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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-13074
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STERLING HEALTHCARE GROUP, INC.
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(Exact Name of Registrant as Specified in its Charter)
Florida 65-0337205
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6855 Red Road, Suite 400
Coral Gables, Florida 33134
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 305-665-1911
------------
Indicate by check mark whether the Registrant has: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of May 10, 1996, the Company had a total of 7,964,977 shares of Common Stock
outstanding, par value $.0001 per share.
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STERLING HEALTHCARE GROUP, INC.
TABLE OF CONTENTS
<TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996 (unaudited) and December 31, 1995 .................. 1
Condensed Consolidated Statements of Operations - three
months ended March 31, 1996 and 1995 (unaudited) .................. 2
Condensed Consolidated Statements of Cash Flows - three
months ended March 31, 1996 and 1995 (unaudited) .................. 3
Notes to Consolidated Condensed Financial Statements (unaudited)... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 4
PART II.OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 7
Item 2. Changes in Securities ............................................. 7
Item 3. Defaults Upon Senior Securities.................................... 7
Item 4. Submission of Matters to Vote of Security Holders ................. 7
Item 5. Other Information ................................................. 7
Item 6. Exhibits and Reports on Form 8-K .................................. 7
SIGNATURES ................................................................ 8
</TABLE>
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STERLING HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
As of March 31, 1996 and December 31, 1995
<TABLE>
<CAPTION>
ASSETS
March 31, 1996 December 31, 1995
(unaudited)
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CURRENT ASSETS:
Cash and cash equivalents $ - $ 2,071,173
Accounts receivable - net 31,526,167 29,858,846
Subsidy and other receivables 2,916,503 2,972,859
Deferred tax assets 2,453,100 2,370,074
Income taxes receivable - 1,032,096
Prepaid expenses 987,895 262,341
----------- -----------
Total current assets 37,883,665 38,567,389
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PROPERTY AND EQUIPMENT - net 3,162,971 3,266,899
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OTHER ASSETS:
Excess of cost over net assets of
businesses acquired, net 36,355,033 36,474,797
Other assets 129,239 299,167
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Total other assets 36,484,272 36,773,964
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Total assets $77,530,908 $78,608,252
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 1,875,322 $ 1,477,511
Bank overdrafts 214,472 -
Accounts payable 357,736 2,116,824
Accrued expenses:
Independent contractors 7,054,234 7,186,736
Billing costs 957,039 937,442
Other accrued expenses 356,434 1,125,209
Current portion of accrued liability for
professional liability claims 610,000 610,000
Current portion of capital lease obligations 214,395 228,871
Income taxes payable 256,204 436,775
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Total current liabilities 11,895,836 14,119,368
LONG TERM LIABILITIES:
Bank line of credit 10,000,000 10,000,000
Notes payable, excluding current portion 1,070,108 1,362,145
Accrued liability for professional liability
claims, excluding current portion 2,440,000 2,440,000
Capital lease obligations,
excluding current portion 110,501 164,168
Income taxes payable 498,511 997,022
Other long term payables 292,275 392,275
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Total liabilities 26,307,231 29,474,978
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Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 100,000,000 shares
authorized, none issued and outstanding at March 31, 1996 - -
and December 31, 1995
Common stock, $.0001 par value, 100,000,000 shares
authorized, 7,890,676 and 7,849,927 issued and outstanding
at March 31, 1996 and December 31, 1995, respectively 789 785
Additional paid-in-capital 45,885,078 45,182,727
Retained earnings 5,612,130 4,233,028
Less: deferred compensation - stock options (274,320) (283,266)
----------- -----------
Total stockholders' equity 51,223,677 49,133,274
----------- -----------
Total liabilities and stockholders' equity $77,530,908 $78,608,252
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</TABLE>
See accompanying notes to condensed consolidated financial statements
1
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STERLING HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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<CAPTION>
Three Months Ended
March 31,
-----------------------------
(Unaudited) (Unaudited)
1996 1995
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Operating revenue, net $33,348,293 $24,049,945
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Costs and expenses:
Cost of affiliated physician services 21,117,383 14,242,939
Medical support services 1,585,953 1,355,368
Selling, general and administrative 7,361,253 6,285,263
Depreciation and amortization 788,061 423,270
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Total operating expenses 30,852,650 22,306,840
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Operating income 2,495,643 1,743,105
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Other income (expense)
Interest and other income 27,726 3,130
Interest and other expenses (258,300) (332,568)
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Other income (expense) (230,574) (329,438)
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Income before income tax provision 2,265,069 1,413,667
Income tax provision 885,967 565,500
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Net income $ 1,379,102 $ 848,167
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Earnings per share:
Primary $ 0.17 $ 0.16
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Assuming full dilution $ 0.17 $ 0.16
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Weighted average common and common stock
equivalent shares outstanding:
Primary 8,081,126 5,408,484
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Assuming full dilution 8,209,989 5,414,304
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</TABLE>
See accompanying notes to condensed consolidated financial statements
2
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STERLING HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
For the Three For the Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
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Cash flows from operating activities:
Net income $1,379,102 $ 848,167
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Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation 275,243 214,393
Amortization 512,818 208,877
Deferred income taxes 49,800 (184,620)
Deferred compensation - stock options 8,945 9,710
Changes in:
Accounts, subsidy and other receivables, net (1,610,966) (2,366,402)
Income taxes receivable 1,032,096 -
Prepaid expenses and other assets (688,454) 192,961
Accounts payable, accrued expenses, and other payables (2,358,837) 536,642
Accrued liability for professional liability claims - 82,500
Income taxes payable (679,082) 370,566
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Net adjustments (3,458,437) (935,373)
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Net cash used in operating activities (2,079,335) (87,206)
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Cash flows from investing activities:
Payments for acquisition of businesses less cash acquired(*) (393,054) (14,889,348)
Purchases of property and equipment (171,317) (594,948)
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Net cash used in investing activities (564,371) (15,484,296)
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Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 702,360 -
Proceeds from line of credit, net - 17,385,457
Payments on notes payable (276,079) (1,399,667)
Increase in bank overdrafts 214,395 -
Payments on capital lease obligations (68,144) (65,468)
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Net cash provided by financing activities 572,532 15,920,322
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Net (decrease) increase in cash and cash equivalents (2,071,174) 348,820
Cash and cash equivalents at beginning of period 2,071,174 18,770
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Cash and cash equivalents at end of period $ - $ 367,590
========== ===========
(*)Acquisitions of businesses, less cash acquired:
Working capital, excluding cash $ - $ 3,199,037
Property and equipment - 855,767
Cost in excess of net assets acquired (393,054) 22,422,816
Other assets - 68,944
Non-current liabilities - (71,857)
Issuance of note payable - (3,400,000)
Issuance of common stock - (8,185,359)
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Cash paid $ (393,054) $14,889,348
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</TABLE>
See accompanying notes to condensed consolidated financial statements
3
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STERLING HEALTHCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated interim financial statements presented herein do
not include all disclosures provided in the annual financial statements. These
unaudited consolidated financial statements should be read in conjunction with
the annual financial statements and the footnotes thereto contained in the
Company's Form 10-K as filed with the United States Securities and Exchange
Commission on March 31, 1996.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all the adjustments necessary for a fair
presentation of the financial statements. The results of operations for the
three month period ended March 31, 1996 are not necessarily indicative of the
results to be expected for the full year.
(2) STOCK OPTIONS
In March 1996, pursuant to employment agreements, the Company granted to a
certain individuals the right to acquire an aggregate of 76,000 shares of the
Company's Common Stock under the Company's Stock Option Plan. The options are
exercisable pursuant to vesting schedules of up to two years at a purchase
prices per share of $12.75 to $14.50 which represents the fair market value of
the Common Stock as of the date of the grant of such options. For the three
month period ended March 31, 1996, options to acquire 32,000 shares were
canceled. During the same period, warrants to acquire an aggregate of 97,550
shares were exercised at a purchase price of $7.20 each.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a physician practice management company engaged in the
business of providing contract management and support services principally to
hospital-based emergency departments. As of March 31, 1996, the Company
provided services to 91 hospital clients in 19 states. The Company contracts
with
4
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approximately 1,000 affiliated physicians, who provide medical care to
approximately 1.3 million patients annually. In addition, the Company owns six
primary care physician practices, manages 23 non-affiliated medical group
practices and owns two physical therapy practices.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Operating revenue, net, consists of gross patient revenue, net of
contractual adjustments and estimated uncollectibles, plus other revenue, which
consists principally of hospital subsidy payments, flat-rate hospital contract
revenue, and non-patient generated revenues. Operating revenue, net,
increased by 38.7%, to $33.3 million in 1996 from $24.0 million in 1995. The
increase was attributable to the inclusion of the revenue derived from the
operations of the Company's 1995 corporate acquisitions for the full period and
from increased revenue from existing contracts. For the three month period
ended March 31, 1996, $31.0 million, or 93.1%, of operating revenues, net, were
derived from hospital-based services, $1.3 million, or 3.9%, from primary care
services, and $1.0 million, or 3.0%, from consulting, recruiting, and
publishing services. For the three month period ended March 31, 1995, 89.6% of
the Company's operating revenues were derived from hospital-based services.
Cost of affiliated physicians services ("Physician Costs") increased by
48.3%, to $21.1 million for the three month period ended March 31, 1996 from
$14.2 million for the three month period ended March 31, 1995, due primarily to
the increase in the number of healthcare professionals under contract and
negotiated increases in fees paid to certain healthcare professionals.
Physician Costs increased to 63.3% of operating revenue, net for the three
month period ended March 31, 1996 from 59.2% for the three month period ended
March 31, 1995.
Medical support service expenses increased by 17.0%, to $1.6 million for
the three month period ended March 31, 1996 from $1.4 million for the three
month period ended March 31, 1995. Medical support services expenses decreased
to 4.8% of operating revenue, net, for the three month period ended March 31,
1996 from 5.6% for the three month period ended March 31, 1995 as a result of
the Company's sale and closing of eight primary care practices in the fourth
quarter of 1995. Selling, general and administrative expenses increased by
17.1%, to $7.4 million for the three month period ended March 31, 1996 from
$6.3 million for the three month period ended March 31, 1995. Selling, general
and administrative expenses decreased to 22.1% of operating revenue, net, for
the three month period ended March 31, 1996 from 26.1% for the three month
period
5
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ended March 31, 1995. Depreciation and amortization increased $365,000
primarily as a result of the Company's increase in property and equipment as
well as the increase in the cost in excess of assets acquired as a result of
the Company's 1994 and 1995 corporate acquisitions. Total operating expenses
decreased from 92.8% of operating revenue, net, in 1995 to 92.5% in 1996.
Interest expenses (net of interest and other income), decreased to
$231,000 for the three month period ended March 31, 1996 from $329,000 for the
three month period ended March 31, 1995. The decrease was due to a combination
of decreased borrowings under the Company's bank line of credit and lower
interest rates.
Provision for income taxes increased to $886,000 for the three month
period ended March 31, 1996 from $566,000 for the three month period ended
March 31, 1995. The Company's net income increased 62.6% to $1.4 million for
the three month period ended March 31, 1996 from $848,000 for the three month
period ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996 the Company had $26.0 million in working capital
compared to $24.4 million as of December 31, 1995. For the three month period
ended March 31, 1996, the Company's funds were primarily provided for by
financing activities.
During the three month period ended March 31, 1996, cash of approximately
$2.1 million was used in operating activities. The Company's increase in
accounts receivable used approximately $1.6 million and a decrease in the
Company's payables used approximately $2.4 million. The Company used
approximately $564,000 in investing activities with capital expenditures using
$171,000 and the purchase of businesses acquired using cash of approximately
$393,000. The Company also provided $573,000 by financing activities with
proceeds from the exercise of stock options and warrants of $702,000 partially
offset by payments on notes payable of $276,000.
The Company expects to satisfy its anticipated demands and commitments for
cash in the next twelve months from existing operating cash flows, if any, and
amounts available under the Credit Facility. Although the Company does not
have material commitments for capital expenditures, the Company may make
additional capital expenditures in connection with future acquisitions.
The operating results of the periods presented were not significantly
affected by inflation.
6
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
ITEM 5. OTHER INFORMATION
On May 19, 1996 the Company and FPA Medical Management, Inc.
("FPA"), a Delaware corporation, and Sterling Acquisition
Corporation, ("Subsidiary") a Delaware corporation wholly owned by
FPA entered into an Agreement and Plan of Merger ("the Agreement"),
whereby, subject to certain conditions precedent, the Subsidiary
shall be merged with and into the Company. A copy of the Agreement is
filed herewith as Exhibit 2.1. Upon consummation of the merger, the
Company will become a wholly-owned subsidiary of FPA and the
Subsidiary will cease to exist. The merger is intended to be a
tax-free reorganization for federal income tax purposes and to be
accounted for as a pooling-of-interests. Subject to regulatory and
shareholder approval, the merger is expected to close during the
third quarter.
Pursuant to the Agreement, at the closing of the Merger, each
share of the Company's Common Stock will be converted into the right
to receive 1.4 shares of FPA Common Stock (the "Exchange Ratio") so
long as during the consecutive 15 trading day period commencing 5
trading days prior to the closing of the merger (the "Pricing
Period"), the average of the closing prices of the FPA Common Stock
as reported on NASDAQ for such 15 consecutive trading days (the "FPA
Value") is greater than or equal to $14.87 but less than or equal to
$16.43. If the FPA Value is greater than or equal to $13.30 but less
than $14.87 the Exchange Ratio shall be increased to the number
(expressed as a decimal fraction) which, when multiplied by the FPA
Value, will equal $20.81. If the FPA Value is less than $13.30 the
Exchange Ratio shall be 1.565, provided that in such event the Company
can request that each share of the Company's Common Stock be
converted into the right to receive that amount of shares of FPA
Common Stock of FPA which, when multiplied by the FPA Value will not
exceed $20.81 (the "Increased Right"). If the Company elects its
Increased Right, FPA shall have the right to accept such increased
exchange ratio or terminate the Agreement. If the FPA Value is greater
than $16.43 but less than or equal to $18.00, the Exchange Ratio shall
be that number when multiplied by the FPA Value will equal $23.01. If
the FPA Value is greater than $18.00 then the Company shall have the
right to either accept an Exchange Ratio which when multiplied by the
FPA Value is equal to $23.01 or terminate the Agreement.
Pursuant to the Agreement the shares of Common Stock of FPA to
be issued to the Company's stockholders will be registered on a
Registration Statement on Form S-4 filed under the Securities Act of
1933, as amended. The consummation of the merger is subject to
approval by both companies' stockholders, receipt of all necessary
regulatory approvals, satisfactory confirmation that the merger will
be treated as a tax-free reorganization and accounted for as a pooling
of interests, and other customary conditions. The Agreement may be
terminated by the parties if the merger is not consummated by
December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits -
Exhibit 2.1 - Agreement and Plan of Merger dated as of May 19,
1996 by and among FPA Medical Management, Inc.,
Sterling Acquisition Corporation and the Company.
Exhibit 10.1 - Termination of Employment Contract dated March 27,
1996 between the Company and Laura Seff.
Exhibit 11 - Statement Re: Computation of per share earnings
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
(1) Current Report on Form 8-K dated
December 29, 1995 regarding the sale by the Company
of certain primary care clinics.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
STERLING HEALTHCARE GROUP, INC.
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Date: May 20, 1996 By: /s/ Jack S. Greenman
-----------------------------------
Jack S. Greenman
Chief Financial Officer,
Principal Accounting Officer,
Senior Vice President and
Treasurer
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 19, 1996
BY AND AMONG
FPA MEDICAL MANAGEMENT, INC.,
STERLING ACQUISITION CORPORATION
AND
STERLING HEALTHCARE GROUP, INC.
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER
SECTION 1.1. The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Effective Time of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
THE SURVIVING CORPORATION AND FPA
SECTION 2.1. Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.2. Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.3. Directors and Executive Officers of the Surviving Corporation . . . . . . . . . . . 2
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1. Conversion of Company Shares in the Merger. . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.2. Equitable Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3.3. Exchange of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.4. No Fractional Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.5. Options to Purchase Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.6. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.7. Closing of the Company's Transfer Books . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF FPA AND ACQUISITION
SECTION 4.1. Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 4.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 4.3. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 4.4. Authority; Non-Contravention; Approvals. . . . . . . . . . . . . . . . . . . . . . 6
SECTION 4.5. Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4.6. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4.7. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4.8. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.9. Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.10. No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.11. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.12. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.13. Employee Benefit Plans; ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.14. Labor Controversies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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<TABLE>
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SECTION 4.15. Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.16. Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.17. FPA Stockholders' Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.18. Pooling and Tax-Free Reorganization Matters. . . . . . . . . . . . . . . . . . . . 12
SECTION 4.19. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.20. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 5.1. Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.2. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.3. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.4. Authority; Non-Contravention; Approvals. . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.5. Reports and Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.6. Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.7. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.8. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.9. Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.10. No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.11. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.12. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.13. Employee Benefit Plans; ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.14. Labor Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 5.15. Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.16. Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.17. Company Stockholders' Approval . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.18. Pooling and Tax-Free Reorganization Matters. . . . . . . . . . . . . . . . . . . . 20
SECTION 5.19. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.20. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.21. Statutory Antitakeover Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . 20
SECTION 6.2. Conduct of Business by FPA and Acquisition Pending the Merger . . . . . . . . . . . 21
SECTION 6.3. Control of the Company's Operations . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.4. Control of FPA's Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6.5. Acquisition Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 6.6. Effect of Acquisition Transaction 23
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 7.2. Registration Statement and Proxy Statement . . . . . . . . . . . . . . . . . . . . 25
SECTION 7.3. Stockholders' Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7.4. Affiliates of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7.5. Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.6. Expenses and Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.7. Agreement to Cooperate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 7.8. Public Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.9. Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.10. Notification of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.11. Corrections to the Joint Proxy Statement/Prospectus and Registration Statement . . 27
SECTION 7.12. Change of Control Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.13. Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 7.14. Insurance; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE VIII
CONDITIONS
SECTION 8.1. Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . 28
SECTION 8.2. Conditions to Obligation of the Company to Effect the Merger. . . . . . . . . . . . 29
SECTION 8.3. Conditions to Obligations of FPA and Acquisition to Effect the Merger . . . . . . . 30
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 9.2. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9.3. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 9.4. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. Non-Survival of Representations and Warranties 33
SECTION 10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 10.3. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 10.4. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 10.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 10.6. Parties In Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
(iii)
<PAGE> 5
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.3 Directors and Executive Officers of the Surviving Corporation
Schedule 4.2(c) Outstanding Subscriptions, Options, Calls, etc. of FPA
Schedule 4.3 Liens, Claims, Encumbrances, etc. of FPA
Schedule 4.4(b) FPA Contravention
Schedule 4.6 Undisclosed Liabilities of FPA
Schedule 4.11 FPA Non-Compliance with Agreements
Schedule 4.13(a) Employee Benefit Plans of FPA
Schedule 4.13(b) Prohibited ERISA or Internal Revenue Code Transactions of FPA
Schedule 4.16 Exceptions to Title to Assets of FPA
Schedule 5.2(b)(1) Outstanding Subscriptions, Options, Calls, etc. of the Company
Schedule 5.2(b)(2) Agreements as to Voting of Company Common Stock
Schedule 5.3 Liens, Claims, Encumbrances, etc. of the Company
Schedule 5.4(b) Company Contravention
Schedule 5.6 Undisclosed Liabilities of the Company
Schedule 5.10 Violations of Laws by the Company
Schedule 5.11 Company Non-Compliance with Agreements
Schedule 5.13(a) Employee Benefit Plans of the Company
Schedule 5.13(b) Prohibited ERISA or Internal Revenue Code Transactions of the Company
Schedule 5.16 Exceptions to Title to Assets of the Company
Schedule 6.1 Potential Transactions by the Company
Schedule 6.2 Potential Transactions by FPA and Description of Notes
</TABLE>
(iv)
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made this 19th day of May, 1996 (the
"Agreement"), by and among FPA MEDICAL MANAGEMENT, INC., a Delaware corporation
("FPA"), STERLING ACQUISITION CORPORATION, a Delaware corporation and a
wholly-owned subsidiary of FPA ("Acquisition"), and STERLING HEALTHCARE GROUP,
INC., a Florida corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the boards of directors of FPA, Acquisition and the Company
believe it to be advisable and in the best interests of their respective
stockholders that Acquisition merge with and into the Company on the terms set
forth in the Agreement (the "Merger");
WHEREAS, the Merger is intended to qualify as a plan of merger under the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, the Merger also is intended to qualify for treatment as a pooling
of interests under Accounting Principles Board Opinion No. 16 ("APB No. 16").
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. THE MERGER. Upon the terms and subject to the conditions of
the Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the Delaware General Corporation Law and the Florida Business Corporation
Act ("BCA"), Acquisition shall be merged with and into the Company and the
separate existence of Acquisition shall thereupon cease. The Company shall be
the surviving corporation in the Merger and is hereinafter sometimes referred
to as the "Surviving Corporation."
SECTION 1.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in
Certificates of Merger or comparable documents required by law, in forms
mutually acceptable to FPA and the Company, to be filed with the Secretaries of
the States of Delaware and Florida (the "Merger Filings"), but not later than
December 31, 1996, time being of the essence. The Merger Filings shall be made
simultaneously with or as soon as practicable after the closing of the
transactions contemplated by the Agreement in accordance with Section 3.6.
ARTICLE II
THE SURVIVING CORPORATION AND FPA
SECTION 2.1. ARTICLES OF INCORPORATION. The Articles of Incorporation of
the Company as in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation after the Effective
Time, and thereafter may be amended in accordance with their terms and as
provided in the BCA.
<PAGE> 7
SECTION 2.2. BYLAWS. The bylaws of the Company as in effect immediately
prior to the Effective Time shall be the bylaws of the Surviving Corporation
after the Effective Time, and thereafter may be amended in accordance with
their terms and as provided by the Articles of Incorporation of the Surviving
Corporation and the BCA.
SECTION 2.3. DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING
CORPORATION. Subject to Section 8.2(h), the directors and executive officers
of the Surviving Corporation shall be as designated on Schedule 2.3 attached
hereto, and such directors and executive officers shall serve in accordance
with the bylaws of the Surviving Corporation until their respective successors
are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1. CONVERSION OF COMPANY SHARES IN THE MERGER. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of the Company, each share of the Company's Common Stock,
par value $.0001 per share (the "Company Common Stock"), shall, subject to the
terms of this Article III, be converted into the right to receive 1.4 (the
"Exchange Ratio") shares of the common stock, par value $.002 per share, of FPA
("FPA Common Stock"). There shall be no adjustment to the Exchange Ratio, and
the Exchange Ratio shall remain 1.4 shares of FPA Common Stock for each share
of Company Common Stock, if the average of the closing prices of FPA Common
Stock as reported on the Nasdaq National Market ("NASDAQ") for the fifteen (15)
consecutive trading days ending on the date that is five (5) trading days prior
to the Closing Date (as defined in Section 3.6) (the "FPA Value") is greater
than or equal to $14.87 but less than or equal to $16.43. If at such time:
(a) the FPA Value is less than $14.87 but greater
than or equal to $13.30, then the Exchange Ratio shall be
increased to the number (expressed as a decimal fraction)
which, when multiplied by the FPA Value, will equal $20.81;
(b) the FPA Value is less than $13.30, the Exchange
Ratio shall be 1.565; provided, however, that in such event
the Company shall have the right to either (x) accept an
Exchange Ratio of 1.565 or (y) demand that the Exchange Ratio
be increased to the number (expressed as a decimal fraction)
which, when multiplied by the FPA Value, will not exceed
$20.81. If the Company elects to demand the increased
Exchange Ratio described in (y) above, FPA shall have the
right to either (a) accept such increased Exchange Ratio or
(b) terminate the Agreement;
(c) the FPA Value is greater than $16.43 but less
than or equal to $18.00, then the Exchange Ratio shall be
decreased to the number (expressed as a decimal fraction)
which, when multiplied by the FPA Value, will equal $23.01; or
(d) the FPA Value is greater than $18.00, then the
Company shall have the right to either (x) accept an Exchange
Ratio which when multiplied by the FPA Value is equal to
$23.01 or (y) terminate the Agreement.
SECTION 3.2. EQUITABLE ADJUSTMENT. The calculations set forth in Section
3.1 shall be subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split, recapitalization, reclassification,
combination or other change in the number of shares of Company Common Stock or
FPA Common Stock outstanding prior to the Closing (as defined in Section 3.6)
other than issuances of shares pursuant to the exercise of outstanding stock
options.
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<PAGE> 8
SECTION 3.3. EXCHANGE OF CERTIFICATES. (a) From and after the Effective
Time, each holder of an outstanding certificate which immediately prior
to the Effective Time represented shares of Company Common Stock shall be
entitled to receive in exchange therefor, upon surrender thereof to American
Stock Transfer & Trust Company (the "Exchange Agent"), a certificate or
certificates representing the number of whole shares of FPA Common Stock to
which such holder is entitled pursuant to Section 3.1. Notwithstanding any
other provision of the Agreement, (i) until holders or transferees of
certificates theretofore representing shares of Company Common Stock have
surrendered them for exchange as provided herein, no dividends shall be paid
with respect to any shares represented by such certificates and no payment for
fractional shares shall be made and (ii) without regard to when such
certificates representing shares of Company Common Stock are surrendered for
exchange as provided herein, no interest shall be paid on any dividends or any
payment for fractional shares. Upon surrender of a certificate which
immediately prior to the Effective Time represented shares of Company Common
Stock, there shall be paid to the holder of such certificate the amount of any
dividends which theretofore became payable, but which were not paid by reason
of the foregoing, with respect to the number of whole shares of FPA Common
Stock represented by the certificate or certificates issued upon such
surrender.
(b) If any certificate for shares of FPA Common Stock is to be issued in a
name other than that in which the certificate for shares of Company Common
Stock surrendered in exchange therefor is registered, it shall be a condition
of such exchange that the person requesting such exchange shall pay any
applicable transfer or other taxes required by reason of such issuance.
(c) Promptly after the Effective Time, FPA shall make available to the
Exchange Agent the certificates representing shares of FPA Common Stock
required to effect the exchanges referred to in paragraph (a) above and cash
for payment of any fractional shares referred to in Section 3.4.
(d) Promptly after the Effective Time, the Exchange Agent shall mail to
each holder of record of a certificate or certificates that immediately prior
to the Effective Time represented outstanding shares of Company Common Stock
(the "Company Certificates") (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon actual delivery of the Company Certificates
to the Exchange Agent) and (ii) instructions for use in effecting the surrender
of the Company Certificates in exchange for certificates representing shares of
FPA Common Stock. Upon surrender of Company Certificates for cancellation to
the Exchange Agent, together with a duly executed letter of transmittal and
such other documents as the Exchange Agent shall reasonably require, the holder
of such Company Certificates shall be entitled to receive in exchange therefor
a certificate representing that number of whole shares of FPA Common Stock into
which the shares of Company Common Stock theretofore represented by the Company
Certificates so surrendered shall have been converted pursuant to the
provisions of Section 3.1, and the Company Certificates so surrendered shall be
cancelled. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Company Common Stock for
any shares of FPA Common Stock or dividends or distributions thereon delivered
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
(e) Promptly following the date which is nine (9) months after the
Effective Date, the Exchange Agent shall deliver to FPA all cash, certificates
(including any FPA Common Stock) and other documents in its possession relating
to the transactions described in the Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a Company Certificate may
surrender such Company Certificate to the Surviving Corporation and (subject to
applicable abandoned property, escheat and similar laws) receive in exchange
therefor the FPA Common Stock, without any interest thereon. Notwithstanding
the foregoing, none of the Exchange Agent, FPA, the Company or the Surviving
Corporation shall be liable to a holder of Company Common Stock for any FPA
Common Stock delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.
3
<PAGE> 9
(f) In the event any Company Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Company Certificate to be lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed Company
Certificate the FPA Common Stock deliverable in respect thereof determined in
accordance with Section 3.1. When authorizing such payment in exchange
therefor, the board of directors of the Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Company Certificate to give the
Surviving Corporation such indemnity as it may reasonably direct as protection
against any claim that may be made against the Surviving Corporation with
respect to the Company Certificate alleged to have been lost, stolen or
destroyed.
SECTION 3.4. NO FRACTIONAL SECURITIES. Notwithstanding any other
provision of the Agreement, no certificates or scrip for fractional shares of
FPA Common Stock shall be issued in the Merger and no FPA Common Stock
dividend, stock split or interest shall relate to any fractional security, and
such fractional interests shall not entitle the owner thereof to vote or to any
other rights of a security holder. In lieu of any such fractional shares, each
holder of Company Common Stock who would otherwise have been entitled to
receive a fraction of a share of FPA Common Stock upon surrender of Company
Certificates for exchange pursuant to Section 3.3 shall be entitled to receive
from the Exchange Agent a cash payment equal to such fraction multiplied by the
Exchange Ratio.
SECTION 3.5. OPTIONS TO PURCHASE COMPANY STOCK. The obligations of FPA
with respect to options to purchase Company Common Stock are set forth in
Section 7.9.
SECTION 3.6. CLOSING. The closing (the "Closing") of the transactions
contemplated by the Agreement shall take place at a location mutually agreeable
to FPA and the Company on the second business day immediately following the
date on which the last of the conditions set forth in Article VIII is fulfilled
or waived, or at such other time and place as FPA and the Company shall agree
(the date on which the Closing occurs is referred to in the Agreement as the
"Closing Date"), but not later than December 31, 1996, time being of the
essence.
SECTION 3.7. CLOSING OF THE COMPANY'S TRANSFER BOOKS. At and after the
Effective Time, holders of Company Certificates shall cease to have any rights
as stockholders of the Company, except for the right to receive shares of FPA
Common Stock pursuant to Section 3.3 and the right to receive cash for payment
of fractional shares pursuant to Section 3.4. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock which were outstanding immediately prior to the Effective
Time shall thereafter be made. If, after the Effective Time, subject to the
terms and conditions of the Agreement, Company Certificates formerly
representing Company Common Stock are presented to the Surviving Corporation,
they shall be cancelled and exchanged for FPA Common Stock in accordance with
this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF FPA AND ACQUISITION
FPA and Acquisition each represent and warrant to the Company as follows:
SECTION 4.1. ORGANIZATION AND QUALIFICATION. Each of FPA and Acquisition
is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each of FPA and Acquisition is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it
4
<PAGE> 10
or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not, when taken together with all other such failures, have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other) or results of operations of FPA and its subsidiaries (as
defined in Section 4.3), taken as a whole. True, accurate and complete copies
of each of FPA's and Acquisition's Certificates of Incorporation and bylaws, in
each case as in effect on the date hereof, including all amendments thereto,
have heretofore been (or, in the case of Acquisition, will promptly be)
delivered to the Company.
SECTION 4.2. CAPITALIZATION.
(a) The authorized capital stock of FPA consists of (i) 18,000,000 shares
of FPA Common Stock, par value $.002, of which 11,314,008 shares were
outstanding as of the date of the Agreement, and (ii) 2,000,000 shares of
preferred stock, par value $.001 per share, of which no shares were issued and
outstanding as of the date of the Agreement. All of the issued and outstanding
shares of FPA Common Stock are validly issued and are fully paid, nonassessable
and free of preemptive rights.
(b) The authorized capital stock of Acquisition consists of 100 shares of
Acquisition Common Stock, par value $.01, of which 100 shares are issued and
outstanding, which shares are owned beneficially and of record by FPA.
(c) Except as disclosed in the FPA SEC Reports (as defined in Section 4.5)
or as set forth on Schedule 4.2(c) attached hereto, as of the date hereof,
there are no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement and also including any rights plan or other anti-takeover
agreement, obligating FPA or any subsidiary of FPA to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of the capital
stock of FPA or obligating FPA or any subsidiary of FPA to grant, extend or
enter into any such agreement or commitment. There are no voting trusts,
proxies or other agreements or understandings to which FPA or any subsidiary of
FPA is a party or by which FPA or any subsidiary of FPA is bound with respect
to the voting of any shares of capital stock of FPA, other than FPA's
obligations under Section 7.7(d). The shares of FPA Common Stock issued to
stockholders of the Company in the Merger will be at the Effective Time duly
authorized, validly issued, fully paid, nonassessable, and free of preemptive
rights.
SECTION 4.3. SUBSIDIARIES. Each direct and indirect corporate subsidiary
of FPA is duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite power and authority
to own, lease and operate its assets and properties and to carry on its
business as it is now being conducted. Each subsidiary of FPA is qualified to
do business, and is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not, when taken together with all
such other failures, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of FPA and its subsidiaries, taken as a whole. All of the
outstanding shares of capital stock of each corporate subsidiary of FPA are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights, and are owned directly or indirectly by FPA, free and clear
of any liens, claims, encumbrances, security interests, equities, charges and
options of any nature whatsoever except as disclosed in the FPA SEC Reports or
set forth on Schedule 4.3 attached hereto. There are no subscriptions,
options, warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to any
shares of capital stock of any corporate subsidiary of FPA, including any right
of conversion or exchange under any outstanding security, instrument or
agreement. As used in the Agreement, the term "subsidiary" shall mean, when
used with reference to any person or entity, any corporation, partnership,
joint venture or other entity which such person or entity, directly or
indirectly, controls or of which such person or entity (either acting alone or
together
5
<PAGE> 11
with its other subsidiaries) owns, directly or indirectly, 50% or more
of the stock or other voting interests, the holders of which are entitled to
vote for the election of a majority of the board of directors or any similar
governing body of such corporation, partnership, joint venture or other entity.
SECTION 4.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) FPA and Acquisition each have full corporate power and authority to
enter into the Agreement and, subject to the FPA Stockholders' Approval (as
defined in Section 7.3(b)) and the FPA Required Statutory Approvals (as defined
in Section 4.4(c)), to consummate the transactions contemplated hereby. The
Agreement has been approved by the boards of directors of FPA and Acquisition,
and no other corporate proceedings on the part of FPA or Acquisition are
necessary to authorize the execution and delivery of the Agreement or, except
for the FPA Stockholders' Approval, the consummation by FPA and Acquisition of
the transactions contemplated hereby. The Agreement has been duly executed and
delivered by each of FPA and Acquisition, and, assuming the due authorization,
execution and delivery hereof by the Company, constitutes a valid and legally
binding agreement of each of FPA and Acquisition enforceable against each of
them in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles, and except
that the availability of equitable remedies, including specific performance and
injunctive relief, is subject to the discretion of the court before which any
proceedings may be brought. Without limitation of the foregoing, each of the
covenants and obligations of FPA set forth in Sections 6.2, 6.5, 7.3(b), 7.6,
7.7, 7.8 and 7.10 is valid, legally binding and enforceable notwithstanding the
absence of the FPA Stockholders' Approval.
(b) Except as set forth on Schedule 4.4(b) attached hereto, the execution
and delivery of the Agreement by each of FPA and Acquisition do not violate,
conflict with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of FPA or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or bylaws of FPA or any of its subsidiaries, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to
FPA or any of its subsidiaries or any of their respective properties or assets
or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which FPA or any of its subsidiaries is now a party
or by which FPA or any of its subsidiaries or any of their respective
properties or assets may be bound or affected. The consummation by FPA and
Acquisition of the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or creation of liens
under any of the terms, conditions or provisions described in clauses (i)
through (iii) of the preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clause (ii) above, to obtaining (prior to
the Effective Time) the FPA Required Statutory Approvals (as defined in Section
4.4(c)) and the FPA Stockholders' Approval and (y) in the case of the terms,
conditions or provisions described in clause (iii) above, to obtaining (prior
to the Effective Time) consents required from commercial lenders, lessors or
other third parties. Excluded from the foregoing sentences of this paragraph
(b), insofar as they apply to the terms, conditions or provisions described in
clauses (ii) and (iii) of the first sentence of this paragraph (b), are such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens, security interests, charges or encumbrances that would not,
in the aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
FPA and its subsidiaries, taken as a whole.
(c) Except for (i) the filings by FPA and the Company required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Joint Proxy Statement/Prospectus (as defined in
Section 4.9) with the Securities and Exchange Commission (the "SEC") pursuant
to the Securities
6
<PAGE> 12
Exchange Act of 1934, as amended (the "Exchange Act"), and the Securities Act
of 1933, as amended (the "Securities Act"), and the declaration of the
effectiveness thereof by the SEC and filings with various state blue sky
authorities, (iii) the making of the Merger Filings with the Secretaries of
State of the States of Delaware and Florida in connection with the Merger and
(iv) any other required filings with or approvals from applicable federal and
state governmental authorities (the filings and approvals referred to in
clauses (i) through (iv) are collectively referred to as the "FPA Required
Statutory Approvals"), no declaration, filing or registration with, or notice
to, or authorization, consent or approval of, any governmental or regulatory
body or authority is necessary for the execution and delivery of the
Agreement by FPA or Acquisition or the consummation by FPA or Acquisition of
the transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not
made or obtained, as the case may be, would not, in the aggregate, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of FPA and its
subsidiaries, taken as a whole.
SECTION 4.5. REPORTS AND FINANCIAL STATEMENTS. Since October 20, 1994,
FPA has filed with the SEC all material forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto) required
to be filed by it under each of the Securities Act, the Exchange Act and the
respective rules and regulations thereunder, all of which, as amended if
applicable, complied in all material respects with all applicable requirements
of the appropriate act and the rules and regulations thereunder. FPA has
previously delivered or made available to the Company a copy of its (a) Annual
Report on Form 10-K, as amended, for the fiscal year ended December 31, 1995,
as filed with the SEC, (b) proxy and information statements relating to (i) all
meetings of its stockholders (whether annual or special) and (ii) actions by
written consent in lieu of a stockholders' meeting from October 20, 1994, until
the date hereof, (c) all other reports, including quarterly and current
reports, or registration statements filed by FPA with the SEC and (d) all press
releases issued since October 20, 1994 (the documents referred to in clauses
(a), (b), (c) and (d) are collectively referred to as the "FPA SEC Reports").
As of their respective dates, the FPA SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim consolidated financial
statements of FPA included in such reports, including the notes and schedules
thereto (collectively, the "FPA Financial Statements"), have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of FPA and its subsidiaries as of the
dates thereof and the results of their operations and changes in financial
position for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal year-end and audit adjustments and any
other adjustments described therein.
SECTION 4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
the FPA SEC Reports or with respect to acquisitions or potential transactions
or commitments heretofore disclosed to the Company in writing or as set forth
on Schedule 4.6 attached hereto, neither FPA nor any of its subsidiaries had at
December 31, 1995, or has incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature,
except: (a) liabilities, obligations or contingencies (i) which are accrued or
reserved against in the FPA Financial Statements or reflected in the notes
thereto or (ii) which were incurred after December 31, 1995 and were incurred
in the ordinary course of business and consistent with past practices; (b)
liabilities, obligations or contingencies which (i) would not, in the
aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
FPA and its subsidiaries, taken as a whole, or (ii) have been discharged or
paid in full prior to the date hereof; and (c) liabilities and obligations
which are of a nature not required to be reflected in the consolidated
financial statements of FPA and its subsidiaries prepared in accordance with
generally accepted accounting principles consistently applied and which were
incurred in the normal course of business.
SECTION 4.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
most recent FPA SEC Report, there has not been any material adverse change in
the business, operations, properties, assets, liabilities,
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condition (financial or other) or results of operations of FPA and its
subsidiaries, taken as a whole, other than the proposed acquisition by FPA of
certain securities from Physician Corporation of America as previously
disclosed to the Company.
SECTION 4.8. LITIGATION. Except as disclosed in the FPA SEC Reports,
there are no claims, suits, actions or proceedings pending or, to the knowledge
of FPA, threatened against, relating to or affecting FPA or any of its
subsidiaries, before any court, governmental department, commission, agency,
instrumentality or authority, or any arbitrator that seek to restrain or enjoin
the consummation of the Merger or which, either alone or in the aggregate with
all such claims, actions or proceedings, would materially and adversely affect
the business, operations, properties, assets, condition (financial or other)
or results of operations of FPA and its subsidiaries, taken as a whole.
Except as set forth in the FPA SEC Reports, neither FPA nor any of its
subsidiaries is subject to any judgment, decree, injunction, rule or order of
any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator which prohibits or restricts the consummation of
the transactions contemplated hereby or would have any material adverse effect
on the business, operations, properties, assets, condition (financial or other)
or results of operations of FPA and its subsidiaries, taken as a whole.
SECTION 4.9. REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by FPA or its subsidiaries for inclusion in (a) the
Registration Statement on Form S-4 to be filed under the Securities Act with
the SEC by FPA in connection with the Merger for the purpose of registering the
shares of FPA Common Stock to be issued in the Merger (the "Registration
Statement") or (b) the proxy statement to be distributed in connection with the
Company's and FPA's meetings of their respective stockholders to vote upon the
Agreement and the transactions contemplated hereby (the "Proxy Statement" and,
together with the prospectus included in the Registration Statement, the "Joint
Proxy Statement/Prospectus") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments or supplements thereto, and at the time of
the meetings of stockholders of the Company and FPA to be held in connection
with the transactions contemplated by the Agreement, or, in the case of the
Registration Statement, as amended or supplemented, at the time it becomes
effective and at the time of such meetings of the stockholders of the Company
and FPA, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Joint Proxy Statement/Prospectus, as of its effective
date, will comply as to form in all material respects with all applicable laws,
including the provisions of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder, except that no representation is
made by FPA or Acquisition with respect to information supplied by the Company
for inclusion therein.
SECTION 4.10. NO VIOLATION OF LAW. Except as disclosed in the FPA SEC
Reports, neither FPA nor any of its subsidiaries is in violation of, or has
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment (including, without limitation,
any applicable Environmental Law, as defined in Section 4.15(b)) of any
governmental or regulatory body or authority, except for violations which, in
the aggregate, would not have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of FPA and its subsidiaries, taken as a whole. Except as disclosed
in the FPA SEC Reports, as of the date of the Agreement, to the knowledge of
FPA, no investigation or review by any governmental or regulatory body or
authority is pending or threatened, nor has any governmental or regulatory body
or authority indicated an intention to conduct the same, other than, in each
case, those the outcome of which, as far as reasonably can be foreseen, would
not have a material adverse effect on the business, operations, properties,
assets, condition (financial or other) or results of operations of FPA and its
subsidiaries, taken as a whole. FPA and its subsidiaries have all permits,
licenses, franchises, variances, exemptions, orders and other governmental
authorizations, consents and approvals necessary to conduct their businesses as
presently conducted (collectively, the "FPA Permits"), except for permits,
licenses, franchises, variances, exemptions, orders, authorizations, consents
and approvals the absence of which, alone or in the aggregate, would not have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations
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of FPA and its subsidiaries, taken as a whole. FPA and its subsidiaries are
not in violation of the terms of any FPA Permit, except for delays in filing
reports or violations which, alone or in the aggregate, would not have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of FPA and its
subsidiaries, taken as a whole.
SECTION 4.11. COMPLIANCE. Except as disclosed in the FPA SEC Reports or
on Schedule 4.11 attached hereto, FPA and each of its subsidiaries are not in
breach or violation of or in default in the performance or observance of any
term or provision of, and no event has occurred which, with lapse of time or
action by a third party, would result in a default under (a) the respective
charters, bylaws or other similar organizational instruments of FPA or any of
its subsidiaries or (b) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which FPA or any of its subsidiaries is a party or by which
any of them is bound or to which any of their property is subject, which
breaches, violations and defaults, in the case of clause (b) of this Section
4.11, would have, in the aggregate, a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of FPA and its subsidiaries, taken as a whole.
SECTION 4.12. TAXES.
(a) FPA and its subsidiaries have (i) duly filed (or timely requested and
received an extension to file) with the appropriate governmental authorities
all Tax Returns (as defined in Section 4.12(c)) required to be filed by them
for all periods ending on or prior to the Effective Time, other than those Tax
Returns the failure of which to file would not have a material adverse effect
on the business, operations, properties, assets, condition (financial or other)
or results of operations of FPA and its subsidiaries, taken as a whole, and
such Tax Returns are true, correct and complete in all material respects and
(ii) duly paid in full or made adequate provision for the payment of all Taxes
(as defined in Section 4.12(b)) for all periods ending at or prior to the
Effective Time. The liabilities and reserves for Taxes reflected in the FPA
balance sheet included in the latest FPA SEC Report are adequate to cover all
Taxes for all periods ending at or prior to the Effective Time and there are no
material liens for Taxes upon any property or assets of FPA or any subsidiary
thereof, except for liens for Taxes not yet due. There are no unresolved
issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the Internal Revenue Service (the "IRS") or any
other governmental taxing authority with respect to Taxes of FPA or any of its
subsidiaries which, if decided adversely, singly or in the aggregate, would
have a material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of FPA and its
subsidiaries, taken as a whole. Neither FPA nor any of its subsidiaries is a
party to any agreement providing for the allocation or sharing of Taxes with
any entity that is not, directly or indirectly, a wholly-owned corporate
subsidiary of FPA other than agreements the consequences of which are
adequately reserved for in the FPA Financial Statements. Neither FPA nor any
of its corporate subsidiaries has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application
of Section 341(f) of the Code.
(b) For purposes of the Agreement, the term "Taxes" shall mean all taxes,
including, without limitation, income, gross receipts, excise, property, sales,
withholding, social security, occupation, use, service, service use, license,
payroll, franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments imposed by the United States, or any
state, local or foreign government or subdivision or agency thereof, whether
computed on a separate, consolidated, unitary, combined or any other basis, and
such term shall include any interest, fines, penalties or additional amounts
and any interest in respect of any additions, fines or penalties attributable
or imposed or with respect to any such taxes, charges, fees, levies or other
assessments.
(c) For purposes of the Agreement, the term "Tax Return" shall mean any
return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
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SECTION 4.13. EMPLOYEE BENEFIT PLANS; ERISA. (a) Except as set forth in
the FPA SEC Reports or on Schedule 4.13(a) attached hereto, at the date hereof,
FPA and its subsidiaries do not maintain or contribute to any material employee
benefit plans, programs, arrangements or practices (such plans, programs,
arrangements or practices of FPA and its subsidiaries being referred to as the
"FPA Plans"), including employee benefit plans within the meaning set forth in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or other similar material arrangements for the provision of benefits
(excluding any "Multi-employer Plan" within the meaning of Section 3(37) of
ERISA or a "Multiple Employer Plan" within the meaning of Section 413(c) of the
Code). Neither FPA nor its subsidiaries has any obligation to create any
additional such plan or to amend any such plan so as to increase benefits
thereunder, except as required under the terms of the FPA Plans, under existing
collective bargaining agreements or to comply with applicable law.
(b) Except as disclosed in the FPA SEC Reports or on Schedule 4.13(b)
attached hereto, (i) there have been no prohibited transactions within the
meaning of Section 406 or 407 of ERISA or Section 4975 of the Code with respect
to any of the FPA Plans that would result in penalties, taxes or liabilities
which, singly or in the aggregate, would have a material adverse effect on
the business, operations, properties, assets, condition (financial or other)
or results of operations of FPA and its subsidiaries, taken as a whole, (ii)
except for premiums due, there is no outstanding material liability, whether
measured alone or in the aggregate, under Title IV of ERISA with respect to any
of the FPA Plans, (iii) neither the Pension Benefit Guaranty Corporation nor
any plan administrator has instituted proceedings to terminate any of the FPA
Plans subject to Title IV of ERISA other than in a "standard termination"
described in Section 4041(b) of ERISA, (iv) none of the FPA Plans has incurred
any "accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code), whether or not waived, as of the last day of the most
recent fiscal year of each of the FPA Plans ended prior to the date of the
Agreement, (v) the current present value of all projected benefit obligations
under each of the FPA Plans which is subject to Title IV of ERISA did not, as
of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities by more than the amount, if
any, disclosed in the FPA SEC Reports as of December 31, 1995, based upon
reasonable actuarial assumptions currently utilized for such FPA Plan, (vi)
each of the FPA Plans has been operated and administered in all material
respects in accordance with applicable laws during the period of time covered
by the applicable statute of limitations, (vii) each of the FPA Plans which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified and such determination has not
been modified, revoked or limited by failure to satisfy any condition thereof
or by a subsequent amendment thereto or a failure to amend, except that it may
be necessary to make additional amendments retroactively to maintain the
"qualified" status of such FPA Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to
Multi-employer Plans, neither FPA nor any of its subsidiaries has made or
suffered a "complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203, 4204 and 4205 of ERISA and, to the
knowledge of FPA and its subsidiaries, no event has occurred or is expected to
occur which presents a material risk of a complete withdrawal or partial
withdrawal under said Sections 4203, 4204 and 4205, (ix) to the knowledge of
FPA and its subsidiaries, there are no material pending, threatened or
anticipated claims involving any of the FPA Plans other than claims for
benefits in the ordinary course, and (x) FPA and its subsidiaries have no
current material liability, whether measured alone or in the aggregate, for
plan termination or complete withdrawal or partial withdrawal under Title IV of
ERISA based on any plan to which any entity that would be deemed one employer
with FPA and its subsidiaries under Section 4001 of ERISA or Section 414 of the
Code contributed during the period of time covered by the applicable statute of
limitations (a "FPA Controlled Group Plan"), and FPA and its subsidiaries do
not reasonably anticipate that any such liability will be asserted against FPA
or any of its subsidiaries. None of the FPA Controlled Group Plans has an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and
Section 412 of the Code).
SECTION 4.14. LABOR CONTROVERSIES. (a) There are no significant
controversies pending or, to the knowledge of FPA, threatened between FPA or
its subsidiaries and any representatives of any of their employees, (b) to the
knowledge of FPA, there are no material organizational efforts presently being
made involving any of
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the presently unorganized employees of FPA and its subsidiaries, (c) FPA and
its subsidiaries have, to the knowledge of FPA, complied in all material
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes, and (d) no
person has, to the knowledge of FPA, asserted that FPA or any of its
subsidiaries is liable in any amount for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing, except for such
controversies, organizational efforts, non-compliance and liabilities which,
singly or in the aggregate, would not materially and adversely affect the
business, operations, properties, assets, condition (financial or other) or
results of operations of FPA and its subsidiaries, taken as a whole.
SECTION 4.15. ENVIRONMENTAL MATTERS. (a) (i) FPA and its subsidiaries
have conducted their respective businesses in compliance with all applicable
Environmental Laws, including, without limitation, having all permits, licenses
and other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties owned
by FPA or any of its subsidiaries contain any Hazardous Substance (as defined
in Section 4.15(c)) as a result of any activity of FPA or any of its
subsidiaries in amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) neither FPA nor any of its subsidiaries has received
any notices, demand letters or requests for information from any federal,
state, local or foreign governmental entity or third party indicating that FPA
or any of its subsidiaries may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of their
businesses, (iv) there are no civil, criminal or administrative actions, suits,
demands, claims, hearings, investigations or proceedings pending or threatened
against FPA or any of its subsidiaries relating to any violation, or alleged
violation, of any Environmental Law, (v) no reports have been filed, or are
required to be filed, by FPA or any of its subsidiaries concerning the release
of any Hazardous Substance or the threatened or actual violation of any
Environmental Law, (vi) no Hazardous Substance has been disposed of, released
or transported in violation of any applicable Environmental Law from any
properties owned by FPA or any of its subsidiaries as a result of any activity
of FPA or any of its subsidiaries during the time such properties were owned,
leased or operated by FPA or any of its subsidiaries, (vii) there have been no
environmental investigations, studies, audits, tests, reviews or other analyses
regarding compliance or noncompliance with any applicable Environmental Law
conducted by or which are in the possession of FPA or its subsidiaries relating
to the activities of FPA or its subsidiaries which have not been delivered to
the Company prior to the date hereof, (viii) there are no underground storage
tanks on, in or under any properties owned by FPA and any of its subsidiaries
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by
FPA or any of its subsidiaries, (ix) there is no asbestos or asbestos
containing material present in any of the properties owned by FPA and its
subsidiaries, and no asbestos has been removed from any of such properties
during the time such properties were owned, leased or operated by FPA or any of
its subsidiaries, and (x) neither FPA, its subsidiaries nor any of their
respective properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (x) that, singly or in the aggregate, would not reasonably
be expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
FPA and its subsidiaries considered as one enterprise.
(b) As used herein, "Environmental Law" means any Federal, state, local or
foreign law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity relating to
(x) the protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any other
natural resource) or to human health or safety or (y) the exposure to, or the
use, storage, recycling, treatment, generation, transportation, processing,
handling, labeling, production, release or disposal of Hazardous Substances, in
each case as amended and as in effect on the Closing Date. The term
Environmental Law includes, without limitation, (i) the Federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
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Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each
as amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened
as a result of, the presence of, effects of or exposure to any Hazardous
Substance.
(c) As used herein, "Hazardous Substance" means any substance presently or
hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.
Hazardous Substance includes any substance to which exposure is regulated by
any government authority or any Environmental Law including, without
limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste, industrial substance or petroleum or
any derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
SECTION 4.16. TITLE TO ASSETS. Except as set forth on Schedule 4.16
attached hereto, FPA and each of its subsidiaries has good and marketable title
in fee simple to all its real property and good title to all its leasehold
interests and other properties as reflected in the most recent balance sheet
included in the FPA Financial Statements, except for such properties and
assets that have been disposed of in the ordinary course of business since
the date of such balance sheet, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any nature whatsoever, except (i) the
lien for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair FPA's business operations (in
the manner presently carried on by FPA), or (iii) as disclosed in the FPA SEC
Reports, and except for such matters which, singly or in the aggregate, would
not materially and adversely affect the business, operations, properties,
assets, condition (financial or other) or results of operations of FPA and its
subsidiaries, taken as a whole. All leases under which FPA leases any real or
personal property have been made available to the Company and are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event which
with notice or lapse of time or both would become a default other than defaults
under such leases which in the aggregate would not materially and adversely
affect FPA and its subsidiaries, taken as a whole.
SECTION 4.17. FPA STOCKHOLDERS' APPROVAL. The affirmative vote of
stockholders of FPA required for approval and adoption of the Agreement and the
Merger is a majority of the outstanding shares of FPA Common Stock.
SECTION 4.18. POOLING AND TAX-FREE REORGANIZATION MATTERS. To the
knowledge of FPA and based upon consultation with its independent accountants,
neither FPA nor Acquisition nor any of their affiliates has taken or agreed to
take any action that would interfere with the ability of FPA to (i) account for
the business combination to be effected by the Merger as a pooling of interests
under APB No. 16 for accounting and financial statement purposes or (ii) treat
the Merger as a tax-free reorganization pursuant to Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code.
SECTION 4.19. INSURANCE. FPA maintains insurance with financially
responsible insurance companies (i) in amounts customary in its industry to
insure it against risks and losses associated with the operation of its
business and its properties and (ii) to insure its directors and officers
against certain losses. Copies of such policies have been made available to
the Company.
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SECTION 4.20. BROKERS. FPA and Acquisition represent and warrant that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by the Agreement based upon arrangements made by or on behalf of
FPA or Acquisition (except for fees payable to the investment banking firm
named in Section 8.3(g)).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to FPA and Acquisition as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Florida and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. The Company is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing
would not, when taken together with all other such failures, have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole. True, accurate and complete copies of the
Company's Articles of Incorporation and bylaws, in each case as in effect on
the date hereof, including all amendments thereto, have heretofore been
delivered to FPA.
SECTION 5.2. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 100,000,000
shares of Company Common Stock, par value $.0001 per share, and 100,000,000
shares of preferred stock, par value $.0001 per share. As of the date of the
Agreement, 7,964,977 shares of Company Common Stock and no shares of preferred
stock were issued and outstanding. All of such issued and outstanding shares
are validly issued and are fully paid, nonassessable and free of preemptive
rights. No subsidiary of the Company holds any shares of the capital stock of
the Company.
(b) Except as set forth on Schedule 5.2(b)(1) attached hereto, as of the
date hereof there are no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other
anti-takeover agreement, obligating the Company or any subsidiary of the
Company to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of the Company or obligating the Company
or any subsidiary of the Company to grant, extend or enter into any such
agreement or commitment. Except as set forth on Schedule 5.2(b)(2) and other
than the Company's obligations under Section 7.7(c), there are no voting
trusts, proxies or other agreements or understandings to which the Company or
any subsidiary of the Company is a party or by which the Company or any
subsidiary of the Company is bound with respect to the voting of any shares of
capital stock of the Company.
SECTION 5.3. SUBSIDIARIES. Each direct and indirect corporate subsidiary
of the Company is duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each subsidiary of the Company is
qualified to do business, and is in good standing, in each jurisdiction in
which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing would not, when taken together
with all such other failures, have a material adverse effect on the business,
operations, properties, assets, condition (financial or other) or results of
operations of the Company and its subsidiaries, taken
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as a whole. All of the outstanding shares of capital stock of each corporate
subsidiary of the Company are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights and are owned directly or
indirectly by the Company, free and clear of any liens, claims, encumbrances,
security interests, equities, charges and options of any nature whatsoever
except as set forth on Schedule 5.3 attached hereto. There are no
subscriptions, options, warrants, rights, calls, contracts, voting trusts,
proxies or other commitments, understandings, restrictions or arrangements
relating to the issuance, sale, voting, transfer, ownership or other rights
with respect to any shares of capital stock of any corporate subsidiary of the
Company, including any right of conversion or exchange under any outstanding
security, instrument or agreement.
SECTION 5.4. AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to enter into the
Agreement and, subject to the Company Stockholders' Approval (as defined in
Section 7.3(a)) and the Company Required Statutory Approvals (as defined in
Section 5.4(c)), to consummate the transactions contemplated hereby. The
Agreement has been approved by the board of directors of the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize the execution and delivery of the Agreement or, except for the
Company Stockholders' Approval, the consummation by the Company of the
transactions contemplated hereby. The Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by FPA and Acquisition, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except that such enforcement may be subject to (i) bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally and
(ii) general equitable principles, and except that the availability of
equitable remedies, including specific performance and injunctive relief, is
subject to the discretion of the court before which any proceedings may be
brought. Without limitation of the foregoing, each of the covenants and
obligations of the Company set forth in Sections 6.1, 6.5, 6.6, 7.3(a), 7.6,
7.7, 7.8 and 7.10 is valid, legally binding and enforceable notwithstanding the
absence of the Company Stockholders' Approval.
(b) Except as set forth on Schedule 5.4(b) attached hereto, the execution
and delivery of the Agreement by the Company do not violate, conflict with or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of its subsidiaries under any of the
terms, conditions or provisions of (i) the respective charters or bylaws of the
Company or any of its subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of any
court or governmental authority applicable to the Company or any of its
subsidiaries or any of their respective properties or assets, or (iii) any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which the Company or any of its subsidiaries is now a party or by which
the Company or any of its subsidiaries or any of their respective properties or
assets may be bound or affected. The consummation by the Company of the
transactions contemplated hereby will not result in any violation, conflict,
breach, termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the
preceding sentence, subject (x) in the case of the terms, conditions or
provisions described in clause (ii) above, to obtaining (prior to the Effective
Time) the Company Required Statutory Approvals and the Company Stockholders'
Approval and (y) in the case of the terms, conditions or provisions described
in clause (iii) above, to obtaining (prior to the Effective Time) consents
required from commercial lenders, lessors or other third parties. Set forth on
Schedule 5.4(b) attached hereto is a list of hospital contracts with respect to
which the consent of any party other than the Company is required in order that
consummation by the Company of the transactions contemplated hereby will not
result in a breach or termination of the respective contracts. Excluded from
the foregoing sentences of this paragraph (b), insofar as they apply to the
terms, conditions or provisions described in clauses (ii) and (iii) of the
first sentence of this paragraph (b), are such violations, conflicts, breaches,
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defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole.
(c) Except for (i) the filings by FPA and the Company required by the HSR
Act, (ii) the filing of the Joint Proxy Statement/Prospectus with the SEC
pursuant to the Exchange Act and the Securities Act and the declaration of the
effectiveness thereof by the SEC and filings with various state blue sky
authorities, (iii) the making of the Merger Filings with the Secretaries of the
States of Delaware and Florida in connection with the Merger and (iv) any other
required filings with or approvals from applicable federal and state
governmental authorities (the filings and approvals referred to in clauses (i)
through (iv) are collectively referred to as the "Company Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of the Agreement
by the Company or the consummation by the Company of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or obtained,
as the case may be, would not, in the aggregate, have a material adverse effect
on the business, operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries, taken as a whole.
SECTION 5.5. REPORTS AND FINANCIAL STATEMENTS. Since December 24, 1992,
the Company has filed with the SEC all material forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto) required
to be filed by it under each of the Securities Act, the Exchange Act and the
respective rules and regulations thereunder, all of which, as amended if
applicable, complied in all material respects with all applicable requirements
of the appropriate act and the rules and regulations thereunder. The Company
has previously delivered or made available to FPA a copy of its (a) Annual
Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with
the SEC, (b) proxy and information statements relating to (i) all meetings of
its stockholders (whether annual or special) and (ii) actions by written
consent in lieu of a stockholders' meeting from December 24, 1992 until the
date hereof, (c) all other reports, including quarterly and current reports, or
registration statements filed by the Company with the SEC, and (d) all press
releases issued since December 24, 1992 (the documents referred to in clauses
(a), (b), (c) and (d) are collectively referred to as the "Company SEC
Reports"). As of their respective dates, the Company SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements of the Company included in such reports, including the
notes and schedules thereto (collectively, the "Company Financial Statements"),
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of the Company and its
subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end and audit
adjustments and any other adjustments described therein.
SECTION 5.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in
the Company SEC Reports or with respect to acquisitions or potential
transactions or commitments heretofore disclosed to FPA in writing or on
Schedule 5.6 attached hereto, neither the Company nor any of its subsidiaries
had at December 31, 1995, or has incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature,
except (a) liabilities, obligations or contingencies (i) which are accrued or
reserved against in the Company Financial Statements or reflected in the notes
thereto or (ii) which were incurred after December 31, 1995 and were incurred
in the ordinary course of business and consistent with past practices, (b)
liabilities, obligations or contingencies which (i) would not, in the
aggregate, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
the Company and its subsidiaries, taken as a whole, or (ii) have been
discharged or paid in full prior to the date hereof, and (c) liabilities and
obligations
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which are of a nature not required to be reflected in the consolidated
financial statements of the Company and its subsidiaries prepared in accordance
with generally accepted accounting principles consistently applied and which
were incurred in the normal course of business.
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the
most recent Company SEC Report, there has not been any material adverse change
in the business, operations, properties, assets, liabilities, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole.
SECTION 5.8. LITIGATION. Except as disclosed to in the Company SEC
Reports, there are no claims, suits, actions or proceedings pending or, to the
knowledge of the Company, threatened against, relating to or affecting the
Company or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seek
to restrain the consummation of the Merger or which, either alone or in the
aggregate with all such claims, actions or proceedings, would materially and
adversely affect the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole. Except as referred to in the Company SEC
Reports, neither the Company nor any of its subsidiaries is subject to any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would have any material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
the Company and its subsidiaries, taken as a whole.
SECTION 5.9. REGISTRATION STATEMENT AND PROXY STATEMENT. None of the
information to be supplied by the Company or its subsidiaries for inclusion in
(a) the Registration Statement or (b) the Proxy Statement will, in the case of
the Proxy Statement or any amendments thereof or supplements thereto, at the
time of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the meetings of stockholders of the Company and FPA
to be held in connection with the transactions contemplated by the Agreement
or, in the case of the Registration Statement, as amended or supplemented, at
the time it becomes effective and at the time of such meetings of the
stockholders of the Company and FPA, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus, as of its effective date, will comply as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation is made by the Company with respect
to information supplied by FPA or Acquisition for inclusion therein.
SECTION 5.10. NO VIOLATION OF LAW. Except as disclosed in the Company SEC
Reports or on Schedule 5.10 attached hereto, neither the Company nor any of its
subsidiaries is in violation of or has been given notice or been charged with
any violation of, any law, statute, order, rule, regulation, ordinance or
judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any governmental or regulatory body or authority,
except for violations which, in the aggregate, would not have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole. Except as disclosed in the Company SEC
Reports, as of the date of the Agreement, to the knowledge of the Company, no
investigation or review by any governmental or regulatory body or authority is
pending or threatened, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same, other than, in each case, those the
outcome of which, as far as reasonably can be foreseen, would not have a
material adverse effect on the business, operations, properties, assets,
condition (financial or other) or results of operations of the Company and its
subsidiaries taken as a whole. The Company and its subsidiaries have all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (collectively,
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the "Company Permits"), except for permits, licenses, franchises, variances,
exemptions, orders, authorizations, consents and approvals the absence of
which, alone or in the aggregate, would not have a material adverse effect
on the business, operations, properties, assets, condition (financial or
other) or results of operations of the Company and its subsidiaries, taken as a
whole. The Company and its subsidiaries are not in violation of the terms of
any Company Permit, except for delays in filing reports or violations which,
alone or in the aggregate, would not have a material adverse effect on the
business, operations, properties, assets, condition (financial or other) or
results of operations of the Company and its subsidiaries, taken as a whole.
SECTION 5.11. COMPLIANCE. Except as disclosed in the Company SEC Reports
or on Schedule 5.11 attached hereto, the Company and each of its subsidiaries
are not in breach or violation of or in default in the performance or
observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, would result in a default under, (a)
the respective charters, bylaws or similar organizational instruments of the
Company or any of its subsidiaries or (b) any contract, commitment, agreement,
indenture, mortgage, loan agreement, note, lease, bond, license, approval or
other instrument to which the Company or any of its subsidiaries is a party or
by which any of them is bound or to which any of their property is subject,
which breaches, violations and defaults, in the case of clause (b) of this
Section 5.11, would have, in the aggregate, a material adverse effect
on the business, operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries, taken as a whole.
SECTION 5.12. TAXES. The Company and its subsidiaries have (i) duly filed
(or timely requested and received an extension to file) with the appropriate
governmental authorities all Tax Returns required to be filed by them for all
periods ending on or prior to the Effective Time, other than those Tax Returns
the failure of which to file would not have a material adverse effect on the
business, operations, properties, assets, condition (financial or other) or
results of operations of the Company and its subsidiaries, taken as a whole,
and such Tax Returns are true, correct and complete in all material respects,
and (ii) duly paid in full or made adequate provision for the payment of all
Taxes for all periods ending at or prior to the Effective Time. The
liabilities and reserves for Taxes reflected in the Company balance sheet
included in the latest Company SEC Report are adequate to cover all Taxes for
all periods ending at or prior to the Effective Time and there are no material
liens for Taxes upon any property or assets of the Company or any subsidiary
thereof, except for liens for Taxes not yet due. There are no unresolved
issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the IRS or any other governmental taxing
authority with respect to Taxes of the Company or any of its subsidiaries
which, if decided adversely, singly or in the aggregate, would have a material
adverse effect on the business, operations, properties, assets, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole. Neither the Company nor any of its
subsidiaries is a party to any agreement providing for the allocation or
sharing of Taxes with any entity that is not, directly or indirectly, a
wholly-owned corporate subsidiary of Company other than agreements the
consequences of which are adequately reserved for in the Company Financial
Statements. Neither the Company nor any of its corporate subsidiaries has,
with regard to any assets or property held, acquired or to be acquired by any
of them, filed a consent to the application of Section 341(f) of the Code.
SECTION 5.13. EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as set forth in the Company SEC Reports or on Schedule 5.13(a)
attached hereto, at the date hereof, the Company and its subsidiaries do not
maintain or contribute to any material employee benefit plans, programs,
arrangements and practices (such plans, programs, arrangements and practices of
the Company and its subsidiaries being referred to as the "Company Plans"),
including employee benefit plans within the meaning set forth in Section 3(3)
of ERISA, or other similar material arrangements for the provision of benefits
(excluding any "Multi-employer Plan" within the meaning of Section 3(37) of
ERISA or a "Multiple Employer Plan" within the meaning of Section 413(c) of the
Code). Neither the Company nor its subsidiaries has any obligation to create
any additional such plan or to amend any such plan so as to increase benefits
thereunder, except as required under the terms of the Company Plans, under
existing collective bargaining agreements or to comply with applicable law.
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(b) Except as disclosed in the Company SEC Reports or on Schedule 5.13(b)
attached hereto, (i) there have been no prohibited transactions within the
meaning of Section 406 or 407 of ERISA or Section 4975 of the Code with respect
to any of the Company Plans that would result in penalties, taxes or
liabilities which, singly or in the aggregate, would have a material adverse
effect on the business, operations, properties, assets, condition (financial or
other) results of operations of the Company and its subsidiaries, taken as a
whole, (ii) except for premiums due, there is no outstanding material
liability, whether measured alone or in the aggregate, under Title IV of ERISA
with respect to any of the Company Plans, (iii) neither the Pension Benefit
Guaranty Corporation nor any plan administrator has instituted proceedings to
terminate any of the Company Plans subject to Title IV of ERISA other than in a
"standard termination" described in Section 4041(b) of ERISA, (iv) none of the
Company Plans has incurred any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of each of the Company Plans ended
prior to the date of the Agreement, (v) the current present value of all
projected benefit obligations under each of the Company Plans which is subject
to Title IV of ERISA did not, as of its latest valuation date, exceed the then
current value of the assets of such plan allocable to such benefit liabilities
by more than the amount, if any, disclosed in the Company SEC Reports as of
December 31, 1995, based upon reasonable actuarial assumptions currently
utilized for such Company Plan, (vi) each of the Company Plans has been
operated and administered in all material respects in accordance with
applicable laws during the period of time covered by the applicable statute of
limitations, (vii) each of the Company Plans which is intended to be
"qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified and such determination has not been
modified, revoked or limited by failure to satisfy any condition thereof or by
a subsequent amendment thereto or a failure to amend, except that it may be
necessary to make additional amendments retroactively to maintain the
"qualified" status of such Company Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to
Multi-employer Plans, neither the Company nor any of its subsidiaries has, made
or suffered a "complete withdrawal" or a "partial withdrawal," as such terms
are respectively defined in Sections 4203, 4204 and 4205 of ERISA and, to the
knowledge of the Company and its subsidiaries, no event has occurred or is
expected to occur which presents a material risk of a complete or partial
withdrawal under said Sections 4203, 4204 and 4205, (ix) to the knowledge of
the Company and its subsidiaries, there are no material pending, threatened or
anticipated claims involving any of the Company Plans other than claims for
benefits in the ordinary course, and (x) the Company and its subsidiaries have
no current material liability, whether measured alone or in the aggregate, for
plan termination or complete withdrawal or partial withdrawal under Title IV of
ERISA based on any plan to which any entity that would be deemed one employer
with the Company and its subsidiaries under Section 4001 of ERISA or Section
414 of the Code contributed during the period of time covered by the applicable
statute of limitations (a "Company Controlled Group Plan"), and the Company and
its subsidiaries do not reasonably anticipate that any such liability will be
asserted against the Company or any of its subsidiaries. None of the Company
Controlled Group Plans has an "accumulated funding deficiency" (as defined in
Section 302 of ERISA and 412 of the Code).
SECTION 5.14. LABOR CONTROVERSIES. Except as set forth in the Company SEC
Reports, (a) there are no significant controversies pending or, to the
knowledge of the Company, threatened between the Company or its subsidiaries
and any representatives of any of their employees, (b) to the knowledge of the
Company, there are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or its
subsidiaries, (c) the Company and its subsidiaries have, to the knowledge of
the Company, complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and (d) no person has, to the knowledge of the
Company, asserted that the Company or any of its subsidiaries is liable in any
amount for any arrears of wages or any taxes or penalties for failure to comply
with any of the foregoing, except for such controversies, organizational
efforts, non-compliance and liabilities which, singly or in the aggregate,
would not materially and adversely affect the business, operations, properties,
assets, condition (financial or other) or results of operations of the Company
and its subsidiaries, taken as a whole.
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SECTION 5.15. ENVIRONMENTAL MATTERS. Except as set forth in the Company
SEC Reports, (i) the Company and its subsidiaries have conducted their
respective businesses in compliance with all applicable Environmental Laws,
including, without limitation, having all permits, licenses and other approvals
and authorizations necessary for the operation of their respective businesses
as presently conducted, (ii) none of the properties owned by the Company or any
of its subsidiaries contain any Hazardous Substance as a result of any activity
of the Company or any of its subsidiaries in amounts exceeding the levels
permitted by applicable Environmental Laws, (iii) neither the Company nor any
of its subsidiaries has received any notices, demand letters or requests for
information from any federal, state, local or foreign governmental entity or
third party indicating that the Company or any of its subsidiaries may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of their businesses, (iv) there are no civil, criminal
or administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or threatened against the Company or any of its
subsidiaries relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company or any of its subsidiaries concerning the release of any
Hazardous Substance or the threatened or actual violation of any Environmental
Law, (vi) no Hazardous Substance has been disposed of, released or transported
in violation of any applicable Environmental Law from any properties owned by
the Company or any of its subsidiaries as a result of any activity of the
Company or any of its subsidiaries during the time such properties were owned,
leased or operated by the Company or any of its subsidiaries, (vii) there have
been no environmental investigations, studies, audits, tests, reviews or other
analyses regarding compliance or noncompliance with any applicable
Environmental Law conducted by or which are in the possession of the Company or
its subsidiaries relating to the activities of the Company or its subsidiaries
which have not been delivered to FPA prior to the date hereof, (viii) there
are no underground storage tanks on, in or under any properties owned by
the Company or any of its subsidiaries and no underground storage tanks have
been closed or removed from any of such properties during the time such
properties were owned, leased or operated by the Company or any of its
subsidiaries, (ix) there is no asbestos or asbestos containing material present
in any of the properties owned by the Company and its subsidiaries, and no
asbestos has been removed from any of such properties during the time such
properties were owned, leased or operated by the Company or any of its
subsidiaries, and (x) neither the Company, its subsidiaries nor any of their
respective properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (x) that, singly or in the aggregate, would not reasonably
be expected to have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
the Company and its subsidiaries considered as one enterprise.
SECTION 5.16. TITLE TO ASSETS. Except as set forth on Schedule 5.16
attached hereto, the Company and each of its subsidiaries has good and
marketable title in fee simple to all its real property and good title to all
its leasehold interests and other properties, as reflected in the most recent
balance sheet included in the Company Financial Statements, except for
properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i)
the lien for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Company's business
operations (in the manner presently carried on by the Company) or (iii) as
disclosed in the Company SEC Reports, and except for such matters which, singly
or in the aggregate, would not materially and adversely affect the business,
operations, properties, assets, condition (financial or other) or results of
operations of the Company and its subsidiaries, taken as a whole. All leases
under which the Company leases any substantial amount of real or personal
property have been made available to FPA and are in good standing, valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event which with notice or lapse of
time or both would become a default other than defaults under such leases which
in the aggregate would not materially and adversely affect the condition of the
Company and its subsidiaries, taken as a whole.
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SECTION 5.17. COMPANY STOCKHOLDERS' APPROVAL. The affirmative vote of
stockholders of the Company required for approval and adoption of the Agreement
and the Merger is a majority of the outstanding shares of Company Common Stock.
SECTION 5.18. POOLING AND TAX-FREE REORGANIZATION MATTERS. To the
knowledge of the Company and based upon consultation with its independent
accountants, neither the Company nor any of its affiliates has taken or agreed
to take any action that would interfere with the ability of FPA to (i) account
for the business combination to be effected by the Merger as a pooling of
interests, (ii) continue to account for as a pooling of interests any past
business combination transaction currently accounted for as a pooling of
interests under APB No. 16 for accounting and financial statement purposes or
(iii) treat the Merger as a tax-free reorganization pursuant to Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
SECTION 5.19. INSURANCE. The Company maintains insurance with financially
responsible insurance companies (i) in amounts customary in its industry to
insure it against risks and losses associated with the operation of its
business and its properties and (ii) to insure its directors and officers
against certain losses. Copies of such policies have been made available to
FPA.
SECTION 5.20. BROKERS. The Company represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by the Agreement based upon arrangements made by or on behalf of
the Company (except for fees payable to the investment banking firm named in
Section 8.2(g)).
SECTION 5.21. STATUTORY ANTITAKEOVER PROVISIONS. The Company's Articles
of Incorporation provide that it is exempt from Sections 607.0901 and 607.0902
of the Florida Statutes.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.
Except as otherwise contemplated by the Agreement, after the date hereof and
prior to the Closing Date or earlier termination of the Agreement, unless FPA
shall otherwise agree in writing, the Company shall, and shall cause its
subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters or bylaws,
(ii) split, combine or reclassify their outstanding capital stock or (iii)
declare, set aside or pay any dividend or distribution payable in cash, stock,
property or otherwise, except for the payment of dividends or distributions by
a wholly-owned subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge
or dispose of, any additional shares of, or any options, warrants or rights of
any kind to acquire any shares of, their capital stock of any class or any debt
or equity securities convertible into or exchangeable for such capital stock,
except that the Company (i) may grant options to the extent required to be
granted automatically under the Company's Plans or pursuant to employment
agreements and (ii) may issue shares (A) upon conversion of convertible
securities and exercise of options outstanding on the date hereof, or options
granted pursuant to subsection (c)(i) of this Section 6.1, (B) in connection
with the potential acquisitions described on Schedule 6.1 attached hereto and
(C) in connection with transactions disclosed on other Schedules attached
hereto;
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(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary
course of business or (B) borrowings to refinance existing indebtedness, (ii)
redeem, purchase, acquire or offer to purchase or acquire any shares of its
capital stock or any options, warrants or rights to acquire any of its capital
stock or any security convertible into or exchangeable for its capital stock,
(iii) take any action which would jeopardize the treatment of the Merger as a
pooling of interests under APB No. 16, (iv) take or fail to take any action
which action or failure would cause the Company or its stockholders (except to
the extent that any stockholders receive cash in lieu of fractional shares) to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger, (v) make any acquisition of any assets or
businesses other than expenditures for fixed or capital assets in the ordinary
course of business and as described on Schedule 6.1 attached hereto, (vi) sell,
pledge, dispose of or encumber any assets or businesses other than sales in the
ordinary course of business or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by the Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of FPA to report operational matters of materiality and the
general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees,
except as required by Section 7.12 hereof and in the ordinary course and
consistent with past practice;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required by Section 7.12 or to comply with changes in applicable law;
(i) maintain with financially responsible insurance companies insurance on
its tangible assets and its businesses in such amounts and against such risks
and losses as are consistent with past practice; and
(j) take all such reasonable action as may be required to maintain its
directors' and officers' liability insurance coverage.
SECTION 6.2. CONDUCT OF BUSINESS BY FPA AND ACQUISITION PENDING THE
MERGER. Except as otherwise contemplated by the Agreement, after the date
hereof and prior to the Closing Date or earlier termination of the Agreement,
unless the Company shall otherwise agree in writing, FPA and Acquisition shall,
and shall cause their subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters or bylaws
except as set forth in FPA's Proxy Statement dated April 19, 1996, and as may
be amended from time to time, (ii) split, combine or reclassify (whether by
stock dividend or otherwise) their outstanding capital stock, or (iii) declare,
set aside or pay any dividend or distribution payable in cash, stock, property
or otherwise, except for the payment of dividends or distributions by a
wholly-owned subsidiary of FPA;
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(c) not issue, sell, pledge or dispose of, or agree to issue, sell, pledge
or dispose of, any shares of FPA Common Stock, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, except that FPA (A) may issue shares (i) upon conversion of convertible
securities and exercise of options outstanding on the date hereof (ii) in
connection with the potential acquisitions described on Schedule 6.2 attached
hereto and (iii) in connection with the possible issuance and sale of certain
notes as described on Schedule 6.2 attached hereto (the "Notes") and (B) may
issue rights or warrants to purchase shares of its common or preferred stock in
accordance with a proposed shareholder rights plan;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money, other than (A) borrowings in the ordinary
course of business or (B) borrowings to refinance existing indebtedness,
including the possible issuance of the Notes, (ii) redeem, purchase, acquire or
offer to purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iii) take any action
which would jeopardize the treatment of the Merger as a pooling of interests
under APB No. 16, (iv) take or fail to take any action which action or failure
to take action would cause the Company or its stockholders (except to the
extent that any stockholders receive cash in lieu of fractional shares) to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger, (v) make any acquisition of any assets or
businesses other than expenditures for fixed or capital assets in the ordinary
course of business and as described on Schedule 6.2 attached hereto, (vi) sell,
pledge, dispose of or encumber any assets or businesses other than sales in the
ordinary course of business or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by the Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of the Company to report operational matters of materiality and
the general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees,
except in the ordinary course and consistent with past practice;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;
(i) maintain with financially responsible insurance companies insurance on
its tangible assets and its businesses in such amounts and against such risks
and losses as are consistent with past practice; and
(j) take all such reasonable action as may be required to maintain its
directors' and officers' liability insurance coverage.
SECTION 6.3. CONTROL OF THE COMPANY'S OPERATIONS. Nothing contained in
the Agreement shall give to FPA, directly or indirectly, rights to control or
direct the Company's operations prior to the Effective Time. Prior to the
Effective Time, the Company shall exercise, consistent with the terms and
conditions of the Agreement, complete control and supervision of its
operations.
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SECTION 6.4. CONTROL OF FPA'S OPERATIONS. Nothing contained in the
Agreement shall give to the Company, directly or indirectly, rights to control
or direct FPA's or Acquisition's operations prior to the Effective Time. Prior
to the Effective Time, FPA and Acquisition shall exercise, consistent with the
terms and conditions of the Agreement, complete control and supervision of
their respective operations.
SECTION 6.5. ACQUISITION TRANSACTIONS.
(a) Except as hereinafter provided, after the date hereof and prior to the
Effective Time or earlier termination of the Agreement, neither FPA nor the
Company shall, and neither shall permit any of its subsidiaries to, initiate,
solicit, negotiate, encourage or provide non-public or confidential information
to facilitate, and each shall use its best efforts to cause each of its
subsidiaries and cause any officer, director or employee of it or its
subsidiaries, or any attorney, accountant, investment banker, financial advisor
or other agent retained by it or its subsidiaries, not to initiate, solicit,
negotiate, encourage or provide non-public or confidential information to
facilitate, any proposal or offer to acquire all or any substantial part of the
business and properties of FPA or the Company or any capital stock of FPA or
the Company, whether by merger, purchase of assets, tender offer or otherwise,
whether for cash, securities or any other consideration or combination thereof
(any such transactions being referred to herein as "Acquisition Transactions").
(b) Notwithstanding the provisions of paragraph (a) above, either FPA or
the Company (either a "Target" or a "non-Target," as the case may be for
purposes of Section 6.5(b) and Section 6.5(c)) may, as a Target, in response to
an unsolicited written proposal with respect to an Acquisition Transaction, (i)
furnish confidential or non-public information concerning its business,
properties or assets to a financially capable corporation, partnership,
individual or other entity, group or other person (a "Potential Acquirer") if
the non-Target shall have been given not less than one (1) business day advance
written notice of the Target's intention to do so, or negotiate with such
Potential Acquirer if the non-Target shall have been given not less than three
(3) business days' advance written notice of the Target's intention to do so,
and (ii) if such proposed Acquisition Transaction constitutes a tender offer
subject to Section 14(d) of the Exchange Act, the board of directors of Target
may take and disclose to Target stockholders a position contemplated by Rule
14e-2(a) under the Exchange Act.
(c) In the event the Target shall receive any offer of the type referred
to in Section 6.5(b) above, it shall immediately inform the non-Target that an
offer has been received and shall immediately furnish to the non-Target the
identity of the proponent of such offer, a copy of any information provided to
such Potential Acquirer and, a description of the material terms of such offer,
unless the board of directors of the Target concludes that such disclosure to
the non-Target would be inconsistent with its fiduciary duties to its
stockholders under applicable law.
(d) The Company may enter into a definitive agreement for an Acquisition
Transaction which meets the requirements set forth above with a Potential
Acquirer with which it is permitted to negotiate pursuant to paragraph (b)
above, but only if (i) the independent financial advisors of the Company shall
have determined that such Acquisition Transaction would be more favorable to
the Company's stockholders from a financial point of view than the Merger, (ii)
the Company's board of directors shall have concluded, in good faith and after
consultation with its legal counsel, that such action is necessary in order for
the board of directors to act in a manner that is consistent with its fiduciary
obligations under applicable law, (iii) at least three (3) business days prior
to the execution of a definitive agreement with a Potential Acquirer, the
Company shall have furnished FPA with a copy of such definitive agreement and
(iv) FPA shall have failed within such three-day period to offer to amend the
terms of the Agreement in order that the Merger would yield a value to
stockholders of the Company at least equal to the Acquisition Transaction.
(e) Each party (i) acknowledges that a breach of any of its covenants
contained in this Section 6.5 will result in irreparable harm to the other
party which will not be compensable in money damages and (ii) agrees that
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such covenant shall be specifically enforceable and that specific
performance and injunctive relief shall be a remedy properly available to the
other party for a breach of such covenant.
SECTION 6.6. EFFECT OF ACQUISITION TRANSACTION. If the Merger is not
consummated as a result of the Company electing to enter into an Acquisition
Transaction (including, but not limited to, an Acquisition Transaction
permitted pursuant to this Article VI) with any party other than FPA or one of
its subsidiaries or affiliates prior to December 31, 1996, the Company shall
pay to FPA upon consummation of such Acquisition Transaction an amount equal to
the value of three percent (3%) of the Aggregate Value paid to the Company or
its stockholders in such Acquisition Transaction. "Aggregate Value" shall mean
the total value paid for Company Common Stock plus the total indebtedness
assumed by the acquiring party as a result of the Acquisition Transaction.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1. ACCESS TO INFORMATION. (a) The Company and its subsidiaries
shall afford to FPA and Acquisition and their respective accountants, counsel,
financial advisors and other representatives (the "FPA Representatives") and
FPA and its subsidiaries shall afford to the Company and its accountants,
counsel, financial advisors and other representatives (the "Company
Representatives") reasonable access during normal business hours throughout the
period prior to the earlier of the termination of the Agreement or the
Effective Time to all of their respective properties, books, contracts,
commitments and records (including, but not limited to, Tax Returns) and,
during such period, shall furnish promptly to one another (i) a copy of each
report, schedule and other document filed or received by any of them pursuant
to the requirements of federal or state securities laws or filed by any of them
with the SEC in connection with the transactions contemplated by the Agreement
or which may have a material effect on their respective businesses, properties
or personnel and (ii) such other information concerning their respective
businesses, properties and personnel as FPA, Acquisition or the Company, as the
case may be, shall reasonably request; provided that no investigation pursuant
to this Section 7.1 shall amend or modify any representations or warranties
made herein or the conditions to the obligations of the respective parties to
consummate the Merger. FPA and its subsidiaries shall hold and shall use their
reasonable best efforts to cause the FPA Representatives to hold, and the
Company and its subsidiaries shall hold and shall use their reasonable best
efforts to cause the Company Representatives to hold, in strict confidence all
Confidential Information, as hereinafter defined, furnished to FPA, Acquisition
or to the Company, as the case may be, in connection with the transactions
contemplated by the Agreement, except that (i) FPA, Acquisition and the Company
may disclose such information as may be necessary in connection with seeking
FPA Required Statutory Approvals and FPA Stockholders' Approval, the Company
Required Statutory Approvals and the Company Stockholders' Approval and (ii)
each of FPA, Acquisition and the Company may disclose any information that it
is required by law or judicial or administrative order to disclose. For
purposes of this Section 7.1(a), "Confidential Information" regarding a party
to the Agreement means (i) the existence of the discussions which are the
subject of the Agreement and (ii) any information about the subject party;
provided that it does not include information which the disclosing party can
demonstrate (A) is generally available to or known by the public other than as
a result of improper disclosure by the disclosing party or (B) obtained by the
disclosing party from a source other than the subject party, provided that such
source was not bound by a duty of confidentiality to the subject party or
another party with respect to such information. The provisions of the
Confidentiality/Standstill Agreement recently entered into (the
"Confidentiality Agreement") between FPA and the Company shall survive the
execution and delivery of the Agreement and, to the extent of any inconsistency
between the provisions of the Confidentiality Agreement and this Section 7.1,
the provisions of the Confidentiality Agreement shall govern the obligations of
the parties.
(b) In the event that the Agreement is terminated in accordance with its
terms, each party shall promptly return to the other all non-public written
material provided pursuant to this Section 7.1 or the
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Confidentiality Agreement and shall not retain any copies, extracts or
other reproductions in whole or in part of such written material. In such
event, all documents, memoranda, notes and other writings prepared by FPA or
the Company based on the information in such material shall be destroyed (and
FPA and the Company shall use their respective reasonable best efforts to cause
their advisors and representatives to similarly destroy their documents,
memoranda and notes), and such destruction (and reasonable best efforts) shall
be certified in writing by an authorized officer supervising such destruction.
(c) The Company shall promptly advise FPA and FPA shall promptly advise
the Company in writing of any change or the occurrence of any event after the
date of the Agreement having, or which would have any material adverse effect
on the business, operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries or FPA and its
subsidiaries, as the case may be, taken as a whole.
SECTION 7.2. REGISTRATION STATEMENT AND PROXY STATEMENT. FPA and the
Company shall file with the SEC as soon as is reasonably practicable after the
date hereof (but in no event prior to the consummation of the proposed
acquisition by FPA of certain securities from Physician Corporation of America
previously disclosed to the Company unless such acquisition is otherwise
terminated) the Joint Proxy Statement/Prospectus and shall use all reasonable
efforts to have the Registration Statement declared effective by the SEC as
promptly as practicable. FPA shall also take any action required to be taken
under applicable state blue sky, securities laws or rules or regulations of any
national securities exchange or NASDAQ in connection with the issuance of FPA
Common Stock pursuant hereto. FPA and the Company shall promptly furnish to
each other all information, and take such other actions, as may reasonably be
requested in connection with any action by any of them in connection with the
preceding sentence.
SECTION 7.3. STOCKHOLDERS' APPROVALS.
(a) The Company shall, as promptly as practicable, submit the Agreement
and the transactions contemplated hereby for the approval of its stockholders
at a meeting of stockholders and, subject to the fiduciary duties of the board
of directors of the Company under applicable law, shall use its reasonable best
efforts to obtain stockholder approval and adoption (the "Company Stockholders'
Approval") of the Agreement and the transactions contemplated hereby. Such
meeting of stockholders shall be held as soon as practicable following the date
upon which the Registration Statement becomes effective. Subject to the
fiduciary duties of the board of directors of the Company under applicable law,
the Company shall, through its board of directors, recommend to its
stockholders approval of the transactions contemplated by the Agreement.
Subject to the foregoing, the Company (i) acknowledges that a breach of its
covenant contained in this Section 7.3(a) to convene a meeting of its
stockholders and call for a vote thereat with respect to the approval of the
Agreement and the Merger will result in irreparable harm to FPA which will not
be compensable in money damages and (ii) agrees that such covenant shall be
specifically enforceable and that specific performance and injunctive relief
shall be a remedy properly available to FPA for a breach of such covenant.
(b) FPA shall, as promptly as practicable, submit the Agreement and the
transactions contemplated hereby for the approval of its stockholders at a
meeting of stockholders and, subject to the fiduciary duties of the board of
directors of FPA under applicable law, shall use its reasonable best efforts to
obtain stockholder approval and adoption (the "FPA Stockholders' Approval") of
the Agreement and the transactions contemplated hereby. Such meeting of
stockholders shall be held as soon as practicable following the date on which
the Registration Statement becomes effective. FPA shall, through its board of
directors, but subject to the fiduciary duties of the members thereof, (i)
recommend to its stockholders approval of the transactions contemplated by the
Agreement and (ii) authorize and cause an officer of FPA to vote FPA's shares
of Acquisition Common Stock for adoption and approval of the Agreement and the
transactions contemplated hereby and shall take all additional actions as the
sole stockholder of Acquisition necessary to adopt and approve the Agreement
and the transactions contemplated hereby. Subject to the foregoing, FPA (i)
acknowledges that a breach of its covenant contained in this Section 7.3(b) to
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convene a meeting of its stockholders and call for a vote thereat with respect
to the approval of the Agreement and the Merger will result in irreparable harm
to the Company which will not be compensable in money damages and (ii) agrees
that such covenant shall be specifically enforceable and that specific
performance and injunctive relief shall be a remedy properly available to the
Company for a breach of such covenant.
SECTION 7.4. AFFILIATES OF THE COMPANY. On or prior to the date that is
thirty (30) days prior to the Closing Date, the Company shall deliver to FPA a
letter (the "APB No. 16 Affiliate Letter") identifying all persons who may be
deemed affiliates of the Company for the purposes of APB No. 16, including,
without limitation, all directors and executive officers of the Company as of
the date of the APB No. 16 Affiliate Letter. On or prior to the date that is
five (5) days prior to the Closing Date, (i) the Company shall deliver to FPA
another letter (the "Rule 145 Letter") identifying all persons who may be
affiliates of the Company, as defined under Rule 145 under the Securities Act
("Rule 145"), as of the date of the Rule 145 Letter, and (ii) the Company shall
advise the persons identified in the Rule 145 Letter of the resale restrictions
imposed by applicable securities laws. The Company shall use its best efforts
to obtain as soon as practicable from each person listed on the APB No. 16
Affiliate Letter and from any person who may be deemed to have become an
affiliate of the Company for the purposes of APB No. 16 after the Company's
delivery of the APB No. 16 Affiliate Letter and prior to the Closing Date, an
agreement not to sell shares of FPA Common Stock obtained in the Merger until c
ombined results of operations of the Company and FPA covering at least thirty
(30) days of operations are made public.
SECTION 7.5. EXCHANGE LISTING. FPA shall use its reasonable best efforts
to effect, at or before the Effective Time, authorization for listing on the
NASDAQ, upon official notice of issuance, of the shares of FPA Common Stock to
be issued pursuant to the Merger.
SECTION 7.6. EXPENSES AND FEES. All costs and expenses incurred in
connection with the Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, except that those expenses incurred
in connection with printing the Joint Proxy Statement/Prospectus shall be
shared equally by FPA and the Company. The fees required pursuant to Sections
6.6 and 9.2 hereof shall be paid in accordance with those provisions.
SECTION 7.7. AGREEMENT TO COOPERATE.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use its best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Agreement, including using its
best efforts to obtain all necessary or appropriate waivers, consents and
approvals and SEC "no-action" letters to effect all necessary registrations,
filings and submissions and to lift any injunction or other legal bar to the
Merger (and, in such case, to proceed with the Merger as expeditiously as
possible), subject, however, to FPA Stockholders' Approval and Company
Stockholders' Approval.
(b) Without limitation of the foregoing, each of FPA and the Company
undertakes and agrees to (i) take all actions necessary to cause the Merger to
(a) qualify as a tax-free merger under Section 368(a)(1)(A), (a)(2)(D) or
(a)(2)(E) of the Code, and (b) be treated as a pooling of interests under APB
No. 16 for accounting and financial statement purposes, (ii) file as soon as
practicable after the date hereof a Notification and Report Form under the HSR
Act with the Federal Trade Commission (the "FTC") and the Antitrust Division of
the Department of Justice (the "Antitrust Division"). Each of FPA and the
Company shall (i) use its reasonable efforts to comply as expeditiously as
possible with all lawful requests of the FTC or the Antitrust Division for
additional information and documents and (ii) not extend any waiting period
under the HSR Act or enter into any agreement with the FTC or the Antitrust
Division not to consummate the transactions contemplated by the Agreement,
except with the prior written consent of such parties.
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(c) The Company shall use its best efforts to obtain from the Company's
executive officers and directors, and shall deliver to FPA, irrevocable proxies
(together with a voting agreement) only with respect to the meeting of Company
stockholders related to the Merger (in a form furnished to the Company by FPA)
representing all shares of Company Common Stock that such executive officers
and directors beneficially own as contemplated by the rules under the Exchange
Act with their vote in favor of the Merger.
(d) FPA shall use its best efforts to obtain from FPA's executive officers
and directors, and shall deliver to the Company, (i) irrevocable proxies
(together with a voting agreement) only with respect to the meeting of FPA
stockholders related to the Merger (in a form reasonably acceptable to the
Company) representing all shares of FPA Common Stock that such executive
officers and directors and officers own with their votes in favor of the
Merger, and (ii) irrevocable proxies (together with a voting agreement, and in
a form acceptable to Stephen J. Dresnick, M.D.) representing all shares of FPA
Common Stock that such executive officers and directors beneficially own as
contemplated by the rules under the Exchange Act with their votes for election
of directors in accordance with Section 7.13 hereof.
SECTION 7.8. PUBLIC STATEMENTS. The parties shall consult with each other
prior to issuing any press release or any written public statement with respect
to the Agreement or the transactions contemplated hereby and shall not issue
any such press release or written public statement prior to such consultation
unless required by law.
SECTION 7.9. OPTION PLANS. At the Effective Time, FPA shall take such
action as may be necessary to assume each unexpired and unexercised option to
purchase a share of Company Common Stock, regardless of whether exercisable at
the Effective Time (each a "Company Option"), so that each such option becomes
an option (each an "FPA Option") to purchase a number of shares of FPA Common
Stock equal to the number of shares of Company Common Stock that could have
been purchased under the Company Option multiplied by the Exchange Ratio, at a
price per share of FPA Common Stock equal to the option exercise price
determined pursuant to the Company Option divided by the Exchange Ratio and
subject to substantially the same terms and conditions as the Company Option.
FPA shall assume all of the Company's obligations with respect to Company
Options as amended and shall, from and after the Effective Time, make available
for issuance upon exercise of the FPA Options all shares of FPA Common Stock
covered thereby and promptly after the Effective Date amend its Registration
Statement on Form S-8 or file a new Form S-8 (in either case, the "S-8"), to
cover such additional shares of FPA Common Stock. Notwithstanding the
foregoing, following the Effective Time, no additional options shall be granted
to the directors of the Company under the automatic grant provisions set forth
in paragraph 17 of the Company's 1994 Stock Option Plan.
SECTION 7.10. NOTIFICATION OF CERTAIN MATTERS. Each of the Company, FPA
and Acquisition agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in the Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof
to the Effective Time and (ii) any material failure on its part to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 7.10 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
SECTION 7.11. CORRECTIONS TO THE JOINT PROXY STATEMENT/PROSPECTUS AND
REGISTRATION STATEMENT. Prior to the date of approval of the Merger by their
respective stockholders, each of the Company, FPA and Acquisition shall correct
promptly any information provided by it to be used specifically in the Joint
Proxy Statement/Prospectus and Registration Statement that shall have become
false or misleading in any material respect and shall take all reasonable steps
necessary to file with the SEC and have declared effective or cleared by the
SEC any amendment or supplement to the Joint Proxy Statement/Prospectus or the
Registration Statement so as to correct
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the same and to cause the Joint Proxy Statement/Prospectus as so corrected to
be disseminated to the stockholders of the Company and FPA, in each case to the
extent required by applicable law.
SECTION 7.12. CHANGE OF CONTROL ISSUES. The Company shall secure
appropriate amendments to or waivers of any employment agreements to which it
is a party that presently provide for changes in the material terms or
conditions of such employment agreements upon a change of control of the
Company, including without limitation changes in the compensation payable or
the terms of a covenant not to compete.
SECTION 7.13. BOARD OF DIRECTORS. At the Effective Time, the board of
directors of FPA shall appoint Stephen J. Dresnick, M.D. and another individual
selected by the board of directors of the Company and acceptable to FPA to the
board of directors of FPA to serve until the next annual meeting of
stockholders of FPA. Commencing with the election at that annual meeting, the
board of directors of FPA will nominate and recommend to its stockholders the
election to the board of directors of FPA of Dr. Dresnick for a period of two
(2) additional years and the election to the board of directors of FPA of such
other individual for a period of one (1) additional year. If during Dr.
Dresnick's term as a director, FPA decides to increase the size of its board of
directors, the board of directors of FPA will nominate one individual selected
by Dr. Dresnick and acceptable to the board of directors of FPA, and recommend
to the FPA stockholders his or her election to the board of directors of FPA
for a period of no less than one (1) year.
SECTION 7.14. INSURANCE; INDEMNITY. For a period of six (6) years after
the Effective Time, FPA shall indemnify, defend and hold harmless to the
fullest extent permitted under applicable law each person who is now or
has been an officer, director, employee, trustee or agent of Company (or any
subsidiary or division thereof), including, without limitation, each person
controlling any of the foregoing persons (individually, an "Indemnified Party"
and collectively, the "Indemnified Parties"), against all losses, claims,
damages, liabilities, costs or expenses (including reasonable attorneys' fees),
judgments, fines, penalties and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation arising out of or
pertaining to acts or omissions, or alleged acts or omissions, by them in their
capacities as such, whether commenced, asserted or claimed before or after the
Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (an "Action"), (i) FPA shall pay the reasonable fees and expenses
of counsel selected by the Indemnified Party, which counsel shall be reasonably
acceptable to FPA, in advance of the final disposition of any such Action to
the full extent and under all circumstances permitted by Florida law as in
effect on the date hereof, upon receipt of any undertaking required by
applicable law, and (ii) FPA will cooperate in the defense of any such matter;
provided, however, that FPA shall not be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld)
and provided, further, that FPA shall not be obligated pursuant to this Section
to pay the fees and disbursements of more than one counsel for all Indemnified
Parties in any single Action, except to the extent that, in the opinion of
counsel for the Indemnified Parties, two or more of such Indemnified Parties
have conflicting interests in the outcome of such action. FPA may obtain
directors' and officers' liability insurance covering its obligations under
this Section 7.14.
ARTICLE VIII
CONDITIONS
SECTION 8.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions:
(a) the Agreement and the transactions contemplated hereby shall have been
approved and adopted, by the majority vote of the stockholders of the Company
and FPA under applicable law and applicable NASDAQ listing requirements;
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(b) the shares of FPA Common Stock issuable in the Merger shall have been
authorized for listing on the NASDAQ upon official notice of issuance;
(c) the waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated;
(d) the Registration Statement shall have become effective in accordance
with the provisions of the Securities Act and state blue sky laws, if
applicable, and no stop order suspending such effectiveness shall have been
issued and remain in effect and no proceeding for that purpose shall have been
instituted by the SEC or any state regulatory authorities;
(e) no preliminary or permanent injunction or other order or decree by any
federal or state court which prevents the consummation of the Merger shall have
been issued and remain in effect (each party agreeing to use its reasonable
efforts to have any such injunction, order or decree lifted);
(f) no litigation shall be pending or threatened that in the opinion of
counsel to either FPA or the Company has a significant likelihood of preventing
the consummation of the Merger or the transactions contemplated thereby;
(g) no action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state or federal government or governmental
agency in the United States which would prevent the consummation of the Merger
or make the consummation of the Merger illegal;
(h) all governmental or third party waivers, consents, orders and
approvals required for the consummation of the Merger and the transactions
contemplated hereby, shall have been obtained and be in effect at the Effective
Time; and
(i) Coopers & Lybrand LLP, certified public accountants for the Company,
shall have delivered a letter, dated the Closing Date, addressed to FPA and to
the stockholders of the Company, in form and substance reasonably satisfactory
to FPA, stating that the Merger will qualify as a tax-free merger under Section
368(a)(1)(A) and (a)(2)(E) of the Code and will be treated as a
pooling-of-interests transaction under APB No. 16.
SECTION 8.2. CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
Unless waived by the Company, the obligation of the Company to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following additional conditions:
(a) FPA and Acquisition shall have performed in all material respects
their agreements contained in the Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of FPA and
Acquisition contained in the Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the Closing Date
as if made at and as of such date, and the Company shall have received a
certificate of the Chairman of the Board and Chief Executive Officer, the
President or a Vice President of FPA and of the President and Chief Executive
Officer or a Vice President of Acquisition to that effect;
(b) the Company shall have received an opinion of Coopers & Lybrand LLP,
in form and substance reasonably satisfactory to the Company, dated the Closing
Date, to the effect that the Company and holders of Company Common Stock
(except to the extent any stockholders receive cash in lieu of fractional
shares) will recognize no gain or loss for federal income tax purposes as a
result of consummation of the Merger;
(c) the Company shall have received an opinion or opinions from Ballard
Spahr Andrews & Ingersoll, special counsel to FPA and Acquisition, dated the
Closing Date, reasonably satisfactory to the Company and
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covering the due incorporation of FPA and Acquisition, the binding nature of
the Agreement, the effectiveness of the Merger, the validity of the FPA Common
Stock to be issued in connection with the Merger and such other matters as may
be reasonably requested by the Company;
(d) the Company shall have received "comfort" letters in customary form
from Deloitte & Touche LLP, certified public accountants for FPA and
Acquisition, dated the date of the Proxy Statement, the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to the Company) with respect to certain financial statements and
other financial information included in the Registration Statement and any
subsequent changes in specified balance sheet and income statement items,
including total assets, working capital, total stockholders' equity, total
revenues and the total and per share amounts of net income;
(e) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in
or constitute, a material adverse change in the business, operations,
properties, assets, condition (financial or other) or results of operations of
FPA and its subsidiaries, taken as a whole; for purposes of this Section
8.2(e), "material adverse change" means, with respect to any person, any change
or effect which is materially adverse to the business, financial condition or
results of operations of such person and its subsidiaries, taken as a whole,
excluding in all cases: (i) events or conditions generally affecting the
industry in which such person and its subsidiaries operate or arising from
changes in general business or economic conditions, (ii) all out-of-pocket fees
and expenses (including without limitation legal, accounting, investigatory,
and other fees and expenses) incurred in connection with the transactions
contemplated by the Agreement; (iii) in the case of the Company, the payment by
the Company and/or its subsidiaries of all amounts due to any officers or
employees of the Company or any of its subsidiaries under employment contracts
or other employee benefit plans in effect as of the date hereof; (iv) any
effect resulting from any change in law or generally accepted accounting
principles, which affect generally entities such as such person; and
(v) any effect resulting from compliance by such person with the terms of the
Agreement.
(f) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to the Company of the Merger;
(g) the Company shall have received from Smith Barney Inc. (or other
nationally recognized investment banking firm reasonably acceptable to FPA) an
opinion reasonably acceptable to the Company to the effect that, as of the date
of the Agreement and, if requested by the Company, confirmed as of the date of
the Joint Proxy Statement/Prospectus, that the Exchange Ratio is fair, from a
financial point of view, to the holders of Company Common Stock, and such
opinion shall not have been withdrawn; and
(h) FPA, Acquisition and Stephen J. Dresnick, M.D. shall have executed an
employment agreement providing for the employment of Stephen J. Dresnick, M.D.
to be Vice Chairman of FPA and President and Chief Executive Officer of
Surviving Corporation for a period of three (3) years from the Closing Date, on
terms and conditions acceptable to the board of directors of FPA, Acquisition
and Stephen J. Dresnick, M.D.
SECTION 8.3. CONDITIONS TO OBLIGATIONS OF FPA AND ACQUISITION TO EFFECT
THE MERGER. Unless waived by FPA and Acquisition, the obligations of FPA and
Acquisition to effect the Merger shall be subject to the fulfillment at or
prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in the Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Company
contained in the Agreement shall be true and correct in all material respects
on and as of the date made and on and as of the Closing Date as if made at and
as of such date, and FPA shall have received a Certificate of the President and
Chief Executive Officer or of a Vice President of the Company to that effect;
30
<PAGE> 36
(b) FPA shall have received an opinion from Berman Wolfe & Rennert,
special counsel to the Company, dated the Closing Date, reasonably satisfactory
to FPA and covering the due incorporation of the Company, the binding nature of
the Agreement, the effectiveness of the Merger and the validity of the Company
Common Stock to be exchanged in the Merger and such other matters as may be
reasonably requested by FPA;
(c) FPA shall have received "comfort" letters in customary form from
Coopers & Lybrand LLP, independent accountants for the Company, dated the date
of the Proxy Statement, the effective date of the Registration Statement and
the Closing Date (or such other date reasonably acceptable to FPA) with respect
to certain financial statements and other financial information included in the
Registration Statement and any subsequent changes in specified balance sheet
and income statement items, including total assets, working capital, total
stockholders' equity, total revenues and the total and per share amounts of net
income;
(d) stockholders holding in the aggregate more than five percent (5%) of
the Company's Common Stock have not given notice of their intent to exercise
dissenters' rights under Florida law, if applicable;
(e) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in
or constitute, a material adverse change in the business, operations,
properties, assets, condition (financial or other) or results of operations of
the Company and its subsidiaries, taken as a whole; for purposes of this
Section 8.3(e), "material adverse change" means, with respect to any person,
any change or effect which is materially adverse to the business, financial
condition or results of operations of such person and its subsidiaries, taken
as a whole, excluding in all cases: (i) events or conditions generally
affecting the industry in which such person and its subsidiaries operate or
arising from changes in general business or economic conditions, (ii) all
out-of-pocket fees and expenses (including without limitation legal,
accounting, investigatory, and other fees and expenses) incurred in connection
with the transactions contemplated by this Agreement; (iii) in the case of the
Company, the payment by the Company and/or its subsidiaries of all amounts due
to any officers or employees of the Company or any of its subsidiaries under
employment contracts or other employee benefit plans in effect as of the
date hereof; (iv) any effect resulting from any change in law or generally
accepted accounting principles, which affect generally entities such as such
person; and (v) any effect resulting from compliance by such person with the
terms of the Agreement.
(f) no governmental authority shall have promulgated any statute, rule or
regulation which, when taken together with all such promulgations, would
materially impair the value to FPA of the Merger;
(g) FPA shall have received from Oppenheimer & Co., Inc. (or other
nationally recognized investment banking firm reasonably acceptable to the
Company) an opinion reasonably acceptable to FPA, dated as of the date on which
the Joint Proxy Statement/Prospectus is first distributed to the stockholders
of FPA, to the effect that the Exchange Ratio is fair, from a financial point
of view, to FPA's stockholders, and such opinion shall not have been withdrawn;
and
(h) FPA shall have received from the Company the resignations of all
individuals serving as directors of the Company immediately prior to the
Effective Time, except each individual designated as a director on Schedule 2.3
attached hereto.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1. TERMINATION. The Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the stockholders
of the Company or FPA, as follows:
(a) The Company shall have the right to terminate the Agreement:
(i) if the Merger is not completed by December 31, 1996 otherwise
than account of delay or default on the part of the Company;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of the Company or any of
its 5% stockholders or any of their affiliates or associates;
(iii) if (A) the Company receives an offer from any third party
(excluding any affiliate of the Company or any group of which any
affiliate of the Company is a member) with respect to a an Acquisition
Transaction, (B) the Company's independent financial advisors determine
that such offer would be more favorable to the Company's stockholders
from a financial point of view than the Merger and (C) FPA fails, within
three (3) business days after FPA is notified of such determination and
of the terms and conditions of such offer, to offer to amend the
Agreement to make the Merger yield a value to stockholders of the Company
at least equal to such offer as contemplated by Section 6.5(d) hereof;
(iv) if (A) a tender/exchange offer is commenced by a third party
(excluding any affiliate of the Company or any group of which any
affiliate of the Company is a member) for all outstanding shares of
Company Common Stock, (B) the Company's independent financial advisors
determine that such offer would be more favorable to the Company's
stockholders from a financial point of view than the Merger and (C) FPA
fails, within three (3) business days after FPA is notified of such
determination, to offer to amend the Agreement to make the Merger yield a
value to stockholders at least equal to, such tender/exchange offer as
contemplated by Section 6.5(d) hereof;
(v) if FPA (A) fails to perform in any material respect any of its
material covenants in the Agreement and (B) does not cure such default in
all material respects within thirty (30) days after written notice of
such default is given to FPA by the Company; or
(vi) if any condition set forth in Section 8.1 or Section 8.2 is not
satisfied, other than as a result of the conduct of the Company.
(b) FPA shall have the right to terminate the Agreement:
(i) if the Merger is not completed by December 31, 1996 otherwise
than account of delay or default on the part of FPA;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of FPA or any of its 5%
stockholders or any of their affiliates or associates;
(iii) if the Company (A) fails to perform in any material respect
any of its material covenants in the Agreement and (B) does not cure such
default in all material respects within thirty (30) days after written
notice of such default is given to the Company by FPA; or
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(iv) if any condition set forth in Section 8.1 or Section 8.3 is not
satisfied, other than as a result of the conduct of FPA.
(c) As used in this Section 9.1, (i) "affiliate" has the meaning assigned
to it in the federal securities laws and (ii) "group" has the meaning set forth
in Section 13(d) of the Exchange Act and the rules and regulations thereunder.
SECTION 9.2. EFFECT OF TERMINATION. In the event of termination of the
Agreement by either FPA or the Company, as provided in Section 9.1, the
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, FPA, Acquisition or their respective officers or
directors (except as set forth in this Section 9.2 and in Sections 6.6, 7.1,
7.6 and 7.8, all of which shall survive the termination) with respect to
obligations existing thereunder prior to the termination. If the Agreement is
not consummated because either the Company or FPA breaches a material
representation or warranty or fails to perform a material covenant contained
herein, and the other party has not breached any material representation or
warranty or failed to perform a material covenant, and the non-breaching party
chooses to terminate the Agreement as a direct result of such breach or
failure, the breaching party shall promptly pay the non-breaching party the sum
of one million dollars ($1,000,000). Nothing in this Section 9.2 shall relieve
any party from liability for any breach of the Agreement.
SECTION 9.3. AMENDMENT. The Agreement may not be amended except by action
taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf
of each of the parties hereto and in compliance with applicable law.
SECTION 9.4. WAIVER. At any time prior to the Effective Time, the parties
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein except that, after the vote of the Company's
stockholders with respect to the Agreement, the Exchange Ratio shall not be
changed from that provided herein. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties in the Agreement shall not survive the Merger,
and after effectiveness of the Merger neither the Company, FPA, the Surviving
Corporation or their respective officers or directors shall have any further
obligation with respect thereto.
SECTION 10.2. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed
by nationally recognized overnight mail service or sent via facsimile to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
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(a) If to FPA or Acquisition to:
FPA Medical Management, Inc.
2878 Camino del Rio South, Suite 301
San Diego, California 92108
Attention: Chief Financial Officer
with copies to:
James A. Lebovitz, Esquire
Senior Vice President, General Counsel
and Secretary
FPA Medical Management, Inc.
2878 Camino del Rio South, Suite 301
San Diego, California 92108
and
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
Attention: Justin P. Klein, Esquire
(b) If to the Company, to:
Sterling Healthcare Group, Inc.
6855 South Red Road, Suite 400
Coral Gables, FL 33143-3632
Attention: Stephen J. Dresnick, M.D.
with a copy to:
Charles Rennert, Esquire
Berman Wolfe & Rennert
Suite 3500, International Place
100 S.E. Second Street
Miami, FL 33131-2130
SECTION 10.3. INTERPRETATION. The headings contained in the Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of the Agreement. In the Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to the Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of the Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
SECTION 10.4. MISCELLANEOUS. The Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof, (b) is not intended to confer upon any other person any rights or
remedies hereunder, and (c) shall not be assigned by operation of law
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<PAGE> 40
or otherwise, except that Acquisition may assign the Agreement to any other
wholly-owned subsidiary of FPA. THE AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE
STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY
WITHIN SUCH STATE.
SECTION 10.5. COUNTERPARTS. The Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement. Each party agrees (i) to accept
the facsimile signature of the other party's representatives hereto and (ii) to
be bound by its own representative's facsimile signature hereon.
SECTION 10.6. PARTIES IN INTEREST. The Agreement shall be binding upon
and inure solely to the benefit of each party hereto and nothing in the
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of the
Agreement.
IN WITNESS WHEREOF, FPA, Acquisition and the Company have caused the
Agreement to be signed by their respective officers as of the date first
written above.
FPA MEDICAL MANAGEMENT, INC.
By:
-------------------------------
Print Name: Steven M. Lash
-----------------------
Title: Executive Vice President & CFO
ACQUISITION
By:
-------------------------------
Print Name: Steven M. Lash
-----------------------
Title: Executive Vice President & CFO
STERLING HEALTHCARE GROUP, INC.
By:
-------------------------------
Print Name: Stephen J. Diesnick, M.D.
--------------------------
Title: Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.1
TERMINATION OF EMPLOYMENT CONTRACT
THIS TERMINATION OF EMPLOYMENT CONTRACT is made and entered into this
27th day of March 1996 ("Contract"), between STERLING HEALTHCARE GROUP, INC., a
Florida corporation ("EMPLOYER"), and Laura Seff ("EMPLOYEE").
R E C I T A L S:
A. Pursuant to an amended and restated employment contract dated
as of January 1, 1995 (the "Employment Contract"), EMPLOYEE served as the
Senior Vice President of Corporate Quality/Resource Development of EMPLOYER
through November 9, 1995 and thereafter as an employee of EMPLOYER.
B. On November 10, 1995 EMPLOYEE and EMPLOYER agreed that
EMPLOYEE would be placed on personal leave of absence with full salary and
benefits.
C. EMPLOYEE and EMPLOYER have agreed that effective May 1, 1996,
EMPLOYEE shall cease to be an employee with EMPLOYER (the "Termination").
D. EMPLOYEE AND EMPLOYER desire and do hereby memorialize the
terms of the Termination.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually agree
as follows:
ARTICLE I
RECITALS
The above stated Recitals are true and correct and are incorporated by
reference into this Contract.
ARTICLE II
Termination
Effective at the close of business on May 1, 1996 EMPLOYEE shall cease
to be an employee of EMPLOYER.
ARTICLE III
SEVERANCE PAYMENT
On May 8, 1996, EMPLOYER shall deliver to EMPLOYEE the sum of
$49,450.23 cash (the Severance Payment).
ARTICLE IV
RELEASE
Except for obligations set forth in this Agreement, EMPLOYEE hereby
releases, and forever discharges EMPLOYER its subsidiaries, its successors and
assigns, and any and all of their past, present and or future directors,
officers, agents, employees and shareholders, from any and all claims, causes
of action and liabilities of any kind, arising from EMPLOYEE'S employment
and/or the Termination. This Release includes, but is not limited to, claims
under the following laws: 1) The Civil Rights Act of 1964, as amended; 2) The
Age
<PAGE> 2
Discrimination in Employment Act, as amended or the Older Workers' Benefit
Protection Act; 3) The Americans with Disabilities Act; 4) The Employee
Retirement Income Security Act of 1974; 5) The Florida Human Relations Act; and
6) any federal, state, or local statute law or ordinance of any kind pertaining
to discrimination in employment. Except for obligations set forth in this
Agreement, EMPLOYER and any and all of its past, present and or future
directors, officers, agents, employees and shareholders, hereby releases, and
forever discharges EMPLOYEE, from any and all claims, causes of action and
liabilities of any kind, arising from EMPLOYEE'S employment and/or the
Termination.
ARTICLE V
AUTOMOBILE, INSURANCE and STOCK OPTION
A. Automobile. EMPLOYEE acknowledges that subsequent to April
25, 1996, EMPLOYER shall have no responsibility for and shall not cover any
payments associated with the automobile referred to in Article V of the
Employment Contract (the "Automobile"). Further, subsequent to May 25, 1996,
EMPLOYEE shall indemnify EMPLOYER of and from any losses or liabilities arising
out of any expenses associated with the Automobile, including, without
limitation, lease payments, insurance charges and maintenance charges.
B. Insurance. EMPLOYEE and EMPLOYER acknowledge that,
subject to applicable law and in compliance with EMPLOYER'S current benefit
plans, through May1, 1996, EMPLOYER shall have responsibility for and shall
cover any payments associated with the medical, disability and other insurance,
as set forth on Schedule V B, which such insurance was provided to EMPLOYEE
under the Employment Contract or otherwise. EMPLOYEE acknowledges that
subsequent to May 1, 1996, subject to applicable law, EMPLOYER shall have no
responsibility for and shall not cover any payments associated with any
medical, disability or other insurance provided to EMPLOYEE under the
Employment Contract or otherwise.
C. Stock Options EMPLOYEE'S options (i) to acquire 10,000 shares
of EMPLOYER'S common stock at a purchase price of $12.00 per share through July
14, 1996 are hereby extended and shall remain exercisable by EMPLOYEE through
November 9, 1996 upon the terms and subject to the conditions of the Common
Stock Option and Agreement attached hereto as Exhibit 1; and (ii) to acquire
12,000 shares of EMPLOYER'S common stock at a purchase price of $12.00 per
share subject to EMPLOYER obtaining $.75 per share earnings are hereby
terminated.
ARTICLE VI
RESTRICTIVE COVENANTS
A. Competition. For a period of six (6) months from May 1, 1996 ,
unless otherwise agreed to in writing by EMPLOYER, EMPLOYEE will not, directly
or indirectly, own, manage, operate, join, control, be employed by or
participate in the ownership, management, operation or control of, or be
connected in any manner with any business engaged in providing physician
contract management services in the same geographic areas in which EMPLOYER is
then conducting such business. It is agreed that each of the cities, counties
and other political subdivisions constituting the geographic areas in which
EMPLOYER shall be
2
<PAGE> 3
conducting such business shall be considered a separate geographic area and a
separate covenant from EMPLOYEE to EMPLOYER and the invalidity of any of such
covenants shall not affect this Contract or any other covenant made hereunder.
B. Non-Solicitation. For the period of two (2) years from the
date hereof, unless otherwise agreed to in writing by EMPLOYER, EMPLOYEE will
not, either on her account or for any other person, solicit, induce, attempt to
induce, interfere with, or endeavor to cause (i) any former or current hospital
client, or any employee, independent contractor or other affiliate of EMPLOYER
or any subsidiary of EMPLOYER to modify, amend, terminate, or otherwise alter
any of its relationships with EMPLOYER or EMPLOYER'S subsidiaries or
affiliates; or (ii) any physician to modify, amend, terminate, or otherwise
alter its relationship, Including compensation arrangements with EMPLOYER,
EMPLOYER'S subsidiaries or affiliates. Further, unless otherwise agreed to in
writing by EMPLOYER, for a period of two (2) years from the date hereof,
EMPLOYEE agrees that she shall refrain from soliciting and shall not, directly
or indirectly, as sole proprietor, independent contractor, employee,
consultant, agent, partner, or joint venturer, or as an officer, director,
stockholder, agent or employee of any firm, person, entity, partnership or
corporation, or otherwise: (iii) solicit the employees of EMPLOYER or any
subsidiary of affiliate of EMPLOYER to leave the service of EMPLOYER or a
subsidiary or affiliate of EMPLOYER or (iv) solicit the business of any person,
firm, partnership, joint venture, sole proprietorship or other entity to whom
or which EMPLOYER or a subsidiary or affiliate of EMPLOYER was rendering
services as of the date hereof.
C. Confidentiality. EMPLOYEE agrees that she will not publish,
publicize, or disseminate or cause or permit to be published, publicized or
disseminated directly or indirectly and will keep entirely confidential any
information or documents relating to her employment and the operations of
EMPLOYER including any trade secrets or other proprietary information, and the
terms of this Contract or the fact that this Contract exists, except for the
purpose of enforcing this Contract should that ever become necessary nor as
otherwise required by law.
D. Remedies. In the event of an actual or threatened breach by
the EMPLOYEE of Paragraph A, B or C of this Article VI, EMPLOYER shall be
entitled to an injunction restraining EMPLOYEE from its prohibited conduct. If
the court should hold that the duration and/or scope (geographic or otherwise)
of the covenants contained herein are unreasonable, then, to the extent
permitted by law, the court may prescribe a duration and/or scope (geographic
or otherwise), that is reasonable and the parties agree to accept such
determination, subject to their rights of appeal. Nothing contained herein
shall be construed as prohibiting EMPLOYER or any third party from pursuing any
of the remedies available to it for such breach or threatened breach, including
recovery of damages from EMPLOYEE. In any action or proceeding to enforce the
provisions of this Article VI, the prevailing party shall be reimbursed by the
other party for all costs incurred in such action or proceeding, including,
without limitation, all court costs and filing fees and all attorneys' fees,
incurred either at the trial level or at the appellate level. If EMPLOYEE shall
be in violation of any of the restrictive covenants contained in this Contract,
then the time limitation otherwise applicable to such restrictive covenant
shall be extended for a period
3
<PAGE> 4
of time equal to the period of time during which such breach or breaches occur.
If EMPLOYER seeks injunctive relief from such breach in any court, then the
covenant shall be extended for a period of time equal to the pendency of such
proceedings, including all appeals. The existence of any claim or cause of
action by EMPLOYEE against EMPLOYER, whether predicated upon this Contract or
otherwise, shall not constitute a defense to the enforcement by EMPLOYER of the
foregoing restrictive covenant, but shall be litigated separately.
ARTICLE VII
NOTICES
Any notice, request, demand, offer, payment or communication required
or permitted to be given by any provision of this Contract shall be deemed to
have been delivered and given for all purposes if written and if (a) delivered
personally or by courier or delivery service, at the time of such delivery; or
(b) directed by registered or certified United States mail, postage and charges
prepaid, addressed to the intended recipient, at the address specified below,
at such time that the intended recipient or its agent signs or executes the
receipt:
If to EMPLOYER: Sterling Healthcare Group, Inc.
6855 South Red Road, Suite 400
Coral Gables, Florida 33134
Attn: Stephen J. Dresnick, M.D.,
President
If to EMPLOYEE: Laura Seff
7847 S.W. 105th Place
Miami, Florida 33173
Any party may change the address to which notices are to be mailed by
giving written notice as provided herein to the other party. Commencing
immediately after the receipt of such notice, such newly designated address
shall be such person's address for purposes of all notices or other
communications required or permitted to be given pursuant to this Contract.
ARTICLE IX
CONSTRUCTION OF CONTRACT
A. Florida Law. This Contract shall be considered for all
purposes a Florida document and shall be construed pursuant to the laws of the
State of Florida, and all of its provisions shall be administered according to
and its validity shall be determined under the laws of the State of Florida
without regard to any conflict or choice of law issues.
B. Gender and Number. Whenever appropriate, references in this
Contract in any gender shall be construed to include all other genders,
references in the singular shall be construed to include the plural, and
references in the plural shall be construed to include the singular, unless the
context clearly indicates to the contrary.
4
<PAGE> 5
C. Certain Words. The words "hereof," "herein," "hereunder," and
other similar compounds of the word "here" shall mean and refer to the entire
Contract and not to any particular article, provision or paragraph unless so
required by the context.
D. Captions. Paragraph titles or captions contained in this
Contract are inserted only as a matter of convenience and/or reference, and
they shall in no way be construed as limiting, extending, defining or
describing either the scope or intent of this Contract or of any provision
hereof.
E. Counterparts. This Contract may be executed in one or more
counterparts, and any such counterpart shall, for all purposes, be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
F. Severability. The invalidity or unenforceability of any
provision hereunder (or any portion of such a provision) shall not affect the
validity or enforceability of the remaining provisions (or remaining portions
of such provisions) of this Contract.
ARTICLE X
MISCELLANEOUS
A. Entire Contract. This Contract constitutes the entire
agreement among the parties pertaining to the subject matter hereof, and
supersedes and revokes any and all prior or existing agreements, written or
oral, relating to the subject matter hereof, and this Contract shall be solely
determinative of the subject matter hereof.
B. Restrictive Covenant. In the event any restrictive covenant of
this Contract shall be deemed unenforceable, invalid or overbroad in whole or
in part for any reason, then any court of competent jurisdiction is hereby
authorized, requested and instructed to reform such provision(s) to provide for
the maximum competitive restraints upon EMPLOYEE's activities (in time and
geographic area), which may then be legal and valid.
C. Waiver. Either EMPLOYER or EMPLOYEE may, at any time or times,
waive (in whole or in part) any rights or privileges to which she or it may be
entitled hereunder However, no waiver by any party of any condition or of the
breach of any term, covenant, representation or warranty contained in this
Contract, in any one or more instances, shall be deemed to be or construed as a
further continuing waiver of any other condition or of any breach of any other
terms, covenants, representations or warranties contained in this Contract, and
no waiver shall be effective unless it is in writing and signed by the waiving
party.
D. Attorneys' Fees. In the event that either party shall be
required to retain the services of an attorney to enforce any of her or its
rights hereunder, the prevailing party in any court action shall be entitled to
receive from the other party all costs and expenses including (but not limited
to) court costs and attorneys' fees (whether in a court of original
jurisdiction or one
5
<PAGE> 6
or more courts of appellate jurisdiction) incurred by her or it in connection
therewith.
E. Venue. Any litigation arising hereunder shall be instituted
only in Dade County, Florida, the place where this Contract was executed, and
all parties hereto agree that venue shall be proper in said county for all such
legal or equitable proceedings.
F. Assignment. The rights and obligations of the parties under
this Contract shall inure to the benefit of and shall be binding upon their
successors, assigns, and/or other legal representatives. This Contract shall
not be assignable by EMPLOYER or EMPLOYEE.
G. Amendment. This Contract may not be amended, modified,
superseded, canceled, or terminated, and any of the matters, covenants,
representations, warranties or conditions hereof may not be waived, except by a
written instrument executed by EMPLOYER and EMPLOYEE or, in the case of a
waiver, by the party to be charged with such waiver.
H. No Third Party Beneficiary. Nothing expressed or implied in
this Agreement is intended or shall be construed to confer upon or give any
person, other than EMPLOYER and EMPLOYEE and their respective successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.
I HAVE CAREFULLY READ AND FULLY UNDERSTAND THE PROVISIONS OF THIS CONTRACT AND
THE RELEASE CONTAINED IN ARTICLE IV. I ACKNOWLEDGE THAT I HAVE 21 DAYS FROM THE
DATE OF THIS CONTRACT TO CONSIDER IT AND TO CONSULT WITH AN ATTORNEY. I ALSO
UNDERSTAND THAT IF I SIGN THIS DOCUMENT, I HAVE 7 DAYS TO REVOKE IT. MY
SIGNATURE ACKNOWLEDGES THAT I HAVE ENTERED INTO THIS CONTRACT FREELY, KNOWINGLY
AND VOLUNTARILY WITHOUT DURESS AND WITH A FULL UNDERSTANDING OF ITS TERMS.
IN WITNESS WHEREOF, EMPLOYER and EMPLOYEE have caused this Contract to be
executed on the day and year first above written.
"EMPLOYER"
STERLING HEALTHCARE GROUP, INC.
By:
------------------------------------
Authorized Representative
"EMPLOYEE"
By:
------------------------------------
Laura Seff
6
<PAGE> 1
STERLING HEALTHCARE GROUP, INC.
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(all figures in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1996
---- ----
<S> <C> <C>
Weighted average of common
shares outstanding 5,375 7,938
Weighted average of common
stock equivalents - primary(1) 33 143
----- -----
Weighted average of common shares
outstanding and common
stock equivalents 5,408 8,081
===== =====
Weighted average of common
shares outstanding 5,375 7,938
Weighted average of common
stock equivalents - primary(1) 39 272
----- -----
Weighted average of common shares
outstanding and common
stock equivalents 5,414 8,210
===== =====
Earnings per share:
Primary $0.16 $0.17
===== =====
Assuming full dilution $0.16 $0.17
===== =====
</TABLE>
(1) Computed using the treasury stock method
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996 AND THE CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 31,526,167<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,883,665
<PP&E> 3,162,971<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,530,908
<CURRENT-LIABILITIES> 11,895,836
<BONDS> 0
0
0
<COMMON> 789
<OTHER-SE> 51,222,888
<TOTAL-LIABILITY-AND-EQUITY> 77,530,903
<SALES> 33,348,293
<TOTAL-REVENUES> 33,348,293
<CGS> 30,852,650
<TOTAL-COSTS> 30,852,650
<OTHER-EXPENSES> (27,726)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,300
<INCOME-PRETAX> 2,265,069
<INCOME-TAX> 885,967
<INCOME-CONTINUING> 1,379,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,379,102
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
<FN>
<F1>RECEIVABLES AND PROPERTY, PLANT AND EQUIPMENT ARE SHOWN "NET".
</FN>
</TABLE>
