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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON _______, 1997
REGISTRATION NO. 333-31351
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FPA MEDICAL MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8049 33-0604264
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
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3636 NOBEL DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
(619) 453-1000
(ADDRESS, INCLUDING ZIP CODE, TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JAMES A. LEBOVITZ
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
FPA MEDICAL MANAGEMENT, INC.
3636 NOBEL DRIVE, SUITE 200
SAN DIEGO, CALIFORNIA 92122
(619) 453-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPY TO:
DAVID R. SNYDER, ESQ.
PILLSBURY MADISON & SUTRO LLP
101 WEST BROADWAY, SUITE 1800
SAN DIEGO, CALIFORNIA 92101-8219
(619) 234-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _____________
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
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PROSPECTUS SUBJECT TO COMPLETION, DATED _____________, 1997
1,940,960 SHARES OF COMMON STOCK
[LOGO]
FPA MEDICAL MANAGEMENT, INC.
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This Prospectus relates to the offering by certain of the selling
stockholders named herein (the "Selling Stockholders") of up to 1,940,960 shares
(the "Individual Shares") of FPA Medical Management, Inc. (the "Company" or
"FPA") common stock, par value $.002 per share (the "Common Stock").
The Company will not receive any of the proceeds from the sale of the
Individual Shares offered hereby. The Selling Stockholders directly, through
agents designated from time to time, or through brokers, dealers or underwriters
to be designated, may sell the Individual Shares from time to time on terms to
be determined at the time of sale. To the extent required, the specific number
of Individual Shares to be sold, the respective purchase price and public
offering price, the names of any such agent, broker, dealer or underwriter, and
any applicable commission or discount with respect to the particular offer will
be set forth in a prospectus supplement. The Company has agreed to bear
substantially all expenses of registration of the Individual Shares under
federal and state securities laws, other than commissions, fees and discounts of
underwriters, brokers, dealers and agents, and to indemnify the Selling
Stockholders against certain liabilities under the Securities Act. See "Plan of
Distribution."
The Selling Stockholders and any broker, dealer, agents or underwriters
that participate with the Selling Stockholders in the distribution of the
Individual Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by them and any profits on the
resale of the Individual Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Stockholders have agreed to indemnify the Company against certain liabilities.
See "Plan of Distribution."
The Common Stock is traded on the Nasdaq National Market under the symbol
"FPAM." On _______, 1997, the last reported sale price of the Common Stock was
$_____ per share.
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SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act with respect to the
Individual Shares offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and the regulations of
the Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, and each such
statement is qualified in all respects by such reference. The Company is subject
to the informational requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"), and, in accordance therewith, files reports, proxy statements,
information statements and other information with the Commission. Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following Regional Offices of the Commission: Seven World Trade Center,
Suite 1300, New York, New York 10048; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates, or from the Commission's Internet Web site at
http://www.sec.gov. In addition, such materials also may be inspected and copied
at the offices of the Nasdaq National Market, 1735 K Street, N.W., Washington,
D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents of the Company filed with the Commission (File No.
0-24276) are incorporated herein by reference:
1. FPA's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 filed with the Commission on March 31, 1997, as amended by Form 10-K/A
filed with the Commission on April 29, 1997.
2. FPA's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997 filed with the Commission on May 15, 1997.
3. FPA's Current Report on Form 8-K dated March 17, 1997 filed with the
Commission on May 16, 1997, as amended by Form 8-K/A filed with the Commission
on May 30, 1997.
4. FPA's Current Report on Form 8-K dated July 31, 1997 filed with the
Commission on July 31, 1997, amended by Form 8-K/A filed with the Commission
on _______, 1997.
5. FPA's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 filed with the Commission on August 14, 1997.
6. The audited combined balance sheets of Foundation Health Medical
Services (a wholly owned subsidiary of Foundation Health Corporation) and
Affiliates as of June 30, 1995 and 1996 and the related combined statements of
operations, shareholders' deficit and cash flows for each of the three years in
the period ended June 30, 1996 contained in the Company's Registration
Statement on Form S-4 dated February 13, 1997.
7. The Pro Forma Condensed Consolidated Financial Statements (Unaudited)
of FPA as of June 30, 1997 contained in FPA's Registration Statement on Form
S-4 dated September __, 1997.
8. The description of the FPA Common Stock contained in FPA's Registration
Statement on Form 8-A dated October 20, 1994.
In addition, all reports and other documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act,
prior to the termination of the offering made hereby, shall be deemed to be
incorporated by reference into this Prospectus. Any statement included in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF
ANY OR ALL OF THE DOCUMENTS WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THE DOCUMENTS SO INCORPORATED.
REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO THE COMPANY AT 3636 NOBEL DRIVE,
SUITE 200, SAN DIEGO, CALIFORNIA 92122, ATTENTION: JAMES A. LEBOVITZ (TELEPHONE
NUMBER (619) 453-1000).
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PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. When used
in this Prospectus, the words "estimate," "project," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see "RISK FACTORS." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. FPA does not undertake any obligation to
publicly release any revisions to
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these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and the documents
incorporated herein by reference. See "Risk Factors" for information that should
be carefully considered by prospective investors. The financial and share data
and enrollment and physician data of FPA includes AHI for all periods presented
as a result of the pooling of interests transaction effective March 1997.
THE COMPANY
FPA is a national physician practice management company ("PPM") which
acquires, organizes and manages primary care physician practice networks and
provides contract management services to hospital-based emergency departments.
The Company provides primary and specialty care services to prepaid managed care
enrollees and fee-for-service patients through a network of independent practice
association ("IPA") physicians and owned primary care physician groups. FPA
manages all covered primary and specialty medical care for each enrollee in
exchange for monthly risk-sharing fixed capitation payments pursuant to Payor
contracts. Including the effects of the pending merger with Health Partners,
Inc. ("Health Partners") (See "Recent Developments"), FPA will be affiliated
with approximately 7,580 primary care physicians (including
obstetrician-gynecologists who contract with HealthCap, Inc. ("HealthCap") as
primary care physicians, the "ob-gyn physicians") and 15,322 specialty care
physicians (excluding specialists who contract with HealthCap), who provide
services to approximately 1,316,800 enrollees (including HealthCap ob-gyn direct
access enrollees) of 42 health maintenance organizations ("HMOs") or other
prepaid health insurance plans (collectively, "Payors") in 27 states. FPA,
through its subsidiary Sterling Healthcare Group, Inc. ("Sterling"), is also
affiliated with approximately 1,300 emergency department physicians and manages
the emergency departments of 107 hospitals in 20 states.
FPA's strategy is to increase enrollment by adding new Payor relationships
and new providers to the existing FPA Network and by expanding the FPA Network
into new geographic areas where the penetration of managed healthcare is
growing. FPA believes new Payor and provider relationships are possible because
of its ability to manage the cost of health care without sacrificing quality.
The Company seeks to control the two "gatekeeping" points of entry into the
managed health care delivery system: the primary care physician's office and the
emergency room, thereby giving the Company a platform for coordinating all
aspects of patient care under global capitation Payor contracts. The Company is
also pursuing state and national Payor contracts, which facilitate more rapid
development of provider networks in new markets thus adding enrollment in an
accelerated manner. FPA has recently entered into several multi-state Payor
agreements, including agreements with (i) Aetna/U.S. Healthcare ("Aetna")
whereby Aetna managed care members in 12 states may access the FPA Network as
specific arrangements are negotiated and approved in each of such states; (ii)
Healthsource, Inc. ("Healthsource") whereby Healthsource managed care members
in three states may utilize the FPA Network; and (iii) PacifiCare Health
Systems, Inc. ("PacifiCare") whereby the FPA Network will be available to
PacifiCare managed care members in certain agreed upon markets. FPA has
recently entered into a letter of intent with Foundation Health Systems, Inc.
("Foundation") to negotiate long-term global capitation contracts in a number
of states where FPA and Foundation mutually do business.
FPA's relationships with its subsidiaries affiliated professional
corporations (the "Professional Corporations"), other providers of medical
services and Payors (collectively, the "FPA Network") offer physicians the
opportunity to participate more effectively in managed care programs by
organizing physician groups within geographic areas to contract with Payors. FPA
enhances physician practice operations by assuming administrative functions
necessary in a managed care environment. These functions include claims
adjudication, utilization management of medical services, Payor contract
negotiations, credentialing, financial reporting and the operation of management
information systems. Under these arrangements, FPA, on behalf of the
Professional Corporations, is responsible for the payment of the cost of medical
services, including professional, ancillary and medical management services, and
is entitled to amounts received from Payors in excess of such costs. The Company
believes that its management model is appealing to physicians because it allows
the physicians to retain control of their own practices while gaining access to
more patients through participation in a managed care program.
Except where otherwise permitted by law or regulation, FPA does not
engage in the practice of medicine. Due to the constraints of the corporate
practice of medicine doctrine, FPA cannot own the majority of shares of the
voting stock of the Professional Corporations in most states. FPA has direct or
indirect unilateral and perpetual control over the assets and operations of the
Professional Corporations through the ownership of such Professional
Corporations by certain physicians who are employees of FPA or one of its
subsidiaries. Each shareholder/director of such Professional Corporations has
entered into a succession agreement with FPA which requires such
shareholder/director to sell to a designee of FPA such shareholder/director's
shares of stock in the relevant Professional Corporation for a nominal amount if
such shareholder/director is terminated from employment with FPA.
Agreements with Payors and providers are entered into with, and approved
by, either a subsidiary of FPA or one of the Professional Corporations,
depending on applicable state law. In the states where the corporate practice
of medicine prohibits the ownership of professional corporations other than by
physicians or physician-owned professional corporations, in most cases the
capitation payments are received by the Professional Corporations and are
generally assigned to FPA pursuant to administrative services agreements. Where
subsidiaries of FPA contract directly with Payors, such subsidiaries receive
the capitation payments.
The FPA Network manages all covered primary and specialty medical care for
each enrollee in exchange for fixed monthly capitation payments pursuant to
Payor contracts. Specialty care physician services, inpatient hospitalization
and certain other services managed by primary care physicians are subject to
pre-authorization guidelines and are provided through contracts negotiated by
FPA for the Professional Corporations based on discounted fee-for-service, per
diem or capitation rates. Contracts with Payors and primary care physicians
generally include shared risk arrangements and other incentives designed to
encourage the provision of high-quality, cost effective health care. Because FPA
is obligated to provide medical services, some of the costs of which are
variable, for fixed capitation fees, its profitability may vary based on the
ability of FPA and its affiliated providers to control such health care costs.
The Company recruits physicians and contracts for their services to
provide staffing of emergency departments. The Company also assists its hospital
clients in such areas as physician scheduling, operations
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support, quality assurance and departmental accreditation as well as billing and
record keeping. In addition, the Company has expanded its hospital-based
services to include the management of anesthesiology departments, correctional
institutional health facilities and rural health care clinics.
The future growth of FPA is largely dependent on a continued increase in
the number of new enrollees in the FPA Network. This growth may come from (i)
affiliations with, or acquisitions of, individual or group physician practices
serving enrollees of Payors in the FPA Network or of new Payors, (ii) increased
membership in plans of Payors with which the Professional Corporations or
subsidiaries of FPA have contracts and whose members are patients of physicians
in the FPA Network or (iii) agreements with Payors, physicians and hospitals in
other geographic markets. The process of identifying and consummating suitable
acquisitions of, or affiliations with, physician groups can be lengthy and
complex. The environment for such acquisitions and affiliates is subject to
increasing competitive pressures. There can be no assurance that FPA will be
successful in identifying, acquiring or affiliating with additional physician
groups or hospitals or that the Professional Corporations or subsidiaries of FPA
will be able to contract with new Payors. In addition, there can be no assurance
that the Company's acquisitions will be successfully integrated on a timely
basis or that the anticipated benefits of these acquisitions will be realized;
failure to effectively accomplish the integration of acquired entities may have
a material adverse effect on FPA's results of operations and financial
condition. FPA's ability to expand is also dependent upon its ability to comply
with legal and regulatory requirements in the jurisdictions in which it operates
or will operate and to obtain necessary regulatory approvals, certificates and
licenses.
The Company is regularly in discussions with potential acquisition
candidates and may from time to time enter into letters of intent or definitive
agreements with respect to the acquisition of such businesses. There can be no
assurance that the Company will acquire any additional businesses.
The health care industry is subject to extensive federal and state
legislation and regulation. Changes in the regulations or interpretations of
existing regulations could significantly affect the business of FPA.
The Company's executive offices are located at 3636 Nobel Drive, Suite
200, San Diego, California 92122 and its telephone number is (619) 453-1000.
RECENT DEVELOPMENTS
On September 2, 1997, FPA acquired Emergency Medical Care Incorporated
("EMC") for cash and shares of FPA Common Stock with an aggregate value of
$18,000,000, subject to adjustment based on certain performance criteria. The
acquisition will be accounted for as a purchase. EMC is a PPM engaged in the
business of providing contract management and support services primarily to
hospital-based emergency departments. EMC recruits physicians and contracts for
their services to provide staffing of emergency departments. As of September 2,
1997, EMC provided PPM services on a contract basis to 17 hospital-based
departments and one radiology department in 2 states. EMC currently contracts
with approximately 125 affiliated physicians who provide medical care to
approximately 250,000 patients annually.
On July 1, 1997, FPA entered into an Agreement and Plan of Merger with
Health Partners (the "Health Partners Merger Agreement") which provides for the
acquisition of Health Partners by FPA in a stock-for-stock merger to be
accounted for as a pooling of interests. The number of shares to be issued by
FPA for all the outstanding shares of Health Partners capital stock and upon
cancellation of Health Partners options will be based on a number of factors and
will range between approximately 5.2 million and 6.4 million as provided in the
Health Partners Merger Agreement. The consummation of the proposed merger is
subject to approval by the stockholders of Health Partners, receipt of all
necessary regulatory approvals and other customary closing conditions. The
Health Partners Merger Agreement may be terminated by either of the parties if
the merger is not consummated by October 28, 1997, and under certain other
circumstances. Health Partners is affiliated with eight physician group
practices and six IPAs representing 1,722 physicians in five geographic markets
including the New York City metropolitan area, northern Virginia, Washington
D.C., northern Kentucky and San Antonio, Texas. Health Partners' affiliated
medical groups and IPAs currently serve approximately 138,000 patients under
capitated or global fee arrangements. Health Partners believes it is the New
York City metropolitan area's largest PPM with 1,331 affiliated physicians and
approximately 104,000 patients under capitated or global fee arrangements.
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THE OFFERING
This Prospectus relates to the offering by the Selling Stockholders of the
Individual Shares. See "Description of Capital Stock."
THE COMMON STOCK AND INDIVIDUAL SHARES
<TABLE>
<S> <C>
Individual Shares offered by the Selling Stockholders................... 1,940,960
Total FPA Common Stock outstanding as of September 19, 1997(1).......... 33,789,827
Nasdaq National Market symbol........................................... FPAM
</TABLE>
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(1) Excludes approximately 7,881,838 shares of Common Stock issuable upon
exercise of stock options and other warrants outstanding as of ,
1997 and 3,107,900 shares issuable upon conversion of the Company's
6 1/2% Convertible Subordinated Debentures due 2001 (the "Debentures").
RISK FACTORS
In addition to other information contained or incorporated by reference in
this Prospectus, prospective investors should consider carefully the factors
listed below in evaluating an investment in the Individual Shares offered
hereby.
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF ACQUISITIONS; EXPANDED SERVICE
OFFERING
Over the last two and one-half years, the Company has pursued an
aggressive growth strategy. The Company's growth has been achieved primarily
through acquisitions, several of which have been completed or become subject to
a binding agreement during the last six months. See "Recent Developments."
Several of these acquisitions are large transactions which involve significant
risks and uncertainties for FPA. The Company intends to continue to pursue
growth through acquisitions. The success of past and future acquisitions is
largely dependent on the ability of FPA to integrate the operations of the
acquired companies into FPA's operations in an efficient and effective manner.
The process of integrating management services, which include management
information systems, claims administration and billing services, utilization
management of medical services, care coordination and case management, quality
and cost monitoring and physician recruitment, as well as administrative
functions, facilities and other aspects of operations, while managing a larger
and geographically expanded entity, presents a significant challenge to FPA's
management. In addition, integration must be carried out so that FPA is able to
control medical and administrative costs. The ability to control such costs is
key to the successful future operations of FPA. There can be no assurance that
the Company's acquisitions will be successfully integrated on a timely basis or
that the anticipated benefits of these acquisitions, including cost savings,
will be realized. Furthermore, there can be no assurance that any cost savings
which are realized will not be offset by increases in other expenses or
operating losses. FPA will encounter similar uncertainties and risks with
respect to any future acquisitions it may make. Failure to effectively
accomplish the integration of acquired companies could have a material adverse
effect on FPA's results of operations and financial condition.
Certain of the companies recently acquired by FPA have recently or
historically operated at a loss. Other acquired companies have experienced
fluctuations in quarter-to-quarter operating results. See "--Fluctuations in
Quarterly Results." FPA has commenced the institution of certain measures
intended to reduce these losses and quarterly fluctuation and to operate the
acquired businesses profitably. However, there can be no assurance that FPA will
reverse these trends or operate these entities profitably. If there are
continuing operating losses at the acquired companies, FPA may need additional
capital to fund its business, and there can be no assurance that such additional
capital can be obtained or, if obtained, it will be on terms acceptable to FPA.
The Company is regularly in discussions with potential acquisition
candidates and may from time to time enter into letters of intent or definitive
agreements with respect to the acquisition of such businesses. No assurance can
be given as to the Company's ability to compete successfully at favorable prices
for available acquisition candidates or to complete future acquisitions, or as
to the financial effect on the Company of any acquired business. Future
acquisitions by the Company may involve the issuance of additional shares of
Common Stock, which could have a dilutive effect on earnings per share, or could
involve significant cash expenditures and
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may result in increased indebtedness and interest and amortization expenses or
decreased operating income, which could have an adverse impact on the Company's
future operating results.
The integration of acquired entities also requires the dedication of
management resources, which may distract the attention of management from the
day-to-day business of the Company. Furthermore, new acquisitions may expose the
FPA Network to new Payors and providers with which it has had no previous
business experience. FPA cannot predict whether it will be able to enroll into
the FPA Network all members currently served by physicians affiliated with newly
acquired entities. Also, there can be no assurance that there will not be
substantial unanticipated costs or other material adverse effects associated
with acquisition and integration activities, any of which could result in
significant one-time charges to earnings or otherwise adversely affect the
Company's operating results.
In addition, as a result of the recent acquisitions of Sterling and EMC,
FPA manages and supports hospital-based emergency departments. The addition of
these services presents certain risks and uncertainties due to FPA's relative
unfamiliarity with these types of services and the market for such services.
There can be no assurance that FPA will be successful in developing and
integrating Sterling's and EMC's operations and services.
RISKS OF FINANCIAL LEVERAGE
FPA's indebtedness is significant in relation to its stockholders' equity.
Giving effect to amounts drawn down under FPA's $275 million Credit Agreement
(including the term loan) with BankBoston, N.A., as Administrative Agent for the
lenders parties thereto dated June 30, 1997 (the "Credit Agreement") and the
issuance of the Debentures in December 1996, such debt accounts for
approximately 240% of FPA's total capitalization as of June 30, 1997. While FPA
believes it will be able to service its debt, there can be no assurance to that
effect. The degree to which FPA is leveraged could affect its ability to service
its indebtedness, make capital expenditures, respond to market conditions and
extraordinary capital needs, take advantage of certain business opportunities or
obtain additional financing. Unexpected declines in FPA's future business, or
the inability to obtain additional financing on terms acceptable to FPA, if
required, could impair FPA's ability to meet its debt service obligations or
fund acquisitions and, therefore, could materially adversely affect FPA's
business and future prospects.
GROWTH STRATEGY; DIFFICULTY IN MAINTAINING GROWTH
The future growth of FPA is largely dependent on a continued increase in
the number of new enrollees in the FPA Network. This growth may come from (i)
affiliations with, or acquisitions of, individual or group physician practices
serving enrollees of Payors in the FPA Network or of new Payors, (ii) increased
membership in plans of Payors with which the Professional Corporations or
subsidiaries of FPA have contracts and whose members are patients of physicians
in the FPA Network or (iii) agreements with Payors, physicians and hospitals in
other geographic markets. The process of identifying and consummating suitable
acquisitions of, or affiliations with, physician groups can be lengthy and
complex. The environment for such acquisitions and affiliates is subject to
increasing competitive pressures. There can be no assurance that FPA will be
successful in identifying, acquiring or affiliating with additional physician
groups or hospitals or that the Professional Corporations or subsidiaries of FPA
will be able to contract with new Payors. In addition, there can be no assurance
that the Company's acquisitions will be successfully integrated on a timely
basis or that the anticipated benefits of these acquisitions will be realized;
failure to effectively accomplish the integration of acquired entities may have
a material adverse effect on FPA's results of operations and financial
condition. FPA's ability to expand is also dependent upon its ability to comply
with legal and regulatory requirements in the jurisdictions in which it operates
or will operate and to obtain necessary regulatory approvals, certificates and
licenses.
RISKS RELATED TO INTANGIBLE ASSETS
As a result of FPA's various acquisition transactions, intangible assets
of approximately $328.6 million have been recorded as of June 30, 1997 on FPA's
balance sheet. Such intangible assets totaled approximately 271% of FPA's
stockholders' equity as of June 30, 1997. Using amortization periods ranging
from four to 30 years (with an average amortization period of approximately 29
years), amortization expense relating to such intangible assets will be
approximately $15.8 million per year. Further acquisitions that result in the
recognition of additional intangible assets would cause amortization expense to
further increase. A portion of the amortization generated by these intangible
assets is not deductible for tax purposes.
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At the time of, or following each acquisition, FPA evaluates each
acquisition and establishes an appropriate amortization period based on the
specific underlying facts and circumstances. Subsequent to such initial
evaluation, FPA periodically reevaluates such facts and circumstances to
determine if the related intangible asset continues to be realizable and if the
amortization period continues to be appropriate. As the underlying facts and
circumstances subsequent to the date of acquisition can change, there can be no
assurance that the recorded value of such intangible assets will be realized by
FPA. In the past, FPA has recorded charges for impairment of goodwill, including
(i) in 1995, $434,000 related to the sale and closing of primary care centers
and (ii) in 1996, $4.1 million relating to a 1995 acquisition in Arizona (as a
result of continuing losses in the acquired entity) and $14.8 million
related to certain emergency room contracts (which were terminated after
acquisition of the contracting entity). Although at June 30, 1997, the net
unamortized balance of intangible assets acquired was not considered to be
impaired, any future determination, based on reevaluation of the underlying
facts and circumstances, that a significant impairment has occurred
would require the write-off of the impaired portion of unamortized intangible
assets, which could have a material adverse effect on the Company's business and
results of operations.
DIFFICULTY IN CONTROLLING HEALTH CARE COSTS; CAPITATED NATURE OF REVENUE
Agreements with Payors typically provide for the Professional Corporations
or certain subsidiaries of FPA to receive prepaid monthly fees per enrollee
known as "capitation" payments. FPA's profitability primarily depends upon its
ability to control costs and the ability of the Professional Corporations to
incur less in medical, hospital and administrative costs than the capitation
revenue received from Payors. Such profitability is achieved through effective
management of the provision of medical services by physicians in the FPA
Network, including controlling utilization of specialty care physicians and
other ancillary providers, purchasing services from physicians outside the FPA
Network at competitive prices and negotiating favorable rates with hospitals.
Agreements with Payors may also contain shared risk arrangements under which
additional compensation can be earned based on the provision of high-quality,
cost-effective health care to enrollees but which may require that a portion of
any loss in connection with such shared risk arrangements be assumed by FPA,
which would reduce FPA's net income. The amount of non-capitated medical and
hospital costs in any period could be affected by factors beyond the control of
the FPA Network, such as changes in treatment protocols, epidemics, disasters,
new technologies and inflation. To the extent that specialty care physicians'
fees or hospital costs have not been capitated and enrollees require more
specialty care than anticipated or have higher than anticipated hospital
utilization rates, revenue paid to the FPA Network by Payors may not be
sufficient to cover the costs the FPA Network is obligated to pay. FPA purchases
stoploss insurance protection which provides thresholds or "attachment points,"
generally $100,000 for inpatient services, at which substantially all financial
exposure for inpatient services of an enrollee beyond such threshold is
contractually shifted to the insurer up to a specified level (generally
$1 million), at which point the risk of loss returns to the Company. The
failure of FPA to negotiate favorable attachment points in the future could have
a material adverse effect on FPA's financial condition, results of operations
and/or liquidity. There can be no assurance that FPA will be able to negotiate
favorable stoploss attachment points in the future.
RISKS RELATED TO FULL RISK CAPITATION
Under capitation contracts generally, Professional Corporations accept
capitation payments and, as a result, accept the financial risk for the
provision of health care services, including those not normally performed and
provided by professional corporations comprised of primary care physicians under
Payor contracts (e.g., specialty care physician services). Under substantially
all Payor contracts, the Professional Corporations accept the financial risk for
the provision of outpatient medical services ("fully delegated" contracts).
Under certain Payor contracts, a Professional Corporation also accepts the
financial risk for hospital services. Approximately 18.8% and 18.3% of FPA's
total operating revenue for the year ended December 31, 1996 and the six months
ended June 30, 1997, respectively, was generated from contracts in which the
subsidiaries and Professional Corporations accepted the financial risk for
outpatient medical and hospital services. In the event that (i) FPA is unable to
negotiate favorable prices or rates in contracts with providers of these
services on behalf of the Professional Corporations or (ii) the subsidiaries and
Professional Corporations are unable to control effectively the utilization of
these services, FPA could experience material adverse effects on its results of
operations.
RISKS RELATED TO FEE-FOR-SERVICE CONTRACTS
Sterling provides physician practice management services to hospitals
under two types of contractual arrangements: fee-for-service contracts and
flat-rate contracts. In general, under fee-for-service contracts, Sterling's
revenues are derived from amounts billed to patients and collected for the
account of Sterling. In contrast, under flat-rate contracts Sterling's revenue
is derived from payments of negotiated amounts paid by the hospital. Under
fee-for-service contracts, Sterling accepts responsibility for billing and
collection, and consequently assumes the financial risks related to changes in
patient volume, Payor mix and third party
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reimbursement rates. Any change in reimbursement policies and practices, Payor
mix, patient volume or covered services could materially adversely affect the
operations of FPA, particularly under fee-for-service contracts. Sterling's
fee-for-service contractual arrangements also involve a credit risk related to
uncollectibility of accounts. In addition, fee-for-service contracts have less
favorable cash flow characteristics than flat-rate contracts due to longer
collection periods. Failure to manage adequately the collection risks and
working capital demands associated with fee-for-service contracts could have a
material adverse effect on FPA.
DEPENDENCE ON GOVERNMENTAL AND OTHER THIRD PARTY PAYORS
As a result of the Sterling acquisition, a significant portion of FPA's
operating revenue is derived from payments made by government-sponsored health
care programs as well as from other third party payors. For the year ended
December 31, 1996 and the six months ended June 30, 1997, approximately 34% and
27%, respectively, of FPA's revenues were derived from government payors. The
Medicare and Medicaid programs are subject to substantial regulation by the
federal and state governments, which are continually revising and reviewing the
programs and their regulations. In addition, funds received under these programs
are subject to audit with respect to the proper billing for physician services
and, accordingly, retroactive adjustments of revenue from these programs may
occur. While FPA seeks to comply with applicable Medicare and Medicaid
reimbursement regulations, there can be no assurance that FPA would be found to
be in compliance with such regulations should it be subject to audit. Continuing
budgetary constraints at both the federal and state level and the rapidly
escalating costs of health care and reimbursement programs have led, and may
continue to lead, to significant reductions in government and other third party
reimbursements for certain medical charges and to the negotiation of reduced
contract rates or capitated or other financial risk-shifting payment systems by
third party payors with service providers. Both the federal government and
various states are considering imposing limitations on the amount of funding
available for various health care services. In recent years, the U.S. Congress
has considered various budget proposals intended to reduce the rate of increase
in Medicare and Medicaid expenditures through cost savings and other measures.
The Balanced Budget Act of 1997, which becomes effective October 1, 1997,
includes, among other matters, Medicare and Medicaid reform legislation. The
Medicare legislation will, among other things, (i) reduce Medicare payments to
managed care plans and alter the payment structure; (ii) require managed care
plans to make medically necessary care available 24 hours a day; (iii) prohibit
plans from restricting providers advice about medical care or treatment ("gag
clauses"); (iv) eliminate the 50/50 enrollment rule and replace it with enhanced
quality and outcome measures; (v) authorize provider-sponsored organizations to
contract directly with Medicare; and (vi) establish a medical savings account
demonstration project. The Medicaid legislation will, among other things, (i)
enable states to require Medicaid beneficiaries to enroll in managed care plans
without receiving federal waivers; (ii) repeal the 75/25 enrollment rule and
replace it with quality assurance standards; (iii) ban "gag clauses"; and (iv)
provide states with greater discretion to set reimbursement rates. FPA cannot
predict the effect that this legislation or current and future proposals
regarding government funded programs would have on its operations. Additionally,
Resource Based Relative Value Scale ("RBRVS"), a system of reimbursement
intended to reallocate medical reimbursement among medical specialties, took
effect on January 1, 1992 and was phased in over a four-year period. Under the
regulations relating to the RBRVS fee structure, the aggregate fee payments from
Medicare for certain emergency department procedures may be reduced in some
circumstances. There can be no assurance that the payments under governmental
and private third party payor programs will remain at levels comparable to
present levels or will be sufficient to cover the costs allocable to patients
eligible for reimbursement pursuant to such programs. Furthermore, changes in
reimbursement regulations, policies, practices, interpretations or statutes that
place material limitations on reimbursement amounts or practices could adversely
affect the operations of FPA.
RELIANCE ON CERTAIN PAYORS
For the year ended December 31, 1994, CareAmerica of Southern California,
Inc. ("CareAmerica") accounted for 11.3% of FPA's operating revenue. For the
year ended December 31, 1995, Foundation accounted for 26.2% of FPA's operating
revenue. For the year ended December 31, 1996, Foundation and PCA Qualicare
accounted for 16.1% and 11.3%, respectively, of FPA's operating revenue. For the
six months ended June 30, 1997, Foundation and PCA Qualicare accounted for 19.4%
and 12.7%, respectively, of FPA's operating revenue.
TERMINABILITY OF PAYOR CONTRACTS
Contracts with Payors generally provide for terms of one to thirty years,
may be terminated earlier without cause, upon notice and upon renewal or in a
number of other circumstances and are subject to negotiation of capitation
rates, covered benefits and other terms and conditions. At times, Payor
contracts may be continued on a month-to-month basis while the parties
renegotiate the terms of the contracts. Agreements with hospitals to provide
contract management services generally have terms of one or two years and are
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renewable automatically unless either party gives written notice of its intent
not to renew at least 90 days prior to the end of the term. Many of these
agreements provide for termination by the hospital without cause on relatively
short notice. There can be no assurance that any of such contracts will not be
terminated early, will be renewed or that they will contain favorable terms.
Since January 1994, a number of Sterling's hospital services agreements have
been terminated as a result of non-renewal, termination by the hospital,
termination by Sterling or hospital closure. Future consolidation in the health
care industry may result in future hospital services agreements being
terminated. The loss of any Payor or hospital contract and the failure to regain
or retain such Payor's members or the related revenues without entering into new
Payor relationships or hospital contracts could have a material adverse effect
on FPA.
As of June 30, 1997, approximately 39% of FPA's membership is pursuant to
Payor agreements with Foundation. The terms of these Payor agreements are thirty
years with automatic five-year renewal periods. These agreements commit certain
FPA subsidiaries and Professional Corporations to, among other things, contract
with Foundation for all benefit programs and to maintain sufficient medical
personnel to provide reasonable and adequate access to professional services for
all benefit programs offered by Foundation, to keep care centers open given
specified levels of patients and to agree to certain pricing and contracting
parameters with Foundation. The agreements may be terminated in a number of
circumstances, including in the event of a material breach or a violation of
applicable laws, rules or regulations. A significant modification to or
termination of such agreements would have a material adverse effect on FPA's
results of operations.
DEPENDENCE ON PRIMARY CARE PHYSICIANS AND EMERGENCY MEDICINE PHYSICIANS
Primary care physicians are an integral part of the FPA Network, as they
provide and manage medical services offered to enrollees. FPA's growth depends,
in part, on its ability to retain existing and attract additional primary care
physicians to the FPA Network. There can be no assurance that physicians
presently in the FPA Network will not leave the FPA Network, that FPA will be
able to attract additional primary care physicians into the FPA Network or that
the amount of capitation or fee-for-service payments to physicians will not have
to be increased. To the extent that primary care physicians leave the FPA
Network or capitation or fee-for-service payments to physicians are increased,
FPA's results of operations may be materially adversely affected. In order to
provide management services to hospital emergency departments, FPA must recruit
and retain sufficient numbers of qualified physicians. There is a substantial
shortage of board certified emergency medicine physicians, and FPA competes with
many types of health care providers, as well as teaching, research and
governmental institutions, for the services of such physicians. An inability to
recruit and retain emergency medicine physicians could adversely affect FPA's
ability to add new and retain existing hospital clients.
On December 5, 1996, the Thomas-Davis Medical Centers, P.C. ("TDMC")
physicians located in Tucson, Arizona (the "petitioners") voted to be
represented by the Federation of Physicians and Dentists (the "Union"). On
February 13, 1997, the TDMC employees located in Tucson voted to be represented
by the Union of Health and Hospital Care Employees. On September 24, 1997, a
District Court Judge for the United States District Court for the District of
Arizona granted a temporary injunction and ordered, among other things, FPA and
TDMC to recognize the Union as the exclusive bargaining agent for the
petitioners and from making unilateral changes in the terms and conditions of
employment, and upon request of the Union, to recognize and bargain in good
faith with the Union as the exclusive collective bargaining agent of the
petitioners concerning wages, hours and other terms and conditions of
employment. TDMC and the Company are in the process of appealing certain aspects
related to such representation; however, there can be no assurance as to the
outcome of such appeals. Although FPA does not expect union affiliations of its
Arizona employees to have a material adverse effect on its results of operations
or financial condition, there can be no assurance that future affiliations
and/or collective bargaining arrangements will not have a material adverse
effect on FPA's results of operations and financial condition.
RISKS RELATED TO CLASSIFICATION OF PHYSICIANS AS INDEPENDENT CONTRACTORS
FPA's subsidiary, Sterling, generally contracts with emergency room
physicians as independent contractors to provide services to its hospital
clients. These independent contractor physicians are paid on an hourly basis.
Pursuant to such compensation arrangements, independent contractor physicians do
not share in the profit derived by FPA from FPA's operations. Because FPA
regards its contracted physicians as independent contractors and not as
employees, FPA does not withhold federal or state income taxes, make federal or
state unemployment tax payments or provide workers' compensation insurance for
such physicians. There can be no assurance that federal or state taxing
authorities or other parties will not challenge the classification of such
independent contractor physicians and determine that such physicians should be
classified as employees. In the event that the physicians under contract with
FPA are determined to be employees, FPA will be materially and adversely
affected and FPA may be subject to retroactive taxes and penalties.
STATE LAWS REGARDING PROHIBITION OF CORPORATE PRACTICE OF MEDICINE
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In certain states in which FPA conducts or may conduct business, general
business corporations are not permitted to practice medicine, exercise control
over physicians who practice medicine or engage in certain practices such as
fee-splitting with physicians. The corporate practice of medicine refers to the
rendering directly, or through employment, of medical services by a general
business corporation. As stated in the Notes to its Consolidated Financial
Statements incorporated by reference herein, FPA believes that it has perpetual
and unilateral control over the assets and operations of the various affiliated
Professional Corporations. There can be no assurance that regulatory authorities
will not take the position that such control conflicts with state laws regarding
the corporate practice of medicine or other federal or state restrictions.
Although FPA believes its operations as currently conducted are in material
compliance with existing applicable laws, there can be no assurance that the
existing organization of FPA and its contractual arrangements with affiliated
physicians will not be successfully challenged in states in which it operates as
constituting the unlicensed practice of medicine or that the enforceability of
the provisions of such arrangements, including non-competition agreements, will
not be limited. In the event of action by any regulatory authority limiting or
prohibiting FPA from carrying on its business or from expanding the operations
of FPA to certain jurisdictions, structural and organization modifications may
be required, which could have an adverse effect on FPA's business and results
of operations.
Because certain state laws prohibit general business corporations from
controlling professional corporations contractually or otherwise, FPA has
structured its contracts with the Professional Corporations so that such
corporations retain the right to enter into contracts for the provision of
medical services or make other financial commitments. Such contracts allow the
Professional Corporations to make commitments which could be on terms which may
not be advantageous to FPA. For example, a Professional Corporation could
decline to enter into Payor contracts which are negotiated for it by FPA or,
alternatively, could decide to enter into Payor contracts which FPA does not
believe are financially advantageous. Physicians who contract with these
corporations may also have the legal right to decline to use other physicians in
the FPA Network or specialists having a pre-existing, subcapitated or fixed fee
relationship with the FPA Network. These decisions, if made by a Professional
Corporation or a physician, could have a material adverse effect on FPA's
business and financial condition.
POSSIBLE NEGATIVE EFFECTS OF PROSPECTIVE HEALTH CARE REFORM
Various plans have been proposed and are being considered on federal,
state and local levels to reduce costs in health care spending. Although FPA
believes its management model responds to the concerns addressed by such plans,
it is not possible to assess the likelihood any of these proposals will be
enacted or to assess the impact any of these proposals may have on reimbursement
to health care providers. Any plan to control health care costs, however, could
result in lower rates of reimbursement. Lower rates of reimbursement may reduce
the amount ultimately received by FPA and, accordingly, may have a material
adverse effect on FPA's business and results of operations.
In recent years, legislation has been proposed in Congress to implement an
"any willing provider" law on a national level. These laws, which are in effect
in some states, require managed care organizations, such as HMOs, to contract
with any physician who is appropriately licensed and who meets any applicable
membership criteria. Such laws could limit the flexibility of managed care
organizations, such as FPA, to achieve efficiency by controlling the size of
their primary care provider networks and the number of specialty care providers
to whom enrollees are referred. At present, no state in which FPA Network
physicians practice has such a law although "any willing provider" laws have
been proposed in states in which FPA operates. FPA cannot predict what effect
such laws would have on its operations.
POSSIBLE NEGATIVE EFFECTS OF GOVERNMENTAL REGULATIONS
The health care industry is subject to extensive federal and state
regulation. Changes in the regulations or reinterpretations of existing
regulations may significantly affect the FPA Network. FPA and the Professional
Corporations are subject to federal legislation that prohibits activities and
arrangements that provide kickbacks or other economic inducements for the
referral of business under the Medicare and Medicaid programs. Noncompliance
with the federal anti-kickback legislation can result in exclusion from the
Medicare and Medicaid programs and civil and criminal penalties. The federal
government has promulgated "safe harbor" regulations that identify certain
business and payment practices which are deemed not to violate the federal
anti-kickback statute. In addition, federal legislation currently restricts the
ability of physicians to refer Medicare or Medicaid patients to certain entities
in which they have an ownership interest or compensation arrangement for health
care services, including clinical laboratory services. With respect to the
self-referral prohibitions, the entity and the referring physician are
prohibited from receiving Medicare or Medicaid reimbursement for services
rendered and civil penalties may be assessed. Many states, including states in
which FPA does business, have similar anti-kickback and anti-referral laws.
Penalties similar to those imposed by federal law are provided for
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violation of state anti-kickback and anti-referral laws. FPA believes that its
operations comply with all applicable anti-kickback and anti-referral laws. In
addition, health care reforms may expand existing anti-kickback and
anti-referral laws to apply to all health care payors, not just Medicare and
Medicaid. It is unclear how any reform legislation would affect health care
provider networks or other types of managed care arrangements. There can be no
assurance that FPA will be able to comply with any new laws.
Furthermore, a number of states prohibit sharing professional fees (or fee
splitting) with anyone other than a member of the same profession. There can be
no assurance that such laws will ultimately be interpreted in a manner
consistent with the practices of FPA.
Federal and state laws regulate insurance companies, HMOs and other
managed care organizations. Many states also regulate the establishment and
operation of networks of health care providers. Generally, these laws do not
apply to the hiring and contracting of physicians by other health care
providers. There can be no assurance that regulators of the states in which FPA
operates would not apply these laws to require licensure of FPA's operations as
an HMO, an insurer or a provider network. FPA believes that it is in compliance
with these laws in the states in which it does business, but there can be no
assurance that interpretations of these laws by the regulatory authorities in
these states or in the states in which FPA may expand will not require licensure
or a restructuring of some or all of FPA's operations. In the event that FPA is
required to become licensed under these laws, the licensure process can be
lengthy and time consuming and, unless the regulatory authority permits FPA to
continue to operate while the licensure process is progressing, FPA could
experience a material adverse change in its business while the licensure process
is pending. In addition, many of the licensing requirements mandate strict
financial and other requirements which FPA may not be able to meet. Further,
once licensed, FPA would be subject to continuing oversight by and reporting to
the respective regulatory agency.
Although under the laws of most states the business of insurance generally
is defined to include acceptance of financial risk and has not extended to
physician networks, the Knox-Keene Health Care Service Plan Act of 1975, as
amended (the "Knox-Keene Act"), a California statute that applies to managed
care health service plans, requires all health care service plans to be licensed
by the California Department of Corporations (the "Department"). The Department
has determined that physician management companies like the Company must apply
for and operate under a restricted Knox-Keene license. FPA's restricted license
application was approved by the Department in December 1996. The loss or
revocation of such license would have a material adverse effect on FPA.
In addition, there can be no assurance that regulatory authorities in the
other states in which FPA or its affiliates operate will not impose similar
requirements or that future interpretations of insurance laws and health care
network laws by the regulatory authorities in these states or other states will
not require licensure or a restructuring of some or all of the operations of
FPA.
The National Association of Insurance Commissioners ("NAIC") recently
adopted the Managed Care Plan Network Adequacy Model Act (the "Model Act") which
is intended to establish standards for the creation and maintenance of networks
by health carriers and establish requirements for written agreements among
health carriers offering managed care plans, participating providers and
intermediaries, like the Company, which negotiate provider contracts, regarding
the standards, terms and provisions under which a participating provider will
provide services to covered persons. The Model Act does not carry the force of
law unless it is adopted by state legislatures. The Company does not know which
states, if any, will adopt the Model Act. There can be no assurance that the
Company will be able to comply with the Model Act or any other act adopted by
NAIC if it is adopted in any state in which the Company does business or the
effect such compliance could have on FPA's operations.
ANTITRUST REGULATION
FPA's affiliated IPAs and Professional Corporations are separate legal
entities due to legal and regulatory requirements; if they are deemed to be
competitors in specified markets, they may be subject to various laws that
prohibit anti-competitive conduct, including price fixing, concerted refusals to
deal and division of market. Alternatively, if FPA's affiliated IPAs and
Professional Corporations, although separate entities, are deemed to be part of
a single entity or system, they may be subject to laws that prohibit
anti-competitive combinations or activities if the number of affiliated
physicians in specified markets exceeds certain thresholds. The Company believes
that it is in compliance with the antitrust laws, but there can be no assurance
that the Company's interpretation is consistent with that of federal or state
authorities or courts or that such circumstances will remain as the Company
grows and matures and as further regulations are promulgated and
interpretations thereof issued.
COMPETITIVE MARKET FORCES
The managed care industry is highly competitive and is subject to
continuing changes in how services are provided and how providers are selected
and paid. Increased enrollment in prepaid health care plans because of health
care reform or for other reasons,
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increased participation by physicians in group practices and other factors may
attract entrants into the physician practice management services segment of the
managed care industry and result in increased competition for FPA. In addition,
local physician groups and hospitals are also trying to combine their services
into integrated delivery networks. Certain of FPA's competitors are
significantly larger and better capitalized, provide a wider variety of
services, may have greater experience in providing physician practice management
services and may have longer established relationships with Payors. Accordingly,
FPA may not be able to continue to increase the number of providers in the FPA
Network, negotiate contracts with new Payors on behalf of the Professional
Corporations or renegotiate favorable contracts with current Payors. The
inability of FPA to increase the number of providers in the FPA Network and
negotiate favorable contracts with Payors could have a material adverse effect
on FPA.
In addition, as a result of consolidation among Payors, certain Payors are
able to negotiate or are in the process of negotiating significant reductions in
the capitation payments to providers. Further, certain Payors have deleted
shared risk arrangements from their contracts with providers thereby decreasing
the amount of compensation such Payors are paying providers. To date, none of
the Payors has deleted shared risk arrangements from its contract with any
Professional Corporation. If Payors negotiate cost reductions with such
Professional Corporations or eliminate shared risk arrangements in which the
Professional Corporations are currently participating, such actions could have a
material adverse effect on the results of operations of FPA.
POTENTIAL LIABILITIES
In recent years, physicians, hospitals and other participants in the
managed health care industry have become subject to an increasing number of
lawsuits alleging medical malpractice as well as claims based on the withholding
of approval for or reimbursement of necessary medical services. Many of these
lawsuits involve large claims and substantial defense costs. The Company has
been named as a party in such suits and claims and will likely be named as a
party in similar suits and claims in the future. FPA maintains an errors and
omissions policy relating to its utilization review activities and is included
as a named or additional insured on the policies of the Professional
Corporations. There can be no assurance that insurance coverage for lawsuits
brought or which may be brought against FPA will be sufficient to cover FPA's
expenses or losses. There can be no assurance that insurance coverage will be
sufficient, and, if insufficient, that such suits or claims will not have a
material adverse effect on the Company's financial condition and results of
operations. Further, FPA could be held liable for the negligence of a contracted
health care professional if such health care professional were regarded as an
employee or agent of FPA in the practice of medicine. The Texas legislature has
enacted legislation effective September 1, 1997 which provides that a health
insurance carrier, health maintenance organization or managed care entity has
the duty to exercise ordinary care when making health care treatment decisions
and is liable for damages for harm to an insured or enrollee proximately caused
by its failure to exercise such ordinary care or proximately caused by treatment
decisions made by its employees, agents, ostensible agents or representatives
acting on its behalf and over whom it exercises influence or control. Given the
recent enactment of this legislation and the lack of judicial interpretation
thereof, FPA cannot assess the impact this legislation may have on its
operations in Texas; however, if the legislation is utilized by patients to
bring successful malpractice actions against managed care entities such as FPA,
the cost of providing health care as well as the cost of insurance coverage
against such actions could increase, which could have an adverse impact on FPA's
results of operations. In addition to any potential tort liability of FPA, FPA's
emergency department contracts with hospitals generally contain provisions under
which FPA agrees to indemnify the hospital for losses resulting from the
malpractice of contracted physicians.
An increasing number of health care providers and other entities are being
faced with lawsuits alleging fraudulent billing practices under the federal
Civil False Claims Act. The Civil False Claims Act permits a person (generally
employees or former employees of the health care provider or other entity) to
assert the rights of the government by initiating a qui tam action against a
health care provider or other entity if such person has or purports to have
information that the health care provider or other entity falsely and
fraudulently submitted a claim to the government for payment. Upon filing, the
government has the opportunity to intervene and assume control of the case.
Penalties of up to $10,000 for each false or fraudulent claim presented to the
government for payment may be awarded as well as treble damages. Defendants also
may be excluded permanently or for a period of time from participation in the
Medicare and Medicaid programs. Because of penalties and treble damages, many of
these lawsuits involve large monetary claims and substantial defense costs. If a
qui tam action is successfully prosecuted, no assurance can be given that such
action would not have a material adverse effect on FPA and its operations.
AHI is a defendant in a class action securities lawsuit entitled In re
AHI Healthcare Systems, Inc. Securities Litigation filed in the United States
District Court for the Central District of California, Western Division. The
suit was initially filed on December 20, 1995 against AHI, certain of its
officers and directors, and all of the underwriters of AHI's common stock in
AHI's initial public offering. The suit asserts that AHI artificially inflated
the price of its stock by, among other things, misleading securities analysts
and by failing to disclose in its initial public offering prospectus alleged
difficulties with the acquisition of Lakewood Health Plan, Inc. and with two of
AHI's payor contracts with FHP, Inc. The plaintiffs seek unspecified damages on
behalf of the stockholders who purchased AHI's common stock between September
28, 1995 and December 19, 1995. On January 17, 1997 the district court (a)
granted AHI's motion for partial summary judgment and dismissed the class
plaintiffs' claims concerning the alleged misrepresentations regarding AHI's
intended use of initial public offering proceeds and AHI's relationship with
FHP, Inc. but (b) denied summary judgment on the claims relating to the
proposed acquisition of Lakewood Health Plan, Inc. As a result, only those
claims relating to Lakewood Health Plan and AHI's alleged liability for the
public statements of securities analysts following AHI remain in the suit.
Since the court's ruling on AHI's motion for partial summary judgment, the
plaintiffs have asked the court for leave to amend their complaint to add an
additional claim alleging problems with AHI's medical group operations in
Downey, California. FPA intends to vigorously defend this lawsuit and does not
expect that the outcome of this lawsuit will have a material adverse effect.
FLUCTUATIONS IN QUARTERLY RESULTS
FPA's financial statements (including interim financial statements)
contain accruals which are calculated quarterly for estimates of amounts
assigned by certain FPA subsidiaries and the Professional Corporations to FPA
and paid by Payors based upon hospital utilization ("shared risk revenues").
Quarterly results have in the past and may in the future be affected by
adjustments to such estimates for actual costs incurred. Historically, these
subsidiaries and Professional Corporations and Payors generally reconcile
differences between actual and estimated amounts receivable or payable relating
to Payor shared risk arrangements in the second or third quarter of each year.
In the event that these subsidiaries, Professional Corporations and Payors are
unable to reconcile such differences, extensive negotiation, arbitration or
litigation relating to the final settlement of these amounts may occur. To the
extent that the FPA Network expands to include additional Payors, the timing of
these adjustments may vary; this variation in timing may cause FPA's quarterly
results not to be directly comparable to
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corresponding quarters in other years. FPA's financial statements also include
estimates of costs for covered medical benefits incurred by enrollees, which
costs have not yet been reported by the providers. While these estimates are
based on information available to FPA at the time of calculation, actual costs
may differ from FPA's estimates of such amounts. If the actual costs differ
significantly from the amounts estimated by FPA, adjustments will be required
and quarterly results may be affected. Quarterly results may also be affected by
movements of Payor members from one Payor to another, particularly during
periods of open enrollment for HMOs. Fluctuations in the Company's quarterly
operating results could result in significant volatility in, and otherwise
adversely affect, the market price for the Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
Recently, there has been significant volatility in the market prices of
securities of companies in the health care industry, including the price of FPA
common stock. Many factors, including announcements of new legislative proposals
or laws relating to health care reform, the performance of, and investor
expectations for, FPA, analysts' comments, the trading volume in FPA common
stock and general economic and market conditions, may influence the trading
price of FPA common stock. Accordingly, there can be no assurance as to the
price at which FPA common stock will trade in the future.
DEPENDENCE UPON KEY PERSONNEL; EMPLOYMENT CONTRACTS
FPA is dependent upon the active participation of its executive officers
and directors, particularly Dr. Sol Lizerbram, Chairman of the Board, Dr. Seth
Flam, President and Chief Executive Officer and Dr. Stephen Dresnick, President
of Sterling. The loss to FPA of the services of Drs. Lizerbram, Flam or Dresnick
could have a material adverse effect upon FPA's future operations. FPA has an
employment contract with each of Drs. Lizerbram, Flam and Dresnick. FPA has not
purchased key-man life insurance on any of its key personnel.
RISKS OF DILUTION; ADDITIONAL CAPITAL NEEDS
FPA's expansion strategy includes acquisitions of, and affiliations with,
individual and group physician practices as well as organizations that provide
management services to such practices. Such acquisitions or affiliations may be
consummated using newly issued shares of FPA common stock, or securities
convertible into or exercisable for the purchase of FPA common stock, as
consideration. The issuance of additional shares of FPA common stock may have a
dilutive effect on the net tangible book value or earnings per share of FPA
following such issuance.
FPA's expansion strategy also requires substantial capital investments.
Capital is needed not only for the acquisition of the assets of physician
practices, but also for their effective integration, operation and expansion and
for the addition of medical equipment and technology. In the event that FPA
common stock does not maintain sufficient valuation, or potential acquisition
candidates are unwilling to accept FPA common stock as part of the consideration
for the sale of the assets of their businesses, FPA may be required to utilize
more of its cash resources. There can be no assurance that FPA will have
sufficient cash resources or will be able to obtain additional financing or
that, if available, such financing will be on terms acceptable to FPA. Further,
an inability to obtain additional capital through subsequent debt or equity
financings may negatively affect FPA's existing operations and its future
growth.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after
conversion of the Debentures, or otherwise, or the perception that such sales
could occur, may adversely affect prevailing market prices of FPA common stock.
As of September 19, 1997, 33,789,827 shares of FPA common stock are issued and
outstanding. In addition, as of September 24, 1997 the Company had granted
options or warrants to purchase, or securities (excluding the Debentures)
convertible into 7,881,838 shares of FPA common stock and 3,107,900 shares of
FPA common stock are issuable upon conversion of the Debentures. In addition to
registration rights to be granted to certain stockholders of Health Partners in
connection with the Health Partners Merger, approximately 950,000 shares of
outstanding FPA common stock are subject to registration rights agreements which
permit such shares to be included in future registration statements of common
stock or other securities of FPA. In addition, the Company has granted
registration rights to certain former AHI stockholders in the event that such
stockholders are unable to sell a specified number of shares in accordance with
the provisions of Rule 144. The Company does not believe a registration
statement regarding such shares will need to be filed.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
17
<PAGE> 17
FPA's Certificate of Incorporation, as amended, and By-laws contain
certain provisions that could have the effect of making it more difficult for a
person to acquire, or of discouraging a third party from attempting to acquire,
control of FPA. FPA's Certificate of Incorporation authorizes the Board of
Directors without the approval of the stockholders to issue Preferred Stock. The
rights of the holders of common stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of discouraging a person from acquiring a
majority of the outstanding common stock. There are no shares of Preferred Stock
presently outstanding and FPA has no present plans to issue any shares of
Preferred Stock.
Under FPA's Credit Agreement, FPA may not enter into any merger or
consolidation arrangement or purchase any securities of or any assets
constituting a business unit of another person except, among other things, for
Permitted Acquisitions (as defined in the Credit Agreement). These provisions
could serve to impede or prevent a change of control of FPA or have a
depressive effect on FPA's stock price.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sales of the
Individual Shares offered hereby.
DIVIDEND POLICY
The Company declared no cash dividends on the Common Stock during 1995,
1996 and 1997 to date. The Company currently intends to retain earnings for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future. Any payment of future dividends will be at the discretion of
the Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends (including
under the Credit Agreement and the Debentures) and other relevant factors.
18
<PAGE> 18
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 98,000,000 shares of
Common Stock, $.002 par value per share, and 2,000,000 shares of Preferred
Stock, $.001 par value per share. As of September 24, 1997, there were
33,789,827 shares of common stock and no shares of Preferred Stock issued and
outstanding.
COMMON STOCK
Holders of the common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of common stock do not
have cumulative voting rights and, therefore, holders of a majority of the
shares voting for the election of directors can elect all of the directors. In
such event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the common stock are entitled to receive such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any agreement governing the
Company's indebtedness. The Company does not anticipate paying cash dividends in
the foreseeable future. See "Dividend Policy." In the event of the liquidation,
dissolution or winding up of the Company, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities.
Holders of the common stock have no preemptive, conversion or redemption
rights and are not subject to further calls or assessments by the Company. All
of the outstanding shares of common stock are validly issued, fully paid and
nonassessable.
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors has the authority, without any vote or action by
the stockholders, to issue Preferred Stock in one or more series and to fix the
designations, preferences, rights, qualifications, limitations and restrictions
thereof, including the voting rights, dividend rights, dividend rate, conversion
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series. In addition, the issuance of Preferred Stock by the Board of
Directors could be utilized, under certain circumstances, as a method of
preventing a takeover of the Company at a premium above the then-prevailing
market price. See "Risk Factors -- Anti-Takeover Effect of Certain Provisions."
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law ("Delaware Law"). In general, Section 203
prevents an interested stockholder (defined generally as a person owning 15% or
more of a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware Corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder the board of directors of the
corporation approved the transaction or the business combination in which the
interested stockholder became an interested stockholder; (ii) upon consummation
of the transaction that resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation, and held by certain employee stock ownership plans); or
(iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder.
The Company's Bylaws provide that the exact number of directors shall be
fixed from time to time by the Board of Directors. At each annual meeting of
stockholders, directors will be elected to succeed those directors whose terms
have expired, and each newly elected director will serve for a three-year term.
Directors may be removed, with or without cause, by the holders of a majority of
shares entitled to vote at an election of directors.
19
<PAGE> 19
LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS
The Company's Certificate of Incorporation provides that to the fullest
extent permitted by Delaware General Corporation Law, a director of the Company
shall not be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a Director. Under current Delaware Law, liability of
a director may not be limited (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law,
(iii) in respect of certain unlawful dividend payments or stock redemptions or
repurchases and (iv) for any transaction from which the director derives an
improper personal benefit. The effect of the provision of the Company's
Certificate of Incorporation is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary duty
of care as a director (including breaches resulting from negligent or grossly
negligent behavior) except in the situations described in clauses (i) through
(iv) above. This provision does not limit or eliminate the rights of the Company
or any stockholder to seek nonmonetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. In addition,
the Company's Bylaws provide that the Company shall indemnify its directors and
officers to the fullest extent permitted by Delaware General Corporation Law.
In addition, the Company has entered into agreements (the "Indemnification
Agreements") with certain of the directors and officers of the Company pursuant
to which the Company agrees to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer and arising out of his capacity
as a director, officer, employee and/or agent of the corporation of which he is
a director or officer to the maximum extent provided by applicable law. In
addition, such director or officer shall be entitled to an advance of expenses
to the maximum extent authorized or permitted by law to meet the obligations
indemnified against. The Indemnification Agreements also obligate the Company to
cover each director and officer in the event the Company purchases and maintains
insurance for the benefit and on behalf of its directors and officers insuring
against all liabilities that may be incurred by each director or officer in or
arising out of his capacity as a director, officer, employee and/or agent of the
Company.
To the extent that the Board of Directors or the stockholders of the
Company may in the future wish to limit or repeal the ability of the Company to
indemnify directors and officers, such repeal or limitation may not be effective
as to directors and officers who are currently parties to the Indemnification
Agreements because their rights to full protection are contractually assured by
the Indemnification Agreements. It is anticipated that similar contracts may be
entered into, from time to time, with future directors and officers of the
Company.
REGISTRATION RIGHTS
The Company has granted registration rights with respect to approximately
950,000 shares of FPA Common Stock related to various acquisitions and will
grant registration rights, upon consummation of the Health Partners Merger, to
certain holders of Health Partners Common Stock and Preferred Stock. Such
agreements permit such shares to be included in future registration statements
of common stock or other securities of FPA. In addition the Company has granted
registration rights to certain former AHI stockholders in the event that such
stockholders are unable to sell a specified number of shares in accordance with
the provisions of Rule 144. The Company does not believe a registration
statement regarding such shares will need to be filed.
20
<PAGE> 20
SELLING STOCKHOLDERS
The following table sets forth information with respect to the Selling
Stockholders, the number of Individual Shares offered hereby and the number of
shares to be owned by each Selling Stockholder if all Individual Shares offered
hereby are sold. Substantially all of these Selling Stockholders have agreed to
a lock-up of the shares offered hereby until the day following the date when
financial results covering at least 30 days of post-merger combined operations
of FPA and HealthCap have been published.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY SHARES TO BE
OWNED BEFORE BENEFICIALLY
OFFERING SHARES OWNED AFTER OFFERING
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- ------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C>
Allstate Insurance Company 173,032 * 173,032 -- --
Allstate Life Insurance Company 105,573 * 105,573 -- --
Agents Pension Plan 15,308 * 15,307 -- --
Allstate Retirement Plan 12,246 * 12,245 -- --
Charles H. Blanchard 20,726 * 20,726 -- --
Edward Buckner 712 * 712 -- --
Theresa Buscemi 250 * 250 -- --
Terri Doe-Roberts 932 * 932 -- --
Vanessa Emerick 233 * 232 -- --
Patricia Hedrick 250 * 250 -- --
Doris Johnson 2,072 * 2,072 -- --
Donald J. Jones 7,254 * 7,254 -- --
KADDAK Limited Partnership 24,871 * 24,871 -- --
Robert B. McCray 123,529 * 123,529 -- --
Nader Naini 4,974 * 4,974 -- --
Donna J. Rockenbach 7,254 * 7,254 -- --
Dana Simpson 207 * 207 -- --
Scott T. Smith 7,461 * 7,461 -- --
Steven C. Thomas 149,230 * 149,230 -- --
Michael C. Wright 468,418 1.4 468,418 -- --
Randall M. Baum and Besty S. Baum, 1,415 * 1,415 -- --
Trustees of the Baum Family Revocab1e
Trust, UTA dated February 21, 1997
Charles Blanchard 1,415 * 1,415 -- --
Arthur Blank 14,154 * 14,154 -- --
Ronald M. and Lisa S. Brill 2,123 * 2,123 -- --
Brian P. Burns 7,077 * 7,077 -- --
Arthur B. Calcagnini 8,493 * 8,493 -- --
Patricia Chirls 1,415 * 1,415 -- --
Martin D. Cohn and Gerald L. Cohn, 2,123 * 2,123 -- --
Trustees for Gerald L. Cohn
Gerald Cohn 1,982 * 1,982 -- --
Archibald Cox 7,077 * 7,077 -- --
WSGR Profit Sharing Plan, D.M. Laurice 354 * 354 -- --
& M.M. Rosati, Trustees, fbo Frances
Currie
Peter W. Eising 1,415 * 1,415 -- --
Frazier Management, L.L.C. 2,123 * 2,123 -- --
Frazier & Company L.P. 269 * 269 -- --
Frazier Portfolio Fund 8,224 * 8,224 -- --
Alan D. Frazier 1,415 * 1,415 -- --
Gerson Bakar 1984 Trust 7,077 * 7,077 -- --
Steven Gillis 1,415 * 1,415 -- --
Peter and Gloria Gold Revocable 3,539 * 3,539 -- --
Intervivos Trust
Greentree Shore Limited Partnership 3,539 * 3,539 -- --
David E. Harvey 1,062 * 1,062 -- --
A. Grant Heidrich, TTEEAGH Separate 708 * 708 -- --
Property Trust UDT 5/31/83
Helios Partners 7,077 * 7,077 -- --
George P. Hutchinson 1,415 * 1,415 -- --
Peter Barton Hutt 1,982 * 1,982 -- --
Inverned Associates, Inc. 9,200 * 9,200 -- --
Carlisle Jones 708 * 708 -- --
Fred Joseph BS Master Defined 1,062 * 1,062 -- --
Contribution Profit Sharing Plan,
Bear Stearns, Custodian
Saul Kurlat and Gitta Kurlat as 3,539 * 3,539 -- --
Joint Tenants with Rights of
Survivorship
Stephen A. Levin 7,077 * 7,077 -- --
Libby D. Group 2,123 * 2,123 -- --
Limit & Co. 28,309 * 28,309 -- --
M & G Equities 7,077 * 7,077 -- --
Mallard Investments L.P. 14,154 * 14,154 -- --
David Maryatt 1,415 * 1,415 -- --
Ronald Matricaria 1,415 * 1,415 -- --
MF Partners 9,200 * 9,200 -- --
Ali Naini 354 * 354 -- --
Robert Nanovic 4,246 * 4,246 -- --
Harry Palmer 1,415 * 1,415 -- --
Donald C. Pelo 1,415 * 1,415 -- --
Quogue Investment Partnership 7,077 * 7,077 -- --
R.A. Investment Group 28,309 * 28,309 -- --
R.D. Merrill Company 5,662 * 5,662 -- --
Blair and Sarah Rasmussen 3,539 * 3,539 -- --
Ralph H. Rinne, M.D. 2,123 * 2,123 -- --
Rousso Family Trust 2,831 * 2,831 -- --
SASCO Marketing, Inc. 2,831 * 2,831 -- --
Norman C. Selby 1,415 * 1,415 -- --
Stanley Sirote 1,415 * 1,415 -- --
G.W. Skinner Children's Trust 7,077 * 7,077 -- --
Solar Group S.A. 7,077 * 7,077 -- --
Springbrook G.P. 212,316 * 212,316 -- --
Stanton Family Trust 1,769 * 1,769 -- --
John Stanton & Theresa Gillespie 1,769 * 1,769 -- --
Eugene L. Step 14,154 * 14,154 -- --
Surprise, Inc. 2,123 * 2,123 -- --
Andrew & Susan Taussig 708 * 708 -- --
Thomas Teague 1,415 * 1,415 -- --
George Thompson 1,062 * 1,062 -- --
Peter Van Oppen, IRA 354 * 354 -- --
Peter Viachos 1,062 * 1,062 -- --
Walter Bros. 2,832 * 2,832 -- --
Gary L. Waterman 4,955 * 4,955 -- --
Frank Wilkens 3,540 * 3,540 -- --
WNC Corporation 2,123 * 2,123 -- --
The Patricia W. Wuliger Trust, Jeffrey 7,077 * 7,077 -- --
and Gregory Wuliger, Trustees
Frank G. Myers, Jr. 120 * 120 -- --
Frank G. Myers, Jr. & Susan F. Myers 9,394 * 9,394 -- --
Trust
B.S.& A. Myers Partners 1,680 * 1,680 -- --
Nancy S. Mueller Revocable Trust
Nancy S. Mueller Revocable Trust 2,138 * 2,138 -- --
</TABLE>
21
<PAGE> 21
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
G&C Mueller Partners 534 * 534 -- --
A. Grant Heidrich III 120 * 120 -- --
A. Grant Heidrich III & Jeannette Y. 8,838 * 8,838 -- --
Heidrich Trust
BLH Trust 1,121 * 1,121 -- --
AGH, IV Trust 1,121 * 1,121 -- --
Michael J. Levinthal 120 * 120 -- --
Michael J. Levinthal Trust 6,932 * 6,932 -- --
William D. Unger 120 * 120 -- --
Unger-Luchsinger Family Trust 6,509 * 6,509 -- --
ANDMAX Partners 423 * 423 -- --
Wendell G. Van Auken 120 * 120 -- --
Wendell G. Van Auken & Ethal S. Van 6,932 * 6,932 -- --
Auken Trust
Kevin A. Fong 120 * 120 -- --
Devin A. Fong & Salley J. Fong Trust 6,932 * 6,932 -- --
Yogen K. Dalal 120 * 120 -- --
Dalal Revocable Trust 5,873 * 5,873 -- --
Nina M. Dalal 1993 Trust, RK Dalal, ttee 529 * 529 -- --
Alex R. Dalal 1993 Trust, RK Lalal, ttee 529 * 529 -- --
Andrew K. Klatt 167 * 167 -- --
Abbott:
California State Teachers' 14,105 * 14,105 -- --
Retirement System
Army & Air Force Exhchange Service 705 * 705 -- --
Trust
Illinois Municipal Retirement Fund 2,115 * 2,115 -- --
Andrew W. Mellon Foundation 4,233 * 4,233 -- --
Bolsa Company 1,411 * 1,411 -- --
Commonwealth Fund 2,821 * 2,821 -- --
Computrol, Ltd. 4,233 * 4,233 -- --
Trustees of Dartmouth College 2,821 * 2,821 -- --
Duke University 4,233 * 4,233 -- --
Endowment Venture Partners 9,875 * 9,875 -- --
Ford, Thomas 1,411 * 1,411 -- --
Greenhouse Associates 2,115 * 2,115 -- --
L SCOTT FRANTZ 282 * 282 -- --
WILLIAM T. FRANTZ 282 * 282 -- --
Harvard Managment:
Phemus Corporation 7,053 * 7,053 -- --
Harvard Master Trust 705 * 705 -- --
Harvard - Yenching Institute 352 * 352 -- --
McKinney Avenue (Estate of Jane 3,527 * 3,527 -- --
Walcott Heldt)
Hewlett Packard Master Trust 7,053 * 7,053 -- --
Horsley Bridge Fund II, L.P. 28,214 * 28,214 -- --
Leeway & Company 11,286 * 11,286 -- --
Metcalf, John R. 352 * 352 -- --
Metcalf, Susan S. Revocable Trust 352 * 352 -- --
Massachusetts Institute of Technology 14,107 * 14,107 -- --
Massachusetts Institute of Technology 5,642 * 5,642 -- --
Retirement Plan
Notre Dame de Lac 4,233 * 4,233 -- --
NYNEX Master Pension Trust 7,053 * 7,053 -- --
Owens-Illinois Master Retirement 2,821 * 2,821 -- --
Pebble II 2,821 * 2,821 -- --
Phelps Dodge Master Retirement Trust 1,411 * 1,411 -- --
Trustees of Phillips Academy 2,821 * 2,821 -- --
Nassau Capital Funds, L.P. 11,287 * 11,287 -- --
Rensselaer Polytechnic Institute 1,411 * 1,411 -- --
Rockefeller Brothers Fund 4,233 * 4,233 -- --
Scintet Development & Holdings 563 * 563 -- --
Sherman Fairchild Foundation 1,411 * 1,411 -- --
Shing Kwan Investment Co. 1,411 * 1,411 -- --
Robert R. Sprague, 705 * 705 -- --
Leland Stanford Junior University 9,875 * 9,875 -- --
Marion R. Stone 352 * 352 -- --
Robert G. Stone Jr. 705 * 705 -- --
Superior Partners Ltd. 2,115 * 2,115 -- --
University of California 21,160 * 21,160 -- --
University of Michigan, Regents 1,411 * 1,411 -- --
Wellesley College 2,115 * 2,115 -- --
Yale University 21,161 * 21,161 -- --
Basket-Bell Family Trust 308 * 308 -- --
Randall S. Battat 67 * 67 -- --
Eric Benhamou 167 * 167 -- --
Stephen M. Berkley 307 * 307 -- --
Diosado P. Banatao 307 * 307 -- --
David A. Brown Family Trust 213 * 213 -- --
Carreker Family Trust 167 * 167 -- --
Vinton G. Cerf 33 * 33 -- --
Al Chin 83 * 83 -- --
Kenneth Clark (WSGR Profit Shring Plan) 25 * 25 -- --
Robert T. Clarkson 25 * 25 -- --
Caretha Coleman 83 * 83 -- --
John C. Colligan 42 * 42 -- --
Richard G. Couch 179 * 179 -- --
Francis S. Currie (WSGR Profit Sharing 25 * 25 -- --
Plan)
PSERD Trust, Philip S. & Elayne R.
Dauber, ttees 307 * 307 -- --
Dobkin Family Trust (Dobkin, R.) 307 * 307 -- --
Investment Group of Santa Barbara Money 307 * 307 -- --
Purchase Plan
Eaton - Yara 1991 Family Trust 167 * 167 -- --
F. Terry Eger 83 * 83 -- --
Fallen Oak Partners (Pavlov, George) 196 * 196 -- --
Thomas W. Ford 307 * 307 -- --
Martin S. Gerstel 167 * 167 -- --
James F. Gibbons 126 * 126 -- --
David V. Goeddel 213 * 213 -- --
James M. Gower 83 * 83 -- --
Robert V. Gunderson Jr. 83 * 83 -- --
Timothy M. Haley 42 * 42 -- --
Cecelia A. Hayes 20 * 20 -- --
1993 Hennessey Revocable Trust 260 * 260 -- --
Russell C. Hirsch 834 * 834 -- --
Bruce Holland 308 * 308 -- --
Holman Group Inc. Money Purchase 83 * 83 -- --
Pension Trust
Huang Revocable Living Trust 308 * 308 -- --
Peter B. Hutt 67 * 67 -- --
Wende S. Hutton 832 * 832 -- --
Craig W. Johson 33 * 33 -- --
Jennifer V. Jones 42 * 42 -- --
David M. Kelley 42 * 42 -- --
Andy Klatt 1,166 * 1,166 -- --
Raju Kucheriapati 126 * 126 -- --
Randy Komisar 42 * 42 -- --
Sandra L. Kutrzig Trust 260 * 260 -- --
Mark Levin 83 * 83 -- --
Alan Levy 308 * 308 -- --
Keith R. Lobo 83 * 83 -- --
Audrey & Clair, Michael MacLean Trust 167 * 167 -- --
Joseph Mandato 308 * 308 -- --
Massey Family Trust 25 * 25 -- --
Mario Mazzola 308 * 308 -- --
Edward R. McCracken 308 * 308 -- --
J. Casey McGlynn (WSGR Profit Sharing Plan 52 * 52 -- --
Roger McNamee 83 * 83 -- --
Meresman Family Trust 307 * 307 -- --
Frederic H. Moll 260 * 260 -- --
Allen L. Morgan 25 * 25 -- --
A. Richard Newton 333 * 333 -- --
Patterson Family Trust 167 * 167 -- --
Mark W. Perry 100 * 100 -- --
John A. Powell Irrevocable Trust 83 * 83 -- --
Quattrone Family Trust 213 * 213 -- --
William R. Rauth III, Cal. Central 307 * 307 -- --
Trust Bank, ttee
Mario M. Rosati (WSGR Profit Sharing 91 * 91 -- --
Plan)
Saper Family Trust 25 * 25 -- --
Jon S. & Marshall, Mayrna G. Saxe 307 * 307 -- --
Schroeder Family Trust 250 * 250 -- --
Larray H. Sonsini 91 * 91 -- --
Isaac Stein 307 * 307 -- --
Swanson Family Fund, Ltd., Robert 307 * 307 -- --
A. Swanson, GP
Robert H. Swanson, Jr. & Sheila L. 83 * 83 -- --
Swanson Trust
VLG Investments 1994 134 * 134 -- --
Frank T. Watkins III 167 * 167 -- --
Kurt Wheeler 83 * 83 -- --
Will Family Trust, Allan R. & Heidi 100 * 100 -- --
E. Will, ttees
WS Investment Company 93E 832 * 832 -- --
Frank G. Myers, Jr. & Susan F. Myers 21 * 21 -- --
Trust
Nancy S. Mueller Revocable Trust 21 * 21 -- --
A. Grant Heidrich III & Jeannette Y. 21 * 21 -- --
Heidrich Community Property
Michael J. Levinthal Trust 21 * 21 -- --
Unger-Luchsinger Family Trust 21 * 21 -- --
Wendel G. & Ehtel S. Van Auken Trust 21 * 21 -- --
Kevin A. Fong & Sally J. Fong Trust 21 * 21 -- --
Dalal Revocable Trust, Yogen K. & 21 * 21 -- --
Margaret J. Dalal, ttees
</TABLE>
- -------------------
* Less than 1%.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the
Individual Shares offered hereby. The Individual Shares may be sold from time to
time to purchasers directly by the Selling Stockholders. Alternatively, the
Selling Stockholders may from time to time offer the Individual Shares through
underwriters, brokers, dealers or agents who may receive compensation in the
form of underwriting discounts, concessions or commissions from the Selling
Stockholders and/or the purchasers of the Individual Shares for whom they may
act as agent. The Selling Stockholders and any such underwriters, brokers,
dealers or agents who participate in the distribution of the Individual Shares
may be deemed to be "underwriters", and any profits on the sale of the
Individual Shares by them and any discounts, commissions or concessions received
by any such underwriters, brokers, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. To the extent
the Selling Stockholders may be deemed to be underwriters, the Selling
Stockholders may be subject to certain statutory liabilities of the Securities
Act, including, but not limited to, Sections 11, 12 and 17 of the Securities Act
and Rule 10b-5 under the Exchange Act.
The Individual Shares offered hereby may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
The Individual Shares may be sold by one or more of the following methods,
without limitation: (i) a block trade in which the broker or dealer so engaged
will attempt to sell the Individual Shares as agent but may position and resell
a portion of the block as principal to facilitate the transaction; (ii)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (iii) ordinary brokerage
transactions and transactions in which the broker solicits purchasers; (iv) an
exchange distribution in accordance with the rules of such exchange; (v)
face-to-face transactions between sellers and purchasers without a
broker-dealer; (vi) through the writing of options; (vii) to underwriters who
will acquire the Individual Shares for their own account and resell them
22
<PAGE> 22
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale (any
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may change from time to time); and (viii) other. At any time a
particular offer of the Individual Shares is made, a revised Prospectus or
Prospectus Supplement, if required, will be distributed which will set forth the
aggregate amount and type of Individual Shares being offered and the terms of
the offering, including the name or names of any underwriters, brokers, dealers
or agents, any discounts, commissions and other items constituting compensation
from the Selling Stockholders, the purchase price paid by any underwriter for
Individual Shares purchased from the Selling Stockholders, any discounts,
commissions or other items constituting compensation from the Selling
Stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to dealers. Such revised Prospectus or Prospectus Supplement and, if
necessary, a post-effective amendment to the registration statement of which
this Prospectus is a part, will be filed with the Commission to reflect the
disclosure of additional information with respect to the distribution of the
Individual Shares. In addition, the Individual Shares covered by this Prospectus
may be sold in private transactions or under Rule 144 rather than pursuant to
this Prospectus.
There is no assurance that any Selling Stockholder will sell any or all of
the Individual Shares offered by it hereunder or that any such Selling
Stockholder will not transfer, devise or gift such Individual Shares by other
means not described herein. Underwriters participating in any offering made
pursuant to this Prospectus (as amended or supplemented from time to time) may
receive underwriting discounts and commissions, and discounts or concessions may
be allowed or reallowed or paid to dealers, and brokers or agents participating
in such transaction may receive brokerage or agent's commissions or fees.
The Selling Stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rules 10b-6
and 10b-7, which may limit the timing of purchases and sales of any of the
Individual Shares by the Selling Stockholders and any other such person.
Furthermore, under Rule 10b-6 under the Exchange Act, any person engaged in the
distribution of the Individual Shares may not simultaneously engage in
market-making activities with respect to the particular Securities being
distributed for a period of nine business days prior to the commencement of such
distribution. Regulation M, which replaces Rules 10b-6 and 10b-7 effective as of
March 4, 1997, contains similar limitations on the distribution and sale of the
Individual Shares hereunder. All of the foregoing may affect the marketability
of the Individual Shares and the ability of any person or entity to engage in
market-making activities with respect to the Individual Shares.
In order to comply with the securities laws of certain states, if
applicable, the Individual Shares will be sold in such jurisdictions, if
required, only through registered or licensed brokers or dealers.
The Company has agreed to pay substantially all of the expenses incidental
to the registration, offering and sale of the Individual Shares to the public
other than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
Pursuant to agreements between the Company and certain of the Selling
Stockholders, the Company and certain of the Selling Stockholders have agreed to
indemnify each other against certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Individual Shares offered hereby will be passed upon
for the Company by James A. Lebovitz, Esq., Senior vice President, General
Counsel and Secretary of FPA, San Diego, California.
EXPERTS
The consolidated financial statements of FPA incorporated in this
Prospectus by reference from FPA's Annual Report on Form 10-K, as amended by
Form 10-K/A, for the year ended December 31, 1996 have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and have been incorporated herein by
reference in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated balance sheet as of December 31, 1995 and the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1995 and the period June 1, 1994 to December 31,
1994 of Sterling, incorporated herein by reference, have been audited by
Coopers & Lybrand LLP, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
The Consolidated Financial Statements of FPA incorporated in this
Prospectus by reference from FPA's Current Report on Form 8-K dated July 31,
1997, as amended by Form 8-K/A, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein by
reference, and have been incorporated herein by reference in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The Consolidated Financial Statements of AHI Healthcare Systems, Inc. as
of December 31, 1996 and the year then ended incorporated in this Prospectus by
reference from FPA's Current Report on Form 8-K dated March 17, 1997, as amended
by Form 8-K/A, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report which is incorporated herein by reference, and have
been incorporated herein by reference in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The Consolidated Financial Statements of AHI Healthcare Systems, Inc. as
of December 31, 1995 and for each of the two years in the period ended
December 31, 1995, included in the consolidated financial statements of FPA for
such periods, which statements appear in the Current Reports on Form 8-K filed
on July 31, 1997 and May 30, 1997, and incorporated herein by reference, have
been audited by Ernst & Young LLP, independent auditors, as stated in their
reports therein and incorporated herein by reference, and have been incorporated
herein by reference in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The combined financial statements of Foundation Health Medical Services (a
wholly-owned subsidiary of Foundation Health Corporation) and affiliates as of
June 30, 1995 and 1996 and for each of the three years in the period ended June
30, 1996, incorporated in this Prospectus by reference from FPA's Registration
Statement on Form S-4 filed on February 13, 1997 have been audited by Deloitte &
Touche LLP (except for the December 31, 1993 financial statements of
Thomas-Davis Medical Centers, P.C.) as stated in their report which is
incorporated herein by reference (such report expresses an unqualified opinion
and includes an explanatory paragraph referring to significant related party
transactions), and have been incorporated herein by reference in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing. The financial statements of Thomas-Davis Medical Centers, P.C. for the
year ended December 31, 1993 have been audited by Stevenson, Jones, Imig,
Holmaas & Kleinhans, P.C., as stated in their report incorporated herein by
reference.
23
<PAGE> 23
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY SELLING STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary.....................................................
Risk Factors...........................................................
Recent Developments....................................................
Ratio of Earnings to Fixed Charges.....................................
Use of Proceeds........................................................
Dividend Policy........................................................
Description of Common Stock............................................
Selling Stockholders...................................................
Plan of Distribution...................................................
Legal Matters..........................................................
Experts................................................................
</TABLE>
================================================================================
LOGO
FPA MEDICAL
MANAGEMENT, INC.
1,940,960 SHARES
OF COMMON STOCK
---------------
PROSPECTUS
---------------
___________, 1997
================================================================================
24
<PAGE> 24
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the amounts of expenses in connection with
the issuance of the Individual Shares offered pursuant to this Registration
Statement which shall be borne by the Company. All of the expenses listed below,
except the Securities and Exchange Commission Registration Fee, represent
estimates only.
<TABLE>
<CAPTION>
ESTIMATED
---------
<S> <C>
Securities and Exchange Commission Registration Fee............ $10,288
Printing and Engraving Expenses................................ 10,000
Accounting Fees and Expenses................................... 12,500
Legal Fees and Expenses........................................ 7,500
Miscellaneous Fees and Expenses................................ 712
Total................................................ $41,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides that a corporation may indemnify its officers, directors, employees and
agents (or persons who have served, at the corporation's request, as officers,
directors, employees or agents of another corporation) against expenses,
including attorneys' fees, actually and reasonably incurred by any such person
in connection with the defense of any action or suit by reason of being or
having been an officer, director, employee or agent, if such person shall have
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful, except that if such action shall be by or in the right of
the corporation, no such indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery of the
State of Delaware, or the court in which the action or suit was brought, shall
determine upon application that, in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
FPA's Certificate of Incorporation, as amended, has the following
indemnification provisions:
"SEVENTH"
A. Each person who was or is a party or is threatened to be made a party
to or is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) actually and reasonably incurred or suffered by such person in
connection therewith, and such indemnification shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Paragraph B hereof, the Corporation shall indemnify
any such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article SEVENTH shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a
25
<PAGE> 25
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article SEVENTH or otherwise. The Corporation may, by action of its Board
of Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
B. If a claim under Paragraph A of this Article SEVENTH is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of providing such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
C. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article SEVENTH shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
D. The Corporation may maintain insurance, at its expense, to protect
itself and any person who is or was a director, officer, employee or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General Corporation
Law.
FPA's By-laws similarly provide that FPA shall indemnify its officers and
directors to the fullest extent permitted by the General Corporation Law of
Delaware.
In addition, FPA has entered into individual indemnification agreements
(the "Indemnification Agreements") with each of its directors. The general
effect on directors' liabilities is set forth in the provisions of the
Indemnification Agreements summarized below:
Proceedings Other Than Proceedings by or in the Right of FPA. A director
shall be entitled to the rights of indemnification if, by reason of his position
with FPA, he is, or is threatened to be made, a party to any threatened,
pending, or completed proceeding, other than a proceeding by or in the right of
FPA. In such case, such director shall be indemnified against all expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such proceeding
or any claim, issue or matter therein, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of FPA and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.
Proceedings by or in the Right of Company. Generally, a director shall be
entitled to the rights of indemnification if, by reason of his position with
FPA, he is, or is threatened to be made, a party to any threatened, pending or
completed proceeding brought by or in the right of FPA to procure a judgment in
its favor. In such case, the director shall be indemnified against all expenses
actually and reasonably incurred by him or on his behalf in connection with such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of FPA; provided, however, that if
applicable law so provides, no indemnification against such expenses shall be
made in respect of any claim, issue or matter in such proceeding as to which the
director shall have been adjudged to be liable to FPA unless and to the extent
that the Court of Chancery of the State of Delaware, or the court in which such
proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
26
<PAGE> 26
Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of the Indemnification
Agreements, to the extent that the director is, by reason of his position with
FPA, a party to and is successful, on the merits or otherwise, in any
proceeding, he shall be indemnified against all expenses actually and reasonably
incurred by him or on his behalf in connection therewith. If the director is not
wholly successful in such proceeding but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
proceeding, FPA shall indemnify the director against all expenses actually and
reasonably incurred by him or on his behalf in connection with each successfully
resolved claim, issue or matter.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
4.7 Registration Rights Agreement dated June 30, 1997 by and among the Company and
certain stockholders of HealthCap, Inc.
5.1 Opinion of James A. Lebovitz, Esq.
10.31 Agreement and Plan of Merger dated June 5, 1997 by and among the Company, FPA Acquisition Corp.
and HealthCap, Inc.
10.32 Credit Agreement dated as of June 30, 1997 by and among the Company, Lehman Commercial Paper,
Inc. and the lenders parties thereto
23.1 Consent of Deloitte & Touche LLP, San Diego
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ernst & Young LLP
23.4 Consent of Deloitte & Touche LLP, Sacramento
23.5 Consent of Stevenson, Jones, Imig, Holmaas & Kleinhans, P.C.
23.6 Consent of James A. Lebovitz, Esq. (contained in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
</TABLE>
- ------------
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to Delaware law, the Registrant's
Bylaws or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which any offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
27
<PAGE> 27
PROVIDED, HOWEVER, that paragraphs a(1)(i) and a(1)(ii) do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
28
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on September __,
1997.
FPA MEDICAL MANAGEMENT, INC.
By: /s/ JAMES A. LEBOVITZ
----------------------------------
James A. Lebovitz
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed as of September __, 1997 by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C>
/s/ SETH FLAM President, Chief Executive September __, 1997
- --------------------------------- Officer and Director
Seth Flam (Principal Executive
Officer)
/s/ SOL LIZERBRAM Director and Chairman of the Board of September __, 1997
- --------------------------------- Directors
Sol Lizerbram
/s/ STEVEN M. LASH Executive Vice President - September __, 1997
- --------------------------------- Chief Financial Officer and Treasurer
Steven M. Lash (Principal Financial Officer and Accounting
Officer)
* /s/ SHELDON DEREZIN Director September __, 1997
- ---------------------------------
Sheldon Derezin
* /s/ STEPHEN J. DRESNICK Director and Vice Chairman of the Board September __, 1997
- --------------------------------- of Directors
Stephen J. Dresnick
/s/ KEVIN ELLIS Director September __, 1997
- ---------------------------------
Kevin Ellis
* /s/ MICHAEL FEINSTEIN Director September __, 1997
- ---------------------------------
Michael Feinstein
/s/ HOWARD HASSMAN Director September __, 1997
- ---------------------------------
Howard Hassman
* /s/ HERBERT A. WERTHEIM Director September __, 1997
- ---------------------------------
Herbert A. Wertheim
* /s/ JAMES A. LEBOVITZ September __, 1997
- ---------------------------------
James A. Lebovitz,
Attorney-in-Fact
</TABLE>
29
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<S> <C>
4.7 Registration Rights Agreement dated June 30, 1997 by and among the Company and certain stockholders of HealthCap, Inc.
5.1 Opinion of James A. Lebovitz, Esq.
10.31 Agreement and Plan of Merger dated June 5, 1997 by and among the Company, FPA
Acquisition Corp. and HealthCap, Inc.
10.32 Credit Agreement dated as of June 30, 1997 by and among the Company, Lehman Commercial
Paper, Inc. and the several lenders parties thereto
23.1 Consent of Deloitte & Touche LLP, San Diego
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ernst & Young LLP
23.4 Consent of Deloitte & Touche LLP, Sacramento
23.5 Consent of Stevenson, Jones, Imig, Holmaas & Kleinhans, P.C.
23.6 Consent of James A. Lebovitz, Esq. (contained in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
- ------------
</TABLE>
30
<PAGE> 1
EXHIBIT 4.7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), entered into
as of June 30, 1997 by and between FPA MEDICAL MANAGEMENT, INC., a Delaware
corporation (the "Company"), and the persons listed on the signature pages
hereto (individually, a "Shareholder," and collectively, the "Shareholders"),
W I T N E S S E T H:
WHEREAS, the Company, FPA Acquisition Corp., a California
corporation wholly owned by the Company, and HealthCap, Inc., a California
corporation ("HealthCap"), have entered into that certain Agreement and Plan of
Merger dated as of June 2, 1997 (the "Merger Agreement"), in which in
consideration for the sale of the Shareholders' capital stock of HealthCap to
the Company, Shareholders are to receive shares of Common Stock, par value $0.01
per share, of the Company (the "Common Stock"), which shares are not registered
under the Securities Act, as defined below; and
WHEREAS, the parties hereto wish to enter into this Agreement to
provide for the registration of such shares of Common Stock,
NOW, THEREFORE, in consideration for the mutual promises contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Shareholder hereby
agree as follows:
Article 1. Registration.
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(a) "Advice": See the last paragraph of Section 2.2.
(b) "Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
(c) "Effectiveness Period": See Section 2.1(a).
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect at the time.
(e) "Holder" shall mean the Shareholders, and any transferee or
subsequent transferee of Registrable Securities originally issued to the
Shareholders (other than a transferee who purchases the Registrable Securities
in a sale effected pursuant to any Registration Statement).
<PAGE> 2
(f) "Prospectus" shall mean the prospectus included in any
Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated under
the Securities Act), as amended or supplemented by any prospectus supplement,
including, without limitation, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
(g) "Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(h) "Registrable Securities" shall mean shares of Common Stock
issued to the Shareholders pursuant to the Merger Agreement (other than Common
Stock to be received upon exercise of any stock options received by Shareholder
in connection with the transaction contemplated by the Merger Agreement);
provided, however, that Registrable Securities shall not include any such shares
of Common Stock that have previously been registered or which have been sold
under an effective Registration Statement by Shareholder.
(i) "Registration Expenses": See Section 2.3.
(j) "Registration Statement" shall mean any registration statement
of the Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
(k) "Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(l) "Rule 415" shall mean Rule 415 as promulgated by the Commission
under the Securities Act, as such rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(m) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
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<PAGE> 3
(n) "Shelf Registration" shall mean either the Initial Shelf
Registration (as defined in Section 0(a) below) or a Subsequent Shelf
Registration (as defined in Section 2.1(b) below), as appropriate.
2. Registration.
2.1 Registration Statement. (a) The Company will, within ten (10)
days of the Effective Time (as defined in the Merger Agreement), use all
reasonable efforts to prepare and file with the Commission a Registration
Statement with respect to all of the Registrable Securities for an offering to
be made on a continuous basis pursuant to Rule 415 covering the resale from time
to time by the Holders of all of the Registrable Securities (the "Initial Shelf
Registration"). The Initial Shelf Registration shall be on Form S-3 or any
comparable or successor form permitting registration of Registrable Securities
for resale by the Holders ("Form S-3"). The Company shall use all reasonable
efforts to cause the Initial Shelf Registration to be declared effective under
the Securities Act as soon as practicable after the filing thereof, and to keep
the Initial Shelf Registration continuously effective under the Securities Act
until (i) all Registrable Securities covered by the Initial Shelf Registration
have been sold under the Initial Shelf Registration, or (ii) a subsequent Shelf
Registration covering all of the Registrable Securities has been declared
effective under the Securities Act or (iii) Holders no longer hold any
Registrable Securities or (iv) all Registrable Securities held by Holders may be
sold in compliance with Rule 144 (the "Effectiveness Period").
(b) If the Initial Shelf Registration or any subsequent Shelf
Registration ceases to be effective for any reason at any time during the
Effectiveness Period (other than because of the sale of all of the securities
registered thereunder), the Company shall use all reasonable efforts to obtain
the prompt withdrawal of any order suspending the effectiveness thereof, and in
any event shall within 30 days of such cessation of effectiveness amend the
Shelf Registration in a manner reasonably expected to obtain the withdrawal of
the order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use all reasonable efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
until the end of the Effectiveness Period.
(c) The Company shall supplement and amend the Shelf Registration or
Subsequent Shelf Registration, as the case may be, if required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration, if required by the Securities Act, or if
reasonably requested by the holders of a majority of the securities included in
such Registration Statement.
(d) The registration statement filed in accordance with this Section
may include other securities of the Company with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
2.2 Registration Procedures. In connection with the Company's
registration obligations under Section 2.1 hereof, the Company shall effect such
registration to permit the sale of the
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<PAGE> 4
Registrable Securities in accordance with the method or methods of disposition
thereof intended by the Holder, and pursuant thereto the Company shall as
expeditiously as practicable:
(a) Before filing any Registration Statement or Prospectus or any
amendments or supplements thereto (other than documents that would be
incorporated or deemed to be incorporated therein by reference and that the
Company is required by applicable securities laws or stock exchange requirements
to file), furnish to the Holders copies of all such documents proposed to be
filed, which documents will be subject to the review of such Holders and their
counsel, if any, and the Company shall not file any such Registration Statement
or amendment thereto or any Prospectus or any supplement thereto (other than
such documents which, upon filing, would be incorporated or deemed to be
incorporated by reference therein and that the Company is required by applicable
securities laws or stock exchange requirements to file) to which the Holders of
a majority of the securities covered by such Registration Statement shall
reasonably object on a timely basis. In the event of any such objection, the
Holders shall provide the Company with any required revisions to such prospectus
or supplement within ten (10) days of such objection.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable
period specified in Section 2.1(a); cause the related Prospectus to be amended
or supplemented by any required Prospectus amendment or supplement, and as so
amended or supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the methods of disposition intended by the Holders thereof
set forth in such Registration Statement as so amended or in such Prospectus as
so supplemented.
(c) Notify the Holders promptly, and confirm such notice in writing,
(i) when a Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (v) of the
existence of any fact or the happening of any event that makes any statement
made in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or which requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein
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<PAGE> 5
in the light of the circumstances under which they were made, not misleading,
and (vi) of the Company's reasonable determination that a post-effective
amendment to a Registration Statement would be appropriate.
(d) Use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
moment.
(e) If reasonably requested by the Holders of a majority of the
securities being sold, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the Company or the Holders of a
majority of such securities agree should be included therein as required by
applicable law, (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment, and (iii) supplement or make amendments
to any Registration Statement consistent with clause (i) or (ii) above;
provided, that the Company shall not be required to take any actions under this
paragraph that are not, in the opinion of outside counsel for the Company, in
compliance with applicable law.
(f) Furnish to each Holder and its counsel, if any, upon written
request and without charge, at least one conformed copy of the Registration
Statement or Statements and any post-effective amendment thereto, including
financial statements (but excluding schedules, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits, unless
requested in writing by such Holder or counsel).
(g) Deliver to each Holder and its counsel, if any, without charge,
as many copies of the Prospectus or Prospectuses relating to such Registrable
Securities (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons may reasonably request in writing; and the
Company hereby consents to the use of such Prospectus or each amendment or
supplement thereto by each Holder in connection with the offering and sale of
the Registrable Securities covered by such Prospectus or any amendment or
supplement thereto.
(h) Use all reasonable efforts to register and qualify the
Registrable Securities under (or obtain exemption from) the securities or Blue
Sky laws of such jurisdictions within the United States as any Holder reasonably
requests in writing; keep each such registration or qualification (or exemption
therefrom) effective during the Effective Period and do any and all other acts
or things necessary or advisable to enable the disposition in such jurisdictions
of the Registrable Securities covered by the applicable Registration Statement;
provided, that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it is not then so qualified or (ii) take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of any Holder or Holders,
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<PAGE> 6
in which case the Company will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such approvals, as may
be necessary to enable such Holder or Holders to consummate the disposition of
such Registrable Securities.
(j) Within 5 days following the occurrence of any event contemplated
by paragraphs 2.2(c)(v) or 2.2(c)(vi) above, prepare and file with the
Commission a supplement or post-effective amendment to each Registration
Statement or an amendment or supplement to the related Prospectus or any
document incorporated therein by reference or file any other required document
(such as Current Report on Form 8-K) so that, as thereafter delivered to the
purchasers of the Registrable Securities being sold thereunder, such Prospectus
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the five-(5) day period may be extended by
an additional 30 days if in the good faith judgment of the Board of Directors of
the Company, such amended or supplemental disclosures would be seriously
detrimental to the Company at such time and the Board of Directors concludes
that it is essential not to make such amended or supplemental disclosures and
the Company shall furnish to the Holders a certificate signed by the President
of the Company certifying thereto; provided further that the Company may not
extend such period more than once in any twelve-month period.
(k) If necessary in connection with a disposition of Registrable
Securities, make available for inspection, at the offices where normally kept
during reasonable business hours, by a representative of any Holder and any
attorney or accountant retained by such Holder, financial and other records,
pertinent corporate documents and properties of the Company and its subsidiaries
as they may reasonably request, and cause the officers, directors and employees
of the Company and its subsidiaries to supply all information reasonably
requested by any such representative, attorney or accountant in connection with
such disposition; provided, that any records, information or documents that are
designated by the Company in writing as confidential at the time of delivery of
such records, information or documents shall be kept confidential by such
Persons, and such Persons shall so agree in writing, unless (i) such records,
information or documents are in the public domain or otherwise publicly
available, (ii) disclosure of such records, information or documents is required
by court or administrative order or is necessary to respond to inquiries of
regulatory authorities or (iii) disclosure of such records, information or
documents is otherwise required by law (including, without limitation, pursuant
to the requirements of the Securities Act).
(l) Comply with all applicable rules and regulations of the
Commission and make generally available to its securityholders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days after the
end of any 12-month period if such period is a fiscal year) commencing on the
first day of the first fiscal quarter of the Company, after the effective date
of a Registration Statement, which statements shall cover said 12-month periods.
(m) Enter into such agreements and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of such
Registrable Securities.
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(n) Unless any Registrable Securities shall be in book-entry only
form, cooperate with the Holders and transfer agent and registrar to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends; and enable such
Registrable Securities to be in such denominations and registered in such names
as a Holder may request.
(o) Cause the Common Stock to be listed on each securities exchange
or quotation system on which the Company's Common Stock is then listed no later
than the date the Registration Statement is declared effective and, in
connection therewith, to the extent applicable, to make any required filings
under the Exchange Act and to have such filings declared effective thereunder.
The Company may require a Holder, and each Holder agrees, to furnish
to the Company such information regarding the distribution of such Registrable
Securities as the Company may, from time to time, reasonably request in writing
and the Company may exclude from such registration the Registrable Securities of
any Holder if such Holder unreasonably fails to furnish such information within
a reasonable time after receiving such request. Each Holder agrees promptly to
furnish to the Company all information required to be disclosed in order to make
the information previously furnished to the Company by such Holder not
misleading. Any sale of any Registrable Securities by any Holder shall
constitute a representation and warranty by such Holder that the information
relating to such Holder and its plan of distribution is as set forth in the
Prospectus delivered by such Holder in connection with such disposition, that
such Prospectus does not as of the time of such sale contain any untrue
statement of a material fact relating to such Holder or its plan of distribution
and that such Prospectus does not as of the time of such sale omit to state any
material fact relating to such Holder or its plan of distribution necessary to
make the statements in such Prospectus, in the light of the circumstances under
which they were made, not misleading.
Each Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in paragraphs 2.2(c)(ii),
2.2(c)(iii), 2.2(c)(iv), 2.2(c)(v) or 2.2(c)(vi) hereof, such Holder will
forthwith discontinue disposition of such Registrable Securities covered by the
applicable Registration Statement or Prospectus until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by paragraph
2.2(j) hereof, or until it is advised in writing (the "Advice") by the Company
that the use of the applicable Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus. The Company agrees to give
the Advice promptly after it determines that the use of the applicable
Prospectus may be resumed.
2.3 Registration Expenses. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any of the Registration Statements become
effective and whether or not any of the Registrable Securities are transferred
pursuant to the Registration Statement. Such fees and expenses shall include,
without limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to designation of the Registrable
Securities as eligible for trading on The Nasdaq Stock Market's National Market,
and (B) of compliance with securities or Blue Sky laws), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities in a form eligible for deposit with The Depository Trust
Company and of
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<PAGE> 8
printing Prospectuses), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and counsel for the Holders in
connection with the Shelf Registration (provided that the Company shall not be
liable for the reasonable fees and expenses of more than one separate firm for
all parties other than the Company participating in any transaction hereunder),
(v) reasonable fees and disbursements of all independent certified public
accountants, (vi) Securities Act liability insurance if the Company so desires
such insurance, and (vii) fees and expenses of all other Persons retained by the
Company. In addition, the Company will, in any event, bear its own internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange on which similar
securities issued by the Company are then listed and the fees and expenses of
any Person, including special experts, retained by the Company.
3. Indemnification.
(a) To the maximum extent permitted by law, the Company will
indemnify and hold harmless each Holder of such Registrable Securities and each
person, if any, who controls such Holder within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Securities Act,
the Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state securities law; and the Company will reimburse each such Holder or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
expense, liability or action to the extent that it arises out of or is based
upon a Violation which arises out of or is based upon information furnished for
use in connection with such registration by any such Holder or controlling
person; provided, further, that the Company will not be liable to any Holder or
controlling person with respect to any loss, claim, damage, expense or liability
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission to state a material fact in any preliminary
prospectus which is corrected in an amended, supplemented or final prospectus if
the purchaser asserting such loss, claim, damage, expense or liability purchased
from such Holder and was not sent or given a copy of such amended, supplemented
or final prospectus at or prior to the sale of Registrable Securities to such
purchaser.
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<PAGE> 9
(b) To the maximum extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the Registrable
Securities as to which such registration, qualification or compliance is being
effected, indemnify and hold harmless the Company and each person who controls
the Company within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director or controlling person may become subject, under
the Securities Act, the Exchange Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation arises out of or is based upon
information furnished by such Holder for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such controlling person in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld. It is agreed
that the indemnity agreement contained in this paragraph shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such Holder (which consent
has not been unreasonably withheld). Each Holder's liability under this
paragraph shall not exceed the proceeds received by such Holder from the sale of
Registrable Securities held by such Holder included in such registration,
qualification or compliance.
(c) Each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). Without limiting the generality of the foregoing, the Indemnified
Party may withhold its consent to any such counsel who also acts as counsel to
the Indemnifying Party (with respect to such claim or otherwise) and the
Indemnified Party reasonably believes that there exists a conflict of interest
between the Indemnified Party and the Indemnifying Party, with respect to such
claim or litigation. In such event, the Indemnifying Party shall bear the
expense of another counsel who shall represent the Indemnified Party and any
other persons or entities who have indemnification rights from the Indemnifying
Party hereunder, with respect to such claim or litigation, and shall be selected
as provided in the first sentence of this paragraph. The Indemnified Party may
participate in such defense at such party's expense (except to the extent that
the Indemnifying Party is required to pay the expense of such counsel pursuant
to this paragraph), and provided further that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Agreement, unless such failure is materially
prejudicial to the Indemnifying Party in defending such claim or litigation. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation.
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(d) If the indemnification provided for in this Section is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
4. Information Requirements
(a) The Company shall file in a timely manner the reports required
to be filed by it under the Securities Act and the Exchange Act, and if at any
time the Company is not required to file such reports, it will, upon the request
of any Holder, make publicly available other information so long as necessary to
permit sales pursuant to Rule 144 under the Securities Act. The Company further
covenants that it will cooperate with any Holder and take such further action as
such Holder may reasonably request (including without limitation making such
representations as any such holder may reasonably request), all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 under the Securities Act. Upon the request of
any Holder, the Company shall deliver to such Holder a written statement as to
whether it has complied with such filing requirements.
(b) The Company shall file in a timely manner the reports required
to be filed by it under the Exchange Act and shall comply with all other
requirements set forth in the instructions to Form S-3 in order to allow the
Company to be eligible to file registration statements on Form S-3.
5. Miscellaneous.
5.1 No Inconsistent Agreements. The Company has not entered, as of
the date hereof, and shall not enter, on or after the date of this Agreement,
any agreement with respect to its securities which is inconsistent with the
rights granted to the Holders in this Agreement.
5.2 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of each
Holder.
5.3 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand
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delivery, (ii) upon confirmation, if made by telefax or (iii) one business day
after being deposited with a reputable next-day courier, charges prepaid, to the
parties as follows:
(a) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of this
Section; and
(b) if to the Company,
FPA Medical Management, Inc.
3636 Nobel Drive, Suite 200
San Diego, California 92122
Attn: James A. Lebovitz, Esq.
Facsimile No.: (619) 453-1941
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
5.4 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties. The Company may not assign its rights or obligations hereunder
without the prior written consent of Holders of a majority of the Registrable
Securities.
5.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, as applied to contracts
made and performed within the State of California, without regard to principles
of conflicts of laws.
5.8 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
5.9 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the
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registration rights granted by the Company with respect to the Common Stock
issued to Shareholder pursuant to the Merger Agreement. Except as provided in
the Merger Agreement, there are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company with respect to the Common Stock.
This Agreement supersedes all prior agreements and understandings among the
parties with respect to such registration rights.
5.10 Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the prevailing party, as determined by the court, shall
be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
5.11 Further Assurances. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
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5.12 Termination. This Agreement and the obligations of the parties
hereunder shall terminate at the end of the Effectiveness Period, except for any
liabilities or obligations under Sections 2.3 or 3 or the proviso of paragraph
2.2(k) above, which shall remain in effect in accordance with their terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
FPA Medical Management, Inc.
By
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Title
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Shareholders
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EXHIBIT 5.1
July 15, 1997
FPA Medical Management, Inc.
3636 Nobel Drive, Suite 200
San Diego, California 92122
Re: Registration Statement on Form S-3
Gentlemen:
With reference to the Registration Statement on Form S-3 to be
filed by FPA Medical Management, Inc., a Delaware corporation (the "Company"),
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, relating to 1,940,960 shares of the Company's common stock, par value
$0.002 per share ("Common Stock"), it is my opinion that such shares of Common
Stock, when issued and sold in accordance with the terms as set forth therein,
will be legally issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion with the
Securities and Exchange Commission as Exhibit 5 to the Registration Statement.
Very truly yours,
/s/ James A. Lebovitz
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EXHIBIT 10.31
AGREEMENT AND PLAN OF MERGER
dated as of June 5, 1997
by and among
FPA MEDICAL MANAGEMENT, INC.,
FPA ACQUISITION CORP.
and
HEALTHCAP, INC.
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TABLE OF CONTENTS
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ARTICLE I THE MERGER...............................................................1
1.1 The Merger...............................................................1
1.2 Effective Time...........................................................1
1.3 Closing..................................................................1
1.4 Articles of Incorporation and Bylaws of the Surviving Corporation........2
1.5 Directors and Officers of the Surviving Corporation......................2
1.6 Effects of the Merger....................................................2
1.7 Further Assurances.......................................................2
ARTICLE II EXCHANGE OF SHARES.......................................................2
2.1 Exchange of Capital Stock................................................2
2.2 Procedures for Payment of Exchange Consideration.........................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................7
3.1 Organization and Qualification...........................................7
3.2 Capital Stock............................................................7
3.3 Authority Relative to this Agreement.....................................8
3.4 Non-Contravention; Approvals and Consents................................8
3.5 Financial Statements.....................................................9
3.6 Absence of Certain Changes or Events................................... 10
3.7 Absence of Undisclosed Liabilities..................................... 10
3.8 Legal Proceedings...................................................... 10
3.9 [Reserved]............................................................. 11
3.10 Taxes.................................................................. 11
3.11 Employee Benefit Plans; ERISA.......................................... 11
3.12 Vote Required.......................................................... 12
3.14 [Reserved]............................................................. 12
3.15 [Reserved]............................................................. 12
3.16 Title to Assets........................................................ 12
3.17 Permits, Etc........................................................... 12
3.18 Contracts and Commitments.............................................. 13
3.19 Intellectual Property.................................................. 14
3.20 Tax-Free Reorganization................................................ 14
3.21 Compliance with Laws................................................... 14
3.22 Full Disclosure........................................................ 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB....................... 14
4.1 Organization and Qualification......................................... 14
4.2 Capital Stock.......................................................... 15
4.3 Authority Relative to this Agreement................................... 15
4.4 Non-Contravention; Approvals and Consents.............................. 16
4.5 SEC Reports and Financial Statements................................... 16
4.6 Absence of Certain Changes or Events................................... 17
4.7 Absence of Undisclosed Liabilities..................................... 17
4.8 Information Supplied................................................... 17
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4.9 Legal Proceedings...................................................... 18
4.10 Employee Benefit Plans; ERISA.......................................... 18
4.11 Permits, Etc........................................................... 18
4.12 Accounting Matters..................................................... 18
4.13 Tax-Free Reorganization................................................ 18
4.14 Compliance with Laws................................................... 18
4.15 Full Disclosure........................................................ 18
ARTICLE V COVENANTS OF THE COMPANY............................................... 19
5.1 Covenants of the Company............................................... 19
ARTICLE VI COVENANTS OF THE PARENT AND SUB........................................ 21
6.1 Covenants of the Parent and Sub........................................ 21
ARTICLE VII ADDITIONAL AGREEMENTS.................................................. 22
7.1 Access to Information; Confidentiality................................. 22
7.2 Registration Rights Agreement.......................................... 23
7.4 Approval of Company Shareholders....................................... 23
7.5 Inclusion of Shares on the Nasdaq National Market...................... 23
7.6 Gateway Acquisition.................................................... 23
7.7 Regulatory and Other Approvals......................................... 23
7.8 Company Employees...................................................... 24
7.9 Directors' and Officers' Indemnification and Insurance................. 24
7.10 Expenses............................................................... 25
7.11 Pooling of Interests................................................... 25
7.12 Brokers or Finders..................................................... 25
7.13 Standstill............................................................. 25
7.14 Notice and Cure........................................................ 26
7.15 Fulfillment of Conditions.............................................. 26
7.16 No Solicitations....................................................... 26
ARTICLE VIII CONDITIONS............................................................. 27
8.1 Conditions to Each Party's Obligation to Effect the Merger............. 27
8.2 Conditions to Obligation of Parent and Sub to Effect the Merger........ 28
8.3 Conditions to Obligation of the Company to Effect the Merger........... 29
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER...................................... 31
9.1 Termination............................................................ 31
9.2 Effect of Termination.................................................. 32
9.3 Amendment.............................................................. 32
9.4 Waiver................................................................. 32
ARTICLE X INDEMNIFICATION AND ESCROW............................................. 32
10.1 Survival of Representations and Warranties............................. 32
10.2 Indemnification of Parent.............................................. 33
10.4 Indemnification by Parent.............................................. 33
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10.5 Indemnification Procedure.............................................. 34
10.6 Indemnification of Holders' Representative............................. 34
ARTICLE XI GENERAL PROVISIONS..................................................... 35
11.1 Knowledge.............................................................. 35
11.2 Notices................................................................ 35
11.3 Entire Agreement....................................................... 36
11.4 Public Announcements................................................... 36
11.5 No Third Party Beneficiary............................................. 36
11.6 No Assignment; Binding Effect.......................................... 36
11.7 Headings............................................................... 36
11.8 Invalid Provisions..................................................... 36
11.9 Governing Law.......................................................... 36
11.10 Counterparts........................................................... 37
Exhibit A -- Form of Escrow Agreement........................................A-1
Exhibit B -- Form of Registration Rights Agreement...........................B-1
Exhibit C -- Form of Opinion of Counsel......................................C-1
Exhibit D -- Form of Affiliate Letter........................................D-1
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GLOSSARY OF DEFINED TERMS
The following terms, when used in this Agreement, have the meanings
ascribed to them in the corresponding Sections of this Agreement listed below:
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"Alternative Proposal" -- Section 0
"Antitrust Division" -- Section 0
"ASR 135" -- Section 0
"Average Price of Parent Common Stock -- Section 0
"Agreement of Merger" -- Section 0
"Certificates" -- Section 0
"Closing" -- Section 0
"Closing Date" -- Section 0
"Code" -- Section 0
"Combined Results" -- Section 0
"Company" -- Preamble
"Company Common Stock" -- Section 0
"Company Disclosure Letter" -- Section 0
"Company Employee Benefit Plan" -- Section 0
"Company Financial Statements" -- Section 0
"Company Indemnifiable Damages" -- Section 0
"Company Option" -- Section 2.1(e)
"Company Stock Option Plans" -- Section 0
"Company Preferred Stock" -- Section 0
"Company Shareholders' Approval" -- Section 0
"Company Shares" -- Section 2.1(c)
"Constituent Corporations" -- Section 0
"Contracts" -- Section 0
"DGCL" -- Section 0
"Dissenting Share" -- Section 0
"Effective Time" -- Section 0
"ERISA" -- Section 0
"Escrow Agent" -- Section 0
"Exchange Agent" -- Section 0
"Exchange Consideration" -- Section 0
"Exchange Fund" -- Section 0
"Exchange Ratio" -- Section 0
"FTC" -- Section 0
"GAAP" -- Section 0
"Gateway" -- Section 0
"Gateway Acquisition" -- Section 0
"Governmental or Regulatory Authority" -- Section 0
"Gross Parent Share Numbers" -- Section 2.1(c)
"HealthCap Stock" -- Section 2.2(b)
"Holder's Representative" -- Section 0
"HSR Act" -- Section 0
"Indemnified Party" -- Section 0
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"Indemnitee" -- Section 10.5
"Indemnitor" -- Section 10.5
"IRS" -- Section 0
"Last Closing Date" -- Section 0
"Laws" -- Section 0
"Lien" -- Section 0
"material" -- Section 0
"material adverse effect" -- Section 0
"materially adverse" -- Section 0
"Material Contracts" -- Section 0
"Merger" -- Preamble
"Options" -- Section 0
"Orders" -- Section 0
"Parent" -- Preamble
"Parent Common Stock" -- Section 0
"Parent Disclosure Letter" -- Section 0
"Parent Financial Statements" -- Section 0
"Parent Option Plans" -- Section 0
"Parent Options" -- Section 2.1(e)
"Parent Preferred Stock" -- Section 0
"Parent Primary Indemnifiable Damages" -- Section 0
"Parent SEC Reports" -- Section 0
"Parent Secondary Indemnifiable Damages" -- Section 0
"Parent Warrants" -- Section 0
"Primary Escrow Agreement" -- Section 0
"Primary Escrow Fund" -- Section 0
"Primary Escrow Shares" -- Section 0
"Primary Indemnification Period" -- Section 10.3(b)
"Providers" -- Section 3.18(a)
"Registration Rights Agreement" -- Section 0
"Representative" -- Section 0
"Rule 145" -- Section 0
"SEC" -- Section 0
"Sales Price of Parent Common Stock" -- Section 0
"Secondary Escrow Agreement" -- Section 0
"Secondary Escrow Fund" -- Section 0
"Secondary Escrow Shares" -- Section 0
"Secondary Indemnification Period" -- Section 0
"Secretary of State" -- Section 0
"Securities Act" -- Section 0
"Series A Preferred" -- Section 0
"Series B Preferred" -- Section 0
"Sub" -- Preamble
"Sub Common Stock" -- Section 0
"Subsidiary" -- Section 0
"Surviving Corporation" -- Section 0
"Surviving Corporation Common Stock" -- Section 0
"Trading Day" -- Section 0
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of June 5, 1997 is made
and entered into by and among FPA Medical Management, Inc., a Delaware
corporation ("Parent"), FPA Acquisition Corp., a California corporation wholly
owned by Parent ("Sub"), and HealthCap, Inc., a California corporation (the
"Company").
WHEREAS, the Boards of Directors of Parent, Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders to consummate, and have approved, the business
combination transaction provided for herein in which Sub would merge with and
into the Company and the Company would become a wholly owned Subsidiary of
Parent (the "Merger"); and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
I.1 The Merger. At the Effective Time (as defined in Section 0),
upon the terms and subject to the conditions of this Agreement, Sub shall be
merged with and into the Company in accordance with the General Corporation Law
of the State of Delaware (the "DGCL") and the California Corporations Code (the
"California Code"). The Company shall be the surviving corporation in the Merger
(the "Surviving Corporation"). Sub and the Company are sometimes referred to
herein as the "Constituent Corporations." As a result of the Merger, the
outstanding shares of capital stock of the Constituent Corporations shall be
converted or canceled in the manner provided in Article 0.
I.2 Effective Time. At the Closing (as defined in Section 0), an
agreement of merger (the "Agreement of Merger") shall be duly prepared and
executed by the Surviving Corporation and thereafter delivered to the Secretary
of State of the State of California (the "Secretary of State") for filing, as
provided in Section 1103 of the California Code, on, or as soon as practicable
after, the Closing Date (as defined in Section 0). The Merger shall become
effective at the time provided in the Agreement of Merger (the date and time so
provided in the Agreement of Merger being referred to herein as the "Effective
Time").
I.3 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., local time, at the offices of Pillsbury Madison & Sutro
LLP, 101 West Broadway, Suite 1800, San Diego, CA 92101, or at such other place
as the parties hereto mutually agree, on such date as is the first business day
after the day of satisfaction or, to the extent permitted hereunder, waiver of
all the conditions to each party's obligation to consummate the Merger set forth
in Article or on such other date as the parties hereto mutually agree (the
"Closing Date"). At the Closing there shall be
delivered to Parent, Sub and
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the Company the certificates and other documents and instruments required to be
delivered under Article 0.
I.4 Articles of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, (i) the Certificate of Incorporation of Sub
as in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation, and (ii) the Bylaws of Sub as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, the Articles
of Incorporation of the Surviving Corporation and such Bylaws.
I.5 Directors and Officers of the Surviving Corporation. The
directors of Sub and the officers of Sub immediately prior to the Effective Time
shall, from and after the Effective Time, be the directors and officers,
respectively, of the Surviving Corporation until their successors shall have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's Articles
of Incorporation and Bylaws.
I.6 Effects of the Merger. Subject to the foregoing, the effects of
the Merger shall be as provided in the applicable provisions of the California
Code.
I.7 Further Assurances. Each party hereto will execute such further
documents and instruments and take such further actions as may reasonably be
requested by one or more of the others to consummate the Merger, to vest the
Surviving Corporation with full title to all assets, properties, rights,
approvals, immunities and franchises of either of the Constituent Corporations
or to effect the other purposes of this Agreement.
ARTICLE II
EXCHANGE OF SHARES
II.1 Exchange of Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder thereof:
(a) Capital Stock of Sub. Each issued and outstanding share of the
common stock, par value $0.01 per share, of Sub ("Sub Common Stock") shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $0.01 per share, of the Surviving Corporation ("Surviving
Corporation Common Stock"). Each certificate representing outstanding shares of
Sub Common Stock shall at the Effective Time represent an equal number of shares
of Surviving Corporation Common Stock.
(b) Cancellation of Treasury Stock and Stock Owned by Parent and
Subsidiaries. All shares of common stock, par value $0.01 per share, of the
Company ("Company Common Stock") that are owned by the Company as treasury stock
and any shares of capital stock of the Company owned by Parent, Sub or any other
wholly owned Subsidiary (as hereinafter defined) of Parent shall be canceled and
retired and shall cease to exist and no stock of Parent or other consideration
shall be delivered in exchange therefor. As used in this Agreement, "Subsidiary"
means, with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, (i) of which more than fifty percent (50%) of
either the equity interests in, or the voting control of, such corporation or
other organization is, directly
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or indirectly through Subsidiaries or otherwise, beneficially owned by such
party or (ii) which is a professional corporation owned by at least one
physician who (x) is an officer and director of such party and is qualified
under the laws of such professional corporation's state of incorporation to hold
an ownership interest therein or (y) has executed a succession or similar
stockholder agreement with such party.
(c) Exchange Consideration for the Company Capital Stock. The
consideration (the "Exchange Consideration") for all the issued and outstanding
shares of Company Common Stock (other than shares to be canceled in accordance
with Section ), including shares issued pursuant to vested options to purchase
Company Common Stock which are exercised prior to Closing, and for all issued
and outstanding shares of Series A Preferred Stock of the Company ("Series A
Preferred") and Series B Preferred Stock of the Company ("Series B Preferred"),
shall be a number of shares of fully paid and nonassessable shares of common
stock, par value $0.002 per share, of Parent ("Parent Common Stock") equal to
(i) the Gross Parent Share Number (as defined below) minus (ii) a number equal
to the number of Vested Option Shares (as defined below) divided by the Exchange
Ratio (as defined below). As used herein, the "Gross Parent Share Number" shall
be equal to (i) if the Average Price of Parent Common Stock (as defined below)
is less than or equal to $18.40 and greater than or equal to $13.60, 2,750,000
shares of Parent Common Stock; or (ii) if the Average Price of Parent Common
Stock is less than $13.60, a number of shares of Parent Common Stock determined
by dividing Thirty-Seven Million Four Hundred Thousand Dollars ($37,400,000) by
the Average Price of Parent Common Stock; or (iii) if the Average Price of
Parent Common Stock is greater than $18.40 and less than or equal to $22.00, a
number of shares of Parent Common Stock determined by dividing Fifty Million Six
Hundred Thousand ($50,600,000) by the Average Price of Parent Common Stock; or
(iv) if the Average Price of Parent Common Stock is greater than $22.00,
2,300,000 shares of Parent Common Stock. As used herein, "Vested Option Shares"
means shares of Company Common Stock covered by vested options outstanding as of
the Closing Date, including options which become vested as a result of the
Merger. As used herein, "Exchange Ratio" means the ratio of (I) the aggregate
number of shares of Company Common Stock outstanding as of the Closing Date
(assuming the conversion of the Series A Preferred and the Series B Preferred to
Company Common Stock and the exercise of all warrants and Vested Options), to
(II) the Gross Parent Share Number.
The "Average Price of Parent Common Stock" shall be equal to the arithmetic
average of the Sales Price of Parent Common Stock (as hereinafter defined) on
each of the last ten (10) Trading Days (as hereinafter defined) preceding the
second day before the Closing Date as reported by the Nasdaq Stock Market. The
term "Sales Price of Parent Common Stock" shall mean, on any Trading Day, the
average of the closing bid and ask prices of Parent Common Stock on the Nasdaq
National Market on such Trading Day. The term "Trading Day" shall mean any day
on which Parent Common Stock is traded on the Nasdaq National Market. If, after
the date hereof and prior to the Effective Time, Parent shall pay a dividend in,
subdivide, combine into a smaller number of shares or issue by reclassification
of its shares, any shares of Parent Common Stock, the component of the
calculation of the Exchange Consideration that is comprised of Parent Common
Stock shall be multiplied by a fraction, the numerator of which shall be the
number of shares of Parent Common Stock outstanding immediately after, and the
denominator of which shall be the number of such shares outstanding immediately
before, the occurrence of such event, and the resulting product shall from and
after the date of such event be the component of the Exchange Consideration
representing shares of Parent Common Stock, subject to further adjustment in
accordance with this sentence. All shares of Company Common Stock, Series A
Preferred and Series B Preferred shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect
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thereto, except the right to receive the shares of Parent Common Stock and any
cash in lieu of fractional shares of Parent Common Stock to be issued or paid in
consideration therefor (determined in accordance with Section 0), upon the
surrender of such certificate in accordance with Section 0, without interest.
(d) Dissenting Shares.
(i) If applicable, notwithstanding any provision of this Agreement
to the contrary, each outstanding share of Company Common Stock or Series A
Preferred or Series B Preferred, the holder of which has not voted in favor of
the Merger, has perfected such holder's right to an appraisal of such holder's
shares in accordance with the applicable provisions of the California Code and
has not effectively withdrawn or lost such right to appraisal (a "Dissenting
Share"), shall not be converted into or represent a right to receive shares of
Parent Common Stock pursuant to Section 0, but the holder thereof shall be
entitled only to such rights as are granted by the applicable provisions of the
California Code; provided, however, that any Dissenting Share held by a person
at the Effective Time who shall, after the Effective Time, withdraw the demand
for appraisal or lose the right of appraisal, in either case pursuant to the
California Code, shall be deemed to be converted into, as of the Effective Time,
the right to receive shares of Parent Common Stock pursuant to Section 0.
(ii) The Company shall give Parent (x) prompt notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to the applicable provision of the California Code
relating to the appraisal process received by the Company and (y) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the California Code. The Company will not voluntarily make
any payment with respect to any demands for appraisal and will not, except with
the prior written consent of Parent, settle or offer to settle any such demands.
(e) Company Option Plans. The Company and Parent shall take such
action as may be necessary to cause each unexpired and unexercised option to
purchase Company Common Stock (each a "Company Option") granted under the
Company's stock option plans (the "Company Stock Option Plans") listed on
Schedule 3.2 of the letter dated the date hereof and delivered to Parent and Sub
by the Company concurrently with the execution and delivery of this Agreement
(the "Company Disclosure Letter"), to be automatically converted at the
Effective Time into an option (a "Parent Option") to purchase a number of shares
of Parent Common Stock equal to the number of shares of Company Common Stock
that could have been purchased under the Company Option divided by the Exchange
Ratio (with the resulting number of shares rounded down), at a price per share
of Parent Common Stock equal to the option exercise price determined pursuant to
the Company Option multiplied by the Exchange Ratio (with the resulting exercise
price rounded up to the nearest whole cent). Such Parent Option shall otherwise
be subject to substantially similar terms and conditions as the Company Option.
Parent shall (i) as of the Effective Time, assume all of the Company's
obligations with respect to Company Options as so converted, (ii) on or prior to
the Effective Time, reserve for issuance the number of shares of Parent Common
Stock that will become subject to Parent Options pursuant to this Section 0,
(iii) from and after the Effective Time, upon exercise of Parent Options in
accordance with the terms thereof, make available for issuance all shares of
Parent Common Stock covered thereby, and (iv) as soon as practicable after the
Effective Time, issue to each holder of an outstanding Company Option a document
evidencing the foregoing assumption by Parent. It is the intent of the parties
that unvested Company Options assumed by Parent will not qualify following the
Effective Time as incentive stock options as defined in Section 422 of the Code.
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(f) Escrow of Parent Common Stock. At the Effective Time, (i) five
percent (5%) of the Exchange Consideration consisting of shares of Parent Common
Stock payable to existing shareholders of the Company (the "Primary Escrow
Shares") shall be issued to an escrow agent pursuant to the terms of an escrow
agreement substantially in the form of Exhibit A hereto (the "Primary Escrow
Agreement") by and among the Parent, the Company's shareholders (or a
representative of the Company's shareholders elected by holders of a majority of
the Company Common Stock, assuming conversion of the Series A Preferred and
Series B Preferred (the "Holders' Representative")) and an escrow agent (the
"Escrow Agent"), which agreement shall permit the sale of such escrowed shares
so long as the proceeds from such sale remain subject to the Primary Escrow
Agreement and (ii) six and one-quarter percent (6 1/4%) of the Exchange
Consideration consisting of shares of Parent Common Stock payable to existing
shareholders of the Company (the "Secondary Escrow Shares") shall be issued to
the Escrow Agent pursuant to the terms of an escrow agreement (the "Secondary
Escrow Agreement") by and among the Parent, the Company's shareholders or the
Holders' Representative and the Escrow Agent, which agreement shall permit the
sale of such escrowed shares so long as the proceeds from such sale remain
subject to the Secondary Escrow Agreement.
II.2 Procedures for Payment of Exchange Consideration.
(a) Exchange Agent. On the Closing Date, Parent shall make available
to the Surviving Corporation for deposit with American Stock Transfer & Trust,
Inc., or any other bank or trust company designated before the Effective Time by
Parent and reasonably acceptable to the Company (the "Exchange Agent"),
certificates representing the number of duly authorized whole shares of Parent
Common Stock issuable in connection with the Merger plus an amount of cash equal
to the aggregate amount payable in lieu of fractional shares in accordance with
Section 0, to be held for the benefit of and distributed to such holders in
accordance with this Section. The Exchange Agent shall agree to hold such shares
of Parent Common Stock and funds (such shares of Parent Common Stock and funds,
together with earnings thereon, being referred to herein as the "Exchange Fund")
for delivery as contemplated by this Section and upon such additional terms as
may be agreed upon by the Exchange Agent, the Company and Parent before the
Effective Time. If for any reason (including losses) the amount of cash in the
Exchange Fund is inadequate to pay the cash amounts to which holders of shares
of Company Common Stock shall be entitled pursuant to Section 0, Parent shall
make available to the Surviving Corporation additional funds for the payment
thereof.
(b) Exchange Procedures. Subject to the provisions of Section , as
soon as reasonably practicable after the Effective Time, Parent shall cause the
Exchange Agent to mail to each holder of record of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock, Series A Preferred or Series B Preferred (collectively,
"HealthCap Stock") (individually, a "Certificate" and collectively, the
"Certificates") whose shares are to be exchanged pursuant to Section 0 into the
right to receive shares of Parent Common Stock (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock and cash in lieu of fractional shares. Upon surrender of
a Certificate for cancellation to the Exchange Agent, together with such letter
of transmittal duly executed and completed in accordance with its terms, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock,
plus the cash amount payable in lieu of fractional shares in accordance with
Section 0, which such holder has the right to receive pursuant to the provisions
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of this Article 0, and the Certificate so surrendered shall forthwith be
canceled. In no event shall the holder of any Certificate be entitled to receive
interest on any funds to be received in the Merger. In the event of a transfer
of ownership of HealthCap Stock which is not registered in the transfer records
of the Company, a certificate representing that number of whole shares of Parent
Common Stock, plus the cash amount payable in lieu of fractional shares in
accordance with Section 0, may be issued to a transferee if the Certificate
representing such HealthCap Stock is presented to the Exchange Agent accompanied
by all documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 0, each Certificate shall be deemed at any time
after the Effective Time for all corporate purposes of Parent, except as limited
by paragraph (c) below, to represent ownership of the number of shares of Parent
Common Stock into which the number of shares of HealthCap Stock shown thereon
have been converted as contemplated by this Article 0.
(c) Distributions with Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date on or after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the shares
of Parent Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 0 until
the holder of record of such Certificate shall surrender such Certificate in
accordance with this Section. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions, if any, with a record
date on or after the Effective Time which theretofore became payable, but which
were not paid by reason of the immediately preceding sentence, with respect to
such whole shares of Parent Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date on or
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in HealthCap Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash paid pursuant to Section 0)
shall be deemed to have been issued at the Effective Time in full satisfaction
of all rights pertaining to the shares of HealthCap Stock represented thereby.
From and after the Effective Time, the stock transfer books of the Company shall
be closed and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of HealthCap Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Section.
(e) Fractional Shares. No certificate or scrip representing
fractional shares of Parent Common Stock will be issued in the Merger upon the
surrender for exchange of Certificates, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of
Parent. In lieu of any such fractional shares, each holder of HealthCap Stock
who would otherwise have been entitled to a fraction of a share of Parent Common
Stock in exchange for Certificates pursuant to this Section shall receive from
the Exchange Agent a cash payment in lieu of such fractional share determined by
multiplying (A) last sales price of a whole share of Parent Common Stock on the
Nasdaq National Market on the last Trading Day immediately preceding the Closing
Date by (B) the fractional share interest to which such holder would otherwise
be entitled.
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(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of the Company for twelve (12)
months after the Effective Time shall be delivered to Parent, upon demand, and
any shareholders of the Company who have not theretofore complied with this
Article 0 shall thereafter look only to Parent (subject to abandoned property,
escheat and other similar laws) as general creditors for payment of their claim
for Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent Common Stock.
Neither Parent nor the Surviving Corporation shall be liable to any holder of
shares of HealthCap Stock for shares of Parent Common Stock (or dividends or
distributions with respect thereto) or cash payable in respect of fractional
share interests delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
III.1 Organization and Qualification. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties, except (in the
case of any Subsidiary) for such failures to be so organized, existing and in
good standing or to have such power and authority which, individually or in the
aggregate, are not having and could not be reasonably expected to have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
Each of the Company and its Subsidiaries is duly qualified, licensed or admitted
to do business and is in good standing in each jurisdiction in which the
ownership, use or leasing of its assets and properties, or the conduct or nature
of its business, makes such qualification, licensing or admission necessary,
except for such failures to be so qualified, licensed or admitted and in good
standing which, individually or in the aggregate, are not having and could not
be reasonably expected to have a material adverse effect on the Company and its
Subsidiaries taken as a whole. As used in this Agreement, any reference to any
event, change or effect being "material" or "materially adverse" or having a
"material adverse effect" on or with respect to an entity (or group of entities
taken as a whole) means such event, change or effect is material or materially
adverse, as the case may be, to the business, condition (financial or
otherwise), properties, assets (including intangible assets), liabilities
(including contingent liabilities), or results of operations of such entity (or,
if with respect thereto, of such group of entities taken as a whole). Section
3.1 of the Company Disclosure Letter sets forth the name and jurisdiction of
incorporation of each Subsidiary of the Company. Except as disclosed in Section
3.1 of the Company Disclosure Letter, the Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
III.2 Capital Stock.
(a) The authorized capital stock of the Company consists solely of
50,000,000 shares of Company Common Stock and 75,000,000 shares of preferred
stock, par value $0.1 per share ("Company Preferred Stock"), 6,875,000 shares of
which have been designated Series A Preferred and 7,500,000 of which have been
designated Series B Preferred. As of May 15, 1997, 12,224,667 shares of Company
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Common Stock, 4,206,896 shares of Series A Preferred and 6,765,517 shares of
Series B Preferred were issued and outstanding, no shares were held in the
treasury of the Company. As of the Effective Time, there will be outstanding
vested options to purchase approximately 4,800,000 shares of Company Common
Stock and unvested options to purchase no more than 600,000 shares of Company
Common Stock, and 4,194,983 shares reserved for issuance under the Company
Employee Option Plan and 2,424,500 shares reserved for issuance under the
Quality Consultant Option Plan. There has been no change in the number of issued
and outstanding shares of Company Common Stock, shares of Company Common Stock
held in treasury or shares of Company Preferred Stock since such date. All of
the issued and outstanding shares of Company Common Stock and Company Preferred
Stock are, and all shares reserved for issuance will be, upon issuance in
accordance with the terms specified in the instruments or agreements pursuant to
which they are issuable, duly authorized, validly issued, fully paid and
nonassessable. Except pursuant to this Agreement and except as set forth in
Section 3.2 of the Company Disclosure Letter, there are no outstanding
subscriptions, options, warrants, rights (including "phantom" stock rights),
preemptive rights or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (together, "Options"), obligating
the Company or any of its Subsidiaries to issue or sell any shares of capital
stock of the Company or to grant, extend or enter into any Option with respect
thereto.
(b) Except as disclosed in Section 3.2 of the Company Disclosure
Letter, all of the outstanding shares of capital stock of each Subsidiary of the
Company are duly authorized, validly issued, fully paid and nonassessable and
are owned, beneficially and of record, by the Company or a Subsidiary wholly
owned, directly or indirectly, by the Company, free and clear of any liens,
claims, mortgages, encumbrances, pledges, security interests, equities and
charges of any kind (each a "Lien"). Except as disclosed in Section 3.2 of the
Company Disclosure Letter, there are no (i) outstanding Options obligating the
Company or any of its Subsidiaries to issue or sell any shares of capital stock
of any Subsidiary of the Company or to grant, extend or enter into any such
Option or (ii) voting trusts, proxies or other commitments, understandings,
restrictions or arrangements in favor of any person other than the Company or a
Subsidiary wholly owned, directly or indirectly, by the Company with respect to
the voting of or the right to participate in dividends or other earnings on any
capital stock of any Subsidiary of the Company.
(c) Except as disclosed in Section 3.2 of the Company Disclosure
Letter, there are no outstanding contractual obligations of the Company or any
Subsidiary of the Company to repurchase, redeem or otherwise acquire any shares
of Company Common Stock or any capital stock of any Subsidiary of the Company or
to provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary of the Company or any other
person.
III.3 Authority Relative to this Agreement. The Company has full
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and, subject to obtaining the Company Shareholders'
Approval (as defined in Section 0), to consummate the transactions contemplated
hereby. Parent acknowledges that the Company's obligations hereunder are subject
to receipt of the consent of the requisite number of the Company's shareholders.
The execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of the Company, the Board of
Directors of the Company has agreed to recommend adoption of this Agreement by
the shareholders of the Company and directed that this Agreement be submitted to
the shareholders of the Company for their consideration, and no other corporate
proceedings on the part of the Company or its shareholders are necessary to
authorize the execution, delivery and performance of this Agreement by
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the Company and the consummation by the Company of the transactions contemplated
hereby, other than obtaining the Company Shareholders' Approval. This Agreement
has been duly and validly executed and delivered by the Company and constitutes
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
III.4 Non-Contravention; Approvals and Consents.
(a) The execution and delivery of this Agreement by the Company do
not, and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without notice or lapse
of time or both) a default under, result in or give to any person any right of
payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any of
the assets or properties of the Company or any of its Subsidiaries under, any of
the terms, conditions or provisions of (i) subject to the obtaining of the
Company Shareholders' Approval, the certificates or articles of incorporation or
bylaws (or other comparable charter documents) of the Company or any of its
Subsidiaries, or (ii) subject to the obtaining of the Company Shareholders'
Approval and the taking of the actions described in paragraph (b) of this
Section, (x) any statute, law, rule, regulation or ordinance (together, "Laws"),
or any judgment, decree, order, writ, permit or license (together, "Orders"), of
any court, tribunal, arbitrator, authority, agency, commission, official or
other instrumentality of the United States or any state, county, city or other
political subdivision (a "Governmental or Regulatory Authority"), applicable to
the Company or any of its Subsidiaries or any of their respective assets or
properties, or (y) any note, bond, mortgage, security agreement, indenture,
license, franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind (together, "Contracts") to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of their respective assets or properties is bound, excluding
from the foregoing clauses (x) and (y) conflicts, violations, breaches,
defaults, payments or reimbursements, terminations, cancellations,
modifications, accelerations and creations and impositions of Liens which,
individually or in the aggregate, could not be reasonably expected to have a
material adverse effect on the Company and its Subsidiaries taken as a whole or
on the ability of the Company to consummate the transactions contemplated by
this Agreement.
(b) Except (i) for the filing of a premerger notification report by
the Company under the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), (ii) any
required filings with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), and filings with any state
securities authorities that are required in connection with the transactions
contemplated by this Agreement, (iii) for the filing of the Agreement of Merger
and other appropriate merger documents required by the California Code with the
Secretary of State and appropriate documents with the relevant authorities of
other states in which the Constituent Corporations are qualified to do business,
(iv) filings required by the California Department of Corporations and any other
state regulatory body, (v) the receipt of all necessary shareholder consents,
and (vi) as disclosed in Section 3.4 of the Company Disclosure Letter, no
consent, approval or action of, filing with or notice to any Governmental or
Regulatory Authority or other public or private third party is necessary or
required under any of the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority or any Contract to which the Company or
any of its Subsidiaries is a party or by which the
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Company or any of its Subsidiaries or any of their respective assets or
properties is bound for the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder or the
consummation of the transactions contemplated hereby, other than such consents,
approvals, actions, filings and notices which the failure to make or obtain, as
the case may be, individually or in the aggregate, could not be reasonably
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole or on the ability of the Company to consummate the transactions
contemplated by this Agreement.
III.5 Financial Statements. The Company delivered to Parent prior to
the execution of this Agreement true and complete copies of the following
financial statements (collectively the "Company Financial Statements"): (i) the
audited consolidated balance sheets of the Company as of December 31, 1995 and
1996 and the related audited consolidated statements of operations,
shareholders' equity and cash flows for each of the fiscal years then ended,
together with a true and correct copy of the report on such audited information
by Ernst & Young and all letters from such accountants with respect to the
results of such audits; (ii) the unaudited condensed consolidated balance sheet
of the Company as of March 31, 1997 and the related unaudited condensed
consolidated statement of operations, shareholders' equity and cash flows for
such interim period; and (iii) the Company's enrollment schedule of April 1997
setting forth enrollment information by payor type, professional corporation and
geographic location. As of their respective dates and for the respective periods
then ended, the audited consolidated financial statements and unaudited interim
consolidated financial statements (including, in each case, the notes, if any,
thereto) included in the Company Financial Statements (A) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated therein or in the
notes thereto), (B) fairly present (subject, in the case of the unaudited
interim financial statements, to normal, recurring year-end audit adjustments
which are not expected to be, individually or in the aggregate, materially
adverse to the Company and its Subsidiaries taken as a whole and to the absence
of footnotes) the consolidated financial position of the Company and its
Subsidiaries as at the respective dates thereof and the consolidated results of
their operations and cash flows for the respective periods then ended and (C)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except as set forth in Section 3.5 of the Company Disclosure
Letter, each Subsidiary of the Company is treated as a consolidated Subsidiary
of the Company in the Company Financial Statements for all periods covered
thereby.
III.6 Absence of Certain Changes or Events. Except for matters
reflected or reserved against in the unaudited condensed consolidated balance
sheet as of March 31, 1997 included in the Company Financial Statements, since
December 31, 1996, the Company and its Subsidiaries have conducted their
respective businesses only in the ordinary course, consistent with past practice
and there has not occurred or arisen any event, individually or in the
aggregate, having or which would have a material adverse effect on the Company
and its Subsidiaries taken as a whole, other than those occurring as a result of
general economic or financial conditions or other developments that are not
unique to the Company and its Subsidiaries but also affect other persons who
participate or are engaged in the lines of business in which the Company and its
Subsidiaries participate or are engaged.
III.7 Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the unaudited condensed consolidated balance
sheet as of March 31, 1997 included in the Company Financial Statements, or as
disclosed in Section 3.7 of the Company Disclosure Letter, neither the Company
nor any of its Subsidiaries had at such date, or has incurred since that date,
any liabilities or
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obligations (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due) of any nature that would be required by generally
accepted accounting principles to be reflected on a consolidated balance sheet
of the Company and its consolidated Subsidiaries (including the notes thereto),
except liabilities or obligations (i) which were incurred in the ordinary course
of business consistent with past practice or (ii) which have not been, and could
not be reasonably expected to be, individually or in the aggregate, materially
adverse to the Company and its Subsidiaries taken as a whole.
III.8 Legal Proceedings. Except as disclosed in Section 3.8 of the
Company Disclosure Letter, (i) there are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of the Company and its Subsidiaries,
threatened against, relating to or affecting, nor are there any Governmental or
Regulatory Authority investigations or audits pending or to the knowledge of the
Company and its Subsidiaries threatened against, relating to or affecting, the
Company or any of its Subsidiaries or any of their respective assets and
properties which, individually or in the aggregate, could be reasonably expected
to have a material adverse effect on the Company and its Subsidiaries taken as a
whole or on the ability of the Company to consummate the transactions
contemplated by this Agreement, (ii) neither the Company nor any of its
Subsidiaries is subject to any Order of any Governmental or Regulatory Authority
which, individually or in the aggregate, is having or could be reasonably
expected to have a material adverse effect on the Company and its Subsidiaries
taken as a whole or on the ability of the Company to consummate the transactions
contemplated by this Agreement, and (iii) there are no material Medicare,
Medicaid or other managed care recoupment or recoupments of any third-party
payor being sought, threatened, requested or claimed against the Company or any
of its Subsidiaries.
III.9 [Reserved].
III.10 Taxes. The Company and each of its Subsidiaries has filed all
tax returns that are required to have been filed by it in any jurisdiction for
all periods ending on or prior to the date this representation is made and such
tax returns are true, correct and complete in all material respects, and the
Company and each of its Subsidiaries has paid all taxes shown to be due and
payable on such returns and all other taxes and assessments payable by it to the
extent the same have become due and payable and before they have become
delinquent, except for any taxes and assessments the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company has set aside on its books
reserves (segregated to the extent required by generally accepted accounting
principles, consistently applied throughout the specified period and in the
immediately comparable period ("GAAP")) deemed by it in its reasonable
discretion to be adequate. The Company has no knowledge of any proposed material
tax assessment, obligation or other claim against the Company or any of its
Subsidiaries, and in the opinion of the Company all tax liabilities of the
Company and its Subsidiaries are adequately provided for on the books of the
Company. 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
delinquent. 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 ("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
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any of them, filed a consent to the application of Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code").
III.11 Employee Benefit Plans; ERISA. Neither the Company nor any
other corporation, trade or business which, together with the Company, would be
treated as a single "employer" under Sections 414(b), (c), (m) or (o) of the
Code, excluding professional corporations formed by physicians associated with
the Company ("controlled group member") is now or has at any time during the
last five (5) years been a "contributing sponsor" (as defined in Section
4001(a)(13) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) with respect to any defined benefit pension plan covered by Title IV
of ERISA by reason of Section 4021 of ERISA. Neither the Company nor any
controlled group member is now or has at any time during the last five (5) years
been obligated to contribute to any "multiemployer plan" within the meaning of
Section 4001(a)(3) of ERISA. Other than "continuation coverage" required under
Section 601 of ERISA the Company does not pay or provide for any post-retirement
welfare benefits for its retired employees. Section 3.11(a) of the Company
Disclosure Letter contains a true and complete list and description of each of
the employee benefit plans of the Company, and identifies each of the Company
employee benefit plans that is intended to qualify under Section 401 of the
Code. Except as set forth in Section 3.11(b) of the Company Disclosure Letter,
each of the employee benefit plans of the Company ("Company Employee Benefit
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.
III.12 Vote Required. The affirmative vote of the holders of record
of at least a majority of the outstanding shares of each class of outstanding
stock of the Company with respect to the adoption of this Agreement is the only
vote of the holders of any class or series of the capital stock of the Company
required to adopt this Agreement and approve the Merger and the other
transactions contemplated hereby.
III.13 Accounting Matters. To the knowledge of the Company, neither
the Company nor any of its affiliates has taken or agreed to take any action
that (without giving effect to any action taken or agreed to be taken by Parent
or any of its affiliates) would prevent Parent from accounting for the business
combination to be effected by the Merger as a pooling of interests.
III.14 [Reserved].
III.15 [Reserved].
III.16 Title to Assets. The Company and its Subsidiaries are in
possession of and have good title to, or have valid leasehold interests in or
valid rights under Contract to use, all of their respective properties and
assets primarily used in their respective businesses and material to the
condition (financial or other) of such businesses taken as a whole, 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, or (ii) such imperfections in title and easements and encumbrances,
if any, as do not materially detract from the value of 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), 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 property have been, or prior to
the Closing will
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be made available to Parent, and there is not under any of such leases, (x) any
existing default or event which with notice or lapse of time or both would
become a default by the Company 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, or (y) to the knowledge of the
Company, any existing default or event which with notice or lapse of time or
both would become a default by any party, other than the Company, to the lease,
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. Neither the Company nor any Subsidiary has
received written notice of a default under any lease by any party thereto.
III.17 Permits, Etc. The Company and its Subsidiaries own or validly
hold all licenses, permits, certificates of authority, registrations, franchises
and similar consents granted or issued by any applicable Governmental or
Regulatory Authority, used or held for use which are required to conduct and
material to the condition of their respective businesses taken as a whole.
III.18 Contracts and Commitments.
(a) Section 3.18(a) of the Company Disclosure Letter contains a true
and complete list of each of the following written, or to the Company's
knowledge, oral, contracts (the "Material Contracts") to which the Company or
any of its Subsidiaries is a party: (i) all Contracts (excluding Company
Employee Benefit Plans which can be terminated at will without subjecting the
Company or any of its Subsidiaries to cost or penalty) providing for a
commitment for employment or consultation services for a specified or
unspecified term to, or otherwise relating to employment or the termination of
employment of, any Employee; (ii) all Contracts with any Person containing any
provision or covenant prohibiting or limiting the ability of the Company or any
of its Subsidiaries to engage in any business activity or compete with any
Person in connection with their respective businesses or prohibiting or limiting
the ability of any Person to compete with the Company or any of its Subsidiaries
in connection with their respective businesses; (iii) all partnership, joint
venture, shareholders' or other similar Contracts with any Person in connection
with the Company's or any of its Subsidiaries' businesses; (iv) all Contracts
between the Company or any or its Subsidiaries and all hospitals, hospital
systems, independent practice associations ("IPAs"), physician groups,
physicians, pharmacies, laboratories, home health care agencies, nursing
facilities, mental health providers, therapists and other allied health care
professionals and institutions (collectively "Providers"); (v) all Contracts
relating to the future disposition or acquisition of any assets of the Company,
other than dispositions or acquisitions in the ordinary course of business; and
(vi) all other Contracts (other than Company Employee Benefit Plans, real
property leases and insurance policies) with respect to the Company and its
Subsidiaries that (A) involve the payment or potential payment, pursuant to the
terms of any such Contract, by or to the Company or any of its Subsidiaries of
more than $100,000 annually and (B) cannot be terminated within sixty (60) days
after giving notice of termination without resulting in any material cost or
penalty to the Company or any of its Subsidiaries. There is no default or event
that with notice or lapse of time, or both, would constitute a material default
by the Company or any of its Subsidiaries under any of the Material Contracts to
which it is a party. Neither the Company nor any or its Subsidiaries has
received written notice of a default under any Material Contract by any other
party thereto. Except as set forth in Section 3.18(a) of the Company Disclosure
Letter, neither the Company nor its Subsidiaries has any knowledge (A) that any
Provider or Providers representing individually or in the aggregate in excess of
ten percent (10%) of the enrollees of the Company or of the total number of
Providers are organized or attempting to organize any entity (whether or not
incorporated) for the purpose of bargaining or otherwise dealing with the
Company on a collective basis (except with respect to individual providers who
have formed professional corporations
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or partnerships with respect to IPAs and medical groups which already contract
with the Company or its Subsidiaries): (B) that IPAs, medical groups or
individual physicians which contract with the Company or its Subsidiaries and
which serve individually or in the aggregate more than ten percent (10%) of the
enrollees of the Company or its Subsidiaries have expressed an intent (whether
or not legally binding) to terminate or not to renew their respective contracts
with the Company or its Subsidiaries; (C) of any circumstances likely to result
in disenrollment of enrollees, the loss of which individually and in the
aggregate would likely have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, other than those occurring as a result of
general economic or financial conditions or other conditions or developments
that are not unique to the Company and its Subsidiaries but also affect other
persons who participate or are engaged in the lines of business in which the
Company and its Subsidiaries participate or are engaged; or (D) of any Provider
providing services to the Company and its Subsidiaries that does not maintain
professional liability insurance.
(b) Each of the Material Contracts is enforceable against the
Company or any of its Subsidiaries, as the case may be, in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or by bankruptcy, insolvency or other similar laws relating to rights of
creditors. Neither the Company nor any of its Subsidiaries has received written
notice that any party to any of the Material Contracts intends to cancel or
terminate any of the Material Contracts or to exercise or not exercise any
options under any of the Material Contracts.
III.19 Intellectual Property. The Company does not have any patents,
trademarks, service marks, trade names, corporate names (including all
registrations and applications therefor) and copyright registrations and
applications that are material to the business or condition of the Company or
any of its Subsidiaries.
III.20 Tax-Free Reorganization. The Company has not taken and has
not agreed to take any action that would interfere with the ability of Parent to
treat the Merger as a tax-free reorganization within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(E), and 368(a)(1)(B) of the Code.
III.21 Compliance with Laws. Neither the Company nor any of its
Subsidiaries is in violation of, or has violated, any applicable provisions of
any Laws or any term of any Order binding against it, except for violations
which do not have and would not have, individually or in the aggregate, a
material adverse effect on the Company and its Subsidiaries, taken as a whole.
III.22 Full Disclosure. No information furnished by or on behalf of
the Company and its Subsidiaries to Parent and its Subsidiaries pursuant to this
Agreement and any information contained in the Company Disclosure Letter and
other Schedules to this Agreement, at any time prior to the Closing Date,
contains nor will it contain any untrue statement of a material fact and does
not and will not omit to state any material fact necessary to make any
statement, in light of the circumstances under which such statement is made, not
misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
IV.1 Organization and Qualification. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has full corporate power and authority
to conduct its business as and to the extent now conducted and to own, use and
lease its assets and properties, except (in the case of any Subsidiary) for such
failures to be so organized, existing and in good standing or to have such power
and authority which, individually or in the aggregate, are not having and could
not be reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole. Sub was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby. Each of Parent and Sub is duly qualified, licensed or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use or leasing of its assets and properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary, except for
such failures to be so qualified, licensed or admitted and in good standing
which, individually or in the aggregate, are not having and could not be
reasonably expected to have a material adverse effect on Parent and its
Subsidiaries taken as a whole.
4.2 Capital Stock.
(a) The authorized capital stock of Parent consists solely of
98,000,000 shares of Parent Common Stock and 2,000,000 shares of preferred
stock, par value $0.002 per share ("Parent Preferred Stock"). As of April 30,
1997, 30,861,265 shares of Parent Common Stock were issued and outstanding, no
shares were held in the treasury of Parent, 7,362,135 shares were reserved for
issuance under the Parent's Amended and Restated Omnibus Stock Option Plan, 1994
Physician Stock Option Plan and 1995 Non-Employee Director's Non-Qualified Stock
Option Plan (collectively, the "Parent Option Plans") and 365,000 shares were
reserved for issuance pursuant to the exercise of outstanding warrants ("Parent
Warrants"). There has been no change in the number of issued and outstanding
shares of Parent Common Stock or shares of Parent Common Stock held in treasury
or reserved for issuance since such date other than as a result of the exercise
of Options pursuant to the Parent Option Plans or the exercise of Parent
Warrants. As of the date hereof, no shares of Parent Preferred Stock are issued
and outstanding. All of the issued and outstanding shares of Parent Common Stock
are, and all shares reserved for issuance will be, upon issuance in accordance
with the terms specified in the instruments or agreements pursuant to which they
are issuable (including pursuant to this Agreement), duly authorized, validly
issued, fully paid and nonassessable. Except pursuant to this Agreement and
except as set forth in this Section 4.2, Section 4.2 of the letter dated the
date hereof and delivered to Company by Parent and Sub concurrently with the
execution and delivery of this Agreement (the "Parent Disclosure Letter") or in
the Parent SEC Reports (as defined in Section 0), there are no outstanding
Options obligating Parent or any of its Subsidiaries to issue or sell any shares
of capital stock of Parent or to grant, extend or enter into any Option with
respect thereto, and there are no rights to register any of Parent's securities
under the Securities Act.
(b) Except as disclosed in Section 4.2 of the Parent Disclosure
Letter or in the Parent SEC Reports, all of the outstanding shares of capital
stock of Subsidiary are duly authorized, validly issued, fully paid and
nonassessable and are owned, beneficially and of record, by Parent, free and
clear of any
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Liens. Except as disclosed in Section 4.2 of the Parent Disclosure Letter or in
the Parent SEC Reports, all of the outstanding shares of capital stock of each
Subsidiary of Parent are duly authorized, validly issued, fully paid and
nonassessable and are owned, beneficially and of record, by parent or a
Subsidiary wholly owned, directly or indirectly, by parent, free and clear of
any Liens. Except as disclosed in Section 4.2 of the Parent Disclosure Letter or
in the Parent SEC Reports, there are no (i) outstanding Options obligating
Parent or any of its Subsidiaries to issue or sell any shares of capital stock
of any Subsidiary of Parent or to grant, extend or enter into any such Option or
(ii) voting trusts, proxies or other commitments, understandings, restrictions
or arrangements in favor of any person other than Parent or a Subsidiary wholly
owned, directly or indirectly, by Parent with respect to the voting of or the
right to participate in dividends or other earnings on any capital stock of any
Subsidiary of Parent.
(c) Except as disclosed in Section 4.2 of the Parent Disclosure
Letter or in the Parent SEC Reports there are no outstanding contractual
obligations of Parent or any Subsidiary of Parent to repurchase, redeem or
otherwise acquire any shares of Parent Common Stock or any capital stock of any
Subsidiary of Parent or to provide funds to, or make any investment (in the form
of a loan, capital contribution or otherwise) in, any Subsidiary of Parent or
any other person.
IV.3 Authority Relative to this Agreement. Each of Parent and Sub
has full corporate power and authority to enter into this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by each of
Parent and Sub and the consummation by each of Parent and Sub of the
transactions contemplated hereby have been duly and validly approved by its
Board of Directors and by Parent in its capacity as the sole stockholder of Sub
and no other corporate proceedings on the part of either of Parent or Sub or
their stockholders are necessary to authorize the execution, delivery and
performance of this Agreement by Parent and Sub and the consummation by Parent
and Sub of the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Parent and Sub and constitutes a
legal, valid and binding obligation of each of Parent and Sub enforceable
against each of Parent and Sub in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
IV.4 Non-Contravention; Approvals and Consents.
(a) The execution and delivery of this Agreement by each of Parent
and Sub do not, and the performance by each of Parent and Sub of its obligations
hereunder and the consummation of the transactions contemplated hereby will not,
conflict with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or give to any
person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien upon any of the assets or properties of Parent or any of its Subsidiaries
under, any of the terms, conditions or provisions of (i) the certificates or
articles of incorporation or bylaws (or other comparable charter documents) of
Parent or any of its Subsidiaries, or (ii) subject to the taking of the actions
described in paragraph (b) of this Section, (x) any Laws or Orders of any
Governmental or Regulatory Authority applicable to Parent or any of its
Subsidiaries or any of their respective assets or properties, or (y) any
Contracts to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries or any of their respective assets or
properties is bound, excluding from the foregoing clauses (x) and (y) conflicts,
violations, breaches, defaults, terminations, modifications, accelerations and
creations and impositions of Liens which, individually or in the
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aggregate, could not be reasonably expected to have a material adverse effect on
Parent and its Subsidiaries taken as a whole or on the ability of Parent and Sub
to consummate the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report by
Parent under the HSR Act, (ii) for filings with any state securities authorities
that are required in connection with the transactions contemplated by this
Agreement, (iii) for the filing of the Certificate of Merger and other
appropriate merger documents required by the California Code with the Secretary
of State and appropriate documents with the relevant authorities of other states
in which the Constituent Corporations are qualified to do business, and (iv) as
disclosed in Section 4.4 of the Parent Disclosure Letter, no consent, approval
or action of, filing with or notice to any Governmental or Regulatory Authority
or other public or private third party is necessary or required under any of the
terms, conditions or provisions of any Law or Order of any Governmental or
Regulatory Authority or any Contract to which Parent or any of its Subsidiaries
is a party or by which Parent or any of its Subsidiaries or any of their
respective assets or properties is bound for the execution and delivery of this
Agreement by each of Parent and Sub, the performance by each of Parent and Sub
of its obligations hereunder or the consummation of the transactions
contemplated hereby, other than such consents, approvals, actions, filings and
notices which the failure to make or obtain, as the case may be, individually or
in the aggregate, could not be reasonably expected to have a material adverse
effect on Parent and its Subsidiaries taken as a whole or on the ability of
Parent and Sub to consummate the transactions contemplated by this Agreement.
IV.5 SEC Reports and Financial Statements. Parent has made available
to the Company prior to the execution of this Agreement a true and complete copy
of each form, report, schedule, registration statement, definitive proxy
statement and other document (together with all amendments thereof and
supplements thereto) filed by Parent or any of its Subsidiaries with the SEC
since October 20, 1994 (as such documents have since the time of their filing
been amended or supplemented, the "Parent SEC Reports"), which are all the
documents (other than preliminary material) that Parent and its Subsidiaries
were required to file with the SEC since such date. As of their respective
dates, the Parent SEC Reports (i) complied as to form in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, (ii) that were required to be filed were timely filed, and (iii) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Parent is eligible to use Form S-3 pursuant to the rules therefor
promulgated by the SEC. The audited consolidated financial statements and
unaudited interim consolidated financial statements (including, in each case,
the notes, if any, thereto) included in the Parent SEC Reports (the "Parent
Financial Statements") complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto and except with respect to unaudited statements as
permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of
the unaudited interim financial statements, to normal, recurring year-end audit
adjustments which are not expected to be, individually or in the aggregate,
materially adverse to Parent and its Subsidiaries taken as a whole) the
consolidated financial position of Parent and its consolidated Subsidiaries as
at the respective dates thereof and the consolidated results of their operations
and cash flows for the respective periods then ended. Except as set forth in
Section 4.5 of the Parent Disclosure Letter, each Subsidiary of Parent is
treated as a consolidated Subsidiary of Parent in the Parent Financial
Statements for all periods covered thereby.
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IV.6 Absence of Certain Changes or Events. Except as disclosed in
the Parent SEC Reports filed prior to the date of this Agreement, since March
31, 1997 there has not been any change, event or development having,
individually or in the aggregate, a material adverse effect on Parent and its
Subsidiaries taken as a whole.
VI.7 Absence of Undisclosed Liabilities. Except for matters
reflected or reserved against in the balance sheet for the period ended March
31, 1997 included in the Parent Financial Statements or as disclosed in Section
4.7 of the Parent Disclosure Letter, neither Parent nor any of its Subsidiaries
had at such date, or has incurred since that date, any liabilities or
obligations (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due) of any nature that would be required by GAAP to be
reflected on a consolidated balance sheet of Parent and its consolidated
Subsidiaries (including the notes thereto), except liabilities or obligations
(i) which were incurred in the ordinary course of business consistent with past
practice or (ii) which have not been, and could not be reasonably expected to
be, individually or in the aggregate, materially adverse to Parent and its
Subsidiaries taken as a whole.
IV.8 Information Supplied. Any documents to be filed by the Company
with the SEC or any other Governmental or Regulatory Authority in connection
with the Merger and the other transactions contemplated hereby will comply as to
form in all material respects with the requirements of the Securities Act, and
will not, on the date of its filing 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, except that no representation is made
by Parent or Sub with respect to information supplied in writing by or on behalf
of the Company expressly for inclusion therein and information incorporated by
reference therein from documents filed by Parent or any of its Subsidiaries with
the SEC.
IV.9 Legal Proceedings. Except as disclosed in the Parent SEC
Reports filed prior to the date of this Agreement or in Section 4.8 of the
Parent Disclosure Letter, (i) there are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of Parent and its Subsidiaries,
threatened against, relating to or affecting, nor are there any Governmental or
Regulatory Authority investigations or audits pending or to the knowledge of
Parent and its Subsidiaries threatened against, relating to or affecting, Parent
or any of its Subsidiaries or any of their respective assets and properties
which, individually or in the aggregate, could be reasonably expected to have a
material adverse effect on the ability of Parent and Sub to consummate the
transactions contemplated by this Agreement, (ii) neither Parent nor any of its
Subsidiaries is subject to any Order of any Governmental or Regulatory Authority
which, individually or in the aggregate, is having or could be reasonably
expected to have a material adverse effect on the ability of Parent and Sub to
consummate the transactions contemplated by this Agreement and (iii) there are
no material Medicare, Medicaid or other managed care recoupment or recoupments
of any third-party payor being sought, threatened, requested or claimed against
Parent or any of its Subsidiaries.
IV.10 Employee Benefit Plans; ERISA. Except as disclosed in the
Parent SEC Reports filed prior to the date of this Agreement or as set forth in
Section 4.11 of the Parent Disclosure Letter, Parent and its Subsidiaries are in
full compliance with all material applicable provisions of ERISA and all of
their respective employee benefit plans.
IV.11 Permits, Etc. Parent and its Subsidiaries own or validly hold
all licenses, permits, certificates of authority, registrations, franchises and
similar consents granted or issued by any applicable
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Governmental or Regulatory Authority, used or held for use and material to the
condition of their respective businesses taken as a whole.
IV.12 Accounting Matters. To the knowledge of Parent, neither Parent
nor any of its affiliates has taken or agreed to take any action that (without
giving effect to any action taken or agreed to be taken by the Company or any of
its affiliates) would prevent Parent from accounting for the business
combination to be effected by the Merger as a pooling of interests.
IV.13 Tax-Free Reorganization. Neither Parent nor Sub has taken or
agreed to take any action that would interfere with the ability of Parent to
treat the Merger as a tax-free reorganization within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(E), and Section 368(a)(1)(B) of the Code.
IV.14 Compliance with Laws. Neither the Parent nor any of its
Subsidiaries is in violation of, or has violated, any applicable provisions of
any Laws or any term of any Order binding against it, except for violations
which do not have and would not have, individually or in the aggregate, a
material adverse effect on the Parent and its Subsidiaries, taken as a whole.
IV.15 Full Disclosure. No information furnished by or on behalf of
the Parent and its Subsidiaries to Company and its Subsidiaries pursuant to this
Agreement and any information contained in the Parent Disclosure Letter and
other Schedules to this Agreement, at any time prior to the Closing Date,
contains nor will it contain any untrue statement of a material fact and does
not and will not omit to state any material fact necessary to make any
statement, in light of the circumstances under which such statement is made, not
misleading.
ARTICLE V
COVENANTS OF THE COMPANY
V.1 Covenants of the Company. At all times from and after the date
hereof until the Effective Time, the Company covenants and agrees as to itself
and its Subsidiaries that (except as expressly contemplated or permitted by this
Agreement, or to the extent that the Parent shall otherwise consent in writing):
(a) Ordinary Course. The Company and each of its Subsidiaries shall
conduct their respective businesses only in, and none of the Company and such
Subsidiaries shall take any action except in, the ordinary course consistent
with past practice.
(b) Prohibited Actions. Without limiting the generality of paragraph
(a) of this Section, except as otherwise disclosed in the Company Disclosure
Letter, as applicable, (i) the Company and its Subsidiaries shall use all
commercially reasonable efforts to preserve intact in all material respects
their present business organizations and reputation, to keep available the
services of their key officers and employees, to maintain their assets and
properties in good working order and condition, ordinary wear and tear excepted,
to maintain insurance on their tangible assets and businesses in such amounts
and against such risks and losses as are currently in effect, to preserve their
relationships with customers and suppliers and others having significant
business dealings with them and to comply in all material respects with all Laws
and Orders of all Governmental or Regulatory Authorities applicable to them, and
(ii) the Company shall not, nor shall it permit any of its Subsidiaries to:
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(A) amend or propose to amend its certificate or
articles of incorporation or bylaws (or other comparable corporate
charter documents);
(B) (w) declare, set aside or pay any dividends on or
make other distributions in respect of any of its capital stock,
except for the declaration and payment of dividends by a wholly
owned Subsidiary solely to its parent corporation, (x) split,
combine, reclassify or take similar action with respect to any of
its capital stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, (y) adopt a plan of complete or
partial liquidation or resolutions providing for or authorizing such
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (z) directly or
indirectly redeem, repurchase or otherwise acquire any shares of its
capital stock or any Option with respect thereto;
(C) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or
any Option with respect thereto (other than (y) the issuance of
shares of Company Common Stock upon exercise of previously granted
options pursuant to the Company Option Plans in accordance with
their present terms, and (z) the issuance by a wholly owned
Subsidiary of its capital stock to its parent corporation), or
modify or amend any right of any holder of outstanding shares of
capital stock or Options with respect thereto;
(D) except for the Gateway Acquisition (as defined in
Section 0 below), acquire (by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner) any business or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole;
(E) other than dispositions of assets which are not,
individually or in the aggregate, material to the Company and its
Subsidiaries taken as a whole, sell, lease, grant any security
interest in or otherwise dispose of or encumber any of its assets or
properties;
(F) except to the extent required by applicable law or
existing commitment, (x) permit any material change in (1) any
pricing, marketing, purchasing, investment, accounting, financial
reporting, inventory, credit, allowance or tax practice or policy or
(2) any method of calculating any bad debt, contingency or other
reserve for accounting, financial reporting or tax purposes or (y)
make any material tax election or settle or compromise any material
income tax liability with any Governmental or Regulatory Authority;
(G) (x) incur (which shall not be deemed to include
entering into credit agreements, lines of credit or similar
arrangements until borrowings are made under such arrangements) any
indebtedness for borrowed money or guarantee any such indebtedness
other than in the ordinary course of its business consistent with
past practice in an aggregate principal amount exceeding $50,000 (in
each case net of any amounts of any
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such indebtedness discharged during such period), or (y) voluntarily
purchase, cancel, prepay or otherwise provide for a complete or
partial discharge in advance of a scheduled repayment date with
respect to, or waive any right under, any indebtedness for borrowed
money other than in the ordinary course of its business consistent
with past practice in an aggregate principal amount exceeding
$50,000;
(H) enter into, adopt, amend in any material respect
(except as may be required by applicable law) or terminate any
Company Employee Benefit Plan or other agreement, arrangement, plan
or policy between the Company or one of its Subsidiaries and one or
more of its directors, officers or employees, or, except for (i)
normal increases in the ordinary course of business consistent with
past practice that, in the aggregate, do not result in a material
increase in benefits or compensation expense to the Company and its
Subsidiaries taken as a whole, increase in any manner the
compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan or arrangement in effect
as of the date hereof, and (ii) the payment of stay bonuses to
employees of the Company that do not exceed, in the aggregate,
$100,000;
(I) enter into any contract or amend or modify any
existing contract, or engage in any new transaction, outside the
ordinary course of business consistent with past practice or not on
an arm's length basis, with any affiliate of such or any of its
Subsidiaries;
(J) make any capital expenditures or commitments for
additions to plant, property or equipment constituting capital
assets except in the ordinary course of business consistent with
past practice in an aggregate amount exceeding $50,000;
(K) make any change in the lines of business in which it
participates or is engaged;
(L) enter into any contract, agreement, commitment or
arrangement to do or engage in any of the foregoing; or
(M) take any action to cause the Merger not to be
treated as a tax-free reorganization within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(E), and Section 368(a)(1)(B) of
the Code.
(c) Advice of Changes. Each party shall confer on a regular and
frequent basis with the other with respect to its business and operations and
other matters relevant to the Merger; provided, however, that the foregoing
obligation shall not apply to matters disclosed in Section 5.1 of the Company
Disclosure Letter, and each party shall promptly advise the other, orally and in
writing, of any change or event, including, without limitation, any complaint,
investigation or hearing by any Governmental or Regulatory Authority (or
communication indicating the same may be contemplated) or the institution or
threat of litigation, having, or which, insofar as can be reasonably foreseen,
could have, a material adverse effect on the Company or Parent, as the case may
be, and its Subsidiaries taken as a whole or on the ability of the Company or
Parent, as the case may be, to consummate the transactions contemplated hereby.
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ARTICLE VI
COVENANTS OF THE PARENT AND SUB
VI.1 Covenants of the Parent and Sub. At all times from and after
the date hereof until the Effective Time, the Parent covenants and agrees as to
itself and Sub that (except as expressly contemplated or permitted by this
Agreement, or to the extent that the Company shall otherwise consent in
writing):
(a) No Adverse Changes. Parent shall not make any material changes
to its business or structure which could reasonably be expected to have an
adverse effect on the consideration to be received by the Company's
shareholders.
(b) Cooperation. Parent shall use all reasonable efforts to take all
such actions as are necessary to effectuate the transactions contemplated hereby
and to fulfill and cause to be fulfilled the conditions to closing under this
Agreement.
(c) Tax-Free Reorganization. Parent shall not, nor shall it permit
Sub to take any action to cause the Merger not to be treated as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) and Section
368(a)(2)(E), and Section 368(a)(1)(B) of the Code.
(d) No Contact with the SEC. Parent shall not initiate contact, or
directly or indirectly make inquiry to, the SEC or any of its staff regarding
the pooling aspects of the transactions contemplated by this Agreement, without
consent of the Company which may not be unreasonably withheld. In the event the
Company so consents, Parent shall permit representatives of the Company as of
the date hereof, to participate in such discussions.
ARTICLE VII
ADDITIONAL AGREEMENTS
VII.1 Access to Information; Confidentiality.
(a) Each of the Company and Parent shall, and shall cause each of
its Subsidiaries to, throughout the period from the date hereof to the Effective
Time, (i) provide the other party and its directors, officers, employees, legal,
investment, banking and financial advisors, accountants and any other agents and
representatives (collectively, "Representatives") with full access, as arranged
through Robert McCray or Donna Rockenbach upon reasonable prior notice and
during normal business hours, to all officers, employees, agents and accountants
of the Company or Parent, as the case may be, and its Subsidiaries and their
respective assets, properties, books and records, but only to the extent that
such access does not unreasonably interfere with the business and operations of
the Company or Parent, as the case may be, and its Subsidiaries, and (ii)
furnish promptly to such persons (x) a copy of each report, statement, schedule
and other document filed or received by the Company or Parent, as the case may
be, or any of its Subsidiaries pursuant to the requirements of federal or state
securities laws or filed with any other Governmental or Regulatory Authority,
and (y) all other information and data (including, without limitation, copies of
Company Employee Benefit Plans or Parent Employee Benefit Plans, as the case
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may be, other books and records and contracts, provided, however, that neither
Parent nor Company will without the approval of the other party contact a party
to any such contract) concerning the business and operations of the Company or
Parent, as the case may be, and its Subsidiaries as the other party or any of
such other persons reasonably may request. No investigation pursuant to this
paragraph or otherwise shall affect any representation or warranty contained in
this Agreement or any condition to the obligations of the parties hereto.
(b) Each party will hold, and will use its best efforts to cause its
Representatives to hold, in strict confidence, unless (i) compelled to disclose
by judicial or administrative process or by other requirements of applicable
Laws of Governmental or Regulatory Authorities (including, without limitation,
in connection with obtaining the necessary approvals of this Agreement or the
transactions contemplated hereby of Governmental or Regulatory Authorities);
provided such party shall inform the disclosing party prior to any such
disclosure and provide the disclosing party an opportunity to contest such
disclosure, or (ii) disclosed in an action or proceeding brought by a party
hereto in pursuit of its rights or in the exercise of its remedies hereunder,
all documents and information concerning the other party and its Subsidiaries
furnished to it by such other party or its Representatives in connection with
this Agreement or the transactions contemplated hereby, except to the extent
that such documents or information can be shown to have been (x) previously
known by the Company or Parent, as the case may be, or its Representatives, (y)
in the public domain (either prior to or after the furnishing of such documents
or information hereunder) through no fault of the Company or Parent, as the case
may be, and its Representatives or (z) later acquired by the Company or Parent,
as the case may be, or its Representatives from another source if such source is
under an obligation to the Company or Parent, as the case may be, to keep such
documents and information confidential. In the event that this Agreement is
terminated without the transactions contemplated hereby having been consummated,
upon the request of the Company or Parent, as the case may be, the other party
will, and will cause its Representatives to, promptly (and in no event later
than five (5) days after such request) redeliver or cause to be redelivered all
copies of documents and information furnished by the Company or Parent, as the
case may be, or its Representatives to such party and its Representatives in
connection with this Agreement or the transactions contemplated hereby and
destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
compilations and other writings related thereto or based thereon prepared by the
Company or Parent, as the case may be, or its Representatives.
VII.2 Registration Rights Agreement. Parent and Company shall enter
into a registration rights agreement (the "Registration Rights Agreement") in
substantially the form of Exhibit B hereto.
VII.3 Registration of Company Stock Option Plans. Within fifteen
(15) days after the Effective Date, Parent will file a registration statement on
Form S-8 under the Securities Act covering the shares of Parent Common Stock
issuable upon exercise of the Parent Options created pursuant to the conversion
of the vested Company Options under Section , and will use its reasonable
efforts to maintain such registration statement in effect until the exercise or
expiration of each such Parent Option.
VII.4 Approval of Company Shareholders. The Company shall use all
reasonable efforts to obtain approval of this Agreement by its shareholders (the
"Company Shareholders' Approval") as soon as reasonably practicable after the
date hereof. Subject to the exercise of fiduciary obligations under applicable
law as advised by independent counsel, the Company shall, through its Board of
Directors, to the shareholders of the Company that it is in the best interest of
the shareholders that the shareholders of the Company approve this Agreement,
and shall use its best efforts to obtain such approval.
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VII.5 Inclusion of Shares on the Nasdaq National Market. Parent
shall use its best efforts to cause the shares of Parent Common Stock to be
issued in the Merger in accordance with this Agreement to be approved for
inclusion on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
VII.6 Gateway Acquisition. Parent and Company shall cooperate in
good faith to finalize the acquisition of Gateway Physicians Network ("Gateway")
by Company (the "Gateway Acquisition") on the terms negotiated by the Company,
including but not limited to, a purchase price of $2,000,000 cash and unvested
options to purchase up to 1,000,000 shares of Company Common Stock (or an
equivalent number of shares of Parent Common Stock), or upon other terms and
conditions mutually acceptable to Parent, Company and Gateway. In the event
Company and Gateway consummate the Gateway Acquisition prior to the Effective
Time, upon consummation of the Merger, Parent shall assume the indebtedness of
Gateway incurred as a result of the Gateway Acquisition. In the event the Merger
is not consummated, neither the Parent nor any of its Subsidiaries shall have
any liability or obligation to either the Company and its Subsidiaries or
Gateway, its directors, officers, shareholders or employees. In the event the
Gateway acquisition is consummated prior to the Merger, Parent will make a loan
to Company in the amount of $2,000,000 to complete the acquisition, which loan
will be secured by the Gateway Management Agreement. In the event the Merger is
not consummated, such loan will bear interest at a rate of eight percent (8%)
per annum, will remain secured and the Company will be required to repay such
loan on the second anniversary thereof. In the event the Company agrees to pay
Gateway in excess of $2,000,000 cash without the consent of Parent, upon the
Merger, such cash payment to Gateway in excess of $2,000,000 shall reduce the
Merger Consideration.
VII.7 Regulatory and Other Approvals. Subject to the terms and
conditions of this Agreement and without limiting the provisions of Sections 0
and 0, each of the Company and Parent will proceed diligently and in good faith
and will use all commercially reasonable efforts to do, or cause to be done, all
things necessary, proper or advisable to, as promptly as practicable, (a) obtain
all consents, approvals or actions of, make all filings with and give all
notices to Governmental or Regulatory Authorities or any other public or private
third parties required of Parent, the Company or any of their Subsidiaries to
consummate the Merger and the other matters contemplated hereby, and (b) provide
such other information and communications to such Governmental or Regulatory
Authorities or other public or private third parties as the other party or such
Governmental or Regulatory Authorities or other public or private third parties
may reasonably request in connection therewith; notwithstanding the foregoing,
the parties agree to make any necessary filings under the HSR Act within fifteen
(15) days of the date hereof. In addition to and not in limitation of the
foregoing, each of the parties will (x) take promptly all actions necessary to
make the filings required of Parent and the Company or their affiliates under
the HSR Act, (y) comply at the earliest practicable date with any request for
additional information received by such party or its affiliates from the Federal
Trade Commission (the "FTC") or the Antitrust Division of the Department of
Justice (the "Antitrust Division") pursuant to the HSR Act, and (z) cooperate
with the other party in connection with such party's filings under the HSR Act
and in connection with resolving any investigation or other inquiry concerning
the Merger or the other matters contemplated by this Agreement commenced by
either the FTC or the Antitrust Division or state attorneys general.
VII.8 Company Employees. Section 7.8 of the Company Disclosure
Letter sets forth the severance arrangements for the officers and employees of
the Company and its Subsidiaries. Parent will guarantee payment of all severance
benefits set forth in Section 7.8 of the Company Disclosure Letter; provided,
however, that the severance benefits paid to officers of the Company shall be
offset by salary payments made during a period of continued employment by the
Company beyond the otherwise
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applicable severance date as set forth in those certain letter agreements
between such officers and the Company or Parent. Parent agrees to employ the
officers of the Company until the later of December 31, 1997 and the date Parent
terminates such officers' employment.
VII.9 Directors' and Officers' Indemnification and Insurance.
(a) Except to the extent required by law, until the fifth
anniversary of the Effective Time, Parent will not take any action so as to
amend, modify or repeal the provisions for indemnification of directors,
officers, stockholders, employees or agents contained in the certificates or
articles of incorporation or bylaws (or other comparable charter documents) of
the Surviving Corporation and its Subsidiaries (which as of the Effective Time
shall be no less favorable to such individuals than those maintained by the
Company and its Subsidiaries on the date hereof) in such a manner as would
materially and adversely affect the rights of any individual who shall have
served as a director, officer, stockholder, employee or agent of the Company or
any of its Subsidiaries prior to the Effective Time (each an "Indemnified
Party") to be indemnified by such corporations in respect of their serving in
such capacities prior to the Effective Time. Parent shall, to the fullest extent
authorized by the California Code or any other applicable law as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits Parent to provide broader indemnification
rights than said law permitted Parent to provide prior to such amendment),
indemnify all directors, officers, employees, agents and stockholders who are
officers or directors of the Company against any liability or losses (including
attorney's fees for counsel who are reasonably acceptable to Parent) any of them
may incur in connection with any action, proceeding or investigation with which
they become involved prior to or within five (5) years from the Effective Time
as officers, directors, employees, agents or stockholders of the Company. The
right to indemnification conferred in this Section shall be a contract right and
shall include the right to be paid by Parent any expenses incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that, if so required by Parent, such advance shall be made only upon delivery to
Parent of an undertaking, by or on behalf of such director or officer, to repay
all amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Section or otherwise.
Parent shall not be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld). Parent shall not be
obligated pursuant to this Section to pay the fees and disbursements of more
than one counsel for all Indemnified Parties in any single action, except to the
extent that, in the opinion of counsel for the Indemnified Parties, two or more
of such Indemnified Parties have conflicting interests in the outcome of such
action, or one or more of such Indemnified Parties and Parent have conflicting
interests in the outcome of such action. Parent may obtain directors' and
officers' liability insurance covering its obligations under this Section.
(b) The provisions of this Section are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, and his or her
heirs and legal representatives, and shall be in addition to any other rights an
Indemnified Party may have under the certificate or articles of incorporation or
bylaws of the Surviving Corporation or any of its Subsidiaries, under the
California Code or otherwise.
(c) In the event the Parent or the Surviving Corporation, or any of
their respective successors or assigns, (i) consolidates with or merges into any
other person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or substantially all of
its properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Parent or the
Surviving Corporation, as the case may be, or at Parent's option, Parent, shall
assume the obligations set forth in paragraph (a) of this Section.
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(d) In the event the Parent or the Surviving Corporation, or any of
their respective successors or assigns, obtains directors' and officers'
liability insurance covering any of their directors or officers, such insurance
shall also cover the directors and officers of the Company as of the date hereof
with respect to the obligations hereunder.
VII.10 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such cost or expense.
VII.11 Pooling of Interests. From and after the date hereof and
until the Effective Time, neither Parent nor the Company nor any of their
respective Subsidiaries or other affiliates shall knowingly take any action, or
knowingly fail to take any action, that would jeopardize the treatment of
Parent's acquisition of the Company as a "pooling of interests" for accounting
purposes. Following the Effective Time, Parent shall use its best efforts to
conduct the business of the Surviving Corporation, and shall cause the Surviving
Corporation to use its best efforts to conduct its business, in a manner that
would not jeopardize the characterization of the Merger as a "pooling of
interests" for accounting purposes. The Parent agrees that on or prior to
November 15, 1997, Parent shall cause publication of the combined results of
operations of Parent, Sub and the Company for a period of the first thirty (30)
days of combined operations of the Company and the Parent (the "Combined
Results"). For purposes of this Section 0, the term "publication" shall have the
meaning provided in the SEC Accounting Series Release No. 135 ("ASR 135").
VII.12 Brokers or Finders. Each of Parent and the Company
represents, as to itself and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except Needham &
Company, Inc., whose fees and expenses will be paid by the Company in accordance
with the Company's agreement with such firm (a true and complete copy of which
has been delivered by the Company to Parent prior to the execution of this
Agreement), and each of the Parent and the Company shall indemnify and hold the
other harmless from and against any and all claims, liabilities or obligations
with respect to any other such fee or commission or expenses related thereto
asserted by any person on the basis of any act or statement alleged to have been
made by such party or its affiliate.
VII.13 Standstill. Each of Parent and the Company agrees that until
the expiration of three (3) years from the date of termination of this
Agreement, without the prior written consent of the other, it will not (a) in
any manner acquire, agree to acquire or make any proposal to acquire, directly
or indirectly (i) a substantial portion of the assets of the other and its
Subsidiaries taken as a whole or (ii) any of the issued and outstanding shares
of stock of the other (b) make or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" (as such terms are used in the
proxy rules of the SEC) to vote, or seek to advise or influence any person with
respect to the voting of, any voting securities of the other or any of its
Subsidiaries or (c) form, join or in any way participate in a "group" (within
the meaning of Section 13(d) of the Exchange Act) with respect to any voting
securities of the other or any of its Subsidiaries.
VII.14 Notice and Cure. Each of Parent and the Company will notify
the other in writing of, and contemporaneously will provide the other with true
and complete copies of any and all information or documents relating to, and
will use best efforts to cure before the Closing, any event, transaction or
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circumstance, as soon as practical after it becomes known to such party,
occurring after the date of this Agreement that causes or will cause any
covenant or agreement of Parent or the Company, as the case may be, under this
Agreement to be breached or that renders or will render untrue any
representation or warranty of Parent or the Company, as the case may be,
contained in this Agreement as if the same were made on or as of the date of
such event, transaction or circumstance. Each of Parent and the Company also
will notify the other in writing of, and will use best efforts to cure, before
the Closing, any violation or breach, as soon as practical after it becomes
known to such party, of any representation, warranty, covenant or agreement made
by Parent or the Company, as the case may be, in this Agreement, whether
occurring or arising prior to, on or after the date of this Agreement. No notice
given pursuant to this Section shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein.
VII.15 Fulfillment of Conditions. Subject to the terms and
conditions of this Agreement, each of Parent and the Company will take or cause
to be taken all steps necessary or desirable and proceed diligently and in good
faith to satisfy each condition to the other's obligations contained in this
Agreement and to consummate and make effective the transactions contemplated by
this Agreement, and neither Parent nor the Company will, nor will it permit any
of its Subsidiaries to, take or fail to take any action that could be reasonably
expected to result in the nonfulfillment of any such condition.
VII.16 No Solicitations. Prior to the Effective Time, the Company
agrees (a) that neither it nor any of its Subsidiaries shall, and it shall use
its best efforts to cause their respective Representatives not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger, consolidation
or other business combination including the Company or any of its Subsidiaries
or any acquisition or similar transaction (including, without limitation, a
tender or exchange offer) involving the purchase of (i) all or any significant
portion of the assets of the Company and its Subsidiaries taken as a whole, (ii)
twenty percent (20%) or more of the outstanding shares of Company Common Stock
or (iii) twenty percent (20%) or more of the outstanding shares of the capital
stock of any Subsidiary of the Company (any such proposal or offer being
hereinafter referred to as an "Alternative Proposal"), or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person or group relating to an Alternative
Proposal (excluding the transactions contemplated by this Agreement), or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; (b) that it will notify Parent immediately if any such inquiries,
proposals or offers are received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated or continued
with, it or any such person or group; and (c) that it will, prior to accepting
any Alternative Proposal, (i) receive a determination from an independent
financial advisor that such Alternative Proposal is more favorable (from a
financial point of view) to the Company's shareholders than the Merger, (ii)
determine in the exercise of its fiduciary obligations under applicable law as
advised by independent counsel that such Alternative Proposal is more favorable
to the Company's shareholders than the Merger, and (iii) deliver to Parent a
definitive agreement of such Alternative Proposal or a description of the
material terms thereof and, except as would violate a fiduciary or contractual
obligation, a copy of any information provided by such person or group,
including the identity of such person or group, and give Parent at least three
(3) days to offer a counterproposal prior to executing such definitive
agreement; provided, however, that nothing contained in this Section 0 shall
prohibit the Board of Directors of the Company from (A) furnishing information
to or entering into discussions or negotiations with any person or group that
makes an unsolicited bona fide Alternative Proposal, if, and only to the extent
that, (1) the Board of Directors of the Company, based upon the written opinion
of outside counsel (a copy of which shall be provided promptly to Parent),
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determines in good faith that such action is required or appropriate for the
Board of Directors to comply with its fiduciary duties to shareholders imposed
by law, (2) the Board of Directors has reasonably concluded in good faith that
the person or group making such Alternative Proposal will have adequate sources
of financing to consummate such Alternative Proposal and that such Alternative
Proposal is more favorable to the Company's shareholders than the Merger and (3)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or group, the Company provides written notice to
Parent to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or group; and (B) to the extent
applicable, complying with Rule 14e-2 promulgated under the Exchange Act with
regard to an Alternative Proposal.
ARTICLE VIII
CONDITIONS
VIII.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) Company Shareholder Approval. Company Shareholder Approval of
this Agreement shall have been obtained.
(b) Registration Rights Agreement; State Securities Laws. The
Registration Rights Agreement shall have been executed by all parties thereto;
all filings with the SEC with respect to the shares being issued in connection
with the Merger shall have been made; and Parent shall have received all state
securities or "Blue Sky" permits and other authorizations, if any, necessary to
issue the Parent Common Stock pursuant to this Agreement after the Merger.
(c) Inclusion of Shares on the Nasdaq National Market. The shares of
Parent Common Stock issuable to the Company's shareholders in the Merger in
accordance with this Agreement shall have been approved for inclusion on the
Nasdaq National Market, upon official notice of issuance.
(d) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(e) No Injunctions or Restraints. No court of competent jurisdiction
or other competent Governmental or Regulatory Authority shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
illegal or otherwise restricting, preventing or prohibiting consummation of the
Merger or the other transactions contemplated by this Agreement.
(f) Pooling and Affiliate Letters. Parent and the Company shall have
received letters from Deloitte & Touche LLP and Ernst & Young, each dated as of
the Closing Date and confirmed in writing at the Effective Time and addressed to
Parent and the Company, respectively, stating that the Merger will qualify as a
pooling of interests transaction under Opinion 16 of the Accounting Principles
Board. Within thirty (30) days after the date of this Agreement, (i) the Company
shall deliver to Parent a letter identifying all persons who may be deemed
affiliates of the Company under Rule 145 promulgated under the Securities Act
("Rule 145"), including, without limitation, all directors and executive
officers of the
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Company, and (ii) the Company shall advise the persons identified in such letter
of the resale restrictions imposed by applicable securities laws, including ASR
135. Each of the Company and Parent shall use its reasonable best efforts to
obtain as soon as practicable after the date hereof from affiliates of the
Company and Parent an agreement that such persons will comply with the
provisions of ASR 135.
(g) Governmental and Regulatory Consents and Approvals. Other than
the filing provided for by Section , all consents, approvals and actions of,
filings with and notices to any Governmental or Regulatory Authority or any
other public or private third parties required of Parent, the Company or any of
their Subsidiaries to consummate the Merger and the other matters contemplated
hereby, the failure of which to be obtained or taken could be reasonably
expected to have a material adverse effect on Parent and its Subsidiaries or the
Surviving Corporation and its Subsidiaries, in each case taken as a whole, or on
the ability of Parent and the Company to consummate the transactions
contemplated hereby shall have been obtained.
8.2 Conditions to Obligation of Parent and Sub to Effect the Merger.
The obligation of Parent and Sub to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by Parent and
Sub in their sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by the Company in this Agreement shall be true and correct in
all material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality, which representations
and warranties as so qualified shall be true in all respects) as of the Closing
Date as though made on and as of the Closing Date or, in the case of
representations and warranties made as of a specified date earlier than the
Closing Date, on and as of such earlier date, and the Company shall have
delivered to Parent a certificate, dated the Closing Date and executed on behalf
of the Company by its Chairman of the Board, President or any Executive or
Senior Vice President, to such effect.
(b) Performance of Obligations. The Company shall have performed and
complied with, in all material respects, each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by the Company at
or prior to the Closing, and the Company shall have delivered to Parent a
certificate, dated the Closing Date and executed on behalf of the Company by its
Chairman of the Board, President or any Executive or Senior Vice President, to
such effect.
(c) Dissenters' Rights. Holders of less than ten percent (10%) of
the outstanding shares of capital stock of the Company, calculated on a fully
diluted basis and assuming the conversion of all Series A Preferred and Series B
Preferred, shall have exercised, nor shall they have any continued right to
exercise, any appraisal, dissenters' or similar rights under applicable law with
respect to their shares by virtue of the Merger.
(d) Orders and Laws. There shall not have been issued, enacted,
promulgated or deemed applicable to the Company, the Surviving Corporation, any
of their respective Subsidiaries or the transactions contemplated by this
Agreement any Order or Law of any Governmental or Regulatory Authority which is
then in effect and which could be reasonably expected to result in a material
diminution of the benefits of the Merger to Parent, and there shall not be
pending or threatened on the Closing Date any action, suit or proceeding in,
before or by any Governmental or Regulatory Authority which could be reasonably
expected to result in any such issuance, enactment, promulgation or deemed
applicability of any such Order or Law or of any Order or Law referred to in
Section 0(e).
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(e) Contractual Consents. The Company and its Subsidiaries shall
have received all consents (or in lieu thereof waivers) from parties to each
Contract disclosed pursuant to Section 0.
(f) Proceedings. All proceedings to be taken on the part of the
Company in connection with the transactions contemplated by this Agreement and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Parent, and Parent shall have received copies of all such documents
and other evidences as Parent may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
(g) Opinion of Counsel. Parent shall have received the opinion of
Pillsbury Madison & Sutro LLP, counsel to the Company, dated the Closing Date,
in substantially the form attached hereto as Exhibit C.
(h) Contractual Consents. Parent and its Subsidiaries shall have
received all consents (or in lieu thereof waivers) from parties to each Contract
disclosed pursuant to Section 0.
(i) Professional Corporations. Company and its Subsidiaries and the
shareholders of any affected entity shall have executed such agreements as are
necessary to effect the transfer of shares of the Subsidiaries to
Parent-designated physicians.
(j) No Material Adverse Change. Since the date of this Agreement,
there shall have been no changes in the business, condition (financial or
otherwise), properties, assets (including intangible assets), liabilities
(including contingent liabilities) or results of operations of the Company and
its Subsidiaries, taken as a whole, which have had or may be reasonably expected
to have a material adverse effect on the Company and its Subsidiaries, taken as
a whole.
VIII.3 Conditions to Obligation of the Company to Effect the Merger.
The obligation of the Company to effect the Merger is further subject to the
fulfillment, at or prior to the Closing, of each of the following additional
conditions (all or any of which may be waived in whole or in part by the Company
in its sole discretion):
(a) Representations and Warranties. Each of the representations and
warranties made by Parent and Sub in this Agreement shall be true and correct in
all material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality, which representations
and warranties as so qualified shall be true in all respects) as of the Closing
Date as though made on and as of the Closing Date or, in the case of
representations and warranties made as of a specified date earlier than the
Closing Date, on and as of such earlier date, and Parent and Sub shall each have
delivered to the Company a certificate, dated the Closing Date and executed on
behalf of Parent by its Chairman of the Board, President or any Executive or
Senior Vice President and on behalf of Sub by its Chairman of the Board,
President or any Vice President, to such effect.
(b) Performance of Obligations. Parent and Sub shall have performed
and complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
Parent or Sub at or prior to the Closing, and Parent and Sub shall each have
delivered to the Company a certificate, dated the Closing Date and executed on
behalf of Parent by its Chairman of the Board, President or any Executive or
Senior Vice President and on behalf of Sub by its Chairman of the Board,
President or any Vice President, to such effect.
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(c) Orders and Laws. There shall not have been issued, enacted,
promulgated or deemed applicable to the Parent, its Subsidiaries or the
transactions contemplated by this Agreement any Order or Law of any Governmental
or Regulatory Authority which is then in effect and which could be reasonably
expected to result in a material diminution of the benefits of the Merger to the
Company, and there shall not be pending or threatened on the Closing Date any
action, suit or proceeding in, before or by any Governmental or Regulatory
Authority which could be reasonably expected to result in any such issuance,
enactment, promulgation or deemed applicability of any such Order or Law or of
any Order or Law referred to in Section 0(e).
(d) Contractual Consents. Parent and Sub shall have received all
consents (or in lieu thereof waivers) from parties to each Contract disclosed
pursuant to Section 0.
(e) Average Price. The Average Price of the Parent Common Stock
shall not be below $10.00.
(f) Proceedings. All proceedings to be taken on the part of Parent
and Sub in connection with the transactions contemplated by this Agreement and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company, and the Company shall have received copies of all such
documents and other evidences as the Company may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(g) Opinion of Counsel. The Company shall have received the Opinion
of James A. Lebovitz, Senior Vice President and General Counsel to Parent, dated
the Closing Date, in form reasonably acceptable to the Company.
(h) Opinion of Tax Counsel. The Company shall have received an
opinion of Pillsbury Madison & Sutro LLP, in form and substance reasonably
satisfactory to the Company, effective as of the date the opinion was delivered
and based on representations of the Company and Parent, to the effect that (i)
the Merger of Sub with and into the Company pursuant to the Merger Agreement and
applicable state law will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; (ii) Parent,
Sub and Company will each be a party to the reorganization within the meaning of
Section 368(b) of the Code; and (iii) the stockholders of the Company will not
recognize gain or loss upon receipt of Parent Common Stock in the Merger, except
that stockholders will recognize any gain realized in the Merger to the extent
such stockholders receive cash in lieu of fractional shares. This opinion will
be delivered prior to the first date upon which shareholders of the Company are
asked to give their approval of this Agreement.
(i) Opinion of Financial Advisor. The Company shall have received
the opinion of Needham & Company, Inc. to the effect that, as of the date
hereof, the consideration to be received by the holders of the Company's common
stock and options pursuant to this Agreement is fair from a financial point of
view to the Company's shareholders.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
IX.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether prior to or after the Company Shareholders' Approval:
(a) by mutual written agreement of the parties hereto duly
authorized by action taken by or on behalf of their respective Boards of
Directors;
(b) by either the Company or Parent upon notification to the
non-terminating party by the terminating party:
(i) at any time after July 31, 1997 (the "Last Closing
Date") if the Merger shall not have been consummated on or prior to
such date and such failure to consummate the Merger is not caused by
a breach of this Agreement by the terminating party (unless the
failure to so consummate the Merger is due to lack of receipt of
required Regulatory Approvals which are being pursued in good faith,
in which case the Last Closing Date shall be August 31, 1997);
(ii) if on the Last Closing Date the Average Price of
Parent Common Stock is less than $10.00;
(iii) if the Company Shareholders' Approval shall not be
obtained by reason of the failure to obtain the requisite vote upon
a vote held at a meeting of such shareholders, or any adjournment
thereof, called therefor;
(iv) if any Governmental or Regulatory Authority, the
taking of action by which is a condition to the obligations of
either the Company or Parent to consummate the transactions
contemplated hereby, shall have determined not to take such action
and all appeals of such determination shall have been taken and have
been unsuccessful;
(v) if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the
non-terminating party set forth in this Agreement which breach has
not been cured within five (5) business days following receipt by
the non-terminating party of notice of such breach from the
terminating party or assurance of such cure reasonably satisfactory
to the terminating party shall not have been given by or on behalf
of the non-terminating party within such five (5) business day
period; or
(vi) if any court of competent jurisdiction or other
competent Governmental or Regulatory Authority shall have issued an
Order making illegal or otherwise restricting, preventing or
prohibiting the Merger and such Order shall have become final and
nonappealable; or
(c) by the Company if the Board of Directors of the Company
concludes in good faith on the basis of advice from independent counsel that
such action is necessary or appropriate in order for such
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Board of Directors to act in a manner which is consistent with its fiduciary
obligations under applicable law.
IX.2 Effect of Termination. If this Agreement is validly terminated
by either the Company or Parent pursuant to Section 0, this Agreement will
forthwith become null and void and there will be no liability or obligation on
the part of either the Company or Parent (or any of their respective
Representatives or affiliates), except (a) that the provisions of Sections 0
(b), 0,0,0 and will continue to apply following any such termination and (b)
that nothing contained herein shall relieve any party hereto from liability for
willful breach of its representations, warranties, covenants or agreements
contained in this Agreement. Notwithstanding the foregoing and the provisions of
Section 0, upon a termination by the Company pursuant to Section in the event
that the Company engages in a sale to a third party similar to the transaction
contemplated by this Agreement, Company shall pay Parent liquidated damages in
the amount of fifty percent (50%) of the difference between (i) the aggregate
Exchange Consideration which would have been issued hereunder had the Effective
Time occurred on such date of termination and (ii) the consideration received by
the Company upon such sale, up to a maximum of two million dollars ($2,000,000).
IX.3 Amendment. This Agreement may be amended, supplemented or
modified by action taken by or on behalf of the respective Boards of Directors
of the parties hereto at any time prior to the Effective Time, whether prior to
or after the Company Shareholders' Approval, but after such Company
Shareholders' Approval, only to the extent permitted by applicable law. No such
amendment, supplement or modification shall be effective unless set forth in a
written instrument duly executed by or on behalf of each party hereto.
IX.4 Waiver. At any time prior to the Effective Time any party
hereto, by action taken by or on behalf of its Board of Directors, may to the
extent permitted by applicable law (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of the other parties hereto
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the covenants, agreements or conditions of the other
parties hereto contained herein. No such extension or waiver shall be effective
unless set forth in a written instrument duly executed by or on behalf of the
party extending the time of performance or waiving any such inaccuracy or
non-compliance. No waiver by any party of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion.
ARTICLE X
INDEMNIFICATION AND ESCROW
X.1 Survival of Representations and Warranties.
(a) The representations and warranties contained in Articles and of
this Agreement shall not survive the Merger but shall terminate at the Effective
Time, except for the representations and warranties (each as modified by the
Company Disclosure Letter or the Parent Disclosure Letter, as the case may be)
contained in Sections 0, 3.6, 0, 3.8, 0, 3.17, 0, 0, 0, 4.6, 0, 4.9, 4.11, 0 and
0, which shall survive the Effective Time. The waiver of any condition based on
the accuracy of any representation or
33
<PAGE> 40
warranty, or the performance or compliance of any covenant or obligation, will
not affect the right to indemnification set forth in this Article 0.
(b) Except as provided in Section , no shareholder or optionholder
of the Company or the Parent shall have any liability hereunder except for his
or her own personal, actual fraud.
X.2 Indemnification of Parent.
(a) Subject to the provisions of this Article 0, the Parent shall be
indemnified after the Effective Time from and against any and all damage, loss,
liability and expense (including without limitation reasonable expenses of
investigation and reasonable attorneys' fees and reasonable expenses in
connection with any action, suit or proceeding) incurred or suffered or
reasonably expected to be incurred or suffered by the Parent arising out of any
breach of the representations, warranties, covenants or agreements of the
Company set forth herein (the "Parent Primary Indemnifiable Damages").
Notwithstanding the foregoing, Parent shall not be entitled to indemnification
hereunder until the Parent Primary Indemnifiable Damages exceed $100,000 and
thereafter shall be entitled to indemnification for all Parent Indemnifiable
Damages subject to the provisions hereof. Subject to the terms of Sections
10.3(b) and 10.5 of this Agreement, upon compliance with the terms hereof and
the terms of the Primary Escrow Agreement, Parent shall be entitled to obtain
indemnification from the Primary Escrow Fund (as defined in Section 0) of all
Parent Primary Indemnifiable Damages.
(b) Subject to the provisions of this Article 0, the Parent shall be
indemnified after the Effective Time from and against any Parent Secondary
Indemnifiable Damages, as defined in the Secondary Escrow Agreement ("Parent
Secondary Indemnifiable Damages"). Subject to the terms of Sections 10.3(b) and
10.5 of this Agreement, upon compliance with the terms hereof and the terms of
the Secondary Escrow Agreement, Parent shall be entitled to obtain
indemnification from the Secondary Escrow Fund (as defined in Section 0) of all
Parent Secondary Indemnifiable Damages.
(c) Parent agrees that the sole and exclusive remedy of Parent
against the Company and its shareholders for any damage, loss, liability or
expense under this Agreement or in connection with the transactions contemplated
hereunder shall be limited to the Primary Escrow Fund or the Secondary Escrow
Fund, as applicable.
X.3 Escrow Fund.
(a) The Primary Escrow Shares and the Secondary Escrow Shares shall
be registered in the names of the shareholders of the Company or in the name of
the Holders' Representative, as agent for such shareholders, but shall be
deposited (together with assignments in blank executed by the registered
holder(s) of the Company) with an institution selected by Parent with the
reasonable consent of the Holders' Representative or a majority in interest of
the Company's shareholders as the Escrow Agent, such deposits to constitute,
respectively, an escrow fund to be governed by the terms set forth herein and in
the Primary Escrow Agreement (the "Primary Escrow Fund"), and an escrow fund to
be governed by the terms set forth herein and in the Secondary Escrow Agreement
(the "Secondary Escrow Fund"). The adoption and approval of this Agreement by
the Company's shareholders shall constitute approval of each of the Primary
Escrow Agreement and the Secondary Escrow Agreement and of all of the
arrangements relating thereto, including without limitation the placement of the
Primary Escrow Shares and the Secondary Escrow Shares in escrow and the
appointment of the Holders' Representative to act for and on behalf of the
shareholders of the Company to give and receive notices and communications, to
authorize
34
<PAGE> 41
delivery of any of the Primary Escrow Shares or the Secondary Escrow Shares from
the Primary Escrow Fund or the Secondary Escrow Fund, as the case may be, in
satisfaction of claims by the Parent, to object to such deliveries, to agree to,
negotiate and enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of such
representative for the accomplishment of the foregoing.
(b) At any time on or before ninety (90) days after the Effective
Date (the "Primary Indemnification Period"), if Parent makes a claim for Parent
Primary Indemnifiable Damages and is entitled to indemnification pursuant to
Section 0 hereof, the Escrow Agent shall, upon compliance with the procedures
set forth in the Primary Escrow Agreement, release to Parent such amount from
the Primary Escrow Fund that is equal in value to such Parent Primary
Indemnifiable Damages. Primary Escrow Shares so released shall be valued as set
forth in Section 2 of the Primary Escrow Agreement. Upon a distribution by the
Escrow Agent to Parent pursuant to this Section, the Primary Escrow Fund will be
correspondingly reduced.
(c) At any time until the earlier of (i) November 1, 1997 or (ii)
the termination of the Secondary Escrow Agreement pursuant to the terms thereof
(the "Secondary Indemnification Period"), if Parent makes a claim for Parent
Secondary Indemnifiable Damages and is entitled to indemnification pursuant to
the terms set forth in the Secondary Escrow Agreement, the Escrow Agent shall,
upon compliance with the procedures set forth in the Secondary Escrow Agreement,
release to Parent such amount from the Secondary Escrow Fund that is equal in
value to such Parent Secondary Indemnifiable Damages. Secondary Escrow Shares so
released shall be valued as set forth in Section 2 of the Secondary Escrow
Agreement. Upon a distribution by the Escrow Agent to Parent pursuant to this
Section, the Secondary Escrow Fund will be correspondingly reduced.
X.4 Indemnification by Parent. Subject to the provisions of this
Article 0, the Parent agrees to indemnify the shareholders of Company after the
Effective Time from and against any and all damage, loss, liability and expense
(including without limitation reasonable expenses of investigation and
reasonable attorneys' fees and reasonable expenses in connection with any
action, suit or proceeding) incurred or suffered or reasonably expected to be
incurred or suffered by the shareholders of the Company arising out of any
breach of the representation and warranty of the Parent contained in Section 0
hereof (the "Company Indemnifiable Damages"). Parent shall reimburse the
shareholders of the Company for any Company Indemnifiable Damages to which this
Section 0 relates only if a claim for indemnification is made by the
shareholders of the Company within the Indemnification Period.
X.5 Indemnification Procedure. A party seeking indemnification (the
"Indemnitee") shall use its best efforts to minimize any liabilities, damages,
deficiencies, claims, judgments, assessments, costs and expenses in respect of
which indemnity may be sought under this Agreement. The Indemnitee shall give
prompt written notice to the party from whom indemnification is sought (the
"Indemnitor") of the assertion of a claim for indemnification, but in no event
longer than (a) thirty (30) days after service of process in the event
litigation is commenced against the Indemnitee by a third party, or (b) sixty
(60) days after the assertion of such claim, or (c) ninety (90) days after the
Effective Date, whichever shall first occur. No such notice of assertion of a
claim shall satisfy the requirements of this Section unless it describes in
reasonable detail and in good faith the facts and circumstances upon which the
asserted claim for indemnification is based. If any action or proceeding shall
be brought in connection with any liability or claim to be indemnified
hereunder, the Indemnitee shall provide the Indemnitor twenty (20) calendar days
to decide whether to defend such liability or claim. During such period, the
Indemnitee
35
<PAGE> 42
shall take all necessary steps to protect the interests of itself and the
Indemnitor, including the filing of any necessary responsive pleadings, the
seeking of emergency relief or other action necessary to maintain the status
quo, subject to reimbursement from the Indemnitor of its expenses in doing so.
The Indemnitor shall (with, if necessary, reservation of rights) defend such
action or proceeding at its expense, using counsel selected by the insurance
company insuring against any such claim and undertaking to defend such claim, or
by other counsel selected by it and approved by the Indemnitee, which approval
shall not be unreasonably withheld or delayed. The Indemnitor shall keep the
Indemnitee fully apprised at all times of the status of the defense and shall
consult with the Indemnitee prior to the settlement of any indemnified matter.
The Indemnitee agrees to use reasonable efforts to cooperate with the Indemnitor
in connection with its defense of indemnifiable claims. In the event the
Indemnitee has a claim or claims against any third party arising out of or
connected with the indemnified matter, then upon receipt of indemnification, the
Indemnitee shall fully assign to the Indemnitor the entire claim or claims to
the extent of the indemnification actually paid by the Indemnitor and the
Indemnitor shall thereupon be subrogated with respect to such claim or claims of
the Indemnitee.
X.6 Indemnification of Holders' Representative. The Holders'
Representative shall be indemnified and held harmless by the Escrow Fund for any
loss, liability or expense incurred without gross negligence, bad faith or
willful misconduct on the part of the Holders' Representative, for anything done
or omitted by the Holders' Representative in connection with his or her service
as Holders' Representative, including the reasonable costs and expenses of
defending against any claim of liability arising therefrom, directly or
indirectly ("Representative Indemnifiable Damages"). Notwithstanding the
foregoing, for the first ninety (90) days after the Effective Time, the Holders'
Representative shall not be entitled to receive more than $100,000 from the
Escrow Fund. Thereafter, the Holders' Representative shall not be entitled to
receive amounts in excess of the balance of the Escrow Fund reduced by the
amount of any claims against such Fund by Parent. To the extent the
Representative Indemnifiable Damages exceed the amount the Holders'
Representative may obtain from the Escrow Fund, the Company shareholders shall
indemnify the Holders' Representative.
ARTICLE XI
GENERAL PROVISIONS
XI.1 Knowledge. With respect to any representations or warranties
contained herein which are made to the knowledge of the Company or Parent or any
of their respective Subsidiaries, as the case may be, the knowledge of the
officers, directors and employees of the Company or Parent, as the case may be,
and of the officers, directors and employees of its respective Subsidiaries,
shall be imputed to the Company or Parent, as the case may be, and such
Subsidiaries.
XI.2 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Parent or Sub, to:
FPA Medical Management, Inc.
3636 Nobel Drive, Suite 200
San Diego, California 92122
36
<PAGE> 43
Attn: James A. Lebovitz, Esq.
Facsimile No.: (619) 453-1941
If to the Company, to:
HealthCap, Inc.
9605 Scranton Road, Suite 850
San Diego, CA 92121
Attn: President
Facsimile No.: (619) 677-2953
with a copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
Attn: Richard S. Grey, Esq.
Facsimile No.: (415) 983-1200
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other person to whom a
copy of such notice, request or other communication is to be delivered pursuant
to this Section). Any party from time to time may change its address, facsimile
number or other information for the purpose of notices to that party by giving
notice specifying such change to the other parties hereto.
XI.3 Entire Agreement. This Agreement supersedes all prior
discussions and agreements among the parties hereto with respect to the subject
matter hereof and contains the sole and entire agreement among the parties
hereto with respect to the subject matter hereof.
XI.4 Public Announcements. Except as otherwise required by law or
the rules of the Nasdaq National Market, so long as this Agreement is in effect,
Parent and the Company will not, and will not permit any of their respective
Representatives to, issue or cause the publication of any press release or make
any other public announcement with respect to the transactions contemplated by
this Agreement without the consent of the other party, which consent shall not
be unreasonably withheld. Parent and the Company will cooperate with each other
in the development and distribution of all press releases and other public
announcements with respect to this Agreement and the transactions contemplated
hereby, and will furnish the other with drafts of any such releases and
announcements as far in advance as practicable.
XI.5 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and except as provided in Sections
0, 0, 0 and 0 (which are intended to be for the benefit of the persons entitled
to therein, and may be enforced by any of such persons) it is not the intention
of the parties to confer third-party beneficiary rights upon any other person.
37
<PAGE> 44
XI.6 No Assignment; Binding Effect. Neither this Agreement nor any
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other parties hereto and any attempt to
do so will be void, except that Sub may assign any or all of its rights,
interests and obligations hereunder to another direct or indirect wholly owned
Subsidiary of Parent, provided that any such Subsidiary agrees in writing to be
bound by all of the terms, conditions and provisions contained herein. Subject
to the preceding sentence, this Agreement is binding upon, inures to the benefit
of and is enforceable by the parties hereto and their respective successors and
assigns.
XI.7 Headings. The headings used in this Agreement have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
XI.8 Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
XI.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to a
contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
XI.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
38
<PAGE> 45
IN WITNESS WHEREOF, each party hereto has caused this Agreement to
be signed by its officer thereunto duly authorized as of the date first above
written.
FPA MEDICAL MANAGEMENT, INC.
By:
------------------------------------
Title:
---------------------------------
FPA ACQUISITION CORP.
By:
------------------------------------
Title:
---------------------------------
HEALTHCAP, INC.
By:
------------------------------------
Robert B. McCray
President and Chief Executive Officer
39
<PAGE> 46
AUTO REFERENCES - DO NOT DELETE THESE PAGES
Reference Name Current Section Original Section
merger Article 0 1
exchange Article 0 2
representations Article 0 3
representations and Article 0 4
covenants Article 0 5
covenants of Article 0 6
additional Article 0 7
conditions Article 0 8
termination amendment Article 0 9
general Article 0 10
general provisions Article 0 11
the merger 0 1.1
effective 0 1.2
closing 0 1.3
exchange of 0 2.1
capital stock 0 2.1(a)
cancellation 0 2.1(b)
exchange consideration 0 2.1(c)
company option 0 2.1(e)
escrow 0 2.1(f)
procedures 0 2.2
exchange agent 0 2.2(a)
exchange procedures 0 2.2(b)
fractional 0 2.2(e)
organization 0 3.1
capital (a) 0 3.2(a)
capital (b) 0 3.2(b)
noncontravention (a) 0 3.4(a)
noncontravention (b) 0 3.4(b)
financial 0 3.5
taxes 0 3.10
employee benefit 0 3.11
permits 0 3.17
organization and 0 4.1
capital stock (a) 0 4.2(a)
noncontravention 0 4.4
sec 0 4.5
full disclosure 0 4.14
access to information 0 7.1
access (a) 0 7.1(a)
registration 0 7.2
approval 0 7.4
inclusion of shares on nasdaq 0 7.5
40
<PAGE> 47
gateway acquisition 0 7.6
regulatory 0 7.7
company employees 0 7.8
directors 0 7.9
expenses 0 7.10
pooling of interest 0 7.11
standstill 0 7.13
notice and cure 0 7.14
no solicitations 0 7.16
pooling 0 8.1(f)
termination 0 9.1
termination (c) 0 9.1(c)
reps & warranties/liabilities 0 10.1(b)
indemnification 0 10.2
parent indemnification 0 10.4
escrow fund 0 10.3
indemnification procedures 0 10.5
41
<PAGE> 1
EXHIBIT 10.32
================================================================================
CREDIT AGREEMENT
among
FPA MEDICAL MANAGEMENT, INC.
The Several Lenders
from Time to Time Parties Hereto
LEHMAN COMMERCIAL PAPER INC.,
as Arranger and Syndication Agent
and
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent
Dated as of June 30, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1. DEFINITIONS......................................................................................... 1
1.1 Defined Terms........................................................................... 1
1.2 Other Definitional Provisions........................................................... 20
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS..................................................................... 20
2.1 Revolving Credit Commitments............................................................ 20
2.2 Procedure for Revolving Credit Borrowing................................................ 21
2.3 Term Loans.............................................................................. 21
2.4 Procedure for Term Loan Borrowing....................................................... 21
2.5 Repayment of Loans; Evidence of Debt.................................................... 22
2.6 Commitment Fee; Other Fees.............................................................. 23
2.7 Termination or Reduction of Revolving Credit
Commitments.......................................................................... 23
2.8 Optional Prepayments.................................................................... 23
2.9 Mandatory Prepayments and Commitment Reductions......................................... 24
2.10 Conversion and Continuation Options.................................................... 25
2.11 Minimum Amounts and Maximum Number of Eurodollar
Tranches............................................................................. 25
2.12 Interest Rates and Payment Dates....................................................... 26
2.13 Computation of Interest and Fees....................................................... 26
2.14 Inability to Determine Interest Rate................................................... 26
2.15 Pro Rata Treatment and Payments; Use of Proceeds....................................... 27
2.16 Illegality............................................................................. 28
2.17 Requirements of Law.................................................................... 28
2.18 Taxes.................................................................................. 29
2.19 Indemnity.............................................................................. 31
2.20 Change of Lending Office............................................................... 32
SECTION 3. LETTER OF CREDIT.................................................................................... 32
3.1 L/C Commitment.......................................................................... 32
3.2 Procedure for Issuance of Letter of Credit.............................................. 32
3.3 Fees, Commissions and Other Charges..................................................... 33
3.4 L/C Participations...................................................................... 33
3.5 Reimbursement Obligation of the Borrower................................................ 34
3.6 Obligations Absolute.................................................................... 34
3.7 Letter of Credit Payments............................................................... 35
3.8 Applications............................................................................ 35
SECTION 4. REPRESENTATIONS AND WARRANTIES...................................................................... 35
4.1 Financial Condition..................................................................... 35
4.2 No Change............................................................................... 36
4.3 Corporate Existence; Compliance with Law................................................ 36
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
4.4 Corporate Power; Authorization; Enforceable Obligations................................. 36
4.5 No Legal Bar............................................................................ 37
4.6 No Material Litigation.................................................................. 37
4.7 No Default.............................................................................. 37
4.8 Ownership of Property; Liens; Real Property Interests................................... 37
4.9 Intellectual Property................................................................... 37
4.10 No Burdensome Restrictions............................................................. 38
4.11 Taxes.................................................................................. 38
4.12 Federal Regulations.................................................................... 38
4.13 ERISA.................................................................................. 38
4.14 Investment Company Act; Other Regulations.............................................. 39
4.15 Subsidiaries; Succession Agreements; Administrative
Services Agreements; Agreements with Payors.......................................... 39
4.16 Purpose of Loans....................................................................... 39
4.17 Environmental Matters.................................................................. 39
4.18 Accuracy of Information................................................................ 40
4.19 Security Documents..................................................................... 41
4.20 Solvency............................................................................... 41
4.21 Senior Indebtedness.................................................................... 41
SECTION 5. CONDITIONS PRECEDENT................................................................................ 41
5.1 Conditions to Initial Extension of Credit............................................... 41
5.2 Conditions to Each Loan................................................................. 44
SECTION 6. AFFIRMATIVE COVENANTS............................................................................... 45
6.1 Financial Statements.................................................................... 45
6.2 Certificates; Other Information......................................................... 45
6.3 Payment of Obligations.................................................................. 46
6.4 Conduct of Business and Maintenance of Existence, etc................................... 46
6.5 Maintenance of Property; Insurance...................................................... 47
6.6 Inspection of Property; Books and Records; Discussions.................................. 47
6.7 Notices................................................................................. 47
6.8 Environmental Laws...................................................................... 48
6.9 Interest Rate Protection................................................................ 48
6.10 Further Assurances..................................................................... 48
6.11 Additional Collateral.................................................................. 48
6.12 Succession Agreements.................................................................. 49
6.13 Post-Closing Matters................................................................... 49
SECTION 7. NEGATIVE COVENANTS.................................................................................. 50
7.1 Financial Condition Covenants........................................................... 50
7.2 Limitation on Indebtedness.............................................................. 51
7.3 Limitation on Liens..................................................................... 52
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.4 Limitation on Guarantee Obligations..................................................... 53
7.5 Limitation on Fundamental Changes....................................................... 53
7.6 Limitation on Sale of Assets............................................................ 54
7.7 Limitation on Restricted Payments....................................................... 54
7.8 Limitation on Capital Expenditures...................................................... 54
7.9 Limitation on Investments, Loans and Advances........................................... 55
7.10 Limitation on Optional Payments and Modifications of
Debt Instruments etc................................................................. 55
7.11 Limitation on Transactions with Affiliates............................................. 55
7.12 Limitation on Sales and Leasebacks..................................................... 55
7.13 Limitation on Changes in Fiscal Year................................................... 56
7.14 Limitation on Negative Pledge Clauses.................................................. 56
7.15 Limitation on Lines of Business........................................................ 56
SECTION 8. EVENTS OF DEFAULT................................................................................... 56
SECTION 9. THE AGENTS.......................................................................................... 59
9.1 Appointment............................................................................. 59
9.2 Delegation of Duties.................................................................... 59
9.3 Exculpatory Provisions.................................................................. 59
9.4 Reliance by Agents...................................................................... 60
9.5 Notice of Default....................................................................... 60
9.6 Non-Reliance on Agents and Other Lenders................................................ 61
9.7 Indemnification......................................................................... 61
9.8 Agents in Their Individual Capacities................................................... 61
9.9 Successor Agents........................................................................ 62
SECTION 10. MISCELLANEOUS...................................................................................... 62
10.1 Amendments and Waivers................................................................. 62
10.2 Notices................................................................................ 63
10.3 No Waiver; Cumulative Remedies......................................................... 64
10.4 Survival............................................................................... 64
10.5 Payment of Expenses and Taxes.......................................................... 64
10.6 Successors and Assigns; Participations and Assignments................................. 65
10.7 Adjustments; Set-off................................................................... 68
10.8 Counterparts........................................................................... 68
10.9 Severability........................................................................... 68
10.10 Integration........................................................................... 68
10.11 GOVERNING LAW......................................................................... 69
10.12 Submission To Jurisdiction; Waivers................................................... 69
10.13 Acknowledgements...................................................................... 69
10.14 WAIVERS OF JURY TRIAL................................................................. 70
10.15 Confidentiality....................................................................... 70
</TABLE>
- iii -
<PAGE> 5
ANNEXES
<TABLE>
<S> <C>
Annex I Pricing Grid
Annex II Term Loan Amortization Schedule
SCHEDULES
Schedule I Lenders, Notice Information and Commitments
Schedule 4.15(a) Subsidiaries
Schedule 4.15(b) Succession Agreements
Schedule 4.15(c) Administrative Services Agreements
Schedule 4.15(d) Payor Agreements
Schedule 6.13 Post-Closing Matters
Schedule 7.2(e) Certain Indebtedness
Schedule 7.3(f) Certain Liens
Schedule 7.4(a) Certain Guarantee Obligations
EXHIBITS
Exhibit A-1 Form of Revolving Credit Note
Exhibit A-2 Form of Term Note
Exhibit B Form of Master Guarantee and Collateral Agreement
Exhibit C Form of Closing Certificate
Exhibit D-1 Form of Opinion of James A. Lebovitz, Esq.
Exhibit D-2 Form of Legal Opinion of Pillsbury Madison & Sutro LLP
Exhibit D-3 Matters to be Covered by Legal Opinions of Local Counsel
Exhibit D-4 Form of Legal Opinion of Foley, Lardner, Weissburg & Aronson
Exhibit E-1 Form of Consent and Acknowledgment (Administrative Services
Agreements)
Exhibit E-2 Form of Consent and Acknowledgment (Succession Agreements)
Exhibit F Form of Assignment and Acceptance
Exhibit G Exemption Certificate
Exhibit H-1 Form of Administrative Services Agreement
Exhibit H-2 Form of Administrative Services Agreement
Exhibit I Form of Succession Agreement
</TABLE>
- iv -
<PAGE> 6
CREDIT AGREEMENT, dated as of June 30, 1997, among FPA MEDICAL
MANAGEMENT, INC., a Delaware corporation (the "Borrower"), the several banks and
other financial institutions from time to time parties to this Agreement (the
"Lenders"), LEHMAN COMMERCIAL PAPER INC., as arranger and syndication agent (in
such capacity, the "Arranger") and LEHMAN COMMERCIAL PAPER INC., as
administrative agent for the Lenders hereunder.
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Lenders to make
available credit facilities to provide financing for the repayment of certain
existing indebtedness of the Borrower and its Subsidiaries and for working
capital and general corporate purposes; and
WHEREAS, the Lenders are willing to make such credit
facilities available upon and subject to the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Adjustment Date": each date that is the second Business Day
following receipt by the Lenders of both (i) the financial statements
required to be delivered pursuant to Section 6.1(a) or 6.1(b), as
applicable, for the most recently completed fiscal period and (ii) the
related compliance certificate required to be delivered pursuant to
Section 6.2(b) with respect to such fiscal period; provided, that the
Closing Date shall be deemed to be the first Adjustment Date, and
determinations on the Closing Date shall be based upon the financial
statements of the Borrower for the period ended March 31, 1997.
"Administrative Agent": Lehman Commercial Paper Inc., together
with its affiliates, as the administrative agent for the Lenders under
this Agreement and the other Loan Documents, and any of its respective
successors in such capacity.
"Administrative Services Agreement": each Administrative
Services Agreement listed in Schedule 4.15(c) in effect on the Closing
Date, and each Administrative Services Agreement entered into after the
Closing Date, in each case between an Affiliated Professional
Corporation and the Borrower or one of its Subsidiaries (not an
Affiliated Professional Corporation), each of which is substantially in
the form of Exhibits H-1 or H-2.
<PAGE> 7
2
"Affiliate": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, such Person. For
purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management
and policies of such Person, whether by contract or otherwise.
"Affiliated Professional Corporation": each professional
corporation engaged in the practice of medicine that is affiliated
with the Borrower through an Administrative Services Agreement to
which such professional corporation and the Borrower or one of its
Subsidiaries (not an Affiliated Professional Corporation) are parties.
"Agents": the collective reference to the Arranger and the
Administrative Agent.
"Aggregate Outstanding Revolving Extensions of Credit": as to
any Revolving Credit Lender at any time, an amount equal to the sum of
(a) the aggregate principal amount of all Revolving Credit Loans made
by such Lender then outstanding and (b) such Lender's Revolving Credit
Percentage of the L/C Obligations then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented
or otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, for each day from
and after the first Adjustment Date, the applicable rate per annum set
forth under the heading "Applicable Margin for Revolving Credit Loans"
or "Applicable Margin for Term Loans", as the case may be on Annex I
which corresponds to the Consolidated Leverage Ratio as determined from
the financial statements and compliance certificate relating to the end
of the fiscal period immediately preceding the most recent Adjustment
Date; the Applicable Margin determined on each Adjustment Date will be
adjusted on subsequent Adjustment Dates in accordance with Annex I;
provided, that (a) the Applicable Margin in effect until the Adjustment
Date relating to the financial statements for the period ending
December 31, 1997 shall be the higher of (i) the Applicable Margin
determined in accordance with Annex I and (ii) the Applicable Margin
which corresponds to the Consolidated Leverage Ratio of > 3.50 to 1.00,
and (b) in the event that the financial statements required to be
delivered pursuant to Section 6.1(a) or 6.1(b), as applicable, and the
related compliance certificate required to be delivered pursuant to
Section 6.2(b), are not delivered when due, then
i) if such financial statements and compliance
certificate are delivered after the date such financial
statements and compliance certificate were required to be
delivered (without giving effect to any applicable cure
period) and the Applicable Margin increases from that
previously in effect as a result of the delivery of such
financial statements, then the Applicable Margin
<PAGE> 8
3
during the period from the date upon which such financial
statements were required to be delivered (without giving
effect to any applicable cure period) until the date upon
which they actually are delivered shall, except as otherwise
provided in clause (iii) below, be the Applicable Margin as
so increased;
ii) if such financial statements and compliance
certificate are delivered after the date such financial
statements and compliance certificate were required to be
delivered and the Applicable Margin decreases from that
previously in effect as a result of the delivery of such
financial statements, then such decrease in the Applicable
Margin shall not become applicable until the date upon which
the financial statements and certificate actually are
delivered; and
iii) if such financial statements and compliance
certificate are not delivered prior to the expiration of the
applicable cure period, then, effective upon such expiration,
for the period from the date upon which such financial
statements and compliance certificate were required to be
delivered (after the expiration of the applicable cure period)
until two Business Days following the date upon which they
actually are delivered, the Applicable Margin shall be that
applicable to the Consolidated Leverage Ratio of > 4.00 to
1.00 (it being understood that the foregoing shall not limit
the rights of the Administrative Agent and the Lenders set
forth in Section 8).
"Application": an application, in such form as the Issuing
Lender may specify, requesting the Issuing Lender to issue the Letter
of Credit.
"Asset Sale": any sale or other disposition by the Borrower or
any of its Subsidiaries of any asset or assets of the Borrower or such
Subsidiary (including any sale and leaseback of assets and any mortgage
of real property); provided, that any sale of assets expressly
permitted by clauses (a), (b), (c) or (d) of Section 7.6 shall not
constitute an "Asset Sale" hereunder.
"Assignee": as defined in Section 10.6(c).
"Available Revolving Credit Commitment": as to any Revolving
Credit Lender at any time, an amount equal to the excess, if any, of
(a) the amount of such Revolving Credit Lender's Revolving Credit
Commitment over (b) such Lender's Aggregate Outstanding Revolving
Extensions of Credit.
"Base CD Rate": the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate.
"Base Rate": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the
Prime Rate in effect on such day,
<PAGE> 9
4
(b) the Base CD Rate in effect on such day plus 1%, and (c) the
Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For
purposes hereof: "Prime Rate" shall mean the rate of interest per
annum publicly announced from time to time by Citibank, N.A. as its
prime or base rate in effect at its principal office in New York
City; and "Federal Funds Effective Rate" shall mean, for any day, the
weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Administrative Agent from
three federal funds brokers of recognized standing selected by it. Any
change in the Base Rate due to a change in the Prime Rate, the Base CD
Rate or the Federal Funds Effective Rate shall be effective as of the
opening of business on the effective day of such change in the Prime
Rate, the Base CD Rate or the Federal Funds Effective Rate,
respectively.
"Base Rate Loans": Loans the rate of interest applicable to
which is based upon the Base Rate.
"Borrowing Date": any Business Day specified in a notice
pursuant to Section 2.2 or 2.6 as a date on which the Borrower
requests the Lenders to make Loans hereunder.
"Business": as defined in Section 4.17.
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required by law to close.
"Capital Expenditures": for any period, with respect to any
Person, the aggregate of all expenditures by such Person and its
Subsidiaries for the acquisition or leasing (pursuant to a capital
lease) of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period)
which should be capitalized under GAAP on a consolidated balance sheet
of such Person and its Subsidiaries.
"Capital Stock": any and all shares, interests,
participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in
a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
"Cash Equivalents": (a) securities with maturities of one
year or less from the date of acquisition issued or fully guaranteed
or insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities
of one year or less from the date of acquisition and overnight bank
deposits of any Lender or of any commercial bank having capital and
surplus in excess of $500,000,000, (c) repurchase obligations of any
Lender or of any commercial
<PAGE> 10
5
bank satisfying the requirements of clause (b) of this definition,
having a term of not more than 30 days with respect to securities
issued or fully guaranteed or insured by the United States Government,
(d) commercial paper of a domestic issuer rated at least A-2 by
Standard and Poor's Rating Group ("S&P") or P-2 by Moody's Investors
Service, Inc. ("Moody's"), (e) securities with maturities of one year
or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any
political subdivision or taxing authority of any such state,
commonwealth or territory or by any foreign government, the securities
of which state, commonwealth, territory, political subdivision, taxing
authority or foreign government (as the case may be) are rated at
least A by S&P or A by Moody's, (f) securities with maturities of one
year or less from the date of acquisition backed by standby letters of
credit issued by any Lender or any commercial bank satisfying the
requirements of clause (b) of this definition or (g) shares of money
market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this
definition.
"C/D Assessment Rate": for any day as applied to any Base Rate
Loan, the annual assessment rate in effect on such day which is payable
by a member of the Bank Insurance Fund maintained by the Federal
Deposit Insurance Corporation (the "FDIC") classified as
well-capitalized and within supervisory subgroup "B" (or a comparable
successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4 (or any successor provision) to the FDIC (or any
successor) for the FDIC's (or such successor's) insuring time deposits
at offices of such institution in the United States.
"C/D Reserve Percentage": for any day as applied to any Base
Rate Loan, that percentage (expressed as a decimal) which is in effect
on such day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) (the "Board"), for determining the
maximum reserve requirement for a Depositary Institution (as defined in
Regulation D of the Board) in respect of new non-personal time deposits
in Dollars having a maturity of 30 days or more.
"Change of Control": a Change of Control shall be deemed to
occur (a) if a "change of control" (as defined in the Convertible
Debenture Indenture) shall occur; (b) if a "person" (including any
syndicate or group deemed to be a "person" under Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934) becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of more than 20% of the then outstanding voting
stock of the Borrower; or (c) if the majority of the Board of Directors
of the Borrower shall not be Continuing Directors of the Borrower. For
purposes of this definition, "Continuing Directors" means, on any date,
(i) individuals who on the date one year prior to such date were
members of the Borrower's Board of Directors and (ii) any new Directors
whose nomination for election by the Borrower's shareholders was
approved by a vote of at least a majority of the Directors then still
in office who either were Directors on the date one year prior to such
date or whose nomination for election was previously so approved.
<PAGE> 11
6
"Closing Date": the date on which the conditions precedent
set forth in Section 5.1 shall be satisfied.
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral": all assets of the Loan Parties, now owned or
hereinafter acquired, upon which a Lien is purported to be created by
any Security Document.
"Commitment": as to any Lender, the sum of the Revolving
Credit Commitment of such Lender and the Term Loan Commitment of such
Lender.
"Commitment Fee Rate": for each day from and after the first
Adjustment Date, the applicable rate per annum set forth under the
heading "Commitment Fee Rate" on Annex I which corresponds to the
Consolidated Leverage Ratio as determined from the financial statements
and compliance certificate relating to the end of the fiscal period
immediately preceding the most recent Adjustment Date; the Commitment
Fee Rate determined on each Adjustment Date will be adjusted on
subsequent Adjustment Dates in accordance with Annex I; provided, that
(a) the Commitment Fee Rate in effect until the Adjustment Date
relating to the financial statements for the period ending December 31,
1997 shall be the higher of (i) the Commitment Fee Rate determined in
accordance with Annex I and (ii) the Commitment Fee Rate which
corresponds to the Consolidated Leverage Ratio of > 3.50 to 1.00, and
(b) in the event that the financial statements required to be delivered
pursuant to Section 6.1(a) or 6.1(b), as applicable, and the related
compliance certificate required to be delivered pursuant to Section
6.2(b), are not delivered when due, then
(i) if such financial statements and compliance
certificate are delivered after the date such financial
statements and compliance certificate were required to be
delivered (without giving effect to any applicable cure
period) and the Commitment Fee Rate increases from that
previously in effect as a result of the delivery of such
financial statements, then the Commitment Fee Rate during the
period from the date upon which such financial statements were
required to be delivered (without giving effect to any
applicable cure period) until the date upon which they
actually are delivered shall, except as otherwise provided in
clause (iii) below, be the Commitment Fee Rate as so
increased;
(ii) if such financial statements and compliance
certificate are delivered after the date such financial
statements and compliance certificate were required to be
delivered and the Commitment Fee Rate decreases from that
previously in effect as a result of the delivery of such
financial statements, then such decrease in the Commitment Fee
Rate shall not become applicable until the date upon which the
financial statements and certificate actually are delivered;
and
<PAGE> 12
7
(iii) if such financial statements and compliance
certificate are not delivered prior to the expiration of the
applicable cure period, then, effective upon such expiration,
for the period from the date upon which such financial
statements and compliance certificate were required to be
delivered (after the expiration of the applicable cure period)
until two Business Days following the date upon which they
actually are delivered, the Commitment Fee Rate shall be
that applicable to the Consolidated Leverage Ratio of > 4.00
to 1.00 (it being understood that the foregoing shall not
limit the rights of the Administrative Agent and the Lenders
set forth in Section 8).
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"Confidential Information Memorandum": the Confidential
Information Memorandum dated as of June, 1997 with respect to the
Borrower and the credit facilities provided for herein.
"Consolidated EBITDA": for any period, Consolidated Net Income
for such period plus, without duplication and to the extent reflected
as a charge in the statement of such Consolidated Net Income for such
period, the sum of (a) income tax expense, (b) interest expense,
amortization or writeoff of debt discount and debt issuance costs and
commissions, discounts and other fees and charges associated with
Indebtedness (including the Loans), (c) depreciation and amortization
expense, (d) amortization of intangibles (including, but not limited
to, goodwill) and organization costs, (e) any extraordinary expenses or
losses (including, whether or not otherwise includable as a separate
item in the statement of such Consolidated Net Income for such period,
losses on sales of assets outside of the ordinary course of business)
and (f) if applicable, restructuring charges and write-off of goodwill
and minus, to the extent included in the statement of such Consolidated
Net Income for such period, the sum of (a) non-cash interest income,
(b) any extraordinary income or gains (including, whether or not
otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets
outside of the ordinary course of business) and (c) any other noncash
income, all as determined on a consolidated basis; provided, that for
purposes of calculating Consolidated EBITDA for the period of four
consecutive fiscal quarters ending September 30, 1997, Consolidated
EBITDA for such four consecutive fiscal quarters shall be deemed to be
Consolidated EBITDA for the period from January 1, 1997 through
September 30, 1997, multiplied by 4/3.
"Consolidated Interest Coverage Ratio": for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) Consolidated
Interest Expense for such period.
<PAGE> 13
8
"Consolidated Interest Expense": for any period, total
interest expense, both expensed and capitalized, of the Borrower and
its Subsidiaries for such period with respect to all outstanding
Indebtedness of the Borrower and its Subsidiaries (including, without
limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing and
net costs under Interest Rate Protection Agreements to the extent such
net costs are allocable to such period in accordance with GAAP),
determined on a consolidated basis in accordance with GAAP; provided,
that for purposes of calculating Consolidated Interest Expense for the
period of four consecutive fiscal quarters ending September 30, 1997,
Consolidated Interest Expense for such four consecutive fiscal quarters
shall be deemed to be Consolidated Interest Expense for the period from
January 1, 1997 through September 30, 1997, multiplied by 4/3.
"Consolidated Leverage Ratio": as of the last day of any period,
the ratio of (a) Consolidated Total Debt as of such day to (b)
Consolidated EBITDA for the four consecutive fiscal quarters ended on
such day.
"Consolidated Net Income": for any period, the consolidated
net income (or loss) of the Borrower and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP; provided that there
shall be excluded (a) the income (or deficit) of any Person accrued
prior to the date it becomes a Subsidiary of the Borrower or is merged
into or combined with the Borrower or any of its Subsidiaries, (b) the
income (or deficit) of any Person (other than a Subsidiary of the
Borrower) in which the Borrower or any of its Subsidiaries has an
ownership interest, except to the extent that any such income is
actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings
of any Subsidiary of the Borrower to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary is not
at the time permitted by the terms of any Contractual Obligation (other
than under any Loan Document) or Requirement of Law applicable to such
Subsidiary.
"Consolidated Net Worth": at a particular date, all amounts which
would, in conformity with GAAP, be included on a consolidated balance
sheet of the Borrower and its Subsidiaries under stockholders' equity
as of such date.
"Consolidated Senior Debt": all Consolidated Total Debt other
than Subordinated Debt.
"Consolidated Senior Debt Ratio": as of the last day of any
fiscal period, the ratio of (a) Consolidated Senior Debt as of such
day to (b) Consolidated EBITDA for the four consecutive fiscal
quarters ended on such day.
"Consolidated Total Debt": at any date, the aggregate principal
amount of all Funded Debt of the Borrower and its Subsidiaries at such
date, determined on a consolidated basis in accordance with GAAP.
<PAGE> 14
9
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or
any of its property is bound.
"Convertible Debenture Indenture": the Indenture, dated as of
December 18, 1996, between the Borrower and First Union National Bank,
as Trustee, pursuant to which the Convertible Debentures are
outstanding.
"Convertible Debentures": the Borrower's 6-1/2% Convertible
Subordinated Debentures due 2001 in the initial aggregate principal
amount of $80,500,000.
"Default": any of the events specified in Section 8, whether or
not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Environmental Laws": any and all foreign, Federal, state, local
or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other
Requirements of Law (including common law) regulating, relating to or
imposing liability or standards of conduct concerning protection of
human health or the environment, as now or may at any time hereafter
be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained
by a member bank of such System.
"Eurodollar Base Rate": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate of interest
determined on the basis of the rate for deposits in dollars for a
period equal to such Interest Period commencing on the first day of
such Interest Period appearing on Page 3750 of the Telerate Service as
of 11:00 A.M., London time, two Business Days prior to the beginning
of such Interest Period. In the event that such rate does not appear
on Page 3750 of the Telerate Service (or otherwise on such service),
the "Eurodollar Base Rate" shall be determined by reference to such
other publicly available service for displaying eurodollar rates as
may be agreed upon by the Administrative Agent and the Borrower or, in
the absence
<PAGE> 15
10
of such agreement, the "Eurodollar Base Rate" shall instead be the
rate per annum equal to the rate at which the Administrative Agent is
offered Dollar deposits at or about 10:00 A.M., New York City time,
two Business Days prior to the beginning of such Interest Period in
the interbank eurodollar market where the eurodollar and foreign
currency and exchange operations in respect of its Eurodollar Loans
are then being conducted for delivery on the first day of such
Interest Period for the number of days comprised therein and in an
amount comparable to the amount of its Eurodollar Loans to be
outstanding during such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined
for such day in accordance with the following formula (rounded upward
to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar
Loans that are Term Loans or Revolving Credit Loans, as the case may
be, the then current Interest Periods with respect to all of which
begin on the same date and end on the same later date (whether or not
such Loans shall originally have been made on the same day).
"Event of Default": any of the events specified in Section 8,
provided that any requirement for the giving of notice, the lapse of
time, or both, has been satisfied.
"Existing Debt": (i) the indebtedness outstanding under the
Foundation Note and (ii) the indebtedness outstanding under the Credit,
Security, Guaranty and Pledge Agreement, dated as of January 29, 1996,
as amended, among the Borrower, certain Subsidiaries of the Borrower,
the lenders named therein and Banque Paribas, as agent.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the
lessee.
"Foundation Note": the secured consolidated promissory note of
the Borrower dated November 29, 1996 in an amount, including principal
and accrued interest through June 30, 1997, of $99,407,318.98.
"Funded Debt": as to any Person, all Indebtedness of such Person
that matures more than one year from the date of its creation or
matures within one year from such date but is renewable or extendible,
at the option of such Person, to a date more than one year from such
date or arises under a revolving credit or similar agreement that
obligates the lender or lenders to extend credit during a period of
more than one year
<PAGE> 16
11
from such date, including, without limitation, all current maturities
and current sinking fund payments in respect of Indebtedness of such
Person whether or not required to be paid within one year from the
date of its creation and, in the case of the Borrower, all current
maturities in respect of the Loans. Contingent obligations in respect
of the undrawn amount of the Letter of Credit shall not constitute
Funded Debt.
"GAAP": generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Authority": any nation or government, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing
person"), any obligation of (a) the guaranteeing person or (b) another
Person (including, without limitation, any bank under any letter of
credit) to induce the creation of which the guaranteeing person has
issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends or other obligations (the "primary obligations") of
any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation
of the guaranteeing person, whether or not contingent, (i) to purchase
any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (1) for
the purchase or payment of any such primary obligation or (2) to
maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary
course of business. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount
equal to the stated or determinable amount of the primary obligation
in respect of which such Guarantee Obligation is made and (b) the
maximum amount for which such guaranteeing person may be liable
pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for
which such guaranteeing person may be liable are not stated or
determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated
liability in respect thereof as determined by the Borrower in good
faith.
"Indebtedness": of any Person at any date, (a) all indebtedness
of such Person for borrowed money or for the deferred purchase price
of property or services (other than current trade liabilities incurred
in the ordinary course of business and payable in accordance with
customary practices), (b) any other indebtedness of such Person which
<PAGE> 17
12
is evidenced by a note, bond, debenture or similar instrument, (c) all
obligations of such Person under Financing Leases, (d) all
obligations, contingent or otherwise, of such Person as an account
party under acceptance, letter of credit or similar facilities and (e)
all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any Base Rate Loan, the last
day of each March, June, September and December, (b) as to any
Eurodollar Loan having an Interest Period of three months or less, the
last day of such Interest Period, and (c) as to any Eurodollar Loan
having an Interest Period longer than three months, each day which is
three months, or a whole multiple thereof, after the first day of such
Interest Period and the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(a initially, the period commencing on the
borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six
months thereafter, as selected by the Borrower in its notice
of borrowing or notice of conversion, as the case may be,
given with respect thereto; and
(b thereafter, each period commencing on the
last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice
to the Administrative Agent not less than three Business Days
prior to the last day of the then current Interest Period with
respect thereto;
provided that, all of the foregoing provisions relating to Interest
Periods are subject to the following:
i) if any Interest Period pertaining to a
Eurodollar Loan would otherwise end on a day that is not a
Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end
on the immediately preceding Business Day;
ii) any Interest Period in respect of a Revolving
Credit Loan that would otherwise extend beyond the Revolving
Credit Termination Date, or in respect of a Term Loan that
would otherwise extend beyond the date final
<PAGE> 18
13
payment is due on the Term Loans, shall end on the Revolving
Credit Termination Date or such date of final payment, as
the case may be;
iii) any Interest Period pertaining to a Eurodollar
Loan that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a
calendar month;
iv) Any Interest Period commencing prior to the
Syndication Date shall be of one month's duration; and
v) the Borrower shall select Interest Periods so as not
to require a payment or prepayment of any Eurodollar Loan
during an Interest Period for such Loan.
"Interest Rate Protection Agreement": any interest rate
protection agreement, interest rate futures contract, interest
rate option, interest rate cap or other interest rate hedge
arrangement, to or under which the Borrower or any Subsidiary is
a party or a beneficiary on the date hereof or becomes a party or
a beneficiary after the date hereof.
"Interest Rate Protection Agreement Obligation": in respect
of any Person, the obligation of such Person under an Interest
Rate Protection Agreement to make a payment to the counterparty
thereto in the event of a termination event or similar occurrence
thereunder.
"Issuing Lender": the Lender selected by the Borrower and
the Arranger, with the approval of such Lender, to issue the
Letter of Credit, in its capacity as issuer of the Letter of
Credit.
"L/C Commitment": $30,000,000.
"L/C Fee Payment Date": the last day of each March, June,
September and December and the last day of the Revolving Credit
Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum
of (a) the aggregate then undrawn and unexpired amount of the
then outstanding Letter of Credit and (b) the aggregate amount of
drawings under the Letter of Credit which have not then been
reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the
Revolving Credit Lenders other than the Issuing Lender.
"Letter of Credit": as defined in Section 3.1(a).
<PAGE> 19
14
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other),
charge or other security interest or any preference, priority or
other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any
Financing Lease having substantially the same economic effect as
any of the foregoing).
"Loan": any loan made by any Lender pursuant to this
Agreement.
"Loan Documents": this Agreement, any Notes, the Application
and the Security Documents.
"Loan Parties": the Borrower and each Subsidiary of the
Borrower which is a party to a Loan Document.
"Majority Lenders": at any date, the holders of 50% or more
of (a) until the Closing Date, the Commitments and (b)
thereafter, the sum of (i) the aggregate unpaid principal amount
of the Term Loans and (ii) the aggregate Revolving Credit
Commitments, or, if the Revolving Credit Commitments have been
terminated, the aggregate outstanding principal amount of the
Revolving Credit Loans.
"Majority Revolving Credit Lenders": at any date, the
holders of 75% or more of the aggregate Revolving Credit
Commitments, or, if the Revolving Credit Commitments have been
terminated, the aggregate outstanding principal amount of the
Revolving Credit Loans.
"Majority Term Loan Lenders": at any date, the holders of
75% or more of the aggregate unpaid principal amount of the Term
Loans and the aggregate undrawn Term Loan Commitments.
"Master Guarantee and Collateral Agreement": the Master
Guarantee and Collateral Agreement, substantially in the form of
Exhibit B, to be executed by the Borrower and its Subsidiaries,
as the same may be amended, supplemented or otherwise modified
from time to time.
"Material Adverse Effect": a material adverse effect on (a)
the business, operations, property, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries
taken as a whole or (b) the validity or enforceability of this or
any of the other Loan Documents or the rights or remedies of the
Agents or the Lenders hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or
petroleum products or any hazardous or toxic substances,
materials or wastes, defined or regulated as such in or under any
<PAGE> 20
15
Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Multiemployer Plan": a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale
or any Recovery Event, the proceeds thereof in the form of cash
and Cash Equivalents (including any such proceeds received by way
of deferred payment of principal pursuant to a note or
installment receivable or purchase price adjustment receivable or
otherwise, but only as and when received) of such Asset Sale or
Recovery Event, net of attorneys' fees, accountants' fees,
investment banking fees, amounts required to be applied to the
repayment of Indebtedness secured by a Lien expressly permitted
hereunder on any asset which is the subject of such Asset Sale or
Recovery Event (other than any Lien in favor of the
Administrative Agent for the benefit of the Lenders) and other
customary fees and expenses actually incurred in connection
therewith and net of taxes paid or reasonably estimated to be
payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing
arrangements) and (b) in connection with any issuance or sale of
equity securities or debt securities or instruments or the
incurrence of loans, the cash proceeds received from such
issuance or incurrence, net of attorneys' fees, investment
banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually
incurred in connection therewith.
"Non-Excluded Taxes": as defined in Section 2.18(a).
"Non-U.S. Lender": as defined in Section 2.18(b).
"Notes": the collective reference to the Revolving Credit
Notes and the Term Notes.
"Obligations": as defined in the Master Guarantee and
Collateral Agreement.
"Participant": as defined in Section 10.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Acquisitions": any acquisition by the Borrower or
a Subsidiary of the Borrower of a corporation, partnership or
other entity that is engaged in the physician practice management
industry; provided that if (i) such acquisition is made for cash
(including cash restructuring charges), or involves the issuance
of indebtedness by the Borrower, in an amount for all such cash,
cash restructuring charges and indebtedness in excess of
$50,000,000, (ii) such acquisition is accounted for as a
pooling-of-interests and the Borrower has assumed indebtedness in
connection therewith
<PAGE> 21
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in an amount in excess of $50,000,000 or (iii) such acquisition
is accounted for as a pooling-of-interests and the aggregate
value (including the amount of assumed indebtedness) of such
acquisition is $100,000,000 or more, then, in each case described
in the foregoing clauses (i), (ii) and (iii), the Borrower shall
have obtained the consent of the Required Lenders (which consent
shall not be unreasonably withheld) and provided further, that
(x) the reasonable consent of the Required Lenders shall be
required in all cases with respect to any form of note in
connection with any acquisitions involving the issuance of
indebtedness or assumption of indebtedness by the Borrower, (y)
no principal payments in excess of $5,000,000 per year shall be
due prior to the fourth anniversary of the Closing Date in
connection with any indebtedness assumed in connection with any
acquisitions and (z) if the aggregate value (including the amount
of assumed indebtedness) of any acquisition accounted for as a
pooling-of-interests is $50,000,000 or more, the Consolidated
Leverage Ratio and Consolidated Senior Debt Ratio shall not be
increased (calculated in each case to give pro forma effect to
such acquisition as if such acquisition had occurred on the first
day of the period of four consecutive fiscal quarters with
respect to which Consolidated EBITDA is calculated for purposes
of determining such Consolidated Leverage Ratio and Consolidated
Senior Debt Ratio).
"Person": an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever
nature.
"Plan": at a particular time, any employee benefit plan
which is covered by ERISA and in respect of which the Borrower or
a Commonly Controlled Entity is (or, if such plan were terminated
at such time, would under Section 4069 of ERISA be deemed to be)
an "employer" as defined in Section 3(5) of ERISA.
"Pro Forma Balance Sheet": as defined in Section 4.1(a).
"Projections": as defined in Section 6.2(c).
"Properties": as defined in Section 4.17.
"Recovery Event": any settlement of or payment in respect of
a property or casualty insurance claim relating to any asset of
the Borrower or any of its Subsidiaries.
"Register": as defined in Section 10.6(d).
"Regulation U": Regulation U of the Board of Governors of
the Federal Reserve System as in effect from time to time.
"Reimbursement Obligation": the obligation of the Borrower
to reimburse the Issuing Lender pursuant to Section 3.5 for
amounts drawn under the Letter of Credit.
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"Reinvestment Deferred Amount": with respect to any
Reinvestment Event, the aggregate Net Cash Proceeds received by
the Borrower or any of its Subsidiaries in connection therewith
which are not applied to prepay the Term Loans or reduce the
Revolving Credit Commitments pursuant to Section 2.9(b) as a
result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Recovery Event in respect of which
the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a
Responsible Officer of the Borrower to the Administrative Agent
within 30 days of the Reinvestment Event to which it relates
stating that no Event of Default has occurred and is continuing
and that the Borrower (directly or indirectly through another
Subsidiary), in good faith, intends and expects to use all or a
specified portion of the Net Cash Proceeds of a Recovery Event to
restore or replace the assets in respect of which such Recovery
Event occurred within six months from the date of receipt of such
Net Cash Proceeds (provided that if the affected assets
constituted Collateral, such restored or replacement assets shall
also constitute Collateral).
"Reinvestment Prepayment Amount": with respect to any
Reinvestment Event, the Reinvestment Deferred Amount relating
thereto less any amount expended prior to the relevant
Reinvestment Prepayment Date to restore or replace the assets in
respect of which a Recovery Event has occurred.
"Reinvestment Prepayment Date": with respect to any
Reinvestment Event, the earliest of (a) the first date occurring
after such Reinvestment Event on which an Event of Default shall
have occurred, (b) the date occurring six months after such
Reinvestment Event and (c) the date on which the Borrower shall
have determined not to, or shall have otherwise ceased to,
restore or replace the assets in respect of which a Recovery
Event has occurred.
"Reorganization": with respect to any Multiemployer Plan,
the condition that such plan is in reorganization within the
meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty
day notice period is waived under Sections .13, .14, .16, .18,
.19 or .20 of PBGC Reg. Section 2615.
"Required Lenders": at any date, the holders of 66-2/3% or
more of (a) until the Closing Date, the Commitments and (b)
thereafter, the sum of (i) the aggregate unpaid principal amount
of the Term Loans and (ii) the aggregate Revolving Credit
Commitments, or, if the Revolving Credit Commitments have been
terminated, the aggregate outstanding principal amount of the
Revolving Credit Loans.
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"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation
or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person
or any of its property is subject.
"Responsible Officer": the chief executive officer and the
president of the Borrower or any executive vice president or
senior vice president of the Borrower, or, with respect to
financial matters, the chief financial officer of the Borrower.
"Revolving Credit Commitment": as to any Lender, the
obligation of such Lender, if any, to make Revolving Credit Loans
to and/or issue or participate in the Letter of Credit issued on
behalf of the Borrower hereunder in an aggregate principal and/or
face amount not to exceed the amount set forth under the heading
"Revolving Credit Commitment" opposite such Lender's name on
Schedule I, as the same may be changed from time to time pursuant
to the terms hereof.
"Revolving Credit Commitment Period": the period from and
including the Closing Date to but not including the Revolving
Credit Termination Date, or such earlier date on which the
Revolving Credit Commitments shall have been terminated.
"Revolving Credit Lender": each Lender which has a Revolving
Credit Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.1(a).
"Revolving Credit Note": as defined in Section 2.5(e).
"Revolving Credit Percentage": as to Revolving Credit Lender
at any time, the percentage which such Lender's Revolving Credit
Commitment then constitutes of the aggregate Revolving Credit
Commitments (or, at any time after the Revolving Credit
Commitments shall have expired or terminated, the percentage
which the aggregate principal amount of such Lender's Revolving
Credit Loans then outstanding constitutes of the aggregate
principal amount of the Revolving Credit Loans then outstanding).
"Revolving Credit Termination Date": June 30, 2000.
"SEC Documents": collectively, the Borrower's Form 10-K-A
for the period ended December 31, 1996, the Borrower's Form 10-Q
for the fiscal quarter ended March 31, 1997, and the Borrower's
Registration Statement on Form S-4 relating the AHI Healthcare
Systems, Inc. merger.
"Security Documents": the collective reference to the Master
Guarantee and Collateral Agreement and any other security
agreement, pledge agreement, mortgage or other security
instrument delivered to the Administrative Agent to provide
security for,
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19
or guarantee, the Obligations, in each case as the same may from
time to time be amended, supplemented or otherwise modified.
"Single Employer Plan": any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that,
as of any date of determination, (a) the amount of the "present
fair saleable value" of the assets of such Person will, as of
such date, exceed the amount of all "liabilities of such Person,
contingent or otherwise", as of such date, as such quoted terms
are determined in accordance with applicable federal and state
laws governing determinations of the insolvency of debtors, (b)
the present fair saleable value of the assets of such Person
will, as of such date, be greater than the amount that will be
required to pay the liability of such Person on its debts as such
debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with
which to conduct its business, and (d) such Person will be able
to pay its debts as they mature. For purposes of this definition,
(i) "debt" means liability on a "claim", and (ii) "claim" means
any (x) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured,
disputed, undisputed, secured or unsecured.
"Subordinated Debt": the Convertible Debentures.
"Subsidiary": as to any Person, a corporation, partnership
or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries"
in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Borrower and shall include all Affiliated Professional
Corporations.
"Succession Agreement": each Succession Agreement listed in
Schedule 4.15(b) in effect on the Closing Date, and each
Succession Agreement entered into after the Closing Date, in each
case between a physician - shareholder of an Affiliated
Professional Corporation and the Borrower or one of its
Subsidiaries (not an Affiliated Professional Corporation), each
of which is substantially in the form of Exhibit I.
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"Syndication Date": the date on which the Arranger completes
the syndication of the credit facilities made available pursuant
to this Agreement and the entities selected in such syndication
process become parties to this Agreement.
"Term Loan": as defined in Section 2.3.
"Term Loan Commitment": as to any Lender, the obligation of
such Lender, if any, to make a Term Loan to the Borrower
hereunder in a principal amount not to exceed the amount set
forth under the heading "Term Loan Commitment" opposite such
Lender's name on Schedule I.
"Term Loan Lender": each Lender which has a Term Loan
Commitment or which has made a Term Loan.
"Term Loan Maturity Date": September 30, 2001.
"Term Loan Percentage": as to any Term Loan Lender at any
time, the percentage which such Lender's Term Loan Commitment
then constitutes of the aggregate Term Loan Commitments (or, at
any time after the Closing Date, the percentage which the
aggregate principal amount of such Lender's Term Loans then
outstanding constitutes of the aggregate principal amount of the
Term Loans then outstanding).
"Term Note": as defined in Section 2.5(e).
"Three-Month Secondary CD Rate": for any day, the secondary
market rate for three-month certificates of deposit reported as
being in effect on such day (or, if such day shall not be a
Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current
practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or
such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of
major money center banks in New York City received at
approximately 10:00 A.M., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized
standing selected by it.
"Tranche": the collective reference to Eurodollar Loans
which are Revolving Credit Loans or Term Loans, as the case may
be, the then current Interest Periods with respect to all of
which begin on the same date and end on the same later date
(whether or not such Loans shall originally have been made on the
same day).
"Transferee": as defined in Section 10.6(f).
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"Type": as to any Loan, its nature as a Base Rate Loan or a
Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, as the same may be amended from
time to time.
"Wholly Owned Subsidiary": as to any Person, any other
Person all of the Capital Stock of which (other than directors'
qualifying shares required by law) is owned by such Person
directly and/or through other Wholly Owned Subsidiaries.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in any Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Borrower and its Subsidiaries not defined in Section 1.1 and accounting
terms partly defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which, when added to such Lender's Revolving
Credit Percentage of the L/C Obligations then outstanding, does not exceed the
amount of such Lender's Revolving Credit Commitment. During the Revolving Credit
Commitment Period the Borrower may use the Commitments by borrowing, prepaying
the Revolving Credit Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i)
Eurodollar Loans, (ii) Base Rate Loans, or (iii) a combination thereof, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.2 and 2.10, provided that no Revolving Credit Loan
shall be made as a Eurodollar Loan after the day that is one month prior to the
Revolving Credit Termination Date.
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2.2 Procedure for Revolving Credit Borrowing. The Borrower may
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, (a) three Business
Days prior to the requested Borrowing Date, if all or any part of the requested
Revolving Credit Loans are to be initially Eurodollar Loans, or (b) one Business
Day prior to the requested Borrowing Date, otherwise), specifying (i) the amount
to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing
is to be of Eurodollar Loans, Base Rate Loans or a combination thereof and (iv)
if the borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Each borrowing under the Revolving Credit Commitments
shall be in an amount equal to (x) in the case of Base Rate Loans, $2,000,000 or
a whole multiple of $500,000 in excess thereof and (y) in the case of Eurodollar
Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon
receipt of any such notice from the Borrower, the Administrative Agent shall
promptly notify each Lender thereof. Each Lender will make the amount of its pro
rata share of each borrowing available to the Administrative Agent for the
account of the Borrower, at the funding office of the Administrative Agent
specified by the Administrative Agent by notice to the Borrower and the Lenders,
prior to 11:00 A.M., New York City time, on the Borrowing Date requested by the
Borrower in funds immediately available to the Administrative Agent. The
Administrative Agent will then make available to the Borrower the aggregate of
the amounts made available to the Administrative Agent by the Lenders, in like
funds as received by the Administrative Agent.
2.3 Term Loans. Subject to the terms and conditions hereof,
each Term Loan Lender severally agrees to make a term loan (a "Term Loan") to
the Borrower on the Closing Date in an amount not to exceed the amount of the
Term Loan Commitment of such Term Loan Lender then in effect. The Term Loans may
from time to time be (a) Eurodollar Loans, (b) Base Rate Loans, or (c) a
combination thereof, as determined by the Borrower and notified to the
Administrative Agent in accordance with Sections 2.4 and 2.10.
2.4 Procedure for Term Loan Borrowing. The Borrower shall give
the Administrative Agent irrevocable notice (which notice must be received by
the Administrative Agent prior to 10:00 A.M., New York City time, (a) three
Business Days prior to the Closing Date, if all or any part of the Term Loans
are to be initially Eurodollar Loans, or (b) one Business Day prior to the
Closing Date, otherwise) requesting that the Lenders make the Term Loans on the
Closing Date and specifying (i) the amount to be borrowed, (ii) whether the Term
Loans are to be initially Eurodollar Loans, Base Rate Loans or a combination
thereof, and (iii) if the Term Loans are to be entirely or partly Eurodollar
Loans, the amount of such Type of Loan and the respective lengths of the initial
Interest Periods therefor. Upon receipt of such notice the Administrative Agent
shall promptly notify each Term Loan Lender thereof. Not later than 11:00 A.M.
on the Closing Date each Term Loan Lender shall make available to the
Administrative Agent, at the funding office of the Administrative Agent
specified by the Administrative Agent by notice to the Borrower and the Lenders,
the amount of such Term Loan Lender's Term Loan in immediately available funds.
The Administrative Agent shall on
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such date make available to the Borrower the aggregate of the amounts made
available to the Administrative Agent by the Term Loan Lenders, in like funds as
received by the Administrative Agent.
2.5 Repayment of Loans; Evidence of Debt. (a) The Borrower
hereby unconditionally promises to pay to the Administrative Agent for the
account of the appropriate Revolving Credit Lender or Term Loan Lender, as the
case may be, (i) the then unpaid principal amount of each Revolving Credit Loan
of such Revolving Credit Lender on the last day of the Revolving Credit
Commitment Period (or such earlier date on which the Revolving Credit Loans
become due and payable pursuant to Section 8) and (ii) the principal amount of
the Term Loans of such Term Loan Lender, in 17 consecutive quarterly
installments, according to the amortization schedule set forth on Annex II,
commencing on September 30, 1997 (or on such earlier date on which the then
unpaid principal amount of the Term Loans become due and payable pursuant to
Section 8). The Borrower hereby further agrees to pay interest on the unpaid
principal amount of the Loans from time to time outstanding from the date hereof
until payment in full thereof at the rates per annum, and on the dates, set
forth in Section 2.12.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent, on behalf of the Borrower, shall
maintain the Register pursuant to Section 10.6(g), and a subaccount therein for
each Lender, in which shall be recorded (i) the amount of each Revolving Credit
Loan and Term Loan made hereunder and any Note evidencing such Loan, the Type
thereof and each Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) both the amount of any sum received
by the Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to Section 2.5(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Borrower therein recorded; provided, however, that the
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay (with applicable interest) the Loans
made to such Borrower by such Lender in accordance with the terms of this
Agreement.
(e) The Borrower agrees that, upon the request to the
Administrative Agent by any Lender, the Borrower will execute and deliver to
such Lender (i) a promissory note of the Borrower evidencing any Revolving
Credit Loans of such Lender, substantially in the form of Exhibit A-1 with
appropriate insertions as to date and principal amount (a "Revolving Credit
Note") and/or (ii) a promissory note of the Borrower evidencing any Term Loan of
such
<PAGE> 29
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Lender, substantially in the form of Exhibit A-2 with appropriate insertions as
to date and principal amount (a "Term Note").
2.6 Commitment Fee; Other Fees. (a) The Borrower agrees to pay
to the Administrative Agent for the account of each Lender a commitment fee for
the period from and including the first day of the Revolving Credit Commitment
Period to the Revolving Credit Termination Date, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Revolving Credit Termination Date or such earlier date on which the Revolving
Credit Commitments shall terminate as provided herein, commencing on the first
of such dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Arranger the fees in the
amounts and on the dates previously agreed to in writing by the Borrower and the
Arranger.
(c) The Borrower agrees to pay to the Administrative Agent the
fees in the amounts and on the dates previously agreed to in writing by the
Administrative Agent and the Borrower.
2.7 Termination or Reduction of Revolving Credit Commitments.
The Borrower shall have the right, upon not less than three Business Days'
notice to the Administrative Agent, to terminate the Revolving Credit
Commitments or, from time to time, to reduce the amount of the Revolving Credit
Commitments; provided that no such termination or reduction of Revolving Credit
Commitments shall be permitted if, after giving effect thereto and to any
prepayments of the Revolving Credit Loans made on the effective date thereof,
the aggregate outstanding principal amount of Revolving Credit Loans of all
Revolving Credit Lenders would exceed the Revolving Credit Commitments then in
effect. Any such reduction shall be in an amount equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof, and shall reduce permanently the
Revolving Credit Commitments then in effect.
2.8 Optional Prepayments. The Borrower may at any time and
from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon at least three Business Days' irrevocable notice to the
Administrative Agent by the Borrower, specifying the date and amount of
prepayment and whether the prepayment is of Term Loans, Revolving Credit Loans
or a combination thereof, and of Eurodollar Loans, Base Rate Loans, or a
combination thereof, and, if of a combination of either thereof, the amount
allocable to each, provided, that if a Eurodollar Loan is prepaid on any day
other than the last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to Section 2.19. Upon receipt of any
such notice, the Administrative Agent shall promptly notify each Lender thereof.
If any such notice is given, the amount specified in such notice shall be due
and payable on the date specified therein, together with accrued interest to
such date on the amount prepaid. Partial prepayments of the Term Loans shall be
applied to the remaining installments of principal thereof in the inverse order
of scheduled maturity. Amounts prepaid on account of the Term Loans may not be
reborrowed. Partial prepayments of Term Loans
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and Revolving Credit Loans shall be in an aggregate principal amount of
$2,000,000 or a whole multiple of $500,000 in excess thereof.
2.9 Mandatory Prepayments and Commitment Reductions. (a) If
any debt securities or instruments of the Borrower or any of its Subsidiaries
shall be issued or sold or the Borrower or any of its Subsidiaries shall incur
any Indebtedness (except any debt securities or instruments issued or any
Indebtedness incurred in accordance with Section 7.2 as in effect on the Closing
Date) an amount equal to 100% of the Net Cash Proceeds thereof shall be applied
on the date of such issuance or incurrence toward the prepayment of the Term
Loans and the reduction of the Revolving Credit Commitments as set forth in
paragraph (c) of this Section 2.9.
(b) If on any date the Borrower or any of its Subsidiaries
shall receive Net Cash Proceeds from any Asset Sale or from any Recovery Event
(other than, if no Event of Default shall have occurred and be continuing, to
the extent that such Net Cash Proceeds are to be used to restore or replace the
assets in respect of which such Recovery Event occurred within six months from
the date of such Recovery Event, as certified by a Responsible Officer of the
Borrower pursuant to a Reinvestment Notice), such Net Cash Proceeds shall be
applied on such date toward the prepayment of the Term Loans and the reduction
of the Revolving Credit Commitments as set forth in paragraph (c) of this
Section 2.9; provided that, notwithstanding the foregoing, on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the
prepayment of the Term Loans and the reduction of the Revolving Credit
Commitments as set forth in paragraph (c) of this Section 2.9.
(c) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to this Section 2.9 shall be applied to the
prepayment of the Term Loans and to the permanent reduction of the Revolving
Credit Commitments ratably in accordance with the outstanding principal amounts
of Term Loans and amounts of the Revolving Credit Commitments. Any such
reduction of the Revolving Credit Commitments shall be accompanied by prepayment
of the Revolving Credit Loans to the extent, if any, that the sum of the
Aggregate Outstanding Revolving Extensions of Credit of all Revolving Credit
Lenders exceeds the amount of the aggregate Revolving Credit Commitments as so
reduced, provided that if the aggregate principal amount of Revolving Credit
Loans then outstanding is less than the amount of such excess (because L/C
Obligations constitute a portion thereof), the Borrower shall, to the extent of
the balance of such excess, replace the outstanding Letter of Credit and/or
deposit an amount in cash in a cash collateral account established with the
Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent. The application of any prepayment
pursuant to this Section 2.9 shall be made, within each category of Loans to be
prepaid as provided above, first to Base Rate Loans and second to Eurodollar
Loans. Each prepayment of the Loans under this Section 2.9 shall be accompanied
by accrued interest to the date of such prepayment on the amount prepaid. All
prepayments of the Term Loans pursuant to this Section 2.9 shall be applied to
the remaining installments of principal thereof in the inverse order of
scheduled maturity. Amounts prepaid on account of the Term Loans may not be
reborrowed.
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2.10 Conversion and Continuation Options. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving
the Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert Base Rate Loans to Eurodollar Loans by
giving the Administrative Agent at least three Business Days' prior irrevocable
notice of such election. Any such notice of conversion to Eurodollar Loans shall
specify the length of the initial Interest Period therefor. Upon receipt of any
such notice, the Administrative Agent shall promptly notify each Lender thereof.
All or any part of outstanding Eurodollar Loans and Base Rate Loans may be
converted as provided herein, provided that (i) no Loan may be converted into a
Eurodollar Loan when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Majority Lenders have determined in its or their
sole discretion not to permit such a conversion and (ii) no Loan may be
converted into a Eurodollar Loan after the date that is one month prior to (i)
the Revolving Credit Termination Date, with respect to the Revolving Credit
Loans and (ii) the Term Loan Maturity Date, with respect to the Term Loans.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Administrative Agent, in accordance
with the applicable provisions of the term "Interest Period" set forth in
Section 1.1, of the length of the next Interest Period to be applicable to such
Loans, provided that no Eurodollar Loan may be continued as such (i) when any
Event of Default has occurred and is continuing and the Administrative Agent has
or the Majority Lenders have determined in its or their sole discretion not to
permit such a continuation or (ii) after the date that is one month prior to (A)
the Revolving Credit Termination Date, with respect to the Revolving Credit
Loans or (B) the Term Loan Maturity Date, with respect to the Term Loans, and
provided, further, that if the Borrower shall fail to give any required notice
as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
Base Rate Loans on the last day of such then expiring Interest Period.
2.11 Minimum Amounts and Maximum Number of Eurodollar
Tranches. Notwithstanding anything to the contrary in this Agreement, all
borrowings, conversions, continuations and optional prepayments of Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Loans comprising each Eurodollar
Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess
thereof, (b) no more than 5 Eurodollar Tranches in respect of the Revolving
Credit Loans shall be outstanding at any one time and (c) no more than 8
Eurodollar Tranches in respect of all Loans (including the Revolving Credit
Loans) shall be outstanding at any one time.
2.12 Interest Rates and Payment Dates. (a) Each Eurodollar
Loan shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
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(b) Each Base Rate Loan shall bear interest at a rate per
annum equal to the Base Rate plus the Applicable Margin.
(c) If all or a portion of (i) any principal of any Loan, (ii)
any interest payable thereon, (iii) any commitment fee or (iv) any other amount
payable hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), the principal of the Loans and any such overdue
interest, commitment fee or other amount shall bear interest at a rate per annum
which is (x) in the case of principal of the Loans, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
Section 2.12 plus 2% and (y) in the case of any overdue interest, commitment fee
or other amount, the rate applicable to Revolving Credit Loans which are Base
Rate Loans plus 2%, in each case from the date of such non-payment until such
overdue principal, interest, commitment fee or other amount is paid in full (as
well after as before judgment).
(d) Interest shall be payable in arrears on each Interest
Payment Date, provided that interest accruing pursuant to paragraph (c) of this
Section 2.12 shall be payable from time to time on demand.
2.13 Computation of Interest and Fees. (a) Interest on Loans,
commitment fees, letter of credit commissions, and interest on overdue interest,
commitment fees and other amounts payable hereunder shall be calculated on the
basis of a 360-day year for the actual days elapsed, except that, with respect
to Base Rate Loans the rate of interest on which is calculated on the basis of
the Prime Rate, the interest thereon shall be calculated on the basis of a 365-
(or 366-, as the case may be) day year for the actual days elapsed. The
Administrative Agent shall as soon as practicable notify the Borrower and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the Base Rate or the Eurocurrency
Reserve Requirements shall become effective as of the opening of business on the
day on which such change becomes effective. The Administrative Agent shall as
soon as practicable notify the Borrower and the Lenders of the effective date
and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the
Administrative Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower and the Lenders in the absence of
manifest error.
2.14 Inability to Determine Interest Rate. If prior to the
first day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that,
by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for
such Interest Period, or
(b) the Administrative Agent shall have received notice from
the Required Lenders that the Eurodollar Rate determined or to be
determined for such Interest
<PAGE> 33
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Period will not adequately and fairly reflect the cost to such Lenders
(as conclusively certified by such Lenders) of making or maintaining
their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans requested to be made on the first day of such
Interest Period shall be made as Base Rate Loans, (y) any Loans that were to
have been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans
shall be converted, on the first day of such Interest Period, to Base Rate
Loans. Until such notice has been withdrawn by the Administrative Agent, no
further Eurodollar Loans shall be made or continued as such, nor shall the
Borrower have the right to convert Loans to Eurodollar Loans.
2.15 Pro Rata Treatment and Payments; Use of Proceeds. (a)
Each borrowing by the Borrower from the Lenders hereunder, each payment by the
Borrower on account of any commitment fee and any reduction of the Commitments
of the Lenders shall be made pro rata according to the respective Term Loan
Percentages or Revolving Credit Percentages, as the case may be, of the relevant
Lenders. Each payment (including each prepayment) by the Borrower on account of
principal of and interest on the Term Loans shall be made pro rata according to
the respective outstanding principal amounts of the Term Loans then held by the
Term Loan Lenders. Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Credit Loans shall be made
pro rata according to the respective outstanding principal amounts of the
Revolving Credit Loans then held by the Revolving Credit Lenders. All payments
(including prepayments) to be made by the Borrower hereunder and under the
Notes, whether on account of principal, interest, fees or otherwise, shall be
made without setoff or counterclaim and shall be made prior to 12:00 Noon, New
York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Administrative Agent's office specified in
Section 10.2, in Dollars and in immediately available funds; provided that,
notwithstanding the requirement that all payments be made without setoff or
counterclaim, in the event that any bill by the Administrative Agent for
interest, commitment fees or letter of credit commissions incorrectly states
that the Borrower owes an amount greater than the amount actually due, the
Borrower pays the amount shown on such bill, and such error is subsequently
corrected by the Administrative Agent or determined as having been made by a
court having jurisdiction pursuant to this Agreement, the Borrower may apply the
amount of such overpayment toward future payments due from it hereunder, or
recover the amount of such overpayment from the Administrative Agent or the
Lenders, as the case may be, in the event that no further payments are due
hereunder. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which
event such payment shall be made on the
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immediately preceding Business Day. In the case of any extension of any payment
of principal pursuant to the preceding two sentences, interest thereon shall be
payable at the then applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this Section 2.16(b) shall be conclusive in
the absence of manifest error. If such Lender's share of such borrowing is not
made available to the Administrative Agent by such Lender within three Business
Days of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans hereunder, on demand, from the Borrower.
(c) The Borrower shall use the proceeds of the Loans only in
the manner expressly contemplated by Section 4.16.
2.16 Illegality. Notwithstanding any other provision herein,
if the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof shall make it unlawful for any Lender to
make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall
forthwith be cancelled and (b) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 2.19.
2.17 Requirements of Law. (a) If the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note, the Letter of
Credit, the Application or any Eurodollar Loan made by it, or change
the basis of taxation of payments to such Lender in respect
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thereof (except for Non-Excluded Taxes covered by Section 2.18 and
changes in the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets
held by, deposits or other liabilities in or for the account of,
advances, loans or other extensions of credit by, or any other
acquisition of funds by, any office of such Lender which is not
otherwise included in the determination of the Eurodollar Rate
hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in the
Letter of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of
or any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or in respect of the Letter of Credit
to a level below that which such Lender or such corporation could have achieved
but for such adoption, change or compliance (taking into consideration such
Lender's or such corporation's policies with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional
amounts pursuant to this Section, it shall promptly notify the Borrower (with a
copy to the Administrative Agent) of the event by reason of which it has become
so entitled. Any such notification shall include an itemization in reasonable
detail of such additional amounts claimed. A certificate as to any additional
amounts payable pursuant to this Section 2.17 (accompanied by the itemization
described in the preceding sentence) submitted by any Lender to the Borrower
(with a copy to the Administrative Agent) shall be conclusive in the absence of
manifest error. The obligations of the Borrower pursuant to this Section 2.17
shall survive the termination of this Agreement and the payment of the Notes and
all other amounts payable hereunder.
2.18 Taxes. (a) All payments made by the Borrower under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties,
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31
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority, excluding net
income taxes and franchise taxes (imposed in lieu of net income taxes) imposed
on the Administrative Agent or any Lender as a result of a present or former
connection between the Administrative Agent or such Lender and the jurisdiction
of the Governmental Authority imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such connection arising
solely from the Administrative Agent or such Lender having executed, delivered
or performed its obligations or received a payment under, or enforced, this
Agreement, any other Loan Document) or the Notes. If any such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions or withholdings
("Non-Excluded Taxes") are required to be withheld from any amounts payable to
the Administrative Agent or any Lender hereunder or under the Notes, the amounts
so payable to the Administrative Agent or such Lender shall be increased to the
extent necessary to yield to the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
Notes, provided, however, that the Borrower shall make payments net of and after
deduction for Non-Excluded Taxes and shall not be required to increase any such
amounts payable to any Non-U.S. Lender (as defined below) with respect to any
Non-Excluded Taxes (i) that are attributable to such Non-U.S. Lender's failure
to comply with the requirements of paragraph (b) of this Section or (ii) that
are United States withholding taxes imposed on amounts payable to such Lender at
the time the Lender becomes a party to this Agreement, except to the extent that
such Lender's assignor (if any) was entitled, at the time of assignment, to
receive additional amounts from the Borrower with respect to such Non-Excluded
Taxes pursuant to Section 2.18(a). Whenever any Non-Excluded Taxes are payable
by the Borrower, as promptly as possible thereafter the Borrower shall send to
the Administrative Agent for its own account or for the account of such Lender,
as the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any Non-
Excluded Taxes when due to the appropriate taxing authority or fails to remit to
the Administrative Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
for any Non-Excluded Taxes, incremental taxes, interest or penalties that may
become payable by the Administrative Agent or any Lender as a result of any such
failure; provided that the Administrative Agent or any such Lender provides the
Borrower with an itemization in reasonable detail in support of its request for
indemnification hereunder. The agreements in this Section 2.18 shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable hereunder.
(b) Each Lender (or Transferee) that is not a corporation or
partnership created or organized in or under the laws of the United States, any
estate that is subject to federal income taxation regardless of the source of
its income or any trust which is subject to the supervision of a court within
the United States and the control of a United States fiduciary as described in
Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver to the
Borrower and the Administrative Agent (or, in the case of a Participant, to the
Lender from which the related participation shall have been purchased) on or
before the date on which it becomes a party to this Agreement (or, in the case
of a Participant, on or before the date on which such Participant purchases the
related participation) either:
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(A) (x) two duly completed and signed copies of either
Internal Revenue Service Form 1001 (relating to such Non-U.S. Lender
and entitling it to a complete exemption from withholding of U.S. Taxes
on all amounts to be received by such Non-U.S. Lender pursuant to this
Agreement and the other Loan Documents) or Form 4224 (relating to all
amounts to be received by such Non-U.S. Lender pursuant to this
Agreement and the other Loan Documents), or successor and related
applicable forms, as the case may be, and (y) two duly completed and
signed copies of Internal Revenue Service Form W-8, or successor and
related applicable forms, as the case may be; or
(B) in the case of a Non-U.S. Lender that is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Code and that does
not comply with the requirements of clause (A) hereof, (x) a statement
in the form of Exhibit G (or such other form of statement as shall be
reasonably requested by the Borrower or the Administrative Agent from
time to time) to the effect that such Non-U.S. Lender is eligible for a
complete exemption from withholding of U.S. Taxes under Code Section
871(h) or 881(c), and (y) two duly completed and signed copies of
Internal Revenue Service Form W-8 or successor and related applicable
form.
Further, each Non-U.S. Lender agrees to deliver to the Borrower and the
Administrative Agent, and if applicable, the assigning Lender (or, in the case
of a Participant, to the Lender from which the related participation shall have
been purchased) two further duly completed and signed copies of such Form 1001,
4224, W-8, as the case may be, or successor and related applicable forms, on or
before the date that any such form expires or becomes obsolete and promptly
after the occurrence of any event requiring a change from the most recent
form(s) previously delivered by it to the Borrower or the Administrative Agent
(or, in the case of a Participant, to the Lender from which the related
participation shall have been purchased) in accordance with the applicable
United States laws and regulations; unless, in any such case, any change in law
or regulation has occurred subsequent to the date such lender became a party to
this Agreement (or in the case of a Participant, the date on which such
Participant purchased the related participation) which renders all such forms
inapplicable or which would prevent such Lender (or Participant) from properly
completing and executing any such form with respect to it and such Lender
promptly notifies the Borrower and the Administrative Agent (or, in the case of
a Participant, the Lender from which the related participation shall have been
purchased) if it is no longer able to deliver, or if it is required to withdraw
or cancel, any form of statement previously delivered by it pursuant to this
Section 2.18(b).
2.19 Indemnity. The Borrower agrees to indemnify each Lender
and to hold each Lender harmless from any loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, conversion into or continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto; provided that each Lender requesting indemnification hereunder provide
the Borrower with an itemization in reasonable detail in
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support of such request. Such indemnification may include an amount equal to the
excess, if any, of (i) the amount of interest which would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of
interest for such Loans provided for herein (excluding, however, the Applicable
Margin included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank eurodollar market. A certificate as to any amounts
payable pursuant to this Section 2.19, accompanied by a reasonably detailed
calculation of the basis for such claim, submitted to the Borrower by any Lender
shall be conclusive in the absence of manifest error. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
2.20 Change of Lending Office. Each Lender (or Transferee)
agrees that, upon the occurrence of any event giving rise to the operation of
Section 2.16, 2.17 or 2.18 with respect to such Lender (or Transferee), it will,
if requested by the Borrower, use reasonable efforts (subject to overall policy
considerations of such Lender (or Transferee)) to designate another lending
office for any Loans affected by such event with the object of avoiding the
consequences of such event; provided, that such designation is made on terms
that, in the sole judgment of such Lender, cause such Lender and its lending
office(s) to suffer no material economic, legal or regulatory disadvantage, and
provided, further, that nothing in this Section 2.20 shall affect or postpone
any of the obligations of the Borrower or the rights of any Lender (or
Transferee) pursuant to Section 2.16, 2.17 or 2.18.
SECTION 3. LETTER OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Revolving
Credit Lenders set forth in Section 3.4(a), agrees to issue a letter of credit
(the "Letter of Credit") for the account of the Borrower as promptly as
practicable after the Syndication Date in such form as may be approved by the
Issuing Lender; provided that the Issuing Lender shall have no obligation to
issue the Letter of Credit if, after giving effect to such issuance, (i) the L/C
Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the
aggregate Available Revolving Credit Commitments would be less than zero. The
Letter of Credit shall (i) be denominated in Dollars, (ii) be a standby letter
of credit issued to support the obligations of Family First Medical Centers,
Inc. under the Group Physician Service Agreement dated June 1, 1996, as amended,
between PCA Family Health Plan, Inc. and Family First Medical Centers, Inc.,
(iii) expire no later than five Business Days prior to the Revolving Credit
Termination Date and (iv) expire no later than 365 days after its date of
issuance, provided that the Letter of Credit may provide for the renewal thereof
at the election of the Borrower (in accordance with procedures to be established
by the Issuing Lender) for additional 365-day periods (which shall not expire
later than the Revolving Credit Termination Date).
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(b) The Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
New York.
3.2 Procedure for Issuance of Letter of Credit. The Borrower
shall request that the Issuing Lender issue the Letter of Credit by delivering
to the Issuing Lender at its address for notices specified herein the
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of the Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby by issuing the original of such Letter of Credit to the beneficiary
thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower.
The Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower
promptly following the issuance thereof. The Issuing Lender shall promptly
furnish to the Administrative Agent, which shall in turn promptly furnish to the
Lenders, notice of the issuance of such Letter of Credit (including the amount
thereof). On each L/C Fee Payment Date, the Issuing Lender shall promptly
furnish to the Administrative Agent, which shall in turn promptly furnish to the
Lenders, notice of the aggregate face amount of the Letter of Credit outstanding
on such date.
3.3 Fees, Commissions and Other Charges. (a) The Borrower
agrees that it will pay a commission on the outstanding Letter of Credit at the
rate equal to the Applicable Margin in effect for Revolving Credit Eurodollar
Loans per annum of the face amount of such Letter of Credit, which will be
shared ratably among the Revolving Credit Lenders in accordance with their
respective Revolving Credit Percentages, plus a fronting fee in a per annum
percentage agreed to by the Borrower and the Issuing Lender, which will be
payable for the account of the Issuing Lender; such commission and fronting fee
will be payable quarterly in arrears on each L/C Fee Payment Date after the
issuance date.
(b) In addition to the foregoing fees and commissions, the
Borrower agrees that it shall pay or reimburse the Issuing Lender for such
normal and customary costs and expenses as are incurred or charged by the
Issuing Lender in issuing, negotiating, effecting payment under, amending or
otherwise administering the Letter of Credit.
(c) The Administrative Agent shall, promptly following its
receipt thereof, distribute to the Issuing Lender and the L/C Participants all
fees and commissions received by the Administrative Agent for their respective
accounts pursuant to this Section.
3.4 L/C Participations. (a) The Issuing Lender irrevocably
agrees to grant and hereby grants to each L/C Participant, and, to induce the
Issuing Lender to issue the Letter of Credit hereunder, each L/C Participant
irrevocably agrees to accept and purchase and hereby accepts and purchases from
the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Credit Percentage in the Issuing Lender's obligations
and rights under the Letter of Credit and the amount of each draft paid by the
Issuing Lender thereunder. Each
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L/C Participant unconditionally and irrevocably agrees with the Issuing Lender
that, if a draft is paid under the Letter of Credit for which the Issuing Lender
is not reimbursed in full by the Borrower in accordance with the terms of this
Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at
the Issuing Lender's address for notices specified herein an amount equal to
such L/C Participant's Revolving Credit Percentage of the amount of such draft,
or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed
portion of any payment made by the Issuing Lender under the Letter of Credit is
paid to the Issuing Lender within three Business Days after the date such
payment is due, such L/C Participant shall pay to the Issuing Lender on demand
an amount equal to the product of (i) such amount, times (ii) the daily average
Federal Funds Effective Rate during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Issuing Lender, times (iii) a fraction the numerator of which is the
number of days that elapse during such period and the denominator of which is
360. If any such amount required to be paid by any L/C Participant pursuant to
Section 3.4(a) is not made available to the Issuing Lender by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Lender shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate per annum applicable to Base Rate Loans hereunder. A certificate of the
Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made
payment under the Letter of Credit and has received from any L/C Participant its
pro rata share of such payment in accordance with Section 3.4(a), the Issuing
Lender receives any payment related to such Letter of Credit (whether directly
from the Borrower or otherwise, including proceeds of collateral applied thereto
by the Issuing Lender), or any payment of interest on account thereof, the
Issuing Lender will distribute to such L/C Participant its pro rata share
thereof; provided, however, that in the event that any such payment received by
the Issuing Lender shall be required to be returned by the Issuing Lender, such
L/C Participant shall return to the Issuing Lender the portion thereof
previously distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower
agrees to reimburse the Issuing Lender on each date on which the Issuing Lender
notifies the Borrower of the date and amount of a draft presented under the
Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft
so paid and (b) any taxes, fees, charges or other costs or expenses incurred by
the Issuing Lender in connection with such payment. Each such payment shall be
made to the Issuing Lender at its address for notices specified herein in
Dollars and in immediately available funds. Interest shall be payable on any and
all amounts remaining unpaid by the Borrower under this Section from the date
such amounts become payable (whether at stated maturity, by acceleration or
otherwise) until payment in full at the rate set forth in Section 2.12(c).
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3.6 Obligations Absolute. The Borrower's obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Issuing Lender, any
beneficiary of the Letter of Credit or any other Person. The Borrower also
agrees with the Issuing Lender that the Issuing Lender shall not be responsible
for, and the Borrower's Reimbursement Obligations under Section 3.5 shall not be
affected by, among other things, the validity or genuineness of documents or of
any endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or any dispute between or among the Borrower and
any beneficiary of the Letter of Credit or any other party to which such Letter
of Credit may be transferred or any claims whatsoever of the Borrower against
any beneficiary of such Letter of Credit or any such transferee. The Issuing
Lender shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with the Letter of Credit, except for errors or
omissions resulting from the gross negligence or willful misconduct of the
Issuing Lender. The Borrower agrees that any action taken or omitted by the
Issuing Lender under or in connection with the Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards or care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented
for payment under the Letter of Credit, the Issuing Lender shall promptly notify
the Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
the Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of the
Application related to the Letter of Credit is inconsistent with the provisions
of this Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter
into this Agreement and to make the Loans and issue or participate in the Letter
of Credit, the Borrower hereby represents and warrants to the Administrative
Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma
consolidated balance sheet of the Borrower as at March 31, 1997 (the "Pro Forma
Balance Sheet"), copies of which have heretofore been furnished to each Lender,
has been prepared giving effect (as if such events had occurred on such date) to
(i) the borrowings under this Agreement contemplated to be made on the Closing
Date and the use of proceeds thereof, (ii) the repayment of the
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Existing Debt and (iii) the payment of fees and expenses in connection with the
foregoing. The Pro Forma Balance Sheet has been prepared based on the best
information available to the Borrower as of the date of delivery thereof, and
presents fairly on a pro forma basis the estimated consolidated financial
position of the Borrower as of March 31, 1997, assuming that the events
specified in the preceding sentence had actually occurred at such date.
(b) The consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at December 31, 1996 and the related consolidated
statements of income and of cash flows for the fiscal year ended on such date,
reported on by Deloitte & Touche LLP, copies of which have heretofore been
furnished to each Lender, are complete and correct in all material respects and
present fairly the consolidated financial condition of the Borrower
and its consolidated Subsidiaries as at such date, and the consolidated results
of their operations and their consolidated cash flows for the fiscal year then
ended. The unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at March 31, 1997 and the related unaudited
consolidated statements of income and of cash flows for the three-month period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to each Lender, are complete and correct in all
material respects and present fairly the consolidated financial condition of the
Borrower and its consolidated Subsidiaries as at such date, and the consolidated
results of their operations and their consolidated cash flows for the
three-month period then ended (subject to normal year-end audit adjustments).
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP (except for the absence of
notes in the foregoing quarterly financial statements) applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein). Neither the
Borrower nor any of its consolidated Subsidiaries had, at the date of the most
recent balance sheet referred to above, any material Guarantee Obligation,
contingent liability or liability for taxes, or any long-term lease or unusual
forward or long-term commitment, including, without limitation, any interest
rate or foreign currency swap or exchange transaction, which is not reflected in
the foregoing statements or in the notes thereto. Except as disclosed in the SEC
Documents, during the period from December 31, 1996 to and including the date
hereof there has been no sale, transfer or other disposition by the Borrower or
any of its consolidated Subsidiaries of any material part of its business or
property and no purchase or other acquisition of any business or property
(including any capital stock of any other Person) material in relation to the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries at December 31, 1996.
4.2 No Change. (a) Since December 31, 1996 there has been no
development or event which has had or could reasonably be expected to have a
Material Adverse Effect, and (b) during the period from December 31, 1996 to and
including the date hereof no dividends or other distributions have been
declared, paid or made upon the Capital Stock of the Borrower nor has any of the
Capital Stock of the Borrower been redeemed, retired, purchased or otherwise
acquired for value by the Borrower or any of its Subsidiaries.
4.3 Corporate Existence; Compliance with Law. Each of the
Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the
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38
jurisdiction of its organization, (b) has the corporate power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(c) is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification and (d) is in compliance
with all Requirements of Law except to the extent that the failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations.
Each Loan Party has the corporate power and authority, and the legal right, to
make, deliver and perform the Loan Documents to which it is a party and in the
case of the Borrower, to borrow hereunder and has taken all necessary corporate
action to authorize the borrowings on the terms and conditions of this Agreement
and any Notes in the case of the Borrower, and to authorize the execution,
delivery and performance of the Loan Documents to which it is a party. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of the Loan Documents. This Agreement
has been, and each other Loan Document to which it is a party will be, duly
executed and delivered on behalf of each Loan Party which is a party hereto or
thereto. This Agreement constitutes, and each other Loan Document to which it is
a party when executed and delivered will constitute, a legal, valid and binding
obligation of each Loan Party which is a party hereto or thereto enforceable
against each such Loan Party in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
4.5 No Legal Bar. The execution, delivery and performance of
the Loan Documents, the issuance of the Letter of Credit, the borrowings
hereunder and the use of the proceeds thereof will not violate any Requirement
of Law or Contractual Obligation of the Borrower or of any of its Subsidiaries
and will not result in, or require, the creation or imposition of any Lien on
any of its or their respective properties or revenues pursuant to any such
Requirement of Law or Contractual Obligation, except Liens created pursuant to
the Security Documents.
4.6 No Material Litigation. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of its or their respective properties or
revenues (a) with respect to any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) which could reasonably be
expected to have a Material Adverse Effect.
4.7 No Default. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could
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39
reasonably be expected to have a Material Adverse Effect. No Default or Event of
Default has occurred and is continuing.
4.8 Ownership of Property; Liens; Real Property Interests. (a)
Each of the Borrower and its Subsidiaries has a valid leasehold interest in all
its real property and good title to, or a valid leasehold interest in all its
other property, and none of such property is subject to any Lien except as
permitted by Section 7.3.
(b) Neither the Borrower nor any of its Subsidiaries owns any
fee interest in any real property.
4.9 Intellectual Property. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). No claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does the
Borrower know of any valid basis for any such claim. The use of such
Intellectual Property by the Borrower and its Subsidiaries does not infringe on
the rights of any Person, except for such claims and infringements that, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
4.10 No Burdensome Restrictions. No Requirement of Law or
Contractual Obligation of the Borrower or any of its Subsidiaries could
reasonably be expected to have a Material Adverse Effect.
4.11 Taxes. Each of the Borrower and its Subsidiaries has
filed or caused to be filed all tax returns which, to the knowledge of the
Borrower, are required to be filed, within the required filing periods (as
modified by any extensions), and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
4.12 Federal Regulations. No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation G or Regulation
U of the Board of Governors of the Federal Reserve System as now and from time
to time hereafter in effect. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-1 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case
may be.
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40
4.13 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits. Neither the Borrower nor any Commonly Controlled Entity
has had a complete or partial withdrawal from any Multiemployer Plan, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. The Borrower
is not an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
The Borrower is not subject to regulation under any Federal or State statute or
regulation (other than Regulation X of the Board of Governors of the Federal
Reserve System) which limits its ability to incur Indebtedness.
4.15 Subsidiaries; Succession Agreements; Administrative
Services Agreements; Agreements with Payors. (a) All Subsidiaries of the
Borrower at the date hereof are listed in Schedule 4.15(a). Schedule 4.15(a)
designates each Subsidiary which is an Affiliated Professional Corporation and
lists the shareholders of each Subsidiary and the percentage ownership of each
such shareholder.
(b) Schedule 4.15(b) lists each Succession Agreement in
effect on the Closing Date.
(c) Schedule 4.15(c) lists each Administrative Services
Agreement in effect on the Closing Date.
(d) Schedule 4.15(d) lists the material agreements with health
maintenance organizations and other prepaid health insurance plans that have
constituted more than 5% of the revenues of the Borrower and its Subsidiaries
during the fiscal year ended December 31, 1996 or the two fiscal quarters ended
June 30, 1997.
4.16 Purpose of Loans. The proceeds of the Loans shall be used
by the Borrower to repay the Existing Debt and for working capital and general
corporate purposes in the ordinary course of business. The Letter of Credit
shall be used to support the contractual obligations described in Section
3.1(a).
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4.17 Environmental Matters. Except to the extent that all of
the following, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect;
(a) The Properties do not contain, and have not previously
contained, any Materials of Environmental Concern in amounts or
concentrations or under circumstances which (i) constitute or
constituted a violation of, or (ii) could give rise to liability under,
any Environmental Law.
(b) The Properties and all operations at the Properties are in
material compliance, and have in the last five years been in material
compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Properties or the business
operated by the Parent, the Borrower or any of their Subsidiaries (the
"Business"). Neither the Borrower nor any of its Subsidiaries has
assumed any liability of any other Person under Environmental Laws.
(c) Neither the Borrower nor any of its Subsidiaries has
received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard
to any of the Properties or the Business, nor does the Borrower or any
of its Subsidiaries have knowledge or reason to believe that any such
notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been
transported or disposed of from the Properties in violation of, or in a
manner or to a location which could reasonably be expected to give rise
to liability under, any Environmental Law, nor have any Materials of
Environmental Concern been generated, treated, stored or disposed of
at, on or under any of the Properties in violation of, or in a manner
that could give rise to liability under, any applicable Environmental
Law.
(e) No judicial proceeding or governmental or administrative
action is pending or, to the knowledge of the Parent, the Borrower or
any of their Subsidiaries, threatened, under any Environmental Law to
which the Borrower or any of its Subsidiaries is or will be named as a
party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders
or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to the Properties
or the Business.
(f) There has been no release or threat of release of
Materials of Environmental Concern at or from the Properties, or
arising from or related to the operations of the Borrower or any of its
Subsidiaries in connection with the Properties or otherwise in
connection with the Business, in violation of or in amounts or in a
manner that could give rise to liability under Environmental Laws.
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4.18 Accuracy of Information. No statement or information
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum or any other document, certificate or statement furnished
to the Administrative Agent or the Lenders, by or on behalf of any Loan Party
for use in connection with the transactions contemplated by this Agreement or
the other Loan Documents, contained as of the date such statement, information,
document or certificate was so furnished any untrue statement of a material fact
or omitted to state a material fact necessary in order to make the statements
contained herein or therein not misleading. The projections and pro forma
financial information contained in the materials referenced above are based upon
good faith estimates and assumptions believed by management of the Borrower and
its Subsidiaries to be reasonable at the time made, it being recognized by the
Lenders that such financial information as it relates to future events is not to
be viewed as fact and that actual results during the period or periods covered
by such financial information may differ from the projected results set forth
therein by a material amount. There is no fact known to the Borrower or any of
its Subsidiaries that could reasonably be expected to have a Material Adverse
Effect that has not been expressly disclosed herein, in the other Loan
Documents, in the SEC Documents, or in such other documents, certificates and
statements furnished to the Administrative Agent and the Lenders for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.
4.19 Security Documents. (a) Upon execution and delivery
thereof by the parties thereto, the Master Guarantee and Collateral Agreement
will be effective to create in favor of the Administrative Agent, for the
ratable benefit of the Lenders, a legal, valid and enforceable security interest
in the pledged stock described therein and, when stock certificates representing
or constituting the pledged stock described therein are delivered to the
Administrative Agent, such security interest shall constitute a perfected first
lien on, and security interest in, all right, title and interest of the pledgor
party thereto in the pledged stock described therein.
(b) Upon execution and delivery thereof by the parties
thereto, the Master Guarantee and Collateral Agreement will be effective to
create in favor of the Administrative Agent, for the ratable benefit of the
Lenders, a legal, valid and enforceable security interest in the collateral
described therein (other than pledged stock described in paragraph (a) above).
Uniform Commercial Code financing statements have been filed in each of the
jurisdictions listed on Schedule 3 to the Master Guarantee and Collateral
Agreement or arrangements have been made for such filing in such jurisdictions,
and upon such filing, and upon the taking of possession by the Administrative
Agent of any such collateral the security interests in which may be perfected
only by possession, such security interests will constitute perfected first
priority liens on, and security interests in, all right, title and interest of
the debtor party thereto in the collateral described therein, except to the
extent that a security interest cannot be perfected therein by the filing of a
financing statement or the taking of possession under the Uniform Commercial
Code of the relevant jurisdiction.
4.20 Solvency. Each Loan Party is, and after giving effect to
the incurrence of all Indebtedness and obligations being incurred hereunder will
be and will continue to be, Solvent.
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4.21 Senior Indebtedness. The Obligations constitute "Senior
Indebtedness" within the meaning of the Convertible Debenture Indenture.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement
of each Lender to make the initial Loan requested to be made by it on the
Closing Date is subject to the satisfaction, prior to or concurrently with the
making of such Loan on the Closing Date (which Closing Date shall occur on or
before July 31, 1997), of the following conditions precedent:
(a) Loan Documents. The Arranger shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the
Borrower, with a counterpart for each Lender, (ii) for the account of
any Lender requesting Notes in accordance with Section 2.5(e), Notes
conforming to the requirements hereof and executed and delivered by a
duly authorized officer of the Borrower and, (iii) the Master
Guarantee and Collateral Agreements, executed and delivered by a duly
authorized officer of each party thereto, with a counterpart or a
conformed copy for each Lender.
(b) Related Agreements. The Arranger shall have received, in
form and substance satisfactory to it, with a copy for each Lender,
true and correct copies, certified as to authenticity by the Borrower,
of (i) each Administrative Services Agreement in effect on the Closing
Date, (ii) each Succession Agreement in effect on the Closing Date and
(iii) the Convertible Debenture Indenture. The Arranger shall have
received (in a form reasonably satisfactory to the Arranger), with a
copy for each Lender, true and correct copies, certified as to
authenticity by the Borrower, of each other document or instrument as
may be reasonably requested by the Arranger, including, without
limitation, a copy of any other debt instrument, security agreement or
other material contract to which the Borrower or any Subsidiary may be
a party.
(c) Pro Forma Balance Sheet; Financial Statements. The Lenders
shall have received (i) the Pro Forma Balance Sheet, which Pro Forma
Balance Sheet shall be in form and substance reasonably satisfactory to
the Lenders and (ii) reasonably satisfactory unaudited interim
consolidated financial statements of the Borrower for each fiscal
quarter of the Borrower ended in the 1997 fiscal year of the Borrower
as to which such financial statements are available prior to the
Closing Date, and such financial statements shall not reflect any
material adverse change in the consolidated financial condition of the
Borrower as reflected in the financial statements previously delivered
to the Lenders.
(d) Approvals. All governmental and third party approvals
necessary or advisable in connection with the transactions contemplated
hereby and the continuing operations of the Borrower shall have been
obtained and be in full force and effect.
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(e) Business Plan. The Lenders shall have received a detailed
business plan of the Borrower for fiscal years 1997 - 2002 and a
written analysis of the business and prospects of the Borrower for the
period from the Closing Date through the final maturity of the Term
Loans, each in a form and level of detail reasonably satisfactory to
the Arranger.
(f) Lien Searches. The Arranger shall have received the
results of a recent lien search in each of the relevant jurisdictions
where assets of the Borrower and its Subsidiaries are located, and such
search shall reveal no liens on any of the assets of the Borrower and
its Subsidiaries except for liens permitted by Section 7.3 or liens to
be discharged on or prior to the Closing Date pursuant to documentation
reasonably satisfactory to the Arranger.
(g) Pending Permitted Acquisitions. All acquisitions by the
Borrower of any entity occurring during the period between May 29, 1997
and the Closing Date or pending on the Closing Date shall be (i)
Permitted Acquisitions and shall not violate any requirements set forth
in the definition of such term herein and (ii) on terms and
conditions satisfactory to the Lenders pursuant to reasonably
satisfactory documentation.
(h) Repayment of Existing Debt. The Existing Debt shall be
repaid in full, and all Liens in connection therewith shall be
released, on or before the Closing Date.
(i) Closing Certificate. The Arranger shall have received,
with a counterpart for each Lender, a certificate of each Loan Party,
dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments, executed by the President or
any Vice President and the Secretary or any Assistant Secretary of such
Loan Party.
(j) Corporate Proceedings of Loan Parties. The Arranger shall
have received, with a counterpart for each Lender, a copy of the
resolutions of the Board of Directors or other governing body of each
Loan Party authorizing (i) the execution, delivery and performance of
the Loan Documents to which it is a party, and (ii) in the case of the
Borrower, the borrowings contemplated hereunder.
(k) Fees. The Arranger shall have received all fees, expenses
and other consideration required to be paid on or before the Closing
Date.
(l) Legal Opinions. The Arranger shall have received, with a
counterpart for each Lender, the following executed legal opinions:
(i) the executed legal opinion of James A. Lebovitz,
Senior Vice President and General Counsel of the Borrower,
substantially in the form of Exhibit D-1;
<PAGE> 50
45
(ii) the executed legal opinion of Pillsbury
Madison & Sutro LLP, counsel to the Loan Parties,
substantially in the form of Exhibit D-2;
(iii) the executed legal opinion of counsel to
the Loan Parties in Texas, Arizona and Florida, in each case
covering the matters set forth in Exhibit D-3 and in form and
substance satisfactory to the Arranger; and
(iv) the executed legal opinion of Foley,
Lardner, Weissburg & Aronson, special California counsel to
the Loan Parties in respect of health care matters,
substantially in the form of Exhibit D-4.
Each such legal opinion shall be in form and substance satisfactory to
the Lenders and shall cover such matters incident to the transactions
contemplated by this Agreement as the Arranger may reasonably require.
(m) Review of Regulatory Issues. The Arranger shall have
received a satisfactory report from Epstein Becker & Green, P.C.,
special counsel to the Arranger in respect of health care regulatory
matters, in respect of the regulatory status and compliance of the
Borrower and its Subsidiaries.
(n) Pledged Stock; Stock Powers. The Arranger shall have
received the certificates representing the shares pledged pursuant to
the Master Guarantee and Collateral Agreement, together with an undated
stock power for each such certificate executed in blank by a duly
authorized officer of the pledgor thereof.
(o) Filings, Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing
statement) required by the Master Guarantee and Collateral Agreement or
under law or reasonably requested by the Arranger to be filed,
registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Lenders, a perfected Lien
on the Collateral described therein, prior and superior in right to any
other Person (other than with respect to Liens expressly permitted by
Section 7.3), shall be in proper form for filing, registration or
recordation in each jurisdiction in which the filing, registration or
recordation thereof is so required or requested.
(p) Consents and Acknowledgments. The Arranger shall have
received a Consent and Acknowledgment, substantially in the form of
Exhibit E-1 or E-2, as the case may be, from each party to an
Administrative Services Agreement or Succession Agreement which is not
a Loan Party.
5.2 Conditions to Each Loan. The agreement of each Lender to
make any Loan requested to be made by it on any date (including, without
limitation, its initial Loan) is subject to the satisfaction of the following
conditions precedent:
<PAGE> 51
46
(a) Representations and Warranties. Each of the
representations and warranties made by any Loan Party in or pursuant to
the Loan Documents shall be true and correct in all material respects
on and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the
Loan requested to be made on such date.
(c) Additional Matters. All proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Agreement, the other Loan Documents and the
Acquisition shall be reasonably satisfactory in form and substance to
the Administrative Agent, and the Administrative Agent shall have
received such other documents and legal opinions in respect of any
aspect or consequence of the transactions contemplated hereby or
thereby as it shall reasonably request.
Each borrowing by the Borrower hereunder and the issuance of the Letter of
Credit on behalf of the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date of such borrowing that the conditions
contained in this Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Note or Loan or the Letter of Credit remains outstanding
and unpaid or any other amount is owing to any Lender or the Administrative
Agent hereunder, the Borrower shall and (except with respect to Section 6.1 and
6.2) shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 90 days
after the end of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its Subsidiaries as at
the end of such year and the related consolidated statements of income
and retained earnings and of cash flows for such year, setting forth in
each case in comparative form the figures for the previous year,
reported on without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the audit, by
Deloitte & Touche LLP or other independent certified public accountants
of nationally recognized standing; and
(b) as soon as available, but in any event not later than 45
days after the end of each of the first three quarterly periods of each
fiscal year of the Borrower, the unaudited consolidated balance sheet
of the Borrower and its Subsidiaries as at the end of such quarter and
the related unaudited consolidated statements of income and retained
earnings and of cash flows of the Borrower and its Subsidiaries for
such quarter and the portion of the fiscal year through the end of such
quarter, setting forth
<PAGE> 52
47
in each case in comparative form the figures for the previous year,
certified by a Responsible Officer of the Borrower as being fairly
stated in all material respects (subject to normal year-end audit
adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods.
6.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), (i) a certificate of the independent
certified public accountants reporting on such financial statements
stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in
such certificate and (ii) copies of all reports or written
communications from such independent certified public accountants with
regard to the internal financial controls and systems of the Borrower;
(b) concurrently with the delivery of any financial statement
pursuant to Section 6.1, (y) a certificate of a Responsible Officer of
the Borrower stating that, to the best of each such Responsible
Officer's knowledge, during such period (i) no Subsidiary has been
formed or acquired (or, if any such Subsidiary has been formed or
acquired, the Borrower has complied with the requirements of Section
6.11 with respect thereto), (ii) neither the Borrower nor any of its
Subsidiaries has changed its name, its principal place of business,
its chief executive office or the location of any material item of
tangible Collateral without complying with the requirements of this
Agreement and the Security Documents with respect thereto and (iii)
each Loan Party has observed or performed all of its covenants and
other agreements, and satisfied every condition, contained in this
Agreement and the other Loan Documents to which it is a party to be
observed, performed or satisfied by it, and that such Responsible
Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate and (z) in the case of
quarterly or annual financial statements, a certificate containing all
information reasonably necessary for determining compliance by the
Borrower and its Subsidiaries with the provisions of this Agreement
(including but not limited to calculations demonstrating compliance
with Sections 2.10 and 7.1) as of the last day of such fiscal quarter
or fiscal year, as the case may be;
(c) as soon as available, and in any event no later than 30
days after the end of each fiscal year of the Borrower, a projected
consolidated balance sheet of the Borrower as of the end of the
following fiscal year, and the related consolidated statements of
projected cash flow, projected changes in financial position and
projected income for the following fiscal year, together with an
operating budget with respect to the following fiscal year, and, as
soon as available, significant revisions, if any, of such projections
with respect to such fiscal year (the "Projections"), which Projections
shall in each case be accompanied by a certificate of a Responsible
Officer of the
<PAGE> 53
48
Borrower stating that such Projections are based on reasonable
estimates, information and assumptions and that such Responsible
Officer has no reason to believe that such Projections are incorrect
or misleading in any material respect;
(d) promptly upon execution of the same, copies of each
definitive purchase agreement in connection with a Permitted
Acquisition (including copies of financial statements giving pro forma
effect to each such Permitted Acquisition);
(e) within five days after the same are filed, copies of all
financial statements and reports which the Borrower may make to, or
file with, the Securities and Exchange Commission or any successor or
analogous Governmental Authority; and
(f) promptly, such additional financial and other information
as any Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its material obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrower or its Subsidiaries, as the case may be.
6.4 Conduct of Business and Maintenance of Existence, etc.
(a) Continue to engage in business of the same general type as now conducted by
it, (b) preserve, renew and keep in full force and effect its existence and (c)
take all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted pursuant to Section 7.5 and except, in the case of
clause (c) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and comply with all Contractual
Obligations (including, without limitation, the Administrative Services
Agreements) and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted; (b) maintain with financially sound
and reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business (provided that the Borrower may maintain self insurance in reasonable
amounts consistent with industry standards for similarly-situated companies);
and (c) furnish to each Lender, upon written request, full information as to the
insurance carried.
6.6 Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP
<PAGE> 54
49
and all Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities; and upon reasonable notice, but in no
event less than two days' prior written notice from the Administrative Agent to
the Borrower, permit representatives of any Lender to visit and inspect any of
its properties and examine and make abstracts from any of its books and records
at any reasonable time and as often as may reasonably be desired and to discuss
the business, operations, properties and financial and other condition of the
Borrower and its Subsidiaries with senior officers of the Borrower and their
Subsidiaries and with its independent certified public accountants. Any
information obtained by any Lender pursuant to this Section 6.6 shall be subject
to the provisions of Section 10.15.
6.7 Notices. Promptly give notice to the Administrative
Agent of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii)
litigation, investigation or proceeding which may exist at any time
between the Borrower or any of its Subsidiaries and any Governmental
Authority, which in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any
of its Subsidiaries in which the amount involved is $500,000 or more
and not covered by insurance or in which injunctive or similar relief
is sought;
(d) the following events, as soon as possible and in any
event within 30 days after the Borrower or any of its Subsidiaries
knows or has reason to know thereof: (i) the occurrence or expected
occurrence of any Reportable Event with respect to any Plan, a failure
to make any required contribution to a Plan, the creation of any Lien
in favor of the PBGC or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan
or (ii) the institution of proceedings or the taking of any other
action by the PBGC or the Borrower or any Commonly Controlled Entity
or any Multiemployer Plan with respect to the withdrawal from, or the
terminating, Reorganization or Insolvency of, any Plan; and
(e) any development or event which could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein and stating what action the Borrower or the relevant
Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects
with, and ensure compliance in all material respects by all tenants and
subtenants, if any, with, all applicable Environmental Laws, and obtain and
comply in all material respects with and
<PAGE> 55
50
maintain, and ensure that all tenants and subtenants obtain and comply in all
material respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.
6.9 Interest Rate Protection. In the case of the Borrower,
within 180 days after the Closing Date, enter into Interest Rate Protection
Agreements providing interest rate protection with respect to an amount at least
equal to the amount of the Term Loans for a period, and at an interest rate,
reasonably satisfactory to the Arranger.
6.10 Further Assurances. Upon the request of the
Administrative Agent, promptly perform or cause to be performed any and all acts
and execute or cause to be executed any and all documents (including, without
limitation, financing statements and continuation statements) for filing under
the provisions of the Uniform Commercial Code or any other Requirement of Law
which are necessary or advisable to maintain in favor of the Administrative
Agent, for the benefit of the Lenders, Liens on the Collateral that are duly
perfected in accordance with all applicable Requirements of Law.
6.11 Additional Collateral. (a) With respect to any assets
acquired after the Closing Date by the Borrower or any of its Subsidiaries that
are intended to be subject to the Lien created by any of the Security Documents
but which are not so subject (other than (x) any assets described in paragraph
(b) of this subsection and (y) immaterial assets a Lien on which cannot be
perfected by filing UCC-1 financing statements), promptly (and in any event
within 30 days after the acquisition thereof): (i) execute and deliver to the
Administrative Agent such amendments to the relevant Security Documents or such
other documents as the Administrative Agent shall deem necessary or advisable to
grant to the Administrative Agent, for the benefit of the Lenders, a Lien on
such assets, (ii) take all actions deemed reasonably necessary or advisable to
cause such Lien to be duly perfected in accordance with all applicable
Requirements of Law, including, without limitation, the filing of financing
statements in such jurisdictions as may be requested by the Administrative
Agent, and (iii) if requested by the Administrative Agent, deliver to the
Administrative Agent legal opinions relating to the matters described in clauses
(i) and (ii) immediately preceding, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(b) With respect to any Person that, subsequent to the Closing
Date, becomes a Subsidiary, promptly: (i) execute and deliver to the
Administrative Agent, for the benefit of the Lenders, such amendments to the
Guarantee and Collateral Agreement as the Administrative Agent shall deem
reasonably necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a Lien on the Capital Stock of such Subsidiary which is
owned by the Borrower or any of its Subsidiaries, (ii) deliver to the
Administrative Agent the certificates representing such Capital Stock, together
with undated stock powers executed and delivered in blank by a duly authorized
officer of the Borrower or
<PAGE> 56
51
such Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to
become a party to the Guarantee and Collateral Agreement, in each case pursuant
to documentation which is in form and substance satisfactory to the
Administrative Agent, and (B) to take all actions necessary or advisable to
cause the Lien created by the Guarantee and Collateral Agreement to be duly
perfected in accordance with all applicable Requirements of Law, including,
without limitation, the filing of financing statements in such jurisdictions as
may be requested by the Administrative Agent and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described in clauses (i), (ii) and (iii) immediately
preceding, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
(c) With respect to each Person that becomes an Affiliated
Professional Corporation after the date hereof, promptly obtain (i) a Consent
and Acknowledgement, substantially in the form of Exhibit E-1, duly executed by
such Affiliated Professional Corporation and the Borrower or its Subsidiary, as
the case may be, which is a party to the Administrative Services Agreement with
such Affiliated Professional Corporation and (ii) a Consent and Acknowledgement,
substantially in the form of Exhibit E-2, duly executed by such Affiliated
Professional Corporation and each shareholder thereof.
6.12 Succession Agreements. Obtain and maintain in full force
and effect Succession Agreements between each Affiliated Professional
Corporation (other than any Affiliated Professional Corporation that is
providing an immaterial amount of revenue to the Borrower) and all
physician-shareholders of the Affiliated Professional Corporations,
substantially in the form of Exhibit I.
6.13 Post-Closing Matters. Within five Business Days
following the Closing Date, accomplish the tasks set forth on Schedule 6.13 to
the satisfaction of the Administrative Agent in its sole discretion.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Note or Loan or the Letter of Credit remains outstanding
and unpaid or any other amount is owing to any Lender or the Administrative
Agent hereunder, the Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
(a) Consolidated Leverage Ratio. Permit the Consolidated
Leverage Ratio as of the last day of any fiscal quarter ending during any fiscal
year set forth below to exceed the ratio set forth below opposite such fiscal
year:
<PAGE> 57
52
<TABLE>
<CAPTION>
Consolidated
Fiscal Year Leverage Ratio
----------- --------------
<S> <C>
1997 4.00 to 1.00
1998 3.75 to 1.00
1999 3.625 to 1.00
2000 and thereafter 3.50 to 1.00
</TABLE>
(b) Maintenance of Net Worth. Permit Consolidated Net Worth as
of the last day of any fiscal quarter of the Borrower ending during any fiscal
year set forth below to be less than the amount set forth below opposite such
fiscal year:
<TABLE>
<CAPTION>
Consolidated
Fiscal Year Net Worth
----------- -------------
<S> <C>
1997 $130,000,000
1998 $150,000,000
1999 and thereafter $175,000,000
</TABLE>
(c) Consolidated Senior Debt Ratio. Permit the Consolidated
Senior Debt Ratio for any period of four consecutive final quarters ending
during any fiscal year set forth below to exceed the ratio set forth below
opposite such fiscal year:
<TABLE>
<CAPTION>
Consolidated
Fiscal Year Senior Debt Ratio
----------- -----------------
<S> <C>
1997 2.75 to 1.0
1998 2.50 to 1.0
1999 and thereafter 2.25 to 1.0
</TABLE>
(d) Consolidated Interest Coverage Ratio. Permit the
Consolidated Interest Coverage Ratio for any period of four consecutive fiscal
quarters ending during any fiscal year set forth below to be less than the ratio
set forth below opposite such fiscal year:
<TABLE>
<CAPTION>
Consolidated
Interest Coverage
Fiscal Year Ratio
----------- -----------------
<S> <C>
1997 3.00 to 1.0
1998 3.25 to 1.0
1999 3.50 to 1.0
2000 and thereafter 3.75 to 1.0
</TABLE>
<PAGE> 58
53
In the event of any Permitted Acquisition accounted for as a
pooling-of-interests, any change in the consolidated financial statements of the
Borrower and its Subsidiaries resulting from such Permitted Acquisition and the
related pooling-of-interests accounting will be given only prospective effect
for purposes of determining compliance with the covenants contained in this
Section 7.1.
7.2 Limitation on Indebtedness. Create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness of the Borrower under the Loan Documents;
(b) Indebtedness of the Borrower to a Subsidiary that is a
party to the Master Guarantee and Collateral Agreement and of a
Subsidiary that is a party to the Master Guarantee and Collateral
Agreement to the Borrower or any other Subsidiary that is a party to
the Master Guarantee and Collateral Agreement;
(c) Indebtedness of the Borrower or any Subsidiary incurred to
finance the acquisition of fixed or capital assets (whether pursuant to
a loan, a Financing Lease or otherwise) in an aggregate principal
amount not exceeding as to the Borrower and its Subsidiaries $5,000,000
at any time outstanding;
(d) Indebtedness of a corporation which becomes a Subsidiary
after the date hereof as the result of a Permitted Acquisition,
provided that (i) such indebtedness existed at the time such
corporation became a Subsidiary and was not created in anticipation
thereof and (ii) immediately after giving effect to the acquisition of
such corporation by the Borrower no Default or Event of Default shall
have occurred and be continuing;
(e) the Indebtedness of the Borrower and its Subsidiaries
outstanding on the Closing Date and reflected on Schedule 7.2(e), and
refundings or refinancings thereof, provided that no such refunding or
refinancing shall shorten the maturity or increase the principal amount
of the original Indebtedness and provided further that any Indebtedness
reflected on Schedule 7.2(e) which is Existing Debt shall have been
repaid on the Closing Date;
(f) Indebtedness in respect of the Interest Rate Agreements
required by Section 6.9;
(g) Guarantee Obligations permitted by subsection 7.4;
(h) Subordinated Debt outstanding on the date hereof and
reflected on Schedule 7.2(e);
<PAGE> 59
54
(i) additional Indebtedness of the Borrower or any Subsidiary
that is a party to the Master Guarantee and Collateral Agreement not
exceeding $5,000,000 in aggregate principal amount at any one time
outstanding; and
(j) Indebtedness of the Borrower owing to sellers of assets
acquired in Permitted Acquisitions that constitutes part of the
consideration for such Permitted Acquisitions not exceeding $15,000,000
in aggregate principal amount at any one time outstanding.
7.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested
in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the
Borrower or its Subsidiaries, as the case may be, in conformity with
GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 60 days or
which are being contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security
legislation;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any Subsidiary;
(f) Liens in existence on the date hereof listed on Schedule
7.3(f), securing Indebtedness permitted by Section 7.2(e), provided
that no such Lien is spread to cover any additional property after the
Closing Date and that the amount of Indebtedness secured thereby is not
increased;
(g) Liens securing Indebtedness of the Borrower or any
Subsidiary incurred to finance the acquisition of fixed or capital
assets, provided that (i) such Liens shall be created substantially
simultaneously with the acquisition of such fixed or capital assets,
(ii) such Liens do not at any time encumber any property other than the
property
<PAGE> 60
55
financed by such Indebtedness, (iii) the amount of Indebtedness
secured thereby is not increased and (iv) the proceeds of the
Indebtedness secured by any such Lien shall at no time exceed 100% of
the original purchase price of such property;
(h) Liens created pursuant to the Security Documents; and
(i) Liens of landlords arising by operation of law, and Liens
of a lessor under any lease entered into by the Borrower or any
Subsidiary in the ordinary course of its business, to the extent the
provisions of such leases relating to such Liens are standard and
customary in the relevant market.
7.4 Limitation on Guarantee Obligations. Create, incur,
assume or suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations in existence on the date hereof and
listed on Schedule 7.4(a);
(b) guarantees made in the ordinary course of its business by
the Borrower of obligations of any of its Subsidiaries, which
obligations are otherwise permitted under this Agreement; and
(c) Guarantee Obligations in respect of the Letter of Credit.
7.5 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Wholly Owned Subsidiary of the Borrower may be merged
or combined with or into the Borrower (provided that such Borrower
shall be the continuing or surviving corporation) or with or into any
one or more Wholly Owned Subsidiaries of the Borrower (provided that
the Wholly Owned Subsidiary or Subsidiaries shall be the continuing or
surviving corporation);
(b) any Wholly Owned Subsidiary may sell, lease, transfer or
otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to Borrower or any other Wholly Owned
Subsidiary of the Borrower; and
(c) if any Requirement of Law requires that any Affiliated
Professional Corporation merge with, or transfer assets to, a
Subsidiary of the Borrower, such transaction may occur with the consent
of the Majority Lenders (not to be unreasonably withheld).
<PAGE> 61
56
7.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary of the
Borrower, issue or sell any shares of such Subsidiary's Capital Stock to any
Person, except:
(a) the sale or other disposition of obsolete or worn out
property in the ordinary course of business having a fair market value
not to exceed, in the aggregate, $1,000,000 in any period of twelve
consecutive months;
(b) the sale or other disposition of any property in the
ordinary course of business, provided that (other than inventory) the
aggregate book value of all assets so sold or disposed of in any period
of twelve consecutive months shall not exceed $1,000,000;
(c) the sale of inventory in the ordinary course of business;
and
(d) as permitted by Section 7.5(b).
7.7 Limitation on Restricted Payments. Declare or pay any
dividend (other than dividends payable solely in common stock of the Person
making such dividend) on, or make any payment on account of, or set apart assets
for a sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of Capital Stock of
the Borrower or any of its Subsidiaries or any warrants or options to purchase
any such Capital Stock, whether now or hereafter outstanding, or make any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the Borrower or any Subsidiary (collectively,
"Restricted Payments"), except that any Subsidiary may make Restricted Payments
to the Borrower or any Wholly Owned Subsidiary of the Borrower.
7.8 Limitation on Capital Expenditures. Make or commit to make
(by way of the acquisition of securities of a Person or otherwise) any Capital
Expenditure except for expenditures in the ordinary course of business not
exceeding, in the aggregate for the Borrower and its Subsidiaries during any of
the fiscal years of the Borrower set forth below, the amount set forth opposite
such fiscal year:
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1997 $15,000,000
1998 $20,000,000
1999 $25,000,000
2000 $25,000,000
2001 $25,000,000
</TABLE>
<PAGE> 62
57
Up to 25% of the amount permitted to be expended pursuant to the foregoing
provisions of this Section 7.8 in any fiscal year and not so expended may be
carried over for expenditure in the subsequent fiscal year.
7.9 Limitation on Investments, Loans and Advances. Make any
advance, loan, extension of credit or capital contribution to, or purchase any
stock, bonds, notes, debentures or other securities of or any assets
constituting a business unit of, or make any other investment in, any Person,
except:
(a) extensions of trade credit in the ordinary course of
business;
(b) investments in Cash Equivalents;
(c) Permitted Acquisitions involving an aggregate cost
(including cash, indebtedness incurred or assumed, stock issued,
property transferred and cash restructuring charges) not exceeding
$50,000,000 during the period from the Closing Date through December
31, 1997, $100,000,000 during fiscal year 1998 and $150,000,000 during
any fiscal year thereafter;
(d) loans and advances to employees of the Borrower or a
Subsidiary for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount for the Borrower and
its Subsidiaries not to exceed $1,000,000 at any one time outstanding;
and
(e) investments by the Borrower in a Wholly Owned Subsidiary
and investments by any Wholly Owned Subsidiary in the Borrower and in
other Wholly Owned Subsidiaries.
7.10 Limitation on Optional Payments and Modifications of Debt
Instruments etc. (a) Make any optional payment or prepayment on or redemption or
purchase of any material Indebtedness (other than the Loans) or preferred stock,
including, without limitation, the Subordinated Debt or (b) amend, modify or
change, or consent or agree to any amendment, modification or change to any of
the terms of any such Indebtedness, including but not limited to the
Subordinated Debt (other than any such amendment, modification or change which
would extend the maturity or reduce the amount of any payment of principal
thereof or which would reduce the rate or extend the date for payment of
interest or dividends thereon).
7.11 Limitation on Transactions with Affiliates. Enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction (a) is otherwise permitted under this Agreement, (b) is in the
ordinary course of business of the Borrower or such Subsidiary, (c) is upon fair
and reasonable terms no less favorable to the Borrower or such Subsidiary, as
the case may be, than it would obtain in a comparable arm's length transaction
with a Person which is not an Affiliate.
<PAGE> 63
58
7.12 Limitation on Sales and Leasebacks. Enter into any
arrangement with any Person providing for the leasing by the Borrower or any
Subsidiary of real or personal property which has been or is to be sold or
transferred by the Borrower or such Subsidiary to such Person or to any other
Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of the Borrower or such
Subsidiary.
7.13 Limitation on Changes in Fiscal Year. Permit the fiscal
year of the Borrower or any of its Subsidiaries to end on a day other than
December 31.
7.14 Limitation on Negative Pledge Clauses. Enter into with
any Person, or suffer to exist, any agreement, other than (a) this Agreement and
the other Loan Documents or (b) any industrial revenue bonds, purchase money
mortgages or Financing Leases permitted by this Agreement (in which cases, any
prohibition or limitation shall only be effective against the assets financed
thereby) which prohibits or limits the ability of the Borrower or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired.
7.15 Limitation on Lines of Business. Enter into any business,
either directly or through any Subsidiary, except for the physician practice
management business or businesses which are directly related thereto.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan
when due in accordance with the terms hereof; or the Borrower shall
fail to pay any interest on any Loan or any other amount payable
hereunder or under any other Loan Document, within five days after any
such interest or other amount becomes due in accordance with the terms
hereof; or
(b) Any representation or warranty made or deemed made by the
Borrower or any other Loan Party herein or in any other Loan Document
or which is contained in any certificate, document or financial or
other statement furnished by it at any time under or in connection with
this Agreement or any such other Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed
made; or
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in Section 7 of
this Agreement or Section 5.5 of the Master Guarantee and Collateral
Agreement; or
<PAGE> 64
59
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in
paragraphs (a) through (c) of this Section), and such default shall
continue unremedied for a period of 30 days after written notice to the
Borrower or other Loan Party, as applicable, from the Administrative
Agent or the Majority Lenders; or
(e) The Borrower or any of its Subsidiaries shall (i) default
in making any payment of any principal of any Indebtedness, Guarantee
Obligation or Interest Rate Protection Agreement Obligation beyond the
period of grace, if any, provided in the instrument or agreement under
which such Indebtedness, Guarantee Obligation or Interest Rate
Protection Agreement Obligation was created; or (ii) default in making
any payment of any interest on any such Indebtedness, Guarantee
Obligation or Interest Rate Protection Agreement Obligation beyond the
period of grace, if any, provided in the instrument or agreement under
which such Indebtedness, Guarantee Obligation or Interest Rate
Protection Agreement Obligation was created; or (iii) default in the
observance or performance of any other agreement or condition relating
to any such Indebtedness, Guarantee Obligation or Interest Rate
Protection Agreement Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other
event or condition is to cause, or to permit the holder or beneficiary
of such Indebtedness, Guarantee Obligation or Interest Rate Protection
Agreement Obligation (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness or Interest Rate Protection Agreement Obligation to become
due prior to its stated maturity or any such Guarantee Obligation to
become payable; provided, that a default, event or condition described
in clause (i), (ii) or (iii) of this paragraph (e) shall not at any
time constitute an Event of Default under this Agreement unless, at
such time, one or more defaults, events or conditions of the type
described in clauses (i), (ii) and (iii) of this paragraph (e) shall
have occurred and be continuing with respect to Indebtedness and/or
Guarantee Obligations and/or Interest Rate Protection Agreement
Obligations of the Borrower and its Subsidiaries the outstanding
principal amount of which exceeds in the aggregate $2,500,000; or
(f) (i) The Borrower or any of its Subsidiaries shall commence
any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for
it or for all or any substantial part of its assets, or the Borrower or
any of its Subsidiaries shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against the Borrower
or any of its Subsidiaries any case, proceeding or other action of a
nature referred to in clause (i) above which (A) results in the entry
of an order for relief or any such adjudication
<PAGE> 65
60
or appointment or (B) remains undismissed, undischarged or unbonded for
a period of 60 days; or (iii) there shall be commenced against the
Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) the Borrower or
any of its Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower
or any of its Subsidiaries shall generally not, or shall be unable to,
or shall admit in writing its inability to, pay its debts as they
become due; or
(g) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist
with respect to any Plan or any Lien in favor of the PBGC or a Plan
shall arise on the assets of the Borrower, a Subsidiary or any Commonly
Controlled Entity, (iii) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single
Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Majority
Lenders, likely to result in the termination of such Plan for purposes
of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA, (v) the Borrower, a Subsidiary or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through
(vi) above, such event or condition, together with all other such
events or conditions, if any, could, in the sole judgment of the
Majority Lenders, reasonably be expected to have a Material Adverse
Effect; or
(h) One or more judgments or decrees shall be entered against
the Borrower or any of its Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $1,000,000 or
more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 90 days from the
entry thereof; or
(i) Any of the Security Documents shall cease, for any reason,
to be in full force and effect, or any Loan Party or any Affiliate of
any Loan Party shall so assert, or any Lien created by any of the
Security Documents shall cease to be enforceable and of the same effect
and priority purported to be created thereby; or
(j) A Change of Control shall occur;
<PAGE> 66
61
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letter of Credit shall have presented the documents required
thereunder) shall immediately become due and payable, and (B) if such event is
any other Event of Default, either or both of the following actions may be
taken: (i) with the consent of the Majority Lenders, the Administrative Agent
may, or upon the request of the Majority Lenders, the Administrative Agent
shall, by notice to the Borrower declare the Commitments to be terminated
forthwith, whereupon the Commitments shall immediately terminate; and (ii) with
the consent of the Majority Lenders, the Administrative Agent may, or upon the
request of the Majority Lenders, the Administrative Agent shall, by notice to
the Borrower, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letter of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable. If with respect to the Letter
of Credit presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrower shall at such time deposit
in a cash collateral account opened by the Administrative Agent an amount equal
to the aggregate then undrawn and unexpired amount of the Letter of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under the Letter of Credit,
and the unused portion thereof after the Letter of Credit shall have expired or
been fully drawn upon, if any, shall be applied to repay other obligations of
the Borrower hereunder and under the other Loan Documents. After the Letter of
Credit shall have expired or been fully drawn upon, all Reimbursement
Obligations shall have been satisfied and all other obligations of the Borrower
hereunder and under the other Loan Documents shall have been paid in full, the
balance, if any, in such cash collateral account shall be returned to the
Borrower (or such other Person as may be lawfully entitled thereto). Except as
expressly provided above in this Section, presentment, demand, protest and all
other notices of any kind are hereby expressly waived.
SECTION 9. THE AGENTS
9.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Agents as the agents of such Lender under this Agreement and the
other Loan Documents, and each Lender irrevocably authorizes each Agent, in such
capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to such Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement, no Agent shall have any duties or responsibilities,
except those expressly set forth herein, or any fiduciary relationship with any
Lender, and no implied covenants, functions,
<PAGE> 67
62
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against any Agent.
9.2 Delegation of Duties. Each Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. No Agent shall be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
9.3 Exculpatory Provisions. Neither the Agents nor any of
their officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except to the extent that any of the foregoing resulted from its or
such Person's own gross negligence or willful misconduct) or (ii) responsible in
any manner to any of the Lenders for any recitals, statements, representations
or warranties made by any Loan Party or any officer thereof contained in this
Agreement or any other Loan Document or in any certificate, report, statement or
other document referred to or provided for in, or received by any Agent under or
in connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or the Notes or any other Loan Document or for any failure of any Loan
Party a party thereto to perform its obligations hereunder or thereunder. No
Agent shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of any Loan Party.
9.4 Reliance by Agents. Each Agent shall be entitled to rely,
and shall be fully protected in relying, upon any Note, writing, resolution,
notice, consent, certificate, affidavit, letter, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by such Agent. The Agents may deem and treat the payee of any Note as
the owner thereof for all purposes unless a written notice of assignment,
negotiation or transfer thereof shall have been filed with the Administrative
Agent. Each Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders (or, if so specified
by this Agreement, all Lenders) as it deems appropriate or it shall first be
indemnified to its satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. Each Agent shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Majority Lenders (or, if so specified by this
Agreement, all Lenders), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Notes.
<PAGE> 68
63
9.5 Notice of Default. No Agent shall be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless such Agent has received written notice from a Lender or the
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Majority Lenders (or, if so specified by this Agreement, all
Lenders); provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
9.6 Non-Reliance on Agents and Other Lenders. Each Lender
expressly acknowledges that neither any Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it and that no act by the Agents hereafter
taken, including any review of the affairs of a Loan Party or any Affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to each Agent that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
Affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their Affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, no Agent shall have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial or otherwise), prospects or
creditworthiness of any Loan Party or any Affiliate of a Loan Party which may
come into the possession of such Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
9.7 Indemnification. The Lenders agree to indemnify each Agent
in its capacity as such (to the extent not reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), ratably according to
their respective Commitments, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against any Agent in any way relating to
or arising out of, the Commitments, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or
<PAGE> 69
64
thereby or any action taken or omitted by any Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements which are found by a
final and nonappealable decision of a court of competent jurisdiction to have
resulted from such Agent's gross negligence or willful misconduct. The
agreements in this Section 9.7 shall survive the payment of the Notes and all
other amounts payable hereunder.
9.8 Agents in Their Individual Capacities. Each Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with any Loan Party as though such Agent were not an Agent
hereunder and under the other Loan Documents. With respect to its Loans made or
renewed by it and any Note issued to it and with respect to any Letter of Credit
issued to or participated in by it, and each Agent shall have the same rights
and powers under this Agreement and the other Loan Documents as any Lender and
may exercise the same as though it were not an Agent, respectively, and the
terms "Lender" and "Lenders" shall include each Agent in its individual
capacity.
9.9 Successor Agents. The Administrative Agent may resign as
Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If
the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Majority Lenders shall appoint
from among the Lenders a successor agent in such capacity, which successor
agent, so long as no Default or Event of Default shall have occurred and be
continuing, shall have been approved by the Borrower (which approval shall not
be unreasonably withheld or delayed), whereupon such successor agent shall
succeed to the rights, powers and duties of the Administrative Agent hereunder.
Effective upon such appointment and approval, the terms "Administrative Agent"
shall mean such successor agent, and the former Administrative Agent's or
rights, powers and duties as such shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Notes. After any retiring
Agent's resignation as Agent, the provisions of this Section 9 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement and the other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Majority Lenders and each Loan Party to the relevant Loan Documents may, or,
with the written consent of the Majority Lenders, the Administrative Agent, the
Arranger and each Loan Party to the relevant Loan Document may, from time to
time, (a) enter into written amendments, supplements or modifications hereto and
to the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
<PAGE> 70
65
terms and conditions as the Majority Lenders or the Administrative Agent and the
Arranger, as the case may be, may specify in such instrument, any of the
requirements of this Agreement or the other Loan Documents or any Default or
Event of Default and its consequences; provided, however, that no such waiver
and no such amendment, supplement or modification shall (i) reduce the principal
amount or extend the final scheduled date of maturity of any Loan, or reduce the
stated rate of any interest, fee or letter of credit commission payable
hereunder or extend the scheduled date of any payment thereof or increase the
amount or extend the expiration date of any Lender's Commitments, in each case
without the consent of each Lender directly affected thereby, (ii) extend the
scheduled date of any amortization payment in respect of the Term Loans referred
to in Section 2.5 without the consent of each Lender affected thereby, (iii)
amend, modify or waive any provision of this Section 10.1 or reduce any
percentage specified in the definitions of Majority Lenders or Required Lenders,
or consent to the assignment or transfer by any Loan Party of any of its rights
and obligations under this Agreement and the other Loan Documents, or release
all or substantially all of the Collateral or any material guarantee of the
Obligations, or increase the aggregate amount of the Commitments hereunder, in
each case without the written consent of all the Lenders, (iv) reduce the
percentage specified in the definition of Majority Term Loan Lenders or Majority
Revolving Credit Lenders without the written consent of all Term Loan Lenders,
or all Revolving Credit Lenders, as the case may be, (v) amend, modify or waive
any provision of Section 2.9 without the consent of the Majority Term Loan
Lenders and the Majority Revolving Credit Lenders, or (vi) amend, modify or
waive any provision of Section 10 without the written consent of the Agents. Any
such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Loan Parties, the
Lenders, the Agents and all future holders of the Notes. In the case of any
waiver, the Loan Parties, the Lenders and the Agents shall be restored to their
former position and rights hereunder and under the other Loan Documents, and any
Default or Event of Default waived shall be deemed to be cured and not
continuing; but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower, the Administrative
Agent and the Arranger, and as set forth in Schedule I in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto and any future holders of the Notes:
The Borrower: FPA Medical Management, Inc.
3636 Nobel Drive, Suite 200
San Diego, California 92122
Attention: Chief Financial Officer and Secretary
Telecopy: (619) 453-1941
Telephone: (619) 453-1000
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66
The Administrative: Lehman Commercial Paper Inc.
Agent 3 World Financial Center
New York, New York 10285
Attention: Michele Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
The Arranger: Lehman Commercial Paper Inc.
3 World Financial Center
New York, New York 10285
Attention: Michele Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to Section 2.2, 2.4, 2.7, 2.8, 2.10 or 2.14 shall not be
effective until received. Any notice or delivery to or from or consent required
of the Borrower hereunder or pursuant to any other Loan Document may be made to
or by the Borrower.
10.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Administrative Agent or any
Lender, any right, remedy, power or privilege hereunder or under the other Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
10.4 Survival. All representations and warranties made
hereunder, in the other Loan Documents and in any document, certificate or
statement delivered pursuant hereto or in connection herewith shall survive the
execution and delivery of this Agreement and the Notes and the making of the
Loans hereunder.
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Agents for all their reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Agents, (b) to pay or reimburse each
Lender and the Agents for all their out-of-pocket costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, the fees and disbursements of counsel to each Lender and
counsel to the Agents, (c) to pay, indemnify, and hold each Lender and the
Agents harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and
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67
other taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of, or consummation or administration
of any of the transactions contemplated by, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the other Loan Documents and any such other documents, and (d) to
pay, indemnify, and hold each Lender and the Agents and their respective
officers, directors, trustees, employees, affiliates, agents and controlling
persons (each, an "indemnitee") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including,
without limitation, any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower, any of its
Subsidiaries or any of the Properties (all the foregoing in this clause (d),
collectively, the "indemnified liabilities"), provided that the Borrower shall
have no obligation hereunder to any indemnitee with respect to indemnified
liabilities to the extent such indemnified liabilities resulted from the gross
negligence or willful misconduct of such indemnitee. The agreements in this
Section 10.5 shall survive repayment of the Loans and all other amounts payable
hereunder and the termination of the Commitments and, in the case of any Lender
that may assign any interest in its Commitments or Loans or Letter of Credit
hereunder, shall survive the making of such assignment, notwithstanding that
such assigning Lender may cease to be a "Lender" hereunder.
10.6 Successors and Assigns; Participations and Assignments.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lenders, the Agents, all future holders of the Loans and their
respective successors and assigns, except that the Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in
the ordinary course of its business and in accordance with applicable law, at
any time sell to one or more banks, financial institutions or funds that
regularly invest in loans and/or loan participations or, with the consent of the
Borrower, the Arranger and the Administrative Agent (which, in each case, shall
not be unreasonably withheld or delayed), any other entities (each, a
"Participant") participating interests in any Loan owing to such Lender, any
Note held by such Lender, any Commitment of such Lender or any other interest of
such Lender hereunder and under the other Loan Documents. In the event of any
such sale by a Lender of a participating interest to a Participant, such
Lender's obligations under this Agreement to the other parties to this Agreement
shall remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Note for
all purposes under this Agreement and the other Loan Documents, and the Borrower
and the Administrative Agent shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. In no event shall any Participant under
any such participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or
<PAGE> 73
68
consent is in respect of any issues requiring the approval of 100% of the
Lenders pursuant to Section 10.1. The Borrower agrees that if amounts
outstanding under this Agreement and the Notes are due or unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and any Note to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under this Agreement or any Note, provided that, in purchasing
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in Section 10.7(a) as
fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 2.17, 2.18 and 2.19
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if it was a Lender; provided that, in the case of Section
2.19, such Participant shall have complied with the requirements of said Section
and provided, further, that no Participant shall be entitled to receive any
greater amount pursuant to any such Section than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its business and
in accordance with applicable law, at any time and from time to time assign to
any Lender or any affiliate thereof or, with the consent of the Borrower, the
Arranger and the Administrative Agent (which, in each case, shall not be
unreasonably withheld or delayed) (provided (x) that no such consent need be
obtained by Lehman Commercial Paper Inc. for a period of 180 days following the
Closing Date and (y) the consent of the Borrower need not be obtained with
respect to any assignment of Term Loans or Term Loan Commitments), to an
additional bank, financial institution or other entity (an "Assignee") all or
any part of its rights and obligations under this Agreement, the Letters of
Credit and the Notes pursuant to an Assignment and Acceptance, substantially in
the form of Exhibit F, executed by such Assignee, such assigning Lender (and, in
the case of an Assignee that is not then a Lender or an affiliate thereof, by
the Borrower and the Administrative Agent) and delivered to the Administrative
Agent for its acceptance and recording in the Register; provided that no such
assignment to an Assignee (other than any Lender or any affiliate thereof) shall
be in an aggregate principal amount of less than $5,000,000 (other than in the
case of an assignment of all of a Lender's interests under this Agreement and
the Notes). Such assignment need not be ratable as among any Term Loan
Commitments and Revolving Credit Commitments and/or Revolving Credit Loans of
the assigning Lender. Upon such execution, delivery, acceptance and recording,
from and after the effective date determined pursuant to such Assignment and
Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder with a Commitment as set forth therein, and
(y) the assigning Lender thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such assigning Lender shall cease to be a party hereto). Notwithstanding any
provision of this paragraph (c) and paragraph (g) of this Section 10.6, the
consent of the Borrower shall not be required for any assignment which
<PAGE> 74
69
occurs at any time when any of the events described in Section 8(f) shall have
occurred and be continuing. Any assignment which, pursuant to any of the
foregoing provisions of this Section 10.6(c) does not require the consent of the
Borrower, may not be made to any entity that is substantially engaged in the
health care business.
(d) A Note and the obligation(s) evidenced thereby may be
assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer of such Note and the obligation(s) evidenced thereby
on the Register (and each Note shall expressly so provide). Any assignment or
transfer of all or part of such obligation(s) and the Note(s) evidencing the
same shall be registered on the Register only upon surrender for registration of
assignment or transfer of the Note(s) evidencing such obligation(s), accompanied
by an Assignment and Acceptance duly executed by the holder of such Note(s), and
thereupon one or more new Note(s) in the same aggregate principal amount shall
be issued to the designated Assignee(s) and the old Notes(s) shall be returned
by the Administrative Agent to the Borrower marked "cancelled." No assignment of
a Note and the obligation(s) evidenced thereby shall be effective unless it has
been recorded in the Register as provided in this Section 10.6(d).
(e) The Administrative Agent shall maintain at its address
referred to in Section 10.2 a copy of each Assignment and Acceptance delivered
to it and a register (the "Register") for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of the
Loans owing to, each Lender from time to time and the registered owners of the
obligation(s) evidenced by the Note(s). The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of the Loan or the obligation evidenced by
a Note recorded therein for all purposes of this Agreement. The Register shall
be available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Assignee (and, in the case of an Assignee that is
not then a Lender or an affiliate thereof or a Person under common management
with such Lender, by the Borrower, the Administrative Agent and the Arranger)
together with payment to the Administrative Agent of a registration and
processing fee of $2,000 (except that no such registration and processing fee
shall be payable (y) in connection with an assignment by Lehman Commercial Paper
Inc. or (z) in the case of an Assignee which is already a Lender or is an
affiliate of a Lender or a Person under common management with a Lender), the
Administrative Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders and the Borrower. On or prior to such effective
date, the Borrower, at its own expense, upon request, shall execute and deliver
to the Administrative Agent (in exchange for the Revolving Credit Note and/or
Term Note, as the case may be, of the assigning Lender) a new Revolving Credit
Note and/or Term Note, as the case may be, to the order of such Assignee in an
amount equal to the Revolving Credit Commitment and/or Term Loan, as the case
may be, assumed by it pursuant to such
<PAGE> 75
70
Assignment and Acceptance and, if the assigning Lender has retained a Revolving
Credit Commitment and/or Term Loan, as the case may be, upon request, a new
Revolving Credit Note and/or Term Note, as the case may be, to the order of the
assigning Lender in an amount equal to the Revolving Credit Commitment and/or
Term Loan, as the case may be, retained by it hereunder. Such new Notes shall be
dated the Closing Date and shall otherwise be in the form of the Note replaced
thereby.
(g) The Borrower authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee
which agrees to be bound by the provisions of Section 10.15 as if such
prospective Transferee were a Lender, any and all financial information in such
Lender's possession concerning the Borrower and its Affiliates which has been
delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Affiliates prior to becoming a party to this Agreement.
(h) Nothing herein shall prohibit or restrict any Lender from
(i) pledging or assigning any Note to any Federal Reserve Bank in accordance
with applicable law or (ii) with the prior consent of the Administrative Agent
and the Borrower (which, in each case, shall not be unreasonably withheld or
delayed or conditioned), pledging its rights in connection with any Loan or Note
to any other Person.
10.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of its Loans or
the Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 8(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's Loans or
the Reimbursement Obligations owing to such other Lender, or interest thereon,
such Benefitted Lender shall purchase for cash from the other Lenders a
participating (or, at the option of such Lender, a direct) interest in such
portion of each such other Lender's Loan and/or of the Reimbursement Obligations
owing to each such other Lender, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary
to cause such Benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, however, that
if all or any portion of such excess payment or benefits is thereafter recovered
from such Benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest.
(b) In addition to any rights and remedies of the Lenders
provided by law, each Lender shall have the right, without prior notice to or
the Borrower, any such notice being expressly waived by the Borrower to the
extent permitted by applicable law, upon any amount becoming due and payable by
or the Borrower hereunder or under the Notes (whether at the stated maturity, by
acceleration or otherwise) to set off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any
<PAGE> 76
71
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by such Lender or any branch or agency
thereof to or for the credit or the account of or the Borrower. Each Lender
agrees promptly to notify the Borrower and the Administrative Agent after any
such setoff and application made by such Lender, provided that the failure to
give such notice shall not affect the validity of such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender, or (except as set forth in the Commitment Letter dated May 29, 1997
between the Borrower and the Arranger, and the Syndication Letter Agreement,
dated June 30, 1997, between the Borrower and the Arranger) by the Borrower,
relative to subject matter hereof not expressly set forth or referred to herein
or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE NOTES
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to
which it is a party, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive general jurisdiction of the
Courts of the State of New York, and the courts of the United States
for the Southern District of New York, and appellate courts from any
thereof;
<PAGE> 77
72
(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Borrower, at its address set forth in Section 10.2 or
at such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this Section 10.12 any special, exemplary, punitive or
consequential damages.
10.13 Acknowledgements. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;
(b) neither any Agent nor any Lender has any fiduciary
relationship with or duty to or the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and
the relationship between the Agents and Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is
solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Borrower and the
Lenders.
10.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENTS
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
10.15 Confidentiality. Each of the Agents and each Lender
agrees to keep confidential all non-public information provided to it by any
Loan Party pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent the Agent or any Lender
from disclosing any such information (a) to the any Agent, any other Lender or
any affiliate of any Lender, (b) to any Transferee or prospective
<PAGE> 78
73
Transferee which agrees to comply with the provisions of this Section 10.15, (c)
to the employees, directors, agents, attorneys, accountants and other
professional advisors of such Lender or its affiliates, (d) upon the request or
demand of any Governmental Authority having jurisdiction over such Agent or such
Lender, (e) in response to any order of any court or other Governmental
Authority or as may otherwise be required pursuant to any Requirement of Law,
(f) if requested or required to do so in connection with any litigation or
similar proceeding, (g) which has been publicly disclosed other than in breach
of this Section 10.15 or (h) in connection with the exercise of any remedy
hereunder or under any other Loan Document.
<PAGE> 79
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
FPA MEDICAL MANAGEMENT, INC.
By: ____________________________________
Name: Seth M. Flam
Title: President
LEHMAN COMMERCIAL PAPER INC.,
as Administrative Agent, as Arranger
and as a Lender
By: ____________________________________
Name:
Title: Authorized Signatory
<PAGE> 80
Annex I
PRICING GRID
<TABLE>
<CAPTION>
Applicable Applicable
Applicable Margin- Applicable Margin-
Margin-Term Revolving Margin-Term Revolving
Consolidated Loan Facility Credit Facility Loan Facility Credit Facility
Leverage Eurodollar Eurodollar Base Rate Base Rate Commitment
Ratio Loans Loans Loans Loans Fee Rate
- ------------ ------------ -------------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
4.00 to 1.00 1.75% 1.75% .75% .75% .35%
3.50 to 1.00 1.75% 1.50% .75% .50% .30%
3.00 to 1.00 1.50% 1.25% .50% .25% .25%
3.00 to 1.00 1.50% 1.00% .50% -- .25%
</TABLE>
<PAGE> 81
Annex II
TERM LOAN AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
Quarter Principal Amount
------- ----------------
<S> <C>
September 30, 1997 $125,000
December 31, 1997 $125,000
March 31, 1998 $125,000
June 30, 1998 $125,000
September 30, 1998 $125,000
December 31, 1998 $125,000
March 31, 1999 $125,000
June 30, 1999 $125,000
September 30, 1999 $125,000
December 31, 1999 $125,000
March 31, 2000 $125,000
June 30, 2000 $125,000
September 30, 2000 $5,000,000
December 31, 2000 $5,000,000
March 31, 2001 $5,000,000
June 30, 2001 $5,000,000
September 30, 2001 $78,500,000
</TABLE>
<PAGE> 82
Schedule I
LENDERS, NOTICE INFORMATION AND COMMITMENTS
<TABLE>
<CAPTION>
===================================================================================================================
REVOLVING CREDIT TERM LOAN
ADDRESS FOR NOTICES COMMITMENT COMMITMENT
===================================================================================================================
<S> <C> <C>
LEHMAN COMMERCIAL PAPER INC. $225,000,000 $50,000,000
3 World Financial Center
New York, New York 10285
Attention: Michele Swanson
Telecopy: (212) 528-0819
Telephone: (212) 526-0330
- -------------------------------------------------------------------------------------------------------------------
TOTAL $225,000,000 $50,000,000
===================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-31351 of our report dated March 21, 1997,
appearing in the Annual Report on Form 10-K/A of FPA Medical Management, Inc.
For the year ended December 31, 1996, our report dated May 2, 1997, appearing in
the Current Report on Form 8-K/A of FPA Medical Management, Inc. filed on May
30, 1997 and our report dated May 2, 1997, appearing in the Current Report on
Form 8-K of FPA Medical Management, Inc. filed on July 31, 1997.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
September 26, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
FPA Medical Management, Inc. in this Amendment No. 1 to Registration Statement
(File No. 333-31351) of our report dated March 15, 1996, on our audits of the
consolidated financial statements of Sterling Healthcare Group, Inc. as of
December 31, 1995, and for the year ended December 31, 1995 and for the period
from June 1, 1994 to December 31, 1994, which is included in the Annual Report
on Form 10-K/A and the Current Report on Form 8-K dated July 31, 1997. We also
consent to the reference to our Firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Miami, Florida
September 26, 1997
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 No. 333-31351) of FPA Medical
Management, Inc. and in the related Prospectus and to the incorporation by
reference therein of our report dated February 22, 1996, with respect to the
1995 and 1994 consolidated financial statements of AHI Healthcare Systems, Inc.
included in the Current Reports on Form 8-K of FPA Medical Management, Inc.
filed on July 31, 1997 and May 30, 1997, with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Los Angeles, California
September 26, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-31351 of FPA Medical Management, Inc. of our
report dated September 30, 1996, on the combined financial statements of
Foundation Health Medical Services (a wholly-owned subsidiary of Foundation
Health Corporation) and Affiliates as of June 30, 1995 and 1996 and for each of
the three years in the period ended June 30, 1996 (such report expresses an
unqualified opinion and includes an explanatory paragraph referring to
significant related party transactions), appearing in the Prospectus, which is
part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
Deloitte & Touche LLP
Sacramento, California
September 26, 1997
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 of this
Registration Statement of FPA Medical Management, Inc. on Form S-3 of the report
of Stevenson, Jones, Imig, Holmaas & Kleinhans, P.C. dated April 27, 1994 on the
financial statements of Thomas-Davis Medical Centers, P.C. as of December 31,
1993 and for the year then ended, appearing in Registration Statement No.
333-31351 of FPA Medical Management, Inc. on Form S-3 under the Securities Act
of 1933.
We also consent to the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.
STEVENSON, JONES & HOLMAAS, P.C.
Tucson, Arizona
September 26, 1997
