<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ending September 30,
1997.
[] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
_______________.
COMMISSION FILE NO.: 0-19786
PHYCOR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1344801
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 BURTON HILLS BLVD., SUITE 400
NASHVILLE, TENNESSEE 37215
- ------------------------------- -------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (615) 665-9066
------------------
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
--- ---
As of November 10, 1997, 64,495,674 shares of the Registrant's Common
Stock were outstanding.
<PAGE> 2
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 (unaudited) and December 31, 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
------- 1997 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,534 30,530
Accounts receivable, net 373,315 295,437
Inventories 17,646 15,185
Prepaid expenses and other assets 50,366 42,275
---------- ----------
Total current assets 478,861 383,427
Property and equipment, net 217,992 160,228
Intangible assets 772,858 559,705
Other assets 32,299 15,221
---------- ----------
Total assets $1,502,010 1,118,581
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 1,156 424
Current installments of obligations under capital leases 3,474 1,237
Accounts payable 34,084 24,103
Due to physician groups 100,028 75,340
Salaries and benefits payable 38,878 23,120
Other accrued expenses and liabilities 66,080 46,257
---------- ----------
Total current liabilities 243,700 170,481
Long-term debt, excluding current installments 135,086 123,112
Obligations under capital leases, excluding current installments 6,036 1,467
Due to physician groups 53,222 66,103
Deferred tax credits and other liabilities 49,222 21,797
Convertible subordinated notes payable to physician groups 70,481 83,918
Convertible subordinated debentures 200,000 200,000
---------- ----------
Total liabilities 757,747 666,878
---------- ----------
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized: -- --
Common stock, no par value; 250,000,000 shares authorized; issued
and outstanding, 64,352,000 at September 30, 1997
and 54,831,000 shares at December 31, 1996 641,219 389,712
Retained earnings 103,044 61,991
---------- ----------
Total shareholders' equity 744,263 451,703
---------- ----------
Total liabilities and shareholders' equity $1,502,010 1,118,581
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis.
2
<PAGE> 3
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Three months and nine months ended September 30, 1997 and 1996
(In thousands, except for earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------ ----------------- -----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 284,291 196,418 802,297 535,562
Operating expenses (income):
Clinic salaries, wages and benefits 106,875 74,727 302,461 204,493
Clinic supplies 46,547 30,383 128,185 81,459
Purchased medical services 7,788 5,371 22,477 15,295
Other clinic expenses 43,050 32,191 123,357 88,737
General corporate expenses 6,609 5,032 19,768 15,307
Rents and lease expense 25,416 16,729 71,376 44,768
Depreciation and amortization 15,958 10,596 44,618 28,158
--------- --------- --------- ---------
Net operating expenses 252,243 175,029 712,242 478,217
--------- --------- --------- ---------
Earnings from operations 32,048 21,389 90,055 57,345
Interest income (744) (755) (2,457) (2,792)
Interest expense 5,366 4,206 16,791 10,761
Minority interests in earnings of
consolidated partnerships 2,850 3,185 8,739 8,429
--------- --------- --------- ---------
Earnings before income taxes 24,576 14,753 66,982 40,947
Income tax expense 9,536 5,680 25,929 15,765
--------- --------- --------- ---------
Net earnings $ 15,040 9,073 41,053 25,182
========= ========= ========= =========
Earnings per common share $ .22 .15 .61 .42
========= ========= ========= =========
Weighted average number of common shares
and share equivalents outstanding 69,072 60,843 66,853 60,555
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis.
3
<PAGE> 4
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months and nine months ended September 30, 1997 and 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 15,040 9,073 41,053 25,182
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 15,958 10,596 44,618 28,158
Minority interests (112) 192 2,102 1,586
Increase (decrease) in cash, net of effects of acquisitions, due
to changes in:
Accounts receivable (6,695) (14,594) (20,589) (30,219)
Inventories (377) (1,362) (1,135) (2,307)
Prepaid expenses and other assets 43 (3,059) (2,740) (9,164)
Accounts payable 5,203 1,588 2,536 (2,907)
Due to physician groups 3,133 4,637 8,410 7,243
Other accrued expenses and liabilities 10,595 7,189 8,099 19,166
-------- -------- -------- --------
Net adjustments 27,748 5,187 41,301 11,556
-------- -------- -------- --------
Net cash provided by operating activities 42,788 14,260 82,354 36,738
-------- -------- -------- --------
Cash flows from investing activities:
Payments for acquisitions, net (59,534) (57,434) (241,907) (179,124)
Purchase of property and equipment (16,000) (12,606) (48,271) (36,069)
Investments in other assets (2,434) (820) (4,605) (1,675)
-------- -------- -------- --------
Net cash used by investing activities (77,968) (70,860) (294,783) (216,868)
-------- -------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of convertible debentures -- -- -- 194,395
Proceeds from long-term borrowings 37,000 50,000 219,000 100,000
Repayment of long-term borrowings (3,108) (100) (221,333) (104,464)
Repayment of obligations under capital leases (845) (450) (3,020) (1,270)
Net proceeds from issuance of stock and warrants 1,256 924 225,052 4,010
Loan costs incurred (266) (85) (266) (85)
-------- -------- -------- --------
Net cash provided by financing activities 34,037 50,289 219,433 192,586
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents (1,143) (6,311) 7,004 12,456
Cash and cash equivalents - beginning of period 38,677 37,594 30,530 18,827
-------- -------- -------- --------
Cash and cash equivalents - end of period $ 37,534 31,283 37,534 31,283
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis.
4
<PAGE> 5
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Three months and nine months ended September 30, 1997 and 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF INVESTING ACTIVITIES:
Effects of acquisitions:
Assets acquired, net of cash $ 69,414 88,422 349,150 274,366
Liabilities assumed, net of deferred
purchase price payments (8,604) (19,543) (89,117) (75,143)
Issuance of convertible subordinated notes payable (740) (4,438) (9,412) (12,667)
Issuance of common stock and warrants (536) (7,007) (8,714) (7,432)
-------- -------- -------- --------
Payments for acquisitions $ 59,534 57,434 241,907 179,124
======== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations incurred to acquire
equipment $ 97 278 407 464
======== ======== ======== ========
Conversion of subordinated notes
payable to common stock $ 2,496 110 14,054 6,252
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements and management's
discussion and analysis.
5
<PAGE> 6
PHYCOR, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Three months and nine months ended September 30, 1997 and 1996
(1) BASIS OF PRESENTATION
-----------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
in accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited consolidated interim
financial statements contained in this report reflect all adjustments,
consisting of only normal recurring accruals which are necessary for a
fair presentation of the financial position and the results of operations
for the interim periods presented. The results of operations for any
interim period are not necessarily indicative of results for the full
year.
These unaudited consolidated financial statements, footnote disclosures
and other information should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
(2) ACQUISITIONS
----------
(A) MULTI-SPECIALTY MEDICAL CLINICS
-------------------------
Through September 30, 1997 and during 1996, the Company, through
wholly-owned subsidiaries, acquired certain operating assets of the
following clinics:
<TABLE>
<CAPTION>
CLINIC EFFECTIVE DATE LOCATION
------ -------------- --------
<S> <C> <C>
1997:
Vancouver Clinic January 1, 1997 Vancouver, Washington
First Physicians Medical Group February 1, 1997 Palm Springs, California
St. Petersburg-Suncoast Medical Group February 28, 1997 St. Petersburg, Florida
Greater Chesapeake Medical Group May 1, 1997 Annapolis, Maryland
Welborn Clinic (a) June 1, 1997 Evansville, Indiana
White-Wilson Medical Center July 1, 1997 Ft. Walton Beach, Florida
Maui Medical Group September 1, 1997 Maui, Hawaii
</TABLE>
(Continued)
6
<PAGE> 7
PHYCOR, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
<TABLE>
<CAPTION>
CLINIC EFFECTIVE DATE LOCATION
------ -------------- --------
<S> <C> <C>
1996:
Arizona Physicians Center January 1, 1996 Phoenix, Arizona
Clinics of North Texas March 1, 1996 Wichita Falls, Texas
Carolina Primary Care May 1, 1996 Columbia, South Carolina
Harbin Clinic May 1, 1996 Rome, Georgia
Focus Health Services July 1, 1996 Denver, Colorado
Clark-Holder Clinic July 1, 1996 LaGrange, Georgia
Medical Arts Clinic August 1, 1996 Minot, North Dakota
Wilmington Health Associates August 1, 1996 Wilmington, North Carolina
Gulf Coast Medical Group August 1, 1996 Galveston, Texas
Hattiesburg Clinic October 1, 1996 Hattiesburg, Mississippi
Straub Clinic & Hospital (b) October 1, 1996 Honolulu, Hawaii
Toledo Clinic November 1, 1996 Toledo, Ohio
Lewis-Gale Clinic November 1, 1996 Roanoke, Virginia
</TABLE>
(a) Welborn Clinic entered into an interim management agreement
effective June 1, 1997. Effective August 1, 1997, the Company
completed its acquisition of certain operating assets and entered
into a long-term service agreement with the affiliated physician
group.
(b) Straub Clinic & Hospital, Incorporated (Straub) was operated
under an administrative services agreement effective October 1,
1996. The Company completed its merger and entered into a
long-term agreement with Straub effective January 17, 1997.
The acquisitions were accounted for as purchases, and the
accompanying consolidated financial statements include the results
of their operations from the dates of their respective
acquisitions. Simultaneous with each acquisition, the Company
entered into a long-term service agreement with the related clinic
physician group. The service agreements are 40 years in length. In
conjunction with certain acquisitions, the Company is obligated to
make deferred payments to physician groups. Such payments are
included in amounts due to physician groups in the accompanying
balance sheets.
(B) NORTH AMERICAN MEDICAL MANAGEMENT, INC. (NORTH AMERICAN)
-------------------------------------------------
Effective January 1, 1995, the Company completed its merger with
North American, an operator and manager of independent practice
associations (IPAs). The Company made additional payments for the
North American acquisition pursuant to an earn-out formula during
1996 and 1997 totaling $34.0 million. A final payment of up to
$36.0 million may be made pursuant to the earn-out formula in 1998.
Of any future payments to be made, a portion may be payable in
shares of the Company's common stock.
(Continued)
7
<PAGE> 8
PHYCOR, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(C) PRO FORMA INFORMATION
-------------------
The unaudited consolidated pro forma results of all current,
continuing operations assuming 1997 acquisitions through September
30, and all 1996 acquisitions, had been consummated on January 1,
1996 are as follows (in thousands, except for earnings per share):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $284,464 256,262 835,188 755,321
Earnings before income taxes 24,642 19,519 63,397 57,890
Net earnings 15,080 12,004 41,919 35,602
Earnings per common share .22 .19 .63 .58
Weighted average number of shares and share
equivalents outstanding 69,072 61,716 66,879 61,588
</TABLE>
(3) NET REVENUE
----------
Clinic service agreement revenue is equal to the net revenue of the
clinics, less amounts retained by physician groups. Net clinic revenue is
recorded by the physician groups at established rates reduced by
provisions for doubtful accounts and contractual adjustments. Contractual
adjustments arise due to the terms of certain reimbursement and managed
care contracts. Such adjustments represent the difference between charges
at established rates and estimated recoverable amounts and are recognized
in the period the services are rendered. Any differences between
estimated contractual adjustments and actual final settlements under
reimbursement contracts are recognized as contractual adjustments in the
year final settlements are determined.
IPA management revenue is equal to the difference between the amount of
capitation and risk pool payments due to the IPAs managed by the Company
less amounts retained by the IPAs.
(Continued)
8
<PAGE> 9
PHYCOR, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
The following represent amounts included in the determination of net
revenue (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gross physician group revenues $ 718,315 488,208 2,047,598 1,343,844
Less:
Provisions for doubtful accounts
and contractual adjustments 275,648 179,649 778,850 484,788
--------- --------- --------- ---------
Net physician group revenue 442,667 308,559 1,268,748 859,056
IPA revenue 112,288 58,926 297,915 171,778
--------- --------- --------- ---------
Net physician group and
IPA revenue 554,955 367,485 1,566,663 1,030,834
Less amounts retained by physician groups and IPAs
Physician groups 157,667 112,443 463,251 323,197
Clinic technical employee compensation 19,113 12,897 53,845 35,090
IPAs 93,884 45,727 247,270 136,985
--------- --------- --------- ---------
Net revenue $ 284,291 196,418 802,297 535,562
========= ========= ========= =========
</TABLE>
(4) CAPITALIZATION
-----------
In the first quarter of 1997, the Company completed a public offering of
7,295,000 shares of its common stock at a price of $30.00 per share. Net
proceeds from the offering of approximately $210.0 million were used to
repay bank debt and accrued interest.
(5) SUBSEQUENT EVENTS
---------------
Since September 30, 1997, the Company has acquired certain assets of a
40-physician multi-specialty clinic based in Murfreesboro, Tennessee and
a 150-physician multi-specialty clinic based in Pensacola, Florida and
entered into a long-term service agreement with each of the affiliated
physician groups.
On October 29, 1997, the Company announced a definitive agreement to
acquire MedPartners, Inc., a physician practive management company with
annual net health services revenue of more than $8.4 billion. Under the
terms of the agreement, holders of MedPartners Common Stock will be
entitled to receive a fixed ratio of 1.18 shares of PhyCor Common Stock
for each MedPartner share held. The transaction includes assumption of
$1.2 billion of debt and is expected to be accounted for as a
pooling-of-interests and to be treated as a tax-free exchange. The
transaction is subject to the approval of the shareholders of both
companies, various state and federal regulatory agencies, and other
customary conditions. Closing of the transaction is expected in the first
quarter of 1998.
9
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
PhyCor is a physician practice management company that operates
multi-specialty medical clinics and independent practice associations (IPAs).
The Company currently operates 53 clinics with approximately 3,780 physicians in
28 states and manages IPAs with over 17,800 physicians in 27 markets. The
Company's affiliated physicians provide medical services to approximately
1,100,000 patients under prepaid health plans, including approximately 165,000
Medicare-eligible patients.
The Company's strategy is to position its affiliated primary care
anchored multi-specialty clinics and IPAs as the physician component of
competitive networks that are developing as reforms occur to the health care
system. PhyCor believes physician organizations create the value in these
networks as the decisions of physicians drive the cost and quality of health
care.
Most of the Company's revenue in 1997 and 1996 was earned under clinic
service agreements. Revenue earned under the service agreements is equal to the
net revenue of the clinics, less amounts retained by physician groups. The
service agreements contain financial incentives for the Company to assist the
physician groups in increasing clinic revenues and controlling expenses.
To increase clinic revenue, the Company works with the affiliated
physician groups to recruit additional physicians, merge other physicians
practicing in the area into the affiliated physician groups, negotiate contracts
with managed care organizations and provide additional ancillary services. To
reduce or control expenses, among other things, PhyCor utilizes national
purchasing contracts for key items, reviews staffing levels to make sure they
are appropriate and assists physicians in developing more cost-effective
clinical practice patterns.
The Company has increased its focus on the development of IPAs to
enable the Company to provide services to a broader range of physician
organizations, to enhance the operating performance of existing clinics and to
further develop physician relationships. The Company develops IPAs that include
affiliated clinic physicians to enhance the clinics' attractiveness as providers
to managed care organizations.
On July 17, 1997, PhyCor announced that it had signed a letter of
intent with New York and Presbyterian Hospitals Care Network, Inc. to create and
operate a regional managed care contracting network, which will include
hospitals and IPAs in New York City, northern New Jersey and southern
Connecticut.
During the first nine months of 1997, PhyCor affiliated with seven
multi-specialty clinics and numerous smaller medical practices and completed its
previously announced merger with Straub Clinic and Hospital, Incorporated
located in Honolulu, Hawaii adding $329.0 million in assets. The principal
assets acquired were accounts receivable, property and equipment and service
agreement costs, an intangible asset. The consideration for the acquisitions
consisted of approximately 48% cash, 45% liabilities assumed and 7% stock and
convertible notes. The cash portion of the purchase price was funded by a
combination of operating cash flow and borrowings under the Company's bank
credit facility. Property and equipment acquired consists mostly of clinic and
hospital operating equipment, although the
10
<PAGE> 11
Company purchased certain land and buildings. Service agreement costs are
amortized over the life of the related service agreement, with recoverability
assessed periodically.
Since September 30, 1997, the Company has acquired the assets of a
40-physician multi-specialty clinic based in Murfreesboro, Tennessee, and a
150-physician multi-specialty clinic based in Pensacola, Florida. The Company
entered into long-term service agreements with each of these affiliated
physician groups.
On October 29, 1997, the Company announced a definitive agreement to
acquire MedPartners, Inc. ("MedPartners"), a physician practice management
company with annual net health services revenue of more than $8.4 billion. Under
terms of the agreement, holders of MedPartners Common Stock will receive a fixed
ratio of 1.18 shares of PhyCor Common Stock for each MedPartners share held. The
transaction includes assumption of $1.2 billion of debt and is expected to be
accounted for as a pooling-of-interests and to be treated as a tax-free
exchange. The transaction is subject to the approval of the shareholders of both
companies, various state and federal regulatory agencies, and other customary
conditions. Closing of the transaction is expected in the first quarter of 1998.
As a result of the merger, the Company's historical results of operations will
no longer be comparable to or indicative of future post-merger pooled results
for the combined entity.
RESULTS OF OPERATIONS
The following table shows the percentage of net revenue represented by
various expense and other income items reflected in the Company's Consolidated
Statements of Earnings.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue .......................... 100% 100% 100% 100%
Operating expenses
Clinic salaries, wages and benefits 37.6 38.0 37.7 38.2
Clinic supplies ................... 16.4 15.5 16.0 15.2
Purchased medical services ........ 2.8 2.7 2.8 2.8
Other clinic expenses ............. 15.1 16.4 15.4 16.6
General corporate expenses ........ 2.3 2.6 2.5 2.8
Rents and lease expense ........... 8.9 8.5 8.9 8.4
Depreciation and amortization ..... 5.6 5.4 5.5 5.3
---- ---- ---- ----
Net operating expenses ......... 88.7 89.1 88.8 89.3
---- ---- ---- ----
Earnings from operations ....... 11.3 10.9 11.2 10.7
Interest income ................... (0.2) (0.3) (0.3) (0.5)
Interest expense .................. 1.9 2.1 2.1 2.0
Minority interest in earnings of
consolidated partnerships ..... 1.0 1.6 1.1 1.6
---- ---- ---- ----
Earnings before income taxes ... 8.6 7.5 8.3 7.6
Income tax expense ................... 3.3 2.9 3.2 2.9
---- ---- ---- ----
Net earnings ................... 5.3% 4.6% 5.1% 4.7%
==== ==== ==== ====
</TABLE>
1997 Compared to 1996
Net revenue increased from $196.4 million for the third quarter of 1996
to $284.3 million for the third quarter of 1997, an increase of $87.9 million,
or 44.8%, and from $535.6 million to $802.3 million
11
<PAGE> 12
for the first nine months of 1996 compared to 1997, an increase of 49.8%. On a
base of 31 clinics and 13 IPA markets, net revenue increased by 12.2% for the
quarter and 12.8% for the nine months ended September 30, 1997, compared with
the same periods in 1996. Same market growth resulted from the addition of new
physicians, the expansion of ancillary services, and increases in patient volume
and fees.
During the third quarter and the first nine months of 1997, most
categories of operating expenses were relatively stable as a percentage of net
revenue when compared to the same periods in 1996, despite the large increase in
the dollar amounts resulting from acquisitions and clinic growth. The decrease
in clinic salaries, wages and benefits and other clinic expenses as a percentage
of net revenue resulted from the acquisition of clinics with lower levels of
these expenses compared to the existing base of clinics. The increase in clinic
supplies and rents and lease expense as a percentage of net revenue resulted
from the acquisition of clinics with higher levels of these expenses compared to
the existing base of clinics. The addition of pharmacies at certain clinics also
resulted in increased clinic supplies expense as a percentage of net revenue.
While general corporate expenses decreased as a percentage of net revenue, the
dollar amount of general corporate expenses increased as a result of the
addition of corporate personnel to accommodate increased acquisition activity
and to respond to increasing physician group needs for support in managed care
negotiations, information systems implementation and clinic outcomes management
programs.
Income tax expense increased from the prior year as a result of the
Company's increased profitability. The Company expects an effective tax rate of
approximately 38.8% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had $235.2 million in working
capital, up from $212.9 million as of December 31, 1996. Also, the Company
generated $42.8 million of cash flow from operations for the third quarter of
1997 compared to $14.3 million for the third quarter of 1996, and $82.4 million
for the first nine months of 1997 compared to $36.7 million for the same period
in 1996. At September 30, 1997, net accounts receivable of $373.3 million
amounted to 72 days of net clinic revenue compared to $295.4 million and 73 days
at the end of 1996. The decrease in days of net clinic revenue is primarily
attributable to seasonal factors affecting payments from some payors.
In the first quarter of 1997, the Company completed a public offering
of 7,295,000 shares of its Common Stock at a price of $30.00 per share. Net
proceeds from the offering of approximately $210.0 million were used to repay
bank debt and accrued interest. As a result of the issuance of Common Stock
during the first quarter of 1997, debt was 38.4% of total capitalization at
September 30, 1997, compared to 51.2% at the end of 1996.
In the first nine months of 1997, $14.1 million of convertible
subordinated notes issued in connection with physician group asset acquisitions
were converted into Common Stock. These conversions, the issuance of Common
Stock, option exercises and net earnings for the first nine months of 1997
resulted in an increase of $292.6 million in shareholders' equity compared to
December 31, 1996.
Capital expenditures during the first nine months of 1997 totaled $48.3
million. The Company is responsible for capital expenditures at its affiliated
clinics under the terms of its service agreements. The Company expects to make
approximately $12 million in capital expenditures during the fourth quarter of
1997.
12
<PAGE> 13
Effective January 1, 1995, the Company completed its acquisition of
North American Medical Management, Inc. (North American). The Company paid $20.0
million at closing and has made additional payments pursuant to an earn-out
formula during 1996 and 1997 totaling $34.0 million. A final payment of up to
$36.0 million may be made pursuant to the earnout formula in 1998. Of the future
payments to be made, a portion may be payable in shares of the Company's Common
Stock.
In addition, deferred acquisition payments are payable to physician
groups in the event such physician groups attain predetermined financial targets
during established periods of time following the acquisitions. If each group
satisfied their applicable financial targets for the periods covered, the
Company would be required to pay an aggregate of approximately $73.6 million of
additional consideration over the next five years, of which a maximum of $2.8
million would be payable during the fourth quarter of 1997.
The Company may exercise its option to acquire the outstanding Class B
Common Stock of PhyCor Management Corporation near the end of 1997. In
accordance with the terms of the options, the aggregate purchase price for these
shares at that time would be approximately $21.0 million.
PhyCor has been subject of an audit by the Internal Revenue Service
("IRS") covering the years 1988 through 1993. The IRS has proposed adjustments
relating to the timing of recognition for tax purposes of certain revenue and
deductions relating to uncollectible accounts and the Company's relationship
with affiliated physician groups. PhyCor disagrees with the positions asserted
by the IRS, including any recharacterization, and is vigorously contesting these
proposed adjustments. The Company believes that any adjustments resulting from
resolution of this disagreement would not affect the reported net earnings of
PhyCor, but would defer tax benefits and change the levels of current and
deferred tax assets and liabilities. For the years under audit, and potentially,
for subsequent years, any such adjustments could result in material cash
payments by the Company. PhyCor does not believe the resolution of this matter
will have a material adverse effect on its financial condition, although there
can be no assurance as to the outcome of this matter.
In July 1997, the Company completed modifications to its bank credit
facility which included the revision of certain terms and conditions and the
addition of seven participating financial institutions. The Company's bank
credit facility provides for a five-year, $250.0 million revolving line of
credit for use by the Company prior to July 2002 and a $150.0 million 364-day
facility for acquisitions, working capital, capital expenditures and general
corporate purposes. The total drawn cost under the facility is either .275% to
.75% above the applicable eurodollar rate or the agent's base rate plus .10% to
.225% per annum. On October 17, 1997, the Company entered into an interest rate
swap agreement to fix the interest rate on $100.0 million of debt at 5.85% for a
two-year period.
The Company's bank credit facility contains covenants which, among
other things, require the Company to maintain certain financial ratios and
impose certain limitations or prohibitions on the Company with respect to (i)
the incurring of certain indebtedness, (ii) the creation of security interests
on the assets of the Company, (iii) the payment of cash dividends on, and the
redemption or repurchase of, securities of the Company, (iv) investments and (v)
acquisitions. The Company is required to obtain bank consent for an acquisition
with an aggregate purchase price of $75.0 million or more. The Company was in
compliance with such covenants at September 30, 1997.
13
<PAGE> 14
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings Per
Share. This statement establishes standards for computing and presenting
earnings per share (EPS), replacing the presentation of currently required
primary EPS with a presentation of Basic EPS. For entities with complex capital
structures, the statement requires the dual presentation of both Basic EPS and
Diluted EPS on the face of the statement of operations. Under this new
statement, Basic EPS is computed based on weighted average shares outstanding
and excludes any potential dilution. Diluted EPS reflects potential dilution
from the exercise or conversion of securities into Common Stock or from other
contracts to issue Common Stock and is similar to the currently required fully
diluted EPS. SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be required to
restate its EPS data for all prior periods presented. The Company does not
expect the impact of the adoption of this statement to be material to previously
reported EPS amounts.
At September 30, 1997, the Company had cash and cash equivalents of
approximately $37.5 million, and as of November 10, 1997, $239.6 million
available under its bank credit facility. The Company believes that the
combination of funds available under the Company's bank credit facility,
together with cash reserves and cash flow from operations, should be sufficient
to meet the Company's current planned acquisition, expansion, capital
expenditures and working capital needs through 1997. The merger of PhyCor with
MedPartners is expected to close in the first quarter of 1998. PhyCor expects
to finance the transaction with a combination of approximately 236,000,000
shares of newly issued Common Stock and the assumption of approximately $1.2
billion in debt. The additional shares of Common Stock to be issued in the
merger would increase the shares of Common Stock outstanding by approximately
366%. In addition, prior to consummating the merger, PhyCor will be required to
expand its existing credit facility.
In addition, in order to provide the funds necessary for the continued
pursuit of the Company's long-term expansion strategy, the Company expects to
continue to incur, from time to time, additional short-term and long-term
indebtedness and to issue equity and debt securities, the availability and terms
of which will depend upon market and other conditions. There can be no assurance
that such additional financing will be available on terms acceptable to the
Company.
This discussion contains forward looking statements, certain of which
are accompanied by important cautionary factors that could cause different
results than expected by the Company. In addition to those factors, shareholder,
regulatory and third party consents with respect to the merger with MedPartners,
acquisitions, health care regulatory changes and other factors outside the
Company's control could also cause future results to differ from expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No disclosure required.
14
<PAGE> 15
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
From time to time, the Company issues subordinated convertible notes
and warrants to purchase shares of the Company's Common Stock in connection with
the acquisition of the assets of multi-specialty clinics and physician practice
groups. In general, the subordinated convertible notes are convertible into
shares of the Company's Common Stock following the first anniversary of the
issuance of the notes at a conversion price based on the market price of the
Common Stock at the time the note was issued. The Company issues subordinated
convertible notes, warrants and the shares of Common Stock issued upon
conversion of notes and exercise of warrants in transactions intended to be
exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Sections 3(a)(11), 3(b) or 4(2) thereunder. During the
third quarter of 1997, the Company issued the following subordinated convertible
notes, warrants and shares of Common Stock upon conversion of notes:
On July 1, 1997, the Company issued a subordinated convertible note
in the principal amount of $295,282 to Stephen R. Rauls, M.D.
On July 1, 1997, the Company issued a subordinated convertible note
in the principal amount of $445,282 to Charles C. Dunn, M.D.
On July 2, 1997, the Company issued 90,909 shares of Common Stock to
Carriere & Associates, P.A. upon conversion of a subordinated convertible note
in the principal amount of $1,400,000.
On July 10, 1997, the Company issued 3,792 shares of Common Stock to
Dennis Wayne Berry, M.D. upon conversion of a subordinated convertible note in
the principal amount of $109,680.
On July 22, 1997, the Company issued 80,559 shares of Common Stock to
Tidewater Physicians Multi-Specialty Group, P.C., upon conversion of a
subordinated convertible note in the principal amount of $975,576.
On August 1, 1997, the Company issued warrants to purchase 40,000
shares of Common Stock to the Welborn Clinic. The warrants are exercisable
beginning August 1, 2000 at an exercise price of $33.16 and expire on August 1,
2002.
On September 11, 1997, the Company issued 345 shares of Common Stock to
Luz Sorgo Lisboa, M.D. upon conversion of a subordinated convertible note in
the principal amount of $10,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
<S> <C> <C>
2 -- Plan and Agreement of Merger by and between the Registrant
and Endoparasites, Inc.
3.1 -- Restated Charter of Registrant(1)
3.2 -- Amendment to Restated Charter of the Registrant (2)
3.3 -- Amendment to Restated Charter of the Registrant (3)
3.4 -- Amended Bylaws of the Registrant (1)
4.1 -- Specimen of Common Stock Certificate (4)
4.2 -- Shareholder Rights Agreement, dated February 18, 1994,
between the Registrant and First Union National Bank of
North Carolina (5)
11 -- Statement re Computation of Per Share Earnings
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- -------------
(1) Incorporated by reference to Exhibits 3.1 and 3.2 filed with the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, Commission No. 0-19786.
(2) Incorporated by reference to Exhibit 4.2 filed with the Registrant's
Registration Statement on Form S-3 Registration No. 33-93018.
(3) Incorporated by reference to Exhibit 4.3 filed with the Registrant's
Registration Statement on Form S-3 Registration No. 33-98528.
(4) Incorporated by reference to Exhibit 4.2 filed with the Registrant's
Registration Statement on Form S-1 Registration No. 33-44123.
(5) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form AK dated February 18, 1994, Commission No.
0-19786.
(B) REPORTS ON FORM 8-K.
The Company has not filed a Current Report on Form AK during the
quarter for which this report is filed.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PHYCOR, INC.
By: /s/ John K. Crawford
-----------------------
John K. Crawford
Chief Financial Officer
Date: November 10, 1997
16
<PAGE> 1
EXHIBIT 2
PLAN AND AGREEMENT OF MERGER
DATED AS OF OCTOBER 29, 1997
BY AND BETWEEN
PHYCOR, INC.
AND
MEDPARTNERS, INC.
A-1
<PAGE> 2
TABLE OF CONTENTS
PLAN AND AGREEMENT OF MERGER
DATED AS OF OCTOBER 29, 1997
BY AND BETWEEN
PHYCOR, INC.
AND
MEDPARTNERS, INC.
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
Section 1. The Merger.................................................. A-5
1.1 The Merger.................................................. A-5
1.2 The Closing................................................. A-5
1.3 Effective Time.............................................. A-5
1.4 Effect of the Merger........................................ A-6
Section 2. Effect of the Merger on the Capital Stock of the Constituent
Corporations;
Exchange of Certificates.................................... A-6
2.1 Effect on Capital Stock..................................... A-6
2.2 Exchange of Certificates.................................... A-7
2.3 Restated Charter of PhyCor.................................. A-8
2.4 Amended Bylaws of PhyCor.................................... A-9
2.5 Directors and Officers...................................... A-9
Section 3. Representations and Warranties of MedPartners............... A-9
3.1 Organization, Existence and Good Standing................... A-9
3.2 MedPartners Capitalization.................................. A-9
3.3 Subsidiaries and Affiliated Entities........................ A-9
3.4 Organization, Existence, Good Standing and Foreign
Qualifications of Significant MedPartners Subsidiaries...... A-10
3.5 Power and Authority......................................... A-10
3.6 MedPartners Public Information.............................. A-11
3.7 Legal Proceedings........................................... A-11
3.8 Certain Contract Matters.................................... A-11
3.9 Subsequent Events........................................... A-12
3.10 Tax Matters................................................. A-12
3.11 Employee Benefit Plans; Employment Matters.................. A-13
3.12 Compliance with Laws in General............................. A-14
3.13 Regulatory Approvals........................................ A-14
3.14 Commissions and Fees........................................ A-14
3.15 Stockholder Vote Required................................... A-14
3.16 Pooling Matters............................................. A-15
3.17 Opinion of Financial Advisor................................ A-15
3.18 Rights Plan................................................. A-15
Section 4. Representations and Warranties of PhyCor.................... A-15
4.1 Organization and Existence.................................. A-15
4.2 PhyCor Capitalization....................................... A-15
4.3 Subsidiaries and Affiliated Entities........................ A-16
4.4 Organization, Existence and Foreign Qualifications of
Significant PhyCor
Subsidiaries................................................ A-16
4.5 Power and Authority......................................... A-16
4.6 PhyCor's Public Information................................. A-17
4.7 Legal Proceedings........................................... A-17
</TABLE>
A-2
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
4.8 Certain Contract Matters.................................... A-17
4.9 Subsequent Events........................................... A-18
4.10 Tax Matters................................................. A-18
4.11 Employee Benefit Plans; Employment Matters.................. A-19
4.12 Compliance with Laws in General............................. A-20
4.13 Regulatory Approvals........................................ A-20
4.14 Commissions and Fees........................................ A-20
4.15 Stockholder Vote Required................................... A-20
4.16 Pooling Matters............................................. A-20
4.17 Opinion of Financial Advisor................................ A-20
Section 5. Access to Information and Documents......................... A-21
5.1 Access to Information....................................... A-21
5.2 Return of Records........................................... A-21
Section 6. Covenants................................................... A-21
6.1 Preservation of Business.................................... A-21
6.2 Material Transactions....................................... A-21
6.3 Meetings of Stockholders.................................... A-23
6.4 Registration Statement...................................... A-24
6.5 Exemption from State Takeover Laws.......................... A-25
6.6 HSR Act Compliance.......................................... A-25
6.7 Public Disclosures.......................................... A-25
6.8 Corporate Governance Matters................................ A-25
6.9 Notice of Subsequent Events................................. A-25
6.10 No Solicitations............................................ A-25
6.11 Accounting Methods.......................................... A-26
6.12 Pooling and Tax-Free Reorganization Treatment............... A-26
6.13 Affiliate and Pooling Agreements............................ A-26
6.14 Other Actions............................................... A-26
6.15 Cooperation................................................. A-27
6.16 MedPartners Stock Options................................... A-27
6.17 Publication of Combined Results............................. A-27
6.18 Tax Opinions................................................ A-28
6.19 Change in Control........................................... A-28
6.20 Insurance and Indemnification............................... A-28
6.21 TAPS........................................................ A-28
6.22 Employee Matters............................................ A-28
Section 7. Termination, Amendment and Waiver........................... A-29
7.1 Termination................................................. A-29
7.2 Effect of Termination....................................... A-30
7.3 Amendment................................................... A-30
7.4 Extension; Waiver........................................... A-30
7.5 Procedure for Termination, Amendment, Extension or Waiver... A-30
7.6 Expenses; Break-up Fees..................................... A-30
Section 8. Conditions to Closing....................................... A-31
8.1 Mutual Conditions........................................... A-31
8.2 Conditions to Obligations of PhyCor......................... A-32
8.3 Conditions to Obligations of MedPartners.................... A-32
</TABLE>
A-3
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
Section 9. Miscellaneous............................................... A-33
9.1 Nonsurvival of Representations and Warranties............... A-33
9.2 Notices..................................................... A-33
9.3 Further Assurances.......................................... A-34
9.4 Governing Law............................................... A-34
9.5 "Including"................................................. A-34
9.6 "Material adverse change" or "material adverse effect"...... A-34
9.7 "Significant"............................................... A-34
9.8 Captions.................................................... A-34
9.9 Integration of Exhibits..................................... A-34
9.10 Entire Agreement............................................ A-34
9.11 Counterparts................................................ A-34
9.12 No Rule of Construction..................................... A-34
9.13 Specific Performance........................................ A-35
9.14 Severability................................................ A-35
9.15 Assignment; Binding Effect.................................. A-35
</TABLE>
A-4
<PAGE> 5
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER ("Plan of Merger"), made and entered into as
of the 29th day of October, 1997, by and between PhyCor, Inc., a Tennessee
corporation ("PhyCor"), and MedPartners, Inc., a Delaware corporation
("MedPartners"), (PhyCor and MedPartners being sometimes collectively referred
to herein as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of PhyCor and MedPartners have
approved the merger of MedPartners with and into PhyCor (the "Merger") upon the
terms and conditions set forth in this Plan of Merger, whereby each share of
Common Stock of MedPartners (the "MedPartners Common Stock"), not owned directly
or indirectly by MedPartners, will be converted into the right to receive the
Merger Consideration (as herein defined) (the MedPartners Common Stock may be
sometimes hereinafter referred to as the "MedPartners Shares");
WHEREAS, each of PhyCor and MedPartners desires to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Plan of Merger
is intended to be and is adopted as a plan of reorganization; and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests" under generally accepted accounting
principles ("GAAP").
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto hereby agree as follows:
SECTION 1.
THE MERGER.
1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger, and in accordance with the Tennessee Business Corporation Act (the
"TBCA") and the General Corporation Law of the State of Delaware (the "DGCL"),
MedPartners shall be merged into PhyCor at the Effective Time (as defined in
Section 1.3). Following the Effective Time, the separate corporate existence of
MedPartners shall cease and PhyCor shall continue as the surviving corporation
as a business corporation incorporated under the laws of the State of Tennessee
and shall succeed to and assume all the rights and obligations of MedPartners in
accordance with the TBCA and the DGCL.
1.2 The Closing. Subject to the conditions of this Plan of Merger, the
closing of the Merger (the "Closing") will take place at 10:00 a.m., local time,
on a date to be specified by the parties (the "Closing Date"), which shall be no
later than the second business day after satisfaction or waiver of the
conditions set forth in Sections 8.1, 8.2 and 8.3, at the offices of Waller
Lansden Dortch & Davis, A Professional Limited Liability Company, Nashville,
Tennessee, unless another date or place is agreed to in writing by the parties
hereto.
1.3 Effective Time. Subject to the provisions of this Plan of Merger,
PhyCor and MedPartners shall file Articles of Merger or a Certificate of Merger
in accordance with the relevant provisions of the TBCA and the DGCL and shall
make all other filings or recordings required under the TBCA or the DGCL as soon
as practicable on or after the Closing Date. The Merger shall become effective
at such time as the Articles of Merger and the Certificate of Merger are duly
filed with each of the Tennessee Secretary of State and the Delaware Secretary
of State or at such other time as PhyCor and MedPartners shall agree should be
specified in the Articles of Merger and the Certificate of Merger (the
"Effective Time").
A-5
<PAGE> 6
1.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 106 of the TBCA and Section 259 of the DGCL.
SECTION 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES.
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of MedPartners
Common Stock or any shares of capital stock of PhyCor:
(a) PhyCor Common Stock. Each share of Common Stock, no par value per
share, of PhyCor (the "PhyCor Common Stock") issued and outstanding
immediately prior to the Effective Time of the Merger shall continue to be
issued and outstanding following, and shall be unaffected by, the Merger.
(b) Cancellation of Treasury Stock. Each share of MedPartners Common
Stock that is owned by MedPartners shall automatically be canceled and
retired and shall cease to exist, and none of the PhyCor Common Stock, cash
or other consideration shall be delivered in exchange therefor.
(c) Conversion of MedPartners Shares. At the Effective Time, each
MedPartners Share (other than the MedPartners Shares to be canceled in
accordance with Section 2.1(b)) issued and outstanding immediately prior to
the Effective Time, including the corresponding right (the "MedPartners
Right") with respect to each share of MedPartners Common Stock, to purchase
one-one-hundredth of a share of Series C Junior Participating Preferred
Stock, par value $.001 per share (the "MedPartners Series C Preferred
Stock"), of MedPartners pursuant to the terms of the Stockholders' Rights
Agreement, dated as of March 1, 1995, as heretofore amended between
MedPartners and Chemical Bank, a national banking association, as it may be
amended from time to time (the "MedPartners Rights Agreement"), shall be
converted into the right to receive 1.18 shares of PhyCor Common Stock (the
"Exchange Ratio"), including the corresponding right (the "PhyCor Right")
with respect to each share of PhyCor Common Stock, to purchase
one-one-hundredth of a share of Series A Preferred Stock (the "PhyCor
Series A Preferred Stock"), of PhyCor pursuant to the terms of the Rights
Agreement dated as of February 18, 1994, between PhyCor and First Union
National Bank of North Carolina, as it may be amended from time to time
(the "PhyCor Rights Agreement"). All such shares of PhyCor Common Stock
shall be duly authorized, validly issued, fully paid and nonassessable and,
together with the PhyCor Rights, are hereinafter sometimes referred to as
the "PhyCor Shares". Upon such conversion, all such MedPartners Shares
shall be canceled and cease to exist, and each holder thereof shall cease
to have any rights with respect thereto other than the right to receive the
shares of PhyCor Common Stock issued in exchange therefor and cash in lieu
of fractional PhyCor Shares (together, the "Merger Consideration") in
accordance with the terms provided herein. All references in this Plan of
Merger to the MedPartners Common Stock shall be deemed to include the
MedPartners Rights, and all references in this Plan of Merger to the PhyCor
Common Stock shall be deemed to include the PhyCor Rights.
(d) Stock Options. At the Effective Time, all rights with respect to
MedPartners Common Stock pursuant to any MedPartners stock options which
are outstanding at the Effective Time, whether or not then vested or
exercisable, shall be converted into and become rights with respect to
PhyCor Common Stock, and PhyCor shall assume each MedPartners stock option
in accordance with the terms of any stock option plan under which it was
issued and any stock option agreement by which it is evidenced or, at the
election of PhyCor, provide options under PhyCor's stock option plans in
substitution thereof and in a manner that will result in a transaction to
which Section 424 of the Code applies. Each MedPartners stock option so
assumed or substituted therefor shall be exercisable for that number of
shares of the PhyCor Common Stock equal to the number of the MedPartners
Shares subject thereto multiplied by the Exchange Ratio, and shall have an
exercise price per share equal to the MedPartners exercise price divided by
the Exchange Ratio. It is intended that the foregoing provisions shall be
undertaken in a manner that will not constitute a "modification" as defined
in Section 424(h) of the Code, as to any stock option which is an
"incentive stock option".
A-6
<PAGE> 7
(e) Anti-Dilution Provisions. If after the date hereof and prior to the
Effective Time PhyCor shall have declared a stock split (including a reverse
split) of PhyCor Common Stock or a dividend payable in PhyCor Common Stock, or
any other distribution of securities or dividend (in cash or otherwise) to
holders of PhyCor Common Stock with respect to their PhyCor Common Stock
(including without limitation such a distribution or dividend made in connection
with a recapitalization, reclassification, merger, consolidation, reorganization
or similar transaction), then the Merger Consideration shall be appropriately
adjusted to reflect such stock split, dividend or other distribution of
securities.
2.2 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective
Time, PhyCor shall enter into an agreement with First Union National Bank of
North Carolina (the "Exchange Agent"), which provides that PhyCor shall deposit
with the Exchange Agent as of the Effective Time, for the benefit of the holders
of the MedPartners Shares, for exchange in accordance with this Section 2.2,
through the Exchange Agent, (i) certificates representing the shares of PhyCor
Common Stock issuable pursuant to Section 2.1, and (ii) cash in an amount equal
to the aggregate amount required to be paid in lieu of fractional interests of
PhyCor Common Stock pursuant to Section 2.2(e) (such shares of PhyCor Common
Stock, together with any dividends or distributions with respect thereto with a
record date after the Effective Time, and together with the cash referred to in
clause (ii) of this Section 2.2(a), being hereinafter referred to as the
"Exchange Fund") in exchange for outstanding MedPartners Shares.
(b) Exchange Procedure. As soon as practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates which, immediately prior to the Effective Time, represented
outstanding MedPartners Shares (the "Certificates") whose shares were converted
into the right to receive the Merger Consideration provided for in Section 2.1,
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in such form and
have such other provisions as PhyCor may reasonably specify), and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of PhyCor Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by PhyCor, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
PhyCor Common Stock and cash which such holder has the right to receive pursuant
to the provisions of Sections 2.1 and 2.2, and the Certificate so surrendered
shall forthwith be canceled. If any cash or any certificate representing shares
of PhyCor Common Stock is to be paid to or issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, a
certificate representing the proper number of shares of PhyCor Common Stock may
be issued to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such payment
shall pay to the Exchange Agent any transfer or other taxes required by reason
of the issuance of shares of PhyCor Common Stock to a person other than the
registered holder of such Certificate or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the certificate representing shares of PhyCor Common
Stock and cash in lieu of any fractional shares of PhyCor Common Stock as
contemplated by this Section 2.2. No interest will be paid or will accrue on any
cash payable in lieu of any fractional shares of PhyCor Common Stock. To the
extent permitted by law, former stockholders of record of MedPartners shall be
entitled to vote after the Effective Time at any meeting of PhyCor's
stockholders the number of whole shares of PhyCor Common Stock into which their
respective MedPartners Shares are converted, regardless of whether such holders
have exchanged their Certificates for certificates representing PhyCor Common
Stock in accordance with this Section 2.2.
(c) Distribution With Respect to Unexchanged Shares. No dividends or other
distributions with respect to PhyCor Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of PhyCor Common Stock represented thereby and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 2.2(e) until the
A-7
<PAGE> 8
surrender of such Certificate in accordance with this Section 2.2. Subject to
the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of the Certificate or Certificates then
representing shares of PhyCor Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of a fractional share of PhyCor Common Stock to which such holder is
entitled pursuant to Section 2.2(e) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of PhyCor Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of PhyCor
Common Stock. If any holder of converted MedPartners Shares shall be unable to
surrender such holder's Certificates because such Certificates shall have been
lost or destroyed, such holder may deliver in lieu thereof an affidavit and
indemnity bond in form and substance and with surety reasonably satisfactory to
PhyCor.
(d) No Further Ownership Rights of MedPartners Shares. All shares of
PhyCor Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Section 2 (including any cash paid pursuant to
Section 2.2(c) or 2.2(e)), shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the MedPartners Shares theretofore
represented by such Certificates. If, after the Effective Time, Certificates are
presented to PhyCor or the Exchange Agent for any reason, they shall be canceled
and exchanged as provided in this Section 2, except as otherwise provided by
law.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of PhyCor Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of PhyCor. Notwithstanding any
other provision of this Plan of Merger, each holder of MedPartners Shares
exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of PhyCor Common Stock (after taking into account
all Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
PhyCor Common Stock multiplied by the per share closing price on the Nasdaq
National Market ("Nasdaq") (or such other exchange on which the shares of PhyCor
Common Stock are then listed) of PhyCor Common Stock on the date of the
Effective Time (or, if shares of PhyCor Common Stock do not trade on Nasdaq (or
such other exchange) on such date, the most recent date of trading of PhyCor
Common Stock on Nasdaq (or such other exchange, as the case may be) preceding
the Effective Time).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund, which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to PhyCor, upon demand, and any holders of
the Certificates who have not theretofore complied with this Section 2 shall
thereafter look only to PhyCor for payment of PhyCor Common Stock, any cash in
lieu of fractional shares of PhyCor Common Stock and any dividends or
distributions with respect to PhyCor Common Stock.
(g) No Liability. None of PhyCor, MedPartners or the Exchange Agent shall
be liable to any person in respect of any shares of PhyCor Common Stock (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificates shall not have been surrendered
prior to the end of the applicable period after the Effective Time under escheat
laws (or immediately prior to such earlier date on which any shares of PhyCor
Common Stock, any cash in lieu of fractional shares of PhyCor Common Stock or
any dividends or distributions with respect to PhyCor Common Stock in respect of
such Certificates would otherwise escheat to or become the property of any
governmental entity), any such shares, cash, dividends or distributions in
respect of such Certificates shall, to the extent permitted by applicable law,
become the property of PhyCor, free and clear of all claims or interest of any
person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by PhyCor, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
PhyCor.
2.3 Restated Charter of PhyCor. The Restated Charter of PhyCor in effect
immediately prior to the Effective Time, or as amended by the filing of the
Articles of Merger with the Tennessee Secretary of State,
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shall continue to be in effect from and after the Effective Time and until
thereafter altered, amended or repealed in accordance with the TBCA, PhyCor's
Amended Bylaws and said Restated Charter.
2.4 Amended Bylaws of PhyCor. The Amended Bylaws of PhyCor in effect
immediately prior to the Effective Time shall continue to be in effect from and
after the Effective Time and until thereafter altered, amended or repealed in
accordance with the TBCA, PhyCor's Restated Charter and said Amended Bylaws.
2.5 Directors and Officers. The directors and officers of PhyCor, at the
Effective Time, shall be the directors and officers of PhyCor consistent with
Section 6.8 of this Plan of Merger, each to hold office in accordance with
PhyCor's Restated Charter and Amended Bylaws and other corporate proceedings and
documentation.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF MEDPARTNERS.
MedPartners hereby represents and warrants to PhyCor as follows:
3.1 Organization, Existence and Good Standing. MedPartners is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. MedPartners has all necessary corporate power to own
its properties and assets and to carry on its business as presently conducted.
MedPartners is not, and has not been within the two years immediately preceding
the date of this Plan of Merger, a subsidiary or division of another
corporation, nor has MedPartners within such time owned, directly or indirectly,
any PhyCor Shares.
3.2 MedPartners Capitalization. MedPartners' authorized capital consists
of (i) 9,500,000 shares of Preferred Stock, par value $.001 per share, of which
no shares are issued and outstanding, and no shares are held in treasury, (ii)
500,000 shares of Series C Junior Participating Preferred Stock, par value $.001
per share, of which no shares are issued and outstanding and no shares are held
in treasury and (iii) 400,000,000 shares of Common Stock, par value $.001 per
share, of which 196,083,051 shares were issued and outstanding at September 30,
1997, and no shares are held in treasury. No shares of MedPartners Common Stock
have been issued since such date other than shares issued upon the exercise of
options or other contractual obligations outstanding on such date or in
connection with the acquisition of businesses. All of the issued and outstanding
shares of MedPartners Common Stock have been duly and validly issued and are
fully paid and nonassessable. Except as set forth in Exhibit 3.2 to the
Disclosure Schedule delivered to PhyCor by MedPartners at the time of the
execution and delivery of this Plan of Merger (the "MedPartners Disclosure
Schedule"), there are no options, warrants, or similar rights granted by
MedPartners or any affiliate thereof or other agreements to which MedPartners or
any such affiliate is a party providing for the issuance or sale by it of any
additional securities. There is no liability for dividends declared or
accumulated but unpaid with respect to any shares of MedPartners Common Stock.
MedPartners has not made any distributions to any holder of MedPartners Common
Stock or participated in or effected any issuance, exchange or retirement of
MedPartners Common Stock, or otherwise changed the equity interests of holders
of MedPartners Common Stock, in contemplation of effecting the Merger within the
two years immediately preceding the date of this Plan of Merger. Any shares of
MedPartners Common Stock that MedPartners has re-acquired during the two years
immediately preceding the date of this Plan of Merger have been so re-acquired
only for purposes other than "business combinations," as such term is defined in
Accounting Principles Board Opinion No. 16, as amended ("Business
Combinations").
3.3 Subsidiaries and Affiliated Entities. (a) Attached as Exhibit 3.3 to
the MedPartners Disclosure Schedule is a list of all subsidiaries of MedPartners
(individually, a "MedPartners Subsidiary", and collectively, the "MedPartners
Subsidiaries") and their states of incorporation and all professional
corporations or professional associations (the "MedPartners Professional
Corporations") of which MedPartners has control and with which it is affiliated
and their states of incorporation. As used herein, a MedPartners Professional
Corporation shall not include a professional corporation with which MedPartners
has a service or management agreement and which is owned by individual
physician-shareholders, the majority of whom do not have any financial or other
relationship individually with MedPartners. Except as set forth in Exhibit 3.3
to
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the MedPartners Disclosure Schedule, MedPartners does not control, directly or
indirectly, any other corporation, association, partnership or business
organization. The outstanding shares of capital stock or other equity interests
of each MedPartners Subsidiary have been duly authorized and are validly issued,
fully paid and nonassessable. All shares of capital stock or other equity
interests of each MedPartners Subsidiary owned by MedPartners or any of its
subsidiaries are owned by MedPartners, either directly or indirectly, free and
clear of all liens, encumbrances, equities or claims.
(b) Also disclosed in Exhibit 3.3 to the MedPartners Disclosure Schedule is
a list of all general or limited partnerships in which a general partner is
MedPartners, a MedPartners Subsidiary or another partnership controlled by
MedPartners (individually, a "MedPartners Partnership" and collectively, the
"MedPartners Partnerships"), and all limited liability companies in which
MedPartners or a MedPartners Subsidiary is a member or manager (individually, a
"MedPartners LLC"; the MedPartners Professional Corporations and the MedPartners
LLCs being collectively called the "Other MedPartners Entities"), and their
states of organization. All interests of each Other MedPartners Entity owned by
MedPartners or any of its subsidiaries are owned by MedPartners, either directly
or indirectly, free and clear of all liens, encumbrances, equities or claims.
(c) Except as set forth in Exhibit 3.3 to the MedPartners Disclosure
Schedule, neither MedPartners nor any MedPartners Subsidiary, MedPartners
Partnership or Other MedPartners Entity controls, directly or indirectly, any
other joint venture or partnership.
(d) Although the financial results of the medical groups affiliated with
MedPartners physician practice management business are consolidated for
accounting purposes on the MedPartners Balance Sheet, the terms "MedPartners
Subsidiary" and "Other MedPartners Entity" do not include any affiliated medical
groups.
3.4 Organization, Existence, Good Standing and Foreign Qualifications of
Significant MedPartners Subsidiaries. (a) Each Significant MedPartners
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation. Each
Significant MedPartners Subsidiary has all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
(b) Each Significant MedPartners Subsidiary is qualified to do business as
a foreign corporation and is in good standing in each jurisdiction where the
nature or character of the property owned, leased or operated by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to qualify would not have a material adverse effect on
MedPartners.
3.5 Power and Authority. MedPartners has the corporate power to execute,
deliver and perform this Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to this
Plan of Merger, and, subject to obtaining the MedPartners Stockholder Approval
(as hereinafter defined), has taken all corporate action required to authorize
the execution, delivery and performance of this Plan of Merger and such related
documents. The execution and delivery of this Plan of Merger has been approved
by the Board of Directors of MedPartners. This Plan of Merger has been duly
executed and delivered by MedPartners and is a valid and binding obligation of
MedPartners enforceable against MedPartners in accordance with its terms.
Except for the filings set forth on Exhibit 3.5 to the MedPartners
Disclosure Schedule and the filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act of 1933, as amended (the "Securities Act"), the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the TBCA and the DGCL,
neither the execution, delivery or performance of this Plan of Merger by
MedPartners nor the consummation by MedPartners of the transactions contemplated
hereby nor compliance by MedPartners with any of the provisions hereof will (i)
conflict with or result in any breach of any provision of the Certificate of
Incorporation or the Bylaws of MedPartners or of any of its subsidiaries, (ii)
require any filing with, or permit, authorization, consent or approval of, any
court, tribunal, administrative agency or commission or other governmental or
other regulatory authority or agency (a "Governmental Entity"), (iii) assuming
receipt of the consents required by Section 3.8(b) hereof, result in a violation
or
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breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which MedPartners or any of its subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
or (iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to MedPartners, any of its subsidiaries or any of their properties or
assets, excluding from the foregoing clauses (ii), (iii) and (iv) such
violations, breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on MedPartners.
3.6 MedPartners Public Information. MedPartners has heretofore made
available to PhyCor a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by it or its
predecessors, MedPartners and MedPartners/Mullikin, Inc., with the Securities
and Exchange Commission ("SEC") (as any such documents have since the time of
their original filing been amended, the "MedPartners Documents") since January
1, 1995, which are all the documents (other than preliminary material) that it
was required to file with the SEC since such date. As of their respective dates,
the MedPartners Documents did not contain any untrue statements of material
facts or omit to state material facts required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. As of their respective dates, the MedPartners
Documents complied in all material respects with the applicable requirements of
the Securities Act and the Exchange Act, and the rules and regulations
promulgated under such statutes. The financial statements contained in the
MedPartners Documents, together with the notes thereto, have been prepared in
accordance with GAAP consistently followed throughout the periods indicated
(except as may be indicated in the notes thereto, or, in the case of the
unaudited financial statements, as permitted by Form 10-Q), reflect all
liabilities of MedPartners and its consolidated subsidiaries, fixed or
contingent, required to be stated therein, and present fairly the financial
condition of MedPartners and its consolidated subsidiaries at such dates and the
consolidated results of operations and cash flows of MedPartners and its
consolidated subsidiaries for the periods then ended. The consolidated balance
sheet of MedPartners at June 30, 1997, included in the Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997 of MedPartners is herein
sometimes referred to as the "MedPartners Balance Sheet".
3.7 Legal Proceedings. Except as disclosed in Exhibit 3.7 to the
MedPartners Disclosure Schedule, or in the MedPartners Documents, there is no
pending or, to the best knowledge of MedPartners, threatened litigation,
governmental investigation, condemnation or other proceeding against or relating
to or affecting MedPartners or any of its subsidiaries or the transactions
contemplated by this Plan of Merger, which would be reasonably likely, in the
aggregate, to have a material adverse effect on MedPartners and, to the
knowledge of MedPartners, no basis for any such action exists.
3.8 Certain Contract Matters. (a) All material contacts, leases,
agreements and arrangements to which MedPartners or any of the MedPartners
Subsidiaries, MedPartners Partnerships or Other MedPartners Entities is a party
are legally valid and binding in accordance with their terms and in full force
and effect. MedPartners and each MedPartners Subsidiary, MedPartners Partnership
or Other MedPartners Entity that is a party to such contracts, leases,
agreements and arrangements has complied in all material respects with the
provisions of such contracts, leases, agreements and arrangements; to the
knowledge of MedPartners, no other party is in default thereunder; and no event
has occurred which, but for the passage of time or the giving of notice or both,
would constitute a default thereunder, except, in each case, where the
invalidity of the lease, contract, agreement or arrangement or the default or
breach thereunder or thereof would not, individually or in the aggregate, have a
material adverse effect on MedPartners.
(b) Except as set forth on Exhibit 3.8 to the MedPartners Disclosure
Schedule, no contract or agreement to which MedPartners or any MedPartners
Subsidiary, MedPartners Partnership or Other MedPartners Entity is a party will,
by its terms, terminate as a result of the transactions contemplated hereby or
require any consent from any obligor thereto in order to remain in full force
and effect immediately after the Effective Time, except for contracts or
agreements which, if terminated, would not have a material adverse effect on
MedPartners.
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(c) Except as set forth on Exhibit 3.8 to the MedPartners Disclosure
Schedule, none of MedPartners or any MedPartners Subsidiary, MedPartners
Partnership or Other MedPartners Entity has granted any right of first refusal
or similar right in favor of any third party with respect to any material
portion of its properties or assets or entered into any non-competition
agreement or similar agreement restricting its ability to engage in any business
in any location.
3.9 Subsequent Events. Except as set forth in Exhibit 3.9 to the
MedPartners Disclosure Schedule or as contemplated by this Plan of Merger,
neither MedPartners nor any MedPartners Subsidiary, MedPartners Partnership or
Other MedPartners Entity has, since the date of the MedPartners Balance Sheet:
(a) Operated other than in the ordinary course of business, consistent
with past practice.
(b) Taken any of the actions contemplated by Section 6.2(x).
(c) Incurred or experienced any material adverse change.
(d) Discharged, satisfied or incurred any material lien or
encumbrance, or paid or satisfied any material obligation or liability
(absolute, accrued, contingent or otherwise) which would have a material
adverse effect on MedPartners, other than liabilities shown or reflected on
the MedPartners Balance Sheet.
(e) Increased or established any reserve for taxes or any other
liability on its books or otherwise provided therefor which would have a
material adverse effect on MedPartners, except as may have been required
with respect to income or operations of MedPartners since the date of the
MedPartners Balance Sheet.
(f) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of
MedPartners.
(g) Sold or transferred any of the assets material to the consolidated
business of MedPartners, canceled any material debts or claims or waived
any material rights, except in the ordinary course of business.
(h) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable
by MedPartners to any officer, director, key employee or group of
employees, consultant or agent (other than normal increases consistent with
past practices), or by means of any bonus or pension plan, contract or
other commitment, increased in a material respect the compensation of any
officer, director, key employee or group of employees, consultant or agent.
(i) Except for this Plan of Merger and any other agreement executed
and delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted
under other Sections of this Plan of Merger.
(j) Issued or sold, or agreed to issue or sell, any stock, bonds or
other securities or any options or rights to purchase any of its securities
(other than stock issued upon the exercise of outstanding options under
MedPartners stock option plans, stock options granted under such plans and
shares of MedPartners Common Stock or other securities issued pursuant to
contractual obligations or in connection with the acquisition of
businesses).
3.10 Tax Matters. (a) Except (i) as set forth in Exhibit 3.10 to the
MedPartners Disclosure Schedule or (ii) where the failure of the following
representations to be true would not, either individually or in the aggregate,
have a material adverse effect:
(A) MedPartners and its subsidiaries have timely filed all Tax returns
required to be filed by them. MedPartners and its subsidiaries have paid
all Taxes (whether or not shown on any Tax return) due or claimed to be due
from them by federal, foreign, state or local taxing authorities.
(B) The reserves for Taxes contained in the financial statements and
carried on the books of MedPartners or its subsidiaries (other than any
reserve for deferred taxes established to reflect timing
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differences between book and tax income) are adequate to cover all Tax
liabilities of or that reasonably could be imposed upon MedPartners or any
of its subsidiaries (including tax sharing, allocation and indemnity
agreements, under Treasury Reg. Section 1.1502-6 (and any comparable state
or local tax provisions), or otherwise) as of the date of this Agreement.
(C) MedPartners' tax basis in its assets exceeds MedPartners'
liabilities.
(b) Neither MedPartners nor any of its subsidiaries has taken any action or
has any knowledge of any fact or circumstance that is reasonably likely to
prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(c) For purposes of this Agreement, "Tax" means any federal, state, local
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Section 59A of the Code), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or additional minimum, estimated or other
tax of any kind whatsoever, including any interest, penalty or addition thereto,
whether disputed or not.
3.11 Employee Benefit Plans; Employment Matters. (a) Except as set forth
in Exhibit 3.11(a) to the MedPartners Disclosure Schedule, to the knowledge of
MedPartners, MedPartners has neither established nor maintained nor is obligated
to make contributions to or under or otherwise participate in (i) any bonus or
other type of incentive compensation plan, program or arrangement (whether or
not set forth in a written document), (ii) any pension, profit-sharing,
retirement or other plan, program or arrangement, or (iii) any other employee
benefit plan, fund or program, including, but not limited to, those described in
Section 3(3) of ERISA (individually, a "MedPartners Plan" and collectively, the
"MedPartners Plans"), except for such plans that are not material.
(b) Except as set forth in Exhibit 3.11(b) to the MedPartners Disclosure
Schedule or as is expressly contemplated by this Plan of Merger, MedPartners is
not a party to any oral or written (i) union, guild or collective bargaining
agreement which agreement covers employees in the United States (nor is it aware
of any union organizing activity currently being conducted in respect to any of
its employees), (ii) agreement with any executive officer or other key employee
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction of the nature contemplated by this
Plan of Merger and which provides for the payment of in excess of $25,000.00, or
(iii) agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Plan of Merger or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Plan of Merger.
(c) Prior to the Effective Time, MedPartners will deliver or make available
to PhyCor true, accurate and complete copies of the documents comprising each
MedPartners Plan, each pension plan (as defined in Section 3(2) of ERISA)
maintained by or for the benefit of employees of any entity which is affiliated
with MedPartners through a management agreement, and any related trust
agreements, annuity contracts or any other funding instruments ("Funding
Arrangements") and the most recent Form 5500 annual report.
(d) Except as set forth in Exhibit 3.11(d) of the MedPartners Disclosure
Schedule or as would not have a material adverse effect on MedPartners:
(i) Each MedPartners Plan intended to be qualified under Section
401(a) of the Code has a current favorable determination letter and no
event has occurred which, to the knowledge of MedPartners, could cause any
MedPartners Plan to become disqualified for purposes of Section 401(a) of
the Code. Each MedPartners Plan has been operated in compliance with
applicable law, including ERISA and the Code as applicable, and in
accordance with its terms. There are no pending claims, lawsuits or actions
relating to any MedPartners Plan (other than ordinary course claims for
benefits) and, to the best knowledge of MedPartners, none are threatened
that would result in a material adverse effect.
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(ii) No act or failure to act by MedPartners, any of MedPartners'
officers, directors or employees, or, to the knowledge of MedPartners, any
other "party in interest" (as defined in ERISA), has resulted in a
"prohibited transaction" (as defined in ERISA) with respect to the
MedPartners Plans that is not subject to a statutory or regulatory
exception. No "reportable event" (as defined in ERISA, but excluding any
event for which notice is waived under the ERISA regulations) has occurred
with respect to any of the MedPartners Plans which is subject to Title IV
of ERISA. MedPartners has not previously made, is not currently making, and
is not obligated in any way to make, any contributions to any
multi-employer plan within the meaning of the Multi-Employer Pension Plan
Amendments Act of 1980. Neither MedPartners nor any other employer who has
participated or is participating in any MedPartners Plan (a "Sponsor") has
incurred any liability to the Department of Labor (the "DOL"), the Pension
Benefit Guaranty Corporation (the "PBGC") or the Internal Revenue Service
in connection with any MedPartners Plans, and no condition exists that
presents a risk to MedPartners or any Sponsor of incurring any liability to
the DOL, the PBGC or Internal Revenue Service.
(iii) Full payment has been made of all amounts which are required
under the terms of each MedPartners Plan or Funding Arrangement to have
been paid as of the due date for such payments that have occurred on or
before the Effective Time, and no accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code) has been
incurred with respect to such MedPartners Plan, whether or not waived.
3.12 Compliance with Laws in General. Except as set forth in Exhibit 3.12
to the MedPartners Disclosure Schedule, none of MedPartners or any MedPartners
Subsidiary, MedPartners Partnership or Other MedPartners Entity has received any
notices of, nor to the best of its knowledge, have there been any, material
violations of any federal, state and local laws, regulations and ordinances
relating to its business and operations, including, without limitation, the
Occupational Safety and Health Act, the Americans with Disabilities Act, the
Medicare or applicable Medicaid statutes and regulations, including billing and
coding (and also including the physician self-referral prohibitions of 42 U.S.C.
1395nn et seq. and the anti-fraud and abuse provisions of 42 U.S.C. 1320a-7b),
and any environmental laws, and no notice of any pending inspection or violation
of any such law, regulation or ordinance has been received by MedPartners or any
MedPartners Subsidiary, MedPartners Partnership or Other MedPartners Entity,
except in any such case as would not have a material adverse effect on
MedPartners.
3.13 Regulatory Approvals. Except as disclosed in Exhibit 3.13 to the
MedPartners Disclosure Schedule, MedPartners and each MedPartners Subsidiary,
MedPartners Partnership and Other MedPartners Entity, as applicable, holds all
licenses and other regulatory approvals required or necessary to be applied for
or obtained in connection with its business as currently conducted or as
proposed to be conducted, except where the failure to obtain such license or
regulatory approval would not have a material adverse effect on MedPartners. All
such licenses and other regulatory approvals relating to the business,
operations and facilities of MedPartners and each MedPartners Subsidiary,
MedPartners Partnership and Other MedPartners Entity are in full force and
effect, except where any failure of such license or regulatory approval to be in
full force and effect would not have a material adverse effect on MedPartners.
Any and all past litigation concerning such licenses and regulatory approvals,
and all claims and causes of action raised therein, has been finally
adjudicated. No such license or regulatory approval has been revoked,
conditioned (except as may be customary) or restricted, and no action
(equitable, legal or administrative), arbitration or other process is pending,
or to the best knowledge of MedPartners, threatened, which in any way challenges
the validity of, or seeks to revoke, condition or restrict, any such license or
regulatory approval, except as would not have a material adverse effect on
MedPartners.
3.14 Commissions and Fees. Except for Smith Barney Inc., there are no
claims for brokerage commissions, investment bankers' fees or finder's fees in
connection with the transactions contemplated by this Plan of Merger resulting
from any action taken by MedPartners or any of its officers, directors or
agents.
3.15 Stockholder Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of MedPartners Common Stock entitled to vote
thereon is the only vote of the holders of any class or
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series of MedPartners capital stock necessary for MedPartners to approve this
Plan of Merger, the Merger and the transactions contemplated thereby (the
"MedPartners Stockholder Approval").
3.16 Pooling Matters. To the best knowledge of MedPartners, neither
MedPartners nor any of its affiliates has taken or agreed to take any action
that (without giving effect to any actions taken or agreed to be taken by PhyCor
or any of its affiliates) would prevent PhyCor from accounting for the business
combination to be effected by the Merger as a pooling of interests for financial
reporting purposes.
3.17 Opinion of Financial Advisor. The Board of Directors of MedPartners
has received the opinion of Smith Barney Inc. to the effect that, as of the date
of this Plan of Merger, the Exchange Ratio is fair to holders of MedPartners
Common Stock from a financial point of view.
3.18 Rights Plan. The MedPartners Rights Agreement has been amended, to
the extent necessary, to (i) render the Rights inapplicable to the Merger and
the other transactions contemplated hereby, (ii) provide that (x) neither PhyCor
nor any of its subsidiaries or affiliates is or will be an Acquiring Person (as
defined in the Rights Agreement), (y) neither a Stock Acquisition Date nor a
Distribution Date (as defined in the Rights Agreement) shall occur by reason of
the execution or delivery of this Plan of Merger or the consummation of any of
the transactions contemplated hereby and (z) the Rights shall expire immediately
prior to the Effective Time.
SECTION 4.
REPRESENTATIONS AND WARRANTIES OF PHYCOR.
PhyCor hereby represents and warrants to MedPartners as follows:
4.1 Organization and Existence. PhyCor is a corporation duly organized and
validly existing under the laws of the State of Tennessee. PhyCor has all
necessary corporate power to own its properties and assets and to carry on its
business as presently conducted. PhyCor does not own, and has not within the two
years immediately preceding the date of this Plan of Merger owned, directly or
indirectly, any shares of MedPartners Common Stock.
4.2 PhyCor Capitalization. (a) PhyCor's authorized capital consists of (i)
250,000,000 shares of Common Stock, no par value per share, of which 64,495,674
shares are issued and outstanding as of October 27, 1997, and no shares are held
in treasury and (ii) 10,000,000 shares of Preferred Stock, no par value per
share, of which no shares are issued and outstanding and no shares are held in
treasury. No shares of PhyCor Common Stock have been issued since such date
other than shares issued upon the exercise of options or other contractual
obligations outstanding on such date or in connection with the acquisition of
businesses. All of the issued and outstanding shares of PhyCor Common Stock have
been duly and validly issued and are fully paid and nonassessable. Except as set
forth in Exhibit 4.2 to the Disclosure Schedule delivered to MedPartners by
PhyCor at the time of the execution and delivery of this Plan of Merger (the
"PhyCor Disclosure Schedule"), there are no options, warrants, or similar rights
granted by PhyCor or any affiliate thereof or other agreements to which PhyCor
or any such affiliate is a party providing for the issuance or sale by it of any
additional securities. There is no liability for dividends declared or
accumulated but unpaid with respect to any of the shares of PhyCor Common Stock.
PhyCor has not made any distributions to any holder of PhyCor Common Stock or
participated in or effected any issuance, exchange or retirement of shares of
PhyCor Common Stock, or otherwise changed the equity interests of holders of
shares of PhyCor Common Stock in contemplation of effecting the Merger within
the two years immediately preceding the date of this Plan of Merger. Any PhyCor
Shares that PhyCor has re-acquired during the two years immediately preceding
the date of this Plan of Merger have been so reacquired only for purposes other
than Business Combinations.
(b) On the Closing Date, PhyCor will have a sufficient number of authorized
but unissued shares of its Common Stock available for issuance to the holders of
MedPartners Shares in accordance with the provisions of this Plan of Merger. The
PhyCor Common Stock to be issued pursuant to this Plan of Merger will, when so
delivered, be (i) duly and validly issued, fully paid and nonassessable and (ii)
registered in a registration statement on Form S-4 filed with the SEC.
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4.3 Subsidiaries and Affiliated Entities. (a) Attached as Exhibit 4.3 to
the PhyCor Disclosure Schedule is a list of all subsidiaries of PhyCor
(individually, a "PhyCor Subsidiary", and collectively, the "PhyCor
Subsidiaries") and their states of incorporation. There are no professional
corporations with which PhyCor has a service or management agreement and which
are owned by individual physician-shareholders, the majority of whom have a
financial or other relationship individually with PhyCor. Except as set forth in
Exhibit 4.3 to the PhyCor Disclosure Schedule, PhyCor does not control, directly
or indirectly, any other corporation, association, partnership or business
organization. The outstanding shares of capital stock or other equity interests
of each PhyCor Subsidiary have been duly authorized and are validly issued,
fully paid and nonassessable. All shares of capital stock or other equity
interests of each PhyCor Subsidiary owned by PhyCor or any of its subsidiaries
are owned by PhyCor, either directly or indirectly, free and clear of all liens,
encumbrances, equities or claims.
(b) Also disclosed in Exhibit 4.3 to the PhyCor Disclosure Schedule is a
list of all general or limited partnerships in which a general partner is
PhyCor, a PhyCor Subsidiary or another partnership controlled by PhyCor
(individually a "PhyCor Partnership" and collectively, the "PhyCor
Partnerships"), and all limited liability companies in which PhyCor or a PhyCor
Subsidiary is a member or manager (individually, a "PhyCor LLC"; the PhyCor
Partnerships and the PhyCor LLCs being collectively called the "Other PhyCor
Entities"), and their states of organization. All interests of each Other PhyCor
Entity owned by PhyCor or any of its subsidiaries are owned by PhyCor, either
directly or indirectly, free and clear of all liens, encumbrances, equities or
claims.
(c) Except as set forth in Exhibit 4.3, neither PhyCor nor any PhyCor
Subsidiary or Other PhyCor Entity controls, directly or indirectly, any other
joint venture or partnership.
(d) The terms "PhyCor Subsidiary" and "Other PhyCor Entity" do not include
any affiliated medical groups.
4.4 Organization, Existence and Foreign Qualifications of Significant
PhyCor Subsidiaries. (a) Each Significant PhyCor Subsidiary is a corporation
duly organized and validly existing under the laws of its respective state of
incorporation. Each Significant PhyCor Subsidiary has all necessary corporate
power to own its properties and assets and to carry on its business as presently
conducted.
(b) Each Significant PhyCor Subsidiary is qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
nature or character of the property owned, leased or operated by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
on PhyCor.
4.5 Power and Authority. PhyCor has the corporate power to execute,
deliver and perform this Plan of Merger and all agreements and other documents
executed and delivered or to be executed and delivered by it pursuant to this
Plan of Merger, and, subject to obtaining the PhyCor Stockholder Approval (as
hereinafter defined) has taken all corporate action required to authorize the
execution, delivery and performance of this Plan of Merger and such related
documents. The execution and delivery of this Plan of Merger has been approved
by the Board of Directors of PhyCor. This Plan of Merger has been duly executed
and delivered by PhyCor and is a valid and binding obligation of PhyCor
enforceable against PhyCor in accordance with its terms.
Except for the filings set forth on Exhibit 4.5 to the PhyCor Disclosure
Schedule and the filings, permits, authorizations, consents and approvals as may
be required under, and other applicable requirements of, the Exchange Act, the
Securities Act, the HSR Act, the TBCA and the DGCL, neither the execution,
delivery or performance of this Plan of Merger by PhyCor nor the consummation by
PhyCor of the transactions contemplated hereby nor compliance by PhyCor with any
of the provisions hereof will (i) conflict with or result in any breach of any
provision of the Restated Charter or the Amended Bylaws of PhyCor or of any of
its subsidiaries, (ii) require any filing with, or permit, authorization,
consent or approval of a Governmental Entity, (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract,
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agreement or other instrument or obligation to which PhyCor or any of its
subsidiaries is a party or by which any of them or any of their properties or
assets may be bound or (iv) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to PhyCor, any of its subsidiaries or any
of their properties or assets, excluding from the foregoing clauses (ii), (iii)
and (iv) such violations, breaches or defaults which would not, individually or
in the aggregate, have a material adverse effect on PhyCor.
4.6 PhyCor's Public Information. PhyCor has heretofore made available to
MedPartners a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by it with the SEC (as any such
documents have since the time of their original filing been amended, the "PhyCor
Documents") since January 1, 1995, which are all the documents (other than
preliminary material) that it was required to file with the SEC since such date.
As of their respective dates, the PhyCor Documents did not contain any untrue
statements of material facts or omit to state material facts required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the PhyCor Documents complied in all material respects with the
applicable requirements of the Securities Act, and the Exchange Act, and the
rules and regulations promulgated under such statutes. The financial statements
contained in the PhyCor Documents, together with the notes thereto, have been
prepared in accordance with GAAP consistently followed throughout the periods
indicated (except as may be indicated in the notes thereto, or, in the case of
the unaudited financial statements, as permitted by Form 10-Q), reflect all
liabilities of PhyCor and its consolidated subsidiaries, fixed or contingent,
required to be stated therein, and present fairly the financial condition of
PhyCor and its consolidated subsidiaries at such dates and the consolidated
results of operations and cash flows of PhyCor and its consolidated subsidiaries
for the periods then ended. The consolidated balance sheet of PhyCor at June 30,
1997, included in the Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1997 of PhyCor is herein sometimes referred to as the "PhyCor Balance
Sheet".
4.7 Legal Proceedings. Except as disclosed in Exhibit 4.7 to the PhyCor
Disclosure Schedule, or in the PhyCor Documents, there is no pending or, to the
best knowledge of PhyCor, threatened litigation, governmental investigation,
condemnation or other proceeding against or relating to or affecting PhyCor or
any of its subsidiaries or the transactions contemplated by this Plan of Merger,
which would be reasonably likely, in the aggregate, to have a material adverse
effect on PhyCor and, to the knowledge of PhyCor, no basis for any such action
exists.
4.8 Certain Contract Matters. (a) All material contracts, leases,
agreements and arrangements to which PhyCor or any of the PhyCor Subsidiaries or
Other PhyCor Entities is a party are legally valid and binding in accordance
with their terms and in full force and effect. PhyCor and each PhyCor Subsidiary
or Other PhyCor Entity that is a party to such contracts, leases, agreements and
arrangements has complied in all material respects with the provisions of such
contracts, leases, agreements and arrangements; to the knowledge of PhyCor, no
other party is in default thereunder; and no event has occurred which, but for
the passage of time or the giving of notice or both, would constitute a default
thereunder, except, in each case, where the invalidity of the lease, contract,
agreement or arrangement or the default or breach thereunder or thereof would
not, individually or in the aggregate, have a material adverse effect on PhyCor.
(b) Except as set forth on Exhibit 4.8 to the PhyCor Disclosure Schedule,
no contract or agreement to which PhyCor or any PhyCor Subsidiary, PhyCor
Partnership or Other PhyCor Entity is a party will, by its terms, terminate as a
result of the transactions contemplated hereby or require any consent from any
obligor thereto in order to remain in full force and effect immediately after
the Effective Time, except for contracts or agreements which, if terminated,
would not have a material adverse effect on PhyCor.
(c) Except as set forth on Exhibit 4.8 to the PhyCor Disclosure Schedule,
none of PhyCor or any PhyCor Subsidiary or Other PhyCor Entity has granted any
right of first refusal or similar right in favor of any third party with respect
to any material portion of its properties or assets or entered into any
non-competition agreement or similar agreement restricting its ability to engage
in any business in any location.
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4.9 Subsequent Events. Except as set forth in Exhibit 4.9 to the PhyCor
Disclosure Schedule or as contemplated by this Plan of Merger, neither PhyCor
nor any PhyCor Subsidiary has, since the date of the PhyCor Balance Sheet:
(a) Operated other than in the ordinary course of business, consistent
with past practice.
(b) Taken any of the actions contemplated by Section 6.2(y).
(c) Incurred or experienced any material adverse change.
(d) Discharged or satisfied any material lien or encumbrance, or paid
or satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise), which discharge, payment or satisfaction would
have a material adverse effect on PhyCor, other than (i) liabilities shown
or reflected on the PhyCor Balance Sheet or (ii) liabilities incurred since
the date of the PhyCor Balance Sheet in the ordinary course of business.
(e) Increased or established any reserve for taxes or any other
liability on its books or otherwise provided therefor which would have a
material adverse effect on PhyCor, except as may have been required with
respect to income or operations of PhyCor since the date of the PhyCor
Balance Sheet.
(f) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the business or financial condition of PhyCor.
(g) Sold or transferred any of the assets material to the consolidated
business of PhyCor, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(h) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable
by PhyCor to any officer, director, key employee, group of employees,
consultant or agent (other than normal increases consistent with past
practices), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any
officer, director, key employee, group of employees, consultant or agent.
(i) Except for this Plan of Merger and any other agreement executed
and delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted
under other Sections of this Plan of Merger.
(j) Issued any stock, bonds or other securities or any options or
rights to purchase any of its securities (other than stock issued upon the
exercise of outstanding options under PhyCor stock option plans, stock
options granted under such plans and shares of PhyCor Common Stock or other
securities issued pursuant to contractual obligations or in connection with
the acquisition of businesses).
4.10 Tax Matters. (a) Except (i) as set forth in Exhibit 4.10 to the
PhyCor Disclosure Schedule or (ii) where the failure of the following
representations to be true would not, either individually or in the aggregate,
have a material adverse effect:
(A) PhyCor and its subsidiaries have timely filed all Tax returns
required to be filed by them. PhyCor and its subsidiaries have paid all
Taxes (whether or not shown on any Tax return) due or claimed to be due
from them by federal, foreign, state or local taxing authorities.
(B) The reserves for Taxes contained in the financial statements and
carried on the books of PhyCor or its subsidiaries (other than any reserve
for deferred taxes established to reflect timing differences between book
and tax income) are adequate to cover all Tax liabilities of or that
reasonably could be imposed upon PhyCor or any of its subsidiaries
(including tax sharing, allocation and indemnity agreements, under Treasury
Reg. Section 1.1502-6 (and any comparable state or local tax provisions) or
otherwise) as of the date of this Agreement.
(C) Neither PhyCor nor any of its subsidiaries has distributed the
stock of any corporation in a transaction satisfying the requirements of
Section 355 of the Code since April 16, 1997.
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(b) Neither PhyCor nor any of its subsidiaries has taken any action or has
any knowledge of any fact or circumstance that is reasonably likely to prevent
the Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
4.11 Employee Benefit Plans; Employment Matters. (a) Except as set forth
in Exhibit 4.11(a) to the PhyCor Disclosure Schedule, to the knowledge of
PhyCor, PhyCor has neither established nor maintained nor is obligated to make
contributions to or under or otherwise participate in (i) any bonus or other
type of incentive compensation plan, program or arrangement (whether or not set
forth in a written document), (ii) any pension, profit-sharing, retirement or
other plan, program or arrangement, or (iii) any other employee benefit plan,
fund or program, including, but not limited to, those described in Section 3(3)
of ERISA (individually, a "PhyCor Plan" and collectively, the "PhyCor Plans"),
except for such plans that are not material.
(b) Except as set forth in Exhibit 4.11(b) to the PhyCor Disclosure
Schedule or as is expressly contemplated by this Plan of Merger, PhyCor is not a
party to any oral or written (i) union, guild or collective bargaining agreement
which agreement covers employees in the United States (nor is it aware of any
union organizing activity currently being conducted in respect to any of its
employees), (ii) agreement with any executive officer or other key employee the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction of the nature contemplated by this Plan of
Merger and which provides for the payment of in excess of $25,000.00, or (iii)
agreement or plan, including any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Plan of Merger or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Plan of Merger.
(c) Prior to the Effective Time, PhyCor will deliver or make available to
MedPartners true, accurate and complete copies of the documents comprising each
PhyCor Plan, each pension plan (as defined in Section 3(2) of ERISA) maintained
by or for the benefit of employees of any entity which is affiliated with PhyCor
through a management agreement, and any related trust agreements, annuity
contracts or any other funding instruments ("Funding Arrangements") and the most
recent Form 5500 annual report.
(d) Except as set forth in Exhibit 4.11(d) of the PhyCor Disclosure
Schedule or as would not have a material adverse effect on PhyCor:
(i) Each PhyCor Plan intended to be qualified under Section 401(a) of
the Code has a current favorable determination letter and no event has
occurred which, to the knowledge of PhyCor, could cause any PhyCor Plan to
become disqualified for purposes of Section 401(a) of the Code. Each PhyCor
Plan has been operated in compliance with applicable law, including ERISA
and the Code as applicable, and in accordance with its terms. There are no
pending claims, lawsuits or actions relating to any PhyCor Plan (other than
ordinary course claims for benefits) and, to the best knowledge of PhyCor,
none are threatened that would result in a material adverse effect.
(ii) No act or failure to act by PhyCor, any of PhyCor's officers,
directors or employees, or, to the knowledge of PhyCor, any other "party in
interest" (as defined in ERISA), has resulted in a "prohibited transaction"
(as defined in ERISA) with respect to the PhyCor Plans that is not subject
to a statutory or regulatory exception. No "reportable event" (as defined
in ERISA, but excluding any event for which notice is waived under the
ERISA regulations) has occurred with respect to any of the PhyCor Plans
which is subject to Title IV of ERISA. PhyCor has not previously made, is
not currently making, and is not obligated in any way to make, any
contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980. Neither PhyCor nor any
other employer who has participated or is participating in any PhyCor Plan
(a "Sponsor") has incurred any liability to the DOL, the PBGC or the
Internal Revenue Service in connection with any PhyCor Plans, and no
condition exists that presents a risk to PhyCor or any Sponsor of incurring
any liability to the DOL, the PBGC or Internal Revenue Service.
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(iii) Full payment has been made of all amounts which are required
under the terms of each PhyCor Plan or Funding Arrangement to have been
paid as of the due date for such payments that have occurred on or before
the Effective Time, and no accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code) has been incurred with
respect to such PhyCor Plan, whether or not waived.
4.12 Compliance with Laws in General. Except as set forth in Exhibit 4.12
to the PhyCor Disclosure Schedule, PhyCor and each PhyCor Subsidiary and Other
PhyCor Entity has not received any notices of, nor to the best of its knowledge,
have there been any, material violations of any federal, state and local laws,
regulations and ordinances relating to its business and operations, including,
without limitation, the Occupational Safety and Health Act, the Americans with
Disabilities Act, the Medicare or applicable Medicaid statutes and regulations,
including billing and coding (and also including the physician self-referral
prohibitions of 42 U.S.C. 1395nn et seq. and the anti-fraud and abuse provisions
of 42 U.S.C. 1320a-7b), and any environmental laws, and no notice of any pending
inspection or violation of any such law, regulation or ordinance has been
received by PhyCor, except in any such case as would not have a material adverse
effect on PhyCor.
4.13 Regulatory Approvals. Except as disclosed in Exhibit 4.13 to the
PhyCor Disclosure Schedule, PhyCor holds all licenses and other regulatory
approvals required or necessary to be applied for or obtained in connection with
its business as currently conducted, except where the failure to obtain such
license or regulatory approval would not have a material adverse effect on
PhyCor. All such licenses and other regulatory approvals relating to the
business, operations and facilities of PhyCor are in full force and effect,
except where any failure of such license or regulatory approval to be in full
force and effect would not have a material adverse effect on PhyCor. Any and all
past litigation concerning such licenses and regulatory approvals, and all
claims and causes of action raised therein, has been finally adjudicated. No
such license or regulatory approval has been revoked, conditioned (except as may
be customary) or restricted, and no action (equitable, legal or administrative),
arbitration or other process is pending, or to the best knowledge of PhyCor,
threatened, which in any way challenges the validity of, or seeks to revoke,
condition or restrict any such license or regulatory approval, except as would
not have a material adverse effect on PhyCor.
4.14 Commissions and Fees. Except for BT Alex. Brown Incorporated, there
are no claims for brokerage commissions, investment bankers' fees or finder's
fees in connection with the transactions contemplated by this Plan of Merger
resulting from any action taken by PhyCor or any of its officers, directors or
agents.
4.15 Stockholder Vote Required. The affirmative vote of (a) the holders of
a majority of the shares of PhyCor Common Stock present, in person or by proxy
at the PhyCor special meeting to amend PhyCor's Restated Charter to increase the
authorized PhyCor Shares to 750,000,000 and (b) the holders of a majority of the
outstanding shares of PhyCor Common Stock entitled to vote thereon are the only
votes of the holders of any class or series of PhyCor capital stock necessary
for PhyCor to approve this Plan of Merger, the Merger and the transactions
contemplated thereby (the "PhyCor Stockholder Approval").
4.16 Pooling Matters. To the best knowledge of PhyCor, neither PhyCor nor
any of its affiliates has taken or agreed to take any action that (without
giving effect to any actions taken or agreed to be taken by MedPartners or any
of its affiliates) would prevent PhyCor from accounting for the business
combination to be effected by the Merger as a pooling of interests for financial
reporting purposes.
4.17 Opinion of Financial Advisor. The Board of Directors of PhyCor has
received the opinion of BT Alex. Brown Incorporated to the effect that, as of
its date and subject to the conditions thereof, the Exchange Ratio is fair from
a financial point of view to the holders of PhyCor Common Stock.
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SECTION 5.
ACCESS TO INFORMATION AND DOCUMENTS.
5.1 Access to Information. Between the date hereof and the Closing Date,
each of PhyCor and MedPartners will give to the other party and its counsel,
accountants and other representatives full access to all the personnel,
properties, documents, contracts, personnel files and other records of such
party and shall furnish the other party with copies of such documents and with
such information with respect to the affairs of such party as the other party
may from time to time reasonably request. Each party will disclose and make
available to the other party and its representatives all books, contracts,
accounts, personnel records, letters of intent, papers, records, communications
with regulatory authorities and other documents relating to the business and
operations of such party.
5.2 Return of Records. If the transactions contemplated hereby are not
consummated and this Plan of Merger terminates, each party agrees to promptly
return all documents, contracts, records or properties of the other party and
all copies thereof furnished pursuant to this Section 5 or otherwise. All
information disclosed in connection with the transactions contemplated hereby to
any party or any affiliate or representative of any party by any party or any
affiliate or representative of any party shall be deemed to be such party's
"Confidential Information" under the terms of the Confidentiality Agreement,
dated October 17, 1997, between MedPartners and PhyCor (the "Confidentiality
Agreement").
SECTION 6.
COVENANTS.
6.1 Preservation of Business. From the date of this Plan of Merger, each
of PhyCor and MedPartners will use its reasonable best efforts to preserve its
business organization intact, to keep available to PhyCor the services of their
present employees, and to preserve for PhyCor the goodwill of the suppliers,
customers and others having business relations with them and their respective
subsidiaries.
6.2 Material Transactions. (x) Except as disclosed in Exhibit 6.2(x) to
the MedPartners Disclosure Schedule or as contemplated by this Plan of Merger,
prior to the Effective Time, neither MedPartners nor any MedPartners Subsidiary,
MedPartners Partnership or Other MedPartners Entity will (other than as required
pursuant to the terms of this Plan of Merger and the related documents), without
first obtaining the written consent of PhyCor:
(a) amend its Certificate of Incorporation or Bylaws or similar
organizational documents;
(b) (i) declare, set aside or pay any dividend or other distribution
with respect to its capital stock, (ii) redeem, purchase or otherwise
acquire directly or indirectly any of its capital stock; (iii) issue, sell,
pledge, dispose of or encumber any securities (or any rights to acquire
such securities), other than shares issued upon the exercise of options
outstanding on the date hereof in accordance with the option plans as in
effect on the date hereof and securities issued pursuant to existing
contractual obligations or in connection with the acquisition of
businesses; or (iv) split, combine or reclassify its outstanding capital
stock;
(c) acquire or agree to acquire, any material assets or business
either by purchase, merger or otherwise, the acquisition of which would
require the filing by MedPartners of a Current Report on Form 8-K under the
Exchange Act;
(d) transfer, lease, license, sell, mortgage, pledge, dispose of, or
encumber any material assets other than in the ordinary and usual course of
business and consistent with past practice;
(e) except in the ordinary course of business, consistent with past
practice, (i) grant any increase in the compensation payable or to become
payable to any of its executive officers or key employees, (ii)(A) adopt
any new, or (B) amend or otherwise increase, or accelerate the payment or
vesting of the amounts payable or to become payable under any existing,
bonus, incentive compensation, deferred compensation, severance, profit
sharing, stock option, stock purchase, insurance, pension, retirement or
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other employee benefit plan agreement or arrangement, (iii) enter into any
employment or severance agreement with or, except in accordance with the
existing written agreements, grant any severance or termination pay to any
officer, director, key employee or group of employees or (iv) increase the
compensation or benefits of any officer, director, key employee or group of
employees;
(f) modify, amend or terminate any of its material contracts or waive,
release or assign any material rights or claims, except in the ordinary
course of business and consistent with past practice;
(g) (i) incur or assume any long-term debt, or except in the ordinary
course of business, incur or assume any short-term indebtedness in amounts
not consistent with past practice; (ii) incur or modify any material
indebtedness or other liability; (iii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except in the ordinary
course of business and consistent with past practice; (iv) make any loans,
advances or capital contributions to, or investments in, any other person
(other than to wholly owned subsidiaries of MedPartners or customary loans
or advances to employees in accordance with past practice); or (v) enter
into any material commitment or transaction;
(h) except as would not have a material adverse effect, make any tax
election or settle or compromise any tax liability, or make any change in
any method of accounting for taxes or accounting policy with respect to
taxes;
(i) change any of the accounting methods or policies used by it unless
required by GAAP;
(j) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of any such claims, liabilities
or obligations, in the ordinary course of business and consistent with past
practice, of claims, liabilities or obligations reflected or reserved
against in, or contemplated by, the consolidated financial statements (or
the notes thereto) of MedPartners and its consolidated entities;
(k) take, or agree to commit to take, any action that would make any
representation or warranty of MedPartners contained herein inaccurate in
any material respect at, or as of any time prior to, the Effective Time;
(l) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing; or
(m) take any action of a character described in Section 3.9(a) to
3.9(j) inclusive.
(y) Except as disclosed in Exhibit 6.2(y) to the PhyCor Disclosure
Schedule or as contemplated by this Plan of Merger, prior to the Effective
Time, neither PhyCor nor any PhyCor Subsidiary nor Other PhyCor Entity will
(other than as required pursuant to the terms of this Plan of Merger and
the related documents), without first obtaining the written consent of
MedPartners:
(a) amend its Restated Charter or Amended Bylaws or similar
organizational documents;
(b) (i) declare, set aside or pay any dividend or other
distribution with respect to its capital stock, (ii) redeem, purchase or
otherwise acquire directly or indirectly any of its capital stock; (iii)
issue, sell, pledge, dispose of or encumber any securities (or any
rights to acquire such securities), other than shares issued upon the
exercise of options outstanding on the date hereof in accordance with
the option plans as in effect on the date hereof and securities issued
pursuant to existing contractual obligations or in connection with the
acquisition of businesses; or (iv) split, combine or reclassify its
outstanding capital stock;
(c) acquire or agree to acquire, any material assets either by
purchase, merger or otherwise;
(d) transfer, lease, license, sell, mortgage, pledge, dispose of,
or encumber any material assets other than in the ordinary and usual
course of business and consistent with past practice;
(e) except in the ordinary course of business, consistent with past
practice (i) grant any increase in the compensation payable or to become
payable to any of its executive officers or key
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employees, (ii)(A) adopt any new, or (B) amend or otherwise increase, or
accelerate the payment or vesting of the amounts payable or to become
payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement
or arrangement, (iii) enter into any employment or severance agreement
with or, except in accordance with the existing written agreements,
grant any severance or termination pay to any officer, director, key
employee or group of employees, or (iv) increase the compensation or
benefits of any officer, director, key employee or group of employees;
(f) modify, amend or terminate any of its material contracts or
waive, release or assign any material rights or claims, except in the
ordinary course of business and consistent with past practice;
(g) (i) incur or assume any long-term debt, or except in the
ordinary course of business, incur or assume any short-term indebtedness
in amounts not consistent with past practice; (ii) incur or modify any
material indebtedness or other liability; (iii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person,
except in the ordinary course of business and consistent with past
practice; (iv) make any loans, advances or capital contributions to, or
investments in, any other person (other than to wholly owned
subsidiaries of PhyCor or customary loans or advances to employees in
accordance with past practice); or (v) enter into any material
commitment or transaction;
(h) except as would not have a material adverse effect, make any
tax election or settle or compromise any tax liability, or make any
change in any method of account for taxes or accounting policy with
respect to taxes;
(i) change any of the accounting methods or policies used by it
unless required by GAAP;
(j) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction of any
such claims, liabilities or obligations, in the ordinary course of
business and consistent with past practice, of claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of PhyCor and
its consolidated subsidiaries;
(k) take, or agree to commit to take, any action that would make
any representation or warranty of PhyCor contained herein inaccurate in
any material respect at, or as of any time prior to, the Effective Time;
(l) enter into an agreement, contract, commitment or arrangement to
do any of the foregoing, or to authorize, recommend, propose or announce
an intention to do any of the foregoing; or
(m) take any action of a character described in Sections 4.9(a) to
4.9(j), inclusive.
6.3 Meetings of Stockholders. Each of PhyCor and MedPartners will take all
steps necessary in accordance with its respective Charter or Certificate of
Incorporation and Bylaws to call, give notice of, convene and hold meetings of
its respective stockholders (the "Stockholder Meetings") as soon as practicable
after the effectiveness of the Registration Statement (as defined in Section 6.4
hereof), for the purpose of obtaining the PhyCor Stockholder Approval and the
MedPartners Stockholder Approval and for such other purposes as may be necessary
(including any increase in the number of authorized shares of PhyCor Common
Stock required for the consummation of the transactions contemplated hereby).
Unless this Plan of Merger shall have been validly terminated as provided
herein, the Boards of Directors of PhyCor and MedPartners (subject to their
fiduciary duties under applicable law) will (a)(i) recommend to their
stockholders the approval and adoption of the matters to be voted on, to the
extent that such approval is required by applicable law in order to consummate
the Merger, and (ii) use their respective reasonable best efforts to obtain the
necessary approvals of their respective stockholders of the transactions
contemplated hereby and (b) the Boards of Directors will not recommend to their
respective stockholders any Alternative Proposal (as defined herein) other than
the Merger.
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6.4 Registration Statement. (a) PhyCor shall prepare and file with the SEC
and any other applicable regulatory bodies, as soon as reasonably practicable, a
Registration Statement on Form S-4 with respect to the shares of the PhyCor
Common Stock to be issued in the Merger (the "Registration Statement"), and will
otherwise proceed promptly to satisfy the requirements of the Securities Act,
including Rule 145 thereunder. Such Registration Statement shall contain a joint
proxy statement of PhyCor and MedPartners containing the information required by
the Exchange Act (the "Proxy Statement"). PhyCor shall use its reasonable best
efforts to cause the Registration Statement to be declared effective and to
maintain such effectiveness until all of the shares of the PhyCor Common Stock
covered thereby have been distributed. PhyCor shall promptly amend or supplement
the Registration Statement to the extent necessary in order to make the
statements therein not misleading in any material respect or to correct any
statements which have become materially false or misleading. PhyCor shall
provide MedPartners with copies of all filings made pursuant to this Section 6.4
and shall consult with MedPartners on responses to any comments made by the
Staff of the SEC with respect thereto.
(b) The information supplied by MedPartners for inclusion or incorporation
by reference in the Registration Statement shall not, at the time the
Registration Statement is declared effective, at the time the Proxy Statement is
first mailed to holders of MedPartners Common Stock and holders of PhyCor Common
Stock, at the time of the Stockholder Meetings and at the Effective Time,
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 information supplied by MedPartners for inclusion
or incorporation by reference in the Proxy Statement shall not, at the date the
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to holders of MedPartners Common Stock and holders of PhyCor Common Stock, at
the time of the Stockholder Meetings and at the Effective Time, 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
the light of the circumstances under which they are made, not misleading. If at
any time prior to the Effective Time any event or circumstance relating to
MedPartners, or its officers or directors, should be discovered by MedPartners
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, MedPartners shall promptly inform PhyCor. All
documents, if any, that MedPartners is responsible for filing with the SEC in
connection with the transactions contemplated hereby or that will be
incorporated by reference in the Registration Statement complied or will comply
at the time of their respective filings as to form and substance in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
(c) The information supplied by PhyCor for inclusion or incorporation by
reference in the Registration Statement shall not, at the time the Registration
Statement is declared effective, at the time the Proxy Statement is first mailed
to holders of PhyCor Common Stock and holders of MedPartners Common Stock, at
the time of the Stockholder Meetings and at the Effective Time, 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 information supplied by PhyCor for inclusion or incorporation by
reference in the Proxy Statement shall not, at the date the Proxy Statement (or
any amendment thereof or supplement thereto) is first mailed to holders of
PhyCor Common Stock and holders of MedPartners Common Stock, at the time of the
Stockholder Meetings or at the Effective Time, 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. If at any time prior to
the Effective Time any event or circumstance relating to PhyCor, or its officers
or directors, should be discovered by PhyCor which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
PhyCor should promptly inform MedPartners and shall promptly file such amendment
to the Registration Statement. All documents that PhyCor is responsible for
filing with the SEC in connection with the transactions contemplated hereby or
that will be incorporated by reference in the Registration Statement complied or
will comply at the time of their respective filings as to form and substance in
all material respects with the applicable requirements of the Securities Act and
the rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
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(d) Prior to the Closing Date, PhyCor shall use its reasonable best efforts
to cause the shares of PhyCor Common Stock to be issued pursuant to the Merger
to be registered or qualified under all applicable securities or Blue Sky laws
of each of the states and territories of the United States, and to take any
other actions which may be necessary to enable the PhyCor Common Stock to be
issued pursuant to the Merger to be distributed in each such jurisdiction.
(e) Prior to the Closing Date, PhyCor shall file a Listing Application with
Nasdaq (or such other exchange on which the shares of PhyCor Common Stock are
then listed) relating to the shares of PhyCor Common Stock to be issued in
connection with the Merger, and shall cause such shares of PhyCor Common Stock
to be listed on Nasdaq (or such other exchange on which the shares of PhyCor
Common Stock are then listed), upon official notice of issuance, prior to the
Closing Date.
(f) MedPartners shall furnish all information to PhyCor with respect to the
MedPartners Subsidiaries as PhyCor may reasonably request for inclusion in the
Registration Statement or the Proxy Statement and shall otherwise cooperate with
PhyCor in the preparation and filing of such documents.
6.5 Exemption from State Takeover Laws. The parties hereto shall take all
reasonable steps necessary and within their respective powers to exempt the
Merger and the other transactions contemplated hereby from the requirements of
any state takeover statute or other similar state law which would prevent or
impede the consummation of such transactions.
6.6 HSR Act Compliance. PhyCor and MedPartners shall promptly make their
respective filings, and shall thereafter use their reasonable best efforts to
promptly make any required submissions, under the HSR Act with respect to the
Merger and the transactions contemplated hereby. PhyCor and MedPartners will use
their respective reasonable best efforts to obtain all other permits,
authorizations, consents and approvals from third parties and governmental
authorities necessary to consummate the Merger and the transactions contemplated
hereby.
6.7 Public Disclosures. PhyCor and MedPartners will consult with each
other before issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this Plan of Merger, and shall
not issue any such press release or make any such public statement prior to such
consultation except as may be required by applicable law or the requirements of
Nasdaq. The parties shall issue a joint press release, mutually acceptable to
PhyCor and MedPartners, promptly upon execution and delivery of this Plan of
Merger.
6.8 Corporate Governance Matters. Immediately prior to the Effective Time,
PhyCor shall take all necessary action to cause the Board of Directors of PhyCor
to elect two new members who shall be designated by MedPartners. The two members
of the Board designated by MedPartners shall be elected to serve until the
stockholders' meetings at which directors are to be elected in the years 1999
and 2000, respectively. The Compensation Committee and the Audit Committee,
which will constitute the only committees of the Board at the Effective Time,
shall contain at least one member that is a MedPartners designated director.
6.9 Notice of Subsequent Events. Each party hereto shall notify the other
party of any changes, additions or events of which it has knowledge which would
cause any material change in or material addition to any Exhibit to its
Disclosure Schedule delivered by the notifying party under this Plan of Merger,
promptly after the occurrence of the same.
6.10 No Solicitations. (a) Neither MedPartners nor any of its subsidiaries
or affiliates shall (and MedPartners shall cause its officers, directors,
employees, representatives and agents, including, but not limited to, investment
bankers, attorneys and accountants, not to), directly or indirectly, encourage
(including by releasing any party from any confidentiality or standstill
agreement), solicit, participate in or initiate discussions or negotiations
with, or provide any information to, any corporation, partnership, person or
other entity or group (other than PhyCor, any of its affiliates or
representatives) concerning any Alternative Proposal (as defined below).
Notwithstanding the foregoing, MedPartners may furnish information concerning
its business, properties or assets to a person or group pursuant to appropriate
and customary confidentiality agreements, and may participate in discussions and
negotiations with such person or group concerning an Alternative Proposal (x) if
such person or group has on an unsolicited basis submitted a bona fide written
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proposal to the Board of Directors of MedPartners relating to any such
transaction which the Board determines represents a superior transaction to the
transactions contemplated hereby and (y) if the Board of Directors of
MedPartners determines, in good faith, after receipt of advice from independent
legal counsel to MedPartners, that such action is required for the Board of
Directors to comply with its fiduciary duties to its stockholders under
applicable law. MedPartners will immediately communicate to PhyCor (and will
keep PhyCor informed on an ongoing basis of) the terms of any proposal,
discussion, negotiation or inquiry (and will disclose any written materials
received by MedPartners in connection with such proposal, discussion
negotiation, or inquiry) and the identity of the party making such proposal or
inquiry which it may receive in respect of any such transaction. As used herein,
"Alternative Proposal" shall mean any bona fide proposal involving a merger,
tender offer, exchange offer or sale of a majority of the assets (on a
consolidated basis) or outstanding capital stock of, or substantially all of the
assets or outstanding capital stock of any line of business or business unit
constituting 25% or more of MedPartners' or PhyCor's revenue for 1996 or the
nine months ended September 30, 1997, or similar transactions involving or
relating to, MedPartners or PhyCor, as the case may be; provided, however, that
Alternative Proposal shall not include any proposal that has, prior to
termination of the Plan of Merger, been withdrawn, rejected or has expired by
its terms.
(b) Neither PhyCor nor any of its subsidiaries or affiliates shall (and
PhyCor shall cause its officers, directors, employees, representatives and
agents, including, but not limited to, investment bankers, attorneys and
accountants, not to), directly or indirectly, encourage (including by releasing
any party from any confidentiality or standstill agreement), solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than MedPartners, any of its affiliates or representatives) concerning
any Alternative Proposal. Notwithstanding the foregoing, PhyCor may furnish
information concerning its business, properties or assets to a person or group
pursuant to appropriate and customary confidentiality agreements, and may
participate in discussions and negotiations with such person or group concerning
an Alternative Proposal (x) if such person or group has on an unsolicited basis
submitted a bona fide written proposal to the Board of Directors of PhyCor
relating to any such transaction which the Board determines represents a
superior transaction to the transactions contemplated hereby and (y) if the
Board of Directors of PhyCor determines, in good faith, after receipt of advice
from independent legal counsel to PhyCor, that such action is required for the
Board of Directors to comply with its fiduciary duties under applicable law.
PhyCor will immediately communicate to MedPartners (and will keep MedPartners
informed on an ongoing basis of) the terms of any proposal, discussion,
negotiation or inquiry (and will disclose any written materials received by
PhyCor in connection with such proposal, discussion negotiation, or inquiry) and
the identity of the party making such proposal or inquiry which it may receive
in respect of any such transaction.
6.11 Accounting Methods. Neither PhyCor nor MedPartners shall change, in
any material respect, its methods of accounting in effect at its most recent
fiscal year end, except as required by changes in GAAP, if applicable, as
concurred by such parties' independent accountants.
6.12 Pooling and Tax-Free Reorganization Treatment. Neither PhyCor nor
MedPartners nor any their respective subsidiaries shall take or cause to be
taken any action, whether on or before the Effective Time, which would
disqualify the Merger as a "pooling of interests" for accounting purposes or as
a "reorganization" within the meaning of Section 368(a) of the Code.
6.13 Affiliate and Pooling Agreements. PhyCor and MedPartners will each
use their respective reasonable, good faith efforts to cause each of their
respective directors and executive officers and each of their respective
"affiliates" (within the meaning of Rule 145 under the Securities Act) to
execute and deliver to PhyCor as soon as practicable an agreement in the form
attached hereto as Exhibit 6.13 relating to the disposition of shares of PhyCor
Common Stock and shares of MedPartners Common Stock held by such person and the
shares of PhyCor Common Stock issuable pursuant to this Plan of Merger.
6.14 Other Actions. Neither MedPartners nor PhyCor shall knowingly or
intentionally take any action, or omit to take any action, if such action or
omission would, or reasonably might be expected to, result in any of its
representations and warranties set forth herein being or becoming untrue in any
material respect, or in any of the conditions to the Merger set forth in this
Plan of Merger not being satisfied, or (unless such action
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is required by applicable law) which would materially adversely affect the
ability of MedPartners or PhyCor to obtain any consents or approvals required
for the consummation of the Merger without imposition of a condition or
restriction which would have a material adverse effect on PhyCor or which would
otherwise materially impair the ability of MedPartners or PhyCor to consummate
the Merger in accordance with the terms of this Plan of Merger or materially
delay such consummation.
6.15 Cooperation. (a) PhyCor and MedPartners shall together, or pursuant
to an allocation of responsibility agreed to between them, (i) cooperate with
one another in determining whether any filings required to be made or consents
required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby and
cooperate in making any such filings promptly and in seeking to obtain timely
any such consents, (ii) use their respective reasonable best efforts to cause to
be lifted any injunction prohibiting the Merger, or any part thereof, or the
other transactions contemplated hereby, and (iii) furnish to one another and to
one another's counsel all such information as may be required to effect the
foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless this
Plan of Merger shall have been validly terminated as provided herein, each of
PhyCor and MedPartners shall use all reasonable efforts (i) to take, or cause to
be taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on such party (or any subsidiaries or affiliates of such
party) with respect to the Plan of Merger and to consummate the transactions
contemplated hereby and (ii) to obtain (and to cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any exemption by,
any governmental entity and/or any other public or private third party which is
required to be obtained or made by such party or any of its subsidiaries or
affiliates in connection with this Plan of Merger and the transactions
contemplated hereby and (iii) to cause the conditions to the obligations of the
parties hereto to be satisfied, and the Merger to be consummated, as promptly as
practicable. Each of PhyCor and MedPartners will promptly cooperate with and
furnish information to the other in connection with any such burden suffered by,
or requirement imposed upon, either of them or any of their subsidiaries or
affiliates in connection with the foregoing.
6.16 MedPartners Stock Options. (a) As soon as reasonably practicable
after the Effective Time, PhyCor shall deliver to the holders of MedPartners
stock options appropriate notices setting forth such holders' rights pursuant to
any stock option plans under which such MedPartners stock options were issued or
substituted under a PhyCor stock option plan, as described in Section 2.1(d),
and any stock option agreements evidencing such options. Subject to Section
2.1(d), PhyCor shall use its reasonable best efforts to ensure, to the extent
required by, and subject to the provisions of, such plans or agreements, that
MedPartners stock options which qualified as incentive stock options prior to
the Effective Time shall continue to qualify as incentive stock options after
the Effective Time.
(b) PhyCor shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of PhyCor Common Stock for delivery upon
exercise of MedPartners stock options assumed by PhyCor in accordance with
Section 2.1(d). As soon as practicable after the Effective Time, PhyCor shall
file with the SEC a registration statement on Form S-8 with respect to shares of
PhyCor Common Stock subject to such assumed MedPartners stock options and shall
use its best efforts to maintain the effectiveness of a registration statement
or registration statements covering such options (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
MedPartners stock options remain outstanding. PhyCor shall administer the plans
assumed pursuant to Section 2.1(d) hereof in a manner that complies with Rule
16b-3 promulgated under the Exchange Act to the extent the applicable plan
complied with such rule prior to the Merger.
(c) Except to the extent otherwise agreed to by the parties, all
restrictions or limitations on transfer and vesting with respect to MedPartners
stock options awarded under any plan, program, or arrangement of MedPartners or
any of its subsidiaries, to the extent that such restrictions or limitations
shall not have already lapsed as of the Effective Time, shall remain in full
force and effect with respect to such options after giving effect to the Merger
and the assumption by PhyCor as set forth above.
6.17 Publication of Combined Results. PhyCor agrees that PhyCor shall
cause publication of the combined results of operations of PhyCor and
MedPartners in its first Quarterly Report on Form 10-Q to be
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filed after the Closing Date which contains a full calendar month of such
combined results. For purposes of this Section 6.17, the term "publication"
shall have the meaning provided in SEC Accounting Series Release No. 135.
6.18 Tax Opinions. Each of PhyCor and MedPartners agrees that it shall
provide certificates containing reasonably requested representations to counsel
in connection with rendering the opinions contemplated by Sections 8.2(c) and
8.3(c).
6.19 Change in Control. PhyCor acknowledges and agrees that the
consummation of the Merger shall constitute a "Change in Control" or "Change of
Control" of MedPartners for all purposes within the meaning of all MedPartners
Plans and compensation plans or compensation agreements, severance agreements
and employment agreements of MedPartners.
6.20 Insurance and Indemnification. (a) For six years after the Effective
Time, PhyCor shall indemnify, defend and hold harmless the current and former
officers and directors of MedPartners and its subsidiaries (each an "Indemnified
Party") against all losses, claims, damages, liabilities, fees and expenses
(including reasonable fees and disbursements of counsel and judgments, fines,
losses, claims, liabilities and amounts paid in settlement) arising out of
actions or omissions occurring at or prior to the Effective Time to the full
extent permitted under Delaware law and the Certificate of Incorporation, Bylaws
and any indemnity or other agreements of MedPartners, as in effect at the date
hereof, including provisions relating to advancement of expenses incurred in the
defense of any action or suit. PhyCor agrees that all rights to indemnification
or exculpation in MedPartners' Certificate of Incorporation, Bylaws or other
agreements shall survive for a period of at least six years from the Effective
Time.
(b) PhyCor shall cause to be maintained MedPartners' existing officers' and
directors' liability insurance covering those persons who are currently covered
by such insurance policy for a period of not less than six years after the
Effective Date, provided, that PhyCor may substitute therefor policies of
substantially similar coverage and amounts containing terms no less favorable to
such directors or officers, provided, however, that in no event shall PhyCor be
required to pay annual premiums for insurance in excess of 200% of the aggregate
annual premiums currently paid by MedPartners and provided, further, that if
such coverage is not available for such amount, PhyCor shall be obligated to
obtain a policy with the greatest coverage available for a cost not exceeding
such amount.
6.21 TAPS. MedPartners and PhyCor shall cooperate and take any actions
reasonably required in connection with MedPartners' Threshold Appreciation Price
Securities in connection with the Merger and the other transactions contemplated
by this Plan of Merger, including, in the case of PhyCor, executing any required
supplemental purchase agreement or other documents.
6.22 Employee Matters. (a) As of the Effective Time, employees of
MedPartners and its subsidiaries (the "MedPartners Employees") will be provided
with employee benefit and incentive compensation plans and programs that are
comparable in the aggregate to those such plans and programs provided to
employees of PhyCor and its subsidiaries as of the Effective Time.
(b) At or prior to December 31, 1997, MedPartners shall make bonus payments
in respect of calendar year 1997 to certain MedPartners Employees, as set forth
in Exhibit 6.2(x) to the MedPartners Disclosure Schedule.
(c) Prior to the Effective Time, MedPartners shall adopt a special
Employees severance pay program that will provide payments and benefits to
certain MedPartners Employees who are involuntarily terminated without cause
from employment within a reasonable period following the Effective Time. Such
severance pay program shall relate to such MedPartners Employees and include
such terms and conditions as shall be determined by MedPartners subject to prior
written consent of PhyCor, provided that the severance benefit to any individual
MedPartners Employee shall be no less than 30 days of aggregate salary and pro
rata annual target bonus, plus benefits continuation; provided, however, that
such payment shall be reduced to the extent that it would result in liability to
the recipient under Section 4999 of the Code. The severance program shall
provide that no benefits are payable to employees who voluntarily quit or who
are terminated for cause, shall
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include such terms that are required under ERISA for similar benefit plans, and
shall name PhyCor or its delegate as the plan administrator.
SECTION 7.
TERMINATION, AMENDMENT AND WAIVER.
7.1 Termination. This Plan of Merger may be terminated at any time prior
to the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of PhyCor Common Stock or MedPartners
Common Stock:
(a) by mutual written consent of PhyCor and MedPartners;
(b) by either PhyCor or MedPartners:
(i) if upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of PhyCor
Common Stock or the holders of MedPartners Common Stock shall not have
been obtained;
(ii) if the Merger shall not have been consummated on or before
July 31, 1998, unless the failure to consummate the Merger is the result
of a willful and material breach of this Plan of Merger by the party
seeking to terminate this Plan of Merger; provided, however, that (A)
the passage of such period shall be tolled for any part thereof (but not
exceeding 120 days in the aggregate) during which any party shall be
subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting or delaying the consummation of the
Merger or the calling or holding of a meeting of stockholders and (B) if
an Alternative Proposal shall have been received by a party prior to
termination of this Plan of Merger, the Plan of Merger shall not
terminate pursuant to this Section 7.1(b)(ii) earlier than 30 days
following receipt of such Alternative Proposal;
(iii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable; or
(iv) in the event of a material breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Plan of Merger or the occurrence of a material adverse change or effect
with respect to the other party which (A) would give rise to the failure
of a condition set forth in Section 8.2(a) or (b) or Section 8.3(a) or
(b), as applicable, and (B) cannot be or has not been cured within 30
days after the giving of written notice to the breaching party of such
breach (a "Material Breach") (provided that the terminating party is not
then in Material Breach of any representation, warranty, covenant or
other agreement contained in this Plan of Merger);
(c) by PhyCor before the approval of the holders of PhyCor Common
Stock is obtained, by action of the Board of Directors of PhyCor, in the
exercise of its good faith judgment as to its fiduciary duties to its
stockholders under applicable law, as advised by outside counsel to PhyCor,
if the Board of Directors of PhyCor determines that such termination is
required by reason of an Alternative Proposal being made; provided,
however, that PhyCor shall have (i) complied with Section 6.10 hereof, (ii)
notified MedPartners promptly of its intention to recommend such
Alternative Proposal to PhyCor's stockholders, but in no event shall the
notice referred to in this clause be given less than five days prior to the
earlier of the public announcement of such recommendation or PhyCor's
termination of this Plan of Merger and (iii) paid the fee contemplated by
Section 7.6;
(d) by MedPartners before the approval of the holder of the
MedPartners Shares is obtained, by action of the Board of Directors of
MedPartners, in the exercise of its good faith judgment as to its fiduciary
duties to its stockholders under applicable law, as advised by outside
counsel to MedPartners, if
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the Board of Directors of MedPartners determines that such termination is
required by reason of an Alternative Proposal being made; provided,
however, that MedPartners shall have (i) complied with Section 6.10 hereof,
(ii) notified PhyCor promptly of its intention to recommend such
Alternative Proposal to MedPartners' stockholders, but in no event shall
the notice referred to in this clause be given less than five days prior to
the earlier of the public announcement of such recommendation or
MedPartners' termination of this Plan of Merger and (iii) paid the fee
contemplated by Section 7.6;
(e) by PhyCor if the Board of Directors of MedPartners shall have
withdrawn or modified in a manner materially adverse to PhyCor its approval
or recommendation of this Plan of Merger or the Merger, shall have
recommended an Alternative Proposal (or shall have resolved to do any of
the foregoing) or shall have failed to reaffirm its recommendation within
five business days of PhyCor's request that it do so; or
(f) by MedPartners if the Board of Directors of PhyCor shall have
withdrawn or modified in a manner materially adverse to MedPartners its
approval or recommendation of this Plan of Merger or the Merger, shall have
recommended an Alternative Proposal (or shall have resolved to do any of
the foregoing) or shall have failed to reaffirm its recommendation within
five business days of MedPartners' request that it do so.
7.2 Effect of Termination. In the event of termination of this Plan of
Merger as provided in Section 7.1, this Plan of Merger shall forthwith become
void and have no effect, without any liability or obligation on the part of any
party, other than the provisions of Sections 5.2, 7.2 and 7.6, and except to the
extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or other agreements
set forth in this Plan of Merger.
7.3 Amendment. This Plan of Merger may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of MedPartners Shares or holders of shares of
PhyCor Common Stock; provided, however, that after such approval there shall be
made no amendment that pursuant to Section 251(d) of the DGCL requires further
approval by such stockholders without such further approval. This Plan of Merger
may not be amended except by an instrument in writing signed on behalf of each
of the parties.
7.4 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 7.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise shall
not constitute a waiver of such rights.
7.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Plan of Merger pursuant to Section 7.1, an amendment of this
Plan of Merger pursuant to Section 7.3 or an extension or waiver pursuant to
Section 7.4 shall, in order to be effective, require in the case of PhyCor or
MedPartners, action by its Board of Directors or the duly authorized designee of
the Board of Directors.
7.6 Expenses; Break-up Fees. (a) All costs and expenses incurred in
connection with this Plan of Merger and the transactions contemplated hereby
shall be paid by the party incurring such expense, except that expenses (other
than legal, accounting and investment banking costs, which shall be paid by the
party incurring such expenses) incurred in connection with preparing, filing,
printing and mailing the Proxy Statements and the Registration Statement shall
be shared equally by PhyCor and MedPartners.
(b) In the event that this Plan of Merger is terminated (i) pursuant to
Section 7.1(c) or 7.1(f) or (ii)(A) any person shall have made an Alternative
Proposal with respect to PhyCor and (B) this Plan of Merger is terminated
pursuant to Section 7.1(b)(i) due to a failure to obtain the approval of the
holders of PhyCor Common Stock, 7.1(b)(ii) or 7.1(b)(iv) (due to a material
breach by PhyCor), then PhyCor shall, as specified in Section 7.1(c) or
otherwise on the day of such termination, pay to MedPartners a fee of $100
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<PAGE> 31
million in cash by wire transfer of immediately available funds to an account
designated by MedPartners; provided that in the case of a termination pursuant
to Section 7.1(b)(ii), such termination shall not have resulted from the failure
to be satisfied of any condition set forth in Section 8.1 (except to the extent
such a condition relates to, or is within the control of, PhyCor) or Section 8.2
hereof.
(c) In the event that this Plan of Merger is terminated (i) pursuant to
Section 7.1(d) or 7.1(e) or (ii)(A) any person shall have made an Alternative
Proposal with respect to MedPartners and (B) this Plan of Merger is terminated
pursuant to Section 7.1(b)(i) due to a failure to obtain the approval of the
holders of MedPartners Common Stock, 7.1(b)(ii) or 7.1(b)(iv) (due to material
breach by MedPartners), then MedPartners shall, as specified in Section 7.1(d)
or otherwise on the day of such termination, pay to PhyCor a fee of $200 million
in cash by wire transfer of immediately available funds to an account designated
by PhyCor; provided that in the case of a termination pursuant to Section
7.1(b)(ii), such termination shall not have resulted from the failure to be
satisfied of any condition set forth in Section 8.1 (except to the extent such a
condition relates to, or is within the control of, MedPartners) or Section 8.3
hereof.
(d) Each of PhyCor and MedPartners acknowledges that the provisions for the
payment of break-up fees and the allocation of expenses contained in this
Section 7.6 are an integral part of the transactions contemplated by this Plan
of Merger and that without these provisions PhyCor and MedPartners would not
have entered into this Plan of Merger. Accordingly, if a break-up fee shall
become due and payable by either party and such party shall fail to pay such
amount when due pursuant to this Section, and, in order to obtain such payment,
suit is commenced by the other party which results in a judgment against the
defaulting party therefor, the defaulting party shall pay the other party's
reasonable costs and expenses (including reasonable attorneys' fees) in
connection with such suit, together with interest computed on any amounts
determined to be due pursuant to this Section (computed from the date upon which
such amounts were due and payable pursuant to this Section) and such costs
(computed from the dates incurred) at the prime rate of interest announced from
time to time by NationsBank, National Association (South). The obligations of
all parties under this Section 7.6 shall survive any termination of this Plan of
Merger.
SECTION 8.
CONDITIONS TO CLOSING.
8.1 Mutual Conditions. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction, at or prior to the Closing
Date, of the following conditions (any of which, to the extent permitted by law,
may be waived in writing by PhyCor or MedPartners):
(a) Neither PhyCor nor MedPartners nor any of their respective
subsidiaries shall be subject to any order, decree or injunction by a court
of competent jurisdiction which (i) prevents or materially delays the
consummation of the Merger or (ii) imposes any material limitation on the
ability of PhyCor to operate the business of MedPartners that would
constitute a material adverse effect on MedPartners.
(b) No statute, rule or regulation shall have been enacted by the
government (or any governmental agency) of the United States or any state
that makes the consummation of the Merger and any other transaction
contemplated hereby illegal.
(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) The holders of shares of PhyCor Common Stock shall have duly given
the PhyCor Stockholder Approval.
(e) The holders of shares of MedPartners Common Stock shall have duly
given the MedPartners Stockholder Approval.
(f) The shares of PhyCor Common Stock to be issued in connection with
the Merger shall have been listed on Nasdaq (or such other exchange on
which the shares of PhyCor Common Stock are then listed), upon official
notice of issuance, and shall have been issued in transactions qualified or
exempt
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<PAGE> 32
from registration under applicable securities or Blue Sky laws of such
states and territories of the United States as may be required.
(g) PhyCor and MedPartners shall each have received a letter, dated
the Closing Date, from KPMG Peat Marwick LLP, as to their concurrence with
PhyCor and MedPartners to the effect that if the Merger is consummated in
accordance with the terms and provisions of this Plan of Merger, it shall
be accounted for as a "pooling of interests" under GAAP.
(h) PhyCor and MedPartners shall have received all consents, waivers,
approvals and authorizations of third parties with respect to all material
contracts, leases, service agreements and management agreements to which
such entities are parties, which consents, waivers, approvals and
authorizations are required of such third parties by such documents, in
form and substance acceptable to PhyCor or MedPartners, as the case may be,
except where the failure to obtain such consent, approval or authorization
would not have a material effect on the business of PhyCor or MedPartners.
(i) All consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Plan of Merger shall have been obtained or made, except
for filings in connection with the Merger and any other documents required
to be filed after the Effective Time.
(j) The Registration Statement shall have been declared effective and
no stop order with respect to the Registration Statement shall be in
effect.
8.2 Conditions to Obligations of PhyCor. The obligations of PhyCor to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions (any of which may be waived by PhyCor):
(a) Each of the agreements of MedPartners to be performed at or prior
to the Closing Date pursuant to the terms hereof shall have been duly
performed in all material respects and MedPartners shall have performed, in
all material respects, all of the acts required to be performed by it at or
prior to the Closing Date by the terms hereof.
(b) The representations and warranties of MedPartners shall be true
and correct as of the date of this Plan of Merger and as of the Closing
Date, except where the failure to be true and correct would not, in the
aggregate, have a material adverse effect on MedPartners.
(c) PhyCor shall have received an opinion of Waller Lansden Dortch &
Davis, A Professional Limited Liability Company, counsel to PhyCor, dated
the Closing Date, addressed to PhyCor and in form and substance
satisfactory to PhyCor, which opinion may be based on appropriate
representations of PhyCor and MedPartners which are in form and substance
reasonably satisfactory to such counsel, to the effect that the Merger will
be treated as a reorganization within the meaning of Section 368(a) of the
Code.
(d) PhyCor shall have received an opinion of Dewey Ballantine LLP,
counsel to MedPartners, dated the Closing Date, addressed to PhyCor and in
form and substance satisfactory to PhyCor, with respect to the matters set
forth on Annex A hereto.
(e) PhyCor shall have been furnished with a certificate, executed by a
duly authorized officer of MedPartners, dated the Closing Date, certifying
in such detail as PhyCor may reasonably request as to the fulfillment of
the foregoing conditions.
8.3 Conditions to Obligations of MedPartners. The obligations of
MedPartners to consummate the Merger and the other transactions contemplated
hereby shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions (any of which may be waived by MedPartners):
(a) Each of the agreements of PhyCor to be performed at or prior to
the Closing Date pursuant to the terms hereof shall have been duly
performed in all material respects, and PhyCor shall have performed, in all
material respects, all of the acts required to be performed by them at or
prior to the Closing Date by the terms hereof.
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<PAGE> 33
(b) The representations and warranties of PhyCor shall be true and
correct as of the date of the Plan of Merger and as of the Closing Date,
except where the failure to be true and correct would not, in the
aggregate, have a material adverse effect on PhyCor.
(c) MedPartners shall have received an opinion from Dewey Ballantine
LLP, dated the Closing Date, addressed to MedPartners and in form and
substance satisfactory to MedPartners, which opinion may be based on
appropriate representations of PhyCor and MedPartners which are in form and
substance reasonably satisfactory to such counsel, to the effect that the
Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code.
(d) MedPartners shall have received an opinion of Waller Lansden
Dortch & Davis, A Professional Limited Liability Company, dated the Closing
Date, addressed to MedPartners and in form and substance satisfactory to
MedPartners, with respect to the matters set forth on Annex B hereto.
(e) MedPartners shall have been furnished with a certificate, executed
by duly authorized officers of PhyCor, dated the Closing Date, certifying
in such detail as MedPartners may reasonably request as to the fulfillment
of the foregoing conditions.
SECTION 9.
MISCELLANEOUS.
9.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Plan of Merger or in any instrument
delivered pursuant to this Plan of Merger shall survive the Effective Time.
9.2 Notices. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery or by
facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to PhyCor:
PhyCor, Inc.
30 Burton Hills Boulevard, Suite 400
Nashville, Tennessee 37215
Facsimile: (615) 665-9088
Attention: Mr. Joseph C. Hutts
with a copy to:
Waller Lansden Dortch & Davis,
A Professional Limited Liability Company
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Facsimile: (615) 244-6804
Attention: J. Chase Cole, Esq.
If to MedPartners:
MedPartners, Inc.
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
Facsimile: (205) 733-9780
Attention: J. Brooke Johnston, Jr., Esq.
A-33
<PAGE> 34
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 259-6333
Attention: Frederick W. Kanner and Morton A. Pierce
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
9.3 Further Assurances. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Plan of Merger.
9.4 Governing Law. This Plan of Merger shall be interpreted, construed and
enforced in accordance with the laws of the State of Tennessee, applied without
giving effect to any conflicts-of-law principles.
9.5 "Including". The word "including", when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation", "but not limited to", or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of the
general statement, term or matter.
9.6 "Material adverse change" or "material adverse effect". "Material
adverse change" or "material adverse effect" means, when used in connection with
MedPartners or PhyCor, any change, effect, event or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on the business, financial position or results of operations of such
party and its subsidiaries taken as a whole; provided, however, that "material
adverse change" and "material adverse effect" shall be deemed to exclude the
impact of changes generally affecting the industries in which both MedPartners
and PhyCor operate (including accounting, tax and regulatory changes).
9.7 "Significant". The word "significant", when used in connection with
MedPartners Subsidiaries or PhyCor Subsidiaries, shall mean significant
subsidiaries within the meaning of Rule 1-02(w) of Regulation S-X.
9.8 Captions. The captions or headings in this Plan of Merger are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Plan of Merger.
9.9 Integration of Exhibits. All Exhibits attached to this Plan of Merger
are integral parts of this Plan of Merger as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced.
9.10 Entire Agreement. This instrument, including all Exhibits attached
hereto and the Confidentiality Agreement, (a) contains the entire agreement of
the parties and supersedes any and all prior or contemporaneous agreements
between the parties, written or oral, with respect to the transactions
contemplated hereby and (b) except as provided in Sections 6.19, 6.20 and 6.22
is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder. Such agreement may not be changed or terminated
orally, but may only be changed by an agreement in writing signed by the party
or parties against whom enforcement of any waiver, change, modification,
extension, discharge or termination is sought.
9.11 Counterparts. This Plan of Merger may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
9.12 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by MedPartners, and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of
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<PAGE> 35
construction shall apply to this Plan of Merger which construes ambiguous
language in favor of or against any party by reason of that party's role in
drafting this Plan of Merger.
9.13 Specific Performance. The parties agree that irreparable injury would
occur by a breach of this Plan of Merger and that money damages would not be
sufficient remedy for any such breach. Accordingly, each party shall be entitled
to equitable relief, including injunctive relief and specific performance, as a
remedy for any such breach (which shall be in addition to all other remedies
available at law and equity to such party).
9.14 Severability. If any term, provision, covenant or restriction of this
Plan of Merger is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Plan of
Merger shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.15 Assignment; Binding Effect. Neither this Plan of Merger nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Plan of Merger will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
IN WITNESS WHEREOF, PhyCor, Inc. and MedPartners, Inc. have caused this
Plan and Agreement of Merger to be executed by their respective duly authorized
officers, all as of the day and year first above written.
PhyCor, Inc.
By /S/ JOSEPH C. HUTTS
------------------------------------
Joseph C. Hutts
Chairman of the Board, President
and Chief Executive Officer
MedPartners, Inc.
By /S/ LARRY R. HOUSE
------------------------------------
Larry R. House
Chairman of the Board and
Chief Executive Officer
A-35
<PAGE> 1
EXHIBIT 11
PHYCOR, INC. AND SUBSIDIARIES
Statement regarding computation of per share earnings
Three months and nine months ended September 30, 1997 and 1996
(In thousands, except for earnings per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1997 1996 1997 1996
------- ------ ------ ------
<S> <C> <C> <C> <C>
Earnings per common share:
Net earnings $15,040 9,073 41,053 25,182
======= ====== ====== ======
Earnings per share $ .22 .15 .61 .42
======= ====== ====== ======
Weighted average common
shares outstanding 69,072 60,843 66,853 60,555
======= ====== ====== ======
Earnings per common share, assuming full dilution:
Net earnings $15,040 9,073 41,053 25,182
======= ====== ====== ======
Earnings per share $ .22 .15 .61 .42
======= ====== ====== ======
Weighted average common
shares outstanding 75,006 67,380 72,694 66,325
======= ====== ====== ======
</TABLE>
Note: The convertible debentures were not included in the calculation of
the fully diluted earnings per share since the effect of inclusion
would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 37,534
<SECURITIES> 0
<RECEIVABLES> 373,315
<ALLOWANCES> 0
<INVENTORY> 17,646
<CURRENT-ASSETS> 478,861
<PP&E> 299,748
<DEPRECIATION> 81,756
<TOTAL-ASSETS> 1,502,010
<CURRENT-LIABILITIES> 243,700
<BONDS> 335,086
0
0
<COMMON> 641,219
<OTHER-SE> 103,044
<TOTAL-LIABILITY-AND-EQUITY> 1,502,010
<SALES> 0
<TOTAL-REVENUES> 802,297
<CGS> 0
<TOTAL-COSTS> 712,242
<OTHER-EXPENSES> 6,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,791
<INCOME-PRETAX> 66,982
<INCOME-TAX> 25,929
<INCOME-CONTINUING> 41,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,053
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
