 1
Exhibit 10(v)
AMENDMENT, dated as of February 23, 1998 (this "Amendment"), to that
certain employment agreement, dated as of August 14, 1996 (the "Employment
Agreement"), by and between Oxford Health Plans, Inc., (the "Corporation") and
William M. Sullivan (the "Employee").
W I T N E S S E T H:
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements contained herein, and intending to be legally bound
hereby, the Corporation and Executive agree as follows:
ARTICLE I
Amendment
1.1 Section 1 of the Employment Agreement is hereby amended by
deleting the words "and Chief Operating Officer" wherever they appear.
1.2 Section 3 of the Employment Agreement is hereby amended by
deleting the first sentence thereof in its entirety, and replacing it with the
following:
"Effective as of February 23, 1998, the Corporation agrees to pay the
Employee during the Term an annual base salary at a rate of $600,000 per
year."
1.3 Section 3 of the Employment Agreement (as amended) is hereby
further amended by redesignating the current text (excluding the heading
thereof) as Section 3(a), and adding a new Section 3(b) to read as follows:
"(b) In addition to any other compensation payable to the Employee
pursuant to this Agreement, the Employee shall be eligible to receive an
annual bonus. For each year during the Term, such annual bonus shall be
set at a target level of 100% of the Employee's base salary for such year,
and shall be payable in the event that certain Corporation performance
criteria are met, as determined by the Committee in its sole discretion.
The actual amount of such annual bonus payable to the Employee shall be
determined by the Committee in its sole discretion, and may be less or
more than the target amount if a threshold level of performance is
<PAGE> 2
attained, or if the Corporation performance criteria are exceeded,
respectively."
1.4 Section 3 of the Employment Agreement (as amended) is hereby
further amended by adding a new Section 3(c) to read as follows:
"(c) The Employee shall be permitted to continue to participate during the
Term in the Corporation's deferred compensation program in which the
Employee participated as of February 23, 1998."
1.5 Section 3 of the Employment Agreement (as amended) is hereby
further amended by adding a new Section 3(d) to read as follows:
"(d) In addition to any other compensation payable to the Employee
pursuant to this Agreement, the Corporation shall pay to the Employee an
additional cash payment of $500,000, payable one-half on March 31, 1998,
and one-half on May 31, 1998."
1.6 Section 6(d) of the Employment Agreement is hereby amended by
deleting the second sentence thereof in its entirety, and replacing it with the
following:
"Except as provided in Section 7(c), for purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's prior written
consent, of any of the following events:
(1) removal of the Employee from, or failure to re-appoint the
Employee to, his position as President of the Corporation, except in
connection with the termination of the Employee for Cause;
(2) a change in the Employee's line of reporting from that
specified in Section 1 (except direct reporting to a newly hired Chief
Executive Officer);
(3) a material diminution in the Employee's duties as President of
the Corporation or assignment to the Employee of duties which are
inconsistent with his position as President of the Corporation;
(4) the breach by the Corporation of any of the compensation or
benefit arrangements set forth in Sections 3 and 5; or
(5) any other material breach of this Agreement by the
Corporation;
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<PAGE> 3
provided, that "Good Reason" shall not exist until after the Employee has
given the Corporation notice of the applicable event within 90 days of
such event and which is not remedied within 30 days after receipt of
written notice from the Employee specifically delineating such claimed
event and setting forth the Employee's intention to terminate employment
if not remedied; provided, further, that if the specified event cannot
reasonably be remedied within such 30-day period and the Corporation
commences reasonable steps within such 30-day period to remedy such event
and diligently continues such steps thereafter until a remedy is effected,
such event shall not constitute "Good Reason" provided that such event is
remedied within 60 days after receipt of such written notice."
1.7 Section 6(h) of the Employment Agreement is hereby deleted in
its entirety, and a new Section 6(h) is added to read as follows:
"In addition to the payments set forth in Section 6(g) hereof, in the
event that the Employee's employment with the Corporation terminates
either (1) prior to a Change in Control or (2) following the two-year
period immediately subsequent to a Change in Control (including as a
result of a notice of non-renewal of the Term by the Corporation provided
during such two-year period), as a result of (i) a termination by the
Employee for Good Reason, (ii) a termination by the Corporation without
Cause (other than for Retirement or Disability) or (iii) notice by the
Corporation of non-renewal of the Term (other than for Retirement), then
(x) the Corporation shall pay to the Employee a lump sum cash payment in
an amount equal to two (2) times the sum of (A) the base salary earned by
the Employee from the Corporation and its subsidiaries during the
twelve-month period immediately preceding the Employee's Date of
Termination, plus (B) the target annual bonus payable to the Employee by
the Corporation and its subsidiaries in respect of the fiscal year in
which the Employee's Date of Termination occurs (provided, however, that
if such Date of Termination occurs during 1998, the cash payment
determined under this clause (x) shall be in an amount equal to
$2,400,000) and (y) all stock options granted to the Employee which are
not otherwise vested shall become fully vested."
1.8 A new Section 6(i) of the Employment
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<PAGE> 4
Agreement is hereby added to read as follows:
"(i) Consulting Arrangement. In the event that the Employee's employment
with the Corporation terminates as a result of (i) a termination by the
Employee for Good Reason (under either Section 6(d) or Section 7(c), as
applicable) or (ii) a termination by the Corporation without Cause (under
either Section 6(c) or 7(b), as applicable) (other than for Retirement or
Disability), the Employee shall serve as a consultant to the Corporation
until the first anniversary of the Employee's Date of Termination (the
"Consulting Period"). During the Consulting Period, the Employee shall be
reasonably available for consultation with the Corporation by telephone or
in person at the Corporation's principal executive office. Performance of
consulting services shall be scheduled on reasonable notice and in such a
manner so as not to significantly interfere with other business activities
of the Employee. In addition, service as a consultant during the
Consulting Period shall be treated as service with the Corporation for
purposes of determining the vested percentage of stock options and other
equity awards granted to the Employee by the Corporation as of the Date of
Termination. During the Consulting Period, the Corporation shall pay the
Employee a consulting fee for any days on which consulting services are
performed by the Employee, at a per diem rate equal to the quotient
obtained by dividing the rate of Employee's base annual salary as of the
Date of Termination by 220."
1.9 Section 8(a) is hereby amended by adding the following
language immediately prior to the end of such Section:
"; provided, however, that notwithstanding the foregoing, in the event
that the Employee's employment with the Corporation terminates either (I)
prior to a Change in Control or (II) following the two-year period
immediately subsequent to a Change in Control (including as a result of a
notice of non-renewal of the Term by the Corporation provided during such
two-year period), as a result of (x) a termination by the Employee for
Good Reason, (y) a termination by the Corporation without Cause (other
than for Retirement or Disability) or (z) notice by the Corporation of
non-renewal of the Term (other than for Retirement), the Employee hereby
agrees that for a period of two (2) years following his Date of
Termination he shall be subject to the restrictions of clause (3) of this
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<PAGE> 5
Section 8(a)."
1.10 Section 11 is hereby renumbered Section 12, and a new Section
11 is hereby added to read as follows:
"11. D&O Insurance and Indemnification. During the Term, the
Corporation shall continue to provide the Employee with no less favorable
director and officer indemnification and insurance coverage than such
coverage in effect from time to time for directors and officers of the
Corporation."
1.11 Sections 11 and 12 (as renumbered) are hereby renumbered
Sections 12 and 13, respectively, and a new Section 11 is hereby added to read
as follows:
"11. Cooperation. During the Term and thereafter, the Employee
hereby agrees to reasonably cooperate with the Corporation in respect of all
legal proceedings, regulatory inquiries and related matters that are in progress
as of February 23, 1998, or that may subsequently be filed that arise in respect
of and/or are in connection with any activities of the Corporation during the
term of the Employee's employment with the Corporation."
ARTICLE II
Miscellaneous
2.1 Definitions. Capitalized terms used in this Amendment and not defined
herein shall have the meanings ascribed to such terms in the Employment
Agreement.
2.2 Entire Agreement; Restatement. Other than as amended by Article I
above, the Employment Agreement shall remain in full force and effect unaffected
hereby.
2.3 Governing Law. THIS AMENDMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT.
2.4 Counterparts. For the convenience of the parties hereto, this
Amendment may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument and all such counterparts shall
together constitute one and the same instrument.
2.5 Effective Date. This Amendment shall be effective as of
the date first above written.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Amendment to be executed as of the date first written above.
OXFORD HEALTH PLANS, INC.
By:________________________
Name:
Title:
_________________________
William M. Sullivan
<PAGE> 1
Exhibit(w)
AMENDMENT, dated as of February 23, 1998 (this "Amendment"), to that
certain employment agreement, dated as of August 14, 1996 (the "Employment
Agreement"), by and between Oxford Health Plans, Inc., (the "Corporation") and
Jeffery H. Boyd (the "Employee").
W I T N E S S E T H:
WHEREAS, the Corporation and the Executive desire to amend the
Employment Agreement as provided herein.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements contained herein, and intending to be legally bound
hereby, the Corporation and Executive agree as follows:
ARTICLE I
Amendment
1.1 Section 3 of the Employment Agreement is hereby amended by
redesignating the current text (excluding the heading thereof) as Section 3(a),
and adding a new Section 3(b) to read as follows:
"(b) In addition to any other compensation payable to the Employee
pursuant to this Agreement, the Corporation shall pay to the Employee an
additional cash payment of $250,000, payable on March 31, 1998."
1.2 Section 6(d) of the Employment Agreement is hereby amended by
deleting the second sentence thereof in its entirety, and replacing it with the
following:
"Except as provided in Section 7(c), for purposes of this Agreement, "Good
Reason" shall mean the occurrence, without the Employee's prior written
consent, of any of the following events:
(1) removal of the Employee from, or failure to re-appoint the
Employee to, his positions as Executive Vice President, General Counsel or
Secretary of the Corporation, except in connection with the termination of
the Employee for Cause;
(2) a change in the Employee's line of reporting from that
specified in Section 1;
(3) a material diminution in the Employee's
<PAGE> 2
duties with the Corporation or assignment to the Employee of duties which
are inconsistent with those specified in Section 1;
(4) the breach by the Corporation of any of the compensation or
benefit arrangements set forth in Sections 3 and 5; or
(5) any other material breach of this Agreement by the
Corporation;
provided, that "Good Reason" shall not exist until after the Employee has
given the Corporation notice of the applicable event within 90 days of
such event and which is not remedied within 30 days after receipt of
written notice from the Employee specifically delineating such claimed
event and setting forth the Employee's intention to terminate employment
if not remedied; provided, further, that if the specified event cannot
reasonably be remedied within such 30-day period and the Corporation
commences reasonable steps within such 30-day period to remedy such event
and diligently continues such steps thereafter until a remedy is effected,
such event shall not constitute "Good Reason" provided that such event is
remedied within 60 days after receipt of such written notice."
1.3 Section 6(h) of the Employment Agreement is hereby deleted in
its entirety, and a new Section 6(h) is added to read as follows:
"In addition to the payments set forth in Section 6(g) hereof, in the
event that the Employee's employment with the Corporation terminates
either (1) prior to a Change in Control or (2) following the two-year
period immediately subsequent to a Change in Control (including as a
result of a notice of non-renewal of the Term by the Corporation provided
during such two-year period), as a result of (i) a termination by the
Employee for Good Reason, (ii) a termination by the Corporation without
Cause (other than for Retirement or Disability) or (iii) notice by the
Corporation of non-renewal of the Term (other than for Retirement), then
the Corporation shall pay to the Employee a lump sum cash payment in an
amount equal to two (2) times the sum of (x) the base salary earned by the
Employee from the Corporation and its subsidiaries during the twelve-month
period immediately preceding the Employee's Date of Termination, plus (y)
the highest annual bonus earned by the Employee from the Corporation and
its
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<PAGE> 3
subsidiaries in respect of the two fiscal years immediately preceding the
Employee's Date of Termination (provided, however, that if such Date of
Termination occurs during 1998, such cash payment shall be in an amount
equal to $1,200,000)."
1.4 A new Section 6(i) of the Employment Agreement is hereby added
to read as follows:
"(i) Consulting Arrangement. In the event that the Employee's employment
with the Corporation terminates as a result of (i) a termination by the
Employee for Good Reason (under either Section 6(d) or Section 7(c), as
applicable) or (ii) a termination by the Corporation without Cause (under
either Section 6(c) or 7(b), as applicable) (other than for Retirement or
Disability), the Employee shall serve as a consultant to the Corporation
until the first anniversary of the Employee's Date of Termination (the
"Consulting Period"). During the Consulting Period, the Employee shall be
reasonably available for consultation with the Corporation by telephone or
in person at the Corporation's principal executive office. Performance of
consulting services shall be scheduled on reasonable notice and in such a
manner so as not to significantly interfere with other business activities
of the Employee. In addition, during the Consulting Period, (x) the
Employee shall be permitted to continue to participate in the
Corporation's group health plan (provided, that if Employee cannot
continue to participate in such plan, the Corporation shall provide such
benefit on the same after-tax basis as if continued participation had been
permitted), and (y) service as a consultant during the Consulting Period
shall be treated as service with the Corporation for purposes of
determining the vested percentage of stock options and other equity awards
granted to the Employee by the Corporation as of the Date of Termination.
During the Consulting Period, the Corporation shall pay the Employee a
consulting fee for any days on which consulting services are performed by
the Employee, at a per diem rate equal to the quotient obtained by
dividing the rate of Employee's base annual salary as of the Date of
Termination by 220."
1.5 Section 11 is hereby renumbered Section 12, and a new Section
11 is hereby added to read as follows:
"11. D&O Insurance and Indemnification. During the Term, the Corporation
shall continue to provide the Employee
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<PAGE> 4
with no less favorable director and officer indemnification and insurance
coverage than such coverage in effect from time to time for the directors and
officers of the Corporation."
1.6 Sections 11 and 12 (as renumbered) are hereby renumbered
Sections 12 and 13, respectively, and a new Section 11 is hereby added to read
as follows:
"11. Cooperation. During the Term and thereafter, the Employee
hereby agrees to reasonably cooperate with the Corporation in respect of all
legal proceedings, regulatory inquiries and related matters that are in progress
as of February 23, 1998, or that may subsequently be filed that arise in respect
of and/or are in connection with any activities of the Corporation during the
term of the Employee's employment with the Corporation."
ARTICLE II
Miscellaneous
2.1 Definitions. Capitalized terms used in this Amendment and not defined
herein shall have the meanings ascribed to such terms in the Employment
Agreement.
2.2 Entire Agreement; Restatement. Other than as amended by Article I
above, the Employment Agreement shall remain in full force and effect unaffected
hereby.
2.3 Governing Law. THIS AMENDMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT.
2.4 Counterparts. For the convenience of the parties hereto, this
Amendment may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument and all such counterparts shall
together constitute one and the same instrument.
2.5 Effective Date. This Amendment shall be effective as of the date first
above written.
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Amendment to be executed as of the date first written above.
OXFORD HEALTH PLANS, INC.
-4-
<PAGE> 5
By:________________________
Name:
Title:
_________________________
Jeffery H. Boyd
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT dated as of February 16, 1998, (the "Effective Date"), by and
between OXFORD HEALTH PLANS, INC. (the "Corporation"), having a principal office
in Norwalk, Connecticut, and Kevin Hickey (the "Employee").
WHEREAS, the Board of Directors of the Corporation (the "Board") has
approved and authorized the Corporation's entry into this Agreement with the
Employee; and
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions for the continued employment relationship of the
Corporation and the Employee;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Corporation and the Employee agree as follows:
1. Employment. The Employee is employed as Executive Vice President of
Operations & Technology of the Corporation. As Executive Vice President of
Operations & Technology the Employee shall render executive, policy and other
management services to the Corporation of the type customarily performed by
persons serving in a similar executive officer capacity, subject to the powers
by law vested in the Board and in the Corporation's stockholders. The Employee
shall report to the Chief Executive Officer of the Corporation, and shall
perform such other related duties as the Chief Executive Officer of the
Corporation may from time to time reasonably direct or request. The Employee
shall be a full time employee of the Corporation.
The Employee shall perform his duties and responsibilities under this
Agreement faithfully, diligently and to the best of the Employee's ability, and
in compliance with all applicable laws and the Corporation's Certificate of
Incorporation and Bylaws, as they may be amended from time to time.
2. Term. The initial term of employment under this Agreement shall be
for a period of two (2) years commencing on the Effective Date (the "Term").
This Agreement shall be extended automatically for two (2) additional years on
the second anniversary date of the Effective Date and on each second anniversary
of the Effective Date thereafter, unless either the Corporation or the Employee
gives contrary written notice to the other not less than three (3) months in
advance of such anniversary of the Effective Date. References herein to the Term
shall refer both to such initial term and such successive terms. Upon a "Change
in Control" (as defined in Section 7(a)) of the
-1-
<PAGE> 2
Corporation, the Term shall be extended to two (2) years from the date of such
Change in Control, unless notice to terminate the Term has been properly
provided prior to the date of such Change in Control, and such Change in Control
date shall be treated as the Effective Date for purposes of renewals of this
Agreement. The Term shall end upon the termination of the Employee's employment
under this Agreement.
3. Compensation. (a) Base Salary. The Corporation agrees to pay the
Employee during the Term an annual base salary ("Base Salary") of $300,000. The
Base Salary shall be reviewed at least annually during the Term by the Board,
and the Employee shall receive such increases in Base Salary, if any, as the
Compensation Committee of the Board (the "Committee") in its absolute discretion
may determine, together with such performance or merit increases, if any, as the
Committee in its absolute discretion may determine. Participation with respect
to discretionary bonuses, retirement and other employee benefit plans and fringe
benefits shall not reduce the Base Salary payable to the Employee under this
Section 3. The Base Salary shall be payable to the Employee in equal
installments in conformity with the Corporation's normal payroll periods.
(b) Bonus. The Employee shall be eligible to receive an annual
performance bonus (up to 100% of the Base Salary for the year in which such
performance is measured) consistent with the Corporation's management incentive
program, as recommended by the Chief Executive Officer of the Corporation and
approved by the Compensation Committee of the Board and the Chairman of the
Corporation.
4. Withholding Obligation. The Corporation shall have the ability to
withhold from the compensation otherwise due to the Employee under this
Agreement any federal income tax, Federal Insurance Contribution Act tax,
Federal Unemployment Act tax, or other amounts required to be withheld from
compensation from time to time under the Internal Revenue Code of 1986, as
amended (the "Code"), or under any state or municipal laws or regulations.
5. Fringe Benefits.
(a) Vacations and Leave. During the Term, the Employee shall
be entitled to an annual paid vacation of four (4) weeks per year or such longer
period as the Committee may approve. The Employee shall schedule the timing of
paid vacations in a reasonable manner. Any unused vacation shall not carry over
to a subsequent year, without prior written consent of the Board. The Employee
shall also be entitled to such other leave, with or without compensation, as
shall be mutually agreed upon by the Committee and the Employee.
-2-
<PAGE> 3
(b) Participation in Retirement and Employee Benefit Plans.
During the Term, the Employee shall be entitled to participate in the
Corporation's 1991 Stock Option Plan, annual incentive compensation plan, the
Oxford Specialty Holdings, Inc. 1996 Equity Incentive Compensation Plan and any
other plan of the Corporation or its subsidiaries relating to stock options,
stock appreciation, stock purchases, pension, thrift, deferred compensation,
profit sharing, group life insurance, medical coverage, education or other
retirement or employee benefits that the Corporation may adopt for the benefit
of its executive employees. Upon commencement of employment with the
Corporation, and subject to execution by the Employee of the Corporation's
standard non-disclosure and non-competition agreement, the Employee shall
receive an initial grant of 75,000 options under the Corporation's 1991 Stock
and Incentive Plan. Such options shall vest in four equal annual installments
over the four years from date of grant.
(c) Disability. If the Employee shall become disabled or
incapacitated during the Term to the extent that he is unable to perform his
duties and responsibilities hereunder, he shall be entitled to receive
disability benefits of the type currently provided to him, or, if more favorable
to the Employee, benefits of the type provided for other executive employees in
similar positions with the Corporation.
(d) Death. If the Employee shall die during the Term, the
Corporation shall pay to such person as the Employee has designated in a notice
filed with the Corporation, or, if no such notice is filed, to his estate, in
substantially equal monthly installments, from the date of his death for a
period of three (3) months, an amount equal to the Employee's Base Salary as of
his date of death.
(e) Other Benefits. During the Term, the Employee shall be
entitled to participate in any other fringe benefits which are or may become
applicable to the Corporation's executive employees, including the use of an
automobile, a reasonable expense account, the payment of reasonable expenses for
attending annual and periodic meetings of trade associations, and any other
benefits which are commensurate with the duties and responsibilities to be
performed by the Employee under this Agreement.
6. Termination of Employment. The Employee's employment hereunder may
be terminated under the circumstances set forth in paragraphs (a) through (e)
below:
(a) Death. The Employee's employment hereunder shall terminate
upon his death.
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<PAGE> 4
(b) Disability. If, as a result of the Employee's incapacity
due to physical or mental illness, the Employee shall have been absent from his
duties hereunder on a full-time basis for the entire period of six (6)
consecutive months, and within thirty (30) days after written Notice of
Termination is given (which may occur before or after the end of such six (6)
month period) shall not have returned to the performance of his duties hereunder
on a full-time basis, the Corporation may terminate the Employee's employment
hereunder for "Disability."
(c) Cause. The Corporation may terminate the Employee's
employment hereunder for Cause or without Cause. Except as provided in Section
7(b) hereof following a Change in Control, termination for Cause shall mean
termination because the Employee (i) engages in the following conduct in
connection with his employment with the Corporation: personal dishonesty,
willful misconduct, breach of fiduciary duty involving personal profit, breach
of a restrictive covenant against competition, disclosure of confidential
information of the Corporation, consistent intentional failure to perform stated
duties after notice, or (ii) willfully violates any law, rule, or regulation
(other than traffic violations or similar offenses), which willful violation
materially impacts the Employee's performance of his duties to the Corporation.
(d) Good Reason. The Employee may terminate his employment
hereunder with or without Good Reason; provided, however, that the Employee
agrees not to terminate his employment hereunder (other than for Good Reason or
for Retirement) during the ninety-day period following a Change in Control.
Except as provided in Section 7(c) hereof following a Change in Control, for
purposes of this Agreement "Good Reason" shall mean any (i) removal of the
Employee from, or failure to re-appoint the Employee to, his position as
Executive Vice President of Operations & Technology, except in connection with
termination of the Employee for Cause, or (ii) failure by the Corporation to
comply with Section 3 hereof in any material respect. For purposes of this
Agreement, "Good Reason" shall not exist until after Employee has given the
Company notice of the applicable event within 90 days of such event and which is
not remedied within 30 days after receipt of written notice from Employee
specifically delineating such claimed event and setting forth Employee's
intention to terminate employment if not remedied; provided, that if the
specified event cannot reasonably be remedied within such 30-day period and the
Company commences reasonable steps within such 30-day period to remedy such
event and diligently continues such steps thereafter until a remedy is effected,
such event shall not constitute "Good Reason" provided that such event is
remedied within 60 days after receipt of such written notice.
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<PAGE> 5
(e) Retirement. For purposes of this Agreement, "Retirement"
shall mean termination of the Employee's employment by either the Employee
(other than for Good Reason) or the Corporation (other than for Cause) on or
after the Employee's normal retirement age under the terms of the Corporation's
pension plan (or, any other tax-qualified plan, if no pension plan exists);
provided, that, following a Change in Control such normal retirement age may not
be reduced for purposes of this Agreement without the consent of the Employee.
(f) Date of Termination. For purposes of this Agreement, "Date
of Termination" means (1) the effective date on which the Employee's employment
by the Corporation terminates as specified in a Notice of Termination by the
Corporation or the Employee, as the case may be, or (2) if the Employee's
employment terminates by reason of death, the date of death of the Employee.
Notwithstanding the previous sentence, (i) if the Employee's employment is
terminated for Disability (as defined in Section 6(b)), then such Date of
Termination shall be no earlier than thirty (30) days following the date on
which a Notice of Termination is received, and (ii) if the Employee's employment
is terminated by the Corporation other than for Cause, then such Date of
Termination shall be no earlier than thirty (30) days following the date on
which a Notice of Termination is received.
(g) Payment Upon Termination. Upon any termination of
employment hereunder, the Corporation shall pay the Employee, within ten (10)
days following his Date of Termination, a lump sum cash amount equal to the sum
of (i) the Employee's unpaid Base Salary through the Date of Termination, (ii)
any bonus payments which have become payable (other than deferred amounts), to
the extent not theretofore paid, and (iii) any vacation pay owed with respect to
accrued, but unused, vacation.
(h) Termination Without Cause, For Good Reason or Upon Failure
to Renew. In addition to the payments set forth in Section 6(g) hereof, in the
event that the Employee's employment with the Corporation terminates either (1)
prior to a Change in Control or (2) following the two-year period immediately
subsequent to a Change in Control (including as a result of a notice of
non-renewal of the Term by the Corporation provided during such two-year
period), in each case as a result of (i) a termination by the Employee for Good
Reason, (ii) a termination by the Corporation without Cause (other than for
Retirement or Disability) or (iii) notice by the Corporation of non-renewal of
the Term (other than for Retirement), then the Corporation shall pay to the
Employee, in twelve (12) equal monthly installments in conformity with the
Corporation's normal payroll periods, an amount equal to (x) the sum of the Base
Salary earned by the Employee from the Corporation and its subsidiaries during
the twelve-month period immediately preceding the Employee's Date of
Termination, plus the annual bonus earned by the Employee from the Corporation
and its subsidiaries in respect of the fiscal year immediately preceding the
Employee's Date of Termination, divided by (y) twelve (12).
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<PAGE> 6
7. Termination of Employment Following a Change in Control.
(a) Change in Control Defined. For purposes of this Agreement, a
"Change in Control" shall be deemed to have taken place if:
(i) any "person" (as defined below) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934
(the "Exchange Act")), directly or indirectly, of securities of the
Corporation representing 30% or more of the total voting power represented
by the Corporation's then outstanding voting securities;
(ii) a change in the composition of the Board of Directors of the
Corporation occurs, as a result of which fewer than two-thirds ( ) of the
incumbent directors are directors who either (A) had been directors of the
Corporation on the "look-back date" (as defined below) or (B) were elected,
or nominated for election, to the Board of Directors of the Corporation with
the affirmative votes of at least a majority of the directors who had been
directors of the Corporation on the "look-back date" and who were still in
office at the time of the election or nomination;
(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the total voting power
represented by the voting securities of the Corporation or such surviving
entity outstanding immediately after such merger or consolidation; or
(iv) the stockholders of the Corporation approve (A) a plan of
complete liquidation of the Corporation or (B) an agreement for the sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets. For purposes of paragraph (a)(i), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of the
Exchange Act, but shall exclude (1) a trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation or of a parent
or subsidiary of the Corporation or (2) a corporation owned directly or
indirectly by the stockholders of the Corporation in substantially the same
proportions as their ownership of the common stock of the Corporation. For
purposes of paragraph (a)(ii), the term "look-back date" shall mean the
later of (A) the date twenty-four (24) months prior to the change in the
composition of the Board and (B) the Effective Date.
Any other provision of this Section 7(a) notwithstanding, the term "Change
in Control" shall not include either of the following events, if
undertaken at the election of the Corporation:
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<PAGE> 7
(x) a transaction, the sole purpose of which is to change
the state of the Corporation's incorporation; or
(y) a transaction, the result of which is to sell all or
substantially all of the assets of the Corporation to
another corporation or entity (the "surviving
entity"); provided that the voting power represented
by the surviving entity's securities (or other equity
interests) is owned directly or indirectly by the
stockholders of the Corporation immediately following
such transaction in substantially the same
proportions as their ownership of the voting power
represented by the Corporation's common stock
immediately preceding such transaction; and provided,
further, that the surviving entity expressly assumes
this Agreement.
Notwithstanding anything in this Agreement to the contrary, if
the Employee's employment terminates prior to a Change in Control, and the
Employee reasonably demonstrates that such termination was at the request or
suggestion of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control (a "Third Party"), then for
all purposes of this Agreement, the date of a Change in Control shall mean the
date immediately prior to the date of such termination of employment.
(b) Cause. During the two-year period following a Change in
Control, "Cause" shall mean (i) the willful and continued failure of the
Employee to substantially perform his duties with the Corporation (other than
any such failure resulting from the Employee's incapacity due to physical or
mental illness or any such failure subsequent to the Employee being delivered a
notice of termination without Cause by the Corporation or delivering a notice of
termination for Good Reason to the Corporation) after a written demand for
substantial performance is delivered to the Employee by the Board which
specifically identifies the manner in which the Board believes that the Employee
has not substantially performed the Employee's duties, or (ii) the willful
engaging by the Employee in illegal conduct or gross misconduct which is
demonstrably and materially injurious to the Corporation or its subsidiaries.
For purpose of this paragraph (b), no act or failure to act by the Employee
shall be considered "willful" unless done or omitted to be done by the Employee
in bad faith and without reasonable belief that the Employee's action or
omission was in the best interests of the Corporation or its affiliates. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board, based upon the advice of counsel for the Corporation,
shall be conclusively presumed to be done, or omitted to be done, by the
Employee in good faith and in the best interests of the Corporation. Cause shall
not exist unless and until the Corporation has delivered to the
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<PAGE> 8
Employee a copy of a resolution duly adopted by two-thirds ( ) of the entire
Board at a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the Employee, together
with counsel, to be heard before the Board), finding that in the good faith
opinion of the Board an event set forth in clause (i) or (ii) has occurred and
specifying the particulars thereof in detail. Following a Change in Control, the
Corporation must notify the Employee of any event constituting Cause within
ninety (90) days following the Corporation's knowledge of its existence or such
event shall not constitute Cause under this Agreement.
(c) Good Reason. During the two-year period following a Change
in Control, "Good Reason" shall mean, without the Employee's express written
consent, the occurrence of any of the following events:
(1) (i) the assignment to the Employee of any duties or
responsibilities (including reporting
responsibilities) inconsistent in any material and
adverse respect with the Employee's duties and
responsibilities with the Corporation immediately
prior to such Change in Control (including any
diminution of such duties or responsibilities);
provided, however, that Good Reason shall not be
deemed to occur upon a change in duties or
responsibilities that is solely and directly a result
of the Corporation no longer being a publicly traded
entity, and does not involve any other event set
forth in this paragraph (c), or (ii) a material and
adverse change in the Employee's reporting
responsibilities, titles or offices (other than
membership on the Board) with the Corporation as in
effect immediately prior to such Change in Control;
(2) a reduction by the Corporation in the Employee's rate
of annual Base Salary or annual target bonus
opportunity (including any adverse change in the
formula for such annual bonus target) as in effect
immediately prior to such Change in Control or as the
same may be increased from time to time thereafter;
(3) any requirement of the Corporation that the Employee
(i) be based anywhere more than thirty (30) miles
from the office where the Employee is located at the
time of the Change in Control or (ii) travel on the
Corporation's business to an extent substantially
greater than the travel obligations of the Employee
immediately prior to such Change in Control;
(4) the failure of the Corporation to (i) continue in
effect any employee benefit plan, compensation plan,
welfare benefit plan or material
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<PAGE> 9
fringe benefit plan in which the Employee is
participating immediately prior to such Change in
Control, or the taking of any action by the
Corporation which would adversely affect the
Employee's participation in or reduce the Employee's
benefits under any such plan, unless the Employee is
permitted to participate in other plans providing the
Employee with substantially equivalent aggregate
benefits (at substantially comparable cost with
respect to welfare benefit plans), or (ii) provide
the Employee with paid vacation in accordance with
the most favorable plans, policies, programs and
practices of the Corporation and its affiliated
companies as in effect for the Employee immediately
prior to such Change in Control; or
(5) the failure of the Corporation to obtain the
assumption agreement from any successor as
contemplated in Section 11(a) hereof.
Any event or condition described in Section 7(c)(1) through
(4) which occurs prior to a Change in Control, but with respect to which the
Employee is able to reasonably demonstrate was at the request or suggestion of a
Third Party, shall constitute Good Reason following a Change in Control for
purposes of this Agreement (as if a Change in Control had occurred immediately
prior to the occurrence of such event or condition) notwithstanding that it
occurred prior to the Change in Control. An isolated, insubstantial and
inadvertent action taken in good faith and which is remedied by the Corporation
promptly after receipt of notice thereof given by the Employee shall not
constitute Good Reason. The Employee's right to terminate employment for Good
Reason shall not be affected by the Employee's incapacity due to mental or
physical illness and the Employee's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any event or condition
constituting Good Reason. Following a Change in Control, the Employee must
provide notice of termination of employment within ninety (90) days of the
Employee's knowledge of an event constituting Good Reason or such event shall
not constitute Good Reason under this Agreement.
(d) In addition to the payments set forth in Section 6(g)
above, in the event the Employee's employment with the Corporation terminates
within two (2) years following a Change in Control either (i) by the Corporation
without Cause (other than for Retirement or Disability) or (ii) by the Employee
for Good Reason, then the Corporation shall (1) pay to the Employee, within ten
(10) days following the Employee's Date of Termination, a lump sum cash amount
equal to two (2) times the sum of (i) the highest annual rate of Base Salary of
the Employee during the 3-year period immediately preceding the Employee's Date
of Termination and (ii) the average annual bonus earned by Employee in respect
of the three (3) fiscal years of the Corporation immediately preceding the year
in which the Employee's Date of Termination occurs (provided, that if the
Employee has not been employed by the Corporation for such three-fiscal-year
period, the greater of (x) the target annual bonus
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<PAGE> 10
(without regard to any reduction that would give rise to Good Reason) for the
year in which the Employee's Date of Termination occurs and (y) the amount
otherwise determined under this clause (ii) without regard to this
parenthetical) and (2) continue to provide, for a period of two (2) years
following the Date of Termination, the Employee (and the Employee's dependents
if applicable) with the same level of medical, dental, accident, disability and
life insurance benefits upon substantially the same terms and conditions
(including cost of coverage to the Employee) as existed immediately prior to the
Employee's Date of Termination (or, if more favorable to the Employee, as such
benefits and terms and conditions existed immediately prior to the Change in
Control); provided, that, if the Employee cannot continue to participate in the
Corporation plans providing such benefits, the Corporation shall otherwise
provide such benefits on the same after-tax basis as if continued participation
had been permitted. Notwithstanding the foregoing, in the event the Employee
becomes reemployed with another employer and becomes eligible to receive welfare
benefits from such employer, the welfare benefits described herein shall be
secondary to such benefits during the period of the Employee's eligibility, but
only to the extent that the Corporation reimburses the Employee for any
increased cost and provides any additional benefits necessary to give the
Employee the benefits hereunder.
(e)(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution, or any acceleration of vesting of any benefit or award, by the
Corporation or its affiliated companies to or for the benefit of the Employee
(whether paid or payable, distributed or distributable or accelerated or subject
to acceleration pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7(e)) (a "Payment") would be subject to the excise tax imposed by Section 4999
of the Code, or any interest or penalties are incurred by the Employee with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Employee shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Employee of all taxes
imposed upon the Gross-Up Payment and any interest or penalties imposed with
respect to such taxes, the Employee retains an amount of the Gross-Up Payment
equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the
product of any deductions disallowed because of the inclusion of the Gross-Up
Payment in the Employee's adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
Gross-Up Payment is to be made. For purposes of determining the amount of the
Gross-Up Payment, the Employee shall be deemed to (A) pay federal income taxes
at the highest marginal rates of federal income taxation for the calendar year
in which the Gross-Up Payment is to be made, (B) pay applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-Up Payment is to be made, net of the maximum
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<PAGE> 11
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes and (C) have otherwise allowable deductions for federal
income tax purposes at least equal to those which could be disallowed because of
the inclusion of the Gross-Up Payment in the Employee's adjusted gross income.
The payment of a Gross-Up Payment under this Section 7(e) shall in no event be
conditioned upon the Employee's termination of employment or the receipt of
severance benefits under this Agreement.
(ii) Subject to the provisions of Section 7(e)(i), all
determinations required to be made under this Section
7(e), including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at
such determination, shall be made by the public
accounting firm that is retained by the Corporation
as of the date immediately prior to the Change in
Control (the "Accounting Firm") which shall provide
detailed supporting calculations both to the
Corporation and the Employee within fifteen (15)
business days of the receipt of notice from the
Corporation or the Employee that there has been a
Payment, or such earlier time as is requested by the
Corporation (collectively, the "Determination"). In
the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or
group effecting the Change in Control, the Employee
may appoint another nationally recognized public
accounting firm to make the determinations required
hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be
borne solely by the Corporation and the Corporation
shall enter into any agreement requested by the
Accounting Firm in connection with the performance of
its services hereunder. The Gross-Up Payment under
this Section 7(e) with respect to any Payment shall
be made no later than thirty (30) days following such
Payment. If the Accounting Firm determines that no
Excise Tax is payable by the Employee, it shall
furnish the Employee with a written opinion to such
effect, and to the effect that failure to report the
Excise Tax, if any, on the Employee's applicable
federal income tax return will not result in the
imposition of a negligence or similar penalty. The
Determination by the Accounting Firm shall be binding
upon the Corporation and the Employee. As a result of
the uncertainty in the application of Section 4999 of
the Code at the time of the Determination, it is
possible that Gross-Up Payments which will not have
been made by the Corporation should have been made
("Underpayment") or Gross-Up Payments are made by the
Corporation which should not have been
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<PAGE> 12
made ("Overpayment"), consistent with the
calculations required to be made hereunder. In the
event that the Employee thereafter is required to
make payment of any additional Excise Tax, the
Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such
Underpayment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) shall
be promptly paid by the Corporation to or for the
benefit of the Employee. In the event the amount of
the Gross-Up Payment exceeds the amount necessary to
reimburse the Employee for his Excise Tax, the
Accounting Firm shall determine the amount of the
Overpayment that has been made and any such
Overpayment (together with interest at the rate
provided in Section 1274(b)(2) of the Code) shall be
promptly paid by the Employee to or for the benefit
of the Corporation. The Employee shall cooperate, to
the extent his expenses are reimbursed by the
Corporation, with any reasonable requests by the
Corporation in connection with any contests or
disputes with the Internal Revenue Service in
connection with the Excise Tax.
8. Covenants Not to Compete; Confidentiality.
(a) The Employee covenants that if he voluntarily terminates
his employment with the Corporation prior to the end of the term of this
Agreement, unless such termination either is approved by the Board or is within
the two-year period following a Change in Control, he shall not, for a period of
one (1) year following such Date of Termination:
(1) engage or be interested, whether alone or together with or
on behalf or through any other person, firm, association, trust,
venture, or corporation, whether as sole proprietor, partner,
shareholder, agent, officer, director, employee, adviser, consultant,
trustee, beneficiary or otherwise, in any business principally and
directly engaged in the operation of health maintenance organizations
or the health insurance business or in the management of specialty
medical care through case rate contracting; which business operates in
a geographic area in which, at the time of such termination of
employment, the Corporation is conducting business or plans to conduct
business (a "competing business");
(2) assist others in conducting any competing business;
(3) directly or indirectly recruit or induce or hire any
person who is an employee of the Corporation or any of its
subsidiaries, or solicit any of the Corporation's customers, clients or
providers; or
(4) own any capital stock or any other securities of, or have
any other direct or indirect interest in, any entity which owns or
operates a competing
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<PAGE> 13
business, other than the ownership of (i) less than five percent (5%)
of any such entity whose stock is listed on a national securities
exchange or traded in the over-the-counter market and which is not
controlled by the Employee or any affiliate of the Employee or (ii) any
limited partnership interest in such an entity.
Nothing contained in this section, however, shall prohibit the
Employee from taking any of the actions set forth in clause (1), (2), (3) or (4)
above if (i) the Employee's employment has been terminated other than for Cause,
or (ii) the Employee has terminated employment for Good Reason.
(b) In the event that the Employee breaches or threatens to
breach any of the terms of this Section 8, the Employee acknowledges that the
Corporation's remedy at law would be inadequate and that the Corporation shall
be entitled to an injunction restraining the Employee from committing or
continuing such breach.
9. Payment Obligation Absolute. Except with respect to
continued welfare benefits under Section 7(d), the Corporation's obligation to
pay the Employee the compensation and other benefits provided herein shall be
absolute and unconditional and shall not be affected by an circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Corporation may have against the Employee. All amounts
payable by the Corporation hereunder shall be paid without notice or demand.
10. Notice.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five (5) days after deposit in
the United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
Kevin Hickey
72 Ridgebury Road
Avon, Connecticut 06001
If to the Corporation:
Oxford Health Plans, Inc.
800 Connecticut Avenue
Norwalk, Connecticut 06854
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice (a "Notice of Termination") of the
Employee's Date of Termination by the Corporation or
the Employee, as the case may
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<PAGE> 14
be, to the other, shall (i) indicate the specific
termination provision in this Agreement relied upon,
(ii) to the extent applicable, set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii)
specify the Date of Termination. The failure by the
Employee or the Corporation to set forth in such
notice any particular fact or circumstance which
contributes to a showing of Good Reason or Cause
shall not waive any right of the Employee or the
Corporation hereunder or preclude the Employee or the
Corporation from asserting such fact or circumstance
in enforcing the Employee's or the Corporation's
rights hereunder.
11. General Provisions.
(a) No Assignments. This Agreement is personal to each of the
parties hereto. Neither party may assign or delegate any of his or its rights or
obligations hereunder without first obtaining the written consent of the other
party; provided, however, that the Corporation agrees that concurrently with any
merger or sale of assets which would constitute a Change in Control hereunder,
it will cause any successor or transferee unconditionally to assume, by written
instrument delivered to the Employee (or his beneficiary or estate), all of the
obligations of the Corporation hereunder. Failure of the Corporation to obtain
such assumption prior to the effectiveness of any such merger or sale of assets,
shall be a breach of this Agreement and shall constitute Good Reason hereunder
and shall entitle the Employee to compensation and other benefits from the
Corporation in the same amount and on the same terms as the Employee would be
entitled hereunder if the Employee's employment were terminated following a
Change in Control under Section 7(d) hereof. For purposes of implementing the
foregoing, the date on which any such merger or sale of assets becomes effective
shall be deemed the date Good Reason occurs, and shall be the Date of
Termination if requested by the Employee. Notwithstanding the foregoing, this
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee shall die while any amounts
would be payable to the Employee hereunder had the Employee continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to such person or persons appointed in writing
by the Employee to receive such amounts or, if no person is so appointed, to the
Employee's estate.
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<PAGE> 15
(b) Indemnification of Employee. In the event the employment
of the Employee is terminated by the Corporation without Cause or by the
Employee for Good Reason hereof and the Corporation fails to make timely payment
of the amounts then owed to the Employee under this Agreement, the Employee
shall be entitled to indemnification for all reasonable costs (as such costs are
incurred), including attorneys' fees and disbursements, incurred by the Employee
in taking action to collect such amounts or otherwise to enforce this Agreement,
plus interest on all such amounts at the annual rate of one percent above the
prime rate (defined as the base rate on corporate loans at large U.S. money
center commercial banks as published by the Wall Street Journal), compounded
monthly, for the period from the time payment is due until payment is made to
the Employee. The Employee shall also be entitled to interest (at the rate
described in the immediately preceding sentence) on such reasonable costs
incurred from the date the Employee delivers a receipt to the Corporation for
such costs until the date they are reimbursed to the Employee. Such
indemnification and interest shall be in addition to all rights to which the
Employee is otherwise entitled under this Agreement.
(c) Entire Agreement; Amendments or Additions; Action by
Board. This Agreement contains the entire agreement between the parties hereto
with respect to the transactions contemplated hereby and supersedes all prior
oral and written agreements, memoranda, understandings and undertakings between
the parties hereto relating to the subject matter hereof. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties. The prior approval by a two-thirds ( ) affirmative vote of the
full Board shall be required in order for the Corporation to authorize any
amendments or additions to this Agreement, to give any consents or waivers of
provisions of this Agreement, or to take any other action under this Agreement
including any termination of the employment of the Employee with or without
Cause. For purposes of Board approval with respect hereto, if the Employee is
also a director of the Corporation, he shall abstain from acting on matters
pertaining to this Agreement and shall not be counted as a Board member for
purposes of the two-thirds ( ) requirement.
(d) Governing Law. This Agreement shall be governed by the
laws of the State of Connecticut as to all matters, including, but not limited
to, matters of validity, construction, effect and practice.
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(e) Arbitration. Except with respect to injunctive relief
under Section 8(b) hereof, any dispute or controversy under this Agreement shall
be settled exclusively by arbitration in Norwalk, Connecticut by three (3)
arbitrators in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitration award in any court
having jurisdiction. The Corporation shall bear all costs and expenses arising
in connection with any arbitration proceeding pursuant to this Section 11(e).
(f) Employment with Subsidiaries. Employment with the
Corporation for purposes of this Agreement shall include employment with any
subsidiary of the Corporation.
(g) Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
(h) Section Headings. The section headings used in this
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
OXFORD HEALTH PLANS, INC.
By: ___________________________
Dated: ________________ ___________________________
Kevin Hickey
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<PAGE> 1
Exhibit 10(y)
RETIREMENT, CONSULTING AND NON-COMPETITION AGREEMENT
AGREEMENT dated as of February 23, 1998, by and between OXFORD
HEALTH PLANS, INC. (the "Corporation"), having a principal office in Darien,
Connecticut, and Stephen F. Wiggins ("Wiggins").
W I T N E S S E T H:
WHEREAS, Wiggins and the Corporation entered into an
employment agreement (the "Employment Agreement"), dated as of August 14, 1996,
pursuant to which Wiggins served as Chairman and Chief Executive Officer of the
Corporation; and
WHEREAS, Wiggins resigned as Chief Executive Officer of the
Corporation on or about August 5, 1997; and
WHEREAS, Wiggins has decided to retire from his position as
Chairman of the Corporation effective as of February 23, 1998; and
WHEREAS, in connection with such retirement, Wiggins is
willing to continue to serve the Corporation as a consultant; and
WHEREAS, the Corporation wishes to provide for the continued
services of Wiggins as a consultant following Wiggins's retirement by engaging
and retaining Wiggins to
<PAGE> 2
provide services to the Corporation as a consultant and Wiggins desires to
perform such services; and
WHEREAS, the Corporation wishes that Wiggins not engage in
competition with the Corporation and Wiggins is willing to agree to such
non-competition.
NOW, THEREFORE, in consideration of the premises and the
respective covenants and agreements of the parties, herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Retirement. Wiggins shall cease to be an employee of the
Corporation effective as of February 23, 1998. Wiggins agrees and acknowledges
that, effective as of February 23, 1998, the Employment Agreement shall be
terminated and cease to have any effect, except with respect to amounts payable
to Wiggins thereunder which remain unpaid or as otherwise provided in this
Agreement.
2. Term. The term of this Agreement (the "Term") shall be the
period commencing as of February 23, 1998 and ending on February 23, 2001.
3. Duties. During the Term, Wiggins shall provide assistance,
upon reasonable request, to the Chief Executive Officer of the Corporation, on
matters including but not
<PAGE> 3
limited to provider, employee and investor relations, and shall take all other
actions reasonably requested by the Board of Directors of the Corporation (the
"Board") through the Chairman to assure a smooth transition from Wiggins's prior
capacity as Chairman of the Corporation. Wiggins agrees to continue to represent
the Corporation, for the Term of this Agreement or until requested to resign by
the Board, on the Executive Committee of the Health Care Leadership Council, the
Board of Directors of the American Association of Health Plans and the
President's Commission on Health Care. Wiggins further agrees to resign his
position as a Director of the Corporation upon the request of a majority of the
Board (excluding Wiggins for such purpose).
4. Place of Performance. Wiggins shall not be required to
render services exclusively at the principal executive offices of the
Corporation in Darien, Connecticut; such services may be rendered at any other
mutually agreeable place, or by telephone or correspondence. The Corporation
shall provide Wiggins with office space large enough to accommodate an executive
office, a secretarial office and a conference room; such space shall be outside
the
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<PAGE> 4
Corporation's principal executive offices.
5. Fees, Expenses and Benefits.
(a) Fee. The Corporation shall pay to Wiggins (i) upon
execution of this Agreement, a lump sum cash amount of $3.6 million and (ii)
during the Term, an annual amount of $1.8 million, payable monthly.
(b) Expenses. The Corporation shall promptly reimburse Wiggins
for all reasonable and customary expenses incurred by Wiggins in performing
services hereunder, including all expenses of travel, food and lodging, provided
that such expenses are incurred and accounted for in accordance with the
Corporation's policies and procedures.
(c) Other Benefits. During the Term, Wiggins and his
dependents shall be entitled to continue to participate in the Corporation's
group health plan as in effect from time to time, or plans or arrangements
providing Wiggins and his dependents with equivalent coverage thereunder. In
addition, the Corporation shall (i) reimburse Wiggins for his reasonable
expenses at the Harvard Club of New York, Wee Burn Country Club and the Young
Presidents Organization; (ii) reimburse Wiggins for annual tax preparation
services;
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<PAGE> 5
and (iii) retain Barbara Schubert (or equivalent assistant) on the payroll of
the Corporation for the purpose of providing Wiggins with secretarial services.
(d) Options. All stock options granted to Wiggins which are
otherwise not vested shall become fully vested and immediately exercisable.
Notwithstanding anything to the contrary in the Corporation's 1991 Stock Option
Plan or any award agreement, the expiration date of all of the options held by
Wiggins shall be extended until February 23, 2002, and all of the options held
by Wiggins shall continue to be exercisable until February 23, 2002.
6. Termination. This Agreement shall be terminated prior to
the end of the Term only upon the mutual consent of Wiggins and the Corporation.
7. Oxford Specialty Management. During the Term, Wiggins shall
have the right of first offer to purchase Oxford Specialty Management ("OSM").
For purposes of this Section 7, a "right of first offer to purchase" means that
(i) in the event the Corporation decides to sell or transfer to a third party,
the capital stock of OSM or all or substantially all of the assets of OSM (the
"OSM Assets"),
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<PAGE> 6
the Corporation hereby agrees to notify Wiggins and allow Wiggins a period of
thirty (30) days to make an offer to purchase the OSM Assets from the
Corporation, and (ii) in the event the Corporation does not agree to sell the
OSM Assets to Wiggins for the value (taking into account purchase price, terms,
conditions and ongoing contractual relationships) (the "Wiggins Price") at which
Wiggins offers to purchase the OSM Assets, the Corporation agrees not to dispose
of the OSM Assets in a transaction with a third party for value if such value
does not exceed the Wiggins Price. In the event that the Corporation decides to
liquidate or otherwise dispose of OSM other than as a result of a transaction
with a third party, the Corporation will notify Wiggins and allow Wiggins to
submit alternate proposals to the Corporation; provided, however, that in no
event will this opportunity create an obligation of the Corporation to accept
any such alternate proposal. In the event that Wiggins acquires the OSM Assets,
Wiggins shall have the right to occupy any position at OSM.
8. Noncompetition and Nonsolicitation.
(a) Except as provided in Section 7 above or with the prior
written consent of the Corporation, Wiggins shall
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<PAGE> 7
not, during the Term, be employed by, or have a significant ownership interest
in, any business which is principally and directly engaged in the operation of
health maintenance organizations or the health insurance business in the United
States. For the purposes of this Agreement, the ownership of less than ten
percent (10%) of the outstanding securities of any corporation shall not be
deemed to constitute a "significant ownership interest."
(b) During the Term, Wiggins shall not solicit for employment
any person who is at such time (or who was within the one-month period prior to
such solicitation) employed by the Corporation or its affiliates.
9. Cooperation. During the Term and thereafter, Wiggins hereby
agrees to reasonably cooperate with the Corporation in respect of all legal
proceedings, regulatory inquiries and related matters that are in progress as of
the date of this Agreement or that may subsequently be filed that arise in
respect of and/or are in connection with any activities of the Corporation
during the term of Wiggins's employment with the Corporation.
10. Notice. For the purposes of this Agreement,
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<PAGE> 8
notices, demands and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when delivered
or (unless otherwise specified) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed as follows:
If to Wiggins:
Stephen F. Wiggins
8 Butlers Island Road
Darien, Connecticut 06820
If to the Corporation:
Oxford Health Plans, Inc.
800 Connecticut Avenue
Norwalk, Connecticut 06854
Attn: Secretary
or to such other address as any party may have furnished to the others in
writing in accordance herewith.
11. Modification of Agreement; Governing Law. No provisions of
this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by Wiggins and the
Corporation. This Agreement shall be governed by, and is to be construed and
enforced in accordance with, the laws of the State of Connecticut without regard
to its conflicts of law
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<PAGE> 9
principles. The invalidity or unenforceability of any provision of this
Agreement under such law shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force and effect.
12. Entire Agreement. This Agreement sets forth the entire
Agreement of the parties hereto in respect of the subject matter contained
herein and supersedes and cancels all prior agreements and understandings,
whether oral or written, with respect to the subject matter of this Agreement.
Notwithstanding the foregoing, this Agreement shall not impact in any way
Wiggins's rights of indemnification under the directors' and officers' insurance
policies maintained by the Corporation, the Corporation's by-laws and
certificates of incorporation, or statutory or common law.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
OXFORD HEALTH PLANS, INC.
By:
-----------------------------------
Name:
Title:
-----------------------------------
Stephen F. Wiggins
<PAGE> 1
CONFIDENTIAL
EMPLOYMENT AGREEMENT
AGREEMENT dated as of March 30, 1998 (the "Effective Date"), by and
between OXFORD HEALTH PLANS, INC. (the "Corporation"), having a principal office
in Norwalk, Connecticut, and Marvin P. Rich (the "Employee").
WHEREAS, the Board of Directors of the Corporation (the "Board") has
approved and authorized the Corporation's entry into this Agreement with the
Employee; and
WHEREAS, the parties desire to enter into this Agreement setting
forth the terms and conditions for the continued employment relationship of the
Corporation and the Employee;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the Corporation and the Employee agree as follows:
1. Employment. The Employee is employed as Chief Administrative
Officer. As Chief Administrative Officer the Employee shall render executive,
policy and other management services to the Corporation of the type customarily
performed by persons serving in a similar executive officer capacity, subject to
the powers by law vested in the Board and in the Corporation's stockholders. The
Employee shall report to the Chief Executive Officer of the Corporation, and
shall perform such other related duties as the Chief Executive Officer of the
Corporation may from time to time reasonably direct or request. The Employee
shall be a full time employee of the Corporation provided that the Employee
shall have the right to devote time to other directorships so long as such
activities do not impair the Employee's performance of the duties of his office.
The Employee shall perform his duties and responsibilities under this
Agreement faithfully, diligently and to the best of the Employee's ability, and
in compliance with all applicable laws and the Corporation's Certificate of
Incorporation and Bylaws, as they may be amended from time to time.
<PAGE> 2
2. Term. The initial term of employment under this Agreement shall be
for a period of four (4) years commencing on the Effective Date (the "Term").
This Agreement shall be extended automatically for two (2) additional years on
the fourth anniversary date of the Effective Date and on each second anniversary
of the Effective Date thereafter, unless either the Corporation or the Employee
gives contrary written notice to the other not less than three (3) months in
advance of such anniversary of the Effective Date. References herein to the Term
shall refer both to such initial term and such successive terms. Upon a "Change
in Control" (as defined in Section 7(a)) of the Corporation, the Term shall be
extended to two (2) years from the date of such Change in Control, unless notice
to terminate the Term has been properly provided prior to the date of such
Change in Control, and such Change in Control date shall be treated as the
Effective Date for purposes of renewals of this Agreement. The Term shall end
upon the termination of the Employee's employment under this Agreement.
3. Compensation. (a) Base Salary. The Corporation agrees to pay the
Employee during the Term an annual base salary ("Base Salary") of no less than
$600,000. The Base Salary shall be reviewed at least annually during the Term by
the Board, and the Employee shall receive such increases in Base Salary, if any,
as the Compensation Committee of the Board (the "Committee") in its absolute
discretion may determine, together with such performance or merit increases, if
any, as the Committee in its absolute discretion may determine. Participation
with respect to discretionary bonuses, retirement and other employee benefit
plans and fringe benefits shall not reduce the Base Salary payable to the
Employee under this Section 3. The Base Salary shall be payable to the Employee
in equal installments in conformity with the Corporation's normal payroll
periods, but no less frequently than monthly.
(b) Annual Bonus. During the Term, the Employee shall be
eligible to receive an annual performance bonus consistent with the
Corporation's management incentive program, as recommended by the Chief
Executive Officer of the Corporation
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<PAGE> 3
and approved by the Committee and the Chairman of the Corporation; provided,
however, that for each year during the Term such annual bonus shall be in an
amount not less than $600,000, and shall be payable in a manner consistent with
the payment of bonuses for other senior officers of the Corporation but in no
event later than the end of the first quarter after the end of the fiscal year
to which the bonus relates.
(c) Sign-on Bonus. Upon the execution and delivery of this
Agreement, and subject to execution by the Employee of the Corporation's
standard non-disclosure and non-competition agreement, the Corporation shall pay
the Employee a sign-on bonus in the amount of $300,000.
(d) Options. Subject to the approval of the Committee, upon the
execution and delivery of this Agreement the Corporation shall grant the
Employee options to acquire 800,000 shares of the Corporation's common stock
(the "Initial Grant"). Such options shall vest in four equal annual installments
over the four years from date of grant have an exercise price equal to the fair
market value of the Corporation's common stock on the date of grant and contain
such other provisions as are included in options granted by the Corporation
pursuant to the Corporation's 1991 Stock Option Plan (including, without
limitation, anti-dilution protection with respect to the shares underlying such
options). To the extent that any shares subject to the Initial Grant are not
covered by a valid registration statement under the Securities Act of 1933, as
amended, the Corporation shall grant the Employee "piggyback" rights to register
such shares on the registration statement that the Corporation uses to register
the shares of Corporation common stock underlying the stock options granted on
February 23, 1998, outside of the 1991 Plan to the Chief Executive Officer of
the Corporation.
(e) Relocation Expenses. In connection with your commencement of
employment with the Corporation, the Employee shall be entitled to reimbursement
(on a grossed-up basis in order to achieve a net after-tax recovery to Employee
equal to the
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<PAGE> 4
amount of the expenses covered in this Section 3(e)) of the following relocation
expenses upon presentation of satisfactory receipts in accordance with the
Company's normal business expenses reimbursement practices and procedures: (i)
costs incurred in connection with the closing of the Employee's residence in
Michigan, (ii) costs incurred in connection with the closing of the Employee's
residence in Connecticut, (iii) first-class airfare costs for six round-trip
tickets (from Detroit, Michigan to White Plains, New York) for the Employee and
his partner, (iv) costs incurred in connection with the moving of Employee's
personal property, including furniture, and two automobiles from Michigan to
Connecticut, and (v) up to six months' reimbursement (not to exceed $30,000) of
the lesser of (x) the maintenance (i.e., association dues, mortgage or rent) of
the Michigan residence and (y) the maintenance (i.e., mortgage or rent) of the
Connecticut residence.
(f) Relocation Loan. As soon as practicable after the execution
of this Agreement, but in no event later than thirty (30) days from the date of
this Agreement, the Corporation shall lend to the Executive $600,000 upon the
following terms: (i) interest at the lowest rate that will avoid imputed income;
(ii) four (4) year term; (iii) interest only annually; (iv) principal only at
the end of four (4) year term or earlier at option of Employee or upon
termination of employment.
4. Withholding Obligation. The Corporation shall have the ability to
withhold from the compensation otherwise due to the Employee under this
Agreement any federal income tax, Federal Insurance Contribution Act tax,
Federal Unemployment Act tax, or other amounts required to be withheld from
compensation from time to time under the Internal Revenue Code of 1986, as
amended (the "Code"), or under any state or municipal laws or regulations.
5. Fringe Benefits.
(a) Vacations and Leave. During the Term, the Employee shall be
entitled to an annual paid vacation of four (4) weeks per year or such longer
period as
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<PAGE> 5
the Committee may approve. The Employee shall schedule the timing of paid
vacations in a reasonable manner. The Employee shall also be entitled to such
other leave, with or without compensation, as shall be mutually agreed upon by
the Committee and the Employee.
(b) Participation in Retirement and Employee Benefit Plans.
During the Term, the Employee shall be entitled to participate in the
Corporation's 1991 Stock Option Plan, annual incentive compensation plan, the
Oxford Specialty Holdings, Inc. 1996 Equity Incentive Compensation Plan and any
other plan of the Corporation or its subsidiaries relating to stock options,
stock appreciation, stock purchases, pension, thrift, deferred compensation,
profit sharing, group life insurance, medical coverage, education or other
retirement or employee benefits that the Corporation may adopt for the benefit
of its executive employees. Corporation shall pay Employee's COBRA payments
until he is participating in the Corporation's health plan.
(c) Disability. If the Employee shall become disabled or
incapacitated during the Term to the extent that he is unable to perform his
duties and responsibilities hereunder, he shall be entitled to receive
disability benefits of the type currently provided to him, or, if more favorable
to the Employee, benefits of the type provided for other executive employees in
similar positions with the Corporation.
(d) Death. If the Employee shall die during the Term, no
payments shall be made pursuant to this Agreement other than those specified in
Section 6(g) below and as provided under the Corporation's employee benefit
plans in which the Executive participates.
(e) Other Benefits. During the Term, the Employee shall be
entitled to participate in any other fringe benefits which are or may become
applicable to the Corporation's executive employees, including the use of an
automobile, a reasonable expense account, the payment of reasonable expenses for
attending annual and periodic meetings of trade associations, and any other
benefits which are commensurate with the
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<PAGE> 6
duties and responsibilities to be performed by the Employee under this
Agreement.
6. Termination of Employment. The Employee's employment hereunder may
be terminated under the circumstances set forth in paragraphs (a) through (e)
below:
(a) Death. The Employee's employment hereunder shall terminate
upon his death.
(b) Disability. If, as a result of the Employee's incapacity
due to physical or mental illness, the Employee shall have been absent from his
duties hereunder on a full-time basis for the entire period of six (6) months in
any twelve (12) month period, and within thirty (30) days after written Notice
of Termination is given (which may occur before or after the end of such six (6)
month period) shall not have returned to the performance of his duties hereunder
on a full-time basis, the Corporation may terminate the Employee's employment
hereunder for "Disability."
(c) Cause. The Corporation may terminate the Employee's
employment hereunder for Cause or without Cause. Except as provided in Section
7(b) hereof following a Change in Control, termination for Cause shall mean
termination because the Employee (i) engages in conduct which is a material
violation of the Corporation's policy or which is fraudulent or unlawful or
which materially interferes with the Employee's ability to perform his duties
hereunder, or (ii) engages in gross negligence in the performance of, or
willfully fails to perform, his duties and responsibilities hereunder. Cause
shall not exist unless and until the Corporation has delivered to the Employee a
copy of a resolution duly adopted by two-thirds (2/3) of the entire Board at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with counsel, to
be heard before the Board), finding that in the good faith opinion of the Board
an event set forth in clause (i) or (ii) has occurred and specifying the
particulars thereof in detail.
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<PAGE> 7
(d) Good Reason. The Employee may terminate his employment
hereunder with or without Good Reason; provided, however, that the Employee
agrees not to terminate his employment hereunder (other than for Good Reason or
for Retirement) during the ninety-day period following a Change in Control.
Except as provided in Section 7(c) hereof following a Change in Control, for
purposes of this Agreement "Good Reason" shall mean the occurrence of the
following without the Employee's consent: (i) a significant diminution by the
Corporation of the Employee's role with the Corporation, or a significant
detrimental change in the nature and/or scope of the Employee's duties and
responsibilities with the Corporation, in each case other than for Cause or
Disability, (ii) a reduction in the Employee's Base Salary or guaranteed bonus
opportunity, in each case other than for Cause or Disability, or (iii) the
Corporation's requiring the Employee to report to an officer of the Corporation
other than the Corporation's then current Chief Executive Officer. For purposes
of this Agreement, "Good Reason" shall not exist until after Employee has given
the Company notice of the applicable event within 90 days of such event and
which is not remedied within 30 days after receipt of written notice from
Employee specifically delineating such claimed event and setting forth
Employee's intention to terminate employment if not remedied; provided, that if
the specified event cannot reasonably be remedied within such 30-day period and
the Company commences reasonable steps within such 30-day period to remedy such
event and diligently continues such steps thereafter until a remedy is effected,
such event shall not constitute "Good Reason" provided that such event is
remedied within 60 days after receipt of such written notice.
(e) Retirement. For purposes of this Agreement, "Retirement"
shall mean termination of the Employee's employment by either the Employee
(other than for Good Reason) or the Corporation (other than for Cause) on or
after the Employee's normal retirement age under the terms of the Corporation's
pension plan (or, any other tax-qualified plan, if no pension plan exists);
provided, that, following a Change in
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<PAGE> 8
Control such normal retirement age may not be reduced for purposes of this
Agreement without the consent of the Employee.
(f) Date of Termination. For purposes of this Agreement, "Date
of Termination" means (1) the effective date on which the Employee's employment
by the Corporation terminates as specified in a Notice of Termination by the
Corporation or the Employee, as the case may be, or (2) if the Employee's
employment terminates by reason of death, the date of death of the Employee.
Notwithstanding the previous sentence, (i) if the Employee's employment is
terminated for Disability (as defined in Section 6(b)), then such Date of
Termination shall be no earlier than thirty (30) days following the date on
which a Notice of Termination is received, and (ii) if the Employee's employment
is terminated by the Corporation other than for Cause, then such Date of
Termination shall be no earlier than thirty (30) days following the date on
which a Notice of Termination is received.
(g) Payment Upon Termination. Upon any termination of employment
hereunder, the Corporation shall pay the Employee, within ten (10) days
following his Date of Termination, a lump sum cash amount equal to the sum of
(i) the Employee's unpaid Base Salary through the Date of Termination, (ii) any
bonus payments which have become payable (other than deferred amounts), to the
extent not theretofore paid, and (iii) any vacation pay owed with respect to
accrued, but unused, vacation.
(h) Termination Without Cause, For Good Reason or Upon Failure
to Renew. In addition to the payments set forth in Section 6(g) hereof, in the
event that the Employee's employment with the Corporation terminates either (1)
prior to a Change in Control or (2) following the two-year period immediately
subsequent to a Change in Control (including as a result of a notice of
non-renewal of the Term by the Corporation provided during such two-year
period), in each case as a result of (i) a termination by the Employee for Good
Reason, (ii) a termination by the Corporation without Cause (other than for
Retirement or Disability) or (iii) notice by the
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<PAGE> 9
Corporation of non-renewal of the Term (other than for Retirement), then the
Corporation shall pay to the Employee, in twenty-four (24) equal monthly
installments in conformity with the Corporation's normal payroll periods, an
amount equal to (x) the sum of the Base Salary earned by the Employee from the
Corporation and its subsidiaries during the twelve-month period immediately
preceding the Employee's Date of Termination, plus the annual bonus earned by
the Employee from the Corporation and its subsidiaries in respect of the fiscal
year immediately preceding the Employee's Date of Termination (provided, that
the amount determined under this clause (x) shall not be less than $2.4
million), divided by (y) twelve (12).
7. Termination of Employment Following a Change in Control.
(a) Change in Control Defined. For purposes of this Agreement, a
"Change in Control" shall be deemed to have taken place if:
(i) any "person" (as defined below) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934 (the "Exchange Act")), directly or indirectly, of securities
of the Corporation representing 30% or more of the total voting power
represented by the Corporation's then outstanding voting securities;
(ii) a change in the composition of the Board of Directors of the
Corporation occurs, as a result of which fewer than two-thirds (2/3) of
the incumbent directors are directors who either (A) had been directors of
the Corporation on the "look-back date" (as defined below) or (B) were
elected, or nominated for election, to the Board of Directors of the
Corporation with the affirmative votes of at least a majority of the
directors who had been directors of the Corporation on the "look-back
date" and who were still in office at the time of the election or
nomination;
(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a
merger or consolidation
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<PAGE> 10
which would result in the voting securities of the Corporation outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the total voting power represented by the voting
securities of the Corporation or such surviving entity outstanding
immediately after such merger or consolidation; or
(iv) the stockholders of the Corporation approve (A) a plan of
complete liquidation of the Corporation or (B) an agreement for the sale
or disposition by the Corporation of all or substantially all of the
Corporation's assets. For purposes of paragraph (a)(i), the term "person"
shall have the same meaning as when used in sections 13(d) and 14(d) of
the Exchange Act, but shall exclude (1) a trustee or other fiduciary
holding securities under an employee benefit plan of the Corporation or of
a parent or subsidiary of the Corporation or (2) a corporation owned
directly or indirectly by the stockholders of the Corporation in
substantially the same proportions as their ownership of the common stock
of the Corporation. For purposes of paragraph (a)(ii), the term "look-back
date" shall mean the later of (A) the date twenty-four (24) months prior
to the change in the composition of the Board and (B) the Effective Date.
Any other provision of this Section 7(a) notwithstanding, the term "Change
in Control" shall not include either of the following events, if
undertaken at the election of the Corporation:
(x) a transaction, the sole purpose of which is to
change the state of the Corporation's
incorporation; or
(y) a transaction, the result of which is to sell all
or substantially all of the assets of the
Corporation to another corporation or entity (the
"surviving entity"); provided that the voting
power represented by the surviving entity's
securities (or other equity interests) is owned
directly or
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<PAGE> 11
indirectly by the stockholders of the Corporation
immediately following such transaction in substantially
the same proportions as their ownership of the voting
power represented by the Corporation's common stock
immediately preceding such transaction; and provided,
further, that the surviving entity expressly assumes
this Agreement.
Notwithstanding anything in this Agreement to the contrary, if
the Employee's employment terminates prior to a Change in Control, and the
Employee reasonably demonstrates that such termination was at the request or
suggestion of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control (a "Third Party"), then for
all purposes of this Agreement, the date of a Change in Control shall mean the
date immediately prior to the date of such termination of employment.
(b) Cause. During the two-year period following a Change in
Control, "Cause" shall mean (i) the willful and continued failure of the
Employee to substantially perform his duties with the Corporation (other than
any such failure resulting from the Employee's incapacity due to physical or
mental illness or any such failure subsequent to the Employee being delivered a
notice of termination without Cause by the Corporation or delivering a notice of
termination for Good Reason to the Corporation) after a written demand for
substantial performance is delivered to the Employee by the Board which
specifically identifies the manner in which the Board believes that the Employee
has not substantially performed the Employee's duties, or (ii) the willful
engaging by the Employee in illegal conduct or gross misconduct which is
demonstrably and materially injurious to the Corporation or its subsidiaries.
For purpose of this paragraph (b), no act or failure to act by the Employee
shall be considered "willful" unless done or omitted to be done by the Employee
in bad faith
-11-
<PAGE> 12
and without reasonable belief that the Employee's action or omission was in the
best interests of the Corporation or its affiliates. Any act, or failure to act,
based upon authority given pursuant to a resolution duly adopted by the Board,
based upon the advice of counsel for the Corporation, shall be conclusively
presumed to be done, or omitted to be done, by the Employee in good faith and in
the best interests of the Corporation. Cause shall not exist unless and until
the Corporation has delivered to the Employee a copy of a resolution duly
adopted by two-thirds (2/3) of the entire Board at a meeting of the Board called
and held for such purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board an event set forth
in clause (i) or (ii) has occurred and specifying the particulars thereof in
detail. Following a Change in Control, the Corporation must notify the Employee
of any event constituting Cause within ninety (90) days following the
Corporation's knowledge of its existence or such event shall not constitute
Cause under this Agreement.
(c) Good Reason. During the two-year period following a Change
in Control, "Good Reason" shall mean, without the Employee's express written
consent, the occurrence of any of the events set forth in Section 6(d) or any of
the following events:
(1) (i) the assignment to the Employee of any duties or
responsibilities (including reporting responsibilities) inconsistent in
any material and adverse respect with the Employee's duties and
responsibilities with the Corporation immediately prior to such Change
in Control (including any diminution of such duties or
responsibilities); provided, however, that Good Reason shall not be
deemed to occur upon a change in duties or responsibilities that is
solely and directly a result of the Corporation no longer being a
publicly traded entity, and does not involve any other event set forth
in this paragraph (c), or (ii) a material and adverse change in the
Employee's reporting
-12-
<PAGE> 13
responsibilities, titles or offices (other than membership on the
Board) with the Corporation as in effect immediately prior to such
Change in Control;
(2) a reduction by the Corporation in the Employee's rate of
annual Base Salary or annual guaranteed bonus opportunity (including
any adverse change in the formula for such annual bonus target) as in
effect immediately prior to such Change in Control or as the same may
be increased from time to time thereafter;
(3) any requirement of the Corporation that the Employee (i)
be based anywhere more than thirty (30) miles from the office where the
Employee is located at the time of the Change in Control or (ii) travel
on the Corporation's business to an extent substantially greater than
the travel obligations of the Employee immediately prior to such Change
in Control;
(4) the failure of the Corporation to (i) continue in effect
any employee benefit plan, compensation plan, welfare benefit plan or
material fringe benefit plan in which the Employee is participating
immediately prior to such Change in Control, or the taking of any
action by the Corporation which would adversely affect the Employee's
participation in or reduce the Employee's benefits under any such plan,
unless the Employee is permitted to participate in other plans
providing the Employee with substantially equivalent aggregate benefits
(at substantially comparable cost with respect to welfare benefit
plans), or (ii) provide the Employee with paid vacation in accordance
with the most favorable plans, policies, programs and practices of the
Corporation and its affiliated companies as in effect for the Employee
immediately prior to such Change in Control; or
(5) the failure of the Corporation to obtain the assumption
agreement from any successor as contemplated in Section 11(a) hereof.
Any event or condition described in Section 7(c)(1) through
(4) which
-13-
<PAGE> 14
occurs prior to a Change in Control, but with respect to which the Employee is
able to reasonably demonstrate was at the request or suggestion of a Third
Party, shall constitute Good Reason following a Change in Control for purposes
of this Agreement (as if a Change in Control had occurred immediately prior to
the occurrence of such event or condition) notwithstanding that it occurred
prior to the Change in Control. An isolated, insubstantial and inadvertent
action taken in good faith and which is remedied by the Corporation promptly
after receipt of notice thereof given by the Employee shall not constitute Good
Reason. The Employee's right to terminate employment for Good Reason shall not
be affected by the Employee's incapacity due to mental or physical illness and
the Employee's continued employment shall not constitute consent to, or a waiver
of rights with respect to, any event or condition constituting Good Reason.
Following a Change in Control, the Employee must provide notice of termination
of employment within ninety (90) days of the Employee's knowledge of an event
constituting Good Reason or such event shall not constitute Good Reason under
this Agreement.
(d) In addition to the payments set forth in Section 6(g)
above, in the event the Employee's employment with the Corporation terminates
within two (2) years following a Change in Control either (i) by the Corporation
without Cause (other than for Retirement or Disability) or (ii) by the Employee
for Good Reason, then the Corporation shall (1) pay to the Employee, within ten
(10) days following the Employee's Date of Termination, a lump sum cash amount
equal to two (2) times the sum of (i) the highest annual rate of Base Salary of
the Employee during the 3-year period immediately preceding the Employee's Date
of Termination and (ii) the highest annual bonus earned by Employee in respect
of the three (3) fiscal years of the Corporation immediately preceding the year
in which the Employee's Date of Termination occurs (provided, that if the
Employee has not been employed by the Corporation for such three-fiscal-year
period, the greater of (x) the target annual bonus
-14-
<PAGE> 15
(without regard to any reduction that would give rise to Good Reason) for the
year in which the Employee's Date of Termination occurs and (y) the amount
otherwise determined under this clause (ii) without regard to this
parenthetical), provided that the amount determined under this clause (1) shall
not be less than $2.4 million, (2) cause each option subject to the Initial
Grant to immediately vest and become exercisable in full, and (3) continue to
provide, for a period of one (1) year following the Date of Termination, the
Employee (and the Employee's dependents if applicable) with the same level of
medical, dental, accident, disability and life insurance benefits upon
substantially the same terms and conditions (including cost of coverage to the
Employee) as existed immediately prior to the Employee's Date of Termination
(or, if more favorable to the Employee, as such benefits and terms and
conditions existed immediately prior to the Change in Control); provided, that,
if the Employee cannot continue to participate in the Corporation's plans
providing such benefits, the Corporation shall otherwise provide such benefits
on the same after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event the Employee becomes reemployed with
another employer and becomes eligible to receive welfare benefits from such
employer, the welfare benefits described herein shall be secondary to such
benefits during the period of the Employee's eligibility, but only to the extent
that the Corporation reimburses the Employee for any increased cost and provides
any additional benefits necessary to give the Employee the benefits hereunder.
(e)(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution, or any acceleration of vesting of any benefit or award, by the
Corporation or its affiliated companies to or for the benefit of the Employee
(whether paid or payable, distributed or distributable or accelerated or subject
to acceleration pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
7(e)) (a "Payment") would be subject to the excise tax imposed by Section
-15-
<PAGE> 16
4999 of the Code, or any interest or penalties are incurred by the Employee with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Employee shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Employee of all taxes
imposed upon the Gross-Up Payment and any interest or penalties imposed with
respect to such taxes, the Employee retains an amount of the Gross-Up Payment
equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the
product of any deductions disallowed because of the inclusion of the Gross-Up
Payment in the Employee's adjusted gross income and the highest applicable
marginal rate of federal income taxation for the calendar year in which the
Gross-Up Payment is to be made. For purposes of determining the amount of the
Gross-Up Payment, the Employee shall be deemed to (A) pay federal income taxes
at the highest marginal rates of federal income taxation for the calendar year
in which the Gross-Up Payment is to be made, (B) pay applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the Gross-Up Payment is to be made, net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes and (C) have otherwise allowable deductions for federal income tax
purposes at least equal to those which could be disallowed because of the
inclusion of the Gross-Up Payment in the Employee's adjusted gross income. The
payment of a Gross-Up Payment under this Section 7(e) shall in no event be
conditioned upon the Employee's termination of employment or the receipt of
severance benefits under this Agreement.
(ii) Subject to the provisions of Section 7(e)(i), all
determinations required to be made under this Section 7(e), including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by the public accounting
-16-
<PAGE> 17
firm that is retained by the Corporation as of the date immediately prior to the
Change in Control (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Corporation and the Employee within fifteen
(15) business days of the receipt of notice from the Corporation or the Employee
that there has been a Payment, or such earlier time as is requested by the
Corporation (collectively, the "Determination"). In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, the Employee may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Corporation and the Corporation shall enter into any agreement
requested by the Accounting Firm in connection with the performance of its
services hereunder. The Gross-Up Payment under this Section 7(e) with respect to
any Payment shall be made no later than thirty (30) days following such Payment.
If the Accounting Firm determines that no Excise Tax is payable by the Employee,
it shall furnish the Employee with a written opinion to such effect, and to the
effect that failure to report the Excise Tax, if any, on the Employee's
applicable federal income tax return will not result in the imposition of a
negligence or similar penalty. The Determination by the Accounting Firm shall be
binding upon the Corporation and the Employee. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the Determination, it
is possible that Gross-Up Payments which will not have been made by the
Corporation should have been made ("Underpayment") or Gross-Up Payments are made
by the Corporation which should not have been made ("Overpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Employee thereafter is required to make payment of any additional Excise Tax,
the Accounting Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment (together with interest at the rate provided
in Section
-17-
<PAGE> 18
1274(b)(2)(B) of the Code) shall be promptly paid by the Corporation to
or for the benefit of the Employee. In the event the amount of the Gross-Up
Payment exceeds the amount necessary to reimburse the Employee for his Excise
Tax, the Accounting Firm shall determine the amount of the Overpayment that has
been made and any such Overpayment (together with interest at the rate provided
in Section 1274(b)(2) of the Code) shall be promptly paid by the Employee to or
for the benefit of the Corporation. The Employee shall cooperate, to the extent
his expenses are reimbursed by the Corporation, with any reasonable requests by
the Corporation in connection with any contests or disputes with the Internal
Revenue Service in connection with the Excise Tax.
8. Covenants Not to Compete; Confidentiality.
(a) The Employee covenants that if he voluntarily terminates
his employment with the Corporation prior to the end of the term of this
Agreement, unless such termination either is approved by the Board or is within
the two-year period following a Change in Control, he shall not, for a period of
one (1) year following such Date of Termination:
(1) engage or be interested, whether alone or together with or
on behalf or through any other person, firm, association, trust,
venture, or corporation, whether as sole proprietor, partner,
shareholder, agent, officer, director, employee, adviser, consultant,
trustee, beneficiary or otherwise, in any business principally and
directly engaged in the operation of health maintenance organizations
or the health insurance business or in the management of specialty
medical care through case rate contracting; which business operates in
a geographic area in which, at the time of such termination of
employment, the Corporation is conducting business or plans to conduct
business (a "competing business");
(2) assist others in conducting any competing business;
-18-
<PAGE> 19
(3) directly or indirectly recruit or induce or hire any
person who is an employee of the Corporation or any of its
subsidiaries, or solicit any of the Corporation's customers, clients or
providers; or
(4) own any capital stock or any other securities of, or have
any other direct or indirect interest in, any entity which owns or
operates a competing business, other than the ownership of (i) less
than five percent (5%) of any such entity whose stock is listed on a
national securities exchange or traded in the over-the-counter market
and which is not controlled by the Employee or any affiliate of the
Employee or (ii) any limited partnership interest in such an entity.
Nothing contained in this section, however, shall prohibit the
Employee from taking any of the actions set forth in clause (1), (2), (3) or (4)
above if (i) the Employee's employment has been terminated other than for Cause,
or (ii) the Employee has terminated employment for Good Reason.
(b) In the event that the Employee breaches or threatens to
breach any of the terms of this Section 8, the Employee acknowledges that the
Corporation's remedy at law would be inadequate and that the Corporation shall
be entitled to an injunction restraining the Employee from committing or
continuing such breach.
9. Payment Obligation Absolute. Except with respect to
continued welfare benefits under Section 7(d), the Corporation's obligation to
pay the Employee the compensation and other benefits provided herein shall be
absolute and unconditional and shall not be affected by an circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense or
other right which the Corporation may have against the Employee. All amounts
payable by the Corporation hereunder shall be paid without notice or demand.
10. Notice.
(a) For purposes of this Agreement, all notices and other
-19-
<PAGE> 20
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five (5) days after deposit in
the United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
Marvin P. Rich
4811 South Chipping Glen
Bloomfield Hills, MI 48302
If to the Corporation:
Oxford Health Plans, Inc.
800 Connecticut Avenue
Norwalk, Connecticut 06854
Attention: Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice (a "Notice of Termination") of the
Employee's Date of Termination by the Corporation or the Employee, as the case
may be, to the other, shall (i) indicate the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so indicated and
(iii) specify the Date of Termination. The failure by the Employee or the
Corporation to set forth in such notice any particular fact or
-20-
<PAGE> 21
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Employee or the Corporation hereunder or preclude the
Employee or the Corporation from asserting such fact or circumstance in
enforcing the Employee's or the Corporation's rights hereunder.
11. General Provisions.
(a) No Assignments. This Agreement is personal to each of the
parties hereto. Neither party may assign or delegate any of his or its rights or
obligations hereunder without first obtaining the written consent of the other
party; provided, however, that the Corporation agrees that concurrently with any
merger or sale of assets which would constitute a Change in Control hereunder,
it will cause any successor or transferee unconditionally to assume, by written
instrument delivered to the Employee (or his beneficiary or estate), all of the
obligations of the Corporation hereunder. Failure of the Corporation to obtain
such assumption prior to the effectiveness of any such merger or sale of assets,
shall be a breach of this Agreement and shall constitute Good Reason hereunder
and shall entitle the Employee to compensation and other benefits from the
Corporation in the same amount and on the same terms as the Employee would be
entitled hereunder if the Employee's employment were terminated following a
Change in Control under Section 7(d) hereof. For purposes of implementing the
foregoing, the date on which any such merger or sale of assets becomes effective
shall be deemed the date Good Reason occurs, and shall be the Date of
Termination if requested by the Employee. Notwithstanding the foregoing, this
Agreement shall inure to the benefit of and be enforceable by the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
(b) Indemnification of Employee. In the event the employment
of the Employee is terminated by the Corporation without Cause or by the
Employee for Good Reason hereof and the Corporation fails to make timely payment
of the amounts
-21-
<PAGE> 22
then owed to the Employee under this Agreement, the Employee shall be
entitled to indemnification for all reasonable costs (as such costs are
incurred), including attorneys' fees and disbursements, incurred by the Employee
in taking action to collect such amounts or otherwise to enforce this Agreement,
plus interest on all such amounts at the annual rate of one percent above the
prime rate (defined as the base rate on corporate loans at large U.S. money
center commercial banks as published by the Wall Street Journal), compounded
monthly, for the period from the time payment is due until payment is made to
the Employee. The Employee shall also be entitled to interest (at the rate
described in the immediately preceding sentence) on such reasonable costs
incurred from the date the Employee delivers a receipt to the Corporation for
such costs until the date they are reimbursed to the Employee. Such
indemnification and interest shall be in addition to all rights to which the
Employee is otherwise entitled under this Agreement.
(c) Entire Agreement; Amendments or Additions; Action by
Board. This Agreement contains the entire agreement between the parties hereto
with respect to the transactions contemplated hereby and supersedes all prior
oral and written agreements, memoranda, understandings and undertakings between
the parties hereto relating to the subject matter hereof. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties. The prior approval by a two-thirds (2/3) affirmative vote of the
full Board shall be required in order for the Corporation to authorize any
amendments or additions to this Agreement, to give any consents or waivers of
provisions of this Agreement, or to take any other action under this Agreement
including any termination of the employment of the Employee with or without
Cause. For purposes of Board approval with respect hereto, if the Employee is
also a director of the Corporation, he shall abstain from acting on matters
pertaining to this Agreement and shall not be counted as a Board member for
purposes of the two-thirds (2/3) requirement.
-22-
<PAGE> 23
(d) Governing Law. This Agreement shall be governed by the
laws of the State of Connecticut as to all matters, including, but not limited
to, matters of validity, construction, effect and practice.
(e) Arbitration. Except with respect to injunctive relief
under Section 8(b) hereof, any dispute or controversy under this Agreement shall
be settled exclusively by arbitration in Norwalk, Connecticut by three (3)
arbitrators in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitration award in any court
having jurisdiction. The Corporation shall bear all costs and expenses arising
in connection with any arbitration proceeding pursuant to this Section 11(e).
(f) Employment with Subsidiaries. Employment with the
Corporation for purposes of this Agreement shall include employment with any
subsidiary of the Corporation.
(g) Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
(h) Section Headings. The section headings used in this
Agreement are included solely for convenience and shall not affect, or be used
in connection with, the interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
-23-
<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
OXFORD HEALTH PLANS, INC.
By: _____________________
Dated: ________________ _____________________
Marvin P. Rich
-24-
<PAGE> 1
Exhibit 21
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State of
Company Incorporation
- ----------------------------------- -------------
<S> <C>
Oxford Health Plans, Inc. Delaware
Oxford Health Plans (NY), Inc. New York
Oxford Health Insurance, Inc. New York
Oxford Health Plans (NJ), Inc. New Jersey
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Oxford Health Plans, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 33-92006 and 333-2464) on Form S-3 and the registration statements (Nos.
33-70908, 33-49738, 33-94242 and 333-988) on Form S-8 of Oxford Health Plans,
Inc. of our report dated February 23, 1998 relating to the consolidated balance
sheets of Oxford Health Plans, Inc. and subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 annual report on Form 10-K
of Oxford Health Plans, Inc.
KPMG Peat Marwick LLP
Stamford, Connecticut
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Consolidated Balance Sheet at December 31, 1997 (Unaudited) and the Consolidated
Statement of OPerations for the Year Ended December 31, 1997 (Unaudited)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH financial statements.
</LEGEND>
<CIK> 0000865084
<NAME> OXFORD HEALTH PLANS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,141
<SECURITIES> 635,743
<RECEIVABLES> 290,646
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,129,576
<PP&E> 273,019
<DEPRECIATION> 125,926
<TOTAL-ASSETS> 1,397,989
<CURRENT-LIABILITIES> 1,048,773
<BONDS> 0
0
0
<COMMON> 795
<OTHER-SE> 348,421
<TOTAL-LIABILITY-AND-EQUITY> 1,397,989
<SALES> 4,179,816
<TOTAL-REVENUES> 4,240,146
<CGS> 0
<TOTAL-COSTS> 3,916,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (431,611)
<INCOME-TAX> (140,323)
<INCOME-CONTINUING> (291,288)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,288)
<EPS-PRIMARY> (3.70)
<EPS-DILUTED> (3.70)
</TABLE>
