<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PHYCOR, INC.
----------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11:
(1) Title of each class of securities to which transaction applies:
PhyCor, Inc. Common Stock, no par value.
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $___________
(4) Proposed maximum aggregate value of transaction: $__________
(5) Total fee paid: $__________
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:________________________________________________
(2) Form, Schedule or Registration Statement No.:__________________________
(3) Filing Party:__________________________________________________________
(4) Date Filed:____________________________________________________________
<PAGE> 2
LOGO
30 BURTON HILLS BOULEVARD, SUITE 400
NASHVILLE, TENNESSEE 37215
Dear Shareholder of PhyCor, Inc.:
You are cordially invited to attend a special meeting of the
shareholders of PhyCor, Inc. ("PhyCor" or the "Company") to be held on
____________ ___, 1999, beginning at 10:00 a.m. Central Time, at
___________________ ____________ Nashville, Tennessee. The purpose of the
special meeting is to consider and vote upon the sale and issuance by PhyCor of
$266,389,621 aggregate principal amount at final maturity of PhyCor's Series B
Zero Coupon Convertible Subordinated Notes due 2014 (the "Series B Notes") to
Warburg, Pincus Equity Partners, L.P. and certain affiliated entities (the
"Investors").
On September 3, 1999, PhyCor issued and sold $266,389,621 aggregate
principal amount at maturity of Series A Zero Coupon Convertible Subordinated
Notes due 2014 (the "Series A Notes") to the Investors pursuant to a Securities
Purchase Agreement, dated June 15, 1999, as amended August 23, 1999, between
PhyCor and the Investors (the "Purchase Agreement"). At the special meeting, you
will be asked to vote upon a proposal (the "Notes Proposal") to issue and sell
the Series B Notes to the Investors pursuant to the Purchase Agreement. The
Series B Notes are non-voting, have a 6.75% yield and are convertible into
shares of PhyCor's common stock, no par value, at a price of $6.67 per share,
subject to adjustment as provided in the Purchase Agreement. The proceeds from
the sale of the Series B Notes to the Investors will be used to repay
outstanding indebtedness of PhyCor under its revolving credit facility, to fund
PhyCor's $100 million securities repurchase program and for other corporate
purposes, including possible strategic initiatives.
The board of directors of PhyCor believes that the sale of the Series B
Notes is in the best interests of PhyCor's shareholders and recommends that the
shareholders vote FOR the Notes Proposal at the special meeting. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, financial advisor to the Company in
connection with the issuance of the Series A and Series B Notes, has delivered
to the PhyCor board of directors a written opinion dated, September 2, 1999, to
the effect that as of the date of the opinion and based upon and subject to the
matters stated in the opinion, the consideration to be paid to the Company for
the issuance of the Series A and the Series B Notes was fair to the Company from
a financial point of view.
Approval of the Notes Proposal requires the affirmative vote of a
majority of the votes cast (in person or by proxy) by the holders of PhyCor's
common stock entitled to vote at the special meeting at which a quorum is
present. The enclosed Notice and Proxy Statement contain details concerning the
Notes Proposal. We urge you to read and consider these documents carefully. It
is important that your shares be represented at the special meeting. Whether or
not you plan to be at the special meeting, please be sure to sign, date and
return the enclosed proxy card in the envelope provided as promptly as possible
so that your shares may be represented at the special meeting and voted in
accordance with your wishes.
Sincerely,
/s/ JOSEPH C. HUTTS
JOSEPH C. HUTTS
Chairman of the Board and
Chief Executive Officer
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE> 3
PHYCOR, INC.
30 BURTON HILLS BOULEVARD, SUITE 400
NASHVILLE, TENNESSEE 37215
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-----------------------------------
To the Shareholders of PhyCor, Inc.:
Notice is hereby given that a special meeting of the shareholders of
PhyCor, Inc. ("PhyCor" or the "Company") will be held at
________________________, Nashville, Tennessee, on _________, _____________,
1999, beginning at 10:00 a.m. Central Time, for the following purposes:
1. To approve the issuance of $266,389,621 aggregate principal
amount at maturity of PhyCor's Series B Zero Coupon
Convertible Subordinated Notes due 2014 to Warburg, Pincus
Equity Partners, L.P. and certain affiliated entities (the
"Investors") pursuant to a Securities Purchase Agreement dated
June 15, 1999, as amended August 23, 1999, between PhyCor and
the Investors (the "Notes Proposal"); and
2. To transact such other business as may properly come before
the special meeting or any adjournments thereof.
The special meeting may be postponed or adjourned from time to time,
and at any reconvened special meeting actions with respect to the matters
specified in this notice may be taken without further notice to shareholders
unless required by the bylaws of PhyCor.
Only shareholders of record at the close of business on ___________
___, 1999 are entitled to notice of, and to vote at the special meeting and any
postponements or adjournments of the special meeting. Approval of the Notes
Proposal requires the affirmative vote of a majority of the votes cast (in
person or by proxy) by the holders of PhyCor's common stock entitled to vote at
the special meeting at which a quorum is present. The Notes Proposal is more
fully described in the accompanying Proxy Statement and the Appendices to the
Proxy Statement, which form a part of this notice and should be read carefully
by all shareholders.
PLEASE COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE
IN PERSON IF YOU DESIRE TO DO SO, BUT ATTENDANCE AT THE SPECIAL MEETING DOES NOT
ITSELF SERVE TO REVOKE YOUR PROXY.
By Order of the Board of Directors,
/s/ N. CAROLYN FOREHAND
N. CAROLYN FOREHAND
Corporate Secretary
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING.
A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
NO POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
Nashville, Tennessee
__________ __, 1999
<PAGE> 4
PHYCOR, INC.
PROXY STATEMENT
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
__________ ____, 1999
This Proxy Statement is furnished to the holders of common stock, no
par value per share, of PhyCor, Inc. (the "Company" or "PhyCor") in connection
with the solicitation of proxies by the board of directors of PhyCor for use at
a special meeting of shareholders scheduled for __________ ___, 1999, beginning
at 10:00 a.m. Central Time, at ___________________________, Nashville,
Tennessee, and at any adjournments or postponements of the special meeting.
The board of directors has fixed ___________ ___, 1999 as the record
date for determining the shareholders entitled to vote at the special meeting.
Only holders of record of common stock at the close of business on the record
date are entitled to notice of, and to vote at, the special meeting. On the
record date, there were ____ holders of record of common stock and __________
shares of common stock issued and outstanding. Each share of common stock
entitles the holder to one vote on each matter submitted for shareholder
approval.
On September 3, 1999, PhyCor issued and sold $266,389,621 aggregate
principal amount at final maturity of its Series A Zero Coupon Convertible
Subordinated Notes due 2014 (the "Series A Notes") to Warburg, Pincus Equity
Partners, L.P. and certain affiliated entities (the "Investors") pursuant to a
Securities Purchase Agreement, dated June 15, 1999, as amended August 23, 1999,
between PhyCor and the Investors (the "Purchase Agreement"). A copy of the
Purchase Agreement is attached as Appendix A to this Proxy Statement. At the
special meeting, the holders of the common stock will be asked to vote upon a
proposal (the "Notes Proposal") for PhyCor to issue and sell $266,389,621
aggregate principal amount at final maturity of its Series B Zero Coupon
Convertible Subordinated Notes due 2014 (the "Series B Notes") to the Investors
pursuant to the Purchase Agreement (collectively, the "Series A Notes" and the
"Series B Notes" are referred to as the "Notes"). Each series of Notes will
result in gross proceeds to PhyCor of $100 million for a total of $200 million
assuming all of the Series B Notes are issued.
The Series B Notes are non-voting, have a 6.75% yield and are
convertible into 14,992,408 shares of common stock at a price of $6.67 per
share, subject to adjustment as provided in the Purchase Agreement. The proceeds
from the sale of the Series B Notes to the Investors will be used to repay
outstanding indebtedness of PhyCor under its revolving credit facility, to fund
securities repurchases under the Company's $100 million securities repurchase
program and for other corporate purposes, including possible strategic
initiatives.
This Proxy Statement and the accompanying proxy card are first being
mailed to the shareholders of PhyCor on or about __________ __, 1999.
The date of this Proxy Statement is __________ _____, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE NOTES PROPOSAL..................................................................................................4
What Vote Is Required to Approve the Notes Proposal?.......................................................4
What Is the Background of, and the Reasons for, the Transaction?...........................................5
Did the Board of Directors Receive a Fairness Opinion with Respect to this Transaction?....................6
How Will the Issuance of the Notes Affect the Rights of the Company's Existing Shareholders?...............8
Are There Any Conditions to the Issuance of the Series B Notes?............................................8
What Are the Terms of the Notes?...........................................................................9
What Obligations Does the Company Have Following the Issuance of the Notes?......................11
Can the Investors Convert the Notes to Common Stock of the Company?..............................15
Can the Company Redeem the Notes?................................................................18
Can a Note Holder Require the Company to Purchase Outstanding Notes?.............................18
Will the Company Have to Purchase Outstanding Notes Upon a Change in Control?....................18
Have the Notes Been Registered?..................................................................19
How Long Do the Company's Representations and Warranties in the Purchase Agreement Survive?......19
What Actions of the Company Constitute a Default Under the Purchase Agreement?...................19
What Are the Consequences if the Company Defaults under the Purchase Agreement?..................20
What Are the Consequences if the Company Breaches the Purchase Agreement?........................21
Can the Company Amend the Purchase Agreement, Notes or Registration Rights Agreement?............21
What Transaction Fees and Expenses Will be Paid by the Company?..................................22
Does Management Have Any Interest in the Transaction?............................................22
Will the Investors Have the Opportunity to Purchase Additional Shares from the Company?..........22
Are There Restrictions on the Investors' Ability to Transfer the Notes or Common Stock?..........23
Will the Investors Have Any Other Rights?........................................................24
What Are the Tax Consequences to the Company of the Original Issue Discount Related to the Notes?.........26
What Is the Beneficial Ownership of the Common Stock by Management and the Company's Principal
Shareholders?....................................................................................27
Where Can I Obtain Additional Information About the Company?..............................................28
What Documents Are Incorporated by Reference into the Proxy Statement?....................................29
When Should Shareholders Submit Proposals for the Annual Meeting?.........................................29
Who Are the Company's Independent Accountants?............................................................29
Will Any Other Matters be Voted on at the Special Meeting?................................................30
</TABLE>
2
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<TABLE>
<S> <C> <C>
Appendix A Securities Purchase Agreement and Amendment to Securities Purchase Agreement among
PhyCor, Inc. and Warburg, Pincus Equity Partners, L.P., including certain affiliated entities .....A-1
Appendix B Registration Rights Agreement among PhyCor, Inc. and Warburg, Pincus Equity Partners, L.P.,
including certain affiliated entities..............................................................B-1
Appendix C Form of Series B Zero Coupon Convertible Subordinated Note due 2014................................C-1
Appendix D Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated......................................D-1
</TABLE>
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THE NOTES PROPOSAL
WHAT VOTE IS REQUIRED TO APPROVE THE NOTES PROPOSAL?
The affirmative vote of a majority of the votes cast (in person or by
proxy) at the special meeting at which a quorum is present is necessary for
approval of the Notes Proposal. A quorum shall consist of a majority of the
shares of common stock issued, outstanding and entitled to vote at the special
meeting. On the record date, the directors and executive officers of PhyCor and
their affiliates held approximately _________ shares of common stock,
representing approximately ____% of the shares outstanding on such date. On the
record date, the Investors owned ____ shares of common stock, representing
approximately _____% of the shares outstanding on such date. The affiliates of
PhyCor and the Investors have indicated that they intend to vote for the Notes
Proposal.
An automated system administered by the transfer agent of PhyCor will
be used to tabulate the votes at the special meeting. Abstentions will be
counted for purposes of constituting a quorum, but will not have the effect of a
vote against the Notes Proposal. Broker non-votes will not be counted for
purposes of constituting a quorum and will not affect the outcome.
All expenses of the special meeting, including the cost of soliciting
proxies, will be paid by the Company. It is expected that the solicitation of
proxies will be primarily by mail. The Company's directors, officers and
employees may also solicit proxies by telephone, telegraph, facsimile or
personal interview. It is anticipated that banks, brokerage houses, and other
custodians, nominees, and fiduciaries will be requested on behalf of the Company
to forward solicitation materials to their principals to obtain authorizations
for the execution of proxies. PhyCor will reimburse brokers, custodians,
nominees and fiduciaries for the reasonable out-of-pocket expenses incurred by
them in connection with the special meeting.
Each signed and returned proxy will be voted in accordance with the
instructions, if any, of the shareholder(s) executing the proxy. If a
shareholder executes and returns a proxy and does not specify otherwise, the
shares represented by such proxy will be voted FOR approval of the Notes
Proposal. A shareholder who has executed and returned a proxy may revoke it at
any time before it is voted at the special meeting by (a) executing and
returning to the Company a proxy bearing a later date, (b) filing a written
notice of the revocation with the Secretary of PhyCor at 30 Burton Hills
Boulevard, Suite 400, Nashville, Tennessee 37215 prior to the special meeting or
(c) attending the special meeting and voting in person.
In the event that a quorum of the outstanding shares is not represented
at the special meeting or at any adjournment of the special meeting, or, even
though a quorum is so represented, in the event that sufficient votes to approve
the Notes Proposal are not received, the persons named as proxies may propose
and vote for one or more adjournments of the special meeting to be held within a
reasonable time after the date originally set for the special meeting, and
further solicitation of proxies may be made without the necessity of further
notice. The persons named as proxies will vote those proxies which instruct them
to vote in favor of the Notes Proposal in favor of any adjournment, and will
vote
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those proxies which instruct them to vote against or to abstain from voting on
the Notes Proposal against any adjournment. Any adjournment must be approved by
a majority of the shares voting on the matter.
THE BOARD OF DIRECTORS OF PHYCOR RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE NOTES PROPOSAL.
Shareholders should consider the following summary of the Notes
Proposal before voting on such proposal. The following summary is qualified in
its entirety by reference to the Purchase Agreement, the form of Notes, the
Registration Rights Agreement (as defined below) and the opinion of Merrill
Lynch, copies of which are attached as Appendices A, B, C and D, respectively.
WHAT IS THE BACKGROUND OF, AND THE REASONS FOR, THE TRANSACTION?
On June 15, 1999, the Company entered into the Purchase Agreement with
the Investors, providing for the issuance by the Company to the Investors of up
to $404,451,562 aggregate principal amount at maturity of PhyCor's Zero Coupon
Convertible Subordinated Notes due 2014. Prior to entering into the Purchase
Agreement, the Company engaged Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") to assist the Company in its consideration of
various strategic alternatives. On August 23, 1999, the Company and the
Investors amended the Purchase Agreement to provide for the issuance to the
Investors by the Company of two series of Notes, each in an aggregate principal
amount at final maturity of $266,389,621. Each series of Notes is non-voting,
has a 6.75% yield and is convertible into common stock at an initial price of
$6.67 per share, subject to adjustment as provided in the Purchase Agreement.
PhyCor will receive gross proceeds of $100 million from the issuance of each
series of Notes. The issuance of the Series A Notes to the Investors closed on
September 3, 1999. The issuance of the Series B Notes is subject to approval by
the shareholders at the special meeting and satisfaction of other conditions
discussed below.
The issuance of the Series B Notes on the terms set forth in the
Purchase Agreement, which are described more fully below, will provide the
Company with additional capital to reduce the Company's outstanding indebtedness
under its credit facility, to fund its securities repurchase program and to be
utilized for other corporate purposes, including possible strategic initiatives.
The board of directors believes that the issuance of the Series B Notes will
provide the Company with increased flexibility relative to its current capital
structure. The capital markets environment for healthcare services companies has
been increasingly difficult and uncertain in 1999. The board of directors
believes that the benefit of this increased financial flexibility to the Company
outweighs the dilutive effect of the Series B Notes issuance to the
shareholders. After considering several options, the Company's board of
directors determined that the issuance of the Notes is in the best interests of
the Company and its shareholders and therefore recommends that the shareholders
vote for the Notes Proposal.
On June 11, 1999, the Company's board of directors unanimously approved
the Purchase Agreement and the transactions contemplated by the Purchase
Agreement. The board unanimously approved the amendment to the Purchase
Agreement and the Notes Proposal and transactions contemplated by each at the
August 20, 1999 and August 23, 1999 meetings of the board.
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DID THE BOARD OF DIRECTORS RECEIVE A FAIRNESS OPINION WITH RESPECT TO
THIS TRANSACTION?
On December 15, 1998, the Company retained Merrill Lynch to act as its
exclusive financial advisor in connection with the exploration of various
strategic alternatives available to the Company. In connection with the
engagement, the Company requested from Merrill Lynch a written opinion with
respect to the proposed consideration to be paid to the Company for the issuance
of the Notes pursuant to the Purchase Agreement. On September 2, 1999, Merrill
Lynch delivered to the Company's board of directors its written opinion to the
effect that based upon the assumptions made, matters considered and limits of
review set forth in the opinion, the proposed consideration to be paid to the
Company for the issuance of the Notes, was fair to the Company from a financial
point of view.
A copy of the September 2, 1999 opinion, which sets forth the
assumptions made, procedures followed, matters considered and limitations on the
scope of review undertaken by Merrill Lynch, is attached as Appendix D to this
Proxy Statement and incorporated by reference into this description. The
description of the opinion set forth in this Proxy Statement is qualified in its
entirety by reference to the full text of the opinion. Shareholders of the
Company are urged to read the Merrill Lynch opinion in its entirety. The opinion
is addressed to the Company's board of directors and does not constitute a
recommendation to any holder of the Company's common stock as to how the holder
should vote or otherwise act in respect of the Notes Proposal. The consideration
for the issuance of the Notes was determined on the basis of negotiations
between the Company and the Investors and was approved by the Company's board of
directors.
In connection with the preparation of its opinion, Merrill Lynch,
among other things:
1. reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December
31, 1998 and the Company's Forms 10-Q and the related unaudited
financial information for the quarterly periods ending March 31,
1999 and June 30, 1999;
2. reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Company furnished to Merrill Lynch by the
Company;
3. conducted discussions with members of senior management of the
Company concerning its business and prospects;
4. reviewed the historical market prices and trading activity for
the Company and compared them with those publicly traded
companies which Merrill Lynch deemed to be reasonably similar to
the Company;
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5. compared the proposed financial terms of the Notes issuance with
the financial terms of certain other transactions which Merrill
Lynch deemed to be relevant;
6. considered certain pro forma financial effects of the Notes
issuance on the Company;
7. reviewed the Purchase Agreement dated June 15, 1999 and the
amendment to the Purchase Agreement dated August 23, 1999;
8. reviewed the Registration Rights Agreement in the form attached
to the Purchase Agreement dated June 15, 1999; and
9. reviewed such other financial studies and analyses and performed
such other investigations and took into account such other
matters as Merrill Lynch deemed necessary.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
the Company. Merrill Lynch did not independently verify such information or
undertake an independent appraisal of the assets or liabilities of the Company.
With respect to the financial forecasts furnished by the Company, Merrill Lynch
assumed that the forecasts had been reasonably prepared and reflected the best
currently available estimates and judgment of the Company's management as to the
expected future financial performance of the Company.
In arriving at its fairness determination, Merrill Lynch considered
the pro forma effects of the issuance of the Notes on the Company's financial
statements and its ownership structure, the results of a theoretical pricing
analysis of the Notes and a premium analysis. Merrill Lynch did not attribute
any particular weight to any factor or analysis considered by it and made its
fairness determination on the basis of its experience and professional
judgment. Merrill Lynch was not asked to consider, and its opinion does not in
any manner address, the value of the Company's common stock or the prices at
which the Company's common stock will actually trade following the issuance of
the Notes.
The Company's board of directors selected Merrill Lynch to act as its
financial advisor and to render a fairness opinion because Merrill Lynch is an
internationally recognized investment banking firm with substantial experience
in transactions similar to the issuance of Notes and because it is familiar with
the Company and its business. Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities and private placements.
Pursuant to letter agreements dated December 15, 1998 and June 11,
1999, the Company paid Merrill Lynch a fee in cash equal to $100,000 upon
signing of the December 15, 1998 letter and $4,250,000 following the closing of
the Series A Notes. The fee paid to Merrill Lynch was not contingent upon the
contents of the opinion delivered. In addition, the Company agreed to reimburse
Merrill Lynch for its reasonable out-of-pocket expenses, including, without
limitation, the reasonable fees and disbursements of its legal counsel, and to
indemnify Merrill Lynch and related persons against liabilities arising out of
or in conjunction with its rendering of services under its engagement, including
liabilities under the federal securities laws.
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In the ordinary course of its trading, brokerage and financing
activities, Merrill Lynch or its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions, for its own account
or the accounts of its customers, in equity securities of the Company.
HOW WILL THE ISSUANCE OF THE NOTES AFFECT THE RIGHTS OF THE COMPANY'S
EXISTING SHAREHOLDERS?
The holders of the Notes will have certain rights which are superior to
those of the holders of the Company's common stock. In addition, the issuance of
the Notes, and the Notes' potential conversion into common stock, may affect the
market price of the Company's common stock. Shareholders should consider the
following factors in determining whether to vote for the Notes Proposal:
- The Notes will have a prior claim against the Company's assets ahead
of the common stock in the event of a liquidation or bankruptcy.
- Current shareholders are subject to the risk of substantial dilution
to their interests which may result from the conversion of the Notes. If the
Notes are converted, current shareholders will own a smaller percentage of the
outstanding common stock of the Company.
- Prior to the issuance of the Series A Notes, the Investors owned
approximately 10.0% of the Company's common stock. If the Investors were to
convert all the Series A Notes into 14,992,408 shares at a conversion price of
$6.67 per share, the Investors would own approximately 25.0% of the common stock
of the Company based on the shares outstanding as of September 22, 1999.
- Assuming that the Notes Proposal is approved by the shareholders and
all of the Series B Notes are issued, if the Investors were to convert all
outstanding Notes into 29,984,816 shares at a conversion price of $6.67 per
share, the Investors would own approximately 35.7% of the common stock based on
the shares outstanding as of September 22, 1999. In the event the Company and
the Investors mutually agree to issue less than all the Series B Notes, the
Investors will have the opportunity to purchase shares of the Company's common
stock subject to limitations as described in this Proxy Statement. See "Will the
Investors Have the Opportunity to Purchase Additional Shares from the Company?".
ARE THERE ANY CONDITIONS TO THE ISSUANCE OF THE SERIES B NOTES?
The obligation of the Investors to purchase the Series B Notes is
subject to the satisfaction or waiver of the following conditions prior to the
closing of the Series B Notes:
(1) the shareholders of the Company shall have approved the
issuance of the Series B Notes;
(2) the representations and warranties of the Company contained in
the Purchase Agreement shall be true and correct in all
material respects on the Series B closing date;
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(3) the Company shall have performed in all material respects all
agreements to be performed by it under the Purchase Agreement,
and no "default" or "event of default" (as defined in the
Purchase Agreement) shall exist on the Series B closing date;
(4) no injunction or order shall prohibit consummation of the
transaction;
(5) the Company shall have delivered to the Investors the
certificates and an opinion of counsel specified in the
Purchase Agreement;
(6) the Company shall not have experienced any development that is
reasonably likely to have a "material adverse effect" (as
defined in the Purchase Agreement) on the Company;
(7) all consents, waivers, licenses and approvals required in
connection with the Purchase Agreement shall be in full force
and effect on the Series B closing date; and
(8) the Registration Rights Agreement shall be in full force and
effect.
The obligation of the Company to sell the Series B Notes is subject to
the satisfaction or waiver of the following conditions prior to the closing of
the Series B Notes:
(1) the shareholders of the Company shall have approved the
issuance of the Series B Notes;
(2) the representations and warranties of the Investors contained
in the Purchase Agreement shall be true and correct in all
material respects on the Series B closing date;
(3) the Investors each shall have performed in all material
respects all agreements to be performed by it under the
Purchase Agreement;
(4) no injunction or order shall prohibit consummation of the
transaction;
(5) the Investors each shall have delivered to the Company an
officer's certificate as specified in the Purchase Agreement;
and
(6) all consents, waivers, licenses and approvals required in
connection with the Purchase Agreement shall be in full force
and effect on the Series B closing date.
WHAT ARE THE TERMS OF THE NOTES?
Purchase Price. The Investors will purchase the Notes for an issue
price of $375.39 (the "Issue Price") per $1,000 aggregate principal amount
("Principal Amount at Final Maturity") resulting in an original issue discount
of $624.61. The original issue discount shall accrue at 6.75% per annum,
commencing on the date of issuance.
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Maturity. The Series A Notes will mature on September 3, 2014. The
Series B Notes will mature fifteen years after the Series B closing date.
Interest. The Notes shall not bear periodic interest, except that if
the principal or any portion thereof is not paid when due, the overdue amount
shall bear interest at the rate of 10.0% per annum, compounded annually.
Subordination. The Notes are general unsecured obligations of the
Company and are subordinate in right of payment to the Company's senior
indebtedness. Generally, the Company may make scheduled payments on account of
outstanding Notes (including payments of principal, premium and interest) unless
(1) the Company is in default on any payments of principal, premium or interest
on any senior indebtedness, or (2) the Company is in default of a term or
condition of any senior indebtedness, other than a payment default, that gives
rise to a non-payment period as described below.
If the Company defaults in the payment of principal, premium or
interest on senior indebtedness beyond any applicable grace period, the Company
shall not pay principal, premium or interest on the Notes and shall not
repurchase, redeem or otherwise retire any Notes unless the amount of the senior
indebtedness then due has been paid in full or provision made for payment in a
manner reasonably satisfactory to the holders of the senior indebtedness, or the
default has been cured or waived or ceases to exist.
If the Company defaults on the senior indebtedness, other than a
payment default, that permits the holders of senior indebtedness to accelerate
the maturity of the senior indebtedness and the Company receives notice of the
non-payment event of default occurrence, then the Company shall not make payment
on or redeem the Notes for a specified period (the "Payment Blockage Period").
The Payment Blockage Period begins when the Company receives notice of the
payment blockage and ends (subject to any other payment blockage that may be in
effect) (1) 180 days after the date of the payment blockage notice (2) the date
the non-payment event of default has been cured or waived in writing or ceases
to exist or the senior indebtedness has been discharged, or (3) the date the
Payment Blockage Period has been terminated by written notice to the Company
from the holders of the senior indebtedness initiating the Payment Blockage
Period, after which, in case of clause (1), (2) or (3), as the case may be, the
Company will resume making any and all required payments. Only one Payment
Blockage Period may be commenced within any consecutive 365-day period, and a
Payment Blockage Period may not extend beyond 179 days.
In the event that any principal payment on the Notes is made by the
Company and received by any holder after a default under any senior
indebtedness, then, unless and until the amount of the senior indebtedness then
due has been paid in full in cash, or provision made for the payment of the
senior indebtedness or the default has been cured or waived, the payment will be
held in trust for the benefit of, and will be immediately paid over to, the
holders of senior indebtedness.
Generally, upon any payment or distribution of the assets of the
Company of any kind or character to creditors upon any dissolution, total or
partial liquidation or reorganization of the Company, then all senior
indebtedness shall first be paid in full, in
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cash or have provision made for the payment in a manner reasonably satisfactory
to the holders of the senior indebtedness before any payment is made on account
of the Notes.
The term "senior indebtedness" includes the following:
(1) the principal of and premium, if any, and interest on the
following, whether presently outstanding or hereafter incurred
or created: all indebtedness or obligations of the Company for
money borrowed (other than that evidenced by the Notes) or
assets acquired and which is evidenced by a note, bond,
debenture or similar instrument (including a purchase money
mortgage) given in connection with the acquisition of any
property or assets (other than inventory or other similar
property acquired in the ordinary course of business)
including securities;
(2) all obligations constituting Bank Debt (as defined in the
Indenture, dated as of February 15, 1996, between the Company
and First American National Bank, relating to the Company's
4.5% Convertible Subordinated Debentures due 2003);
(3) all obligations of the Company: (a) for the reimbursement of
any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (b) under interest rate swaps,
caps, collars, options and similar arrangements, and (c) under
any foreign exchange contract, currency swap agreement,
futures contract, currency option contract, or other foreign
currency hedge;
(4) all obligations for the payment of money relating to a
capitalized lease obligation;
(5) any liabilities of others described in the preceding clauses
(1), (2), (3) and (4) which the Company has guaranteed or
which are otherwise its legal liability; and
(6) renewals, extensions, refundings, restructurings, amendments
and modifications of any indebtedness or guarantee.
The Notes will rank pari passu with the Company's 4.5% Convertible
Subordinated Debentures due 2003 and any subordinated indebtedness of the
Company previously issued in connection with clinic acquisitions. As of
September 22, 1999, the Company's senior indebtedness totaled approximately
$291.3 million.
WHAT OBLIGATIONS DOES THE COMPANY HAVE FOLLOWING THE ISSUANCE OF
THE NOTES?
Reporting Requirements. Under the Purchase Agreement as long as the
Investors, individually or in the aggregate, beneficially own at least 15% of
the outstanding shares of common stock, the Company is required to deliver to
the Investors unaudited monthly and quarterly reports consisting of a
consolidated balance sheet, statement of income and statement of cash flows of
the Company and any subsidiaries as of the close of each month or quarter and
covering operations for each month or quarter, as the case may
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be, and the portion of the Company's fiscal year ending on the last day of each
month or quarter, all in reasonable detail and prepared in accordance with
generally accepted accounting principles, subject to audit and year-end
adjustments, setting forth in each case in comparative form the figures for the
comparable period of the previous fiscal year.
The Company is also required to provide the Investors with annual
statements consisting of consolidated and consolidating balance sheets of the
Company and any subsidiaries at the end of each year and consolidated and
consolidating statements of income, shareholders' equity and cash flows of the
Company and any subsidiaries for each year, all in reasonable detail and
accompanied by an opinion of a "Big 5" public accounting firm selected by the
Company.
The Company must also provide the following information:
(1) an annual budget for the Company in a form consistent with the
Company's past practice;
(2) one copy of each financial report and internal control letter
submitted to the Company by independent accountants in
connection with any annual, interim or special audit made by
them of the books of the Company, and one copy of each
financial statement, report, notice or proxy statement sent by
the Company to shareholders generally or filed with the
Securities and Exchange Commission (the "Commission");
(3) one copy of each regular or periodic report and any
registration statement, prospectus or written communication
(other than transmittal letters) with respect to the above
documents filed by the Company or any subsidiary with the
Commission or any successor agency or any foreign regulatory
authority performing functions similar to the Commission;
(4) one copy of any press release issued by the Company or any
subsidiary; and
(5) one copy of any material of any nature whatsoever prepared by
the Commission or any successor agency or any state blue sky
or securities law commission which relates to or affects in
any way the Company or any subsidiary.
The Company also is required to furnish the Investors with any other
data and information the Investors may reasonably request. In connection with
each delivery of financial statements or reports required to be furnished above,
a certificate of a senior financial officer stating that, based upon such
examination or investigation and review of the Purchase Agreement as in the
opinion of the signer is necessary to enable the signer to express an informed
opinion, no default or event of default has occurred during such period, or, if
any default or event of default has occurred, specifying the nature and period
of existence of the default and what action the Company has taken, is taking or
proposes to take with respect to the default.
Inspection. As long as the Investors, individually or in the aggregate,
beneficially own at least 15% of the outstanding shares of common stock, the
Company must permit the Investors and their representatives and agents to visit
and inspect any of the properties of
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the Company and its subsidiaries, to examine all of its books of account,
records, reports and other papers not contractually required of the Company to
be kept confidential or secret, and to discuss the Company's affairs, finances
and accounts with its officers, directors, key employees and independent public
accountants.
Takeover Statute. If any corporate takeover statute under the laws of
the State of Tennessee (except any health maintenance organization or insurance
change of control statute) becomes applicable to the transactions contemplated
by the Purchase Agreement, the Company must grant any necessary approvals and
take any necessary actions, to ensure that the transactions may be consummated
as promptly and as practicable on the terms contemplated by the Purchase
Agreement and act to eliminate or minimize the effects of the takeover statute
on the transactions contemplated by the Purchase Agreement. If any takeover
statute of any state other than the State of Tennessee shall become applicable
to the transactions contemplated by the Purchase Agreement, the Company shall
use its reasonable efforts to grant any necessary approvals and take any
necessary actions so that the transactions contemplated by the Purchase
Agreement may be consummated as promptly and as practicable on the terms
contemplated by the Purchase Agreement and act to eliminate or minimize the
effects of the statute or regulation on the transactions contemplated by the
Purchase Agreement.
Rights Agreement. If the transactions contemplated by the Purchase
Agreement would result in the occurrence of a "distribution date" under the
Rights Agreement, dated as of February 18, 1994 between the Company and First
Union National Bank of North Carolina (the "Rights Agreement"), cause any
Investor to become an "acquiring person" under the Rights Agreement or cause the
exercise of any "right" issued pursuant to the Rights Agreement or the issuance
or exercise of any "rights certificate" under the Rights Agreement, the Company
will promptly cause the Rights Agreement to be duly amended to prevent any such
characterization.
Hart-Scott-Rodino Filing. At the request of any of the Investors, the
Company will promptly prepare and file, or cause to be prepared and filed, any
notification or response to any request for additional information required to
be filed under the Hart-Scott-Rodino Act with respect to the conversion of the
Notes.
Board Nominees. For so long as the Notes are outstanding and owned by
one or more of the Investors, the Company will nominate and use its best efforts
to elect and to cause to remain as directors on the board of directors two
individuals designated by the Investors who are either general partners of
Warburg Pincus & Co., a New York general partnership ("WP"), or who are
otherwise reasonably acceptable to the Company ("Approved Designees"). For so
long as the Investors, individually or in the aggregate, own beneficially at
least 10.0% of the outstanding shares of common stock, the Company will nominate
and use its best efforts to elect and to cause to remain as directors on the
board of directors at least one individual designated by the Investors, who
shall be an Approved Designee; provided, however, that in the event the
Investors, individually or in the aggregate, own beneficially more than 10% but
less than 12.5% of the outstanding shares of common stock, the Investors are
only entitled to designate an Approved Designee if the Investors, individually
or in the aggregate, own at least 50% of the shares of common stock beneficially
owned by them on the date six months following September 3, 1999. Any
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<PAGE> 17
vacancy created by the death, disability, retirement or removal of any Approved
Designee may be filled by the Investors.
Use of Proceeds. The issuance of the Series B Notes will result in net
proceeds to the Company of approximately $99.5 million. The Company will use the
net proceeds to repay existing debt under its credit facility, to repurchase
shares of common stock under its securities repurchase program and for other
corporate purposes, including possible strategic initiatives. Any repurchases of
common stock using proceeds from the Notes must be approved by the board of
directors, comply with all applicable laws, be made within 12 months of the
special meeting and, assuming the Series B Notes are issued, not exceed the sum
of $10,000,000 plus the aggregate proceeds to the Company from the sale of
Series B Notes. Notwithstanding the foregoing, nothing in the Purchase Agreement
prohibits, restricts or limits the Company's ability to effect its securities
repurchase program as long as the repurchase program uses funds other than those
from the proceeds of the Notes, and is completed within 24 months of the later
of the issuance of the Series A Notes and the issuance of the Series B Notes.
Compliance with Laws. Under the Purchase Agreement, the Company is
obligated to comply with all laws, ordinances or governmental regulations, to
maintain all certificates, permits, franchises and other governmental
authorizations necessary to its business, to maintain insurance for its
properties and businesses customary within its industry, and to maintain its
properties and assets in good working order. Any failure to do so would
constitute an event of default under the Purchase Agreement.
Business. For as long as the Notes are outstanding, unless the prior
written consent of the Investors has been obtained, the Company will continue to
engage in business of the same general type as currently conducted by it, and
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges, licenses and
franchises necessary or desirable in the normal conduct of its business.
Dividends. For so long as the Notes are outstanding, without the
Investors' prior written consent, the Company will not take any of the following
actions:
(1) declare or pay any dividend or make any distribution on or in
respect of, or make any distribution to the holders of,
capital stock of the Company;
(2) purchase, redeem or otherwise acquire or retire for value any
capital stock of the Company, other than purchases of common
stock permitted under the Purchase Agreement and the Company's
securities repurchase program; or
(3) declare or pay any dividend or make any distribution on or in
respect of, or make any distribution to holders of, capital
stock of any subsidiary (other than with respect to any such
capital stock held by the Company or any wholly owned
subsidiary) or purchase, redeem or otherwise acquire or retire
for value any capital stock of any subsidiary (other than
capital stock held by the Company or any wholly owned
subsidiary).
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CAN THE INVESTORS CONVERT THE NOTES TO COMMON STOCK OF THE COMPANY?
Right to Convert. A holder of a Note may convert the Note for common
stock at any time prior to maturity. The number of shares of common stock
issuable upon conversion of a Note per $1,000 of Principal Amount at Final
Maturity (the "Conversion Rate") shall initially be 56.280, subject to
adjustment as described below and in the Purchase Agreement. A holder may
convert a portion of the Principal Amount at Final Maturity of a Note if the
portion is a multiple of $1,000.
Conversion Procedures. As soon as practicable, but in no event later
than the seventh business day after the date the holder converts the Note, the
Company must deliver to the holder a certificate for the number of full shares
of common stock issuable upon the conversion and cash in lieu of any fractional
share. The person in whose name the certificate is registered will be treated as
a shareholder of record on and after the conversion date. Upon conversion of a
Note, the person will no longer be a holder of the Note.
On conversion of a Note, the original issue discount attributable to
the period from the issue date of the Note to the conversion date will not be
canceled or forfeited, but rather will be deemed to be paid in full to the
holder through delivery of the common stock (together with the cash payment, if
any, in lieu of fractional shares) in exchange for the Note being converted.
If a holder converts more than one Note at the same time, the number of
shares of common stock issuable upon the conversion will be based on the
Principal Amount at Final Maturity of the Notes converted. Upon surrender of a
Note that is converted in part, the Company will execute and deliver to the
holder a new Note in a denomination equal in Principal Amount at Final Maturity
to the unconverted portion of the Note surrendered.
Cash Payments in Lieu of Fractional Shares. The Company can not issue a
fractional share of common stock upon conversion of a Note. Instead the Company
will deliver cash for the current market value of the fractional share.
Taxes on Conversion. If a holder converts a Note, the Company will pay
any documentary, stamp or similar issue or transfer tax due on the issue of
shares of common stock upon the conversion. However, the holder must pay any tax
which is due because the holder requests the shares to be issued in a name other
than the holder's name. The Company may refuse to deliver the certificates
representing the common stock being issued in a name other than the holder's
name until the Company receives a sum sufficient to pay any tax which becomes
due because the shares are to be issued in a name other than the holder's name.
Company to Provide Stock. The Company will, prior to issuance of any
Series B Notes under the Purchase Agreement, and from time to time as may be
necessary, reserve out of its authorized but unissued common stock a sufficient
number of shares of common stock to permit the conversion of the Series B Notes.
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All shares of common stock delivered upon conversion of the Notes will
be newly issued shares or treasury shares, duly and validly issued and fully
paid and nonassessable and free from preemptive rights and free of any lien or
adverse claim.
The Company must comply with all federal and state securities laws
regulating the order and delivery of shares of common stock upon the conversion
of Notes, if any, and must list or quote all such shares of common stock on each
United States national securities exchange or over-the counter or other domestic
market on which the common stock is then listed or quoted.
Adjustment of Conversion Rate.
A. The Conversion Rate will be adjusted from time to time by the
Company as described in the Purchase Agreement if the Company:
- pays a dividend or other cash distribution on its "voting
stock" (as defined in the Purchase Agreement), or makes a distribution
in shares of its voting stock;
- subdivides its outstanding voting stock into a greater number
of shares;
- combines its outstanding voting stock into a smaller number of
shares;
- issues or sells any shares of its common stock for a
consideration per share less than the average "market price" (as
defined in the Purchase Agreement) for the 10 trading days immediately
preceding the issuance or sale;
- grants certain options to purchase common stock or issues any
securities convertible into or exchangeable for common stock having an
exercise or conversion price less than the market price immediately
prior to such grant or issuance;
- makes a tender offer for all or any portion of any class of its
voting stock that requires the payment to shareholders of an aggregate
consideration having a fair market value that, combined with the
consideration payable in any other tender offer or any other
distribution of cash to the shareholders by the Company in the
preceding 12 months, exceeds 10% of the product of the market price
and the number of outstanding shares of voting stock; or
- settles the shareholder securities litigation referred to in
the Purchase Agreement or the Company otherwise is liable to make
after-tax payments in an amount (including the costs of any
supplemental insurance policies obtained after the Series A Notes
closing) in excess of the sum of (1) $10 million on a pre-tax basis
plus (2) the benefits to the Company under any supplemental insurance
policies obtained after the Series A Notes closing.
B. The Conversion Rate will not be adjusted as a result of any
common stock issued, issuable or deemed outstanding under any of the following
circumstances:
- to any person pursuant to any stock option, stock purchase or
similar plan or arrangement for the benefit of employees, consultants
or directors of the
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Company or its subsidiaries in effect on the date of issuance of the
Notes or adopted by the board of directors (or physicians or providers
contracting with the Company or any of its subsidiaries);
- pursuant to options, warrants and conversion rights in
existence on the date of issuance of the Notes;
- on conversion of a Note; or
- in connection with underwritten public offerings for cash
pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act"), relating to the Company's
common stock, options or convertible securities.
When Adjustment May be Deferred. No adjustment in the Conversion Rate
need be made unless the adjustment would require an increase or decrease of at
least 1% in the Conversion Rate then in effect provided that any adjustment that
would otherwise be required to be made will be carried forward and taken into
account in any subsequent adjustment.
When No Adjustment Required. No adjustment need be made for rights to
purchase voting stock pursuant to a Company plan for reinvestment of dividends
or interest. No adjustment need be made for a change in the par value of the
voting stock. To the extent the Notes become convertible into cash, assets,
property or Notes (other than capital stock of the Company), no adjustment need
be made to the cash, assets, property or the Notes. Interest will not accrue on
the cash.
Notice of Adjustment. Whenever the Conversion Rate is adjusted, the
Company will promptly mail to holders a notice of the adjustment. The
certificate will, absent manifest error, be conclusive evidence that the
adjustment is correct.
Voluntary Increase. The Company may make increases in the Conversion
Rate, in addition to those required by the Purchase Agreement, as the board of
directors considers to be advisable to avoid or diminish any income tax to
holders of voting stock or rights to purchase voting stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. Whenever the Conversion Rate is so
increased, the Company will mail to holders a notice of the increase.
Notice. The Company will give notice to holders of the Notes if the
Company:
(1) declares a dividend (or any other distribution) on its voting
stock that requires an adjustment in the Conversion Rate pursuant
to the Purchase Agreement;
(2) authorizes the granting to all or substantially all the holders
of its voting stock of rights or warrants to subscribe for or
purchase any share of any class or any other rights or warrants;
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(3) reclassifies or reorganizes the voting stock of the Company
(other than a subdivision or combination of its outstanding
voting stock, or a change in par value, or from par value to no
par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for
which approval of any shareholders of the Company is required, or
of the sale or transfer of all or substantially all of the assets
of the Company; or
(4) the Company voluntary or involuntary is dissolved, liquidated or
wound-up.
Effect of Reclassification, Consolidation, Merger or Sale. If any of
the following events occur, namely (1) any reclassification or change of
outstanding shares of voting stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (2) any consolidation, merger or combination of
the Company with another corporation as a result of which holders of voting
stock are entitled to receive stock, notes or other property or assets
(including cash) with respect to or in exchange for the voting stock, or (3) any
sale or conveyance of all or substantially all of the properties and assets of
the Company to any other corporation as a result of which holders of voting
stock shall be entitled to receive stock, notes or other property or assets
(including cash) with respect to or in exchange for the voting stock, then each
Note will be convertible into the kind and amount of shares of stock and other
notes or property or assets (including cash) receivable upon the above events by
a holder of a number of shares of voting stock issuable upon conversion of the
Notes immediately prior to the above events. Adjustments will not be made to the
Conversion Rate upon these events or occurrences.
CAN THE COMPANY REDEEM THE NOTES?
The Notes are redeemable at the option of the Company at prices set
forth in the Notes, provided that the Notes are not redeemable (1) prior to the
third anniversary of a closing of the issuance of the Notes and (2) after the
third anniversary of a closing and prior to the tenth anniversary of a closing
unless the closing price for the common stock for a period of 10 consecutive
trading days commencing 20 trading days before the date of the Company's notice
of its intent to redeem the Notes was at least 150% of the conversion price then
in effect.
CAN A NOTE HOLDER REQUIRE THE COMPANY TO PURCHASE OUTSTANDING NOTES?
On the tenth anniversary of a closing of the issuance of the respective
Notes, a holder shall have the option to require the Company to purchase any
outstanding Notes held by the holder at a price specified in the Notes. The
Company, at its option, may pay the purchase price in cash or by the issuance
and delivery of shares of common stock.
WILL THE COMPANY HAVE TO PURCHASE OUTSTANDING NOTES UPON A CHANGE IN
CONTROL?
For purposes of the Purchase Agreement, a "change of control" with
respect to the Company is defined as a circumstance in which:
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(1) any person or "group", other than any of the Investors or a
"group" which includes any of the Investors, becomes the
beneficial owner of more than 50% of the total voting power of
the Company, or has the right or the ability by voting contract
or otherwise to elect or designate for election a majority of the
Company's board of directors;
(2) the Company consolidates with or merges into any other person or
transfers, sells or leases all or substantially all of its assets
to any person or any person merges into the Company pursuant to a
transaction in which more than 50% of the total voting power of
the Company outstanding immediately prior to the effectiveness of
the transaction is reclassified or changed into or exchanged for
cash, securities or other property; or
(3) during any period of two consecutive years, individuals who at
the beginning of the period constituted the Company's board of
directors cease to constitute a majority of the board.
Pursuant to the Purchase Agreement, in the event of a change of
control, each holder of Notes shall have the right, at its option, to require
the Company to purchase the holder's Notes on the date that is 35 days after the
change of control. The Company shall purchase the Notes for cash at a price
equal to the Issue Price plus accrued original issue discount. No Notes may be
repurchased in the event of a change of control if there has occurred and is
continuing an event of default (other than a default in payment of the purchase
price of the Notes upon a change of control).
HAVE THE NOTES BEEN REGISTERED?
The Notes have not been registered under the Securities Act and are not
required to be registered. The Notes may not be resold unless they are
registered, they fall within an exemption from registration under the Securities
Act, or neither registration nor an exemption is required by law.
HOW LONG DO THE COMPANY'S REPRESENTATIONS AND WARRANTIES IN THE
PURCHASE AGREEMENT SURVIVE?
All agreements, representations and warranties of the Company or any
subsidiary contained in the Purchase Agreement shall survive for such period as
the Notes remain outstanding and thereafter as provided in the Purchase
Agreement.
WHAT ACTIONS OF THE COMPANY CONSTITUTE A DEFAULT UNDER THE PURCHASE
AGREEMENT?
An event of default will exist under the Purchase Agreement if any of
the following conditions or events occur and are continuing:
(a) a default by the Company in the payment of the
principal, the price at which the Notes are to be redeemed
pursuant to the Purchase Agreement or the purchase price of the
Notes as described in the Notes;
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(b) a default by the Company or any subsidiary with respect
to its obligation to pay indebtedness, which default results in
the acceleration of, or is a failure to pay at final maturity,
indebtedness aggregating more than $10 million;
(c) a material failure to perform any other covenant or
warranty of the Company in the Purchase Agreement or in the
Notes, which continues for 30 days after written notice from any
holder;
(d) final judgments or orders against the Company or any of
its subsidiaries which remain unstayed or unsatisfied for more
than 60 days and are not being contested in good faith which
require the payment by the Company or any of its subsidiaries of
an amount (to the extent not covered by insurance) in excess of
$10 million;
(e) the Company (1) applies for or consents to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (2) admits in writing its
inability to pay its debts as debts become due, (3) makes a
general assignment for the benefit of its creditors, (4)
commences a voluntary case under any law relating to bankruptcy,
insolvency or reorganization, (5) files a petition seeking to
take advantage of any other law providing for the relief of
debtors, or (6) fails to controvert in a timely or appropriate
manner, or acquiesce in writing to, any petition filed against it
in an involuntary case under any law relating to bankruptcy,
insolvency or reorganization; or
(f) a proceeding or case is commenced against the Company,
without the application or consent of the Company in any court of
competent jurisdiction seeking (1) its liquidation,
reorganization, dissolution or winding up, or composition or
readjustment of its debts, (2) the appointment of a trustee,
receiver, custodian, liquidator, encumbrancer or the like of it
or of all or any substantial part of its assets or (3) similar
relief in respect of it under any law providing for the relief of
debtors, and the proceeding or case continues undismissed, or
unstayed and in effect, for a period of 60 days; or an order for
relief is entered in an involuntary case under any law relating
to bankruptcy, insolvency or reorganization against the Company.
WHAT ARE THE CONSEQUENCES IF THE COMPANY DEFAULTS UNDER THE PURCHASE
AGREEMENT?
Upon the occurrence of any event of default described in (e) or (f)
above, the unpaid principal amount of all Notes, together with the interest
accrued on the Notes, will automatically become immediately due and payable,
without presentment, demand, protest or other requirements of any kind, all of
which are expressly waived by the Company. Upon the occurrence and during the
continuance of any other event of default, the holders of at least 25% of the
principal amount of the Notes at the time may, by written notice to the Company,
declare the principal amount of all Notes to be, and the same will become, due
and payable, together with the interest accrued on the Notes, without
presentment, further
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demand, protest or other requirements of any kind, all of which are expressly
waived by the Company.
In the event that, at any time after any Note is declared due and
payable, the Company pays all arrears of interest on the Notes and all payments
on account of the principal of and premium on the Notes which shall have become
due otherwise than by acceleration and an additional amount sufficient to
reimburse the holders of the Notes for the reasonable costs and expenses
incurred in connection with any declaration, and all events of default (other
than nonpayment of principal of, premium and accrued interest on Notes due and
payable solely by virtue of acceleration) will be remedied or waived, then, and
in every case, the holders of at least a majority of the aggregate unpaid
principal amount of the Notes at the time outstanding may rescind and annul any
acceleration of Notes and its consequences; but no action shall affect any
subsequent default or event of default or impair any right consequent to the
Notes.
WHAT ARE THE CONSEQUENCES IF THE COMPANY BREACHES THE PURCHASE
AGREEMENT?
Under the Purchase Agreement, the Company has agreed, to the fullest
extent permitted by applicable law, to indemnify and hold the Investors and each
of their officers, directors, employees and agents (collectively the
"Indemnitees" and individually an "Indemnitee") free and harmless from and
against any and all actions, causes of action, suits, losses, liabilities and
damages, and expenses in connection with the Purchase Agreement, including
without limitation reasonable counsel fees and disbursements incurred by the
Indemnitees as a result of, or arising out of, or relating to, any breach of any
representation or warranty of the Company contained in the Purchase Agreement.
The indemnification obligations of the Company under the Purchase Agreement
survive payment or conversion of the Notes.
CAN THE COMPANY AMEND THE PURCHASE AGREEMENT, NOTES OR REGISTRATION
RIGHTS AGREEMENT?
Any provision of the Purchase Agreement, the Notes or the Registration
Rights Agreement may, with the consent of the Company, be amended or waived
(either generally or in a particular instance and either retroactively or
prospectively) by one or more written instruments signed by the holders of a
majority of the aggregate unpaid principal amount of the Notes outstanding,
provided that no amendment or waiver shall: (1) change the rate or time of
payment of interest on any of the Notes, change the number or the method of
calculating the number of shares of common stock that may be purchased upon
conversion of any Note or the Conversion Rate in respect of the common stock,
without the consent of the holder of each Note so affected, or (2) modify any of
the provisions of the Purchase Agreement with respect to the payment or
prepayment or purchase of Notes, or change the percentage of the principal
amount of the Notes the holders of which are required with respect to any
amendment or to effectuate any waiver, or accelerate any Note or Notes, without
the consent of the holders of all of the Notes then outstanding. No waiver will
extend to or affect any obligation not expressly waived or impair any right
consequent to the Notes.
21
<PAGE> 25
Any amendment or waiver pursuant to the Purchase Agreement will apply
equally to all of the holders of the Notes and will be binding upon them, upon
each future holder of any Note and upon the Company, in each case whether or not
a notation was placed on any Note.
WHAT TRANSACTION FEES AND EXPENSES WILL BE PAID BY THE COMPANY?
The Company has agreed to pay up to $2,000,000 of the Investors'
expenses in connection with the issuance of the Notes, including the fees and
disbursements of counsel, provided these fees are reasonable and the Investors
deliver verification of such expenses.
DOES MANAGEMENT HAVE ANY INTEREST IN THE TRANSACTION?
Concurrently with the Series A Notes closing, the Company's board was
increased from eleven to thirteen members, and the two vacancies were filled
by Rodman W. Moorhead III and Joel Ackerman, both nominees designated by the
Investors. Mr. Moorhead is a Senior Managing Director and member of E.M.
Warburg, Pincus & Co., LLC, a New York limited liability company ("EMW LLC") and
a partner of WP. Mr. Ackerman is a Managing Director and member of EMW LLC and a
partner of WP. Mr. Moorhead's term on the board will expire at the Company's
annual meeting of shareholders in 2001, and Mr. Ackerman's term on the Board
will expire at the Company's annual meeting of shareholders in 2000.
WILL THE INVESTORS HAVE THE OPPORTUNITY TO PURCHASE ADDITIONAL SHARES
FROM THE COMPANY?
Permitted Acquisitions. In the event the shareholders fail to approve
the Notes Proposal or the Company and the Investors determine that the Company
shall sell less than all the Series B Notes, the Investors may acquire
additional shares of the Company's common stock in open market purchases or
otherwise (the "Permitted Acquisitions"). The Permitted Acquisitions are subject
to the following limitations:
(1) they must be made no later than six months after (a) a
determination to sell less than all the Series B Notes or (b)
the special meeting;
(2) the number of shares acquired shall not exceed certain
predetermined percentages as described in the Purchase
Agreement;
(3) the aggregate consideration for the purchases and the purchase
price of any Series B Notes issued to the Investors does not
exceed the difference between $100 million and the original
issue discount value of the aggregate principal amount of the
Series B Notes sold by the Company to the Investors; and
(4) the total number of shares owned by the Investors shall not
exceed 46% of the sum of the then outstanding common stock
plus the number of shares issuable upon conversion of the
issued and outstanding Notes.
Standstill Provisions. Under the Purchase Agreement, each of the
Investors and WP agreed that, for a period of five years from the date of the
Purchase Agreement, neither the
22
<PAGE> 26
Investors nor any controlled subsidiary or others with whom WP was acting in
concert with will, and WP will not, for its own account, without the prior
written consent of the board:
(1) acquire or agree to acquire, publicly offer, or make any
public proposal with respect to the possible acquisition of (A)
beneficial ownership of any securities of the Company in excess of the
sum of (i) the number of shares of common stock beneficially owned by
the Investors as of June 15, 1999, (ii) the number of shares of common
stock issuable upon conversion of the Notes and (iii) the number of
shares of common stock purchased by the Investors as Permitted
Acquisitions, (B) any Company business or any substantial part of the
Company's assets, or any subsidiary or division of the Company or
successor to the Company, or (C) any rights or options to acquire any
of the foregoing from any person;
(2) make, or in any way participate in any solicitation of
proxies to vote or seek to advise or influence any person or entity
with respect to the voting of any voting securities of the Company;
(3) make any public announcement with respect to any
transaction or proposed or contemplated transaction between the Company
or any of its security holders and the Investors or WP, including,
without limitation, any tender or exchange offer, merger or other
business combination or acquisition of a material portion of the assets
of the Company;
(4) publicly propose or publicly disclose an intent to propose
any form of business combination, acquisition, restructuring,
recapitalization or other similar transaction relating to the Company;
(5) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to the Company in
connection with any of matters referred to in clauses (1)-(4) above;
(6) publicly disclose any intention, plan or arrangement
inconsistent with the foregoing;
(7) publicly request the Company, directly or indirectly, to
amend or waive any provisions of this Section; or
(8) take any action which would be reasonably likely to
require the Company to make a public announcement regarding a possible
transaction involving the Company.
In the event of a breach by the Investors and WP, the Company will be
entitled to specific performance and injunctive and other equitable relief as a
remedy for any such breach of the standstill provisions.
ARE THERE RESTRICTIONS ON THE INVESTORS' ABILITY TO TRANSFER THE NOTES
OR COMMON STOCK?
No Investor shall sell, transfer or otherwise dispose of the Notes or
the shares of common stock issuable upon conversion of the Notes (the
"Securities") without first offering
23
<PAGE> 27
the Securities to the Company pursuant to the terms and conditions of the
Purchase Agreement. The terms and conditions described in the Purchase Agreement
shall not apply to transfers (1) made after the seventh anniversary of the
applicable closing of the issuance of the Notes, (2) made by one Investor to any
affiliate of any Investor, (3) pro rata distributions of Securities by any
Investor to its partners, (4) made pursuant to Rule 144 under the Securities
Act, (5) made pursuant to a merger, consolidation or similar transaction
approved by the board, or (6) made to a person who would not own more than 5% of
the common stock.
WILL THE INVESTORS HAVE ANY OTHER RIGHTS?
In conjunction with the Purchase Agreement, the Company entered into a
Registration Rights Agreement, dated as of September 3, 1999, with the Investors
(the "Registration Rights Agreement") under which holders of at least 50% in the
aggregate of outstanding Registrable Securities (defined below) have the right
to require, beginning 180 days after the Series A Notes closing, the Company to
file a registration statement under the Securities Act to register the
Registrable Securities that such holders request to be registered and to use its
best efforts to have such registration statement declared effective.
"Registrable Securities" means (A) shares of common stock issuable upon
conversion of the Notes, (B) any additional shares of common stock acquired by
the Investors and (C) any stock the Company issues as a dividend or distribution
with respect to the common stock.
If a request for registration is exercised for purposes of an
underwritten offering of Registrable Securities, a holder of Registrable
Securities may have its shares included in the registration statement only if it
participates in the underwritten offering. If the underwriter advises the
holders in writing that marketing factors require a limitation on the number of
shares to be underwritten, the securities of the Company held by shareholders
other than the Investors or their permitted assigns shall be excluded from
registration to the extent so required by such limitation. If after such
exclusion further reductions are still required, the number of shares included
in registration by each holder shall be reduced on a pro rata basis (based on
each holders' total number of shares).
The Company is obligated to effect only two registrations pursuant to
the Investors' registration request. The Company is not required to register the
securities in any jurisdiction which would require the execution of a general
consent to service of process or if the Registrable Securities do not have an
aggregate public offering price of at least $30 million as determined by the
Company in good faith.
The Company may defer filing a registration statement under a request
for registration for up to 90 days after receipt of the request if the board of
directors believes such registration statement would have or cause a materially
adverse impact or effect on the Company or market perception of the Company or
materially impede, delay or interfere with any significant financing, offer or
sale of securities, acquisition, corporate reorganization or other significant
transaction involving the Company or any of its affiliates or require disclosure
of material information which the Company has a bona fide business purpose for
preserving as confidential.
24
<PAGE> 28
The Company will bear the expenses incurred in connection with any
registration, qualification or compliance with the Registration Rights
Agreement, provided all selling expenses shall be borne by the holders on a pro
rata basis.
Pursuant to the Registration Rights Agreement, the Company has agreed
to indemnify each holder of Registrable Securities and the holder's officers,
directors, partners and controlling persons against all claims, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other document
incident to any registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading. In
addition, each selling holder has agreed to indemnify the Company, each of its
directors and officers and each underwriter of the Company's securities covered
by the registration statement, each person who controls the Company or the
underwriter, each other shareholder and each other shareholder's controlling
persons against all claims, losses, damages and liabilities arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in the registration statement, prospectus, offering circular or other
document made by such holder, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements by the holder therein not misleading; provided, however, that the
obligations of each of the holders under the Registration Rights Agreement shall
be limited to an amount equal to the net proceeds to holder of securities. To
the extent that any indemnification is unavailable, the Registration Rights
Agreement provides for rights of contribution accruing to the party otherwise
entitled to indemnification. Procedures relating to indemnification and the
defense of claims are described in the Registration Rights Agreement.
In order to permit a holder to sell Registrable Securities to the
public without registration or pursuant to a "short form" registration
statement, the Company has agreed to:
(1) cause its public information with respect to the Company to be
available as those terms are understood and defined in Rule
144 under the Securities Act ("Rule 144");
(2) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act at any time
after it has become subject to such reporting requirements;
and
(3) so long as the holder own any Registrable Securities, furnish
to the holder upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule
144 and of the Exchange Act and the Securities Act, a copy of
the most recent annual or quarterly report of the Company, and
any other reports and documents so filed as the holder may
reasonably request in availing itself of any rule or
regulation of the Commission allowing the holder to sell any
such securities without registration.
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<PAGE> 29
The registration rights may be assigned in whole or in part by a holder
to one or more "permitted transferees" (as defined in the Registration Rights
Agreement), provided not less than 2,000,000 shares of common stock are
transferred to such permitted transferee, on the condition that the transferee
delivers to the Company a written instrument agreeing to be bound by the
obligations imposed on holders under the Registration Rights Agreement.
WHAT ARE THE TAX CONSEQUENCES TO THE COMPANY OF THE ORIGINAL ISSUE
DISCOUNT RELATED TO THE NOTES?
The Notes will be issued with original issue discount as defined for
United States federal income tax purposes. The Investors will purchase the Notes
for an Issue Price of $375.39 per $1,000 Principal Amount at Final Maturity
resulting in an original issue discount of $624.61. The original issue discount
will accrue at 6.75% per annum. Holders of Notes will be required to include
amounts of accrued interest in gross income for United States federal income tax
purposes before receiving the cash to which that income is attributable.
Generally, the Company is entitled to a deduction for the interest expense.
However, United States federal income tax law may, under certain circumstances,
postpone or limit the Company's interest deduction for the original issue
discount.
26
<PAGE> 30
WHAT IS THE BENEFICIAL OWNERSHIP OF THE COMMON STOCK BY MANAGEMENT AND
THE COMPANY'S PRINCIPAL SHAREHOLDERS?
The following table sets forth certain information regarding beneficial
ownership as of the record date (unless otherwise indicated) by (i) all
directors and executive officers, (ii) each person known by the Company to be
the beneficial owner of more than 5% of the common stock of the Company, and
(iii) all directors and executive officers as a group. Except as otherwise
indicated, the beneficial owners listed below have sole voting and investment
power with respect to all shares owned by them, except to the extent such power
is shared by a spouse under applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
PERCENTAGE OWNED AFTER SERIES B
SHARES OF ISSUANCE ASSUMING
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY OUTSTANDING CONVERSION OF ALL NOTES
OWNER OWNED(1) SHARES SHARES PERCENT
----- -------- ------ ------ -------
<S> <C> <C> <C> <C>
Joseph C. Hutts(2)............................. 1,928,839 2.5% 1,928,839 1.8%
Thompson S. Dent(3)............................ 1,694,648 2.2 1,694,648 1.6
Derril W. Reeves(4)............................ 1,643,522 2.1 1,643,522 1.6
John K. Crawford(5)............................ 1,018,941 1.3 1,018,941 *
Ronald B. Ashworth(6).......................... 72,837 * 72,837 *
Sam A. Brooks, Jr.(7).......................... 90,026 * 90,026 *
Dr. Winfield Dunn(8)........................... 94,854 * 94,854 *
Sage C. Givens(9).............................. 83,976 * 83,976 *
Dr. Joseph A. Hill(10)......................... 103,290 * 103,290 *
Kay Coles James (11)........................... 47,335 * 47,335 *
Dr. James A. Moncrief (12)..................... 105,212 * 105,212 *
Warburg, Pincus Equity Partners, L.P.(13)(14).. 22,589,408 25.0 37,581,816 35.7
Joel Ackerman (13)(14)(15)..................... 22,589,408 25.0 37,581,816 35.7
Rodman W. Moorhead III (13)(14)(15)............ 22,589,408 25.0 37,581,816 35.7
Legg Mason, Inc.(16)........................... 7,498,930 10.0 7,498,930 7.1
The Prudential Insurance Company
of America(17)................................. 4,148,560 5.5 4,148,560 3.9
All directors and officers as a group
(13 persons)(18)............................... 29,472,888 36.2% 44,465,296 42.2%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares of common stock subject to options which may be
exercised within 60 days of the record date. Such shares are deemed to
be outstanding for the purposes of computing the percentage ownership
of the individual holding such shares, but are not deemed outstanding
for purposes of computing the percentage of any other person shown in
the table.
(2) Includes options to purchase 1,807,488 shares of common stock.
(3) Includes options to purchase 1,528,741 shares of common stock. Of Mr.
Dent's 165,907 shares, 133,036 shares are held in four trusts by Mr.
Dent for the benefit of members of his immediate family and 14,950
shares are held by his spouse.
(4) Includes options to purchase 1,473,741 shares of common stock.
(5) Includes options to purchase 960,254 shares of common stock. Of these
shares, 4,628 shares are held in trust by Mr. Crawford for the benefit
of his two minor daughters, 5,000 shares are held in an IRA for his
spouse and 1,000 shares are held by C.T. Investments, a general
partnership.
(6) Includes options to purchase 70,500 shares of common stock and 254
shares of restricted common stock.
(7) Includes options to purchase 67,125 shares of common stock and 3,327
shares of restricted common stock.
27
<PAGE> 31
(8) Includes options to purchase 80,626 shares of common stock and 872
shares of restricted common stock.
(9) Includes options to purchase 72,188 shares of common stock and 872
shares of restricted common stock.
(10) Includes options to purchase 72,188 shares of common stock and 872
shares of restricted common stock.
(11) Includes options to purchase 43,500 shares of common stock and 3,327
shares of restricted common stock.
(12) Includes options to purchase 72,188 shares of common stock and 3,327
shares of restricted common stock.
(13) Includes 14,992,408 shares of common stock that may be acquired upon
the conversion of Series A Zero Coupon Convertible Subordinated Notes
due 2014.
(14) Warburg, Pincus Equity Partners, L.P., including three related limited
partnerships ("WPEP"), is an investment company. WP is the sole general
partner of WPEP. WPEP is managed by E.M. Warburg, Pincus & Co., LLC
("EMW LLC"). Lionel I. Pincus is the managing partner of WP and the
managing member of EMW LLC, and may be deemed to control both entities.
The address of the Warburg, Pincus entities is 466 Lexington Avenue,
New York, NY 10017. Rodman W. Moorhead III and Joel Ackerman, directors
of PhyCor, are managing directors and members of EMW LLC and general
partners of WP. Messrs. Moorhead and Ackerman may be deemed to have an
indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Exchange Act) in an indeterminate portion of the shares beneficially
owned by WPEP.
(15) All shares indicated as owned by Messrs. Moorhead and Ackerman are
included because of their affiliation with the Warburg, Pincus
entities. The address of both Messrs. Moorhead and Ackerman is 466
Lexington Avenue, New York, NY 10017. See Note 14 above. Messrs.
Moorhead and Ackerman disclaim beneficial ownership of all shares owned
by the Warburg, Pincus entities.
(16) Legg Mason, Inc. is an investment company. The address of Legg Mason is
100 Light Street, Baltimore, Maryland, 21202. Legg Mason Special
Investment Trust, Inc. holds 7,185,000 shares. Information is as of
June 30, 1999 and is derived from Commission filings.
(17) The Prudential Insurance Company is a mutual insurance company has
shared voting power over 4,148,560 shares. The address of Prudential
Insurance is 751 Broad Street, Newark, New Jersey 07102. Information is
as of June 30, 1999 and is derived from Commission filings.
(18) Includes options to purchase 6,248,539 shares of common stock and
12,851 shares of restricted common stock.
WHERE CAN I OBTAIN ADDITIONAL INFORMATION ABOUT THE COMPANY?
PhyCor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act files periodic reports, proxy statements and other information
with the Commission. Copies of these reports, proxy statements and other
information, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, New York, New York 10048, and 500 West
Madison Street, Suite 1400, Citicorp Center, Chicago, Illinois 60601. Copies of
the material can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
PhyCor common stock is quoted on the Nasdaq National Market, and the reports,
proxy statements and other information with respect to PhyCor can be inspected
at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C.
20006. The Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
PhyCor was incorporated in Tennessee in January 1988. PhyCor's
executive offices are located at 30
28
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Burton Hills Boulevard, Suite 400, Nashville, Tennessee 37215, and its telephone
number is (615) 665-9066.
WHAT DOCUMENTS ARE INCORPORATED BY REFERENCE INTO THE PROXY STATEMENT?
This Proxy Statement incorporates documents by reference which are not
presented or delivered with the Proxy Statement. Copies of these reports, proxy
statements and other information filed by PhyCor, other than exhibits to such
documents unless the exhibits are specifically incorporated in the Proxy
Statement by reference, are available without charge, upon written or oral
request, from the Secretary of PhyCor, 30 Burton Hills Boulevard, Suite 400,
Nashville, Tennessee 37215, telephone (615) 665-9066.
The following documents previously filed by PhyCor with the Commission
are incorporated by reference into this Proxy Statement:
1. PhyCor's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998;
2. PhyCor's Quarterly Reports on Form 10-Q for the quarters
ended March 31 and June 30, 1999; and
3. PhyCor's Current Report on Form 8-K filed September 7,
1999.
All documents filed by PhyCor pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the date of the special meeting shall be deemed to be incorporated by reference
into this Proxy Statement and to be made a part of the Proxy Statement from the
date of the filing of such documents. Any statement contained in a document
incorporated by reference in the Proxy Statement shall be deemed to be modified
or superseded for the purpose of the Proxy Statement to the extent that a
statement contained in the Proxy Statement (or in any other subsequently filed
document which also is incorporated by reference in the Proxy Statement) is
modified or superseded by the statement. Any statement so modified or superseded
shall not be deemed to constitute a part hereof except as modified or
superseded.
WHEN SHOULD SHAREHOLDERS SUBMIT PROPOSALS FOR THE ANNUAL MEETING?
The board of directors of PhyCor will consider proposals of
shareholders intended to be presented for action at PhyCor's 2000 annual meeting
of shareholders. A shareholder proposal must be submitted in writing and be
received at PhyCor's principal executive offices, 30 Burton Hills, Suite 400,
Nashville, Tennessee 37215, no later than December 1, 1999, to be considered for
inclusion in PhyCor's proxy statement and form of proxy relating to the 2000
annual meeting of shareholders. Additionally, the proxy for PhyCor's 2000 annual
meeting will confer discretionary authority to vote on any shareholder proposal
received by the Company after March 8, 2000.
WHO ARE THE COMPANY'S INDEPENDENT ACCOUNTANTS?
KPMG LLP serves as independent certified public accountants for the
Company. Representatives of KPMG LLP are expected to be present at the special
meeting to respond to appropriate questions.
29
<PAGE> 33
WILL ANY OTHER MATTERS BE VOTED ON AT THE SPECIAL MEETING?
No business other than the Notes Proposal is expected to come before
the special meeting, but should any other matter requiring a vote of
shareholders arise, the persons named in the enclosed proxy will vote thereon
according to their best judgment in the interest of the Company.
Shareholders who wish to have their shares voted are requested to sign
and date the enclosed proxy and return it in the enclosed envelope. No postage
is required if mailed in the United States.
30
<PAGE> 34
APPENDIX A
CONFORMED COPY
===============================================================================
PHYCOR, INC.
-----------------------------
SECURITIES PURCHASE AGREEMENT
-----------------------------
Zero Coupon Convertible Subordinated Notes due 2014
Dated as of June 15, 1999
================================================================================
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. ISSUANCE OF NOTES..............................................................................................1
1.1. Authorization; Conversion of Notes into Common Stock; Etc.....................................1
1.2. Purchase and Sale of Notes; the Closing.......................................................1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................................2
2.1. Organization, Qualification, Authorization....................................................2
2.2. Capital Stock.................................................................................3
2.3. Incorporation, Good Standing and Ownership of Subsidiaries....................................4
2.4. Consents and Approvals........................................................................5
2.5. SEC Reports; Financial Statements.............................................................6
2.6. Absence of Changes............................................................................7
2.7. No Undisclosed Liabilities....................................................................7
2.8. Absence of Defaults, etc......................................................................8
2.9. Material Contracts............................................................................8
2.10. Litigation and Orders.........................................................................8
2.11. Compliance with Law...........................................................................9
2.12. Taxes........................................................................................11
2.13. Title to Properties..........................................................................11
2.14. Compliance with ERISA........................................................................12
2.15. Private Offering.............................................................................12
2.16. Investment Company Act and Holding Company Status, Etc.......................................13
2.17. Environmental Matters........................................................................13
2.18. Insurance....................................................................................14
2.19. Registration Rights..........................................................................15
2.20. Brokerage....................................................................................15
2.21. Takeover Statute; Rights Plan................................................................15
2.22. Y2K Compliance...............................................................................15
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS...............................................................16
3.1. Purchase of Notes............................................................................16
3.2. Organization, Qualification, Authorization...................................................16
3.3. Accredited Investor Status, etc..............................................................17
3.4. Brokerage....................................................................................17
4. INVESTOR CLOSING CONDITIONS...................................................................................17
4.1. Representations and Warranties; No Default...................................................17
4.2. Injunction...................................................................................18
</TABLE>
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<TABLE>
<S> <C>
4.3. Counsel's Opinion............................................................................18
4.4. Adverse Development..........................................................................18
4.5. Election of Directors........................................................................18
4.6. Consents and Approvals.......................................................................18
4.7. Secretary's Certificate......................................................................18
4.8. Officer's Certificate........................................................................19
4.9. Registration Rights Agreement................................................................19
4.10. Amendments to Bank Debt......................................................................19
4.11. Approval of Proceedings......................................................................19
5. COMPANY CLOSING CONDITIONS....................................................................................20
5.1. Representations and Warranties...............................................................20
5.2. Injunction...................................................................................20
5.3. Consents and Approvals.......................................................................20
5.4. Investors' Certificate.......................................................................20
5.5. Amendments to Bank Debt......................................................................21
6. COVENANTS.....................................................................................................21
6.1. Resale of Securities.........................................................................21
6.2. Covenants Pending Closing....................................................................21
6.3. Board Nominees...............................................................................22
6.4. Use of Proceeds..............................................................................22
6.5. Standstill...................................................................................23
6.6. Additional Purchases of Common Stock.........................................................24
6.7. Restrictions on Transfer.....................................................................25
6.8. Reasonable Efforts; Cooperation..............................................................28
6.9. Financial and Business Information...........................................................28
6.10. Inspection...................................................................................30
6.11. Confidentiality..............................................................................31
6.12. Takeover Statute.............................................................................31
6.13. Rights Agreement Inapplicable................................................................32
6.14. Hart-Scott Filings...........................................................................32
6.15. Conduct of Business; Negative Covenants......................................................32
7. TERMS OF NOTES; PREPAYMENTS OF NOTES; PURCHASE OF NOTES.......................................................33
7.1. General Terms of Notes.......................................................................33
7.2. Optional Redemption by the Company...........................................................34
7.3. Repurchase at Option of the Holder Upon a Change in Control..................................36
7.4. Purchase of Notes at the Option of the Holder................................................37
7.5. Further Conditions for Purchase at the Option of Holders Upon a Change in Control
and Purchase of Notes at the Option of the Holder........................................44
7.6. Conversion of Notes..........................................................................45
</TABLE>
(ii)
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<TABLE>
<S> <C>
7.7. Adjustments to Conversion Rate...............................................................48
7.8. Miscellaneous Provisions Relating to Conversion..............................................57
8. DEFINITIONS...................................................................................................60
8.1. Definitions..................................................................................60
8.2. Accounting Terms.............................................................................71
9. EVENTS OF DEFAULT; REMEDIES...................................................................................71
9.1. Events of Default; Acceleration of Maturity and Rescission...................................71
9.2. Suits for Enforcement........................................................................73
9.3. Remedies Cumulative..........................................................................74
9.4. Remedies Not Waived..........................................................................74
10. SUBORDINATION OF NOTES.......................................................................................74
10.1. Securities Subordinated to Senior Indebtedness...............................................74
10.2. Notes Subordinated to Prior Payment of All Senior Indebtedness on Dissolution,
Liquidation, Reorganization, etc., of the Company........................................75
10.3. Holders of Notes to be Subrogated to Right of Holders of Senior Indebtedness.................77
10.4. Obligations of the Company Unconditional.....................................................77
10.5. Company Not to Make Payment with Respect to Notes in Certain Circumstances...................78
10.6. Subordination Rights Not Impaired by Acts or Omissions of Company or Holders of
Senior Indebtedness......................................................................79
10.7. Section 10 Not to Prevent Events of Default..................................................80
11. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; RESTRICTIVE LEGENDS TRANSFER RESTRICTIONS......................80
12. LOST, ETC., NOTES............................................................................................81
13. AMENDMENT AND WAIVER.........................................................................................81
14. TERMINATION..................................................................................................82
15. PAYMENTS.....................................................................................................83
16. CERTAIN TAXES................................................................................................83
17. MISCELLANEOUS................................................................................................84
</TABLE>
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<PAGE> 38
<TABLE>
<S> <C>
17.1. Expenses.....................................................................................84
17.2. Reliance on and Survival of Representations..................................................84
17.3. Successors and Assigns.......................................................................84
17.4. Communications...............................................................................84
17.5. Consent to Jurisdiction; Service of Process; Waiver of Jury Trial............................85
17.6. Indemnification..............................................................................86
17.7. Governing Law................................................................................86
17.8. Headings.....................................................................................86
17.9. Counterparts.................................................................................86
</TABLE>
SCHEDULE I -- Names and Addresses of Purchasers
EXHIBIT A -- FORM OF NOTE
EXHIBIT B -- FORM OF OPINION OF SPECIAL COUNSEL
TO THE COMPANY
EXHIBIT C -- FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT D -- FORM OF OFFICERS' CERTIFICATE OF THE COMPANY
SCHEDULE 2.2B -- LIENS ON SHARES ISSUED UPON CONVERSION OF THE NOTES
SCHEDULE 2.2C -- OUTSTANDING CONVERTIBLE SECURITIES,
OPTIONS, ETC.
SCHEDULE 2.3 -- SIGNIFICANT SUBSIDIARIES
SCHEDULE 2.4 -- CONSENTS AND APPROVALS
SCHEDULE 2.6 -- ABSENCE OF CHANGES
SCHEDULE 2.7 -- UNDISCLOSED LIABILITIES
SCHEDULE 2.9 -- MATERIAL AGREEMENTS; SENIOR INDEBTEDNESS
SCHEDULE 2.10 -- LITIGATION
SCHEDULE 2.11 -- COMPLIANCE WITH LAW
SCHEDULE 2.13 -- TITLE TO PROPERTIES
SCHEDULE 2.14 -- COMPLIANCE WITH ERISA
SCHEDULE 2.17 -- ENVIRONMENTAL MATTERS
SCHEDULE 2.19 -- REGISTRATION RIGHTS
SCHEDULE 2.20 -- BROKERAGE
SCHEDULE 4.10 -- AMENDMENTS TO BANK DEBT
SCHEDULE 6.3 -- LIST OF APPROVED NOMINEES
SCHEDULE 7.7 -- SUBJECT LITIGATION
(iv)
<PAGE> 39
PHYCOR, INC.
30 Burton Hills Boulevard
Suite 400
Nashville, TN 37215
SECURITIES PURCHASE AGREEMENT
As of June 15, 1999
TO THE INVESTORS WHOSE NAMES
APPEAR ON THE SIGNATURE PAGES HERETO
Ladies and Gentlemen:
PHYCOR, INC., a Tennessee corporation (the "COMPANY"), hereby
agrees with you as follows:
1. ISSUANCE OF NOTES.
1.1. AUTHORIZATION; CONVERSION OF NOTES INTO COMMON STOCK; ETC.
The Company has duly authorized the issue and sale of Zero
Coupon Convertible Subordinated Notes due 2014 (the "NOTES"), each such Note to
be substantially in the form of Exhibit A attached hereto. As used herein, the
term "NOTES" means all notes originally issued pursuant to this Agreement and
all notes delivered in substitution or exchange for any such notes and, where
applicable, includes the singular number as well as the plural. Certain
capitalized and other terms used in this Agreement are defined in Section 8.
As provided in Section 7, the Notes are convertible into
shares of Common Stock, no par value, of the Company (the "COMMON STOCK").
1.2. PURCHASE AND SALE OF NOTES; THE CLOSING.
Subject to the terms and conditions hereof, the Company hereby
agrees to sell to each Investor, and each Investor agrees to purchase from the
Company, Notes in the aggregate Principal Amount at Final Maturity as set forth
opposite such Investor's name in Schedule I attached hereto. Each Note will be
issued at an issue price of $315.24 per $1,000 Principal Amount at Final
Maturity. The closing of such purchase shall be held at 10:00
<PAGE> 40
A.M., New York time, on the third Business Day following the satisfaction or
waiver of the conditions set forth in Sections 4 and 5 hereto or on such later
Business Day as may be agreed to by you and the Company (the "CLOSING DATE"), at
the offices of Willkie Farr & Gallagher, 787 Seventh Avenue, New York, NY 10019.
On the Closing Date, the Company will deliver to each Investor one or more
Notes, dated the Closing Date and registered in such Investor's name or in the
name of one or more of such Investor's nominees, in any denominations (in a
minimum amount of $500,000) and in the aggregate principal amount to be
purchased by the Investors, all as the Investors may specify by timely notice to
the Company (or, in the absence of such notice, one Note registered in each
Investor's name), in each case against delivery to the Company of immediately
available funds in the amount of the purchase price of such Notes, such delivery
to be by wire transfer to such account as the Company may direct in writing.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants, as of the date hereof and
as of the Closing Date, to each of the Investors as follows:
2.1. ORGANIZATION, QUALIFICATION, AUTHORIZATION.
A. The Company is a corporation duly incorporated and validly
existing under the laws of the State of Tennessee and has the corporate power
and authority to own or hold under lease the property it owns or holds under
lease, to transact the business it transacts, to execute and deliver this
Agreement, the Notes and the Registration Rights Agreement and to perform the
provisions hereof and thereof. The Company is duly qualified as a foreign
corporation and is in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned or held under lease
by it or the nature of the business transacted by it requires such
qualification, except where the failure to be so qualified individually and in
the aggregate would not have a Material Adverse Effect.
B. The execution and delivery by the Company of the
Transaction Documents, the issuance of the Notes, the performance by the Company
of its obligations hereunder and thereunder and the consummation by the Company
of the transactions contemplated
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<PAGE> 41
hereby and thereby have been duly authorized by all necessary action on the part
of the Company. This Agreement is, and the Notes and the Registration Rights
Agreement when executed and delivered by the Company will be, legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws relating to or affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), and except as enforceability of the indemnity provisions
contained in the Registration Rights Agreement may be limited by public policy
considerations.
2.2. CAPITAL STOCK.
A. The authorized capital stock of the Company consists of
250,000,000 shares of its Common Stock, no par value per share (the "COMMON
STOCK") and 10,000,000 shares of preferred stock, no par value per share,
500,000 shares of which have been designated "Series A Junior Participating
Preferred Stock". As of June 10, 1999, (i) 76,292,550 shares of Common Stock
were issued and outstanding, (ii) no shares of preferred stock were issued and
outstanding, (iii) 15,167,218 shares of Common Stock were issuable upon exercise
of stock options and (iv) 5,172,413 shares of Common Stock were issuable for
issuance upon conversion of the Existing Convertible Debentures and (v) 611,127
shares of Common Stock were issuable upon conversion of other promissory notes
of the Company. As of the date hereof, there are no bonds, debentures, notes or
other evidences of indebtedness having the right to vote on any matters on which
the Company's shareholders may vote issued or outstanding.
B. All the outstanding shares of capital stock of the Company
have been duly and validly issued and are fully paid and non-assessable, and
were issued in accordance with the registration or qualification requirements of
the Securities Act and any relevant state securities laws or pursuant to valid
exemptions therefrom. Upon their issuance in accordance with the terms of this
Agreement and the Notes, the shares of Common Stock issuable upon conversion of
the Notes will be duly authorized, validly issued, fully paid and non-assessable
shares of the capital stock of the Company, free and clear of any Lien, except
for those provided for herein or set forth on Schedule 2.2B and other than
restrictions on transfer imposed by federal or state
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<PAGE> 42
securities laws. The Company has reserved for issuance the number of shares of
Common Stock initially issuable upon conversion of the Notes.
C. Except as set forth in Section 2.2A or on Schedule 2.2C and
except for the Notes, on the Closing Date there will be no shares of Common
Stock or any other equity security of the Company issuable upon conversion or
exchange of any security of the Company or any Subsidiary of the Company nor
will there be any rights, options, calls or warrants outstanding or other
agreements to acquire shares of Common Stock nor will the Company be
contractually obligated to purchase, redeem or otherwise acquire any of its
outstanding shares. No shareholder of the Company is entitled to any preemptive
or similar rights to subscribe for shares of capital stock of the Company.
2.3. INCORPORATION, GOOD STANDING AND OWNERSHIP OF SUBSIDIARIES.
A. Schedule 2.3 is a list of the Significant Subsidiaries of
the Company, showing, as to each Significant Subsidiary, the correct name
thereof, the jurisdiction of its organization and the percentage of shares of
each class of securities of such Significant Subsidiary owned by the Company and
each other Subsidiary of the Company. All of the outstanding shares of each of
the Significant Subsidiaries shown in Schedule 2.3 as being owned by the Company
and its Significant Subsidiaries have been validly issued, are fully paid and
nonassessable and, except as set forth in Schedule 2.3, are owned by the Company
or another Subsidiary free and clear of any Lien. No shares of the Company are
owned by any of its Significant Subsidiaries.
B. Each Significant Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified as a foreign corporation
and is in good standing as a foreign corporation in each jurisdiction in which
the character of the properties owned or held under lease by it or nature of the
business transacted by it requires such qualification, except where the failure
to be so qualified individually and in the aggregate would not have a Material
Adverse Effect. Each Significant Subsidiary has the corporate power and
authority to own or hold under lease the property it owns or holds under lease
and to transact the business it transacts.
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<PAGE> 43
2.4. CONSENTS AND APPROVALS.
A. Except as set forth in Schedule 2.4, the execution and
delivery by the Company of the Transaction Documents, the issuance of the Notes,
the performance by the Company of its obligations hereunder and thereunder and
the consummation by the Company of the transactions contemplated hereby and
thereby do not require the Company or any of its Subsidiaries to obtain any
consent, approval, clearance or action of, or make any filing, submission or
registration with, or give any notice to, any Governmental Body or any other
Person, except where the failure to obtain such consents, approvals, clearance
or action would not have a Material Adverse Effect.
B. Except as set forth in Schedule 2.4, the execution and
delivery by the Company of the Transaction Documents, the issuance of the Notes,
the performance by the Company of its obligations hereunder and thereunder and
the consummation by the Company of the transactions contemplated hereby and
thereby will not: (i) conflict with the Restated Charter or Amended Bylaws of
the Company or any Subsidiary; (ii) result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of the Company or any Subsidiary under, any Material Agreement to which the
Company or any Subsidiary is a party or by which their respective properties may
be bound or affected; or (iii) conflict with or result in a breach of any of the
terms, conditions or provisions of any Order of any court, arbitrator or
Governmental Body applicable to the Company or any Subsidiary or violate any
provision of any law, statute, rule or regulation of any Governmental Body
applicable to the Company or any Subsidiary which, in the case of clauses (ii)
or (iii) would have a Material Adverse Effect.
C. The execution and delivery by the Company of the
Transaction Documents, the issuance of the Notes, the performance by the Company
of its obligations hereunder and thereunder and the consummation by the Company
of the transactions contemplated hereby and thereby will not result in, pursuant
to the terms of any contractual arrangement, (i) the acceleration of the vesting
of any outstanding option, warrant, call, commitment, agreement, conversion
right, preemptive right or other right to subscribe for, purchase or otherwise
acquire any of the shares of the capital stock of the Company or any of the
stock of the Company or any of its Subsidiaries, or debt securities of the
Company or any of its Subsidiaries (collectively "COMMITMENTS", and each
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<PAGE> 44
individually a "COMMITMENT"), (ii) any obligation of the Company to grant,
extend or enter into any Commitment, or (iii) any right in favor of any Person
to terminate or cancel any Material Agreement.
2.5. SEC REPORTS; FINANCIAL STATEMENTS.
A. The Company has furnished the Investors with complete
copies of the Company's (i) Annual Reports on Form 10-K for the fiscal years
ended December 31, 1996, December 31, 1997 and December 31, 1998, as filed with
the Commission, (ii) Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, as filed with the Commission, (iii) proxy statements related to all
meetings of its shareholders (whether annual or special) held since January 1,
1997, and (iv) all other reports filed with or registration statements declared
effective by the Commission since January 1, 1997, except registration
statements on Form S-8 relating to employee benefit plans, which are all the
documents (other than preliminary material) that the Company was required to
file with the Commission since that date (clauses (i) through (iv) being
referred to herein collectively as the "COMPANY SEC REPORTS"). As of their
respective dates of filing, the Company SEC Reports were duly filed and complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission thereunder applicable to such Company SEC Reports. As of their
respective dates of filing, the Company SEC Reports filed with the Commission
after January 1, 1999 and through the date hereof did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except for such
statements or omissions, if any, as have been modified by or included in
subsequent filings with the Commission prior to the date hereof.
B. The audited consolidated financial statements and unaudited
interim financial statements of the Company included in the Company SEC Reports
comply as to form in all material respects with applicable accounting
requirements of the Securities Act and with the published rules and regulations
of the Commission with respect thereto. The financial statements included in the
Company SEC Reports (i) have been prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes thereto),
(ii) present
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<PAGE> 45
fairly, in all material respects, the financial position of the Company and its
Subsidiaries as at the dates thereof and the results of their operations and
cash flow for the periods then ended subject, in the case of the unaudited
interim financial statements, to normal year-end audit adjustments and any other
adjustments described therein and the fact that certain information and notes
have been condensed or omitted in accordance with the Exchange Act and the rules
promulgated thereunder, and (iii) are in all material respects, in accordance
with the books of account and records of the Company except as indicated
therein.
2.6. ABSENCE OF CHANGES.
Except as disclosed in the Company SEC Reports or on Schedule
2.6, since December 31, 1998, there has been no (i) change or event which would
have a Material Adverse Effect, (ii) declaration, setting aside or payment of
any dividend or other distribution with respect to the capital stock of the
Company, (iii) issuance of capital stock (other than pursuant to the exercise of
options, warrants, or convertible securities outstanding at such date) or
options, warrants or rights to acquire capital stock (other than the rights
granted to the Investors hereunder), (iv) material loss, destruction or damage
to any material amount of property of the Company or any Subsidiary, that was
not insured, (v) acceleration or prepayment of any indebtedness of the Company
for borrowed money or the refunding of any such indebtedness, (vi) loan or
extension of credit to any officer or employee of the Company or any Subsidiary
other than advances for travel-related expenses and similar advances to officers
and employees of the Company in the ordinary course of business or (vii)
acquisition or disposition of any material assets (or any contract or
arrangement therefor), or any other material transaction by the Company or any
Subsidiary otherwise than for fair value in the ordinary course of business. No
event that would constitute an Event of Default has occurred and is continuing.
2.7. NO UNDISCLOSED LIABILITIES.
Except as set forth on Schedule 2.7, neither the Company nor
any of its Subsidiaries has any debt, obligation or liability (whether accrued,
absolute, contingent, liquidated or otherwise, or whether due or to become due)
including, without limitation, unfunded past service liabilities under any
pension,
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<PAGE> 46
profit sharing or similar plan, except liabilities disclosed in the Company SEC
Reports, liabilities incurred in the ordinary course of business since December
31, 1998, and obligations under Material Agreements to which the Company or any
of its Subsidiaries are a party or agreements entered into by the Company or any
of its Subsidiaries, in the usual and ordinary course of business, other than
debts, obligations or liabilities which (individually or in the aggregate) would
not have a Material Adverse Effect.
2.8. ABSENCE OF DEFAULTS, ETC.
Neither the Company nor any of its Subsidiaries is in default
under or in violation of (and no event has occurred and no condition exists
which, upon notice or the passage of time (or both), would constitute a default
under) (i) its Restated Charter or Amended Bylaws, (ii) any Material Agreement
to which the Company or any Subsidiary is a party or by which their respective
properties may be bound or affected, or (iii) any order, writ, injunction or
decree of any court or any Federal, state, municipal or other domestic or
foreign governmental department, commission, board, bureau, agency or
instrumentality except, in the case of clause (ii), for defaults or violations
which would not have a Material Adverse Effect.
2.9. MATERIAL CONTRACTS.
A. All Material Agreements to which the Company or any of its
Subsidiaries is a party are set forth on Schedule 2.9 or have been filed as
exhibits to the Company SEC Reports. Each Material Agreement that is currently
in effect is valid, binding and enforceable against the Company or such
Subsidiary and, to the Company's knowledge, the other parties thereto, in
accordance with its terms, and in full force and effect on the date hereof.
B. Schedule 2.9 is a list of all Senior Indebtedness as of the
date hereof.
2.10. LITIGATION AND ORDERS.
Except as set forth on Schedule 2.10 or as disclosed in the
Company SEC Reports, there is no action, suit, arbitration or other legal,
administrative or other governmental investigation, inquiry or proceeding
(whether federal, state, local or foreign) pending or, to the Company's
knowledge, threatened against the
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<PAGE> 47
Company or any Subsidiary or any of their respective properties, assets or
businesses, except for actions, suits, arbitrations, investigation, inquiries or
proceedings that would not have a Material Adverse Effect. To the Company's
knowledge, there is no fact not known to the Investors which might result in or
form the basis for any such action, suit, arbitration, investigation, inquiry or
other proceeding which would have a Material Adverse Effect. Neither the Company
nor any Subsidiary is subject to any Order which would have a Material Adverse
Effect.
2.11. COMPLIANCE WITH LAW.
A. The Company and each of its Subsidiaries are in compliance
in all material respects with, and are not in violation or default in any
material respect under, all federal, state and local laws, ordinances,
government rules and regulations applicable to their business operations,
properties, or assets, including without limitation laws or regulations relating
to: occupational health and safety; insurance companies; HMOs; third party
administrators; the provision or arrangement for the provision of health
services; work place safety; equal employment opportunity and race; and
religious, sex and age discrimination, except where the failure to comply,
individually or in the aggregate, would not have a Material Adverse Effect. No
material expenditures, to the Company's knowledge, are or will be required in
order to cause the current operations or properties of the Company or any of its
Subsidiaries to comply with any applicable laws, ordinances, governmental rules
or regulations at either Closing.
B. The Company and each of its Subsidiaries have all licenses,
permits, franchises or other governmental authorizations ("APPROVALS") necessary
to the ownership of their property and to the operation of their respective
businesses, which if violated or not obtained would have a Material Adverse
Effect. Neither the Company nor any Subsidiary has finally been denied any
application for any such Approvals necessary for their property or for the
operation of their business. There is no action pending, or to the knowledge of
the Company, threatened by appropriate state or federal agencies having
jurisdiction thereof, to either revoke, withdraw, or suspend any such Approvals,
or which would materially affect such Approvals, or to terminate the
participation of any of the Company's Subsidiaries in Medicare, Medicaid, or
other government program, or any
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<PAGE> 48
decision not to renew any such Approvals, which action or decision not to renew
would have a Material Adverse Effect.
C. Except as set forth on Schedule 2.11, to the extent
applicable to them, the Company and its Subsidiaries have complied in all
material respects with all laws, rules, conditions of participation, and
regulations governing all Medicare, Medicaid, and any other arrangements with
any Governmental Body and have filed all returns, cost reports and other filings
in any manner prescribed thereby except where the failure to so comply, together
with all other such failures, would not have a Material Adverse Effect. All
returns, cost reports and other filings made by the Company and its Subsidiaries
since January 1, 1997 to Medicare, Medicaid or any other Governmental Entity or
third party payor are true and complete except where the failure to be so true
and complete, together with all other such failures, would not have a Material
Adverse Effect.
D. In each state in which the Company or any of its
Subsidiaries operates HMOs, PPOs, point of service plans, insurance plans or
other health care plans, the Company and each of its Subsidiaries has filed
copies of its (i) standard employer and other individual and group subscriber
agreements, (ii) contracts with physicians, hospitals and other health care
entities, and (iii) contracts for management and administrative services with
the applicable state authorities to the extent required by law, including, but
not limited to contracts required to be filed with the state Departments of
Insurance, Departments of Health or the agencies responsible for each state's
Medicaid program. The Company and each of its Subsidiaries are not providing
services under any such agreements that have not been filed and approved by the
state regulatory authorities except where the failure to so file would not have
a Material Adverse Effect.
E. The Company and each of its Subsidiaries has filed all
reports, filings and notices required to be filed with all applicable
Departments of Insurance, Departments of Health and HMO regulatory bodies since
January 1, 1995 except where the failure to so file would not have a Material
Adverse Effect (as such documents have since the time of their filing been
amended, the "DOI Reports"). As of their respective dates, the DOI Reports
complied in all material respects with the requirements of the laws, rules and
regulations applicable to such DOI Reports, and none of the DOI Reports
contained any untrue
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<PAGE> 49
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the material statements therein, in light of
the circumstances under which they were made, not misleading, except for such
statements, if any, as have been modified by subsequent filings prior to the
date hereof.
F. Neither the Company nor any of its Subsidiaries, nor the
officers, directors, employees or agents of the Company or any of its
Subsidiaries has received any written notice alleging that it has engaged in any
activities which are prohibited, or are cause for civil penalties or mandatory
or permissive exclusion from Medicare or Medicaid, under ss.ss. 1320a-7,
1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States Code, the federal
CHAMPUS statute, or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or, to the Company's knowledge,
which are prohibited by any private accrediting organization from which the
Company or any of its Subsidiaries seeks accreditation which would have a
Material Adverse Effect.
2.12. TAXES.
The Company and its Subsidiaries have filed all material tax
returns in all jurisdictions in which such returns are required to have been
filed by them and have paid all taxes, assessments, fees and governmental
charges due and payable with respect to such returns to the extent the same have
become due and payable and before they have become delinquent, other than those
being contested in good faith and with respect to which the Company or a
Subsidiary, as the case may be, has set aside on its books adequate reserves in
conformity with GAAP.
2.13. TITLE TO PROPERTIES.
Except as disclosed in the Company SEC Reports or on Schedule
2.13, the Company and each Subsidiary has good and marketable title to their
respective real properties and own free and clear of any Liens their respective
other properties reflected in the consolidated balance sheet as at March 31,
1999, or acquired by the Company or such Subsidiary after said date (other than
properties and assets disposed of in the ordinary course of business), except
for such imperfections of title and encumbrances as would not be individually or
in the aggregate Material.
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<PAGE> 50
2.14. COMPLIANCE WITH ERISA.
A. Except as set forth on Schedule 2.14, the Company and each
ERISA Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not resulted
in and would not result in a Material Adverse Effect. Except as set forth on
Schedule 2.14, neither the Company nor any ERISA Affiliate has incurred any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to any Plan other than such liabilities as would
not be individually or in the aggregate Material, and to the Company's
knowledge, no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability by the
Company or any ERISA Affiliate, or in the imposition of any Lien on any of the
rights, properties or assets of the Company or any ERISA Affiliate, in either
case pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate Material.
B. Except as set forth on Schedule 2.14, the Company and its
ERISA Affiliates have not incurred withdrawal liabilities under Section 4201 of
ERISA and are not subject to contingent withdrawal liabilities under section
4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in
the aggregate are Material.
2.15. PRIVATE OFFERING.
Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any Person other than the Investors. Neither the Company nor
anyone acting on its behalf has taken, or will take, any action which would
cause an exemption from the registration requirements of Section 5 of the
Securities Act to be inapplicable to the issuance or sale of the Notes or the
shares of Common Stock issuable upon conversion of the Notes. Based upon the
representations of the Investors set forth in Section 3, the offer, issuance and
sale of the Notes are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been registered or
qualified (or are exempt from registration and
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<PAGE> 51
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws.
2.16. INVESTMENT COMPANY ACT AND HOLDING COMPANY STATUS, ETC.
Neither the Company nor any Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, or the Federal Power Act, as
amended.
2.17. ENVIRONMENTAL MATTERS.
A. The operations of the Company and its Subsidiaries comply
with all applicable Environmental Laws, except where the failure so to comply
individually and in the aggregate would not have a Material Adverse Effect.
B. In addition and without limitation to the foregoing, except
as set forth on Schedule 2.17:
(1) during the ownership or occupation by the Company or any
Subsidiary, neither the Company nor any Subsidiary, nor any property or
operations currently owned or leased by the Company or any Subsidiary,
is subject to any Order from or agreement with any court, arbitrator or
Governmental Body of competent jurisdiction or subject to any judicial
or docketed administrative proceeding respecting (x) any Environmental
Law or any other environmental or health or safety Requirement of Law,
(y) any action required to clean up, remove, treat or in any other way
address Contaminants in the environment or (z) any written claim under
any Environmental Law arising from the release or threatened release of
a Contaminant into the environment, which individually or in the
aggregate would have a Material Adverse Effect;
(2) all necessary authorizations, consents, permissions,
licenses and agreements required by Environmental Laws (collectively
"ENVIRONMENTAL CONSENTS") have been lawfully obtained by the Company
and its Subsidiaries except Environmental Consents the failure of which
to obtain would not have a Material Adverse Effect, and all
Environmental Consents are valid and are in full force and effect;
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<PAGE> 52
(3) to the Company's knowledge, the Company and its
Subsidiaries have complied in all material respects with all conditions
attaching to Environmental Consents and there are no circumstances
which would render it impossible for the Company or any Subsidiary to
comply with such conditions in the future;
(4) neither the Company nor any Subsidiary has received any
written notice, Order, correspondence or written communication from any
Governmental Body concerning any Environmental Consent revoking,
suspending, modifying or varying the same, or threatening to do so, and
the Company does not know of any reason for any Environmental Consent
to be revoked, suspended, modified or varied;
(5) neither the Company nor any Subsidiary has received any
written communication in any form from any Governmental Body concerning
any violation of any Environmental Law; and the Company is not aware of
any circumstances which would be reasonably expected to give rise to
such a communication being received, or of any intention on the part of
any competent authority to deliver any such communication;
(6) to the Company's knowledge, no site owned or occupied by
the Company or any Subsidiary has been used for the deposit of waste
during the ownership or occupation of the Company or any Subsidiary
except for such usage in accordance with Environmental Law or pursuant
to all requisite material consents thereunder;
(7) to the Company's knowledge, all Contaminants produced in
the course of the businesses of the Company and its Subsidiaries have
been lawfully disposed of; and
(8) to the Company's knowledge, the Company and its
Subsidiaries have at all times supplied to the competent authorities
such information as is required by Environmental Laws, and all such
information given was correct at the time such information was
supplied.
2.18. INSURANCE.
The Company and its Subsidiaries and their respective
properties are insured in such amounts, against such losses and with such
insurers as are prudent when considered in light of the
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nature of the properties and businesses of the Company and its Subsidiaries and
customary in light of the Company's exposure. No notice of any termination or
threatened termination of any of such policies has been received.
2.19. REGISTRATION RIGHTS.
Except as set forth in Schedule 2.19 and as contemplated by
this Agreement and the Registration Rights Agreement, no Person has the right to
cause the Company to effect the registration under the Securities Act of any
shares of Common Stock or any other securities (including securities evidencing
debt) of the Company.
2.20. BROKERAGE.
Except as set forth on Schedule 2.20, there are no claims for
brokerage commissions or finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement
made by or on behalf of the Company and the Company agrees to indemnify and hold
the Investors harmless against any costs or damages incurred as a result of any
such claim.
2.21. TAKEOVER STATUTE; RIGHTS PLAN.
None of the Investors is, as a result of its execution and
delivery of this Agreement, the performance of its obligations hereunder or the
acquisition of any Notes or shares of Common Stock contemplated by this
Agreement, an "interested shareholder" prohibited from entering into a business
combination with the Company or any subsidiary pursuant to Section 48-103-205 of
the Business Combination Act of the State of Tennessee or an "Acquiring Person"
within the meaning of the Rights Agreement. A "Distribution Date" (as defined in
the Rights Agreement) shall not be deemed to have occurred and the Rights (as
defined in the Rights Agreement) shall not separate from the Common Stock as a
result of any of the transactions contemplated hereby. No other Takeover Statute
is applicable to the transactions contemplated hereby.
2.22. Y2K COMPLIANCE.
Except as set forth in the Company SEC Reports, the Company
has established and is implementing an enterprise-wide
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program intended to provide (x) that the change of the year from 1999 to the
year 2000 would not have a Material Adverse Effect and (y) that the impacts of
such change on the material vendors and customers of the Company and the
Subsidiaries would not have a Material Adverse Effect.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each of the Investors represents and warrants to the Company
as follows:
3.1. PURCHASE OF NOTES.
It is acquiring the Notes for its own account for investment
and not with a view towards the resale, transfer or distribution thereof, nor
with any present intention of distributing the Notes, but subject, nevertheless,
to any requirement of law that the disposition of such Investor's property shall
at all times be within such Investor's control, and without prejudice to such
Investor's right at all times to sell or otherwise dispose of all or any part of
such securities under a registration under the Securities Act or under an
exemption from said registration available under the Securities Act.
3.2. ORGANIZATION, QUALIFICATION, AUTHORIZATION.
A. It is a validly existing limited partnership, duly
organized under the laws of its jurisdiction of organization.
B. It has full power and legal right to execute and deliver
this Agreement and to perform its obligations hereunder.
C. It has taken all partnership action necessary for the
authorization, execution, delivery, and performance of this Agreement and its
obligations hereunder. This Agreement is, and the Registration Rights Agreement
when executed and delivered by it will be, legal, valid and binding obligations
of such Investor enforceable against such Investor in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
and except as enforceability of the indemnity provisions
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contained in the Registration Rights Agreement may be limited by public policy
considerations.
3.3. ACCREDITED INVESTOR STATUS, ETC.
A. It has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of its
investment in the Company as contemplated by this Agreement, and is able to bear
the economic risk of such investment for an indefinite period of time. It has
been furnished access to such information and documents as it has requested and
has been afforded an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of this
Agreement and the purchase of the Notes and the shares of Common Stock
contemplated hereby.
B. It is an "accredited investor" as defined under Regulation
D of the Securities Act.
3.4. BROKERAGE.
Except for BT Alex. Brown Incorporated (whose fees and
expenses will be paid by the Investors), there are no claims for brokerage
commissions or finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement made by or
on behalf of the Investors and the Investors agree to indemnify and hold the
Company harmless against any costs or damages incurred as a result of any such
claim.
4. INVESTOR CLOSING CONDITIONS.
The Investors obligation to purchase and pay for the Notes to
be purchased by them hereunder is subject to the satisfaction on or before the
Closing Date of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
The representations and warranties contained in Section 2
shall (except as expressly affected by the transactions contemplated hereby) be
true and correct in all material respects on and as of the Closing Date as if
made on and as of the Closing Date; the Company shall have performed in all
material respects all agreements to be performed by it under this Agreement on
or
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before the Closing Date; and there shall exist on the Closing Date no Default or
Event of Default.
4.2. INJUNCTION.
There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided.
4.3. COUNSEL'S OPINION.
Each of the Investors shall have received from the Company's
counsel, Waller Lansden Dortch & Davis, A Professional Limited Liability
Company, an opinion, dated the Closing Date, substantially in the form of
Exhibit B hereto.
4.4. ADVERSE DEVELOPMENT.
There shall have been no developments in the business of the
Company or any of its Subsidiaries which since the date of this Agreement have
had or are reasonably likely to have a Material Adverse Effect.
4.5. ELECTION OF DIRECTORS.
Two directors designated by the Investors in accordance with
Section 6.3 shall have been elected to the Board of Directors to serve as Class
1 and Class 3 directors, respectively, effective upon the Closing Date.
4.6. CONSENTS AND APPROVALS.
All consents, waivers, authorizations, licenses, permits,
certificates and approvals of any Person required in connection with the
execution, delivery and performance of this Agreement, including, without
limitation, the approval of each entity set forth on Schedule 2.4 hereto shall
have been duly obtained and shall be in full force and effect on the Closing
Date.
4.7. SECRETARY'S CERTIFICATE.
Each Investor shall have received a certificate, dated the
Closing Date, of the Secretary of the Company attaching (i) a
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true and complete copy of the Restated Charter of the Company as filed with the
Secretary of State of the State of Tennessee, with all amendments thereto, (ii)
true and complete copies of the Company's Amended Bylaws in effect as of such
date, (iii) certificates of good standing of the appropriate officials of the
jurisdictions of incorporation of the Company and of each state in which the
Company is qualified to do business as a foreign corporation and (iv)
resolutions of the Board of Directors authorizing the execution and delivery of
this Agreement and the Transaction Documents and the transactions contemplated
hereby and thereby, the issuance of the Notes and the reservation for issuance
of the shares of Common Stock into which the Notes are initially convertible,
and the election of the directors as provided by Section 4.5.
4.8. OFFICER'S CERTIFICATE.
Each of the Investors shall have received a certificate, dated
the Closing Date, signed by each of the President and the Chief Financial
Officer of the Company, certifying that the conditions specified in the
foregoing Sections 4.1, 4.4, 4.5, and 4.6 hereof have been fulfilled.
4.9. REGISTRATION RIGHTS AGREEMENT.
A Registration Rights Agreement, substantially in the form of
Exhibit C attached hereto (the "REGISTRATION RIGHTS AGREEMENT"), shall have been
executed and delivered by the Company and shall be in full force and effect.
4.10. AMENDMENTS TO BANK DEBT.
The Bank Credit Agreement (as defined in the Existing
Indenture) shall have been amended to provide for the terms set forth on
Schedule 4.10, and otherwise on terms reasonably acceptable to the Company, and
the Investors shall have been furnished evidence reasonably acceptable to them
of such amendments.
4.11. APPROVAL OF PROCEEDINGS.
All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to the Investors and
their special counsel, Willkie
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Farr & Gallagher; and the Investors shall have received copies of all documents
or other evidence which they and Willkie Farr & Gallagher may reasonably request
in connection with such transactions and of all records of corporate proceedings
in connection therewith in form and substance reasonably satisfactory to the
Investors and Willkie Farr & Gallagher.
5. COMPANY CLOSING CONDITIONS.
The Company's obligation to issue and deliver the Notes to the
Investors is subject to the satisfaction on or before the Closing Date of the
following conditions:
5.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in Section 3
shall (except as expressly affected by the transactions contemplated hereby) be
true and correct in all material respects on and as of the Closing Date as if
made on and as of the Closing Date; and each of the Investors shall have
performed in all material respects all agreements to be performed by it under
this Agreement on or before the Closing Date.
5.2. INJUNCTION.
There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided.
5.3. CONSENTS AND APPROVALS.
All consents, waivers, authorizations, licenses, permits,
certificates and approvals of any Person required in connection with the
execution, delivery and performance of this Agreement, including, without
limitation, the approval of each entity set forth on Schedule 2.4 hereto shall
have been duly obtained and shall be in full force and effect on the Closing
Date.
5.4. INVESTORS' CERTIFICATE.
The Company shall have received a certificate from each of the
Investors, dated the Closing Date, signed by a duly authorized representative of
such Investor, certifying that the
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conditions specified in the foregoing Section 5.1 hereof have been fulfilled.
5.5. AMENDMENTS TO BANK DEBT.
The Bank Credit Agreement (as defined in the Existing
Indenture) shall have been amended on terms reasonably acceptable to the
Company.
6. COVENANTS.
6.1. RESALE OF SECURITIES.
A. Each of the Investors severally covenants that it will not
sell or otherwise transfer the Securities except pursuant to an effective
registration under the Securities Act, or pursuant to Rule 144 under the
Securities Act, or in a transaction which complies with the provisions of
Section 6.7.
B. Until such time as the Securities are sold pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 under the Securities Act, the Securities will bear substantially the
following legend reflecting the foregoing restrictions on the transfer of such
securities:
"The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any state
securities law, and may not be sold, transferred or otherwise disposed
of except pursuant to an effective registration under the Act or in a
transaction which, in the opinion of counsel reasonably acceptable to
the Company, is exempt from such registration."
6.2. COVENANTS PENDING CLOSING.
From the date hereof through the Closing Date, the Company
will conduct and will cause its Subsidiaries to conduct their respective
businesses in the ordinary course, and will not, and will not permit any of its
Subsidiaries to, without the prior written consent of the Investors, take any
action which would result in any of the representations or warranties contained
in this Agreement not being true in all material respects at and as of the time
immediately after such action, or in any of the covenants contained in this
Agreement becoming incapable of
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performance in all material respects. The Company will promptly advise the
Investors of any action or event of which it becomes aware which has the effect
of making incorrect in any material respect any of such representations or
warranties or which has the effect of rendering any of such covenants incapable
of performance in any material respect.
6.3. BOARD NOMINEES.
For so long as the Notes are outstanding and owned by one or
more of the Investors, the Company will nominate and use its best efforts to
elect and to cause to remain as directors on the Board of Directors two
individuals designated by the Investors who are either (i) general partners of
WP listed on Schedule 6.3 or (ii) otherwise reasonably acceptable to the Company
("APPROVED DESIGNEES"). For so long as the Investors, individually or in the
aggregate, own beneficially (within the meaning of Rule 13d-3 under the Exchange
Act) at least 10.0% of the outstanding shares of Common Stock, the Company will
nominate and use its best efforts to elect and to cause to remain as directors
on the Board of Directors at least one individual designated by the Investors,
who shall be an Approved Designee; provided, however, that in the event the
Investors, individually or in the aggregate, own beneficially (within the
meaning of Rule 13d-3 under the Exchange Act) more than 10% but less than 12.5%
of the outstanding shares of Common Stock, the Investors shall only be entitled
to designate an Approved Designee pursuant to this sentence if the Investors,
individually or in the aggregate, own at least 50% of the shares of Common Stock
beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) by
them on the date six months following the Closing Date. Any vacancy created by
the death, disability, retirement or removal of any such individual may be
filled by the Investors.
6.4. USE OF PROCEEDS.
The Company will use the proceeds of the issuance of the Notes
to repay existing debt, to repurchase shares of Common Stock and for general
corporate purposes; provided, however, that any repurchases of shares of Common
Stock hereunder (i) will be approved by the Board of Directors, (ii) will be
made in compliance with all applicable law, (iii) will be made within twelve
months of the Closing Date and (iv) will not exceed $27,500,000 in the
aggregate; and provided further that nothing herein shall prohibit, restrict or
otherwise limit the Company's
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ability to effect its $75,000,000 securities repurchase program previously
adopted by the Company as long as such securities repurchase program is
completed within 24 months of the Closing Date. Except as set forth in the
immediately preceding sentence, no part of the proceeds from the sale of the
Notes hereunder will be used, and no part of the proceeds of such existing debt
was used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 CFR 221, as amended), or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve the
Company in a violation of Regulation X of said Board (12 CFR 224) or to involve
any broker or dealer in a violation of Regulation T of said Board (12 CFR 220).
As used in this Section 6.4, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR
CARRYING" shall have the meanings assigned to them in the aforementioned
Regulation U.
6.5. STANDSTILL.
A. Each of the Investors and Warburg, Pincus & Co., the sole
general partner of each of the Investors ("WP"), hereby agree that, for a period
of five years from the date of this Agreement, neither WP, the Investors nor any
Controlled Subsidiary or others with whom WP is acting in concert will, directly
or indirectly, and WP will not, for its own account, without the prior written
consent of the Board:
(1) acquire or agree to acquire, publicly offer, or make any
public proposal with respect to the possible acquisition of (A)
beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of any securities of the Company in excess of the Maximum
Amount, (B) any Company business or any substantial part of the
Company's assets, or any subsidiary or division thereof or successor to
the Company, or (C) any rights or options to acquire any of the
foregoing from any Person;
(2) make, or in any way participate, directly or indirectly,
in any "solicitation" of "proxies" to vote (as such terms are used in
the rules under the Exchange Act), or seek to advise or influence any
person or entity with respect to the voting of any voting securities of
the Company;
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(3) make any public announcement with respect to any
transaction or proposed or contemplated transaction between the Company
or any of its security holders and the Investors or WP, including,
without limitation, any tender or exchange offer, merger or other
business combination or acquisition of a material portion of the assets
of the Company;
(4) publicly propose or publicly disclose an intent to propose
any form of business combination, acquisition, restructuring,
recapitalization or other similar transaction relating to the Company;
(5) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to the Company in
connection with any of matters referred to in clauses (1)-(4) above;
(6) publicly disclose any intention, plan or arrangement
inconsistent with the foregoing;
(7) publicly request the Company, directly or indirectly, to
amend or waive any provisions of this Section 6.5; or
(8) take any action which would be reasonably likely to
require the Company to make a public announcement regarding a possible
transaction involving the Company.
B. Each of the Investors and WP acknowledge that money damages
would not be sufficient remedy for any breach of this Agreement by it and that
in addition to all other remedies the Company shall be entitled to specific
performance and injunctive and other equitable relief as a remedy for any such
breach, and each of the Investors and WP further agree to waive any requirement
for the securing or posting of any bond in connection with such remedy.
C. The letter from WP to the Company, dated March 8, 1999,
shall terminate and have no further force or effect following the Closing Date.
6.6. ADDITIONAL PURCHASES OF COMMON STOCK.
A. The Investors currently intend to acquire additional shares
of Common Stock in open-market purchases or otherwise ("PERMITTED
ACQUISITIONS"). The actual timing and
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amount of such purchases will depend on the receipt of all required regulatory
approvals and prevailing market conditions at the time of such purchases.
B. The Company has agreed to permit the Investors to make the
Permitted Acquisitions provided that (i) the Permitted Acquisitions are made no
later than six (6) months after the Closing Date, (ii) the aggregate
consideration for such Permitted Acquisitions does not exceed $72,500,000
(excluding transaction costs and expenses and brokerage commissions) and (iii)
the number of shares of Common Stock acquired pursuant to this Section 6.6 shall
not exceed 15,000,000 (subject to appropriate adjustment for any stock split or
similar event).
6.7. RESTRICTIONS ON TRANSFER.
A. No Investor shall Transfer any of the Securities owned by
it unless the Investor desiring to make the Transfer (hereinafter referred to as
the "TRANSFEROR") shall have first made the offers to sell to the Company
contemplated by this Section 6.7, and such offers shall not have been accepted.
B. Copies of the Transferor's offer shall be given to the
Company and shall consist of an offer to sell to the Company all of the
Securities then proposed to be transferred by the Transferor (the "SUBJECT
SECURITIES") and the proposed terms (including the price for the Subject
Securities) of such Transfer (a "SALE NOTICE").
C. Within 10 Business Days after the receipt of the offer
described in Section 6.7B, the Company may, at its option, elect to purchase
all, but not less than all, of the Subject Securities. The Company shall
exercise such option by giving written notice thereof to the Transferor within
such 10-Business Day period (the "EXERCISE NOTICE"). The Exercise Notice shall
specify a date for the closing of the purchase which shall not be more than 30
days after the date of the giving of such Exercise Notice.
D. The purchase price per share for the Subject Securities
shall be the price specified by the Transferor in the Sale Notice. If the offer
of Subject Shares under this Section 6.7 is for consideration other than cash or
cash plus deferred payments of cash, the Company shall pay the present value
cash equivalent of such other consideration. If the Transferor and the Company
cannot agree on the amount of such cash equivalent
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within 10 days after the beginning of the 10-Business Day period referred to
above, any of such parties may, by three days' written notice to the other,
initiate appraisal proceedings under Section 6.7E for determination of such cash
equivalent.
E. If any party shall initiate an appraisal procedure to
determine the amount of the present value cash equivalent of any consideration
for Subject Securities under Section 6.7D, then the Transferor, on the one hand,
and the Company, on the other hand, shall each promptly appoint as an appraiser
an individual who shall be a member of a nationally-recognized investment
banking firm. Each appraiser shall, within 30 days of appointment, separately
investigate the value of the consideration for the Subject Securities as of the
proposed transfer date and shall submit a notice of an appraisal of that value
to each party. Each appraiser shall be instructed to determine such value
without regard to income tax consequences to the Transferor as a result of
receiving cash rather than other consideration. If the appraised values of such
consideration (the "EARLIER APPRAISALS") vary by less than ten percent (10%),
the average of the two appraisals on a per share basis shall be controlling as
the amount of the cash equivalent. If the appraised values vary by more than ten
percent (10%), the appraisers, within 10 days of the submission of the last
appraisal, shall appoint a third appraiser who shall be member of a nationally
recognized investment banking firm. The third appraiser shall, within 30 days of
his appointment, appraise the value of the consideration for the Subject
Securities (without regard to the income tax consequences to the Transferor as a
result of receiving cash rather than other consideration) as of the proposed
transfer date and submit notice of his appraisal to each party. The value
determined by the third appraiser shall be controlling as the amount of the
present value cash equivalent unless the value is greater than the two Earlier
Appraisals, in which case the higher of the two Earlier Appraisals will control,
and unless that value is lower than the two Earlier Appraisals, in which case
the lower of the two Earlier Appraisals will control. If any party fails to
appoint an appraiser or if one of the two initial appraisers fails after
appointment to submit his appraisal within the required period, the appraisal
submitted by the remaining appraiser shall be controlling. The Transferor and
the Company shall each bear the cost of its respective appointed appraiser. The
cost of the third appraisal shall be shared one-half by the Transferor and
one-half by the Company.
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F. The closing of the purchase shall take place at the office
of the Company or such other location as shall be mutually agreeable and the
purchase price, to the extent comprised of cash, shall be paid at the closing,
and cash equivalents and documents evidencing any deferred payments of cash
permitted pursuant to Section 6.7D above shall be delivered at the closing. At
the closing, the Transferor shall deliver to the Company the instruments or
certificates evidencing the Subject Securities to be conveyed, duly endorsed and
in negotiable form with all the requisite documentary stamps affixed thereto.
G. If the offer to sell is not accepted by the Company, the
Transferor may make a bona fide Transfer to any Person in accordance with the
terms set forth in the Sale Notice, provided that (A) such Transfer shall be
made only in accordance with the terms therein stated and (B) if the transferee
would own beneficially (within the meaning of Rule 13d-3 under the Exchange Act)
more than 10% of the outstanding Common Stock, the transferee agrees, in
writing, to be bound by the provisions of Section 6.5 and this Section 6.7. If
the Transferor shall fail to make such Transfer within 180 days following the
expiration of the time hereinabove provided for the election by the Company,
such Subject Securities shall again become subject to all the restrictions of
this Section 6.7.
H. The provisions of this Section 6.7 shall not apply to (i)
Transfers of Securities made after the seventh anniversary of the Closing Date,
(ii) Transfers of Securities by one Investor to an Affiliate of such Investor
(provided such Affiliate agrees in writing to be bound by the terms of this
Agreement), (iii) pro rata distributions of Securities by any Investors to its
partners by Investors, (iv) underwritten sales of Securities made pursuant to an
effective registration under the Securities Act, (v) sales of Securities made
pursuant to Rule 144 under the Securities Act, (vi) Transfers of Securities made
pursuant to a merger, consolidation or similar transaction approved by the Board
of Directors, or (vii) Transfers of Securities to any Person if, after giving
effect to such Transfer, such Person would not own beneficially (within the
meaning of Rule 13d-3 under the Exchange Act) more than 5% of the outstanding
Common Stock.
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6.8. REASONABLE EFFORTS; COOPERATION.
Upon the terms and subject to the conditions hereof, each of
the parties hereto shall use all reasonable best efforts to obtain and furnish
in a timely manner all necessary waivers, consents and approvals and notices and
to effect all necessary notifications, registrations and filings (including,
without limitation, all necessary applications and notifications to any
insurance regulatory authority), and to use all reasonable efforts to take, or
cause to be taken, all other actions and to do, or cause to be done, all other
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.
6.9. FINANCIAL AND BUSINESS INFORMATION.
From and after the date hereof, the Company shall deliver to
the Investors so long as the Investors, individually or in the aggregate,
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) at
least 15% of the outstanding shares of Common Stock:
(1) Monthly and Quarterly Statements - as soon as practicable,
and in any event within 30 days after the close of each month of each
fiscal year of the Company other than at the end of a fiscal quarter of
the Company in the case of monthly statements and 45 days after the
close of each of the first three fiscal quarters of each fiscal year of
the Company in the case of quarterly statements, a consolidated balance
sheet, statement of income and statement of cash flows of the Company
and any Subsidiaries as at the close of such month or quarter and
covering operations for such month or quarter, as the case may be, and
the portion of the Company's fiscal year ending on the last day of such
month or quarter, all in reasonable detail and prepared in accordance
with GAAP, subject to audit and year-end adjustments, setting forth in
each case in comparative form the figures for the comparable period of
the previous fiscal year.
(2) Annual Statements - as soon as practicable after the end
of each fiscal year of the Company, and in any event within 90 days
thereafter, duplicate copies of:
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(a) consolidated and consolidating balance
sheets of the Company and any Subsidiaries at the end of such
year; and
(b) consolidated and consolidating
statements of income, shareholders' equity and cash flows of
the Company and any Subsidiaries for such year, setting forth
in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and accompanied by an
opinion thereon of a "Big 5" public accounting firm selected
by the Company, which opinion shall state that such financial
statements fairly present the financial position of the
Company and any Subsidiaries on a consolidated basis and have
been prepared in accordance with GAAP (except for changes in
application in which such accountants concur) and that the
examination of such accountants in connection with such
financial statements has been made in accordance with
generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances.
(c) Annual Budget - no later than 30 days
before the end of each fiscal year of the Company, an annual
budget for the Company in a form consistent with the Company's
past practice.
(d) Audit Reports - promptly upon receipt
thereof, one copy of each other financial report and internal
control letter submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company.
(e) Other Reports - promptly upon their
becoming available, one copy of each financial statement,
report, notice or proxy statement sent by the Company to
shareholders generally, of each financial statement, report,
notice or proxy statement sent by the Company or any of its
Subsidiaries to the Commission or any successor agency, if
applicable, of each regular or periodic report and any
registration statement, prospectus or written communication
(other than transmittal letters) in respect thereof filed by
the
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Company or any Subsidiary with, or received by such Person in
connection therewith from, any domestic or foreign securities
exchange, the Commission or any successor agency or any
foreign regulatory authority performing functions similar to
the Commission, of any press release issued by the Company or
any Subsidiary, and of any material of any nature whatsoever
prepared by the Commission or any successor agency thereto or
any state blue sky or securities law commission which relates
to or affects in any way the Company or any Subsidiary.
(3) Requested Information - with reasonable promptness, the
Company shall furnish the Investors with such other data and
information as from time to time may be reasonably requested.
(4) Compliance Certificate - concurrently with each delivery
of financial statements or reports required to be furnished pursuant to
(1) and (2) above, a certificate of a Senior Financial Officer stating
that, based upon such examination or investigation and review of this
Agreement as in the opinion of the signer is necessary to enable the
signer to express an informed opinion with respect thereto, no Default
or Event of Default has occurred during such period, or, if any Default
or Event of Default shall have occurred, specifying all of the same and
the nature and period of existence thereof and what action the Company
has taken, is taking or proposes to take with respect thereto.
6.10. INSPECTION.
As long as the Investors, individually or in the aggregate,
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) at
least 15% of the outstanding shares of Common Stock, the Company shall permit
the Investors and their representatives and agents to visit and inspect any of
the properties of the Company and its Subsidiaries, to examine all its books of
account, records, reports and other papers not contractually required of the
Company to be confidential or secret, to make copies and extracts therefrom, and
to discuss its affairs, finances and accounts with its officers, directors, key
employees and independent public accountants or any of them (and by this
provision the Company authorizes said accountants to discuss with the Investors
and their representatives and agents
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the finances and affairs of the Company and any Subsidiaries), all at such
reasonable times and as often as may be reasonably requested.
6.11. CONFIDENTIALITY.
As to so much of the information and other material furnished
under or in connection with this Agreement (whether furnished before, on or
after the date hereof) as constitutes or contains confidential business,
financial or other information of the Company or any Subsidiary, each of the
Investors covenants for itself and its directors, officers and partners that
neither it nor its officers, directors, partners, employees, counsel,
accountants and other representatives will disclose such information to Persons
other than their respective authorized employees, counsel, accountants,
shareholders, partners, limited partners and other authorized representatives;
provided, however, that each Investor may disclose or deliver any information or
other material disclosed to or received by it should such Investor be advised by
its counsel that such disclosure or delivery is required by law, regulation or
judicial or administrative order but only after so much prior written notice as
is reasonably practicable under the circumstances to the Company that it
proposes to make such disclosures. In the event of any termination of this
Agreement prior to either Closing Date, each Investor shall return to the
Company all confidential material previously furnished to such Investor or its
officers, directors, partners, employees, counsel, accountants and other
representatives in connection with this transaction. The obligations set forth
in this Section 6.11 shall survive the termination of this Agreement and shall
remain in effect until the information and other material furnished under or in
connection with this Agreement becomes generally available to the public other
than through a violation of the terms of this Agreement or two years from the
date of this Agreement, whichever occurs first. The previously executed
Confidentiality Agreement between the Company and E.M. Warburg, Pincus & Co.,
LLC shall terminate as of the Closing Date.
6.12. TAKEOVER STATUTE.
If any Takeover Statute shall become applicable to the
transactions contemplated hereby, the Company shall grant such approvals and
take such actions as are necessary so that the transactions contemplated hereby,
including without limitation
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the transactions contemplated by Section 6.6 or the conversion of the Notes, may
be consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of such statute or regulation
on the transactions contemplated hereby. If any takeover statute of any state
other than the State of Tennessee shall become applicable to the transactions
contemplated hereby, the Company shall use its reasonable efforts to grant such
approvals and take such actions as are necessary so that the transactions
contemplated hereby, including without limitation the transactions contemplated
by Section 6.6 or the conversion of the Notes, may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated hereby.
6.13. RIGHTS AGREEMENT INAPPLICABLE.
If the transactions contemplated hereby, including without
limitation the transactions contemplated by Section 6.6 or the conversion of any
of the Notes, would (a) result in the occurrence of a "Distribution Date" under
the Rights Agreement, (b) cause any Investor to become an "Acquiring Person" as
defined in the Rights Agreement or (c) otherwise cause the exercise of any
"Right" issued pursuant to the Rights Agreement or the issuance or exercise of
any "Rights Certificate" under the Rights Agreement, the Company will promptly
cause the Rights Agreement to be duly amended to prevent any such
characterization.
6.14. HART-SCOTT FILINGS.
At the request of any of the Investors, the Company will
promptly prepare and file, or cause to be prepared and filed, any notification
or response to any request for additional information required to be filed under
the HSR Act with respect to the conversion of the Notes.
6.15. CONDUCT OF BUSINESS; NEGATIVE COVENANTS.
For as long as the Notes are outstanding, unless the prior
written consent of the Investors shall have been obtained:
A. The Company will continue to engage in business of the same
general type as now conducted by it, and preserve, renew and keep in full force
and effect its corporate existence and
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take all reasonable action to maintain all rights, privileges, licenses and
franchises necessary or desirable in the normal conduct of its business.
B. The Company and its Subsidiaries will comply in all
material respects with all applicable laws, rules, regulations and orders except
where the failure to comply would not have a Material Adverse Effect.
C. The Company will maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies of similar size and credit standing
engaged in similar business and owning similar properties, provided that such
insurance is and remains available to the Company at commercially reasonable
rates.
D. The Company will keep proper books of record and account,
in which full and correct entries shall be made of all financial transactions
and the assets and business of the Company and its Subsidiaries in accordance
with GAAP.
E. The Company will not, and will not permit any Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or make any
distribution on or in respect of, or make any distribution to the holders of,
Capital Stock of the Company, (ii) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of the Company, other than purchases of
Common Stock made in accordance with the provisions of Section 6.4, or (iii)
declare or pay any dividend or make any distribution on or in respect of, or
make any distribution to holders of, Capital Stock of any Subsidiary (other than
with respect to any such Capital Stock held by the Company or any Wholly Owned
Subsidiary) or purchase, redeem or otherwise acquire or retire for value any
Capital Stock of any Subsidiary (other than such Capital Stock held by the
Company or any Wholly Owned Subsidiary).
7. TERMS OF NOTES; PREPAYMENTS OF NOTES; PURCHASE OF NOTES.
7.1. GENERAL TERMS OF NOTES.
A. The form of Note is attached hereto as Exhibit A. The
aggregate Principal Amount at Final Maturity of the Notes to be issued hereunder
is $404,451,562.
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B. The aggregate Principal Amount at Final Maturity of the
Notes shall be payable on the Final Maturity Date unless earlier repaid or
converted in accordance with this Agreement.
C. The Notes shall be issued at an Issue Price of $315.24 per
$1,000 Principal Amount at Final Maturity. There shall be no periodic payments
of interest on the Notes. The calculation of the accrual of Original Issue
Discount in the period during which each Note remains outstanding shall be on an
annual basis using a 360-day year composed of twelve 30-day months, and such
accrual shall commence on the Closing Date. In the event of the maturity,
conversion, purchase by the Company at the option of a Holder or redemption of a
Note, Original Issue Discount, if any, shall cease to accrue on such Note, under
the terms and subject to the conditions of this Agreement and the Notes.
D. All amounts payable in connection with the Notes shall be
denominated and payable in the lawful currency of the United States.
E. The Notes shall be payable and may be presented for
conversion, registration of transfer and exchange, without service charge, at
the principal executive office of the Company.
7.2. OPTIONAL REDEMPTION BY THE COMPANY.
A. Right to Redeem. The Company, at its option, may redeem the
Notes in accordance with the provisions of paragraphs 5 and 7 of the Notes. If
the Company elects to redeem Notes pursuant to paragraph 5 of the Notes, it
shall notify the Holders in writing of the Redemption Date, the Principal Amount
at Final Maturity of Notes to be redeemed and the Redemption Price.
B. Selection of Notes to be Redeemed. If any Note selected for
partial redemption is thereafter surrendered for conversion in part before
termination of the conversion right with respect to the portion of the Note so
selected, the converted portion of such Note shall be deemed (so far as may be),
solely for purposes of determining the aggregate Principal Amount at Final
Maturity of Notes to be redeemed by the Company, to be the portion selected for
redemption. Notes which have been converted during a selection of Notes to be
redeemed may be treated by the Company as outstanding for the purpose of such
selection. Nothing in this Section 7.2B shall affect the right of any Holder to
convert any Note pursuant to Sections 7.6, 7.7
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and 7.8 before the termination of the conversion right with respect thereto.
C. Notice of Redemption. At least 30 days but not more than 60
days before a Redemption Date, the Company shall mail or cause to be mailed a
notice of redemption by first-class mail to each Holder of Notes to be redeemed
at such Holder's address as it appears on the Note Register.
The notice shall identify the Notes to be redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) the then current Conversion Rate;
(d) that Notes called for redemption must be presented and
surrendered to the Company to collect the Redemption Price;
(e) that the Notes called for redemption may be converted at
any time before the close of business on the Redemption Date;
(f) that Holders who wish to convert Notes must satisfy the
requirements in paragraph 9 of the Notes;
(g) that, unless the Company defaults in making the payment of
the Redemption Price on the Redemption Date, the only remaining right of the
Holder shall be to receive payment of the Redemption Price upon presentation and
surrender to the Company of the Notes;
(h) if fewer than all the outstanding Notes are to be
redeemed, the certificate number and Principal Amounts at Final Maturity of the
particular Notes to be redeemed; and
(i) that Original Issue Discount on Notes called for
redemption shall immediately cease to accrue on and after the Redemption Date;
and
D. Effect of Notice of Redemption. Once notice of redemption
is mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price stated in the notice, except for Notes that are
converted in accordance
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with the provisions of Sections 7.6, 7.7 or 7.8. Upon presentation and surrender
to the Company, Notes called for redemption shall be paid at the Redemption
Price.
E. Sinking Fund. There shall be no sinking fund provided for
the Notes.
7.3. REPURCHASE AT OPTION OF THE HOLDER UPON A CHANGE IN CONTROL.
A. If a Change in Control shall occur at any time prior to the
Final Maturity Date, each Holder of Notes shall have the right, at such Holder's
option, to require the Company to purchase such Holder's Notes on the date (the
"CHANGE IN CONTROL PURCHASE DATE") (or if such date is not a Business Day, the
next succeeding Business Day) that is 35 days after the date of the Change in
Control. The Notes shall be repurchased in integral multiples of $l,000 of
Principal Amount at Final Maturity. The Company shall purchase such Notes for
cash at a price (the "CHANGE IN CONTROL PURCHASE PRICE") equal to the Issue
Price plus accrued Original Issue Discount to the Change in Control Purchase
Date. No Notes may be repurchased at the option of the Holders due to a Change
in Control if there has occurred and is continuing an Event of Default (other
than a default in the payment of the Change in Control Purchase Price with
respect to such Notes).
B. The Company shall mail to all Holders a notice (a "COMPANY
CHANGE IN CONTROL NOTICE") of the occurrence of a Change in Control and of the
repurchase right arising as a result thereof on or before the tenth day after
the occurrence of such Change in Control.
C. For a Note to be so repurchased at the option of the
Holder, the Company must receive such Note with the form entitled "Change in
Control Purchase Notice" on the reverse thereof duly completed, together with
such Note duly endorsed for transfer, on or before the Change in Control
Purchase Date. All questions as to the validity, eligibility (including time of
receipt) and acceptance of any Note for redemption shall be determined by the
Company, whose determination shall be final and binding.
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7.4. PURCHASE OF NOTES AT THE OPTION OF THE HOLDER.
A. General. On the tenth anniversary of the Closing Date (the
"PURCHASE DATE"), at the purchase price specified in paragraph 6 of the Notes
(the "PURCHASE PRICE"), a Holder of Notes shall have the option to require the
Company to purchase any outstanding Notes held by such Holder, upon:
(1) delivery to the Company by the Holder of a written notice
of purchase (a "PURCHASE NOTICE") at any time from the opening of
business on the date that is 20 Business Days prior to the Purchase
Date until the close of business on the Business Day prior to such
Purchase Date, stating:
(a) the certificate numbers of the Notes which the Holder
shall deliver to be purchased;
(b) the portion of the Principal Amount at Final Maturity of
the Notes which the Holder shall deliver to be purchased, which portion
must be $1,000 in Principal Amount at Final Maturity or a multiple
thereof;
(c) that such Notes shall be purchased pursuant to the terms
and conditions specified in paragraph 6 of the Notes and in this
Agreement; and
(d) if the Company elects, pursuant to a Company Notice, to
pay the Purchase Price to be paid as of such Purchase Date, in whole or
in part, in Common Stock but such portion of the Purchase Price shall
ultimately be payable to such Holder in cash because any of the
conditions to the payment of the Purchase Price in Common Stock are not
satisfied prior to or on the Purchase Date, as set forth in Section
7.4D, whether such Holder elects (x) to withdraw such Purchase Notice
as to some or all of the Notes to which such Purchase Notice relates
(stating the Principal Amount at Final Maturity and certificate numbers
of the Notes as to which such withdrawal shall relate), or (y) to
receive cash in respect of the entire Purchase Price for all Notes (or
portions thereof) to which such Purchase Notice relates; and
(2) delivery or book-entry transfer of such Notes to the
Company prior to, on or after the Purchase Date (together with all
necessary endorsements) at the offices of the Company, such delivery or
transfer being a condition to receipt by the Holder of the Purchase
Price therefor;
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provided, however, that such Purchase Price shall be so paid pursuant
to this Section 7.4 only if the Note so delivered or transferred to the
Company shall conform in all respects to the description thereof in the
related Purchase Notice. All questions as to the validity, eligibility
(including time of receipt) and acceptance of any Note for repurchase
shall be determined by the Company, whose determination shall be final
and binding.
If a Holder, in such Holder's Purchase Notice (and in any
written notice of withdrawal of a portion of a Holder's Notes previously
submitted for purchase pursuant to a Purchase Notice, the portion that remains
subject to the Purchase Notice), fails to indicate such Holder's choice with
respect to the election set forth in clause (d) of Section 7.4A(1), such Holder
shall be deemed to have elected to receive cash in respect of all Notes subject
to such Purchase Notice in the circumstances set forth in such clause (d).
The Company shall purchase from the Holder thereof, pursuant
to this Section 7.4, a portion of a Note if the Principal Amount at Final
Maturity of such portion is $1,000 or a multiple of $1,000. Provisions of this
Agreement that apply to the purchase of all of a Note also apply to the purchase
of such portion of such Note.
Any purchase by the Company contemplated pursuant to the
provisions of this Section 7.4 shall be consummated by the delivery of the
consideration to be received by the Holder promptly following the later of the
Purchase Date, the Deferred Purchase Date (if applicable) and the time of
delivery of the Note.
Notwithstanding anything herein to the contrary, any Holder
delivering to the Company the Purchase Notice contemplated by this Section 7.4A
shall have the right at any time prior to the close of business on the Purchase
Date (or the Deferred Purchase Date, if applicable) to withdraw such Purchase
Notice (in whole or in part) by delivery of a written notice of withdrawal to
the Company in accordance with Section 7.5A.
B. Company's Right to Elect Manner of Payment of Purchase
Price. The Company may elect to pay the Purchase Price in respect of the Notes
to be purchased pursuant to Section 7.5A as of the Purchase Date, in cash or
Common Stock, or in any
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combination of cash and Common Stock, subject to the conditions set forth in
Sections 7.4C and 7.4D. The Company shall designate, in the Company Notice
delivered pursuant to Section 7.4E, whether the Company shall purchase the Notes
for cash or Common Stock, or, if a combination thereof, the percentages of the
Purchase Price of Notes in respect of which it shall pay in cash and/or Common
Stock; provided that the Company shall pay cash for fractional interests in
Common Stock. For purposes of determining the existence of potential fractional
interests, all Notes subject to purchase by the Company held by a Holder shall
be considered together (no matter how many separate certificates are to be
presented). Each Holder whose Notes are purchased pursuant to this Section 7.4
shall receive the same percentage of cash and/or Common Stock in payment of the
Purchase Price for such Notes, except (a) as provided in Section 7.4D with
regard to the payment of cash in lieu of fractional interests in Common Stock
and (b) in the event that the Company is unable to purchase the Notes of a
Holder or Holders for Common Stock because any necessary qualifications or
registrations of the Common Stock under applicable federal or state securities
laws cannot be obtained, the Company may purchase the Notes of such Holder or
Holders for cash. Once the Company has given its Company Notice to Holders, the
Company may not change its election with respect to the consideration (or
components or percentages of components thereof) to be paid except pursuant to
this Section 7.4B or Section 7.4D.
C. Purchase with Cash. At the option of the Company, the
Purchase Price of Note in respect of which a Purchase Notice pursuant to Section
7.4A has been given, or a specified percentage thereof, may be paid by the
Company with cash equal to the aggregate Purchase Price, or such specified
percentage thereof, as the case may be, of such Notes. No Notes may be purchased
at the option of the Holders with cash if there has occurred and is continuing
an Event of Default (other than a default in the payment of the Purchase Price
with respect to such Notes).
D. Payment by Issuance of Common Stock. At the option of the
Company, the Purchase Price of Notes in respect of which a Purchase Notice
pursuant to Section 7.4A has been given, or a specified percentage thereof, may
be paid by the Company by the issuance of a number of shares of Common Stock
equal to the quotient obtained by dividing (a) the amount of cash to which the
Holders would have been entitled had the Company elected to pay
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all or such specified percentage, as the case may be, of the Purchase Price of
such Notes in cash by (b) the Market Price of a share of Common Stock on the
date specified by the Company pursuant to Section 7.4E(1)(a), subject to the
next succeeding paragraph.
The Company shall not issue a fractional share of Common Stock
in payment of the Purchase Price. Instead the Company shall pay cash for the
current market value of the fractional share. The current market value of a
fraction of a share shall be determined by multiplying the Market Price by such
fraction and rounding the product to the nearest whole cent. It is understood
that if a Holder elects to have more than one Note purchased, the number of
shares of Common Stock shall be based on the aggregate amount of Notes to be
purchased.
The Company's right to exercise its election to purchase the
Notes pursuant to Section 7.4 through the issuance of shares of Common Stock
shall be conditioned upon:
(1) the Company having given timely written notice in
accordance with Section 7.4E to the Holders of its election to purchase
all or a specified percentage of the Notes with Common Stock as
provided herein;
(2) (i) the registration of the shares of Common Stock to be
issued in respect of the payment of the specified percentage of the
Purchase Price under the Securities Act or (ii) the issuance of the
shares of Common Stock in a transaction which is exempt from the
registration requirements of the Securities Act and which will not
result in such shares of Common Stock being deemed "restricted
securities" under the Securities Act or otherwise;
(3) any necessary qualification or registration under
applicable state securities laws or the availability of an exemption
from such qualification and registration; and
(4) the receipt by the Holders of an Officers' Certificate in
the form attached as Exhibit D and an opinion of outside counsel to the
Company each stating that (i) the terms of the issuance of the Common
Stock are in conformity with this Agreement and (ii) the shares of
Common Stock to be issued by the Company in payment of the specified
percentage of the Purchase Price in respect of Notes have
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been duly authorized and, when issued and delivered pursuant to the
terms of this Agreement in payment of the specified percentage of the
Purchase Price in respect of Notes, shall be validly issued, fully paid
and nonassessable, and, in the case of such Officers' Certificate,
stating that conditions (1), (2) and (3) above have been satisfied and,
in the case of such opinion of counsel, stating that conditions (2) and
(3) above have been satisfied.
Such Officers' Certificate shall also set forth the number of
shares of Common Stock to be issued for each $1,000 Principal Amount at Final
Maturity of Notes and the Sale Price of a share of Common Stock on each Trading
Day during the period during which the Market Price is calculated. The Company
may elect to pay the Purchase Price (or any portion thereof) in Common Stock
only if the information necessary to calculate the Market Price is reported in a
daily newspaper of national circulation. If any of the conditions set forth in
this Section 7.4D are not satisfied with respect to a Holder or Holders prior to
or on the Purchase Date and the Company elected to purchase the Notes to be
purchased as of such Purchase Date pursuant to this Section 7.4 through the
issuance of shares of Common Stock, the Company shall pay the entire Purchase
Price in respect of such Notes of such Holder or Holders in cash.
Upon determination of the actual number of shares of Common
Stock which the Holder of each $1,000 Principal Amount at Final Maturity of the
Notes shall receive, the Company shall provide written notice of such
determination to the Holders.
E. Notice of Election. The Company's notices of election to
purchase with cash or Common Stock, or any combination thereof (each a "COMPANY
NOTICE"), shall be sent to the Holders at their addresses shown in the Note
Register not less than 20 Business Days and not more than 40 Business Days prior
to the Purchase Date (the "COMPANY NOTICE DATE"). Such Company Notices shall
state the manner of payment elected and shall contain the following information:
(1) In the event the Company has elected to pay a Purchase
Price (or a specified percentage thereof) with Common Stock, the
Company Notice shall:
(a) state that each Holder shall receive Common Stock with a
Market Price determined as of the fifth Trading Day
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before the Company Notice Date equal to such specified percentage of
the Purchase Price of the Notes held by such Holder (except any cash
amount to be paid in lieu of fractional share); and
(b) set forth the method of calculating the Market Price.
(2) In any case, each Company Notice shall include a form of
Purchase Notice to be completed by a Holder and shall state:
(a) the Purchase Price and Conversion Rate;
(b) that Notes as to which a Purchase Notice has been given
may be converted only if the applicable Purchase Notice has been
withdrawn in accordance with the terms of this Agreement;
(c) that Notes must be surrendered to the Company to collect
payment;
(d) that the Purchase Price for any Note as to which a
Purchase Notice has been given and not withdrawn shall be paid promptly
following the later of the Purchase Date and the time of surrender of
such Note, provided, however, that in the event the Company elects to
purchase Notes with cash, the Company may defer payment for a period of
up to 90 days following the Purchase Date (the date on which such
deferred payment is made is herein referred to as the "DEFERRED
PURCHASE DATE"), in which case Original Issue Discount shall continue
to accrue through the Deferred Purchase Date;
(e) the procedures the Holder must follow under Section 7.4;
(f) briefly, the conversion rights of the Notes; and
(g) the procedures for withdrawing a Purchase Notice
(including, without limitation, for a conditional withdrawal pursuant
to the terms of Section 7.4A(1)(d)).
F. Covenants of the Company. All shares of Common Stock
delivered upon conversion or purchase of the Notes shall be newly issued shares
or treasury shares, shall be fully paid
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and nonassessable and shall be free from preemptive rights and free of any Lien
or adverse claim.
The Company shall cause to have listed or quoted all such
shares of Common Stock on each United States national securities exchange or
over-the counter or other domestic market on which the Common Stock is then
listed or quoted.
G. Procedure Upon Purchase. Payment of the Purchase Price for
the Notes to be purchased pursuant to this Section 7.4 shall be made as soon as
practicable following the later of the Purchase Date (or the Deferred Purchase
Date, if applicable) or the delivery of such Note. If the Company is delivering
Common Stock, the Company shall deliver to each Holder entitled to receive
Common Stock a certificate for the number of full shares of Common Stock, as
applicable, issuable in payment of such Purchase Price and cash in lieu of any
fractional interests. The Person in whose name the certificate for Common Stock
is registered shall be treated as a holder of record following the Purchase
Date. Subject to Section 7.4D, no payment or adjustment shall be made for
dividends on the Common Stock the Record Date for which occurred on or prior to
the Purchase Date. On the Business Day following the Purchase Date (or the
Deferred Purchase Date, if applicable), such Note shall cease to be outstanding
and Original Issue Discount on such Note shall cease to accrue, whether or not
such Note is delivered to the Company, and all other rights of the Holder shall
terminate (other than the right to receive the Purchase Price upon delivery or
transfer of the Note), unless the Company shall default in the payment of the
Purchase Price in accordance with the terms of this Section 7.4.
H. Taxes. If a Holder of a Note is paid in Common Stock, the
Company shall pay any documentary, stamp or similar issue or transfer tax due on
such issue of shares of Common Stock. However, the Holder shall pay any such tax
which is due because the Holder requests the shares of Common Stock to be issued
in a name other than the Holder's name. The Company may refuse to deliver the
certificates representing the Common Stock being issued in a name other than the
Holder's name until the Company receives a sum sufficient to pay any tax which
shall be due because the shares of Common Stock are to be issued in a name other
than the Holder's name. Nothing herein shall preclude any income tax withholding
required by law or regulations.
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7.5. FURTHER CONDITIONS FOR PURCHASE AT THE OPTION OF HOLDERS UPON A
CHANGE IN CONTROL AND PURCHASE OF NOTES AT THE OPTION OF THE
HOLDER.
A. Effect of Purchase Notice or Change in Control Purchase
Notice. Upon receipt by the Company of the Purchase Notice or Change in Control
Purchase Notice specified in Section 7.4A or Section 7.3C, as applicable, the
Holder of the Note in respect of which such Purchase Notice or Change in Control
Purchase Notice, as the case may be, was given shall (unless such Purchase
Notice or Change in Control Purchase Notice is withdrawn as specified in the
following two paragraphs) thereafter be entitled to receive solely the Purchase
Price or Change in Control Purchase Price, as the case may be, with respect to
such Note. Such Purchase Price or Change in Control Purchase Price shall be paid
to such Holder promptly following the later of (x) the Purchase Date, the
Deferred Purchase Date or the Change in Control Purchase Date, as the case may
be, with respect to such Note (provided the conditions in Section 7.4A or
Section 7.3C, as applicable, have been satisfied) and (y) the time of delivery
of such Note to the Company by the Holder thereof in the manner required by
Section 7.4A or Section 7.3C, as applicable. Notes in respect of which a
Purchase Notice or Change in Control Purchase Notice, as the case may be, has
been given by the Holder thereof may not be converted for shares of Common Stock
on or after the date of the delivery of such Purchase Notice (or Change in
Control Purchase Notice, as the case may be), unless such Purchase Notice (or
Change in Control Purchase Notice, as the case may be) has first been validly
withdrawn as specified in the following two paragraphs.
A Purchase Notice or Change in Control Purchase Notice, as the
case may be, may be withdrawn by means of a written notice of withdrawal
delivered to the Company at any time prior to the close of business on the
Purchase Date (or the Deferred Purchase Date, if applicable) or the Change in
Control Purchase Date, as the case may be, to which it relates specifying:
(1) the certificate number of the Note in respect of which
such notice of withdrawal is being submitted,
(2) the Principal Amount at Final Maturity of the Note with
respect to which such notice of withdrawal is being submitted, and
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(3) the Principal Amount at Final Maturity, if any, of such
Note which remains subject to the original Purchase Notice or Company
Change in Control Notice, as the case may be, and which has been or
shall be delivered for purchase by the Company.
A written notice of withdrawal of a Purchase Notice may be in
the form of (i) a conditional withdrawal contained in a Purchase Notice pursuant
to the terms of Section 7.4A(1)(d) or (ii) a conditional withdrawal containing
the information set forth in Section 7.4A(1)(d) and the preceding paragraph and
contained in a written notice of withdrawal delivered to the Company as set
forth in the preceding paragraph.
There shall be no purchase of any Notes pursuant to Section
7.4 (other than through the issuance of Common Stock in payment of the Purchase
Price, including cash in lieu of any fractional shares) or redemption pursuant
to Section 7.3 if there has occurred prior to, on or after, as the case may be,
the giving, by the Holders of such Notes, of the required Purchase Notice (or
Change in Control Purchase Notice, as the case may be) and is continuing an
Event of Default (other than a default in the payment of the Purchase Price or
Change in Control Purchase Price, as the case may be, with respect to such
Notes).
B. Notes Purchased in Part. Any Note that is to be purchased
only in part shall be surrendered at the office of the Company (with, if the
Company so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing) and the Company shall execute and
deliver to the Holder of such Note, without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder in aggregate
Principal Amount at Final Maturity equal to, and in exchange for, the portion of
the Principal Amount at Final Maturity of the Note so surrendered which is not
purchased or redeemed.
7.6. CONVERSION OF NOTES.
A. Right to Convert. A Holder of a Note may convert such Note
for Common Stock at any time during the period stated in paragraph 9 of the
Notes. The number of shares of Common Stock issuable upon conversion of a Note
per $1,000 of Principal Amount at Final Maturity (the "CONVERSION RATE") shall
be that
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set forth in paragraph 9 in the Notes, subject to adjustment as herein set
forth.
A Holder may convert a portion of the Principal Amount at
Final Maturity of a Note if the portion is $1,000 or a multiple of $1,000.
Provisions of this Agreement that apply to conversion of all of a Note also
apply to conversion of a portion of a Note.
B. Conversion Procedures. To convert a Note a Holder must
satisfy the requirements in paragraph 9 of the Notes. The date on which the
Holder of Notes satisfies all those requirements is the conversion date (the
"CONVERSION DATE"). As soon as practicable, but in no event later than the
seventh Business Day, after the Conversion Date the Company shall deliver to the
Holder a certificate for the number of full shares of Common Stock issuable upon
the conversion and cash in lieu of any fractional share determined pursuant to
Section 7.6C. The Person in whose name the certificate is registered shall be
treated as a shareholder of record on and after the Conversion Date; provided,
however, that no surrender of a Note on any date when the stock transfer books
of the Company shall be closed shall be effective to constitute the Person or
Persons entitled to receive the shares of Common Stock upon such conversion as
the record holder or holders of such shares of Common Stock on such date, but
such surrender shall be effective to constitute the Person or Persons entitled
to receive such shares of Common Stock as the record holder or holders thereof
for all purposes at the close of business on the next succeeding day on which
such stock transfer books are open; such conversion shall be at the Conversion
Rate in effect on the date that such Note shall have been surrendered for
conversion, as if the stock transfer books of the Company had not been closed.
Upon conversion of a Note, such Person shall no longer be a Holder of such Note.
No payment or adjustment shall be made for dividends on or
other distributions with respect to any Voting Stock except as provided in
Section 7.7. On conversion of a Note, that portion of accrued Original Issue
Discount attributable to the period from the Issue Date of the Note to the
Conversion Date with respect to the converted Note shall not be canceled,
extinguished or forfeited, but rather shall be deemed to be paid in full to the
Holder thereof through delivery of the Common Stock (together with the cash
payment, if any, in lieu of fractional shares) in
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exchange for the Note being converted pursuant to the provisions hereof.
If a Holder converts more than one Note at the same time, the
number of shares of Common Stock issuable upon the conversion shall be based on
the total Principal Amount at Final Maturity of the Notes converted.
Upon surrender of a Note that is converted in part, the
Company shall execute and deliver to the Holder a new Note in an authorized
denomination equal in Principal Amount at Final Maturity to the unconverted
portion of the Note surrendered.
If the last day on which a Note may be converted is not a
Business Day, the Note may be surrendered on the next succeeding Business Day.
C. Cash Payments in Lieu of Fractional Shares. The Company
shall not issue a fractional share of Common Stock upon conversion of a Note.
Instead the Company shall deliver cash for the current market value of the
fractional share. The current market value of a fractional share shall be
determined to the nearest 1/10,000th of a share by multiplying the Market Price
of a full share of Common Stock by the fractional amount and rounding the
product to the nearest whole cent.
D. Taxes on Conversion. If a Holder converts a Note, the
Company shall pay any documentary, stamp or similar issue or transfer tax due on
the issue of shares of Common Stock upon the conversion. However, the Holder
shall pay any such tax which is due because the Holder requests the shares to be
issued in a name other than the Holder's name. The Company may refuse to deliver
the certificates representing the Common Stock being issued in a name other than
the Holder's name until the Company receives a sum sufficient to pay any tax
which shall be due because the shares are to be issued in a name other than the
Holder's name. Nothing herein shall preclude any tax withholding required by law
or regulations.
E. Company to Provide Stock. The Company shall, prior to
issuance of any Notes hereunder, and from time to time as may be necessary,
reserve out of its authorized but unissued Common Stock a sufficient number of
shares of Common Stock to permit the conversion of the Notes.
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All shares of Common Stock delivered upon conversion of the
Notes shall be newly issued shares or treasury shares, shall be duly and validly
issued and fully paid and nonassessable and shall be free from preemptive rights
and free of any Lien or adverse claim.
The Company shall endeavor promptly to comply with all federal
and state securities laws regulating the order and delivery of shares of Common
Stock upon the conversion of Notes, if any, and shall cause to have listed or
quoted all such shares of Common Stock on each United States national securities
exchange or over-the counter or other domestic market on which the Common Stock
is then listed or quoted.
7.7. ADJUSTMENTS TO CONVERSION RATE.
The Conversion Rate shall be adjusted from time to time by the
Company as follows:
A. In case the Company shall (a) pay a dividend, or make a
distribution, in shares of its Voting Stock, on its Voting Stock, (b) subdivide
its outstanding Voting Stock into a greater number of shares, or (c) combine its
outstanding Voting Stock into a smaller number of shares, the Conversion Rate in
effect immediately prior thereto shall be adjusted so that the holder of any
Note thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock of the Company which such holder would have
owned or have been entitled to receive after the happening of any of the events
described above had such Note been converted immediately prior to the happening
of such event. If any dividend or distribution of the type described in clause
(a) above is not so paid or made, the Conversion Rate shall again be adjusted to
the Conversion Rate which would then be in effect if such dividend or
distribution had not been declared. An adjustment made pursuant to this Section
7.7 shall become effective immediately after the Record Date in the case of a
dividend and shall become effective immediately after the effective date in the
case of subdivision or combination.
B. In order to prevent dilution of the right granted
hereunder, the Conversion Rate shall be subject to adjustment from time to time
in accordance with this Section 7.7. For purposes of this Section 7.7, the term
"NUMBER OF COMMON SHARES DEEMED OUTSTANDING" at any given time shall mean the
sum of (x)
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the number of shares of Common Stock outstanding at such time, and (y) the
number of shares of the Common Stock deemed to be outstanding under Sections
7.7B(1) to (7), inclusive, at such time.
Except as provided in Section 7.7A, 7.7C, 7.7D or 7.7E, if and
whenever on or after either Closing Date, the Company shall issue or sell, or
shall in accordance with Sections 7.7B(1) to (7), inclusive, be deemed to have
issued or sold any shares of its Common Stock for a consideration per share less
than the average Market Price for the 10 Trading Days immediately preceding such
issuance or sale, then forthwith upon such issue or sale (the "TRIGGERING
TRANSACTION"), the Conversion Rate shall, subject to Section 7.7B(1) to (7), be
adjusted so that the same shall equal the Conversion Rate determined by
multiplying the Conversion Rate in effect immediately prior to the Triggering
Transaction by a fraction, the numerator of which shall be the sum of (x) the
Number of Shares Deemed Outstanding immediately prior to such Triggering
Transaction plus (y) the number of additional shares of Common Stock offered or
sold and the denominator of which shall be the sum of (x) the Number of Shares
Deemed Outstanding immediately prior to such Triggering Transaction plus (y) the
number of shares of Common Stock which the aggregate consideration received by
the Company upon such Triggering Transaction would purchase at the Market Price
immediately preceding such Triggering Transaction.
For purposes of determining the adjusted Conversion Rate under
this Section 7.7, the following subsections (1) to (7), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any
manner grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any options
for the purchase of, Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or
options being herein called "OPTIONS" and such convertible or
exchangeable stock or securities being herein called "CONVERTIBLE
SECURITIES"), whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable
and the price per share for which the Common Stock is issuable upon
exercise, conversion or exchange (determined by dividing (x) the total
amount, if any,
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received or receivable by the Company as consideration for the granting
of such Options, plus the aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus, in
the case of such Options which relate to Convertible Securities, the
aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities) shall be less than the Market
Price in effect immediately prior to the time of the granting of such
Option, then the total maximum amount of Common Stock issuable upon the
exercise of such Options or in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible
Securities, shall (as of the date of granting of such Options) be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. No adjustment of the Conversion Price
shall be made upon the actual issue of such shares of Common Stock or
such Convertible Securities upon the exercise of such Options, except
as otherwise provided in subparagraph (3) below.
(2) In case the Company at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (x) the total amount received or receivable by
the Company as consideration for the issue or sale of such Convertible
Securities, plus the aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by
(y) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall be
less than the Market Price in effect immediately prior to the time of
such issue or sale, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date
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of the issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued and sold by the Company for such
price per share. No adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock upon exercise of the rights
to exchange or convert under such Convertible Securities, except as
otherwise provided in subparagraph (3) below.
(3) If the purchase price provided for in any Options referred
to in subparagraph (1), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities referred
to in subparagraphs (1) or (2), or the rate at which any Convertible
Securities referred to in subparagraph (1) or (2) are convertible into
or exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution
of the type set forth in this Section 7.7), the Conversion Rate in
effect at the time of such change shall forthwith be readjusted to the
Conversion Rate that would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold. If the
purchase price provided for in any Option referred to in subparagraph
(1) or the rate at which any Convertible Securities referred to in
subparagraphs (1) or (2) are convertible into or exchangeable for
Common Stock, shall be reduced at any time under or by reason of
provisions with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise of any
such Option or upon conversion or exchange of any such Convertible
Security, the Conversion Rate then in effect hereunder shall forthwith
be adjusted to such respective amount as would have been obtained had
such Option or Convertible Security never been issued as to such Common
Stock and had adjustments been made upon the issuance of the shares of
Common Stock delivered as aforesaid, but only if as a result of such
adjustment the Conversion Rate then in effect hereunder is hereby
reduced.
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(4) On the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities, the Conversion
Rate then in effect hereunder shall forthwith be increased to the
Conversion Rate which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or
termination, never been issued.
(5) In case any Options shall be issued in connection with the
issue or sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Company therefor. In case any shares of
Common Stock, Options or Convertible Securities shall be issued or sold
for a consideration other than cash, the amount of the consideration
other than cash received by the Company shall be the fair value of such
consideration as determined in good faith by the Board of Directors. In
case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger in which the Company is
the surviving corporation, the amount of consideration therefor shall
be deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as shall be attributed by the
Board of Directors in good faith to such Common Stock, Options or
Convertible Securities, as the case may be as determined in good faith
by the Board of Directors.
(7) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any shares so owned or held
shall be
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considered an issue or sale of Common Stock for the purpose of this
Section 7.7.
C. In case the Company shall, by dividend or otherwise,
distribute to all holders of any class or series of its Voting Stock (excluding
any distribution in connection with the liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary) any shares of any class of
capital stock of the Company (other than Voting Stock) or evidences of its
indebtedness or assets (other than cash) or rights or warrants to subscribe for
or purchase any of its Notes (excluding those referred to in Section 7.7B
hereof) (any of the foregoing hereinafter in this Section 7.7C called the
"DISTRIBUTED SECURITIES"), then, the Conversion Rate shall be adjusted so that
the same shall equal the Conversion Rate determined by multiplying the
Conversion Rate in effect immediately prior to the date of such distribution by
a fraction of which the numerator shall be the Market Price of the Common Stock
on the Record Date mentioned below, and the denominator shall be the Market
Price of the Common Stock on such Record Date less the fair market value on such
Record Date (as determined by the Board of Directors of the Company, whose
determination shall be conclusive) of the Distributed Securities so distributed
applicable to one share of Voting Stock. Such adjustment shall become effective
immediately after the Record Date for the determination of shareholders entitled
to receive such distribution. Notwithstanding the foregoing, in the event the
then fair market value (as so determined) of the portion of the Distributed
Securities so distributed applicable to one share of Voting Stock is equal to or
greater than the Market Price of the Common Stock on the Record Date, in lieu of
the foregoing adjustment, adequate provision shall be made so that each Holder
shall have the right to receive upon conversion the amount of Distributed
Securities such Holder would have received had such Holder converted each Note
on such Record Date. In the event that such distribution is not so paid or made,
the Conversion Rate shall again be adjusted to the Conversion Rate which would
then be in effect if such distribution had not been declared.
Notwithstanding the foregoing provisions of this Section 7.7C,
no adjustment shall be made thereunder for any distribution of Distributed
Securities if the Company makes proper provision so that each Holder of a Note
who converts such Note (or any portion thereof) after the Record Date for such
distribution shall be entitled to receive upon such conversion,
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in addition to the shares of Common Stock issuable upon such conversion, the
amount and kind of Distributed Securities that such Holder would have been
entitled to receive if such Holder had, immediately prior to such Record Date,
converted such Note for Common Stock; provided that, with respect to any
Distributed Securities that are convertible, exchangeable or exercisable, the
foregoing provision shall only apply to the extent (and so long as) the
Distributed Securities receivable upon conversion of such Note would be
convertible, exchangeable or exercisable, as applicable, without any loss of
rights or privileges for a period of at least 60 days following conversion of
such Note.
D. In case the Company shall, by dividend or otherwise,
distribute to all holders of any class of its Voting Stock cash (excluding any
cash that is distributed upon a merger or consolidation to which Section 7.8F
applies or as part of a distribution referred to in Section 7.7C) in an
aggregate amount that, combined together with (i) the aggregate amount of any
other such distributions to all holders of any class of its Voting Stock made
exclusively in cash within the 12 months preceding the date of payment of such
distribution, and in respect of which no adjustment pursuant to this Section
7.7D has been made, and (ii) the aggregate of any cash plus the fair market
value (as determined by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors) of
consideration payable in respect of any tender offer by the Company for all or
any portion of any class of its Voting Stock concluded within the 12 months
preceding the date of payment of such distribution, and in respect of which no
adjustment pursuant to Section 7.7E has been made, exceeds 10% of the product of
the Market Price of the Common Stock on the Record Date with respect to such
distribution and the number of shares of Voting Stock outstanding on such date,
then, and in each such case, immediately after the close of business on such
date, the Conversion Rate shall be increased so that the same shall equal the
Conversion Rate determined by multiplying the Conversion Rate in effect
immediately prior to the record date by a fraction of which the numerator shall
be such Market Price of the Common Stock and the denominator shall be the Market
Price of the Common Stock on such Record Date less the amount of cash so
distributed (and not excluded as provided above) applicable to one share of
Voting Stock, such increase to be effective immediately prior to the opening of
business on the day following such Record Date; provided, however, that, if the
portion of the cash so distributed applicable to one share of
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Voting Stock is equal to or greater than the Market Price of the Common Stock on
such Record Date, in lieu of the foregoing adjustment, adequate provision shall
be made so that each Holder shall have the right to receive upon conversion the
amount of cash such Holder would have received had such Holder converted such
Note immediately prior to such Record Date. If such dividend or distribution is
not so paid or made, the Conversion Rate shall again be adjusted to be the
Conversion Rate which would then be in effect if such dividend or distribution
had not been declared. If any adjustment is required to be made as set forth in
this Section 7.7D as a result of a distribution that is a quarterly dividend,
such adjustment shall be based upon the amount by which such distribution
exceeds the amount of the quarterly cash dividend permitted to be excluded
pursuant hereto. If an adjustment is required to be made as set forth in this
Section 7.7D above as a result of a distribution that is not a quarterly
dividend, such adjustment shall be based upon the full amount of the
distribution.
E. In case a tender offer made by the Company or any of its
subsidiaries for all or any portion of any class of its Voting Stock expires and
such tender offer (as amended upon the expiration thereof) requires the payment
to shareholders (based on the acceptance (up to any maximum specified in the
terms of the tender offer) of Purchased Shares) of an aggregate consideration
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors) that, combined together with (a) the aggregate of the cash plus the
fair market value (as determined by the Board of Directors, whose determination
shall be conclusive and described in a resolution of the Board of Directors), as
of the expiration of such tender offer, of consideration payable in respect of
any other tender offers, by the Company or any of its subsidiaries for all or
any portion of any class of its Voting Stock expiring within the 12 months
preceding the expiration of such tender offer and in respect of which no
adjustment pursuant to this Section 7.7E has been made, and (b) the aggregate
amount of any distributions to all holders of the Voting Stock made exclusively
in cash within 12 months preceding the expiration of such tender offer and in
respect of which no adjustment pursuant to Section 7.7D has been made, exceeds
10% of the product of the Market Price of the Common Stock as of the last time
(the "EXPIRATION TIME") tenders could have been made pursuant to such tender
offer (as it may be amended) and the number of shares of Voting Stock
outstanding
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(including any tendered shares) at the Expiration Time, then, and in each such
case, immediately prior to the opening of business on the day after the date of
the Expiration Time, the Conversion Rate shall be increased so that the same
shall equal the Conversion Rate determined by multiplying the Conversion Rate in
effect immediately prior to the Expiration Time by a fraction of which the
numerator shall be the product of the number of shares of Voting Stock
outstanding (less any Purchased Shares) on the Expiration Time and the Market
Price of the Common Stock on the Trading Day next succeeding the Expiration Time
and the denominator shall be (x) the number of shares of Voting Stock
outstanding (including any tendered or exchanged shares) on the Expiration Time
multiplied by the Market Price of the Common Stock on the Trading Day next
succeeding the Expiration Time less (y) the fair market value (determined as
aforesaid) of the aggregate consideration payable to shareholders based on the
acceptance (up to an maximum specified in the terms of the tender or exchanged
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "PURCHASED SHARES"), such increase to become effective
immediately prior to the opening of business on the day following the Expiration
Time. If the Company is obligated to purchase shares pursuant to any such tender
offer, but the Company is permanently prevented by applicable law from effecting
any such purchases or all such purchases are rescinded, the Conversion Rate
shall again be adjusted to be the Conversion Rate which would then be in effect
if such tender offer had not been made.
F. In the event the litigation referred to in Schedule 7.7
(the "SUBJECT LITIGATION") is settled by the Company or a final judgment is
entered against the Company or the Company otherwise is liable to make payments
(whether pursuant to indemnification arrangements or otherwise), which payments
shall include fees and expenses payable by the Company, in an amount in excess
of $30 million on a pre-tax basis (the "ADJUSTMENT THRESHOLD"), without regard
to insurance coverage which may be available to the Company (a "SPECIAL
ADJUSTMENT EVENT"), then the Conversion Rate then in effect shall be further
adjusted pursuant to this Section 7.7F. Upon the occurrence of a Special
Adjustment Event, the Conversion Rate shall be adjusted to the Conversion Rate
obtained by dividing $315.24 by the New Factor. For purposes hereof, the "NEW
FACTOR" shall be equal to the difference between (x) the quotient obtained by
dividing $315.24 by the Conversion Rate in effect immediately prior to the
Special
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Adjustment Event and (y) the Adjustment Factor. For purposes hereof, the
"Adjustment Factor" shall equal $0.0111 for each $1 million in after-tax costs
or expense payable by the Company in connection with the Special Adjustment
Event in excess of the Adjustment Threshold, plus $0.006568 for every 1,000,000
shares of Common Stock acquired by the Investors pursuant to Section 6.6 within
six months of the Closing Date (with adjustments to the Adjustment Factor by
linear interpolation for amounts greater or less than $1 million or 1,000,000,
as the case may be).
G. For purposes of this Section 7.7, the number of shares of
Voting Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Voting Stock. The Company
shall not pay any dividend or make any distribution on shares of Voting Stock
held in the treasury of the Company.
H. The provisions of this Section 7.7 shall not apply to any
Common Stock issued, issuable or deemed outstanding under Sections 7.7B(1) to
(7) inclusive: (i) to any person pursuant to any stock option, stock purchase or
similar plan or arrangement for the benefit of employees, consultants or
directors of the Company or its Subsidiaries in effect on the Closing Dates or
thereafter adopted by the Board of Directors (or physicians or providers
contracting with the Company or any of its Subsidiaries), (ii) pursuant to
options, warrants and conversion rights in existence on the Closing Dates, (iii)
on conversion of a Note or (iv) in connection with underwritten public offerings
for cash pursuant to a registration statement filed under the Securities Act
relating to Common Stock, Options or Convertible Securities.
7.8. MISCELLANEOUS PROVISIONS RELATING TO CONVERSION.
A. When Adjustment May be Deferred. No adjustment in the
Conversion Rate need be made unless the adjustment would require an increase or
decrease of at least 1% in the Conversion Rate then in effect provided that any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
Sections 7.6, 7.7 and 7.8 shall be made to the nearest cent or to the nearest
1/10,000th of a share, as the case may be.
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B. When No Adjustment Required. No adjustment need be made for
rights to purchase Voting Stock pursuant to a Company plan for reinvestment of
dividends or interest. No adjustment need be made for a change in the par value
or no par value of the Voting Stock. To the extent the Notes become convertible
into cash, assets, property or Notes (other than capital stock of the Company),
no adjustment need be made thereafter as to the cash, assets, property or such
Notes. Interest shall not accrue on the cash.
C. Notice of Adjustment. Whenever the Conversion Rate is
adjusted, the Company shall promptly mail to Holders a notice of the adjustment.
The certificate shall, absent manifest error, be conclusive evidence that the
adjustment is correct.
D. Voluntary Increase. The Company may make such increases in
the Conversion Rate, in addition to those required by Section 7.7, as the Board
of Directors considers to be advisable to avoid or diminish any income tax to
holders of Voting Stock or rights to purchase Voting Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. Whenever the Conversion Rate is so
increased, the Company shall mail to Holders a notice of such increase.
E. Notice to Holders Prior to Certain Actions. In case:
(1) the Company shall declare a dividend (or any other
distribution) on its Voting Stock that would require an adjustment in
the Conversion Rate pursuant to Section 7.7;
(2) the Company shall authorize the granting to all or
substantially all the Holders of its Voting Stock of rights or warrants
to subscribe for or purchase any share of any class or any other rights
or warrants;
(3) of any reclassification or reorganization of the Voting
Stock of the Company (other than a subdivision or combination of its
outstanding Voting Stock, or a change in par value, or from par value
to no par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for which
approval of any shareholders of the Company is required, or of the sale
or transfer of all or substantially all of the assets of the Company;
or
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(4) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
the Company shall cause to be mailed to each Holder of Notes at his address
appearing on the Note Register, as promptly as possible but in any event at
least 15 days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Voting Stock of record to be entitled
to such dividend, distribution, or rights or warrants are to be determined, or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up is expected to become effective
or occur, and the date as of which it is expected that holders of Voting Stock
of record shall be entitled to exchange their Voting Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding-up. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of such
dividend, distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
F. Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (a) any reclassification or change
of outstanding shares of Voting Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (b) any consolidation, merger or combination of
the Company with another corporation as a result of which holders of Voting
Stock shall be entitled to receive stock, Notes or other property or assets
(including cash) with respect to or in exchange for such Voting Stock, or (c)
any sale or conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation as a result of which
holders of Voting Stock shall be entitled to receive stock, Notes or other
property or assets (including cash) with respect to or in exchange for such
Voting Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall make adequate provision so that each Note shall be
convertible into the kind and amount of shares of stock and other Notes or
property or assets (including cash) receivable upon such reclassification,
change, consolidation, merger, combination, sale or conveyance by a holder of a
number of shares of Voting
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Stock issuable upon conversion of such Notes immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance. Such adequate provision shall include an undertaking on the part of
the Company, the surviving corporation or the purchaser, as the case may be, to
make adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 7.8F.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 7.8F applies to any event or occurrence,
Section 7.7 shall not apply.
G. Simultaneous Adjustments. In the event that Sections 7.6,
7.7 or 7.8 require adjustments to the Conversion Rate under more than one of
Sections 7.7A, 7.7B, 7.7C or 7.7D, and the Record Dates for the distributions
giving rise to such adjustments shall occur on the same date, then such
adjustments shall be made by applying, first, the provisions of Section 7.7C,
second, the provisions of Section 7.7D, third, the provisions of Section 7.7A,
and fourth, the provisions of Section 7.7B.
H. Successive Adjustments. After an adjustment to the
Conversion Rate under Sections 7.6, 7.7 or 7.8, any subsequent event requiring
an adjustment under Sections 7.6, 7.7 or 7.8 shall cause an adjustment to the
Conversion Rate as so adjusted.
I. General Considerations. Whenever successive adjustments to
the Conversion Rate are called for pursuant to Sections 7.6, 7.7 or 7.8, such
adjustments shall be made to the Market Price as may be necessary or appropriate
to effectuate the intent of Sections 7.6, 7.7 or 7.8 and to avoid unjust or
inequitable results as determined in good faith by the Board of Directors.
8. DEFINITIONS.
8.1. DEFINITIONS.
Except as otherwise specified or as the context may otherwise
require, the following terms shall have the respective meanings set forth below
whenever used in this Agreement and shall include the singular as well as the
plural:
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"AFFILIATE" of any specified Person means any other Person
which directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such Person. Notwithstanding the
foregoing, in no event shall the Investors or any of their Affiliates or any
other holder of any Notes be deemed to be an Affiliate of the Company solely by
reason of the ownership of the Notes or the shares of Common Stock acquired upon
the conversion of the Notes.
"BOARD OF DIRECTORS" means the Board of Directors of the
Company or any committee of directors lawfully exercising the relevant powers of
said Board or Directors.
"BUSINESS DAY" means any day other than a Saturday or Sunday
or a day on which commercial banks are required or authorized by law to be
closed in New York, New York.
"CAPITAL STOCK" means, with respect to any corporation, any
and all shares, interests, rights to purchase, warrants, options, participations
or other equivalents of or interests (however designated) in stock issued by
that corporation.
"CHANGE IN CONTROL" means such time as
(i) a "person" or "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act), other than any of the
Investors or a "group" which includes any of the Investors, (A) becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 50% of the total then outstanding voting power of the
Voting Stock of the Company or (B) has the right or the ability by
voting right, contract or otherwise to elect or designate for election
a majority of the entire Board of Directors;
(ii) (A) the Company consolidates with or merges into any
other Person or conveys, transfers, sells or leases all or
substantially all of its assets as an entirety to any Person or (B) any
Person merges into the Company, in either event pursuant to a
transaction in which Voting Stock of the Company representing more than
50% of the total voting power of the Company outstanding immediately
prior to the effectiveness thereof is reclassified or changed into or
exchanged for cash, securities or other property; provided that any
consolidation, merger, conveyance, transfer, sale or lease between the
Company and any of its Subsidiaries (including without limitation the
reincorporation of the
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Company in another jurisdiction) shall be excluded from the operation
of this clause (ii); or
(iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors, or whose nomination for election by the shareholders of the
Company, as the case may be, was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office.
"CHANGE IN CONTROL PURCHASE DATE" has the meaning specified in
Section 7.3A.
"CHANGE IN CONTROL PURCHASE NOTICE" has the meaning specified
in Section 7.3C.
"CHANGE IN CONTROL PURCHASE PRICE" has the meaning specified
in Section 7.3A.
"CLOSING DATE" has the meaning specified in Section 1.2.
"CLOSING PRICE" on any Trading Day with respect to the per
share price of the Common Stock means the last reported sales price regular way
or, in case no such reported sale takes place on such Trading Day, (i) the
reported closing bid price regular way on the Nasdaq Stock Market's National
Market if the Common Stock is listed or admitted to trading on such National
Market, or (ii) if the Common Stock is not listed or admitted to trading on the
Nasdaq Stock Market's National Market, the average of the reported closing bid
and asked prices regular way on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, the closing bid price
in the over-the-counter market as furnished by any New York Stock Exchange
member firm that is selected from time to time by the Company for that purpose
and is reasonably acceptable to the Majority Holders.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission and
any successor agency of the United States federal government having similar
powers.
"COMMON STOCK" has the meaning specified in Section 2.2.
"COMPANY CHANGE IN CONTROL NOTICE" has the meaning specified
in Section 7.3B.
"COMPANY NOTICE" has the meaning specified in Section 7.4E.
"COMPANY SEC REPORTS" means the meaning specified in Section
2.5.
"CONTAMINANT" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special or toxic waste, petroleum or
petroleum-derived substance or waste, or any constituent of any such substance
or waste regulated under any Environmental Law.
"CONTROL" when used with respect to any specified Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"CONTROLLED SUBSIDIARY" means any entity as to which WP or the
Investors, individually or in the aggregate, are the beneficial owner of 50% or
more of the voting securities or as to which WP or the Investors, individually
or in the aggregate, have the right to appoint a majority of the directors or
persons exercising similar authority.
"CONVERSION RATE" has the meaning specified in Section 7.6A.
"CONVERTIBLE SECURITIES" has the meaning specified in Section
7.7B.
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"DEFAULT" means an event which, with the lapse of time and/or
the giving of notice, would constitute an Event of Default.
"DEFERRED PURCHASE DATE" has the meaning specified in Section
7.4E(2)(d).
"ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment, or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" has the meaning specified in Section 9.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time.
"EXISTING CONVERTIBLE DEBENTURES" means the Company's 4.5%
Convertible Subordinated Debentures due 2003 issued under the Existing
Indenture.
"EXISTING INDENTURE" means the indenture, dated as of February
15, 1996, between the Company and First American National Bank, relating to the
Existing Convertible Debentures, as the same may be amended or modified from
time to time.
"FINAL MATURITY" or "FINAL MATURITY DATE" means the fifteenth
anniversary of the Closing Date.
"GAAP" means generally accepted accounting principles from
time to time in the United States.
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"GOVERNMENTAL BODY" means any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
"HOLDER" means any Person in whose name the Notes are
registered from time to time on the books and records of the Company.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
"ISSUE PRICE" of any Note means, in connection with the
original issuance of such Note, the initial issue price at which the Note is
issued as set forth on the face of the Note.
"KNOWLEDGE OF THE COMPANY" OR "COMPANY'S KNOWLEDGE" means the
best knowledge of each of the following individuals: John K. Crawford, Thompson
S. Dent, N. Carolyn Forehand, Joseph C. Hutts, Derril W. Reeves, Fred W. Ewing,
Oliver V. Rogers, Glen N. Marconcini, Herbert A. Fritch and W. Carl Whitmer.
"LIEN" means any mortgage, pledge, encumbrance, security
interest, conditional sale or other title retention agreement or other similar
lien or encumbrance.
"MAJORITY HOLDERS" means the holder or holders of at least a
majority of the aggregate unpaid principal amount of the Notes at the time
outstanding.
"MARKET PRICE" means the average of the daily Sale Prices of
the Common Stock for the 10 Trading Days period ending on (if the third Business
Day prior to the applicable date in question is a Trading Day or, if not, then
on the last Trading Day prior to) the third Business Day prior to the applicable
date in question, appropriately adjusted to take into account the occurrence
during the period commencing on the first of such Trading Days during such 10
Trading Day period and ending on such date in question any event that would
result in an adjustment of the Conversion Rate with respect to the Common Stock.
"MATERIAL" means material in relation to the business,
operations, affairs, financial condition, assets, properties, or prospects of
the Company and its Subsidiaries taken as a whole.
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"MATERIAL AGREEMENTS" mean any indenture, mortgage, deed of
trust, bank loan or credit agreement, or any other "material contract" of the
Company (as such term is defined in Regulation 601(b)(10) of Regulation S-K of
the Commission).
"MATERIAL ADVERSE EFFECT" means any change in or effect on
that is materially adverse to (A) the business, operations, properties,
condition (financial or other), prospects, assets or liabilities of the Company
and its Subsidiaries taken as a whole (including any change in any Requirement
of Law applicable to the business of the Company or its Subsidiaries), (B) the
ability of the Company to perform its obligations under this Agreement and the
other Transaction Documents or (C) the legality, validity or enforceability of
this Agreement or the other Transaction Documents, excluding any changes and
effects resulting from changes in economic or political conditions or changes
and effects previously disclosed in the Company SEC Reports or in the Schedules
hereto.
"MAXIMUM AMOUNT" means the sum of (i) the number of shares of
Common Stock beneficially owned by the Investors as of the date of this
Agreement (before giving effect to the transactions contemplated hereby), (ii)
the number of shares of Common Stock issuable from time to time upon conversion
of the Notes and (iii) during a period of six months from the Closing Date, the
number of shares of Common Stock that the Investors may purchase in accordance
with the provisions of Section 6.6.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NON-PAYMENT EVENT OF DEFAULT" means a default on the Senior
Indebtedness of which the Company has received notice (other than a Payment
Event of Default) that occurs and is continuing and that permits the holders of
Senior Indebtedness to accelerate the maturity of such Senior Indebtedness.
"NOTES" has the meaning specified in Section 1.1.
"NOTE REGISTER" has the meaning specified in Section 11.
"OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose
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responsibilities extend to the subject matter of such certificate.
"OPTIONS" has the meaning specified in Section 7.7B.
"ORDER" means any written order, writ, injunction, decree,
judgment, award, penalty, determination, direction or demand.
"ORIGINAL ISSUE DISCOUNT" of any Note means the difference
between the Issue Price and the Principal Amount at Final Maturity of the Note
as set forth on the face of the Note.
"PAYMENT EVENT OF DEFAULT" means a default in the payment of
principal of (or premium, if any), or interest on Senior Indebtedness beyond any
applicable grace period with respect thereto.
"PERMITTED ACQUISITIONS" has the meaning specified in Section
6.6A.
"PERSON" or "PERSON" means and includes an individual, a
partnership, a joint venture, a corporation, a limited liability company, a
trust, an association, a joint-stock company, an unincorporated organization and
a Governmental Body.
"PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.
"PRINCIPAL", "PRINCIPAL AMOUNT" or "PRINCIPAL" of any Note,
means the principal of the security, including any accrued Original Issue
Discount on the Note.
"PURCHASE DATE" has the meaning specified in Section 7.4A.
"PURCHASE NOTICE" has the meaning specified in Section 7.4A.
"PURCHASE PRICE" has the meaning specified in Section 7.4A.
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"RECORD DATE" means, with respect to any dividend,
distribution or other transaction or event in which the holders of Voting Stock
have the right to receive any cash, securities or other property or in which the
Voting Stock (or other applicable security) is exchanged for or converted into
any combination of cash, securities or other property, the date fixed for
determination of shareholders entitled to receive such cash, securities or other
property (whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
"REDEMPTION DATE" means the date fixed for such redemption by
or pursuant to this Agreement.
"REDEMPTION PRICE" means the price at which the Notes are to
be redeemed pursuant to this Agreement.
"REGISTRATION RIGHTS AGREEMENT" has the meaning specified in
Section 4.9.
"REQUIREMENT OF LAW" means, as to any Person, each law, rule
or regulation, including Environmental Laws and ERISA, or Order, decree or other
determination of an arbitrator or a court or other Governmental Body applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"RIGHTS AGREEMENT" means the Rights Agreement, dated as of
February 18, 1994, between the Company and First Union National Bank of North
Carolina, as rights agent.
"SALE PRICE" of the Common Stock on any date means the average
of the high and low per share sale price (or if no sale prices are reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and average ask prices) on such date as reported in
the composite transactions reported on the principal United States securities
exchange on which the Common Stock is listed or, if the Common Stock is not
listed on a United States national or regional stock exchange, as reported by
the National Association of Securities Dealers Automated Quotation System.
"SECURITIES" means the Notes or the shares of Common Stock
issuable upon conversion of the Notes.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or controller of the Company.
"SENIOR INDEBTEDNESS" means (a) the principal of and premium,
if any, and interest (including, without limitation, any interest accruing
subsequent to the filing of a petition or other action concerning bankruptcy or
other similar proceedings, whether or not constituting an allowed claim in any
such proceedings) on the following, whether presently outstanding or hereafter
incurred or created: all indebtedness or obligations of the Company for money
borrowed (other than that evidenced by the Notes) or assets acquired and which
is evidenced by a note, bond, debenture or similar instrument (including a
purchase money mortgage) given in connection with the acquisition of any
property or assets (other than inventory or other similar property acquired in
the ordinary course of business) including securities, (b) all obligations
constituting Bank Debt (as defined in the Existing Indenture)(including without
limitation principal, interest, fees and expenses); (c) all obligations of the
Company: (i) for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, (ii) under interest rate
swaps, caps, collars, options and similar arrangements, and (iii) under any
foreign exchange contact, currency swap agreement, futures contract, currency
option contract, or other foreign currency hedge; (d) all obligations for the
payment of money relating to a capitalized lease obligation; (e) any liabilities
of others described in the preceding clauses (a), (b), (c) and (d) which the
Company has guaranteed or which are otherwise its legal liability; and (f)
renewals, extensions, refundings, restructurings, amendments and modifications
of any such indebtedness or guarantee. Notwithstanding anything to the contrary
in this Agreement or the Notes, "SENIOR INDEBTEDNESS" shall not include (v) the
Existing Convertible Debentures, (w) subordinated indebtedness previously issued
in connection with clinic acquisitions, (x) future clinic acquisition
subordinated indebtedness of the Company, provided that such subordinated
indebtedness by its terms or the terms of the instrument creating or evidencing
it expressly provides that such subordinated indebtedness shall not be senior in
right of payment to the Securities, (y) any indebtedness of the Company to a
Subsidiary except to the extent any such indebtedness is pledged by such
Subsidiary as security for any Bank Debt, or (z) any indebtedness or guarantee
of the Company which by its terms or the terms of
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the instrument creating or evidencing it is not superior in right of payment to
the Notes. The Notes will rank pari passu with the Existing Subordinated
Debentures and any subordinated indebtedness of the Company previously issued in
connection with clinic acquisitions.
"SIGNIFICANT SUBSIDIARY" has the meaning specified in
Regulation 1-02(w) of Regulation S-X of the Commission.
"SUBJECT SECURITIES" has the meaning specified in Section
6.7B.
"SUBSIDIARY" of any Person means any corporation or other
entity a majority of the total combined voting power of all classes of Voting
Stock of which shall, at the time as of which any determination is being made,
be owned by such Person and/or one or more of its Subsidiaries. Except as
otherwise expressly indicated herein, references to Subsidiaries shall mean
Subsidiaries of the Company.
"TAKEOVER STATUTE" shall mean any corporate takeover provision
under laws of the State of Tennessee except any health maintenance organization
or insurance change of control statute.
"TRADING DAY" means each Monday, Tuesday, Wednesday, Thursday
and Friday, other than any day on which securities are not traded on the
applicable securities exchange or in the applicable securities market.
"TRANSACTION DOCUMENTS" means this Agreement, the Notes and
the Registration Rights Agreement.
"TRANSFER" means any sale, transfer or other disposition.
"TRANSFEROR" has the meaning specified in Section 6.7A.
"VOTING STOCK" means, with respect to any Person, any shares
of stock or other equity interests of any class or classes of such Person whose
holders are entitled under ordinary circumstances (irrespective of whether at
the time stock or other equity interests of any other class or classes shall
have or might have voting power by reason of the happening of any contingency)
to vote for the election of a majority of the directors, managers, trustees or
other governing body of such Person.
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"WHOLLY OWNED SUBSIDIARY" means a Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
or another Wholly Owned Subsidiary.
"WP" has the meaning specified in Section 6.5.
8.2. ACCOUNTING TERMS.
All accounting terms used herein which are not expressly
defined in this Agreement have the meanings respectively given to them in
accordance with GAAP. Except as otherwise specifically provided herein, all
computations made pursuant to this Agreement shall be made in accordance with
GAAP and all balance sheets and other financial statements with respect thereto
shall be prepared in accordance with GAAP consistently applied. Except as
otherwise expressly provided, any consolidated financial statement or financial
computation shall be done in accordance with GAAP; and, if at the time that any
such statement or computation is required to be made the Company shall not have
any Subsidiary, such terms shall mean a financial statement or a financial
computation, as the case may be, with respect to the Company only.
9. EVENTS OF DEFAULT; REMEDIES.
9.1. EVENTS OF DEFAULT; ACCELERATION OF MATURITY AND RESCISSION.
If any of the following Events of Default (each an "EVENT OF
DEFAULT") shall occur and be continuing for any reason whatsoever (and whether
such occurrence shall be voluntary or involuntary or come about or be effected
by operation of law or otherwise):
A. a default by the Company in the payment of the Principal
(including accrued Original Issue Discount), Redemption Price, Purchase Price,
or Change in Control Purchase Price due with respect to the Notes;
B. a default by the Company or any Subsidiary with respect to
its obligation to pay indebtedness for borrowed money (other than indebtedness
which is non-recourse to the Company or the Subsidiary), which default shall
have resulted in the acceleration of, or be a failure to pay at final maturity,
indebtedness aggregating more than $10 million;
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C. a material failure to perform any other covenant or
warranty of the Company herein or in the Notes, which continues for 30 days
after written notice from any Holder;
D. final judgments or orders are rendered against the Company
or any of its Subsidiaries which require the payment by the Company or any of
its Subsidiaries of an amount (to the extent not covered by insurance) in excess
of $10 million and such judgments or orders remain unstayed or unsatisfied for
more than 60 days and are not being contested in good faith by appropriate
proceedings; or
E. the Company shall (1) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (2)
admit in writing its inability to pay its debts as such debts become due, (3)
make a general assignment for the benefit of its creditors, (4) commence a
voluntary case under any law relating to bankruptcy, insolvency or
reorganization, (5) file a petition seeking to take advantage of any other law
providing for the relief of debtors, or (6) fail to controvert in a timely or
appropriate manner (but within 30 days in any event), or acquiesce in writing
to, any petition filed against it in an involuntary case under any law relating
to bankruptcy, insolvency or reorganization; or
F. a proceeding or case shall be commenced against the
Company, without the application or consent of the Company in any court of
competent jurisdiction seeking (1) its liquidation, reorganization, dissolution
or winding up, or composition or readjustment of its debts, (2) the appointment
of a trustee, receiver, custodian, liquidator, encumbrancer or the like of it or
of all or any substantial part of its assets or (3) similar relief in respect of
it under any law providing for the relief of debtors, and such proceeding or
case shall continue undismissed, or unstayed and in effect, for a period of 60
days; or an order for relief shall be entered in an involuntary case under any
law relating to bankruptcy, insolvency or reorganization against the Company;
then (i) upon the occurrence of any Event of Default described in Subsection E
or F, the unpaid principal amount of all Notes, together with the interest
accrued thereon, shall automatically become immediately due and payable, without
presentment, demand, protest or other requirements of any kind, all of which are
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hereby expressly waived by the Company, or (ii) upon the occurrence and during
the continuance of any other Event of Default, the holders of at least 25% of
the Principal Amount of the Notes at the time may, by written notice to the
Company, declare the Principal Amount of all Notes to be, and the same shall
forthwith become, due and payable, together with the interest accrued thereon,
without presentment, further demand, protest or other requirements of any kind,
all of which are hereby expressly waived by the Company.
The provisions of this Section 9.1 are subject, however, to
the condition that if, at any time after any Note shall have become declared due
and payable, the Company shall pay all arrears of interest on the Notes and all
payments on account of the principal of and premium (if any) on the Notes which
shall have become due otherwise than by acceleration (with interest on such
principal, premium (if any) and, to the extent permitted by law, on overdue
payments of interest, at the respective rates specified in the Notes with
respect to overdue payments) and an additional amount sufficient to reimburse
the holders of the Notes for the reasonable costs and expenses incurred in
connection with any such declaration, and all Events of Default (other than
nonpayment of principal of, premium, if any, and accrued interest on Notes due
and payable solely by virtue of acceleration) shall be remedied or waived, then,
and in every such case, the Majority Holders, by written notice to the Company,
may rescind and annul any such acceleration of Notes and its consequences; but
no such action shall affect any subsequent Default or Event of Default or impair
any right consequent thereon.
9.2. SUITS FOR ENFORCEMENT.
If any Event of Default shall have occurred and be continuing,
the holder of any of the Notes may proceed to protect and enforce its rights,
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant or agreement contained in this Agreement or in the
other Transaction Documents or in aid of the exercise of any power granted in
this Agreement or in the other Transaction Documents, or the holder of any Note
may proceed to enforce the payment of all sums due upon such Note or to enforce
any other legal or equitable right of the holder of such Note.
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The Company covenants that, if default shall be made in the
making of any payment due under any Note or in the performance or observance of
any agreement contained in this Agreement or the other Transaction Documents,
the Company will pay to each holder of Notes such further amounts, to the extent
lawful, as shall be sufficient to pay all costs and expenses of collection or of
otherwise enforcing such holder's rights under this Agreement or the other
Transaction Documents, including counsel fees.
9.3. REMEDIES CUMULATIVE.
No remedy herein conferred upon you or the holder of any Note
is intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
9.4. REMEDIES NOT WAIVED.
No course of dealing between the Company and you or the holder
of any Note and no delay or failure in exercising any rights hereunder or under
any other Transaction Document in respect of such Note shall operate as a waiver
of any of your rights or the rights of any holder of such Note.
10. SUBORDINATION OF NOTES.
10.1. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
A. The Company covenants and agrees, and each Investor
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Section 10; and each Holder, whether upon original issue or
upon transfer or assignment thereof, accepts and agrees to be bound by such
provisions.
B. The payment of the Principal Amount and the premium, if
any, on all Notes issued hereunder shall, to the extent and in the manner
hereinafter set forth, be subordinated and subject in right of payment to the
indefeasible prior payment in full, in cash, of all Senior Indebtedness, whether
outstanding at the date of this Agreement or thereafter created, incurred,
assumed or guaranteed.
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10.2. NOTES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON
DISSOLUTION, LIQUIDATION, REORGANIZATION, ETC., OF THE COMPANY.
Upon any payment or distribution of the assets of the Company
of any kind or character, whether in cash, property or securities (including any
collateral at any time securing the Notes), to creditors upon any dissolution,
winding-up, total or partial liquidation, or reorganization of the Company
(whether voluntary or involuntary, or in bankruptcy, insolvency, reorganization,
liquidation, receivership proceedings, or upon an assignment for the benefit of
creditors, or any other marshalling of the assets and liabilities of the
Company, or otherwise), then in such event:
(a) all Senior Indebtedness (including principal thereof,
interest thereon and fees and expenses relating thereto) shall first be paid in
full, in cash, or have provision made for such payment in a manner reasonably
satisfactory to the holders of Senior Indebtedness, before any payment is made
on account of the Principal Amount or premium, if any, of the Notes;
(b) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted, or securities of the
Company or any other company, trust or corporation provided for by a plan of
reorganization or readjustment, junior, or the payment of which is otherwise
subordinate, at least to the extent provided in this Section 10, with respect to
the Notes, to the payment of all Senior Indebtedness at the time outstanding and
to the payment of all securities issued in exchange therefor to the holders of
the Senior Indebtedness at the time outstanding), to which the Holders would be
entitled except for the provisions of this Section 10, including any such
payment or distribution which may be payable or deliverable by reason of the
payment of another debt of the Company being subordinated to the payment of the
Notes, shall be paid or delivered by any debtor, custodian or other person
making such payment or distribution, directly to the holders of the Senior
Indebtedness or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any of
such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the principal of, interest on
and fees and expenses relating to the
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Senior Indebtedness held or represented by each for application to payment of
all Senior Indebtedness on a pro rata basis according to the outstanding amount
of Senior Indebtedness (including interest, fees and expenses), to the extent
necessary to pay all Senior Indebtedness in full, in cash, after giving effect
to any concurrent payment or distribution, or provision therefor, to the holders
of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section 10, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities (other
than securities of the Company as reorganized or readjusted, or securities of
the Company or any other company, trust or corporation provided for by a plan of
reorganization or readjustment, junior, or the payment of which is otherwise
subordinate, at least to the extent provided for in this Section 10, with
respect to the Notes, to the payment in full, in cash, of all Senior
Indebtedness at the time outstanding and to the payment of all securities issued
in exchange therefor to the holders of Senior Indebtedness at the time
outstanding), shall be received by the Holders before all Senior Indebtedness is
paid in full, in cash, or provision made for their payment in a manner
reasonably satisfactory to the holders of Senior Indebtedness, such payment or
distribution (subject to the provisions of Sections 10.6 and 10.7) shall be held
in trust for the benefit of, and shall be immediately paid or delivered to the
holders of Senior Indebtedness remaining unpaid or unprovided for, or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the principal of, interest on and fees and
expenses relating to the Senior Indebtedness held or represented by each, for
application to the payment of all Senior Indebtedness remaining unpaid on a pro
rata basis according to the outstanding amount of Senior Indebtedness (including
interest, fees and expenses), to the extent necessary to pay all Senior
Indebtedness in full, in cash, after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior Indebtedness.
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10.3. HOLDERS OF NOTES TO BE SUBROGATED TO RIGHT OF HOLDERS OF SENIOR
INDEBTEDNESS.
Subject to the prior payment in full, in cash, of all Senior
Indebtedness then due, the Holders shall be subrogated to the rights of the
holders of Senior Indebtedness to receive payments or distributions of assets of
the Company applicable to the Senior Indebtedness until the Principal Amount of
the Notes shall be paid in full, and for purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of assets,
whether in cash, property or securities, distributable to the holders of Senior
Indebtedness under the provisions hereof to which the Holders would be entitled
except for the provisions of this Section 10, and no payment pursuant to the
provisions of this Section 10 to the holders of Senior Indebtedness by the
Holders shall, as among the Company, its creditors other than the holders of
Senior Indebtedness, and the Holders, be deemed to be a payment by the Company
to or on account of Senior Indebtedness, it being understood that the provisions
of this Section 10 are, and are intended, solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
10.4. OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Section 10 or elsewhere in this
Agreement or in any Note is intended to or shall impair, as among the Company,
its creditors other than the holders of Senior Indebtedness, and the Holders,
the obligation of the Company, which is absolute and unconditional, to pay to
the Holders the Principal Amount on the Notes, as and when the same shall become
due and payable in accordance with the terms of the Notes, or to affect the
relative rights of the Holders and other creditors of the Company other than the
holders of Senior Indebtedness, nor shall anything herein or therein prevent any
Holder from exercising all remedies otherwise permitted by applicable law upon
the happening of an Event of Default under this Agreement, subject to the
rights, if any, under this Section 10 of the holders of Senior Indebtedness in
respect of assets, whether in cash, property or securities, of the Company
received upon the exercise of any such remedy.
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10.5. COMPANY NOT TO MAKE PAYMENT WITH RESPECT TO NOTES IN CERTAIN
CIRCUMSTANCES.
A. Upon the occurrence of a Payment Event of Default, unless
and until the amount of such Senior Indebtedness then due shall have been paid
in full, in cash, or provision made therefor in a manner reasonably satisfactory
to the holders of such Senior Indebtedness, or such default shall have been
cured or waived or shall have ceased to exist, the Company shall not pay
principal of premium, if any, or interest on the Notes and shall not repurchase,
redeem or otherwise retire any Notes (collectively, "PAY THE SECURITIES").
B. Unless Section 10.2 shall be applicable, upon (i) the
occurrence of a Non-Payment Event of Default and (ii) receipt by the Company
from the representative of the holders of Senior Indebtedness to which the
Non-payment Event of Default applies of written notice of such occurrence, then
the Company shall not Pay the Securities for a period (the "PAYMENT BLOCKAGE
PERIOD") commencing on the earlier of the date of receipt by the Company of such
notice from such representative and ending on the earlier of (subject to any
blockage of payments that may then be in effect under Section 10.5A) (x) the
date 180 days after such date, (y) the date such Non-Payment Event of Default
shall have been cured or waived in writing or shall have ceased to exist or such
Senior Indebtedness shall have been discharged, or (z) the date such Payment
Blockage Period shall have been terminated by written notice to the Company from
the representative of the holders of the Senior Indebtedness initiating such
Payment Blockage Period, after which, in case of clause (x), (y) or (z), as the
case may be, the Company shall resume making any and all required payments.
Notwithstanding any other provision of this Agreement, only one Payment Blockage
Period may be commenced within any consecutive 365-day period, and no event of
default with respect to any Senior Indebtedness which existed or was continuing
on the date of the commencement of any Payment Blockage Period with respect to
the Senior Indebtedness the holders of which initiated such Payment Blockage
Period shall be, or can be made, the basis for the commencement of a second
Payment Blockage Period whether or not within a period of 365 consecutive days
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days. In no event will a Payment Blockage Period extend
beyond 179 days.
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C. In the event that, notwithstanding the foregoing provisions
of this Section 10.5, any payment on account of Principal Amount on the Notes
shall be made by or on behalf of the Company and received by any Holder after
the happening of a default under any Senior Indebtedness, then, unless and until
the amount of such Senior Indebtedness then due shall have been paid in full in
cash, or provision made therefor or such default shall have been cured or
waived, such payment (subject, in each case, to the provisions of Sections 10.6
and 10.7) shall be held in trust for the benefit of, and shall be immediately
paid over to, the holders of Senior Indebtedness or their representative or
representatives or the trustee of trustees under any indenture under which any
instruments evidencing any of the Senior Indebtedness may have been issued,
ratably according to the aggregate amounts remaining unpaid on account of the
principal of and interest on the Senior Indebtedness held or represented by
each, for application to the payment of all Senior Indebtedness remaining unpaid
to the extent necessary to pay all Senior Indebtedness in accordance with its
terms, after giving effect to any concurrent payment or distribution to or for
the benefit of the holders of Senior Indebtedness.
10.6. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF COMPANY OR
HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holders of any Senior
Indebtedness to enforce subordination, as herein provided, shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this Agreement, regardless or any knowledge thereof which any such holder may
modify or amend the terms of such Senior Indebtedness or any security therefor
and release, sell or exchange such security and otherwise deal freely with the
Company, all without affecting the liabilities and obligations of the parties to
this Agreement or the Holders. No provision in any amendment to this Agreement
which affects the superior position of the holders of the Senior Indebtedness
shall be effective against the holders of the Senior Indebtedness unless the
holders of such Senior Indebtedness (required pursuant to the terms of such
Senior Indebtedness to give such consent) have consented thereto.
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10.7. SECTION 10 NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of Principal Amount
on the Notes by reason of any provision in this Section 10 shall not be
construed as preventing the occurrence of any Event of Default under Section 9.
11. REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; RESTRICTIVE LEGENDS
TRANSFER RESTRICTIONS.
The Company will keep at the Company's principal office, or at
such other office or agency in the United States as the Company may from time to
time designate in writing to the holders of the Notes, a register (the "NOTE
REGISTER") in which, subject to such reasonable regulations as it may prescribe,
but at its expense (other than transfer taxes, if any), it will provide for the
registration and transfer of Notes.
Whenever a Note shall be surrendered either at such office of
the Company or at the place of payment named in such Note, for transfer or
exchange, within 5 Business Days thereafter the Company will execute and deliver
in exchange therefor a new Note or Notes, as may be requested by such holder, in
the aggregate unpaid principal amount as the series and unpaid principal amount
of the Note so surrendered. Each such new Note shall be payable to such Person
as such holder may request. Each Note presented or surrendered for registration
of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
such holder's attorney duly authorized in writing. Any Note issued in exchange
for any other Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, and neither gain nor loss of interest shall result from any such
transfer or exchange. Any transfer tax relating to such transaction shall be
paid by the holder requesting the exchange.
The Company and any agent of the Company may deem and treat
the Person in whose name any Note is registered as the owner and holder of such
Note for the purpose of receiving payment of the principal of and premium, if
any, and interest on such Note and for all other purposes whatsoever, whether or
not such Note be overdue and the Company shall not be affected by notice to the
contrary.
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The certificates evidencing the Notes and any shares of Common
Stock issuable upon conversion of the Notes shall bear at the time of issuance a
legend in substantially the following form:
"This security has not been registered under the Securities
Act of 1933, as amended, or applicable state securities laws,
and this security may not be sold, transferred or otherwise
disposed of in the absence of such registration or an
exemption therefrom under said Act and laws and the respective
rules and regulations thereunder. The transferability of this
security is also subject to restrictions contained in a
Securities Purchase Agreement which agreement the Company will
furnish to the holder of this security upon request."
12. LOST, ETC., NOTES.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Note,
and (in case of loss, theft or destruction) of indemnity reasonably
satisfactory to it, and upon surrender and cancellation of such Note, if
mutilated, within five Business Days thereafter the Company will deliver in lieu
of such Note a new Note in a like unpaid principal amount, dated as of the date
to which interest has been paid thereon or dated the date of the lost, stolen,
destroyed or mutilated Note if no interest shall have been paid thereon. The
Company acknowledges that each Investors unsecured agreement of indemnity shall
be deemed satisfactory to the Company.
13. AMENDMENT AND WAIVER.
A. Any provision of this Agreement or the other Transaction
Documents may, with the consent of the Company, be amended or waived (either
generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Majority Holders, provided that
(1) no such amendment or waiver shall
(a) change the rate or time of payment of interest on any
of the Notes, change the number or the method of calculating
the number of shares of Common Stock that may be purchased
upon conversion of any Note
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or the Conversion Rate in respect of such Common Stock,
without the consent of the Holder of each Note so affected,
(b) modify any of the provisions of this Agreement with
respect to the payment or prepayment or purchase of Notes, or
change the percentage of the principal amount of the Notes the
holders of which are required with respect to any such
amendment or to effectuate any such waiver, or to accelerate
any Note or Notes, without the consent of the holders of all
of the Notes then outstanding, and
(2) no such waiver shall extend to or affect any obligation
not expressly waived or impair any right consequent thereon.
B. Any amendment or waiver pursuant to Section 13A above shall
apply equally to all of the Holders of the Notes and shall be binding upon them,
upon each future holder of any such Note and upon the Company, in each case
whether or not a notation thereof shall have been placed on any Note.
C. For purposes of determining whether the Holders of
outstanding Notes of the requisite percentage of unpaid principal amount at any
time have taken any action authorized by this Section or otherwise by this
Agreement, any Notes owned by the Company, any Subsidiary or any Affiliate of
the Company shall be deemed not outstanding.
14. TERMINATION.
A. This Agreement may be terminated by (i) mutual consent of
the parties, (ii) the Investors, if any of the conditions set forth in Section 4
become incapable of being satisfied or (iii) by the Company, if any of the
conditions set forth in Section 5 become incapable of being satisfied.
B. In the event of any termination of this Agreement, this
Agreement shall forthwith become void and there shall be no liability on the
part of the Investors or the Company, except that nothing herein shall relieve
any party from liability for the breach of this Agreement, other than as
provided in Section 14C.
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C. If this Agreement is terminated by the Investors pursuant
to Section 14A, as a result of the condition set forth in Section 4.1 being
incapable of being satisfied due to a breach by the Company of a representation
or warranty made as of the date of this Agreement, the Company shall, within
five Business Days of the date of such termination, pay the Investors $5,000,000
(the "TERMINATION FEE"), which payment shall be payable by wire transfer to an
account specified by the Investors. Upon such payment by the Company, the
Investors shall have no further rights or claims against the Company arising out
of any breach of such representation or warranty, it being understood that the
Termination Fee is intended to be the sole and exclusive remedy available to the
Investors for such breach. The Termination Fee is intended to compensate the
Investors for their estimated fees and expenses incurred in connection with the
transactions contemplated hereby and shall not be construed or interpreted to be
a penalty.
15. PAYMENTS.
Notwithstanding anything to the contrary in this Agreement or
the Transaction Documents, so long as any Investor shall be the holder of any
Note, the Company shall pay all amounts which become due and payable on such
Note by wire or electronic funds transfer of immediately available funds to each
Investor at it address set forth in Schedule I on the date any such amounts
become due, or at such other place in the United States and in such other manner
as each Investor may designate by notice to the Company, without presentation or
surrender of such Note.
16. CERTAIN TAXES.
The Company agrees to pay all stamp, documentary or similar
taxes which may be payable in respect of the execution and delivery of this
Agreement or the other Transaction Documents (but not the transfer of any Note)
or of any amendment of, or waiver or consent under or with respect to, this
Agreement or any of the other Transaction Documents and will save the Investors
and all subsequent Holders harmless against any loss or liability resulting from
nonpayment or delay in payment of any such tax. The obligations of the Company
under this Section 16 shall survive the payment or conversion of the Notes.
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17. MISCELLANEOUS.
17.1. EXPENSES.
Each of the parties hereto shall pay its own expenses in
connection with the transactions contemplated hereby, including the fees and
disbursements of counsel.
17.2. RELIANCE ON AND SURVIVAL OF REPRESENTATIONS.
All agreements, representations and warranties of the Company
or any Subsidiary contained herein and in any certificates or other instruments
delivered pursuant to this Agreement shall (A) be deemed to have been relied
upon by you, notwithstanding any investigation heretofore or hereafter made by
you or on your behalf, and (B) shall survive the execution and delivery of this
Agreement and the delivery of the Notes to you, and shall continue in effect so
long as any Note is outstanding and thereafter as provided herein.
17.3. SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its permitted successors and assigns hereunder
and the Investors and their permitted successors and assigns.
17.4. COMMUNICATIONS.
Except as otherwise specifically provided herein, all notices
and other communications provided for in this Agreement shall be in writing and
shall be sent by confirmed facsimile transmission (hard copy to be sent by
overnight mail on the date of such transmission) or delivered by hand or sent by
a reputable overnight courier service prepaid (with confirmation of receipt)
A. if to the Company, at the address set forth at the
beginning of this Agreement, to the attention of its General Counsel,
or at such other address as the Company may hereafter designate by
notice to you and to each other Holder at the time outstanding,
B. if to an Investor, at its address as set forth in Schedule
I or at such other address as it may hereafter designate by notice to
the Company, or
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C. if to any other Holder, at the address of such Holder as it
appears on the Note Register.
Any notice or other communication herein provided to be given
to the Holders shall be deemed to have been duly given if sent as aforesaid to
each of the registered holders of the Notes at the time outstanding at the
address for such purpose of such holder as it appears on Schedule I or the Note
Register, as the case may be.
17.5. CONSENT TO JURISDICTION; SERVICE OF PROCESS; WAIVER OF JURY TRIAL.
A. The Company irrevocably submits to the non-exclusive in
personam jurisdiction of any New York State or federal court sitting in the
Borough of Manhattan, The City of New York, over any suit, action or proceeding
arising out of or relating to this Agreement or the other Transaction Documents.
To the fullest extent permitted by applicable law, the Company irrevocably
waives and agrees not to assert, by way of motion, as a defense or otherwise,
any claim that it is not subject to the in personam jurisdiction of any such
court, any objection that it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
B. The Company consents to process being served in any suit,
action or proceeding of the nature referred to in Subsection A above by mailing
a copy thereof by registered or certified mail, postage prepaid, return receipt
requested, to the Company at its address specified in Section 17.4 or at such
other address of which you shall then have been notified pursuant to said
Section. The Company agrees that such service upon receipt (1) shall be deemed
in every respect effective service of process upon it in any such suit, action
or proceeding and (2) shall, to the fullest extent permitted by applicable law,
be taken and held to be valid personal service upon and personal delivery to the
Company. Notices hereunder shall be conclusively presumed received as evidenced
by a delivery receipt furnished by the United States Postal Service or any
reputable commercial delivery service.
C. Nothing in this Section 17.5 shall affect the right of any
holder of Notes to serve process in any manner
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permitted by law, or limit any right that the holders of any of the Notes may
have to bring proceedings against the Company in the courts of any appropriate
jurisdiction or to enforce in any lawful manner a judgment obtained in one
jurisdiction in any other jurisdiction.
D. THE COMPANY WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON
OR WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN
CONNECTION HEREWITH OR THEREWITH.
17.6. INDEMNIFICATION.
The Company agrees, to the fullest extent permitted by
applicable law, to indemnify, exonerate and hold you and each of your officers,
directors, employees and agents (collectively the "INDEMNITEES" and individually
an "INDEMNITEE") free and harmless from and against any and all actions, causes
of action, suits, losses, liabilities and damages, and expenses in connection
therewith, including without limitation reasonable counsel fees and
disbursements (collectively the "INDEMNIFIED LIABILITIES") incurred by the
Indemnitees or any of them as a result of, or arising out of, or relating to,
any breach of any representation or warranty of the Company contained herein.
The obligations of the Company under this Section 17.6 shall survive payment or
conversion of the Notes.
17.7. GOVERNING LAW.
This Agreement and the Notes shall be governed by and
construed in accordance with the laws of the State of New York.
17.8. HEADINGS.
The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms hereof.
17.9. COUNTERPARTS.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
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If you are in agreement with the foregoing, please sign the
form of acceptance in the space below provided, whereupon this Agreement shall
become a binding agreement between each of the Investors and the Company.
Very truly yours,
PHYCOR, INC.
By /s/ Joseph C. Hutts
--------------------------------------------
Title: Chairman and CEO
The foregoing Agreement is
hereby accepted as of the
date first above written:
WARBURG, PINCUS EQUITY PARTNERS, L.P.
By: Warburg, Pincus & Co.,
---------------------------------
General Partner
By: /s/ Joel Ackerman
---------------------------------
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.
By: Warburg, Pincus & Co.,
---------------------------------
General Partner
By: /s/ Joel Ackerman
---------------------------------
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.
By: Warburg, Pincus & Co.,
---------------------------------
General Partner
By: /s/ Joel Ackerman
---------------------------------
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.
By: Warburg, Pincus & Co.,
---------------------------------
General Partner
By: /s/ Joel Ackerman
---------------------------------
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<PAGE> 126
For purposes of Section 6.5 only:
WARBURG, PINCUS & CO.
By: /s/ Joel Ackerman
---------------------------------
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<PAGE> 127
SCHEDULE I
NAMES OF INVESTORS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME AND ADDRESS OF INVESTOR AT FINAL MATURITY
- ---------------------------- -----------------
<S> <C>
Warburg, Pincus Equity Partners, L.P. $382,206,726.09
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
Fax: 212-878-9361
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Steven J. Gartner
Fax: 212-728-8111
Warburg, Pincus Netherlands Equity Partners I, C.V. $ 12,133,546.86
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
Fax: 212-878-9361
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Steven J. Gartner
Fax: 212-728-8111
Warburg, Pincus Netherlands Equity Partners II, C.V. $ 8,089,031.24
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
Fax: 212-878-9361
</TABLE>
<PAGE> 128
<TABLE>
<S> <C>
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Steven J. Gartner
Fax: 212-728-8111
Warburg, Pincus Netherlands Equity Partners III, C.V. $ 2,022,257.81
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
Fax: 212-878-9361
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Steven J. Gartner
Fax: 212-728-8111
Total $404,451,562
</TABLE>
<PAGE> 129
SCHEDULE 6.3
Joel Ackerman
Patrick T. Hackett
Rodman W. Moorhead III
John L. Vogelstein
<PAGE> 130
AMENDMENT TO
SECURITIES PURCHASE AGREEMENT
This Amendment dated August 23, 1999 (the "Amendment") is an amendment
to the Securities Purchase Agreement dated as of June 15, 1999 (the "Agreement")
by and among PhyCor, Inc., a Tennessee corporation (the "Company"), and the
Investors whose names appear on the signature pages to the Agreement.
WHEREAS, the parties have entered the Agreement;
WHEREAS, the parties hereby agree to amend the Agreement as stated
herein; and
WHEREAS, the parties wish to set forth their understanding in respect
to the terms and conditions relating to the Amendment.
NOW THEREFORE, in consideration of the provisions hereof and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Authorization; Conversion of Notes into Common Stock; Etc. The first
sentence of Section 1.1 is deleted in its entirety and replaced with the
following:
The Company has duly authorized the issue and sale of Series A Zero
Coupon Convertible Subordinated Notes due 2014 (the "SERIES A NOTES")
and Series B Zero Coupon Convertible Subordinated Notes (the "SERIES B
NOTES"), each such Note to be substantially in the form of Exhibit A
attached hereto.
2. Purchase and Sale of Notes; the Closing. Section 1.2 is deleted in
its entirety and replaced with the following:
1.2. PURCHASE AND SALE OF SERIES A NOTES; THE CLOSING.
Subject to the terms and conditions hereof, the Company hereby
agrees to sell to each Investor, and each Investor agrees to purchase
from the Company, Series A Notes in the aggregate Principal Amount at
Final Maturity as set forth opposite such Investor's name in Schedule I
attached hereto. Each Series A Note will be issued at an issue price of
$375.39 per $1,000 Principal Amount at Final Maturity. The closing of
such purchase shall be held at 10:00 A.M., New York time, on September
3, 1999 provided all the conditions set forth in Sections 4 and 5
hereto are satisfied or have been waived, or on such later Business Day
as may be agreed to by you and the Company (the "CLOSING DATE"), at the
offices of Waller Lansden Dortch & Davis, A Professional Limited
Liability Company, 511 Union Street, Suite 2100, Nashville, Tennessee
37219.
<PAGE> 131
On the Closing Date, the Company will deliver to each Investor
one or more Series A Notes, dated the Closing Date and registered in
such Investor's name or in the name of one or more of such Investor's
nominees, in any denominations (in a minimum amount of $500,000) and in
the aggregate principal amount to be purchased by the Investors, all as
the Investors may specify by timely notice to the Company (or, in the
absence of such notice, one Series A Note registered in each Investor's
name), in each case against delivery to the Company of immediately
available funds in the amount of the purchase price of such Series A
Notes, such delivery to be by wire transfer to such account as the
Company may direct in writing.
3. Purchase and Sale of Series B Notes; Series B Closing; Shareholder
Approval. Section 1.3 shall be inserted in the Agreement and shall read as
follows:
1.3. PURCHASE AND SALE OF SERIES B NOTES; SERIES B CLOSING;
SHAREHOLDER APPROVAL.
A. Subject to the terms and conditions hereof, unless otherwise
mutually agreed by the parties, the Company shall sell to each
Investor, and each Investor agrees to purchase from the Company, Series
B Notes up to the aggregate Principal Amount at Final Maturity as set
forth opposite such Investor's name in Schedule II attached hereto.
Each Note will be issued at an issue price of $375.39 per $1,000
Principal Amount at Final Maturity. The closing of such purchase shall
be held at 10:00 A.M., New York time, on the third Business Day
following the receipt of shareholder approval of the Series B
Transaction, provided all the conditions set forth in Sections 4 and 5
hereto are satisfied or have been waived, or on such later Business Day
as may be agreed to by you and the Company (each, a "SERIES B CLOSING
DATE") at the offices of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company, 511 Union Street, Suite 2100, Nashville,
Tennessee 37219.
B. On the Series B Closing Date, the Company will deliver to each
Investor one or more Notes, dated the Series B Closing Date and
registered in such Investor's name or in the name of one or more of
such Investor's nominees, in any denominations (in a minimum amount of
$500,000) and in the aggregate principal amount to be purchased by the
Investors, all as the Investors may specify by timely notice to the
Company (or, in the absence of such notice, one Series B Note
registered in each Investor's name), in each case against delivery to
the Company of immediately available funds in the amount of the
purchase price of such Series B Notes, such delivery to be by wire
transfer to such account as the Company may direct in writing.
C. Subject to the satisfaction or waiver of all the conditions set
forth in Sections 4 and 5 hereto, upon approval of the Series B
Transaction (as defined in Section 6.16) by the shareholders of the
Company, unless otherwise agreed by the parties, the Company shall sell
all of the Series B Notes to the Investors, and the Investors shall be
obligated to purchase the
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<PAGE> 132
Series B Notes from the Company. In the event the shareholders of the
Company fail to approve the Series B Transaction, the Company shall
have no obligation to sell the Series B Notes to the Investors, and the
Investors shall have no obligation or right to purchase Series B Notes
from the Company.
4. Use of Proceeds. The first sentence of Section 6.4 is deleted in its
entirety and replaced with the following:
The Company will use the proceeds of the issuance of the Notes to
repay existing debt, to repurchase shares of Common Stock and for
general corporate purposes; provided, however, that any repurchases of
shares of Common Stock hereunder (i) will be approved by the Board of
Directors, (ii) will be made in compliance with all applicable law,
(iii) will be made within 12 months of the Special Meeting and (iv)
will not exceed $10,000,000 in the aggregate and, in the event of a
Series B Closing Date, will not exceed the sum of $10,000,000 plus
aggregate proceeds to the Company from the sale of Series B Notes; and
provided further that nothing herein shall prohibit, restrict or
otherwise limit the Company's ability to effect its $75,000,000
securities repurchase program previously adopted by the Company as long
as such securities repurchase program is completed within 24 months of
the later of (a) the Closing Date and (b) the Series B Closing Date.
5. Additional Purchases of Common Stock. Sections 6.6A and 6.6B shall
be deleted in their entirety and replaced with the following:
6.6. ADDITIONAL PURCHASES OF COMMON STOCK.
In the event the Company and the Investors mutually determine that
the Company shall sell less than all of the Series B Notes or the
Series B Transaction is not approved by the Company's shareholders at
the Special Meeting, the Investors may acquire additional shares of
Common Stock in open-market purchases or otherwise ("PERMITTED
ACQUISITIONS") provided that (i) the Permitted Acquisitions are made no
later than six months after such determination or the Special Meeting,
(ii) the number of shares of Common Stock acquired pursuant to this
Section 6.6 shall not exceed the product of (a) 15,000,000 (subject to
appropriate adjustment for any stock split or similar event) multiplied
by (b) one minus the quotient of the aggregate Principal Amount at
Final Maturity of Series B Notes sold to the Investors divided by
$266,389,621, (iii) the aggregate consideration for such Permitted
Acquisitions does not exceed the difference between $100,000,000 and
the original issue discount value of the aggregate principal amount of
the Series B Notes sold by the Company to the Investors and (iv) the
Maximum Amount shall not exceed that number of shares which is equal to
46% of the sum of the then outstanding Common Stock plus the number of
shares issuable upon conversion of the issued and outstanding Notes.
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<PAGE> 133
6. Covenants. Sections 6.16 and 6.17 shall be inserted in the Agreement
and shall read as follows:
6.16. SHAREHOLDERS' MEETING.
The Company covenants and agrees that (i) its Board of Directors
will, as soon as reasonably practicable after the Closing Date, call a
special meeting of its shareholders (the "SPECIAL MEETING") to consider
and vote upon the sale of Series B Notes pursuant to the terms of this
Agreement (the "SERIES B TRANSACTION") and (ii) its Board of Directors
will duly recommend to the Company's shareholders that the Series B
Transaction and the transaction contemplated thereby be approved unless
the Board of Directors determines in good faith, after consultation
with and based upon the advice of its financial and legal advisors,
that such a recommendation would constitute a breach of its fiduciary
duties.
6.17. PROXY STATEMENT.
The Company covenants that the information with respect to the
Company, its officers and directors and its subsidiaries contained in
the definitive proxy material that will be distributed to the Company's
shareholders in connection with the Special Meeting (the "PROXY
STATEMENT") will not, and the Investors and WP covenant that the
information supplied by the Investors and WP and their representatives
for inclusion in the Proxy Statement will not, on the date the Proxy
Statement is first mailed to shareholders, contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they are made, not misleading
subject to the terms and conditions herein provided. The Company
further agrees to file with the Commission as soon as practicable after
the Closing Date the Proxy Statement with respect to the Special
Meeting to consider approval of the Series B Transaction, use its best
efforts to resolve as promptly as practicable any comments of the staff
of the Commission to such Proxy Statement and promptly thereafter mail
the Proxy Statement to its shareholders. The Proxy Statement shall
conform, at the date of mailing, as to form in all material respects
with applicable requirements of the Exchange Act, or any regulation or
rule issued thereunder.
7. General Terms of Notes. (a) The second sentence of Section 7.1A
shall be deleted in its entirety and replaced with the following sentences:
The aggregate Principal Amount at Final Maturity of the Series A Notes
to be issued hereunder is $266,389,621. The aggregate Principal Amount
at Final Maturity of the Series B Notes that may be issued hereunder is
$266,389,621.
(b) Section 7.1C is hereby deleted in its entirety and replaced with
the following:
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<PAGE> 134
C. The Notes shall be issued at an Issue Price of $375.39 per $1,000
Principal Amount at Final Maturity. There shall be no periodic payments
of interest on the Notes. The calculation of the accrual of Original
Issue Discount in the period during which each Note remains outstanding
shall be on an annual basis using a 360-day year composed of twelve
30-day months, and such accrual shall commence, with respect to the
Series A Notes, on the Closing Date and, with respect to the Series B
Notes, on each Series B Closing Date. In the event of the maturity,
conversion, purchase by the Company at the option of a Holder or
redemption of a Note, Original Issue Discount, if any, shall cease to
accrue on such Note, under the terms and subject to the conditions of
this Agreement and the Notes.
8. Purchase of Notes at the Option of the Holder. The introductory
clause of Section 7.4A is deleted in its entirety and replaced with the
following:
A. General. On the tenth anniversary of the Closing Date with
respect to the Series A Notes and each Series B Closing Date with
respect to the Series B Notes (the "PURCHASE DATE"), at the purchase
price specified in paragraph 6 of the Notes (the "PURCHASE PRICE"), a
Holder of Notes shall have the option to require the Company to
purchase any outstanding Notes held by such Holder, upon:
9. Adjustments to Conversion Rate. Section 7.7F is deleted in its
entirety and replaced with the following:
A. In the event the litigation referred to in Schedule 7.7 (the
"SUBJECT LITIGATION") is settled by the Company or a final judgment is
entered against the Company or the Company otherwise is liable to make
payments and the Adjustment Amount (as defined below) is greater than
zero, then the Conversion Rate shall be adjusted to the Conversion Rate
obtained by dividing $375.39 by the New Factor. For purposes hereof,
the "NEW FACTOR" shall be equal to the difference between (x) the
quotient obtained by dividing $375.39 by the Conversion Rate in effect
immediately prior to the adjustment and (y) the Adjustment Factor. For
purposes hereof, the "Adjustment Factor" shall equal the product of (A)
the "Note Factor", which is the quotient of (i) Adjustment Amount
divided by (ii) the sum of (a) 76,292,550 and (b) the number of shares
then issuable upon conversion of the issued and outstanding Notes (the
"Conversion Shares") times (B) the "Stock Factor" which is the sum of
(i) one plus (ii) the quotient of (1) the Permitted Acquisitions
divided by (2) the Conversion Shares. "ADJUSTMENT AMOUNT" is equal to
the difference between (x) the after-tax costs of all payments (whether
pursuant to indemnification arrangements or otherwise), which payments
shall include the fees and expenses (including direct and out-of-pocket
costs associated with the purchase of supplemental insurance policies)
payable by the Company with respect to the Subject Litigation, and (y)
an amount equal to the sum of (i) $10 million on a pre-tax basis and
(ii) the dollar amount of any benefits to the Company pursuant to any
supplemental insurance policies.
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<PAGE> 135
10. Definitions. (a) The following definitions shall be added to
Section 8.1 where appropriate:
"Conversion Shares" has the meaning specified in Section 7.7F.
"Note Factor" has the meaning specified in Section 7.7F.
"Proxy Statement" has the meaning specified in Section 6.17.
"Series A Notes" has the meaning specified in Section 1.1.
"Series B Notes" has the meaning specified in Section 1.1.
"Series B Closing Date" has the meaning specified in Section 1.3.
"Series B Transaction" has the meaning specified in Section 6.16.
"Special Meeting" has the meaning specified in Section 6.16.
"Stock Factor" has the meaning specified in Section 7.7F.
(b) Clause (iii) of the definition of "Maximum Amount" shall be deleted
in its entirety and replaced with the following:
(iii) during a period of six months from the earlier of (a) the
date the Company and the Investors mutually determine to sell less than
all the Series B Notes or (b) the date of the Special Meeting at which
the shareholders fail to approve the Series B Transaction, the number
of shares of Common Stock that the Investors may purchase in accordance
with the provisions of Section 6.6.
(c) The definition of Permitted Acquisitions shall be deleted in its
entirety and replaced with the following:
"Permitted Acquisitions" has the meaning specified in Section 6.6.
(d) The definition of Adjustment Threshold shall be deleted in its
entirety and replaced with the following:
"Adjustment Amount" has the meaning specified in Section 7.7.
(e) The definition of Special Adjustment Event shall be deleted in its
entirety.
11. Expenses. Section 17.1 is deleted in its entirety and replaced with
the following:
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<PAGE> 136
The Company shall pay up to $2,000,000 of the Investors'
expenses in connection with the transactions contemplated hereby,
including the fees and disbursements of counsel, provided such fees are
reasonable and the Investors submit verification of such expenses. With
the exception of the foregoing sentence, each of the parties hereto
shall pay its own expenses.
12. Amendment and Ratification. The parties agree that the Agreement is
hereby amended in accordance with the foregoing provisions of this Amendment.
The parties agree that the Agreement, as amended as provided herein, shall
remain in full force and effect.
13. Defined Terms. Capitalized terms used in this Amendment shall have
the same meanings as in the Agreement unless otherwise defined herein.
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<PAGE> 137
IN WITNESS WHEREOF, the parties hereto have signed this Amendment to
the Agreement as of the date first above written.
PHYCOR, INC.
By /s/ Joseph C. Hutts
---------------------------------------
Title: Chairman of the Board
Warburg, Pincus Equity Partners, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
--------------------------------
Warburg, Pincus NETHERLANDS Equity Partners I, C.V.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
--------------------------------
Warburg, Pincus NETHERLANDS Equity Partners II, C.V.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
--------------------------------
Warburg, Pincus NETHERLANDS Equity Partners III, C.V.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
--------------------------------
8
<PAGE> 138
For purposes of Section 6.5 only:
WARBURG, PINCUS & CO.
By: /s/ Joel Ackerman
--------------------------------
9
<PAGE> 139
APPENDIX B
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND THIS SECURITY MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT AND LAWS AND THE RESPECTIVE RULES AND
REGULATIONS THEREUNDER. THE TRANSFERABILITY OF THIS SECURITY IS ALSO SUBJECT TO
RESTRICTIONS CONTAINED IN A SECURITIES PURCHASE AGREEMENT WHICH AGREEMENT THE
COMPANY WILL FURNISH TO THE HOLDER OF THIS SECURITY UPON REQUEST.
PHYCOR, INC.
SERIES B ZERO COUPON CONVERTIBLE SUBORDINATED NOTE DUE _____
No. 1
<TABLE>
<S> <C>
Issue Date: ___________, 1999 Original Issue Discount: $624.61
Issue Price: $375.39 (for each $1,000 Principal Amount at Final Maturity)
(for each $1,000 Principal Amount at Final Maturity)
</TABLE>
PhyCor, Inc., a Tennessee corporation, promises to pay to
___________________ or registered assigns, on ______________, ____ the Principal
Amount of _______________________________________________ Dollars ($__________).
This Note shall not bear periodic interest. Original Issue
Discount shall accrue as specified on the other side of this Note. This Note is
convertible as specified on the other side of this Note.
Additional provisions of this Note are set forth on the other
side of this Note.
<PAGE> 140
IN WITNESS WHEREOF, PhyCor, Inc. has caused this instrument to
be duly executed under its corporate seal.
PHYCOR, INC.
By:
----------------------------------------
Title: Chairman and Chief Executive Officer
Attest:
By:
----------------------------------------
Title: Chief Financial Officer
[SEAL]
Dated: ______________, 1999
2
<PAGE> 141
PHYCOR, INC.
ZERO COUPON CONVERTIBLE SUBORDINATED NOTE DUE _______
1. INTEREST
This Note shall not bear periodic interest, except that if the
Principal hereof or any portion of such Principal is not paid when due (whether
upon acceleration pursuant to Section 9 of the Securities Purchase Agreement,
dated as of June 15, 1999, as amended August 23, 1999, between the Company and
the Investors identified therein (the "AGREEMENT"), upon the date set for
payment of the Redemption Price pursuant to paragraph 5 hereof, upon the date
set for payment of a Purchase Price or Change in Control Purchase Price pursuant
to paragraph 6 hereof or upon the Final Maturity of this Note), then in each
such case the overdue amount shall bear interest at the rate of 10.0% per annum,
compounded annually (to the extent that the payment of such interest shall be
legally enforceable), which interest shall accrue from the date such overdue
amount was due to the date payment of such amount, including interest thereon,
has been made or duly provided for. All such interest shall be payable on
demand. The accrual of such interest on overdue amounts shall be in lieu of, and
not in addition to, the continued accrual of Original Issue Discount.
The Original Issue Discount (the difference between the Issue
Price and the Principal Amount at Final Maturity of the Note) in the period
during which a Note remains outstanding, shall accrue at 6.75% per annum, on an
annual basis using a 360-day year composed of twelve 30-day months, commencing
on the Issue Date of this Note.
2. METHOD OF PAYMENT
Subject to the terms and conditions of the Agreement, the
Company shall make payments in respect of the Notes to the Persons who are
registered Holders of Notes at the close of business on the Business Day
preceding the Redemption Date or Final Maturity, as the case may be, or at the
close of business on a Purchase Date or Change in Control Purchase Date, as the
case may be. Holders must surrender Notes to the Company to collect such
payments in respect of the Notes. The Company shall pay cash amounts in money of
the United States that at the time of payment is legal tender for payment of
public and private debts. However, the Company may make such cash payments by
check payable in such money.
3. PAYING AGENT, CONVERSION AGENT AND REGISTRAR
The Company may appoint and change any paying agent,
conversion agent, registrar or co-registrar without notice. The Company or any
of its Subsidiaries may act as paying agent, conversion agent, registrar or
co-registrar.
4. SECURITIES PURCHASE AGREEMENT
The Notes were issued pursuant to the Agreement. Capitalized
terms used herein and not defined herein have the meanings ascribed thereto in
the Agreement. The Notes are subject to all the terms of the Agreement, and
Holders are referred to the Agreement for a statement of those terms.
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<PAGE> 142
The Notes are general unsecured obligations of the Company
limited to $__________ aggregate Principal Amount at Final Maturity. The
Agreement does not limit other indebtedness (secured or unsecured) of the
Company.
5. REDEMPTION AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Notes. The Notes are
redeemable as a whole, or from time to time in part, at any time at the option
of the Company at the Redemption Prices set forth below, provided that (i) the
Notes are not redeemable by the Company prior to ______________, and (ii) after
_____________ and prior to _____________, the Notes are not redeemable by the
Company unless the Closing Price for the Common Stock for a period of 10
consecutive Trading Days commencing 20 Trading Days before the date of the
Company's notice pursuant to Section 7.2 of the Agreement in respect of such
prepayment was at least 150% of the Conversion Price then in effect. For
purposes hereof, the term "Conversion Price" shall mean the Issue Price divided
by the Conversion Rate then in effect.
The table below shows Redemption Prices of a Note per $1,000
Principal Amount on the dates shown below and at Final Maturity, which prices
reflect accrued Original Issue Discount calculated to each such date. The
Redemption Price of a Note redeemed between such dates shall include an
additional amount reflecting the additional Original Issue Discount accrued
since the next preceding date in the table to but excluding the actual
Redemption Date.
<TABLE>
<CAPTION>
(1) (2) (3)
Accrued Original Redemption
Note Issue Discount Price
Redemption Date Issue Price at 6.75% (1) + (2)
<S> <C> <C> <C>
___________, 2002 $375.39 $ 81.26 $ 456.65
___________, 2003 $375.39 112.09 487.48
___________, 2004 $375.39 144.99 520.38
___________, 2005 $375.39 180.12 555.51
___________, 2006 $375.39 217.61 593.00
___________, 2007 $375.39 257.64 633.03
___________, 2008 $375.39 300.37 675.76
___________, 2009 $375.39 345.99 721.38
___________, 2010 $375.39 394.68 770.07
___________, 2011 $375.39 446.66 822.05
___________, 2012 $375.39 502.15 877.54
___________, 2013 $375.39 561.38 936.77
At Final Maturity $375.39 624.61 1,000.00
</TABLE>
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<PAGE> 143
6. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER; PURCHASE AT THE
OPTION OF THE HOLDER UPON A CHANGE IN CONTROL
(a) Subject to the terms and conditions of the Agreement, a
Holder of Notes shall have the option to require the Company to purchase the
Notes held by such Holder on the following Purchase Date and at the following
Purchase Price per $1,000 Principal Amount at Final Maturity, upon delivery of a
Purchase Notice containing the information set forth in the Agreement, from the
opening of business on the date that is 20 Business Days prior to the Business
Day prior to the Purchase Date until the close of business on the Purchase Date
and upon delivery of the Notes to the Company by the Holder as set forth in the
Agreement. Such Purchase Price may be paid, at the option of the Company, in
cash or by the issuance and delivery of shares of Common Stock of the Company,
or in any combination thereof. In the event the Company elects to purchase Notes
with cash, the Company may defer payment for a period of up to 90 days following
the Purchase Date (the date on which such deferred payment is made is herein
referred to as the "DEFERRED PURCHASE DATE"), in which case Original Issue
Discount shall continue to accrue through the Deferred Purchase Date.
<TABLE>
<CAPTION>
Purchase Date Purchase Price
- ------------- --------------
<S> <C>
$ 721.38
- -----------, ------
</TABLE>
Notes in denominations larger than $1,000 of Principal Amount
at Final Maturity may be purchased in part, but only in multiples of $1,000 of
Principal Amount at Final Maturity.
(b) If a Change in Control shall occur at any time prior to
the Final Maturity Date, each Holder of Notes shall have the right, at such
Holder's option and subject to the terms and conditions of the Agreement, to
require the Company to purchase such Holder's Notes on the Business Day that is
35 days after the date of the Change in Control for a Change in Control Purchase
Price equal to the Issue Price plus accrued Original Issue Discount to the
Change in Control Purchase Date, which Change in Control Purchase Price shall be
paid in cash. Notes in denominations larger than $1,000 of Principal Amount at
Final Maturity may be redeemed in part in connection with a Change in Control,
but only in multiples of $1,000 of Principal Amount at Final Maturity.
(c) Holders have the right to withdraw any Purchase Notice or
Change in Control Purchase Notice, as the case may be, by delivery to the
Company of a written notice of withdrawal in accordance with the provisions of
the Agreement.
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<PAGE> 144
(d) If cash sufficient to pay a Change in Control Purchase
Price or cash (and/or Common Stock if permitted under the Agreement) sufficient
to pay a Purchase Price, as the case may be, of all Notes or portions thereof to
be purchased as of the Purchase Date or the Change in Control Purchase Date, as
the case may be, is paid or delivered to the Holder following the Purchase Date
or the Change in Control Purchase Date, as the case may be, Original Issue
Discount ceases to accrue on such Notes (or portions thereof) on and after such
date, and the Holder thereof shall have no other rights as such (other than the
right to receive the Purchase Price or Change in Control Purchase Price, as the
case may be, upon surrender or such Notes).
7. NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY
Notice of redemption at the option of the Company shall be
mailed at least 30 days but not more than 60 days before the Redemption Date to
each Holder of Notes to be redeemed at the Holder's registered address. If cash
sufficient to pay the Redemption Price of all Notes (or portions thereof) to be
purchased is paid or delivered to the Holder prior to or on the Redemption Date,
then, immediately after such Redemption Date, Original Issue Discount shall
cease to accrue on such Notes (or portions thereof). Notes in denominations
larger than $1,000 Principal Amount at Final Maturity may be redeemed in part
but only in multiples of $1,000 or Principal Amount at Final Maturity.
8. RANKING
The Notes shall be direct, unsecured obligations of the
Company and shall be subordinated to all Senior Indebtedness of the Company to
the extent set forth in the Agreement.
9. CONVERSION
Subject to the next two succeeding sentences, a Holder of a
Note may convert this Note for Common Stock of the Company at any time on or
before the close of business on __________, _____. If this Note is called for
redemption, the Holder may convert it at any time before the close of business
on the Redemption Date. A Note in respect of which a Holder has delivered a
notice of exercise of the option to require the Company to purchase such Note or
to purchase such Note in the event of a Change in Control may be converted only
if the notice of exercise is withdrawn in accordance with the terms of the
Agreement.
The initial Conversion Rate is 56.280 shares of Common Stock
per $1,000 Principal Amount at Final Maturity, subject to adjustment in certain
events described in the Agreement. The Company shall deliver cash or a check in
lieu of any fractional share of Common Stock.
To convert this Note a Holder must (1) complete and manually
sign the conversion notice on the back of this Note (or complete and manually
sign a facsimile of such notice) and deliver such notice to the Company at the
office maintained by the Company for such purpose, (2) surrender this Note to
the Company, (3) furnish appropriate endorsements and transfer documents if
required by the Company and (4) pay any transfer or similar tax, if required.
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<PAGE> 145
A Holder may convert a portion of this Note if the Principal
Amount at Final Maturity of such portion is $1,000 or a multiple of $1,000. No
payment or adjustment shall be made for dividends on the Common Stock except as
provided in the Agreement. On conversion of this Note, that portion of accrued
Original Issue Discount attributable to the period from the Issue Date to the
Conversion Date with respect to the converted portion of this Note shall not be
canceled, extinguished or forfeited, but rather shall be deemed to be paid in
full to the Holder thereof through the delivery of the Common Stock (together
with any cash payment in lieu of fractional shares) in exchange for the portion
of this Note being converted pursuant to the terms hereof.
10. DENOMINATIONS; TRANSFER; EXCHANGE
The Notes are in registered form, without coupons, in
denominations of $1,000 of Principal Amount at Final Maturity and multiplies of
$1,000. A Holder may transfer or convert Notes in accordance with the Agreement.
The Company may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Agreement. The Company need not transfer or exchange any
Notes selected for redemption (except, in the case of a Notes to be redeemed in
part, the portion of the Note not to be redeemed) or any Notes in respect of
which a Purchase Notice or Change in Control Purchase Notice has been given and
not withdrawn (except, in the case of a Note to be purchased in part, the
portion of the Note not to be purchased) or any Notes for a period of 15 days
before any selection of Notes to be redeemed.
11. PERSONS DEEMED OWNERS
The registered Holder of this Note may be treated as the owner
of this Note for all purposes.
12. AMENDMENT; WAIVER
Subject to certain exceptions set forth in the Agreement, (i)
the Agreement may be amended with the written consent of the Majority Holders
and (ii) certain defaults or noncompliance with certain provisions may be waived
with the written consent of the Majority Holders.
13. DEFAULTS AND REMEDIES
Under the Agreement, Events of Default include (i) a default
by the Company in the payment of any principal (including accrued Original Issue
Discount), Redemption Price, Purchase Price, or Change in Control Purchase Price
due with respect to the Notes; (ii) a default by the Company or any Subsidiary
with respect to its obligation to pay Indebtedness for borrowed money (other
than Indebtedness which is non-recourse to the Company or the Subsidiary), which
default shall have resulted in the acceleration of, or be a failure to pay at
final maturity, Indebtedness aggregating more than $10 million; (iii) a failure
to perform any other covenant or warranty of the Company herein or in the
Agreement, which continues for 30 days after written notice as provided in the
Agreement; (iv) final judgments or orders are rendered against the Company or
any of its Subsidiaries which require the payment by the Company or any of its
Subsidiaries of an amount (to the
7
<PAGE> 146
extent not covered by insurance) in excess of $10 million and such judgments or
orders remain unstayed or unsatisfied for more than 60 days and are not being
contested in good faith by appropriate proceedings; and (v) any event described
in Sections 9.1E or 9.1F of the Agreement with respect to the Company or any of
its Subsidiaries. If an Event of Default occurs and is continuing, the Holders
of at least 25% in aggregate Principal Amount of the Notes at the time
outstanding, may declare the Issue Price and accrued Original Issue Discount of
all the Notes to be due and payable immediately. Certain events of bankruptcy or
insolvency are Events of Default which shall result in the Notes being declared
due and payable immediately upon the occurrence of such Events of Default.
14. NO RECOURSE AGAINST OTHERS
A director, officer or employee, as such, of the Company or
any subsidiary of the Company or any stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Notes or the
Agreement or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Note, each Holder waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Notes.
15. GOVERNING LAW
The Agreement and the Notes shall be governed by and construed
in accordance with the laws of the State of New York.
The Company shall furnish to any Holder upon written request
and without charge a copy of the Agreement. Requests may be made to:
PhyCor, Inc.
30 Burton Hills Boulevard
Suite 400
Nashville, TN 37215
Attn: General Counsel
8
<PAGE> 147
CONVERSION NOTICE
To: PhyCor, Inc.
The undersigned registered holder of this Note hereby
exercises the option to convert this Note, or portion hereof (which is $1,000
Principal Amount at Final Maturity or a multiple thereof) designated below, for
shares of Common Stock of PhyCor, Inc. in accordance with the terms of the
Agreement referred to in this Note, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Note representing any unconverted principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this Note
not converted are to be issued in the name of a Person other than the
undersigned, the undersigned shall pay all transfer taxes payable with respect
thereto.
This notice shall be deemed to be an irrevocable exercise of
the option to convert this Note.
Dated:
--------------------------------
--------------------------------
Signature(s)
Fill in for registration of
shares if to be delivered,
and Notes if to be issued
other than to and in the
name of registered holder:
- ------------------------------
(Name) Principal Amount at Final
Maturity to be converted (if
less than all):
- ------------------------------
(Street Address) $__,000
- ------------------------------
(City, state and zip code) --------------------------------
Social Security or Other
Please print name and address Taxpayer Number
9
<PAGE> 148
CHANGE IN CONTROL PURCHASE NOTICE
To: PHYCOR, INC.
The undersigned registered holder of this Note hereby
acknowledges receipt of a notice from PhyCor, Inc. (the "Company") as to the
occurrence of a Change in Control with respect to the Company and requests and
instructs the Company to repurchase this Note, or the portion hereof (which is
$1,000 Principal Amount at Final Maturity or a multiple thereof) designated
below, in accordance with the terms of the Agreement referred to in this Note
and directs that the check in payment for this Note or the portion thereof and
any Notes representing any unrepurchased principal amount hereof, be issued and
delivered to the registered holder hereof unless a different name has been
indicated below. If any portion of this Note not repurchased is to be issued in
the name of a Person other than the undersigned, the undersigned shall pay all
transfer taxes payable with respect thereto.
Dated:
--------------------------------
Signature(s)
Fill in for registration of
shares if to be delivered,
and Notes if to be issued
other than to and in the
name of registered holder:
- ------------------------------
(Name) Principal Amount at Final
Maturity to be converted (if
less than all):
- ------------------------------
(Street Address) $__,000
- ------------------------------
(City, state and zip code) --------------------------------
Social Security or Other
Please print name and address Taxpayer Number
10
<PAGE> 149
ASSIGNMENT
For value received __________ hereby sell(s), assign(s) and
transfer(s) unto ________________ (Please insert social security or other
Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints ______________________ attorney to transfer
the said Note on the books of the Company, with full power of substitution in
the premises.
Dated:
-----------------------------------
Signature(s)
Signature(s) must be guaranteed by
a commercial bank or trust company
or a member firm of a major stock
exchange if shares of Common Stock
are to be issued, or Notes to be
delivered, other than to or in the
name of the registered holder.
-----------------------------------
Signature Guarantee
NOTICE: The above signatures of the holder(s) hereof must correspond with the
name as written upon the face of the Note in every particular without alteration
or enlargement or any change whatever.
11
<PAGE> 150
APPENDIX C
CONFORMED COPY
PHYCOR, INC.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of September 3, 1999,
among the investors listed on Schedule I hereto (the "INVESTORS") and PhyCor,
Inc., a Tennessee corporation (the "COMPANY").
R E C I T A L S
WHEREAS, the Investors have, pursuant to the terms of the
Securities Purchase Agreement, dated as of June 15, 1999, as amended by the
Amendment to Securities Purchase Agreement, dated as of August 23, 1999, by and
among the Company and the Investors (the "PURCHASE AGREEMENT"), agreed to
purchase the Company's Zero Coupon Convertible Subordinated Notes due 2014 (the
"NOTES"); and
WHEREAS, the Notes are convertible into shares of Common
Stock, no par value, of the Company; and
WHEREAS, the Company has agreed, as a condition precedent to
the Investors' obligations under the Purchase Agreement, to grant the Investors
certain registration rights; and
WHEREAS, the Company and the Investors desire to define the
registration rights of the Investors on the terms and subject to the conditions
herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms have the respective
meaning set forth below:
Commission: shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act;
Exchange Act: shall mean the Securities Exchange Act of 1934,
as amended;
Holder: shall mean any holder of Registrable Securities as of
the date hereof and any Permitted Transferee;
Initiating Holder: shall mean any Holder or Holders who in the
aggregate are Holders of more than 50% of the then outstanding Registrable
Securities;
<PAGE> 151
Permitted Transferee: shall mean any Person to whom at least
2,000,000 shares of Common Stock (or Notes convertible into such number of
shares) are transferred from any Holder in accordance with, and without
violating the terms and conditions of, the Purchase Agreement, who in each case,
agrees in writing to be bound by all obligations of Holders contained herein.
Person: shall mean an individual, partnership, joint-stock
company, corporation, trust or unincorporated organization, and a government or
agency or political subdivision thereof;
register, registered and registration: shall mean to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
Registrable Securities: shall mean (A) shares of Common Stock
issuable upon conversion of the Notes, (B) any additional shares of Common Stock
acquired by the Investors and (C) any stock of the Company issued as a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the shares Common Stock referred to in clause (A) or (B);
Registration Expenses: shall mean all expenses incurred by the
Company in compliance with Sections 2(a) and (b) hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, fees and expenses of one counsel for
all the Holders (in an amount not to exceed $15,000) which shall initially be
Willkie Farr & Gallagher, but which may, upon written notice to the Company by
the Investors be another nationally recognized law firm experienced in
securities law matters, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company);
Security, Securities: shall have the meaning set forth in
Section 2(1) of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as
amended; and
Selling Expenses: shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for each of the Holders other than fees and
expenses of one counsel for all the Holders in an amount not to exceed $15,000.
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<PAGE> 152
2. REGISTRATION RIGHTS
(a) Requested Registration.
(i) Request for Registration. If the Company shall
receive from an Initiating Holder at any time after 180 days from the
date hereof a written request that the Company effect any registration
with respect to all or a part of the Registrable Securities, the
Company , subject to the provisions of Sections 2(a)(i)(B) and 2(e)
below, will:
(A) promptly give written notice of the proposed
registration, qualification or compliance to all other
Holders; and
(B) as soon as reasonably practicable, use its
reasonable best efforts to effect such registration
(including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all
or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written
request received by the Company within 10 business days after
the Holders receive written notice from the Company under
Section 2(a)(i)(A) above; provided that the Company shall not
be obligated to effect, or take any action to effect, any such
registration pursuant to this Section 2(a):
(w) within 180 days of the effective date of
any registration statement; provided that the Holders were
entitled to include Registrable Securities in such
registration pursuant to Section 2(b);
(x) In any particular jurisdiction in which
the Company would be required to execute a general consent to
service of process in effecting such registration,
qualification or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be
required by the Securities Act or applicable rules or
regulations thereunder;
(y) After the Company has effected two (2)
such registrations pursuant to this Section 2(a) and such
registrations have been declared or ordered effective; or
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<PAGE> 153
(z) If the Registrable Securities requested
by all Holders to be registered pursuant to such request do
not have an anticipated aggregate public offering price
(before any underwriting discounts and commissions) of not
less than $30,000,000 as determined by the Company in good
faith and with reasonableness in active consultation with the
Investors and the investment bankers and other financial
advisors and each of the Company and the Investors (as
applicable).
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2(a)(ii) below,
include other securities of the Company which are held by Persons who, by virtue
of agreements with the Company existing on or after the date hereof, are
entitled to include their securities in any such registration ("OTHER
STOCKHOLDERS").
The registration rights set forth in this Section 2 may be
assigned, in whole or in part, to any Permitted Transferee.
(ii) Underwriting. If the Initiating Holders intend
to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of
their request made pursuant to Section 2(a).
If Other Stockholders request such inclusion, the Holders
shall offer to include the securities of such Other Stockholders in the
underwriting and may condition such offer on their acceptance of the further
applicable provisions of this Section 2. The Holders whose shares are to be
included in such registration and the Company shall (together with all Other
Stockholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by the Company
and reasonably acceptable to the Initiating Holders. Notwithstanding any other
provision of this Section 2(a), if the representative advises the Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, the securities of the Company held by Other Stockholders shall
be excluded from such registration to the extent so required by such limitation.
If, after the exclusion of such shares, further reductions are still required,
the number of shares included in the registration by each Holder shall be
reduced on a pro rata basis (based on the number of shares held by such Holder),
by such minimum number of shares as is necessary to comply with such request. No
Registrable Securities or any other securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any Other Stockholder who has requested inclusion in such
registration as provided above disapproves of the terms of the
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<PAGE> 154
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders. The securities so
withdrawn shall also be withdrawn from registration. If the underwriter has not
limited the number of Registrable Securities or other securities to be
underwritten, the Company and officers and directors of the Company may include
its or their securities for its or their own account in such registration if the
representative so agrees and if the number of Registrable Securities and other
securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
(b) Incidental Registration.
(i) If the Company shall determine to register any of its
equity securities either for its own account or for the account of
Other Stockholders, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a
Commission Rule 145 transaction, or a registration on any registration
on Form S-8 or S-4 or any equivalent form then in effect, or any
registration form which does not permit secondary sales or does not
include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
(A) promptly give to each of the Holders a written
notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other
state securities laws); and
(B) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by
the Holders within ten (10) days after receipt of the written
notice from the Company described in clause (i) above, except
as set forth in Section 2(b)(ii) below. Such written request
may specify all or a part of the Holders' Registrable
Securities.
(ii) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise each of the Holders as a part
of the written notice given pursuant to Section 2(b)(i)(A). In such
event, the right of each of the Holders to registration pursuant to
this Section 2(b) shall be conditioned upon such Holders' participation
in such underwriting and the inclusion of such Holders' Registrable
Securities in the underwriting to the extent provided herein. The
Holders whose shares are to be included in such registration shall
(together with the
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<PAGE> 155
Company and the Other Stockholders distributing their securities
through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or
underwriters selected for underwriting by the Company. Notwithstanding
any other provision of this Section 2(b), if the representative advises
the Company in writing that marketing factors require a limitation on
the number of shares to be underwritten, then the securities of the
Company held by the Holders shall be excluded from such registration to
the extent so required by such limitation. The Company shall so advise
all holders of securities requesting registration. If any of the
Holders or any officer, director or Other Stockholder disapproves of
the terms of any such underwriting, he may elect to withdraw therefrom
by written notice to the Company and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c) Management of Offerings. Any registration and related
offering shall be managed by the Company; the Company shall have the power to
select the managing underwriter(s) (which selection shall be reasonably
acceptable to the Initiating Holders in the case of registrations under Section
2(a)) for such offering, and shall in consultation with the managing
underwriter(s) have the power to determine the offering price, the underwriting
discounts and commissions, the terms of the underwriting agreement, the timing
of the registration and related offering, counsel to the Company, and all other
administrative matters related to the registration and related offering.
(d) Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Section 2 shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered; provided, however,
that if, as a result of the withdrawal of a request for registration by any of
the Holders, as applicable, the registration statement does not become
effective, the Holders and Other Stockholders requesting registration may elect
to bear the Registration Expenses (pro rata on the basis of the number of their
shares so included in the registration request, or on such other basis as such
Holders and Other Stockholders may agree), in which case such registration shall
not be counted as a registration pursuant to Section 2(a)(i)(B)(y).
(e) Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 2, the Company will keep the
Holders, as applicable, advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company will:
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<PAGE> 156
(i) keep such registration effective for a period of
one hundred twenty (120) days or until the Holders, as applicable, have
completed the distribution described in the registration statement
relating thereto, whichever first occurs; provided, however, that (A)
such 120-day period shall be extended for a period of time equal to the
period during which the Holders, as applicable, refrain from selling
any securities included in such registration in accordance with
provisions in Section 2(h) hereof; and (B) in the case of any
registration of Registrable Securities on Form S-3 which are intended
to be offered on a continuous or delayed basis, such 120-day period
shall be extended until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act,
permits an offering on a continuous or delayed basis, and provided
further that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit, in lieu of filing
a post-effective amendment which (y) includes any prospectus required
by Section 10(a) of the Securities Act or (z) reflects facts or events
representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (y) and (z) above to be
contained in periodic reports filed pursuant to Section 12 or 15(d) of
the Exchange Act in the registration statement;
(ii) furnish such number of prospectuses and other
documents incident thereto as each of the Holders, as applicable, from
time to time may reasonably request;
(iii) notify each Holder of Registrable Securities
covered by such registration at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the
happening of any event of which it has knowledge as a result of which
the prospectus included in such registration statement, as then in
effect, contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing; and
(iv) furnish, on the date that such Registrable
Securities are delivered to the underwriters for sale, upon written
request by the underwriters if such securities are being sold through
underwriters or, subject to applicable rules and guidelines under the
Securities Act if such securities are not being sold through
underwriters, on the date that the registration statement with respect
to such securities becomes effective, (1) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to
underwriters in comparable underwritten public offerings, addressed to
the underwriters, if any, and
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<PAGE> 157
to the Holders participating in such registration and (2) a letter,
dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily
given by independent certified public accountants to underwriters in
comparable underwritten public offerings, addressed to the
underwriters, if any, and if permitted by applicable accounting
standards, to the Holders participating in such registration.
(f) Company Blackouts. Subject to the next sentence of this
paragraph, the Company shall be entitled to postpone, for a reasonable period of
time, the filing or effectiveness of, or suspend the rights of the Holders of
the Registrable Securities to make sales pursuant to any registration statement
otherwise required to be prepared, filed and kept effective by it under this
Agreement; provided, however, that (1) the duration of such postponement or
suspension may not exceed 90 days after the date of the determination of the
Board referred to in the next sentence and (2) the Company shall be entitled to
only one such postponement or suspension in any 365-day period. Such
postponement or suspension may only be effected if the Board determines in good
faith that the filing or effectiveness of, or sales pursuant to, such
registration statement would have or cause a materially adverse impact or effect
on the Company or the market perception of the Company, materially impede, delay
or interfere with any significant financing, offer or sale of securities,
acquisition, corporate reorganization or other significant transaction involving
the Company or any of its affiliates or require disclosure of material
information which the Company has a bona fide business purpose for preserving as
confidential. If the Company shall so postpone the filing or effectiveness of,
or suspend the rights of the Holders of the Registrable Securities to make sales
pursuant to, a registration statement, it shall, as promptly as possible, notify
the Holders of the Registrable Securities of such determination and the Holders
of the Registrable Securities shall (y) have the right, in the case of a
postponement of the filing or effectiveness of a registration statement to
withdraw the request for registration by giving written notice to the Company
within 10 days after receipt of such notice or (z) in the case of a suspension
of the right to make sales, receive an extension of the registration period
referred to in Section 2(f)(i) hereof equal to the number of days of the
suspension.
(g) Indemnification.
(i) In the event of a registration of any Registrable
Securities pursuant to this Agreement, the Company will indemnify each of the
Holders, as applicable, each of its officers, directors and partners, and each
person who controls each of the Holders within the meaning of the Securities
Act, with respect to each registration which has been effected pursuant to this
Section 2 (but, in the case of an underwriter or a controlling
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<PAGE> 158
person of an underwriter, only if such underwriter indemnifies the persons
mentioned in subdivision (ii) of this Section 2(g) hereof in a manner set forth
therein), against all claims, losses, damages and liabilities (or actions in
respect thereof) caused by any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering circular or other document
(including any related registration statement, notification or the like)
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each of the Holders, each of its officers, directors and
partners, and each person controlling each of the Holders, each such underwriter
and each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable to any such persons in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information furnished to the
Company by the Holders or underwriter and stated to be specifically for use
therein.
(ii) Each of the Holders will, if Registrable Securities held
by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter, each Other Stockholder and each of their
officers, directors, and partners, and each person controlling such Other
Stockholder against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document made by such Holder,
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements by such Holder therein
not misleading, and will reimburse the Company and such Other Stockholders,
directors, officers, partners, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) was made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use therein; provided,
however, that the obligations of each of the Holders
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<PAGE> 159
hereunder shall be limited to an amount equal to the net proceeds to such Holder
of securities sold as contemplated herein.
(iii) Each party entitled to indemnification under this
Section 2(g) (the "INDEMNIFIED PARTY") shall give notice to the party required
to provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld) and the Indemnified Party
may participate in such defense at such party's expense (unless the Indemnified
Party shall have reasonably concluded that there may be a conflict of interest
between the Indemnifying Party and the Indemnified Party in such action, in
which case the fees and expenses of counsel shall be at the expense of the
Indemnifying Party), and provided further that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 2 unless the Indemnifying Party is
materially prejudiced thereby. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with the defense of such claim and litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 2(g)
is held by a court of competent jurisdiction (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or expense
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue (or alleged untrue) statement of a material fact or the
omission (or alleged
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<PAGE> 160
omission) to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
contemplated by this Agreement are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling.
(vi) The foregoing indemnity agreement of the Company and
Holders is subject to the condition that, insofar as they relate to any loss,
claim, liability or damage made in a preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the Commission at the time the
registration statement in question becomes effective or the amended prospectus
filed with the Commission pursuant to Commission Rule 424(b) (the "FINAL
PROSPECTUS"), such indemnity or contribution agreement shall not inure to the
benefit of any underwriter or Holder if a copy of the Final Prospectus was
furnished to the underwriter and was not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such action is required
by the Securities Act.
(h) Information by the Holders. Each of the Holders holding
securities included in any registration shall promptly furnish to the Company
any and all information regarding such Holder and the distribution proposed by
such Holder as the Company may reasonably request in writing and as may be
required to be disclosed in connection with any registration, qualification or
compliance referred to in this Section 2 in order to make any information
previously furnished to the Company by such Holders not misleading and any other
information regarding such Holders and the distribution of such Holders'
securities as may be required to be disclosed in connection with such
registration. Any sale of securities by any Holder in connection with any
registration, qualification or compliance referred to in this Section 2 shall
constitute a representation and warranty by such Holder that the information
relating to such Holder and its plan of distribution is as set forth in the
Prospectus or other applicable document delivered by such Holder in connection
with such disposition and does not include any untrue statement of a material
fact or omit to state a material fact required to be sated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
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(i) Rule 144 Reporting.
With a view to making available the benefits of certain rules
and regulations of the Commission which may permit the sale of restricted
securities to the public without registration, the Company agrees to:
(i) cause public information with respect to the
Company to be available as those terms are understood and defined in
Rule 144 under the Securities Act ("RULE 144");
(ii) use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act at any time after
it has become subject to such reporting requirements; and
(iii) so long as the Holder owns any Registrable
Securities, furnish to the Holder upon request a written statement by
the Company as to its compliance with the reporting requirements of
Rule 144 and of the Securities Act and the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and such other
reports and documents so filed as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing
the Holder to sell any such securities without registration.
(j) "Market Stand-off" Agreement. Each of the Holders agrees,
if requested by the Company and an underwriter of equity securities of the
Company, not to sell or otherwise transfer or dispose of any Registrable
Securities held by such Holder during the 180-day period following the effective
date of a registration statement of the Company filed under the Securities Act,
provided that all executive officers and directors of the Company enter into
similar agreements.
If requested by the underwriters, the Holders shall execute a
separate agreement to the foregoing effect. The Company may impose stop-transfer
instructions with respect to the shares (or securities) subject to the foregoing
restriction until the end of said 180-day period. The provisions of this Section
2(j) shall be binding upon any transferee who acquires Registrable Securities.
(k) Termination. The registration rights set forth in this
Section 2 shall not be available to any Holder if, in the opinion of counsel to
the Company, all of the Registrable Securities then owned by such Holder could
be sold in any 90-day period pursuant to Rule 144 (without giving effect to the
provisions of Rule 144(k)).
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<PAGE> 162
3. MISCELLANEOUS
(a) Directly or Indirectly. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee applicable to
contracts made and to be performed entirely within such State.
(c) Section Headings. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(d) Notices.
(i) All communications under this Agreement shall be in
writing and shall be delivered by hand or facsimile or mailed by
overnight courier or by registered or certified mail, postage prepaid:
(A) if to the Company, to PhyCor, Inc., 30 Burton
Hills Boulevard, Suite 400, Nashville, Tennessee 37215,
Attention: General Counsel, facsimile: (615) 665-8122, or at
such other address as it may have furnished in writing to the
Investors;
(B) if to the Investors, at the address or facsimile
number listed on Schedule I hereto, or at such other address
or facsimile number as may have been furnished the Company in
writing.
(ii) Any notice so addressed shall be deemed to be given:
if delivered by hand or facsimile, on the date of such delivery; if
mailed by courier, on the first business day following the date of such
mailing; and if mailed by registered or certified mail, on the third
business day after the date of such mailing.
(e) Reproduction of Documents. This Agreement and all
documents relating thereto, including, without limitation, any consents, waivers
and modifications which may hereafter be executed may be reproduced by the
Investor by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and the Investors may destroy any original
document so reproduced. The parties hereto agree and stipulate that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Investors in the
regular course of business) and that any enlargement, facsimile or further
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<PAGE> 163
reproduction of such reproduction shall likewise be admissible in evidence.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties.
(g) Entire Agreement; Amendment and Waiver. This Agreement
constitutes the entire understanding of the parties hereto and supersedes all
prior understandings, whether written or oral, among such parties. This
Agreement may be amended, and the observance of any term of this Agreement may
be waived, with (and only with) the written consent of the Company and the
Investors holding a majority of the then outstanding Registrable Securities.
(h) Severability. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
(i) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
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<PAGE> 164
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first set forth above.
PHYCOR, INC.
By: /s/ Joseph C. Hutts
------------------------------------------
Name: Joseph C. Hutts
Title: Chief Executive Officer
INVESTORS:
WARBURG, PINCUS EQUITY PARTNERS, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
------------------------------------------
Name: Joel Ackerman
Title: Partner
WARBURG, PINCUS NETHERLANDS EQUITY
PARTNERS I, C.V.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
------------------------------------------
Name: Joel Ackerman
Title: Partner
WARBURG, PINCUS NETHERLANDS EQUITY
PARTNERS II, C.V.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
------------------------------------------
Name: Joel Ackerman
Title: Partner
WARBURG, PINCUS NETHERLANDS EQUITY
PARTNERS III, C.V.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Joel Ackerman
------------------------------------------
Name: Joel Ackerman
Title: Partner
<PAGE> 165
SCHEDULE I
NAMES OF INVESTORS
NAME AND ADDRESS OF INVESTOR
Warburg, Pincus Equity Partners, L.P.
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
Fax: 212-878-9361
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Steven J. Gartner
Fax: 212-728-8111
Warburg, Pincus Netherlands Equity Partners I, C.V..
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
Fax: 212-878-9361
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Steven J. Gartner
Fax: 212-728-8111
Warburg, Pincus Netherlands Equity Partners II, C.V.
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
Fax: 212-878-9361
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Steven J. Gartner
Fax: 212-728-8111
<PAGE> 166
Warburg, Pincus Netherlands Equity Partners III, C.V.
466 Lexington Avenue
New York, NY 10017
Attention: Patrick T. Hackett
Fax: 212-878-9361
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Steven J. Gartner
Fax: 212-728-8111
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<PAGE> 167
EXHIBIT D
September 2, 1999
Board of Directors
PhyCor, Inc.
30 Burton Hills Boulevard
Suite 400
Nashville, Tennessee
Attention: Joseph C. Hutts
Chairman of the Board and Chief Executive Officer
Gentlemen:
PhyCor, Inc. (the "Company") proposes to enter into a Securities
Purchase Agreement (the "Agreement") with Warburg, Pincus Equity Partners, L.P.
and certain of its affiliates (collectively, "Warburg") pursuant to which
Warburg will agree to purchase, subject to certain conditions specified in the
Agreement, Zero Coupon Convertible Subordinated Notes due 2014 of the Company
(the "Notes") for an aggregate purchase price of $200,000,000 (the "Purchase").
We understand that the Company and Warburg also propose to enter into a
registration rights agreement (the "Registration Rights Agreement") with respect
to the Company Common Stock, no par value (the "Common Stock"), issuable upon
conversion of the Notes as contemplated by the Agreement.
You have asked us whether, in our opinion, the proposed consideration
to be paid to the Company in the Purchase is fair to the Company from a
financial point of view.
In arriving at the opinion set forth below, we have, among other
things:
1. Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December
31, 1998 and the Company's Forms 10-Q and the related
unaudited financial information for the quarterly periods
ending March 31, 1999 and June 30, 1999;
2. Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and
prospects of the Company furnished to us by the Company;
3. Conducted discussions with members of senior management of the
Company concerning its business and prospects;
4. Reviewed the historical market prices and trading activity for
the Company and compared them with those of certain publicly
traded companies which we deemed to be reasonably similar to
the Company;
<PAGE> 168
Board of Directors
September 2, 1999
Page 2
5. Compared the proposed financial terms of the Purchase with the
financial terms of certain other transactions which we deemed
to be relevant;
6. Considered certain pro forma financial effects of the
Purchase;
7. Reviewed the Agreement dated June 15, 1999 and the amendment
to the Agreement dated August 23, 1999;
8. Reviewed the Registration Rights Agreement dated June 15,
1999; and
9. Reviewed such other financial studies and analyses and
performed such other investigations and taken into account
such other matters as we deemed necessary.
In preparing our opinion, we have relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company, and we have not independently verified such information or
undertaken an independent appraisal of the assets or liabilities of the Company.
With respect to the financial forecasts furnished by the Company, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Company's management as to the expected
future financial performance of the Company.
In the ordinary course of our trading, brokerage and financing
activities, Merrill Lynch, Pierce, Fenner & Smith Incorporated or its affiliates
may at any time hold long or short positions, and may trade or otherwise effect
transactions, for our own account or the accounts of customers, in equity
securities of the Company.
We have acted as financial advisor to the Board of Directors of the
Company in connection with the Purchase and will receive a fee for our services
upon the closing of the Purchase.
It is understood that this letter has been prepared solely for the
confidential use of the Board of Directors of the Company in connection with its
consideration of the Purchase and will not be reproduced, summarized, described
or referred to or given to any other person without Merrill Lynch's prior
consent.
On the basis of, and subject to the foregoing, we are of the opinion
that the proposed consideration to be paid to the Company pursuant to the
Purchase is fair to the Company from a financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE> 169
APPENDIX E
PHYCOR, INC.
SPECIAL MEETING OF SHAREHOLDERS
___________________, 1999
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF PHYCOR, INC.
The undersigned hereby appoints Joseph C. Hutts and Thompson S. Dent,
or either of them, with full power of substitution, as proxies of the
undersigned to vote all shares of common stock, no par value per share, of
PhyCor, Inc. ("PhyCor") owned by the undersigned at the special meeting of
shareholders of PhyCor to be held at ___________________
__________________________, Nashville, Tennessee on _______________, 1999, at
10:00 a.m., Central Time, and any adjournment of the special meeting on the
following matter as indicated below and such other business as may properly come
before the meeting:
1. To approve the issuance of $266,389,621 aggregate principal
amount at final maturity of PhyCor's Series B Zero Coupon
Convertible Subordinated Notes due 2014 to Warburg, Pincus Equity
Partners, L.P. and certain affiliated entities (the "Investors")
pursuant to a Securities Purchase Agreement dated June 15, 1999,
as amended August 23, 1999, between PhyCor and the Investors.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(CONTINUED AND TO BE DATED AND SIGNED ON OTHER SIDE)
2. In their discretion, to act upon any matters incidental to the
foregoing and such other business as may properly come before the
special meeting.
<PAGE> 170
(CONTINUED FROM OTHER SIDE)
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted FOR Item 1. Any holder who wishes to withhold the
discretionary authority referred to in Item 2 above should mark a line through
the entire Item. Discretionary authority and votes against the Notes Proposal
will not be used to vote in favor of adjournment.
Receipt of the Proxy Statement dated ______________, 1999, is hereby
acknowledged.
Dated: __________, 1999
_________________________________________
Signature(s)
(Please sign exactly and as fully as your name
appears on your stock certificate. If shares are
held jointly, each shareholder should sign.)
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY, USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
